CHAN KON FUNG v. GALLOP PIONEER LTD AND ANOTHER

HCA 1357/2011

[2024] HKCFI 2119

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1357 OF 2011

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(BY ORIGINAL ACTION)

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(BY COUNTERCLAIM)

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DECISION ON COSTS

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1.  This is the decision on costs following the trial of this action: see Judgement dated 12 July 2024 ([2024] HKCFI 1766).

2.  Unfortunately, Chan[1] has ceased to instruct lawyers after the handling down of the Judgment.  He has not responded to the costs proposals made by the other parties pursuant to the directions of this court, nor filed submissions on costs.  Consequently, the matter cannot be disposed of on paper and more costs are incurred. 

3.  Chan did not appear at the hearing this morning.  I am satisfied that proper notice of this hearing had been given to him by (a)  the court via a letter posted to him and (b)  by the other parties by way of service of their submissions via emails. 

4.  Broadly speaking, PRCYT and Gallop are the winners after trial with Chan and HKPS the losers.  HKYT was properly joined in this action, although PRCYT’s causes of action against it had failed: see para 141 of the Judgment. 

5.  With the exception of Chan, the parties have agreed that there should be no order as to costs between PRCYT and each of Gallop, HKPS and HKYT.  Accordingly, I make such an order in respect of the costs of PRCYT’s counterclaim against these parties (with the exception of Chan).

6.  In respect of the costs between PRCYT and Chan, the former submitted that the latter should pay its costs of this action and its costs of the counterclaim against the latter (including all costs reserved)  with a certificate for 2 counsel, to be taxed if not agreed.

7.  PRCYT is the winner on the main dispute, namely, the Categorisation Issue.  Although PRCYT’s causes of action against Chan based on dishonest assistance of breach of fiduciary duties on the part of HKPS and HKYT had failed, they were not the focus of the trial.  I agree with Ms Kang, who appeared for PRCYT, that Chan’s persistence in contesting the Categorisation Issue was unreasonable taking into consideration the evidence of the accounting experts, including that of his own.

8.  Considering the matters in the round, I accept PRCYT’s contention and make an order in terms as suggested in para 6 above.

9.  In respect of G/L and Chan, G/L say that Chan should pay their costs, including all costs reserved, of the action as well as their counterclaim with a certificate for 2 counsel, save that there be no order as to the costs of and occasioned by, including costs reserved in relation to, the Non-pursued Issues as defined in a Joint Letter lodged by Chan and G/L dated 30 January 2024.

10.  There can be little doubt that G/L are the overall winners vis-à-vis Chan.  I make the order proposed in the preceding paragraph, save that the certificate should not cover this hearing.

11.  As regards the costs of HKPS and HKYT which arose out of the former’s contribution notice and the latter’s counterclaim, they submitted that notwithstanding the failure of PRCYT to make out the causes of action against them their claim against Chan was properly grounded, because (a)  the erroneous instructions over the booking of PRCYT’s 18% contribution was given by Zhou acting as the personal assistant of Chan, which had played a primary role in this action (Judgment, [70]); and (b)  if not for Chan’s litigation against Gallop, the parties might have been able to work out a satisfactory solution over PRCYT’s “missing contribution” amicably (Judgment, [142]). 

12.  Therefore, but for the mistakes of Zhou and the position taken by Chan in this action, HKPS and HKYT would not have been sued by PRCYT and would not have incurred respectively the costs of the contribution notice and the counterclaim.  It was noted in para 36 of the Judgment, that Chan conceded on the liability to the contribution notice and counterclaim in the event that PRCYT’s causes of action in question were made out.  HKPS and HKYT ask that the costs of the contribution notice and counterclaim be paid by Chan. 

13.  I agree with the submissions by HKPS and HKYT and order that the costs of HKPS’s contribution notice and HKYT’s counterclaim against Chan, including all costs reserved, be borne by Chan.  As regards the costs of the action between Chan and HKYT, I make no order as to costs.

14.  All costs orders are to be taxed if not agreed.

15.  Lastly, I am grateful to counsel for their assistance.

Mr Mike Lui SC and Mr Jun Lee, instructed by Benjamin Au & Billy Chan, for 1^st and 2^nd Defendants (by original action)  and 4^th Defendant (by counterclaim)

Ms Kinsey Kang, instructed by Kwan & Chow & Co., for 3^rd Defendant (by original action)  and Plaintiff (by counterclaim)

Mr Lau Ka Kin, instructed by Cheung & Yip, for 4^th Defendant (by original action)  and 3^rd Defendant (by counterclaim)

Mr Lau Ka Kin, instructed by Cheung, Chan & Chung, for 2^nd Defendant (by counterclaim)

Plaintiff (by original action)  and 1^st Defendant (by counterclaim), acting in person and being absent

HCA 1357/2011

[2024] HKCFI 1766

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1357 OF 2011

________________________

(BY ORIGINAL ACTION)

AND BETWEEN

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(BY COUNTERCLAIM)

________________________

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J U D G M E N T

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1.  The complexity of this case cannot be overstated[1]. However, with the encouragement of the Court, the parties have reduced this case to the essential disputes and the real issues which have to be resolved by the Court. Consequently, the length of this trial had been shortened by 3 weeks.

The parties

2.  This action was started as a claim by the Plaintiff (“Chan”)  against the 1^st and 2^nd Defendant (“Gallop”)  and (“L’Sea”)  (collectively, “G/L”)  for outstanding payment under a sale and purchase agreement dated 13 July 2010 (“SPA”)  in respect of the entire shareholding in Parksong Mining and Resource Recycling Ltd (“HKPS”)[2] at the purchase price of HK$1.0865 billion. 

3.  One of the defences of G/L is that a debt said to be owed to Chan and purportedly assigned to Gallop by him under the SPA was in fact owed to Yunnan Tin Group (Holding)  Co Ltd (“PRCYT”), a PRC company.  Subsequently, PRCYT and another company with an interest in the debt, Yunnan Tin Hong Kong (Holding)  Group Co, Ltd (“HKYT”)  were joined by G/L in this action as the 3^rd and 4^th Defendants.

4.  Later, PRCYT brought a counterclaim against Chan, HKPS, HKYT and Gallop (“Counterclaim”).  Hence, HKPS was joined in this action by reason of the Counterclaim.

5.  In this trial, Chan is represented by Mr Ng and Ms So; G/L by Mr Lui SC and Mr Lee; PRCYT by Mr Wong SC, Ms Siu, Ms Kang and Mr Louie; HKPS by Mr Lam; and HKYT by Mr Lau.

Background facts

6.  The essential background facts stated below are not in dispute unless otherwise indicated[3].

7.  The “story” began with some tin mines which are situated in Tasmania, Australia.  Bluestone Mines Tasmania Pty Ltd (“BMT”), a subsidiary of an Australian listed company, owned these mines, including the Renison Mines (“Tin Mines”).  The acquisition of part ownership of the Tin Mines was the commercial transaction which gave rise to, firstly, a joint venture between Chan and PRCYT[4], and then Gallop’s acquisition of Chan’s interests in that venture. After the acquisition of Chan’s interests, Gallop and PRCYT have become joint venture partners.

8.  In 2007, negotiations started between YTC Resources Ltd, a subsidiary of PRCYT, and BMT over the acquisition by the former of part of the interest in the Tin Mines (“Project”).  In the course of these negotiations, discussions also ensued between Chan and PRCTY which later resulted in an agreement to jointly invest in the Project by Chan via HKPS (then solely owned by him)  and PRCYT.  Chan would provide the necessary funding and PRCYT would manage the Tin Mines as well as selling the produce.

9.  By a Heads of Agreement dated 22 July 2009, PRCYT agreed to purchase from BMT 50% of the interest in the Tin Mines (“Asset”). Meanwhile, from July 2009 to mid-July 2010, HKPS and PRCYT signed a number of agreements about their joint investment, the structure of which evolved due to funding issues and business considerations.

10.  The acquisition of the Asset was completed in March 2010.  The Asset was (and is)  held by Yunnan Tin Australia Investment Holding Co Pty Ltd (“Australia Parksong”), which was (and is)  owned by HKYT.  In turn, HKYT was at the time solely owned by Chan.  In simple terms, Chan’s funding for the acquisition of the Asset was injected via two corporate vehicles.  The funds were injected firstly into HKPS which then transmitted the funds to HKYT with which the Asset was paid.

11.  In mid-July 2010, Chan and PRCYT came to a final agreement of their joint venture.  It is relevant to note that at the time, there was an agreement between them (reached in September 2009)  that 45% of HKYT’s shares were held by PRCYT as a nominal shareholder on behalf of Chan. The remaining 55% was held by HKPS. 

12.  It is common ground that the final agreement between Chan and PRCYT (“JV Agreement”)  was embodied in (or evidenced by)  2 documents, namely, a set of Minutes of meeting and a written agreement.  The former was the product of discussions between Chan (representing HKPS)  and representatives of PRCYT in a meeting held on 16 July 2010.  The relevant discussions were duly recorded in a set of Minutes (“Minutes”).  On 18 July 2010, HKPS (via Chan)  and PRCYT signed an agreement (“Agreement”)  in furtherance of the discussions 2 days ago.  It was expressly stated in the Agreement that it should prevail over previous contractual documents signed by the parties.  The terms of both the Minutes and the Agreement will be examined in detail below.  For the present purpose, it should be noted that under these documents HKPS and PRCYT would respectively hold 82% and 18% of the shares (both legal and beneficial interest)  in HKYT (“82% Shares” and “18% Shares”).  

13.  By the time of the 16 July 2017 Meeting, Chan had, via HKPS, fully injected into HKYT the funds needed for the Asset.  Part of the funds, HK$250 million, was a loan obtained by Chan in the name of HKYT (“SHK Loan”).  HKYT and HKPS also borrowed in total US$19.485m from PRCYT (“PRCYTLoan”)  to pay for the Asset.  Full repayment of the PRCYT loan was a condition of the Agreement.  It was indeed repaid later in July 2010. 

14.  Given the full injection of acquisition funds into HKYT by the time when Chan and PRCYT made the Agreement, PRCYT was not required to inject any funds for the 18% Shares.  In simple terms, what was agreed between Chan and PRCYT was that the latter would be responsible for 18% of the funds which HKPS had injected into HKYT for acquiring the Asset, namely, AUD16,340,057.21 (“AUD16.3m”).  In return, PRCYT would be fully entitled to the 18% Shares.

15.  Further, Chan (on behalf of HKPS)  and PRCYT had agreed on how PRCYT would repay HKPS the AUD16.3m.  It is uncontroversial that it was agreed that PRCYT would owe HKPS a debt of that sum, which would be repaid from dividends to be distributed by HKYT to PRCYT in the future.

16.  Given that the acquisition funds injected by HKPS into HKYT originated from Chan, and were booked as shareholder’s loan from him to HKPS, HKPS duly assigned the AUD16.3m debt owed by PRCYT to Chan on 19 July 2010 (“Chan Assignment”).  PRCYT took no issue with the assignment.  Notices of assignment/acknowledgement were issued.  The shareholding structure in HKYT was changed in July 2010, showing the 82%-18% shareholding.

17.  Before Chan and PRCYT made the JV Agreement in July 2010, Chan was already exploring an exit to this investment.  On 13 July 2010, Chan as vendor, Gallop (a subsidiary of L’Sea)  as purchaser and L’Sea as guarantor signed the SPA for the acquisition of Chan’s 82% interest in the Asset.  The transaction was structured as a sale and purchase of HKPS (solely owned by Chan), which held 82% shares in HKYT.  

18.  One of the conditions of completion under the SPA was that all shareholders’ loans due by HKYT and HKPS to Chan would be assigned to Gallop.  With the assignment, HKPS and HKYT would be free from any third party debt after completion.  In this action, G/L claim that Chan, via his assistant, Zhou Weijing (“Zhou”), represented to them that the total amount of loans to be assigned was about HK$590m.

19.  In the course of negotiations, G/L were informed by Chan and Zhou of PRCYT’s interest in the Asset represented by the 18% Shares. Also, G/L were made aware by Chan and Zhou that PRCYT owed a debt of AUD16.3m to HKPS/Chan for the purpose of acquiring the 18% Shares.  G/L say that they were not alive to the details of the JV Agreement.

20.  The completion of the SPA was scheduled to take place on 4 March 2011 (with post-completion obligations).  From 7 July 2010 to 7 June 2011, Chan (via Zhou)  sent to G/L’s representatives by email multiple accounting records in respect of HKYT and HKPS.  Those records consistently showed shareholders’ loans in the total sum of about HK$590m.  Most of the records showed that the loans were due to Chan but some showed that part of the loans were due to PRCYT.  I shall have to examine the details below.

21.  On 6 December 2010, Chan Assignment was amended in respect of the stated consideration.  It was changed from HK$1 to AUD16.3m.

22.  It is the case of G/L that acting on the accounting records furnished by Chan via Zhou and Messrs Jimmy Cheung & Co (“JC&C”)  (the accountants Chan used for his companies, including HKPS and HKYT)  and the confirmation by Deloitte (the auditors under the SPA)  on the total amount of shareholders’ loans to be assigned, which Zhou knew and never objected to, L’Sea (a Hong Kong listed company)  issued a circular on 30 December 2010 stating that upon completion, Gallop would be assigned shareholder’s loans due to Chan of about HK$596,546,000 (as of 30 November 2010).

23.  On completion of the SPA (4 March 2011), assignments were executed in favour of Gallop of all loans owed by HKPS and HKYT to Chan, the exact amount of which would be audited.  It is not in dispute that the audited amount of such loans totalled about HK$590m.

24.  After completion of the SPA, in July and August 2011, there were meeting between the officers of G/L and PRCYT.  After having been shown the Auditor’s Report of HKYT dated 22 June 2011(“AR”)  and its accounting records, PRCYT’s officers complained that the documents did not record PRCYT’s contribution towards the acquisition of the Asset.  In simple terms, whilst HKPS’s 82% contribution was recorded in HKYT’s accounts as its shareholder’s loan to HKYT, there was no equivalent booking of PRCYT’s 18% contribution.  Without knowing the dealings between Chan and PRCYT, G/L did not commit to a view.

25.  Subsequently, PRCYT confronted Chan, who agreed that HKYT’s records (including the AR)  were incorrect.  Chan’s case is that by reason of inadvertent mistakes PRCYT’s contribution was wrongly booked in HKYT’s accounts as shareholder’s loan owed to him.  G/L were cooperative in discussion with PRCYT on how to resolve the issue.  However, this action was brought by Chan on 11 August 2011.  G/L then decided to reserve their position on the correctness of HKYT’s accounts pending the outcome of this action.

26.  On 26 September 2012, Chan assigned the debt under Chan Assignment to two persons in the Mainland.  They subsequently brought legal proceedings in the Mainland against PRCYT for recovery of the AUD16.3m (“Mainland Proceedings”)  and succeeded.  The money was eventually paid to those assignees by PRCYT with interest in August 2015.

Issues

27.  There are two main areas of dispute arising from (i)  PRCYT’s “missing contribution” in that its contribution to the funds used to acquire the Asset, namely, the AUD16.3m, is not in any way reflected in HKYT’s books; and (ii)  contractual disputes between Chan and G/L under the SPA, which include Chan’s case of outstanding “Receivables” due to him and G/L’s case of set-off against the same.  A major component of the set-off is based on Gallop’s complaint that Chan purported to assign to it HK$590m of shareholder’s loans when the amount should be deducted by AUD16.3m which was owed to PRCYT. 

“Missing contribution”

28.  In respect of the “missing contribution”, the parameters of this dispute have been subjected to much refinement.  Helpfully, Mr Wong had reformulated the issues into 5 questions in his written opening. Since then, the issues have narrowed further after taking into consideration the openings of the other parties.  Finally, the issues have been crystallised in the final submissions of the parties.  To understand them, I shall first set out the 5 questions with appropriate modifications as follows :

(1)  Is it a term of [the JV Agreement] that HKPS would, on behalf of PRCYT, pay HKYT (“墊資”)  AUD16.3m as PRCYT’s 18% share in the funds for the acquisition of the Asset?

(2)  If the answer to (1)  is in favour of PRCYT, did HKPS discharge such term by paying HKYT the HKD equivalent of AUD16.3m on behalf of PRCYT?

(3)  If the answer to (2)  is in favour of PRCYT, how should such contribution on behalf of PRCYT be booked by HKYT?  Should it be booked in parity with the 82% contribution as alleged by PRCYT or should it be booked as part of HKYT’s share capital representing PRCYT’s capital investment as alleged by Chan?

(4)  How should the accounts of HKYT as at 4 March 2011 be rectified in light of the dealings between Chan, HKPS, PRCYT, HKYT and Gallop?

(5)  In light of the answers to the preceding questions, what are the rights and liabilities of the parties inter se?

29.  In the course of his opening, Mr Wong helpfully produced a table setting out the parties’ positions on questions (1)  to (4). No disagreement was raised with the accuracy of the table.  In short :

(1)  There is no issue over Questions (1)  and (2). Chan, G/L and HKPS agree that 18% of the funds used to acquire the Asset, which was originally injected by Chan through HKPS into HKYT, was regarded as attributable to PRCYT and/or paid on behalf of PRCYT. 

(2)  In respect of Question (3)  (“Categorisation Issue”), the dispute is one between PRCYT and Chan, with G/L taking the side of the former due to their set-off against Chan’s claim (see para 27 above):

(a)  PRCYT’s stance is that the HKD equivalent of AUD16.3m contributed by HKPS on its behalf into HKYT should be afforded parity of treatment vis-à-vis HKPS’s 82% contribution.  Insofar as the 82% contribution was booked as amounts due to Gallop/HKPS as at 4 March 2011, PRCYT had accepted and asserts that its 18% contribution had likewise been so booked and should continue to be so booked – unless there be wholesale rebooking of all contributions on a parity basis with the consent of Gallop and HKPS[5]. 

(b)  Chan’s position is that PRCYT had and always intended and understood that its investment in HKYT was not and could not have been a “shareholder’s loan” (which would be repaid).  It must have been “capital investment” (which would not be recalled and repaid)[6].  It should be noted that Chan’s pleaded case is that PRCYT’s investment was “share capital”.

(c)  G/L’s position is that on the evidence the only possible form that PRCYT’s investment could (in 2010)  and can now assume was/is that of a shareholder’s loan.  Parity of treatment for HKPS’s 82% financial contribution and PRCYT’s 18% financial contribution to the acquisition of the Asset (“Parity Treatment”)  is admitted[7].

(d)  HKPS agrees with Parity Treatment[8].

(e)  HKYT assumes a neutral stance[9].

(3)  On Question (4), again the dispute is really between PRCYT (with G/L’s support)  and Chan.  The rectification is important to Chan because it would have an important impact on the dispute between him and G/L.  However, HKYT is also concerned about this issue because its accounts may have to be rectified.  The respective positions are as follows:

(a)  PRCYT agrees with the suggestion of G/L that HKYT’s accounts as of 4 March 2011 (completion of the SPA)  should be rectified to show:

(i)  a sum of HK$118,990,000[10] due to PRCYT;

(ii)  a sum of HK$375,344,717.47 due to HKPS; and

(iii)  a sum of HK$98,747,225.88 due to Gallop[11].

(b)  Chan’s position is that the relevant accounts ought to be rectified to properly reflect the reduced amount due to him[12]. However, he maintains that the rectification should be confined to PRCYT’s 18% contribution.  On the other hand, Chan has not really advanced any case on how HKYT’s accounts should be rectified until Mr Ng’s final submissions.  

(c)  In his final submissions, Mr Ng proposed that, to reflect the fact that PRCYT’s contribution was share capital, “HKYT should increase its registered share capital and allot shares (perhaps with PRCYT’s shares being paid up to the amount of AUD16.3m, and HKPS’s shares not)”[13].  The suggestion that HKPS’s shares need not be paid up is to maintain the 82%-18% ratio.

(d)  Neither HKPS nor HKYT has advanced any positive case on how HKYT’s accounts are to be rectified.  However, both of them suggested that an appropriate declaration by the Court may be made in place of rectification. 

30.  Question (5)  is no longer a live issue. 

31.  In the course of his final submissions, Mr Wong had further refined the Categorisation Issue as a competition between the respective case of Chan and PRCTY.  In essence, Chan claims that there was a separate treatment of the 18% contribution of PRCYT (share capital), regardless of the treatment afforded to HKPS’s 82% contribution.  On the other hand, PRCYT’s case is that on a proper construction of the agreement between HKPS and PRCYT and it was their true intention to afford the 18% contribution the pre-existing treatment that was in place for the 100% from which the 18% was carved out[14].

32.  Obtaining the relief of rectification represents the primary goal of PRCYT in this action.  However, there remain some live causes of action advanced in the Counterclaim against Chan, HKPS and HKYT the purpose of which, in light of the refinement of the issues, may be said to be costs related.  These causes of action are :

(a)  Whether HKPS had breached the JV Agreement?

(b)  Whether HKPS owed fiduciary duties to PRCYT in terms of booking and maintaining PRCYT’s contribution in parity with the 82% contribution?

(c)  If so, whether HKPS breached such fiduciary duties?

(d)  Whether HKYT owed fiduciary duties to PRCYT in terms of booking and maintaining PRCYT’s contribution in parity with the 82% contribution?

(e)  If so, whether HKYT breached such fiduciary duties?

(f)  Whether Chan dishonestly assisted HKPS’s and/or HKYT’s breaches of fiduciary duties?

Disputes between G/L and Chan

33.  These disputes concern outstanding payment obligations arising out of the SPA :

(1)  There are “Receivables” due to Chan pursuant to cl. 5.04 of the SPA in the sum of, as pleaded, around AUD15.14m.  This liability is not disputed by G/L. 

(2)  However, it became clear in Mr Ng’s final submissions that Chan seeks to have the Receivables recalculated (“Recalculation Issue”)  based on (i)  the original currencies in which they were based and the current exchange rate[15]; and (ii)  instead of claiming 82% of the Receivables as pleaded (based on HKPS’s 82% shareholding in HKYT), Chan seeks to have 100% of the Receivables paid to him.  The Recalculation Issue is disputed by both G/L and PRCYT (due to its 18% shareholding in HKYT).

(3)  G/L seek to set off the Receivables against the AUD16.3m.  Under cl. 5.03 of the SPA, the AUD16.3m constituted “Payables” (by Chan)  against which the Receivables owed to Chan can be set-off. 

(4)  If this Court finds (on the Categorisation Issue)  that PRCYT’s contribution was in the nature of shareholder’s loan, Chan will not dispute that the AUD16.3m are Payables and can be set-off against the Receivables subject to the argument that G/L has failed to comply with “Payment Directions” provisions under cl. 5.05(iv)(b)  and therefore the set-off fails[16].

(5)  Assuming a finding of shareholder’s loan, G/L say that there are additional issues of breaches of warranties contained in the SPA.  However, they add nothing to G/L’s claim on the AUD16.3m set-off.  

(6)  In the event that PRCYT’s contribution is found to be capital, G/L rely on breaches of warranties contained in the SPA.  Chan’s case is that there are admitted breaches of warranties in view of the existence of inaccurate entries in the accounts.  Nevertheless, G/L’s case fails due to (i)  lack of notice required under cl. 7.08(c)  and (ii)  absence of loss.

(7)  Irrespective of the outcome on the Categorisation Issue, G/L claim both fraudulent and negligent misrepresentation against Chan in respect of the AUD16.3m.  Chan contends that the misrepresentation case fails because there was no actionable representation, dishonesty, inducement or reliance and/or no loss.

(8)  Helpfully, in his final submissions Mr Lui submitted that it is unnecessary for the Court to deal with the breaches of warranties and the misrepresentation claims in the event that PRCYT’s contribution is held to be in the nature of shareholder’s loan resulting in a set-off against the Receivables (ie, the Payment Directions issue resolved in favour of G/L)[17].

(9)  Finally, there is a “Small Payables Claim” by G/L against Chan in the total sum of AUD3,244,520.24.  The quantum of this claim is agreed.  Chan’s response is that (a)  there was no proper Payment Directions issued and thus no liability arises; and (b)  in any case, it should be subject to set-off with the Receivables due to him. 

Issues between Chan, HKPS and HKYT

34.  There is a Contribution Notice by HKPS against Chan.  In the event that HKPS is found liable to PRCYT for breach of fiduciary duties, HKPS says that Chan must also be liable for breach of director’s duties to HKPS for which it seeks against Chan an indemnity and/or equitable compensation for any loss arising from PRCYT’s claim. 

35.  There is also a counterclaim by HKYT against Chan whereby in the event that HKYT is held liable to PRCYT for breach of fiduciary duties, HKYT counterclaims against Chan for breach of director’s duties pursuant to which Chan should indemnify HKYT’s loss and legal costs.

36.  Very fairly, Mr Ng had accepted that the liability to these claims by HKPS and HKYT cannot be disputed by Chan if PRCYT’s claims for breach of fiduciary duties against them are made out[18].

Witnesses

37.  Except for HKYT, live evidence was called by all the parties.  Chan gave evidence and called Zhou as a witness.  Ms Xie Yue (“Xie”)  was the only witness for HKPS.  PRCYT called 2 witnesses, Ms Fan Xirong (“Fan”)  and Mr Zhang Guoqing (“Zhang”).  Finally, Mr Fu Wing Kwok (“Fu”)  gave evidence for G/L.  In addition, the witness statements of Mr Wong Tak Shing (“Wong”)  (one of G/L’s witnesses)  were admitted as hearsay evidence[19].  I shall state my view on the credibility of the live witnesses generally and refer to their evidence on the issues where necessary.

38.  With the exception of Chan, there is no sufficient reason to doubt the credibility of the live witnesses.  They all gave evidence in a straightforward manner and provided their answers without undue hesitation despite the fact that the events to which they (with the exception of Xie)  spoke about took place nearly 14 years ago. 

39.  In the case of Zhou, he frankly admitted to having caused the mistakes which resulted in PRCYT’s investment being booked as a debt owed to Chan.  He accepted that he was not trained in accounting (he graduated with a degree in electronics).  Working as Chan’s assistant was his first job, and he admitted to being careless in dealing with the accounts.

40.  As for Chan, he is a sophisticated person and an experienced businessman.  He started doing business in 1987.  Evidently, he is successful with his business.  Chan’s evidence is that he paid little attention to the accounts of HKPS and HKYT.  He entrusted those matters to JC&C without giving them any specific instructions on how the accounts are to be done, as well as relied on Zhou.  For instance, Chan was asked about two Audit Confirmations dated 15 April 2011 which both he and Zhou had signed.  The Confirmation in connection with HKPS stated that it was indebted to Chan in the sum of HK$378.33m and the one in respect of HKYT stated that it was indebted to him in the sum of HK$217.68m.  It is Chan’s evidence that the HKYT Confirmation was incorrect because PRCYT’s investment was wrongly included in the sum, and it was signed by him without any checking.

41.  Chan was taxed in cross-examination why he signed the document without checking.  He said that he just asked Zhou if the Confirmation was correct, and he signed it after having been told that it was. Pressed further, Chan said that he never asked about financial matters and figures.  As the boss, he trusted his assistant, who was acting as the safeguard.  He was not concerned with how the figures were arrived at.

42.  It appears to me that such evidence sits poorly with inherent probabilities.  One would have thought that a sophisticated and experienced businessman like Chan would be sensitive or attentive about money.  Secondly, even a brief look at the information would have revealed that the two Confirmations added up to about HK$580m, well about the HK$460m owned to him in respect of his 82% interest in HKPS.  Thirdly, the Confirmations were part of the documents prepared by Deloitte for the completion of the SPA.  They were important documents prepared for a very substantial and no doubt important transaction.  Fourthly, Chan must have been aware of Zhou’s lack of relevant qualification and experience in financial matters.  It is perplexing that Chan would have relied heavily on Zhou on such matters.

43.  On the other hand, Chan’s evidence is consistent with that of Zhou[20], who I believe is a candid witness.  Perhaps more importantly, I can see no motive (and none has been suggested)  why Chan would have deliberately inflated the amount of his shareholder’s loan.  It is G/L’s case that the price under the SPA was not dependent on the amount of loans to be assigned to Gallop[21]. In the premises, the matters identified in the preceding paragraph do not give rise to sufficient reason to doubt Chan’s credibility. 

44.  However, the materials before the Court demonstrate that Chan had in the course of this action changed his case, and the changes were made for advantage.  Those changes were eloquently summarised by Mr Wong in his closing submissions[22].  In short, when this action was started in 2011, Chan’s position on the AUD16.3m was that it was PRCYT’s share capital.  There could be no set-off against the Receivables owned to him by G/L because the share capital was not Payables.  In the course of the Mainland Proceedings, Chan gave evidence in support of his assignees to the effect that the AUD16.3m was the purchase price paid by PRCYT for the 18% Shares (again, not Payables).  Later, Chan applied to amend his case against G/L in this action to the effect that the AUD16.3m was the price paid for the 18% Shares.  The amendment was disallowed.

45.  When Chan was cross-examined on why he attempted to advance a case of price, he answered: “Because my legal team at that time was of the view that further elaborations had to be done from another perspective, and so as to enable the others to understand the truth in a clearer picture. But it was not adopted[23]”.  The explanation is unconvincing.  It is a matter of fact as to what was agreed between Chan acting on behalf of HKPS and PRCYT, not a matter of elaboration.  I have the impression that this unconvincing answer was rehearsed before Chan gave evidence.  I therefore conclude that Chan is not a reliable witness.

46.  However, I do not believe that the resolution of this action depends much on the credibility of witnesses. 

Construction of the JV Agreement

47.  The material terms of the Minutes are as follows :

“一、 [PRCYT] 總經理高文翔通報了 [PRCYT] 辦公會的決定: 一是由 [HKPS] 替 [PRCYT] 墊資做實 [HKYT] … 18%的股權和資產，對應雷尼森項目50%資產中的18%的股權資產和收益權; 二是依據雙方 “墊資協議”, 原 [PRCYT] 替 [HKPS] 墊資的 [USD19.485m] 由 [HKPS] 將本金及利息全部還給 [PRCYT]; 三是要綜合以前簽訂的相關協議、備忘錄與 [HKPS] 簽訂一個雙方協議。

二、  [HKPS] 總經理 [Chan] 同意了 [PRCYT] 作出的決定。

三、  會談會還研究了這次收購雷尼森項目50%資產成本開支情況, 總成本為 77,350,699.00澳元及 2,000,000.00港元。2,000,000.00港元中, [PRCYT] 認可其中18%部分, 合計50,000.00澳元。匯率差按1.17計算, 做實18%股權需要的成本為 77,350,699.00 x 1.17 x 18% + 50,000.00 = [AUD16.3m]。 …

…

五、  [PRCYT] 同意實際出資承擔 [HKPS] 通過 [HKYT] 收購藍石公司雷尼森項目50%資產的18%的款項, 雙方確認 [PRCYT] 據此需承擔的金額為 [AUD16.3m] 。該款項由 [PRCYT] 以其在雷尼森項目的收益分紅優先抵還, 直至抵還完畢; 同時, [PRCYT] 享有收購藍石公司雷尼森項目50%資產的18%的資產和收益權, 以及享有 [HKYT] 18%實際股權和分紅權, [HKYT] 其餘82%股權及分紅權歸 [HKPS] 所有。

六、  雙方共同辦理 [HKYT] 的股權變更手續, 即 [HKPS] 股權比例登記為82%, [PRCYT] 股權比例登記為18%。雙方之前約定的股權代持協議終止執行。”

48.  The material terms of the Agreement are as follows :

“二、 [PRCYT] 同意實際出資承擔 [HKPS] 通過 [HKYT] 收購藍石公司雷尼森項目50%資產的18%的款項, 雙方確認 [PRCYT] 據此需承擔的金額為[AUD16.3m]。該款項由 [PRCYT] 以其在雷尼森項目的收益分紅優先抵還, 直至抵還完畢; 同時, [PRCYT] 享有收購藍石公司雷尼森項目50%資產的18%的資產和收益權, 以及享有 [HKYT] 18%實際股權和分紅權, [HKYT] 其餘82%股權及分紅權歸 [HKPS] 所有。

三、 本協議簽訂後15日內, 雙方共同辦理 [HKYT] 的股權變更手續, 即 [HKPS] 股權比例登記為82%, [PRCYT] 股權比例登記為18%。雙方之前約定的股權代持協議終止執行。[HKPS] 必須確保 [PRCYT] 按照香港公司條例的規定取得 [HKYT] 18%股權比例下的完全的股東權益。

四、 雙方同意 [HKYT] 董事會由5人構成，其中 [HKPS] 指派3人，[PRCYT] 指派2人，董事長可在 [PRCYT] 指派的董事中產生：雙方同意澳洲公司的董事會由7 名董事構成，其中 [HKPS] 指派4人，[PRCYT] 指派2人，澳大利亞公民出任一名董事，董事長可在 [PRCYT] 指派董事中產生。甲乙雙方在按本協議修改 [HKYT] 及/或澳洲公司章程並進行相應公司註冊變更登記時應確保本條約定在該章程中得到一致體現。[HKYT] 和澳州公司召開董事會會議時，必須有甲乙雙方指定的至少一名董事出席方能召開及作出決議。

…

十二、 [PRCYT] [HKPS] 雙方已簽訂的合約性文件中相關約定與本協議的約定不一致的, 以本協議的約定為準, …

十三、甲乙雙方保証：各自具有簽署本協議和履行本協議所規定各項義務的完整的合法資格，其已經或將根據其公司章程及有關規章制度獲得簽署、履行本協議所需的一切有效內部批准：本協議經簽署後對其具有法律約束力，並按誠實信用的原則執行本協議。

十四、本協議適用中華人民共和國法律。甲乙雙方因履行本協議發生爭議不能協商解決時，應將爭議交由深圳巿有管轄權的人民法院裁決。”

49.  The Agreement is governed by PRC law.  There is before the Court a report (“Report”)  by a single joint expert on PRC law, Mr Law.  His evidence is not controversial.  According to the Report, the law of interpretation of contract is not very different to that of Hong Kong. 

50.  In summary, under PRC law, a contract is to be construed objectively, taking account of the words used, contractual terms, contractual objective(s), relevant market practice(s)  and principle of good faith.  Contractual background is relevant.  PRC law permits consideration of post-contract performance in construing contracts.  The last point and the general application of principle of good faith are the only material difference with Hong Kong law. 

51.  The Categorisation Issue is to be resolved by proper construction of the JV Agreement with the application of PRC law.  In my view the answer is quite plain from not only the terms of the Minutes and the Agreement, but also the evidence before the Court. 

52.  First, in respect of the “firming up” (做實)  of PRCYT’s investment (eg, para 1 of the Minutes).  The background was that PRCYT was at the time only a nominal shareholder of HKYT.  As explained by Chan, PRCYT wanted to have an actual interest in the investment and the term “firming up” was used.  Chan’s evidence in this regard is not controversial. 

53.  Second, and critically, what PRCYT was going to acquire was 18% of the shareholding and assets in HKYT (18%的股權和資産), which would be equivalent to 18% of the shares, assets and right to return in the Asset (對應雷尼森項目50%資產中的18%的股權資產和收益權)  (see also the first sentence of para 5 of the Minutes).

54.  Third, the cost of investment in the Asset was calculated and the parties agreed that PRCYT’s 18% investment would amount to AUD16.3m (para 3 of the Minutes).

55.  Fourth, it is uncontroversial that HKPS had already injected the funds and acquired the Asset at the time.  PRCYT was not going to put up the AUD16.3m.  Instead, pursuant to para 1 of the Minutes, the money would be paid (or treated as paid)  by HKPS on behalf of PRCYT (墊資).  According to para 5 of the Minutes, the AUD16.3m would be repaid by PRCYT to HKPS by making use of the profits derived from PRCYT’s investment. 

56.  Importantly, the last sentence of para 5 referred specifically to PRCYT’s 18% entitlement in the Asset in terms of assets, right to return, 18% of the shares in HKYT and right to distribution of profits (同時,[PRCYT] 享有收購藍石公司雷尼森項目50%資產的18%的資產和收益權,以及享有 [HKYT] 18%實際股權和分紅權).  The balance of 82% shares and right to distribution of profits would belong to HKPS ([HKYT] 其餘82%股權及分紅權歸 [HKPS] 所有).

57.  Clause 2 of the Agreement was almost identical in its terms to para 5 of the Minutes.  Plainly, PRCYT was not merely acquiring the 18% shares in HKYT but 18% of the investment in the Asset, which included 18% of the shares in HKYT.  It is uncontroversial that the investment of Chan/HKPS in the Asset was booked as shareholder’s loans to HKYT.

58.  The evidence of both Chan and Fan is that under the JV Agreement PRCYT’s 18% interest in the Asset was to be “carved out” of Chan’s/HKPS’s 100% interest in the same.  Another way to describe the arrangement is that PRCYT would step into the shoes of Chan/HKPS in respect of 18% of the investment which Chan had injected into the Asset via HKPS. 

59.  The “carving out” is therefore common ground between Chan and PRCYT, and no disagreement has been advanced by the other parties.  In my view, the “carving out” is consistent with the terms of the JV Agreement, and is the only proper construction of the terms of the Minutes and the Agreement.  Under the carving out arrangement, PRCYT was entitled to 18% of the shareholder’s loans which represented the investment of Chan/HKPS. 

60.  In respect of the change of shareholding in HKYT referred to in cl. 3 of the Agreement, on the day of the Agreement (18 July 2010)  PRCYT transferred 2,700 shares in HKYT to HKPS thereby reducing its 45% shareholding in HKYT to 18%.  The share transfer was approved by Chan, as the sole director of HKYT, with a written resolution dated 19 July 2010.

61.  Further, a number of other events took place on 19 July 2010 which gave effect to the JV Agreement and the carving out arrangement :

(i)  Chan, in his capacity as the sole director of HKPS, passed a written resolution affirming cl. 2 of the Agreement, and referred to the assignment to him of the AUD16.3m debt owed by PRCYT to HKPS because the money was provided to HKPS by him as shareholder’s loan;

(ii)  By a notice of assignment from HKPS to PRCYT, cl. 2 of the Agreement was acknowledged by the former;

(iii)  By a notice from HKPS to HKYT, HKYT was notified of cl. 2 of Agreement and asked to pay over the profit entitlements of PRCYT to Chan until the AUD16.3m was fully repaid to him.

62.  The most important act by which the carving out was put into effect was the booking of a loan owned to PRCYT in HKYT’s balance sheet as of 23 July 2010.  It was amongst the many sets of accounts sent by Zhou to Fu from 7 July 2010 to 7 June 2011 (see para 20 above)  as summarised in Exhibit “G/L-1”.  There is no dispute that the document showed a shareholder’s loan owned to PRCYT by HKYT.  On the evidence, this was the first balance sheet in which PRCYT’s investment was recorded (in the sum HK$115.73m being the equivalent of AUD16.3m)  as a shareholder’s loan in HKYT’s books (“First BS”).

63.  Hence, the post-contract performance is consistent with the above construction of the JV Agreement. 

64.  At that point in time, it may be said that the JV Agreement was performed in respect of the carving out, ie, PRCYT had 18% of the shares in HKYT and a shareholder’s loan representing the AUD16.3m which it invested in the Asset.  The First BS was followed by 3 more as of 31 July 2010, 31 August 2010 and 30 September 2010 which consistently showed the shareholder’s loan from PRCYT of HK$115.73m. 

65.  Regrettably, PRCYT’s shareholder’s loan was then re-booked and added to the shareholder’s loan owed to HKPS.  In other words, PRCYT’s loan was transferred to HKPS, and it ended up having nothing recorded in HKYT’s books which reflected its investment.  At the risk of diversion, the reason for the re-booking has to be succinctly explained.

Zhou’s erroneous instructions to JC&C

66.  Zhou gave evidence on how the First BS (amongst other accounting documents)  was prepared by Ms Evelyn Chan (“Ms Chan”)  of JC&C.  Zhou did not know whether she was qualified as an accountant but she was doing the bookkeeping for JC&C.  Zhou said that when Chan came back to Hong Kong after the Agreement was signed, Chan gave him the documents which he then passed to Ms Chan.  He mentioned to her the shareholding change from 55%-45% to 82%-18%, with PRCYT holding the 18%.  He asked Ms Chan to read the documents and if there was any question she could speak to him.  It appears that the First BS was then produced by Ms Chan with the information she was given.  

67.  Zhou later gave instructions to Ms Chan to amend the accounts on 2 occasions.  His evidence was that he understood that the HK$115.73m was PRCYT’s “investment fund” (投資款).  That sum of money had to be repaid to HKPS.  He therefore queried Ms Chan whether in the circumstances the HK$115.73m should be repaid to PRCYT (as a shareholder’s loan).  Ms Chan then followed Zhou’s instructions and PRCYT’s loan was re-booked as owed to HKPS.  Zhou acknowledged: “That’s how, actually, this whole thing went wrong here”[24].

68.  Later, when the completion account for the SPA came to be prepared in March 2011, according to Zhou: “I reviewed all the documents again and I thought – and I said that, oh, if I sell the shares of [HKPS] to Gallop – I mean, the repayment should go back to [Chan]. … My thinking was very straightforward and simple.  I thought that this money should return back to [Chan], because [Chan] lent the money to PRCYT, which PRCYT then invested in the tin mine.  So the right to receive dividend, or repayment, should be – ultimately should be [HKPS] or [Chan]”[25].  This was referred to at the trial as the second instruction by Zhou to Ms Chan. 

69.  It appears that what Ms Chan then did was, firstly, to reverse the re-booking of PRCYT’s loan to HKPS.  It can be seen from the balance sheets of HKYT as of 31 December 2010 and 1 January 2011 that the loan owed to HKPS was reduced resulting in one booked under PRCYT in the sum of HK$118.99m (it is common ground that the variation of the sum was due to the prevailing exchange rate).  Secondly, in the completion account as of 4 March 2011, PRCYT’s loan was re-booked as owed to Chan. 

70.  These admittedly erroneous instructions given by Zhou to Ms Chan had played a primary role in this litigation which has lasted some 13 years and for which no doubt enormous amount of costs have been incurred.

Expert accounting evidence

71.  The 3 accounting experts are in agreement that :

(1)  “the AUD16.3 million contribution from [PRCYT] into [HKYT] should be afforded the same accounting treatment as the other 82% contribution made by [HKPS] into [HKYT] for its 82% investment in the Asset”[26].  Chan’s expert, Mr Tong, agreed that the 18% contribution from [PRCYT] should be booked on the same basis as the 82% contribution[27];

(2)  “all funds contributed into [HKYT] for the investment in the Asset had been and should continue to be afforded the same accounting treatment, all such funds had throughout been booked as a liability (payable)  and there is no evidence to suggest that [PRCYT]’s contribution into [HKYT] should be treated in isolation as capital investment, if and insofar as this is alleged by [Chan]”[28].

Chan’s case on capital investment

72.  The lynchpin of Chan’s case is that PRCYT had never intended that its investment would take the form of a loan.  Instead, its intention was that the AUD16.3m was a capital investment.  Chan relies mainly on :

(1)  The absence of any mention of a loan in the Minutes;

(2)  The internal documents of PRCYT which showed that it was applying for approvals from Mainland authorities of its investment in the Asset in the form of capital;

(3)  PRCYT’s complaints in 2011 after the discovery of its “missing contribution”, by which it maintained the position that its investment was capital. 

73.  In my view, Chan’s case is misconceived.  First, it is common ground that various terms were used by PRCYT’s representatives to describe its investment, eg, 資本金 (capital funds)  and 投資款 (investment funds).  However, there was no discussion between Chan and PRCYT’s representatives about what was meant by those terms.  Critically, there was no discussion on how PRCYT’s 18% investment should be booked in HKYT’s accounts.  Indeed, there was no discussion on whether the 18%, once carved out of the 100%, should be re-booked in the accounts in a way different to the 82%. 

74.  Second, the fact that PRCYT intended that its investment should be a long term investment and not to be withdrawn[29] does not assist Chan’s case.  It is not disputed that a long term investment is often booked as a shareholder’s loan.  The same can be said for capital funds or investment funds.  In this case, the shareholder’s loans on the books of HKPS and HKYT had no repayment terms such as duration of the loans.  

75.  Third, what PRCYT had in mind did not translate into a consensus reached with Chan on behalf of HKPS.  Chan’s evidence is that he did not find out what PRCYT mean by capital funds, nor discussed with it how the 18% was to be booked. 

76.  Fourth, neither Fan nor Zhang was qualified in accounting.  I have the impression that they were not familiar with how an investment carried out via a corporate vehicle could be booked in the accounts of that company.  With one exception, I have no reason to believe that the other representatives of PRCYT who were involved in these matters (but did not give evidence)  was any wiser.  Otherwise, they would not have been surprised by the shareholder’s loan owed to Chan/HKPS by HKYT.  The exception is Mr Chen Yong, who is trained in accountancy, but he only came into the picture in August 2011. 

77.  Importantly, Zhang said during a meeting with Fu and 2 other representatives of Gallop held on 22 August 2011 that PRCYT had 18% in every loan to HKYT[30].  He relied on this answer to meet Mr Ng’s challenge in cross-examination that he did not mention parity of treatment for PRCYT’s 18% investment at the meeting[31].  Further, in answer to cross-examination by Mr Lam, Zhang said that he found the accounts of HKYT as of 31 December 2010 (showing a shareholder’s loan from PRCYT)  reasonable[32]. 

78.  Fifth, there was no discussion of any sort about expanding the share capital of HKYT to reflect the AUD16.3m.  As submitted by Mr Wong, to treat PRCYT’s 18% differently to the 82% contribution would upset the agreed ratio of entitlements to the Asset, produce therefrom and shareholdings of HKYT.  For instance, if PRCYT was entitled to subscribe for 118,990,000 HKYT shares at HK$1 each whilst the 82% investment remained as loan, then PRCYT’s shareholding in HKYT would exceed 18%, which is wholly contrary to the JV Agreement.  See also para 81 below. 

79.  Finally, Chan’s arguments hold no sway over the construction of the JV Agreement based on its clear terms. 

Rectification

80.  I take the view that the rectification agreed between PRCYT and G/L (see para 29(3)(a)  above)  would best reflect the proper performance of the JV Agreement and the justice of this case.

81.  As regards Chan’s proposal at para 29(3)(c)  above, apart from this Court’s reject of his case, I agree with Mr Lau, Mr Wong and Mr Lui that it simply would not work :

(1)  There is neither pleading nor evidence on any common understanding reached between PRCYT and Chan (on behalf of HKPS)  on any increase of HKYT’s authorised share capital.  There is thus no basis for the Court to hold that there was such an agreement. 

(2)  Even if there were a common understanding of share capital increase, by how much should it be increased? 

(3)  Even if the Court finds that there were an agreement to increase the share capital by, say, 200m shares, how many shares should be allotted to PRCYT and how the 82%-18% ratio is to be maintained?

(4)  If HKPS’s shares are not fully paid up, HKYT can call for payment of the unpaid balance of the increased share capital.  How would the 82%-18% ratio be maintained?

(5)  It is not the function of the Court to provide the answers to (2)  to (4)  and construct a bargain for the parties.

Breach of the JV Agreement by HKPS

82.  In light of the above analysis, the issue of breach of the JV Agreement is an open and shut case.  HKPS had simply failed to properly carve out 18% of its investment to PRCYT.  What had properly been booked as PRCYT’s shareholder’s loan in the First BS was subsequently removed with nothing left to reflect PRCYT’s 18% investment.

83.  Where necessary, I would have held that HKPS was in breach if its duty of good faith in carrying out the carving out exercise: see Report, [50] and cl. 13 of the Agreement at para 48 above.

84.  However, PRCYT is not seeking any relief against HKPS in addition to rectification.

Breach of fiduciary duties

85.  The remaining causes of action in the Counterclaim are all based on the existence of fiduciary duties on the part of HKPS and HKYT in relation to the booking and maintaining PRCYT’s investment. Plainly, PRCYT has a weaker case against HKYT because it had no relationship with HKYT, save for one between a shareholder and company.

HKPS

86.  PRCYT’s claim against HKPS on fiduciary duties was set out in the former’s Amended Defence and Counterclaim, Section D, [11] to [15].  In [11(k)-(l)], the terms of the JV Agreement and the allegations of fiduciary duties were set out.  In [12]-[13], the notices relating to Chan Assignment as a consequence of the JV Agreement were pleaded.  [14(a)-(c)] pleaded the alleged legal consequences of the JV Agreement.  [15] stated: “Further, by virtue of the matters aforesaid [HKPS] owed, inter alia, the following duties in favour of [PRCYT]”.  

87.  Insofar as there is any attempt to expand PRCYT’s case beyond Section D by relying on the words “by virtue of the matters aforesaid”, it has no merits.

88.  I agree with Mr Lam that it is clear that, on PRCYT’s pleaded case, it is the JV Agreement which provided the alleged foundation for the imposition of fiduciary duties.  Accordingly, the fiduciary duties are contractual in nature.  It is not be permissible for PRCYT to argue otherwise or to rely on matters extraneous to Section D to support its case of fiduciary duties: see Kwok Chin Wing v 21 Holdings Ltd (2013)  16 HKCFAR 663, [21]-[22].

89.  I also agree with Mr Lam that given that the JV Agreement is governed by PRC law, and it had been made plain in the Report[33] that contractual fiduciary duties do not exist under PRC law, it follows that PRCYT’s allegations of fiduciary duties must fail.  I can see no proper answer to this submission by Mr Wong.

90.  Even under common law, I do not believe that any fiduciary duty on the part of HKPS would have arisen under the JV Agreement.  I need only refer to an authority of the High Court of Australia, Hospital Products Ltd v US Surgical Corp & Ors (1984)  156 CLR 41:

“… the fact that the arrangement between the parties was of a purely commercial kind and that they had dealt at arm’s length and on an equal footing has consistently been regarded by this Court as important, if not decisive, in indicating that no fiduciary duty arose …” (p.70)

“That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.” (p.97)

“Notwithstanding the existence of clear examples, no satisfactory, single test has emerged which will serve to identify a relationship which is fiduciary.  It is usual – perhaps necessary – that in such a relationship one party should repose substantial confidence in another in acting on his behalf or in his interest in some respect.  But it is not in every case where that happens that there is a fiduciary relationship.  If it were, whenever there is “a job to be performed” … and entrusting the job to someone involves reposing substantial trust and confidence in him, equity would impose fiduciary obligations.  Clearly, that is not the case.  Nor does a fiduciary duty arise because the person to whom a job is entrusted acts in his own interest and thereby fails to perform the job properly, however useful it may appear with hindsight that such protection should have been available …” (p.141-142)

“… A fiduciary relationship does not arise where, because one of the parties to a relationship has wrongly assessed the trustworthiness of another, he has reposed confidence in him which he would not have done had he known the true intentions of that other. In ordinary business affairs persons who have dealings with one another frequently have confidence in each other and sometimes that confidence is misplaced. That does not make the relationship a fiduciary one. … A fiduciary relationship exists where one party is in a position of reliance upon the other because of the nature of the relationship and not because of a wrong assessment of character or reliability. That is to say, the relationship must be of a kind which of its nature requires one party to place reliance upon the other; it is not sufficient that he in fact does so in the particular circumstances. …” (p.147)

“Moreover, a fiduciary relationship does not arise where one of the parties to a contract has failed to protect himself adequately by accepting terms which are insufficient to safeguard his interests. Where a relationship is such that by appropriate contractual provisions or other legal means the parties could adequately have protected themselves but have failed to do so, there is no basis without more for the imposition of fiduciary obligations in order to overcome the shortcomings in the arrangement between them.” (p.147)

91.  In this case, there is no reason to doubt that PRCYT and HKPS were on equal footing when their bargain was struck.  There is indeed no suggestion to the contrary. 

92.  Further, as pointed out by Mr Lam, cl. 4 of the Agreement provided that HKYT’s board of directors would consist of 5 directors, with 3 directors to be nominated by HKPS and 2 to be nominated by PRCYT.  No resolution could be passed by HKYT unless there was a quorum consisting of at least 1 of the directors nominated by each side.

93.  In the premises, the parties clearly envisaged at the outset of the joint venture that both of them would exercise control and participate in the affairs of HKYT, which would include, eg, the management of its accounts.  This strongly militates against the suggestion that HKPS was entrusted with a duty to help PRCYT to “ensure” that that its investment was properly booked.

94.  It is no answer for PRCYT to say that, although it had the right to nominate directors under the JV Agreement, its nominated directors were not appointed to the board until much later.  On the evidence, PRCYT’s nomination of its representatives was made on 3 August 2010.  It was open to PRCYT to follow up on its nomination.  Its evidence provided no sufficient explanation for the delay in the appointment of its nominees. 

95.  In any event, under the JV Agreement both HKPS and PRCYT had the responsibility and control over the affairs of HKYT.  I therefore see no sufficient basis for equity to intervene with the imposition of fiduciary duties on the part of HKPS. 

HKYT

96.  PRCYT pleaded two facts in support its case against HKYT in [16] of its Amended Defence and Counterclaim, namely, (a)  HKYT “received” AUD16.3m paid by HKPS on behalf of PRCYT; and (b)  HKYT (presumably through Chan)  knew that the money “should be afforded parity of treatment”, ie, should be treated as shareholder’s loan.

97.  It has already been pointed out that HKYT had no contractual relationship with PRCYT (putting aside the relationship of shareholder and company).  I agree with Mr Lau that these facts did not give rise to any fiduciary duty.  On PRCYT’s case, AUD16.3m was “carved out” and became its loan to HKYT.  Both before and after the carving out, it was HKYT’s money.

98.  As for control over the accounts of HKYT, the above discussions on PRCYT’s entitlement to have its nominees appointed to the board of HKYT apply equally here. 

99.  In the premises, I see no sufficient basis for the imposition of fiduciary duties on HKYT’s part.

Chan

100.  The rejection of PRCYT’s case of fiduciary duties on the part of HKPS and HKYT must result in rejection of its case against Chan.

Contractual claims between Chan and G/L

AUD 16.3m Payables – Payment Directions

101.  As identified in para 33(4)  above, in light of this Court’s finding that the AUD16.3m was in the nature of a shareholder’s loan, Chan takes no issue with it being Payables and can be set-off against the Receivables owed to him by G/L under the SPA, and the only dispute is the fulfilment of the Payment Directions provisions under cl. 5.05(iv)(b). 

102.  The relevant provisions of the SPA are as follows :

Cl. 5.01

“The aggregate purchase price of the Sale Shares shall be … (subject to adjustment as set out in Clauses 5.05(iv)  …”

Cl. 5.03

“[Chan] further guarantees and warrants to [Gallop] that [Chan] will bear all the Payables (which remain unpaid)  made by the Review Group as at the Completion Date.”

Cl. 5.04

“[Gallop] hereby agrees and acknowledges with [Chan] that all the Receivables owing to the Review Group up to and including the Completion Date shall belong to [Chan] absolutely, …”

[emphasis added]

Cl. 5.05(iv)(b)  and (c)

“(iv)  In implementation of the warranties set out in [Cl. 5.03] …, the adjustment to the Consideration shall be made by [Gallop] and [Chan] in the following manner: …

(b)  in the event that there are the Payables, as defined below and as shown in the Completion Accounts, [Chan] shall pay [Gallop] in cash the actual amount of the Payables within 3 Business Days upon receipt of the payment direction(s)  in respect thereof (which shall only be issued by [HKPS] to [Chan] within 7 Business Days prior to the due date)  and in the event that [Gallop] has settled and paid in cash the relevant part of the Payables on behalf of [Chan], [Chan] shall reimburse [Gallop] in cash the full amount of such Payables as have been settled and paid by [Gallop] on behalf of [Chan] as aforesaid within 7 days from the payment by [Gallop] in respect thereof; and

(c)  the sums payable under [Cl. 5.05(iv)(b)] above shall be paid on their respective due dates provided always that such sums shall be adjusted in accordance with the Audited (the Review Group)  Account and [Cl. 5.05(iv)(b)] as if the “Completion Accounts” referred to in [Cl. 5.05(iv)(b)] above is replaced by the “Audited (the Review Group)  Accounts” and [Chan] and [Gallop] shall pay to each other the amount of such adjustment, if any, within 10 days after the issue of the Audited (the Review Group)  Accounts by [HKPS’s] auditors as provided in Clause 5.05(iv)(c)  above but in any event not earlier than the respective due dates as mentioned in [Cl. 5.05(iv)(b)].”

“In the Clauses 5.03 and 5.05:-

(a)  the “Audited (the Review Group)  Accounts” shall mean the Completion Accounts as audited by [HKPS]’s auditors.

(b)  the “Payables” shall mean the total amount of the liabilities incurred up to and including the Completion Date by the Review Group, including, but not limited to, all long term and current liabilities, all long term and current capital commitment, if any, and all account payables, but excluding (i)  all the outstanding shareholder’s loans owing by [HKPS] to [Chan] on the condition that those shareholder’s loans shall be assigned to [Gallop] on the Completion Date; …

(c)  the “Receivables” shall mean the bank balances and cash, the account receivables and other receivables owing to the Review Group (including, for the avoidance of doubt, any receivables arising from the sale of the tin concentrates produced on or before the Completion Date, no matter whether the sale is conducted thereafter)  but excluding derivative financial instruments, deferred tax assets and deposits paid to all the Australian government authorities, if any, up to and including the Completion Date.”

103.  It appears that there was no definition provision for “Review Group”.  Instead, it was indirectly defined under the definition for “Completion Accounts”, which meant: “the unaudited profit and loss account and balance sheet of each of [HKPS], [HKYT], [Australia Parksong] and YT Parksong Australia Management Pty Ltd … (“the Review Group”)  …”.

104.  Mr Ng’s argument is that the liability for Payables has to be triggered by Payment Directions issued under cl. 5.05(iv)(b).  The issue turns on the proper construction of that clause. 

105.  I am inclined to agree with Mr Lui that on proper construction cl.5.05(iv)(b), read as a whole with cls. 5.01, 5.03 and 5.04, provided for the adjustment of purchase price but it constituted no bar to Gallop in seeking payment of the Payables via other means. 

106.  To begin with, cl. 5.01 provided that the purchase price should be “subject to adjustment as set out in Clause 5.05(iv)”.  Cls. 5.03 and 5.04 then stipulated the liability for Payables and Receivables.  Finally, cl. 5.05(iv)  provided that: “In implementation of the warranties set out in Clauses 5.03 and 5.04, the adjustment to the Consideration shall be made … in the following manner: …”.

107.  Under the provisions of cl. 5.05(iv)(b), there were 2 avenues for the issuance of Payment Direction(s)  which might result in price adjustment, namely, (a)  a Payment Direction might be issued within 7 business days prior to the due date of the Payables; and (b)  a Payment Direction might be issued for the Payables settled by Gallop in cash. 

108.  In this case, neither of these avenues could apply.  On the face of the AR, there would be no Payables by reason of shareholder’s loans because all of them belonged to Chan and they would be assigned to Gallop.  Unless the AR was amended or Chan admitted to wrongly assigning PRCYT’s AUD16.3m to Gallop, I fail to see any question of due date for making good the deficiency in the loan assignment by Chan to Gallop or for Chan to pay the AUD16.3m as Payables, nor was there any question of Gallop settling such deficiency.  Mr Ng was unable to provide an answer as to why there was any question of due date or Gallop having settled Chan’s Payables. 

109.  It cannot be seriously suggested that the lack of avenue for price adjustment under cl. 5.05(iv)(b)  would take away Gallop’s right to seek redress for the breach warranties under cl. 5.03.  This strongly fortifies the above construction.  I hold that cl. 5.05(iv)(b)  constitutes no hindrance to G/L’s set-off against the Receivables due to Chan with the AUD16.3m.

110.  It is unnecessary to deal with the other breaches of warranties in light of the above finding because they add nothing to G/L’s case (see para 33(5)  and (8)  above). 

Small Payables

111.  The issues are identified in para 33(9)  above. The above analysis on the construction of cl. 5.05(iv)(b)  applies equally to this claim.  It may be the case that Payment Directions could have been issued in respect of these Payables, but it simply means that G/L cannot have an adjustment of the consideration under the SPA.  I therefore hold that the sum of AUD3,244,520.24 can be set-off against the Receivables owed to Chan.

Recalculation Issue

112.  Both G/L and PRCYT take issue with the lateness of Chan’s endeavour to change his stance, contrary to his pleaded case.  In terms of amount, if allowed, Chan’s claim will increase from AUD15.14m to about AUD27m.  I do not believe that the objection can be brushed aside as technical because, firstly, prior this trial concessions were made by G/L in reducing the scope of their claims against Chan[34].  The concessions were obviously made on the basis of the existing pleaded cases. 

113.  Secondly, PRCYT was entirely taken by surprise by the Recalculation Issue, and it was far too late for PRCYT to properly consider its position and to advance arguments to protect its interests as the 18% shareholder of HKYT. 

114.  In the premises, putting aside objections on other grounds, the Recalculation Issue must be rejected.

115.  For completion, I should mention, firstly, that I agree with Mr Lui that the claim for Receivables was crystallised as of the completion date of the SPA, 4 March 2011.  This is clear from the definition of Receivables.  There is thus no room for arguing the application of current exchange rate.

116.  Secondly, although cl. 5.04 referred to all the Receivables belonging to Chan, there are merits in Mr Lui’s submission that on a proper construction of the SPA, bearing in mind that Chan was only selling (indirectly)  82% of HKYT, his entitlement was limited to 82% as he had previously accepted.  However, the point has not been fully explored by counsel, and it is unnecessary to deal with it[35]. 

Issues between Chan, HKPS and HKYT

117.  These issues were identified in paras 34 to 36 above.  Given the rejection of PRCYT’s case on breach of fiduciary duties on the part of HKPS or HKYT, these issues do not arise. 

Misrepresentation

118.  The issues are identified in para 33(7)  above. Despite Mr Lui’s suggestion that it is unnecessary to deal with them (see para 33(8)), I shall do so succinctly in case I am wrong on the Categorisation Issue. 

119.  In respect of the metal element of fraudulent misrepresentation, both Mr Lui and Mr Ng had referred the Court to Lee Yuk Shing v Dianoor International Ltd (In liq) [2016] 4 HKC 535 at [51] :

“… The representor will be fraudulent if he made the statement ‘recklessly, careless whether it be true or false’ (Derry v Peek at 374). Lord Herschell in Derry v Peek was at pains to emphasise that negligence is not sufficient for deceit, since recklessness involves not caring whether the statement is true: an indifference to the truth (at 361, 369, 373 and 374). The expression ‘not caring’ had nothing to do with not taking care, it meant not caring in one’s own heart and conscience whether the statement is true or false. It is well established that to establish common law deceit, a degree of dishonesty or moral turpitude has to be present. In this context, the moral obliquity consists of an indifference to the truth, a wilful disregard of the importance of the truth …”.

120.  At [52]-[54], the Court of Appeal emphasised that negligence, gross negligence, not taking steps which any [reasonable representor] would have taken, going far beyond the realm of gross negligence and gross want of caution “cannot be stretched to constitute wilful or wicked indifference that is necessary for a fraudulent state of mind”.

121.  Whilst motive is generally irrelevant, ie, a representor cannot escape liability by pleading that he had a good motive for the deception, it can be relevant to the question whether the false statement was fraudulent or whether there was an intention that the representee should act upon it: Mrepresentation, Mistake and Non-disclosure by Cartwright, [5-16].

122.  With these principles in mind, I cannot be satisfied that either Chan or Zhou was acting fraudulently when they represented to Gallop that the amount of shareholder’s loans to be assigned to it was in the region of HK$590m.  I have no doubt that they were grossly negligent.  Zhou had practically admitted that he was. 

123.  As for Chan, I am prepared to give him the benefit of doubt that he had either overlooked that part of the shareholder’s loans would have to be carved out or he simply did not consider the matter with care.  He left the matters of the accounts to Zhou and heavily relied upon him.  I believe that the lack of motive on Chan’s part to inflate the shareholder’s loans (see also 43 above)  militates against the suggestion of dishonesty.  I can see nothing to be gained from the inflation when he was only selling 82% of HKYT and the purchase price under the SPA was not dependent on the amount of shareholder’s loan to be assigned to Gallop.  Further, Chan could easily be caught out for any inflation over the shareholder’s loan. 

124.  As regards negligent misrepresentation, I believe that all the elements constituting this cause of action have been made out.  First, Fu, who was the CFO of Gallop, was tasked to participate in its negotiations with Chan and to follow up on it.  Fu explained that the SPA did not stipulate the precise sum of shareholder’s loan to be assigned to Gallop by Chan because there might be minor changes to be made later.  However, he was quite clear in his evidence that at the time of negotiation he was told by Chan that the shareholder’s loan was about HK$590m, which was consistent with the accounts he saw at the time as well as the accounts subsequently provided to him by Zhou.  Fu also said that he relied on the auditors appointed by Gallop, who later confirmed the information provided to him.

125.  Fu’s evidence about the discussion of the shareholder’s loan is only to be expected in the context of the transaction. Subsequently, multiple accounting documents were sent to him by Zhou, which confirmed the amount of such loan to be in the region of HK$590m. 

126.  In my view, Chan owed Gallop a duty to take reasonable care over the accuracy of the amount of shareholder’s loan.  The information impacted on whether Gallop would be acquiring HKYT free from debt to any party but itself.  Chan had clearly breached that duty.  The information was incorrect and was given due to want of care on his part. 

127.  In the premises, the misrepresentation over the amount of shareholder’s loan is made out.

128.  With respect, it is unrealistic to suggest that the representation was not intended to be relied upon or that Gallop did not rely upon the representation.  If the suggestions were right, I fail to see the purpose of disclosure of information between buyer and seller. 

129.  Fu said under cross-examination that he was not concerned about having been supplied by Zhou with 2 sets of accounts of the same date with different figures, which happened on a number of occasions (see para 20 above)  because the figures would be changed, and he relied upon the later auditing of the accounts.  Further, Fu said that he was “holding onto” Chan’s statement that that on the day of completion he would transfer shareholder’s loan of HK$590m to the buyer.

130.  Fu was further asked if his understanding that HK$590m would be assigned at completion was based on what Chan had said rather than the balance sheets.  Fu answered :

“Incorrect. How come we would have this 590 million? So we have already had a look of the previous accounts and at that time make mental calculations of it. And obviously Mr Chan also said this to me. And I had also gone through the financial statements myself. So both the evidence from both sides, they were consistent.”

131.  For completion, it appears from the evidence that in carrying out its audit work Deloitte had to place some reliance on JC&C as well as Zhou[36].

132.  In light of Fu’s evidence, there is no scope for arguing that Gallop did not rely on the misrepresentation in question.

133.  On loss, Fu explained that it is true that if HKYT’s indebtedness was reduced it would be better for that company.  However, in this case there was a minority shareholder (PRCYT).  Being in control of HKYT by reason of its majority shareholding, Gallop was able to decide on the distribution of profits (if any)  and the repayment of shareholder’s loan.  In the event that HKYT would not be able to repay the loan, Gallop was in a position to have it wound-up and might ultimately obtain the remainder of its shares.  Hence, the shareholder’s loan was important to Gallop.

134.  Further, Fu’s evidence is that G/L intended to have the shareholder’s loan of HK$590m repaid after the acquisition of HKPS with the profits from the Tin Mines[37].  Subsequently, G/L sought to achieve that goal at a board meeting of HKYT’s held on 13 July 2011.  It was, however, prevented from doing so because of PRCYT’s opposition that 18% of the shareholder’s loan belonged to it[38].

135.  On applicable principles, the normal measure of damages is the difference between the price paid for the property and the market value of what has been acquired: McGregor on Damages, 21^st edn, [49-062].  Further, where the duty was to take care to provide accurate information, the recoverable damage in the event of breach is based on the foreseeable consequences of the information being wrong: one compares the loss which the representee has actually suffered with what his position would have been if he had not acted on the assumption that the information was accurate: Misrepresentation, Mistake and Non-Disclosure, supra, [6-59].

136.  In this case, there was a shortfall of HK$118.99m in the sum assigned to Gallop by Chan.  Aside from the evidence referred to in para 133 above, it is common sense that Gallop can have the assigned debt paid off by HKYT, especially when the Tin Mines are profitable.  I therefore accept that, prime facie, the shortfall is the damage suffered by Gallop.  There is no viable reason before the Court to displace that proposition, and I hold accordingly notwithstanding a degree of unease on my part that it may represent a windfall to Gallop, because it is doubtful if the purchase price would have been adjusted, or by how much, if Gallop was told the correct amount of shareholder’s loan.  

Disposition

137.  Firstly, I am persuaded, in light of the reservations expressed by Mr Wong on the potential complications which may arise in rectifying the accounts of HKYT, which was echoed by Mr Lau, that the better course is to grant a declaration. 

138.  I declare that in HKYT’s accounts as of 4 March 2011 the sum of HK$118,990,000 was wrongly booked as part of the shareholder’s loan owed to Chan when in fact it was a shareholder’s loan owed to PRCYT.  The parties should seek to rectify the accounts accordingly in a consensual manner.  I grant liberty to apply with a reminder that any unreasonableness on any party may be visited with costs sanction.

139.  For HKPS’s breach of the JV Agreement, I award nominal damage in favour of PRCYT in the sum of HK$10. 

140.  As between Gallop and Chan, given the former’s success on the Categorisation Issue and the Small Payables, in according with a table submitted to the Court by Mr Lui which was referred to as “Permutation (version 1)”, there is a net balance due to Gallop by Chan in the sum of AUD4,401,097.80. I give judgment in favour of Gallop against Chan in that sum with interest at prime plus 1% from the date of Gallop’s counterclaim until judgment and thereafter at judgment rate(s)  until payment.

Costs

141.  PRCYT and Gallop are the winners with Chan and HKPS the losers in this action.  Although PRCYT has not succeeded in all its causes of action against HKPS, one has to bear in mind the positions adopted by HKPS in the course of this action, which was touched upon by Mr Wong in his viva voce final submissions.  As for HKYT, it was properly joined as a party in this action for obvious reason, although PRCYT’s causes of action against it have not succeeded. 

142.  It is unfortunate that this action has to be fully fought out given Chan’s acceptance that HKYT’s accounts would require rectification when he was confronted by PRCYT about its “missing contribution”.  However, in answer to Mr Lau’s question, Fu explained that the books of HKYT could not be easily changed despite the request of PRCYT.  He said that the audit of the accounts was carried out based on the evidence submitted to Deloitte and an unqualified report was subsequently published.  If the audited accounts were to be reversed, it would have to be based on authoritative evidence such as a court ruling.  If he simply listened to what was said and amend the accounts, further amendment might be required if they were later contradicted by a court ruling.  Secondly, without new evidence, Deloitte would not agree to amend the accounts or they would have to issue a qualified opinion of the accounts which would be of no benefit to a listed company. Notwithstanding Fu’s evidence, it appears that if not for Chan’s litigation against Gallop, the parties might have been able to work out a satisfactory solution amicably[39].

143.  In light of the complexity, I would allow an opportunity to the parties to seek to agree the appropriate costs order. Failing agreement, each of the parties is to lodge and serve its skeleton arguments on costs, limited to 3 pages printed in A4 paper with 1.5 line spacing and normal margins, within 21 days from the date of this Judgment. Unreasonableness may be visited with costs sanction.  The Court will then decide whether the issue should be determined on paper.

144.  Last but not least, I am grateful to all counsel for their assistance.

Mr Ernest Ng and Ms Natalie So, instructed by Vincent T.K. Cheung, Yap & Co., for Plaintiff (by original action) and 1^st Defendant (by counterclaim)

Mr Mike Lui SC and Mr Jun Lee, instructed by Benjamin Au & Billy Chan, for 1^st and 2^nd Defendants (by original action) and 4^th Defendant (by counterclaim)

Mr Ronny Wong SC, Ms Racheal Siu, Ms Kinsey Kang and Mr Jason Louie, instructed by Kwan & Chow, for 3^rd Defendant (by original action) and Plaintiff (by counterclaim)

Mr Lau Ka Kin, instructed by Cheung & Yip, for 4^th Defendant (by original action) and 3^rd Defendant (by counterclaim)

Mr Timothy Lam, instructed by Cheung, Chan & Chung, for 2^nd Defendant (by counterclaim)

HCA 1357/2011

[2018] HKCFI 766

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1357 OF 2011

________________________

________________________

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DECISION (2)

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I. INTRODUCTION

1.  The defendants in the present action, L’Sea Resources International Holdings Limited (“D2”) and its wholly owned subsidiary Gallop Pioneer Limited (“D1”) (collectively, “Ds”), took out the following applications: 

(a)	Ds’ summons filed on 17 July 2014 for joinder of a PRC company 雲南錫業集團(控股)有限責任公司 (“PRC Yunnan Tin”) as the 3rd defendant and for consequential directions for re-amendment of the Amended Defence and Counterclaim (“AD&C”) as per the draft annexed thereto (“1st Draft”) and service out of jurisdiction (“Joinder Summons”);[1]
(b)	Ds’ summons filed on 14 November 2014 for leave to amend the Joinder Summons for joinder of PRC Yunnan Tin and Yunnan Tin Hong Kong (Holding) Group Co, Limited (“HK Yunnan Tin”) as the 3rd and 4th defendants and for consequential directions for re-amendment of the AD&C as per the revised draft annexed thereto (“2nd Draft”) (“Amended Joinder Summons”);[2]
(c)	Ds’ summons filed on 21 August 2014 for leave to adduce further expert evidence and for consequential directions (“Expert Summons”); and
(d)	Ds’ summons filed on 15 December 2014 (“Nie Affirmation Summons”) for retrospective leave to file/serve the 2nd and 3rd affirmations of Ds’ director Nie Dong (“Nie”) filed on 14 November and 10 December 2014 (“Nie 2nd and 3rd Affs”) respectively in support of the Joinder and Amended Joinder Summonses.

2.  In respect of the Joinder and Amended Joinder Summonses, Ds filed Nie’s 1^st affirmation in support on 17 July 2014 (“Nie 1^st Aff”), and P filed his 3^rd affirmation in opposition on 27 August 2014 (“P 3^rd Aff”). On 1 December 2014, the board of directors of HK Yunnan Tin passed a resolution to join in the present action as a defendant.

3.  Pursuant to my order made at the hearing on 19 December 2014 (ie the 1^st Hearing defined in my Decision handed down on 4 August 2016, “Decision”), Ds on 9 January 2015 served further revision of the 2^nd Draft (“Ds’ Draft”) by introducing proposed amendments on the issue of “Cash Calls” and by additionally proposing other amendments. The 1^st, 2^nd and Ds’ Drafts named PRC Yunnan Tin and/or HK Yunnan Tin as the “Intended 3^rd Defendant” and/or “Intended 4^th Defendant”,[3] but the counterclaims therein sought reliefs against P only.

4.  On 9 January 2015, Ds filed a summons for relief against the sanction imposed by paragraphs 4-5 of the order of Master Ho dated 26 June 2014 (“Sanction”) to allow them to take out the Amended Joinder and Expert Summonses in the event of any breach of the Sanction (which Ds denied) (“Relief Summons”).

5.  On 3 June 2015, P filed a summons for leave to amend his Amended Reply and Re-Amended Defence to Amended Counterclaim (“AR&RADAC”) as per the draft attached thereto (“Amendment Summons”).

6.  On 27 July 2015, Ds filed a summons for leave to file and serve the 6^th affirmation of Ip Ka Fai (“Ip Affirmation Summons”).

7.  At the hearing on 28 - 29 July 2015 (ie the 2^nd Hearing defined in the Decision), I adjourned the Expert Summons pending the outcome of the other summonses. At such hearing, I granted leave for Ds to file/serve the 6^th affirmation of Ip Ka Fai and reserved my decision on costs. By the Decision, I ordered that (a) costs of and occasioned by the Ip Affirmation Summons be costs in the cause of the Joinder Summons (whether to be amended or otherwise), and (b) retrospective leave be given for Ds to file/ serve the Nie 2^nd and 3^rd Affs in support of the Joinder and Amended Joinder Summonses with costs order nisi that Ds shall pay P costs of and occasioned by the Nie Affirmation Summons in any event to be taxed if not agreed.

8.  In the Decision, I have set out the relevant background matters, procedural history and parties’ respective stance in the present action, which I adopt but will not repeat here. Thus, this decision should be read together with the Decision. I also adopt herein the abbreviations in the Decision.

9.  By the Decision, I granted inter alia the following orders: 

(a)	without prejudice to the Joinder, Amended Joinder and Relief Summonses, leave be granted for Ds to re-amend the AD&C in the manner marked in green as per Ds’ Draft save and except that all references to PRC Yunnan Tin and HK Yunnan Tin in the intituling, body and backsheet of Ds’ Draft were disallowed;
(b)	Ds shall file and serve the Re-Amended Defence and Counterclaim within 7 days from the date thereof;
(c)	leave be granted for P to consequentially amend the AR&RADAC and (if so advised) to file/serve Re-Amended Reply and Re-Re-Amended Defence to Re-Amended Counterclaim within 21 days thereafter;
(d)	leave be granted for Ds (if so advised) to file/serve Reply to Re-Re-Amended Counterclaim (if any) within 21 days thereafter;
(e)	the Amendment Summons be dismissed;
(f)	the Joinder, Amended Joinder, Expert and Relief Summonses (“Outstanding Summonses”) be adjourned for argument before this court on a date to be fixed (not before 70 days from the date thereof) in consultation with counsel’s diaries with 2 days reserved (ie the 3rd Hearing);
(g)	unless otherwise directed by this court, no further application or summons apart from the Outstanding Summonses shall be made returnable at the 3rd Hearing;
(h)	time shall run during court vacation;
(i)	there be a costs order nisi that Ds shall pay P’s costs of and occasioned by Ds’ application to amend the AD&C in any event to be taxed if not agreed;
(j)	there be a costs order nisi that P shall pay Ds’ costs of and occasioned by the Amendment Summons to be taxed forthwith if not agreed with certificate for two counsel.

10.  By the Decision, I also granted case management directions for lodging and serving the 2^nd Core Bundle and supplemental written submissions for the 3^rd Hearing.

11.  On 31 August 2016, Ds filed their Re-Amended Defence and Counterclaim (“RAD&C”). On 26 October 2016, P filed his Re-Amended Reply and Re-Re-Amended Defence to Amended Counterclaim (“1^st RAR&RRADAC”).

12.  On 1 March 2017, I granted inter alia the following orders together with provision for costs (“1/3/17 Order”):

(a)	the hearing of the Outstanding Summonses scheduled to be heard on 21 March 2017 (with 22 March 2017 reserved) be vacated and adjourned to a call-over hearing for directions on 20 April 2017 with 1 hour reserved;
(b)	within 7 days thereof, Ds shall give notice in writing (“Written Notice”) to PRC Yunnan Tin and HK Yunnan Tin of (i) the present action, (ii) the Joinder, Amended Joinder and Relief Summonses, and (iii) my order dated 4 August 2016 and the 1/3/17 Order together with relevant pleadings, summonses and affirmations (notwithstanding that such affirmations might address other applications);
(c)	the Written Notice shall in particular draw the attention of PRC Yunnan Tin and HK Yunnan Tin to (i) the adjourned hearing on 20 April 2017, and (ii) the likelihood that directions would be given for fixing the adjourned 3rd Hearing of any, some or all of the Outstanding Summonses;
(d)	where possible, Ds shall seek written acknowledgment of receipt of the Written Notice from PRC Yunnan Tin and/or HK Yunnan Tin or their respective solicitors.

13.  By 7 March 2017, Ds complied with the 1/3/17 Order (see paragraph 12(b) above) by causing its solicitors to give the Written Notice to PRC Yunnan Tin (and presumably HK Yunnan Tin – see paragraph 18(a) below).

14.  On 5 April 2017, PRC Yunnan Tin’s solicitors replied to Ds’ solicitors (with copy to P’s solicitors) as follows: 

“We shall shortly be filing our Summons and Affirmation in support of yours and our own joinder applications as Defendant to the claim of [P] or alternatively as Defendant to [Ds’] Counterclaim. You will see that our Affirmation does not raise any new facts which have already been extensively covered in the pending proceedings, it is obviously in the interests of all that these applications be dealt with as soon as possible. We would propose that our affirmation be answered by all other interested parties within 14 days of the hearing scheduled on 20^th April, 2017 and that we be given 7 days to reply. As our Affirmation will be served well before the 10^th, this should give all parties more than sufficient time to deal with the same.”

15.  On 10 April 2017, PRC Yunnan Tin’s solicitors filed Notice to Act.

16.  On the same day, PRC Yunnan Tin as applicant filed a summons for the following reliefs (“PRCYT Summons”): 

(a)	leave be granted for PRC Yunnan Tin to join as the 3rd defendant in the present action to P’s claim or alternatively to join as additional defendant to Ds’ counterclaim;
(b)	directions be given for exchange of pleadings consequential upon the aforesaid joinder;
(c)	costs of the application be costs in the cause.

17.  On 10 and 19 April 2017, PRC Yunnan Tin filed the affirmation of its solicitor Chan Kin Sang (“Chan Aff”) and the affirmation of Yao Jiali (director of PRC Yunnan Tin, “Yao”) (“Yao Aff”) respectively in support of the PRCYT Summons. Notwithstanding the 20/4/17 Order referred to in paragraph 19 below, neither P nor Ds filed any affirmation in opposition in relation to the PRCYT Summons

18.  On 13 April 2017, HK Yunnan Tin’s solicitors filed Notice to Act. On the same day,

(a)

HK Yunnan Tin’s solicitors wrote to the court (with copy to P’s and Ds’ solicitors) to state that HK Yunnan Tin agreed to be joined as the 4th defendant in the present action, and in order to save costs, they would not appear at the call-over and substantive hearings for the Joinder, Amended Joinder and Relief Summonses, but HK Yunnan Tin agreed to be bound by the court’s directions to be made at such hearings;

(b)

HK Yunnan Tin’s solicitors also wrote to PRC Yunnan Tin’s solicitors and HK Parksong to advise that HK Yunnan Tin had decided to join as the 4th defendant in the present action and also intended to maintain a neutral stance since there was no claim against it at that time, but if there were any future change of circumstances (including actual or potential claim against it by any party), it might change its stance by taking necessary action to protect its interests.

19.  At the call-over hearing on 20 April 2017 attended by the legal representatives of P, Ds and PRC Yunnan Tin, I granted inter alia the following orders together with (i) directions for filing/serving affidavit evidence in respect of the PRCYT Summons and for lodging/serving the 2^nd Core Bundle and written submissions / supplemental written submissions, (ii) other case management directions, and (iii) provision for costs (“20/4/17 Order”):

(a)	the hearing of the Joinder, Amended Joinder, Relief and PRCYT Summonses be adjourned for argument before this court on a date to be fixed in consultation with counsel’s diaries with 2 days reserved (ie the 3rd Hearing);
(b)	no later than 28 days from the date thereof, P shall notify Ds in writing with copy to PRC Yunnan Tin as to whether P would continue to oppose the Amended Joinder and Relief Summonses;
(c)	if P would no longer oppose the Amended Joinder and Relief Summonses, P and Ds shall constructively confer and, where possible, agree on the terms for disposal of such summonses by consent, failing which P’s and Ds’ written submissions shall only deal with the outstanding disputed issues;
(d)	the Expert Summons be adjourned to the 3rd Hearing for directions on restoring such summons for argument at a further adjourned hearing.

20.  On 8 May 2017, P’s solicitors wrote to Ds’ solicitors (with copy to PRC Yunnan Tin’s solicitors) (“8/5/17 Letter”) referring to the 20/4/17 Order and stating as follows: 

“In view of the recent development of the case including the stances now taken by [PRC Yunnan Tin] and [HK Yunnan Tin], and with a view to having the substantive disputes between [P and Ds] resolved as early as possible, [P] is prepared to take a pragmatic approach to dispose of the Amended Joinder Summons and the Relief Summons by consent, on a “no order as to costs basis”.

  As directed by the learned Judge in the [20/4/17 Order], [P and Ds] shall constructively confer, and where possible, agree on the terms of disposal of the said Summonses by consent. We therefore invite you to let us have your draft Consent Summons for our consideration.”

21.  On 9 May 2017, PRC Yunnan Tin’s solicitors wrote to P’s and Ds’ solicitors to welcome P’s pragmatic approach for disposing of the joinder issue, which they presumed also applied towards disposal of the PRCYT Summons, so they looked forward to hear from P and Ds on the proposed order to be made. PRC Yunnan Tin’s solicitors also asked to be consulted on all consequential directions (including directions as to pleadings), and raised the issue of HK Parksong for consideration: 

“…… We refer to paragraph 19 of [the Yao Aff]. [PRC Yunnan Tin’s] position remains that HK Parksong should also be joined in these proceedings as it is also interested in the proper resolution of the nature and treatment of the Contribution Chose [see paragraph 66(c) below] and consequential liabilities arising therefrom. To save time and costs, we invite the parties to consider joining HK Parksong into these proceedings so that all the necessary parties can be brought before the court to solve the central issue as to the nature and treatment of the Contribution Chose in one go.”

22.  On 17 May 2017, Ds’ solicitors replied to P’s solicitors stating that whilst they agreed to have PRC Yunnan Tin and HK Yunnan Tin join in the present action, P should pay Ds’ costs of and occasioned by the Joinder and Amended Joinder Summonses (save for costs of the amendment of the Joinder Summons) to be taxed if not agreed, and urged P to propose a reasonable lump sum for consideration.

23.  On 18 May 2017, PRC Yunnan Tin’s solicitors wrote to the solicitors for P, Ds and HK Yunnan Tin as follows:

“We refer to [Ds’ solicitors’] letter dated 17^th May 2017 setting out [Ds’] position on costs ……

We agree with the stance adopted by [Ds] on the issue of costs. [P] should also pay [PRC Yunnan Tin] costs of and occasioned by PRC Yunnan Tin’s support of [the Joinder and PRCYT Summonses]. As at the date of writing, such costs may not be as substantial as that of [Ds], but will be if and when dates for the 3^rd Hearing are fixed. Such costs are to be taxed if not agreed. For such purpose we would also invite you to propose a reasonable lump sum amount for our consideration.

In the meantime, we set out the following proposed directions for the disposal of all Joinder Summonses for all parties’ consideration:

1. Leave to join PRC Yunnan Tin and HK Yunnan Tin into these proceedings as 3^rd Defendant and 4^th Defendant to [P’s] claims.

2. Upon the filing of [a proper Re-Amended Reply and Re-Re-Amended Defence to Amended Counterclaim (“Proper Reply”)], leave be given to [P] to amend its Amended Writ of Summons by incorporating therein all allegations in the Proper Reply against PRC Yunnan Tin and HK Yunnan Tin and all allegations in relation to [P’s] case as to the state of HK Yunnan Tin’s account as at 4^th March 2011.

3. [P] shall file and serve the Re Amended Writ of Summons within 21 days after the filing of the Proper Reply.

4. Consequential upon the amendments as provided in paragraph 2 above, all pleadings thereafter shall be filed by all parties in accordance with the normal time limits as provided by the Rules.

5. That there be liberty to apply.

Please let us know whether you agree with the above proposals within the next 7 days. If agreement cannot be reached within the next 7 days, we shall proceed to fix the dates of the 3^rd Hearing immediately so as to ensure that the true issues between the parties be resolved as soon as possible.”

For convenience, I shall refer to PRC Yunnan Tin’s proposed directions in the aforesaid letter as the “Proposed Directions” below.

24.  On 24 May 2017, Ps’ solicitors replied to PRC Yunnan Tin’s solicitors (with copy to Ds’ solicitors) as follows:

“With respect, we fail to see any basis for [PRC Yunnan Tin] (which is not yet a party to the captioned proceedings) to ask [P] to bear [PRC Yunnan Tin’s] costs (as you asked for in your said letter). Indeed, we fail to see any need on the part of [PRC Yunnan Tin] to take out its [PRCYT Summons] when there was already a pending joinder application taken out by [Ds]. Furthermore, no prior notice had been given to [P] before [PRC Yunnan Tin] issued the [PRCYT Summons]. We further notice that in [the PRCYT Summons], [PRC Yunnan Tin] was not bold enough to ask for a costs Order against our client.

If [PRC Yunnan Tin] now insists on seeking costs from [P], [P] needs to argue for such before the Court.

For the avoidance of doubt, [P’s] agreement to the joinder of [PRC Yunnan Tin] and [HK Yunnan Tin] is not dependent on the parties reaching agreement on the issue of costs. Hence, the joinder can now be proceeded with, even if [PRC Yunnan Tin] insists to go back to the Court to argue on the issue of costs only.

Regarding your proposed directions, we have to say that they are misconceived. Please note that it is not [P] who suggested that [PRC Yunnan Tin] and [HK Yunnan Tin] should be joined as parties to the proceedings. It is wrong for you / [PRC Yunnan Tin] to direct [P] to amend the Writ and the Statement of Claim, or to “dictate” how amendments should be made to [P’s] pleadings for the joinder. You should recall that by [Ds’] Amended Joinder Summons, [Ds] asked for leave to join [PRC Yunnan Tin] and [HK Yunnan Tin] as defendants in the counterclaim. By [the PRCYT Summons], [PRC Yunnan Tin] had confirmed its agreement to [Ds’] proposed structure of joinder.”

25.  On 24 May 2017, P’s solicitors wrote to Ds’ solicitors (with copy to PRC Yunnan Tin’s solicitors) to explain that although P adopted a pragmatic approach to dispose of the Amended Joinder and Relief Summonses by consent “having regard to the recent development of the case (which constituted material change in circumstances)” and with a view to have the substantive disputes between the parties resolved as early as possible (and hence save the court’s time and the parties’ costs), P did not accept the Amended Joinder and Relief Summonses were meritorious applications in the first place or P’s opposition was unreasonable, so P did not agree to pay Ds’ costs of and occasioned by the Joinder and Amended Joinder Summonses. But as a further (and final) attempt to save the parties’ time/costs, P offered for the costs of and occasioned by the Joinder and Amended Joinder Summonses (save for costs of the amendment of the Joinder Summons) to be Ds’ costs in the cause. However, P’s agreement to the joinder of PRC Yunnan Tin and HK Yunnan Tin was not dependent on the parties reaching an agreement on the issue of costs.

26.  Pursuant to the order of Master J Wong dated 2 June 2017, the 1^st RAR&RRADAC was expunged, and leave was granted for P to amend the AR&RADAC as per the draft annexed to the Consent Summons (as between P and Ds) filed on 29 May 2017, and to file the Re-Amended Reply and Re‑Re‑Amended Defence to Amended Counterclaim within 14 days thereof with consequential leave for Ds (if so advised) to file and serve their Reply to Re-Re-Amended Defence to Amended Counterclaim (if any) within 21 days thereafter.

27.  On 5 June 2017, Ds’ solicitors replied to P’s solicitors (with copy to the solicitors for PRC Yunnan Tin and HK Yunnan Tin) to say P’s proposal as to costs was unreasonable and not acceptable, and to insist P should pay Ds’ costs since all along P unreasonably resisted the Joinder and Amended Joinder Summonses. But with a view to settle the matter amicably, Ds proposed for P to pay 70% of Ds’ costs of and occasioned by the Joinder and Amended Joinder Summonses (save for costs of the amendment of the Joinder Summons) to be taxed forthwith if not agreed.

28.  On the same day, PRC Yunnan Tin’s solicitors replied to P’s solicitors (with copy to the solicitors for Ds and HK Yunnan Tin). In such reply letter, PRC Yunnan Tin’s solicitors noted the Joinder Summons sought to join PRC Yunnan Tin “in these proceedings”, and the title of such summons listed PRC Yunnan Tin as intended 3^rd defendant vis-à-vis P, which remained as Ds’ position since their letters dated 17 May and 5 June 2017 proposed agreement with P to join PRC Yunnan Tin “into the proceedings”. PRC Yunnan Tin’s solicitors went on to say as follows: 

“5. Pursuant to [the 1/3/17 Order], [Ds] made available to PRC Yunnan Tin all relevant pleadings, summonses and affirmations. Examination of those documents reveal to PRC Yunnan Tin that wholly untenable direct claims have been made by [P] against PRC Yunnan Tin. These have been fully summarized in para 15 of [the Yao Aff] on behalf of PRC Yunnan Tin. Those claims make it crystal clear that [PRC Yunnan Tin] should be joined in the current proceedings so that there is a first hand and direct refute of the frivolous allegations of [P]. PRC Yunnan Tin therefore took out [the PRCYT Summons] on 10^th April, 2017. They sought to be joined “as an additional 3^rd defendant to [P’s] claim or alternatively to join as an additional Defendant to [Ds’] Counterclaim”.”

PRC Yunnan Tin’s solicitors noted PRC Yunnan Tin was the only party who put forward the Proposed Directions to resolve the joinder issue, and neither P nor Ds put forward any proposed directions. PRC Yunnan Tin’s solicitors also replied to the letter by Ds’ solicitors dated 24 May 2017 as follows: 

“10. As far as your 24^th May, 2017 letter to us is concerned, [the PRCYT Summons] is necessary as it makes clear the preferable option of [PRC Yunnan Tin] on [P] directly in view of the frontal attack that he has chosen to make against PRC Yunnan Tin. We gave you prior notice on 5^th April, 2017. [PRC Yunnan Tin’s] case has been fully set out in the [Yao Aff]. Neither [P] nor [Ds] has chosen to file any affirmation to refute the case as he so outlined. PRC Yunnan Tin and [P] have substantive disputes on the wild claims that [P] had chosen to advance. We have made proposals to ensure that those be disposed of as early as possible.

11. We would welcome any constructive proposal that [P’s solicitors] or [Ds] might wish to put forward and what precisely each of you has in mind in joining [PRC Yunnan Tin] into the proceedings. We do not wish to waste time and will be making appointment to fix date for the 3^rd hearing as the Order of Judge Ng has now been perfected.

12. As far as the question of costs is concerned, …… costs to-date have been moderate and we are prepared to be pragmatic if we can resolve the issue of proper joinder and consequential directions. We repeat that such costs would escalate once dates for the 3^rd hearing are fixed.”

29.  On 9 June 2017, Ds’ solicitors wrote to inform the solicitors for P and PRC Yunnan Tin (with copy to HK Yunnan Tin’s solicitors) that Ds agreed for the issues to be dealt with as per the Proposed Directions, and urged P’s solicitors to consider the matter seriously to avoid any unnecessary waste of cost.

30.  On 9 June 2017, PRC Yunnan Tin’s solicitors wrote to the solicitors for P, Ds and HK Yunnan Tin to arrange for attendance before the Listing Clerk on 14 June 2017 to fix the dates for the 3^rd Hearing.

31.  On 12 June 2017, P’s solicitors replied to Ds’ solicitors to reject Ds’ counter-offer on costs, and to reiterate the stance in their letter dated 24 May 2017 that the joinder of PRC Yunnan Tin and HK Yunnan Tin could be proceeded with despite any disagreement between the parties on costs. It was said that P had been “expecting from [Ds] proposed timeline for filing and serving of [Ds’] amended pleading and consequential directions. As all along we were talking about joinder of the new parties as defendants in [Ds’] counterclaim, [Ds] should take the initiative to propose appropriate directions for our consideration”. P’s solicitors added that on 24 May 2017 they had commented that PRC Yunnan Tin’s Proposed Directions were “totally misconceived”.

32.  On the same day, P’s solicitors replied to PRC Yunnan Tin’s solicitors (with copy to the solicitors for Ds and HK Yunnan Tin) by denying their allegations, and by asserting (a) the PRCYT Summons was wholly unnecessary for it served no real purpose but to escalate costs for all parties, (b) all along Ds “were asking for joinder of [PRC Yunnan Tin and HK Yunnan Tin] in their counterclaim” and from the outset PRC Yunnan Tin had confirmed to the court its “agreement to such structure of joinder”, (c) it was not for PRC Yunnan Tin to direct P to amend the Writ of Summons and Statement of Claim in whatever way PRC Yunnan Tin tried to dictate, (d) PRC Yunnan Tin’s Proposed Directions were misconceived and P “had been expecting from [Ds’ solicitors] (who are supposed to take the initiative for the joinder in [Ds’] counterclaim) for a set of appropriate proposed directions”, and (e) there was no basis for PRC Yunnan Tin to seek costs from P. P’s solicitors also noted “it appears that only the structure of the joinder and the issue of costs will need to be argued at the 3^rd Hearing” given the development of the case.

33.  On 12 June 2017, PRC Yunnan Tin’s solicitors replied to P’s solicitors (with copy to the solicitors for Ds and HK Yunnan Tin) to deny PRC Yunnan Tin’s stance was unreasonable, and to assert their Proposed Directions “are practical and will let all parties focus on the issues in dispute”.

34.  On 13 June 2017, P’s solicitors wrote to PRC Yunnan Tin’s solicitors (with copy to the solicitors for Ds and HK Yunnan Tin) that (a) as between P and Ds “the only outstanding issue is costs only” and Ds had already indicated that a “costs only” hearing was required for the Joinder, Amended Joinder and Relief Summonses, but (b) as between P and PRC Yunnan Tin the outstanding issues were “both the structure of the joinder and the issue of costs” (even though P alleged that from the outset PRC Yunnan Tin had already agreed to join in Ds’ counterclaim), and the PRCYT Summons did not ask for costs against P.

35.  On the same day, PRC Yunnan Tin’s solicitors replied to P’s solicitors (with copy to the solicitors for Ds and HK Yunnan Tin) to say (a) they did not understand the dispute between P and Ds to be confined to “costs only” since the letter by Ds’ solicitors dated 9 June 2017 took the view that “the action can be better dealt with as per [PRC Yunnan Tin’s] Proposed Directions”, and (b) “[it] is wishful thinking on your part that we had at the outset … confirmed … agreement to have the joinder done in the counterclaim”.

36.  On 14 June 2017, P filed the Re-Amended Reply and Re‑Re‑Amended Defence to Amended Counterclaim (“2^nd RAR&RRADAC”). The latest amendments therein could be summarised as follows:

(a)	response to Ds’ allegation on cash call as to whether that was “Payable” or “Receivable” (see paragraph 8(b));
(b)	pleas on the 16/7/10 Minutes (see paragraph 34A);
(c)	response to the absence of directors’ and/or members’ resolution passed by HK Yunnan Tin as to treatment of various sums including the sum of AUD16,300,000 (see paragraph 54A);
(d)	pleas on (i) whether any sum had been directly/indirectly advanced by PRC Yunnan Tin to HK Yunnan Tin and if so its proper nature, (ii) the absence of any agreement for a loan and/or “attribution” or “carving out” of a loan, (iii) the outcome of the Shenzhen Proceedings (referred to in paragraph 65 below) between Xu/Chang and PRC Yunnan Tin, and (iv) the position adopted by the representatives of PRC Yunnan Tin on the board of directors of HK Yunnan Tin (Zhang Guo Qing and Chen Yong) as set out in their letter dated 26 August 2011 to HK Yunnan Tin (“26/8/11 Letter”), and D1’s and HK Yunnan Tin’s position as set out in their solicitors’ reply dated 26 September 2011 (“26/9/11 Letter”).

37.  On 21 September 2017, Ds’ solicitors wrote to P’s solicitors (with copy to the solicitors for PRC Yunnan Tin and HK Yunnan Tin) inter alia to note P disagreed with PRC Yunnan Tin’s suggestion that P “should file a statement of claim pleading [P’s] case on the Sum [ie the sum of AUD16,300,000]”, and to say this was “…… without prejudice to our position on the directions proposed by [PRC Yunnan Tin] as per their letter dated 18^th May 2017 [ie the Proposed Directions]”.

38.  On 26 September 2017, PRC Yunnan Tin’s solicitors wrote to the solicitors for P and Ds (with copy to HK Yunnan Tin’s solicitors) (a) to note “the stance outlined by [Ds’ solicitors] in their [letter dated 21 September 2017] is without prejudice to their position on the directions which we proposed on behalf of [PRC Yunnan Tin] in our letter dated 18^th May, 2017 [ie the Proposed Directions]. By this we take it that [Ds] are in agreement with those proposed directions with only [P] resisting the same”, and (b) to urge P to urgently reconsider his position.

39.  On 4 October 2017, P’s solicitors wrote to Ds’ solicitors (with copy to the solicitors for PRC Yunnan Tin and HK Yunnan Tin) to confirm P did not intend to make any fresh application to amend his 2^nd RAR&RRADAC to plead the New Case (see paragraph 123 of the Decision).

40.  On 13 November 2017, PRC Yunnan Tin’s solicitors sent to P’s and Ds’ solicitors copy Writ of Summons in HCA3132/2016 issued by PRC Yunnan Tin against HK Parksong, HK Yunnan Tin and P on 30 November 2016 (“PRCYT Action”). PRC Yunnan Tin’s solicitors explained that the PRCYT Action was issued as protective proceedings pending the outcome of the Joinder, Amended Joinder and Relief Summonses at the 3^rd Hearing scheduled to be heard on 19 - 20 December 2017. PRC Yunnan Tin claimed it had to serve the Writ of Summons in the PRCYT Action given its imminent expiry on 30 November 2017, and asked whether P’s and Ds’ solicitors had instructions to accept service.

41.  By a Consent Summons (as between P and Ds) filed on 27 November 2017 (“Expert Consent Summons”), P and Ds sought the following reliefs:

(a)	leave for P and Ds to adduce expert evidence (and call 1 expert witness[4] for each side at the trial of this action) on the issues set out in paragraph 4 of Schedule 1 attached to the Expert Summons in relation to the issue of production shortfall;
(b)	(i) Ds’ expert report be filed/served within 90 days from the order to be made therein, (ii) P’s expert report be filed/served within 90 days thereafter, and (iii) Ds’ rebuttal report (if any) be filed/served within 45 days thereafter;
(c)	within 30 days thereafter, the respective experts were to meet on a without prejudice basis pursuant to Order 38 rule 38 of the Rules of the High Court (“RHC”) for the purpose of preparing a joint statement, which shall contain each expert’s statement of truth and declaration in compliance with Order 38 rule 37C of the RHC and the Code of Conduct at Appendix D to the RHC;
(d)	the joint statement shall include: (i) the issues on which the experts have reached common opinion and in respect of each such issue what that common opinion is, (ii) the issues on which the experts have failed to reach a common opinion and their competing views on each such issue, and (iii) the reasons for a given expert’s disagreement with any opposing expert’s views on each such issue and (if different parameters have been used) the parameters upon which each expert’s opinion is based and the reasons for adopting different parameters;
(e)	the joint statement shall be filed with the court within 30 days from the meeting in (c) above;
(f)	subject to the aforesaid, the other parts of the Expert Summons shall remain to be heard at the 3rd Hearing for directions on restoring the same for argument at a further adjourned hearing;
(g)	costs of the Expert Summons and costs of the Expert Consent Summons be reserved.

42.  On 29 November 2017, this court raised written requisitions over the Expert Consent Summons. By their letter to the court dated 6 December 2017, P’s solicitors clarified that P’s consent for Ds to adduce expert evidence under the Expert Consent Summons was limited to the issue set out in paragraph 4 of Schedule 1 attached to the Expert Summons (ie in relation to the issue of production shortfall), and P still opposed Ds’ application for leave to adduce expert evidence on the expert issues in paragraphs 1 - 3 of Schedule 1 attached to the Expert Summons (“Other Expert Issues”).

43.  At the 3^rd Hearing on 19 December 2017 attended by Mr Li SC (and Mr But with him) for P, Mr Chan SC (and Mr Khaw SC and Ms Seto with him) for Ds, and Mr Wong SC (and Ms Kang with him) for PRC Yunnan Tin (with HK Yunnan Tin absent), I granted inter alia the following orders (“19/12/17 Order”): 

(a)	by consent between P and Ds, no order was made in respect of the Relief Summons save and except there be no order as to costs of such summons;
(b)	leave be granted for Ds to amend the Joinder Summons as per the draft attached to the Amended Joinder Summons within 7 days and service of the amended Joinder Summons be dispensed with;
(c)	leave be granted for Ds and PRC Yunnan Tin for PRC Yunnan Tin to be joined as the 3rd defendant and for HK Yunnan Tin to be joined as the 4th defendant to P’s claims in the present action;
(d)	leave be granted for P to re-amend his Amended Writ of Summons to add PRC Yunnan Tin (“D3”) and HK Yunnan Tin (“D4”) as the 3rd and 4th defendants within 7 days;
(e)	P shall serve the Re-Amended Writ of Summons under (d) above on D3 and D4 within 7 days, and P shall at the same time serve notice in writing of the terms of this order on D4;
(f)	D3 and D4 shall file their respective acknowledgment of service within 28 days thereafter;
(g)	D3 and D4 shall within 28 days thereafter file/serve their respective Defence and Counterclaim (if any);
(h)	P shall within 14 days serve on D3 and D4 copies of (i) all court orders made therein (including the 19/12/17 Order), (ii) respective list(s) of documents filed by P and Ds, and (iii) all witness statements filed by P and Ds;
(i)	Ds shall within 14 days serve on D3 and D4 copies of (i) 1st Core Bundle for the 2nd Hearing on 28 - 29 July 2015, (ii) Bundle 1 of the 2nd Core Bundle for the 3rd Hearing and all exhibits referred to in the affirmations contained in such Bundle 1, (iii) the accounting expert report of Cheng Kai Tai Allen dated 21 October 2013, (iv) the draft supplemental expert report of Cheng Kai Tai Allen sent to P’s solicitors under the letter of Ds’ solicitors dated 18 December 2014, (v) the Expert Consent Summons, (vi) written directions by this court dated 29 November 2017, (vii) letter by P’s solicitors to this court dated 6 December 2017, and (vii) letter by Ds’ solicitors to P’s solicitors dated 18 December 2017;
(j)	liberty for D3 and D4 to search the court file in the present action and to obtain copies of documents filed in such court file;
(k)	the Expert Summons and the Expert Consent Summons be adjourned for a directions hearing before this court (with 30 minutes reserved) to be fixed for hearing not earlier than 98 days after service of the respective Defence and Counterclaim (if any) by D3 and D4, or upon expiry of the time prescribed for D3 and D4 to serve their respective Defence and Counterclaim (if any), whichever is earlier;
(l)	Ds shall within 7 days after D4 filed its acknowledgment of service or failing which within 35 days from the date of the 19/12/17 Order, fix a date for the directions hearing referred to in (k) above;
(m)	in relation to paragraph 4 of the Schedule 1 attached to the Expert Summons (ie in relation to the issue of production shortfall), P and Ds shall provisionally agree on the common set of documents (“Common Documents”) and the common set of questions/instructions (“Common Instructions”) to be provided to their respective intended accounting experts within 28 days from the date of the 19/12/17 Order;
(n)	if P and Ds were able to reach a provisional agreement on the Common Documents and Common Instructions to be provided to their respective intended accounting experts on the issue of production shortfall, Ds shall within 7 days thereafter and in any event within 35 days from the date of the 19/12/17 Order serve the same on D3 and D4 together with the curriculum vitae of P’s and Ds’ respective intended accounting experts (collectively, “CVs”);
(o)	if P and Ds shall have disagreement on the Common Documents and Common Instructions to be provided to their respective intended accounting experts on the issue of production shortfall, Ds shall within 7 days thereafter or in any event within 35 days from the date of the 19/12/17 Order serve on D3 and D4 a mark‑up draft of the list of Common Documents and list of Common Instructions setting out the disagreement between P and Ds together with the CVs;
(p)	within 28 days thereafter, D3 and D4 shall inform the other parties in writing as to (i) whether they would seek leave to adduce expert evidence on the issue of production shortfall, and if so, the name of their respective proposed accounting experts, and (ii) any observation on the Common Documents and Common Instructions served by Ds pursuant to (n) or (o) above;
(q)	P shall within 28 days from the date of the 19/12/17 Order inform the other parties in writing whether P would continue to oppose paragraphs 1-3 of Schedule 1 attached to the Expert Summons (ie the Other Expert Issues), and if not, the name of P’s proposed accounting expert and the CV of such expert;
(r)	Ds shall within 28 days from the date of the 19/12/17 Order inform the other parties in writing the name of their proposed accounting expert on the Other Expert Issues and the CV of such expert;
(s)	if P would indicate in writing his agreement to the Other Expert Issues as per (q) above,
	(i)	within 21 days thereafter, P and Ds shall confer and provisionally agree on the Common Documents and Common Instructions on the Other Expert Issues to be provided to their respective accounting experts;
	(ii)	if P and Ds could reach a provisional agreement on the Common Documents and Common Instructions on the Other Expert Issues to be provided to their respective accounting experts, Ds shall within 7 days thereafter serve the same on D3 and D4 together with the CVs;
	(iii)	if P and Ds shall have disagreement on the Common Documents and Common Instructions on the Other Expert Issues to be provided to their respective accounting experts, Ds shall within 7 days thereafter serve on D3 and D4 a mark-up draft of the list of Common Documents and Common Instructions setting out the disagreement between P and Ds together with the CVs;
	(iv)	within 28 days thereafter, D3 and D4 shall inform the other parties in writing (1) whether they would seek leave to adduce expert evidence on the Other Expert Issues and if so the name of their respective proposed accounting experts, and (2) any observation on the Common Documents and Common Instructions served by Ds pursuant to (ii) or (iii) above;
(t)	Ds shall lodge/serve the hearing bundle for the adjourned directions hearing for the Expert Summons and Expert Consent Summons no later than 7 days before such hearing;
(u)	costs of the Expert Summons and Expert Consent Summons be reserved.

44.  In light of the 19/12/17 Order, the remaining argument that was heard by this court at the 3^rd Hearing was the issue of costs of and occasioned by the Joinder, Amended Joinder and PRCYT Summonses: 

(a)

Ds claimed against P for their costs of and occasioned by the Joinder and Amended Joinder Summons (save for costs of the amendment of the Joinder Summons), but P asked for no order as to costs between P and Ds in respect of such summonses, or alternatively for such costs up to 24 May 2017 (see paragraph 25 above) be Ds’ costs in the cause and Ds shall pay P’s costs of such summonses thereafter;

(b)

PRC Yunnan Tin claimed against P for its costs of and occasioned by the PRCYT Summons and for their support to Ds’ Joinder and Amended Joinder Summonses (including costs of the 3rd Hearing on 19 December 2017), but P asked for no order as to such costs between P and PRC Yunnan Tin, or alternatively such costs to be in the cause save and except PRC Yunnan Tin shall pay P’s costs of the 3rd Hearing on 19 December 2017.

45.  Pursuant to the 19/12/17 Order (see paragraph 43(b) above), Ds filed the amended Joinder Summons on 21 December 2017.

46.  Pursuant to the 19/12/17 Order (see paragraph 43(d) above), P filed his Re-Amended Writ of Summons on 22 December 2017.

47.  On 10 and 24 January 2018, D3 and D4 by their respective solicitors filed acknowledgment of service to give notice of intention to defend.

48.  On 25 January 2018, I granted inter alia the following orders with provision for costs: 

(a)	time be extended until 6 February 2018 for P and Ds to provisionally agree on the Common Documents and Common Instructions to be provided to their respective intended accounting experts notwithstanding that the time prescribed under the 19/12/17 Order (see paragraph 43(m) above) had expired on 16 January 2018;
(b)	time be extended until 13 February 2018 for Ds to comply with the 19/12/17 Order (see paragraph 43(n)-(o) above) notwithstanding that the time prescribed thereunder had expired on 23 January 2018;
(c)	time be extended until 13 March 2018 for D3 and D4 to comply with the 19/12/17 Order (see paragraph 43(p) above) notwithstanding that the time prescribed thereunder would expire on 20 February 2018.

49.  On 12 February 2018, I granted extension of time of 35 days from the date thereof for D4 to comply with the 19/12/17 Order (see paragraph 43(g) above) to file and serve its Defence and Counterclaim.

50.  On 26 February 2018, I extended time until 19 March 2018 for D3 to file and serve its Defence and Counterclaim (if any) pursuant to the 19/12/17 Order (see paragraph 43(g) above).

51.  On 19 March 2018, D3 filed its Defence and Counterclaim whereby D3 raised counterclaim against P, HK Parksong, D4 and D1.

52.  On 21 March 2018, HK Parksong by its solicitors filed acknowledgment of service in relation to D3’s counterclaim to give notice of intention to defend.

53.  On 21 March 2018, D4 filed a summons (returnable before this court on 18 April 2018) for leave to file and serve its Defence and Counterclaim (if any) within 35 days from the date of the order to be made therein notwithstanding the time for doing so pursuant to my order dated 12 February 2018 had expired (see paragraph 49 above). On the same day, D4 filed the 2^nd affidavit of its solicitor Yip Ki Chi Luke in support of such summons.

II.  PLEADINGS AND AFFIRMATION EVIDENCE

54.  On 11 August 2011, P commenced the present action against Ds for recovery of the Receivables, an account/inquiry of all income/ payments to be received by the Review Group for the Receivables, and payment upon such account/inquiry, which claims were premised on the accuracy of the Completion Accounts that there were no Payables but there were Receivables in the sum of AUD15,143,422.44. On 12 October 2011, Ds filed their D&C to deny liability and to plead D1’s counterclaim against P. On 9 December 2011, P filed the Reply and Defence to Counterclaim. Both P’s and Ds’ pleadings were subsequently amended.

55.  In the RAD&C, Ds claimed inter alia that the accounts of HK Yunnan Tin as at 4 March 2011 were inaccurate, and averred inter alia that if the correct position (as PRC Yunnan Tin alleged) was that P’s advance of AUD16,300,000 on behalf of PRC Yunnan Tin to HK Yunnan Tin should have been booked as shareholder’s loan to HK Yunnan Tin to form part of the Payables, then “[the] amount of shareholders’ loan assigned by [P] to [D1] is reduced from HK$217,677,147 to HK$92,038,377, the difference being HK$125,638,770, the Hong Kong dollars equivalent of AUD16.3 million on 4 March 2011, date of completion”.

56.  In the 2^nd RAR&RRADAC, P set out various allegations in relation to PRC Yunnan Tin:

(a)	“[the] said sum of AUD 16.3 million was a loan advanced by [P] in the name of HK Parksong (which was wholly owned by him prior to 4th March 2011) to PRC Yunnan Tin for the latter’s acquisition of [the 18% Shares] in HK Yunnan Tin” (see paragraph 7(a));
(b)	“[it] was the understanding of [P] and PRC Yunnan Tin that the said sum of AUD 16.3 million as lent to PRC Yunnan Tin by [P] should be treated and booked as PRC Yunnan Tin’s share capital in the accounts of HK Yunnan Tin” (see paragraph 7(b));
(c)	but when Jimmy Cheung & Co prepared HK Yunnan Tin’s ledgers “the said sum of AUD 16.3 million was wrongly recorded in the ledgers of HK Yunnan Tin” (see paragraph 7(c)), and P/Zhou signed the audit confirmation dated 15 April 2011 “out of inadvertence and without any checking” (see paragraph 21(c));
(d)	in the letter dated 8 September 2011 on behalf of HK Yunnan Tin that enclosed the 26/8/11 Letter (“8/9/11 Letter”), P was asked to confirm the rectification of the audited accounts to reflect the position advanced by PRC Yunnan Tin in the 26/8/11 Letter, and P claimed “[he] has no quarrel with the rectification of the audited accounts as requested by PRC Yunnan Tin” (see paragraph 19(b)(iii)(cc)).[5]

57.  A large part of P’s, Ds’ and PRC Yunnan Tin’s affirmation evidence for the Joinder, Amended Joinder and PRCYT Summonses was spent in setting out the background matters,[6] procedural history of the Shenzhen Proceedings referred to in paragraph 65 below,[7] and P’s and Ds’ respective case in relation to the 18% Funds and 16.3m Payment.[8] These matters had been canvassed in detail in the Decision, so I do not propose to recount P’s, Ds’ and PRCYT’s affirmation evidence in any detail below. Rather, I adopt the aforesaid parts of the Decision, and merely highlight below some other matters raised in the affirmation evidence.

(a)  Ds – Nie 1^st, 2^nd and 3^rd Affs

58.  The present action concerned P’s sale and D1’s purchase of the entire share capital of HK Parksong (solely owned by P prior to such transaction). Dispute arose over whether P failed to comply with the guarantees/warranties under the SPA (amended by 4 Supplemental Deeds) concerning inter alia (a) the financial condition of the Group Companies (including HK Yunnan Tin which was owned by HK Parksong (82%) and PRC Yunnan Tin (18%)), and (b) P’s liability for all outstanding Payables as at the Completion Date (see paragraph 49 of the Decision).

59.  On such dispute, Ds claimed P misrepresented the Group’s accounts, and Ds were therefore in breach of the guarantees/warranties stipulated in the SPA. Ds alleged P made representations and furnished the A/C Info to the effect that HK Yunnan Tin was indebted to P / HK Parksong for about HK$590,000,000 which debt would be assigned to D1 upon the completion of the SPA. D1 contended the A/C Info failed to reflect the existence of a shareholder’s loan (AUD16,300,000) that was regarded to have been advanced to HK Yunnan Tin as debtor by P / HK Parksong on behalf of PRC Yunnan Tin as creditor, ie the 18% Funds (see paragraph 50 of the Decision).

60.  Nie added it was evident from the accounts/ledgers disclosed by P upon discovery and from advice by Ds’ financial expert that there appeared to be further breaches of the SPA in relation to the 18% Funds (AUD16,300,000) given the conflicting treatment over the ownership of such advance to HK Yunnan Tin in the 1^st, 2^nd and 3^rd Sets that were prepared/produced by or on behalf of P (see paragraph 2 of the 1^st Schedule to the Decision).[9] Nie claimed that Ds’ financial expert advised that the 18% Funds (AUD16,300,000) could be recorded as loan capital owed to PRC Yunnan Tin in HK Yunnan Tin’s books/accounts, and that a finding to the effect HK Yunnan Tin was liable to repay the shareholder’s loan of AUD16,300,000 to PRC Yunnan Tin would mean (a) it constituted “Payables” under the SPA which P would be liable to repay to Ds, and (b) P would be in breach of warranty under the SPA (see paragraphs 3-6 of the 1^st Schedule of the Decision), so Ds’ counterclaim encompassed claims for P’s misrepresentation and fundamental breach of the SPA.

61.  On the other hand, P denied the existence of any such shareholder’s loan, misrepresentation and/or breach of warranty, and claimed he / HK Parksong advanced AUD16,300,000 to PRC Yunnan Tin for the latter’s acquisition of the 18% Shares in HK Yunnan Tin (see paragraph 52 of the Decision), which advance was to be repaid by PRC Yunnan Tin from future dividends to be declared by HK Yunnan Tin in favour of PRC Yunnan Tin.[10] P claimed such advance should be regarded as PRC Yunnan Tin’s contribution towards the share capital of HK Yunnan Tin, and should have been booked as such in HK Yunnan Tin’s accounts even though such sum was never so treated/booked and all along HK Yunnan Tin’s share capital remained as HK$10,000 only[11] (see paragraphs 50 - 51 of the Decision). In support of such stance, P pleaded there were “wrong entries” in the A/C Info that treated the 18% Funds as PRC Yunnan Tin’s loan to P (see paragraph 50 and 1^st Schedule of the Decision).

62.  Although P suggested the 26/8/11 Letter contradicted Ds’ case, Nie disagreed as (a) such letter (not issued on behalf of PRC Yunnan Tin) could not be taken as any indication of PRC Yunnan Tin’s position regarding the 18% Funds (AUD16,300,000), (b) the 8/9/11 Letter (from HK Yunnan Tin to P/Zhou), the letter from P’s solicitors to D1’s former solicitors dated 16 September 2011 (“16/9/11 Reply”), and the 26/9/11 Letter (from D1’s former solicitors to PRC Yunnan Tin) showed that (i) notwithstanding HK Yunnan Tin’s enquiries P’s holding 16/9/11 Reply did not clarify whether the 18% Funds were PRC Yunnan Tin’s shareholder’s loan to or share capital in HK Yunnan Tin, and (ii) there was no reply from PRC Yunnan Tin to the 26/9/11 Letter. Further, PRC Yunnan Tin’s letter to HK Parksong and HK Yunnan Tin dated 10 March 2014 (“10/3/14 Letter”) did not give any clear stance over the 18% Funds (AUD16,300,000), and instead asked the recipients to provide information regarding such sum “無論是以股東貸款的性質還是以出資款的性質”.

63.  The dispute referred to in paragraphs 58-62 above was the “share capital versus shareholder loan” dispute and/or 1^st Issue referred to in paragraph 79 of the Decision, ie whether funds in the sum of AUD16,3000,000 that PRC Yunnan Tin provided to HK Yunnan Tin (through P / HK Parksong) were PRC Yunnan Tin’s share capital in or shareholder loan to HK Yunnan Tin. I have explained in the Decision the 1^st Issue that rested on the 18% Funds and the Commonality[12] was quite different from the 16.m Payment whether under the 2^nd Issue[13] or 3^rd Issue.[14]

64.  Ds claimed the nature/status of the 18% Funds (AUD16,300,000) between PRC Yunnan Tin and HK Yunnan Tin (ie whether or not HK Yunnan Tin owed such sum to PRC Yunnan Tin) would have material impact on the litigation between P and Ds, and the determination of this issue would affect the interests of PRC Yunnan Tin and also those of HK Yunnan Tin (as it might potentially be held liable to repay AUD16,300,000 to PRC Yunnan Tin if the 18% Funds were shareholder’s loan). Nie said this was a real dispute that involved P, Ds, PRC Yunnan Tin and HK Yunnan Tin, so PRC Yunnan Tin and HK Yunnan Tin should be joined “in these proceedings” to enable all interested parties address the disputed issue and be bound by the judgment in the present action.

(b)  PRC Yunnan Tin – Yao Aff

65.  The Yao Aff stated it was filed to support Ds’ Joinder and Amended Joinder Summonses and also the PRCYT Summons. Yao reiterated the background matters in Part IV of the Decision, including the SPA, 16/7/10 Minutes, 18/7/10 Agreement, 19/7/10 Assignment, 6/12/10 Supplement, 1^st and 2^nd Notices/Receipts and completion of the SPA (see paragraphs 12 and 23-28 of the Decision). The Yao Aff also referred to certain litigation by Xu/Chang against PRC Yunnan Tin in Shenzhen, Mainland China more particularly described in paragraphs 38 - 40 of the Decision (“Shenzhen Proceedings”).

66.  Yao explained PRC Yunnan Tin’s case and highlighted the alleged confusion in P’s case as to the nature/status of the sum of AUD16,300,000 (ie the 18% Funds and 16.3m Payment each in the same amount of AUD16,300,000) and the parties’ true relationship as follows: 

(a)	HK Parksong was PRC Yunnan Tin’s agent in paying the 18% Funds (AUD16,300,000) to HK Yunnan Tin for PRC Yunnan Tin’s investment in the BMTJV, so PRC Yunnan Tin (as HK Parksong’s principal) was obliged to indemnify HK Parksong for its outlay of such sum on PRC Yunnan Tin’s behalf (“Indemnification Chose”), and HK Parksong (as PRC Yunnan Tin’s agent) owed corresponding duty to account to PRC Yunnan Tin for whatever benefit attributable to its injection of such sum into HK Yunnan Tin on behalf of PRC Yunnan Tin. On 13 August 2015, PRC Yunnan Tin duly paid Xu/Chang a total sum of RMB123,342,177.23[15] pursuant to the judgment dated 2 June 2015 in the Shenzhen Proceedings, thereby discharging the Indemnification Chose.
(b)	The 16/7/10 Minutes and the 18/7/10 Agreement provided that the Indemnification Chose was to be discharged by dividends receivable by PRC Yunnan Tin from Australia Parksong and HK Yunnan Tin, which dividends were liabilities owed by these companies to PRC Yunnan Tin (“Dividend Chose”). PRC Yunnan Tin claimed the Dividend Chose was intimately related to the Indemnification Chose as the former was the prescribed mode for discharge of the latter.
(c)	HK Yunnan Tin received from HK Parksong (as agent of PRC Yunnan Tin) the 18% Funds (AUD16,300,000) so both HK Parksong and HK Yunnan Tin had to account to PRC Yunnan Tin for such payment and receipt (“Contribution Chose”), which chose was different from the Indemnification Chose as it was a liability owed by HK Yunnan Tin to PRC Yunnan Tin.

67.  Yao claimed that on the basis of these 3 separate choses, the 1^st and 2^nd Notices/Receipts showed (a) HK Parksong assigned the Indemnification Chose in favour of P, (b) the parties accepted the Dividend Chose would be used to pay off the Indemnification Chose, and (c) HK Yunnan Tin accepted the Contribution Chose. P then assigned the Indemnification Chose to Xu/Chang who sued PRC Yunnan Tin for the same in the Shenzhen Proceedings, but the Shenzhen courts rejected PRC Yunnan Tin’s argument that the Dividend Chose was the sole means to pay off the Indemnification Chose. Yao said the Shenzhen Proceedings dealt with the Indemnification Chose, but the present action largely concerned the Contribution Chose, ie how it should be treated in the books of HK Yunnan Tin, which issue was related to the rights/liabilities between PRC Yunnan Tin and P / HK Parksong, and which would also affect the rights between P and Ds under the SPA.

68.  Yao also referred to draft 2^nd RAR&RRADAC circulated in late January 2017 that raised direct/indirect allegations against PRC Yunnan Tin as follows: 

(a)	the sum of AUD16,300,000 was a loan P advanced/lent to PRC Yunnan Tin;[16]
(b)	it was P’s and PRC Yunnan Tin’s understanding that the sum of AUD16,300,000 should be “…… booked as PRC Yunnan Tin’s share capital in the accounts of HK Yunnan Tin”;[17]
(c)	what allegedly transpired at the meeting held on 16 July 2010;[18]
(d)	the effect of the 18/7/10 Agreement;[19]
(e)	the effect of the 1st and 2nd Notices/Receipts;[20]
(f)	whether there was any mistake in the ledger entries made by Jimmy Cheung & Co in the books of HK Yunnan Tin;[21]
(g)	whether P signed the audit confirmation dated 15 April 2011 in error;[22]
(h)	what was the proper interpretation of the 26/8/11 Letter;[23]
(i)	P’s latest stance that he “has no quarrel with the rectification of the audited accounts as requested by PRC Yunnan Tin” on the alleged basis that P advanced AUD16,300,000 “…… for it to be capitalized as share capital payment”;[24]
(j)	the assertion by Li Yi Hua of PRC Yunnan Tin on 31 May 2011 that “the Proposed Management Agreement and the Proposed Purchase Agreement …… were legal and valid”.[25]

69.  Yao said such pleas were to deny the existence/relevance and to avoid proper treatment of the Contribution Chose and thereby to deny any liability to Ds by (a) confusing the identities/roles of P and HK Parksong, (b) pleading half-truths through suppression of the full facts, (c) pleading contradictory (not alternative) versions of so-called facts to give P unreal options to put forward illusionary alternatives, (d) creating confusion through undisciplined use of the phrase “the said sum of AUD16.3 million”, and (e) pretending to accede to PRC Yunnan Tin’s case in relation to its 18% Funds when there was no parity of treatment with the 82% Funds from HK Parksong.

70.  Yao said it was PRC Yunnan Tin’s case that the 16/7/10 Minutes and 18/7/10 Agreement established a joint venture between PRC Yunnan Tin and HK Parksong with each funding the proportionate share it assumed in such joint venture, and the same route was adopted for such funding by HK Parksong and by HK Parksong acting as agent for PRC Yunnan Tin.[26] Yao further claimed HK Parksong, HK Yunnan Tin and P clearly knew the 18% Funds (AUD16,300,000) acknowledged to have been paid by HK Parksong on behalf of PRC Yunnan Tin to HK Yunnan Tin should be treated in parity with the 82% Funds, but P, HK Parksong and/or HK Yunnan Tin sought to deprive PRC Yunnan Tin of its parity rights over the 18% Funds being P’s / HK Parksong’s contributions by purporting to assign those rights to Ds who had no such entitlement. On such basis, PRC Yunnan Tin supported Ds’ contention that the 18% Funds (AUD16,300,000) should be recorded in HK Yunnan Tin’s accounts as shareholder’s loan due to PRC Yunnan Tin (see paragraph 53 of the Decision) and hence an item of the “Payables” that P was liable to pay D1 (see paragraph 53 of the Decision and paragraphs 7 and 30 of the RAD&C).

71.  Yao claimed the rulings in the Shenzhen Proceedings were not determinative of any issue in the present action because (a) the parties to the two proceedings were different, and (b) the Shenzhen Proceedings dealt with the Indemnification/Dividend Choses but the present action was concerned with the Contribution Chose. Yao further noted Xu/Chang resisted PRC Yunnan Tin’s application to stay the Shenzhen Proceedings on the basis that the present action in Hong Kong dealt with different subject matters, and they also objected to have P cross-examined on whether the joint venture partners financed HK Yunnan Tin in the form of share capital or loan capital. Yao claimed the extracts from the judgment dated 25 August 2014 in the Shenzhen Proceedings as pleaded in paragraph 54C(c)(iii) of the 2^nd RAR&RRADAC were taken out of context because 廣東省深圳市中級人民法院 was referring therein to HK Parksong’s initial financing before PRC Yunnan Tin’s assumption of actual contribution (see paragraph 39 of the Decision).

72.  Yao claimed that for the above reasons, PRC Yunnan Tin was substantially interested in the questions of law/fact between P and Ds and in the reliefs that might be granted in relation to the Contribution Chose that arose out of the same series of transactions, which observation might equally be true for HK Parksong as it would also be interested in the proper resolution of the nature/treatment of the Contribution Chose and consequential liabilities arising therefrom.

(c)  P – P 3^rd Aff

73.  P also reiterated the background matters canvassed in the Decision. P claimed his dispute with D1 concerned contractual dispute(s) in respect of the sale and purchase of shares pursuant to the SPA amended by 4 Supplemental Deeds that was completed on 4 March 2011, and D2 was the guarantor of D1’s obligations/liabilities under the SPA. On 11 August 2011, P commenced the present action against Ds for non-payment of monies payable to him by Ds under the SPA. Ds denied liability, and counterclaimed for alleged breaches of the terms and/or warranties of the SPA.

74.  P claimed it appeared Ds’ joinder application might only be relevant to part of Ds’ counterclaim concerning alleged misrepresentation over matters related to alleged debts/other obligations of HK Parksong and/or its subsidiaries together with the correctness of the contents of books/accounts furnished to Ds, and consequent alleged breach of warranties under the SPA. But P suggested the Nie 1^st Aff seemed to run a provisional new case (contrary to Ds’ previous position under their various witness statements) that there was in fact a shareholder’s loan of AUD16,300,000 that HK Yunnan Tin (as debtor) owed to PRC Yunnan Tin (as creditor) before the Completion, which should have been reflected and/or recorded as “loan capital” in the books/accounts of HK Yunnan Tin.

75.  P’s position[27] was that none of the documents/records in relation to HK Yunnan Tin and/or PRC Yunnan Tin disclosed to Ds before the Completion[28] and none of the discovered documents suggested the existence of the alleged loan, and instead these documents (especially the 18/7/10 Agreement executed by PRC Yunnan Tin as a party thereto) showed the following:[29] 

(a)	after assignment/novation of contracts between relevant parties, there only existed a loan of AUD16,300,000 that PRC Yunnan Tin (as debtor) owed to P (as creditor);
(b)	under the 18/7/10 Agreement, PRC Yunnan Tin was entitled to hold/own the 18% Shares in HK Yunnan Tin (as opposed to any alleged “shareholder’s loan” or otherwise “in addition” to the 18% Shares) after the above assignment/novation of contracts;
(c)	the loan in (a) above would be repaid by future dividends to be declared by HK Yunnan Tin in favor of PRC Yunnan Tin in the latter’s capacity as 18% shareholder (and not by directing HK Yunnan Tin’s repayment/assignment of any loan HK Yunnan Tin allegedly owed to PRC Yunnan Tin, which loan did not exist in the first place).

76.  P further claimed the 26/8/11 Letter by PRC Yunnan Tin’s representatives on the board of directors of HK Yunnan Tin clearly showed PRC Yunnan Tin’s position was that HK Yunnan Tin did not owe any loan to PRC Yunnan Tin because PRC Yunnan Tin provided funds for “capital investment” (投資款) fulfilled by the 18% Shares in the name of PRC Yunnan Tin in accordance with the terms of the 18/7/10 Agreement. It was said with such clear indication from PRC Yunnan Tin itself (which assertion was prima facie against self-interest), Ds’ counterclaim premised on the existence of the alleged loan was doomed to fail, which strongly militated against any necessity for Ds to join PRC Yunnan Tin as a party to the present action, and Ds’ joinder application should be dismissed outright. After all, “[since PRC Yunnan Tin] shares a common position with [P], it is sufficient for [P] as a party alone to adduce evidence to the Court for due adjudication of such issue between [P] and [Ds].”

77.  P claimed that even if the court was not minded to “pre‑determine” the merits of Ds’ counterclaim at this stage: 

(a)	the issue of whether any alleged loan existed between PRC Yunnan Tin and HK Yunnan Tin was an incidental factual issue that would not directly give rise to any cause of action by P/Ds against PRC Yunnan Tin,[30] and no relief and/or order(s) (including declaratory relief) could be made for/against PRC Yunnan Tin save for PRC Yunnan Tin’s costs which in any event would be wasted;
(b)	the non-joinder of PRC Yunnan Tin and/or HK Yunnan Tin would not prevent the court from resolving such incidental factual issue, which could be resolved on evidence produced by P and Ds;
(c)	such an incidental factual issue involving PRC Yunnan Tin’s interest in HK Yunnan Tin did not mean PRC Yunnan Tin should be joined as a party, and the contractual dispute(s) in the present action should be confined to parties to the SPA (and not PRC Yunnan Tin who was not party or privy to the SPA and/or who would not be interested to the outcome of the present action);
(d)	Ds could produce any relevant evidence from PRC Yunnan Tin to assist their case or have its representatives testify as witnesses, but the absence of such evidence to date showed it was irrelevant and unhelpful, so joining PRC Yunnan Tin as party would not facilitate determination of the present dispute(s).

78.  P added the fact that he (as creditor) assigned the AUD16,300,000 loan to Xu/Chang made the intended joinder of PRC Yunnan Tin even more remote to the present dispute. P claimed that he was not a party to the Shenzhen Proceedings, and was therefore unable to comment on the progress, merits and/or outcome (if any) of such proceedings,[31] but Xu/Chang and PRC Yunnan Tin were not parties to the present action. P was concerned that if PRC Yunnan Tin was joined as a party, there would be risk for inconsistent findings in different jurisdictions binding on PRC Yunnan Tin. It was said there was little benefit in the intended joinder of PRC Yunnan Tin and HK Yunnan Tin (when the proper role of PRC Yunnan Tin (or its representatives) at trial should be as witness only), but there would be risk of “judicial competition” between different jurisdictions if PRC Yunnan Tin was joined as a party, and all parties (including PRC Yunnan Tin) would have to incur additional unnecessary legal costs and lengthened trial hearing.

79.  P feared the intended joinder would cause substantive delay to the present action that had progressed for more than 3 years with completion of exchange of rounds of witness statements. P claimed the case was ready for trial, but if PRC Yunnan Tin and/or HK Yunnan Tin were to be joined, the proceedings would have to start all-over again with further round(s) of witness statements. Moreover, the Nie 1^st Aff did not explain why the joinder application was not taken out earlier when Ds were fully aware of the present disputes and there was no real recent development/event, which suggested such application was tactical abuse and satellite litigation to prolong the proceedings to wear P down financially and psychologically. P therefore asked for dismissal of Ds’ joinder application with costs.

III.  DECISION

80.  In the Decision, I have set out the then existing pleaded case of P and Ds respectively (see paragraphs 70-90 of Part VIII(d) of the Decision), which essentially remained their pleaded case as I did not allow P to amend his pleadings to plead the New Case (which I have found did not to sit well with P’s Old Case) and dismissed the Amendment Summons. I adopt the analysis in paragraphs 70-90 of Part VIII(d) of the Decision, and not repeat the same here.

81.  Whilst the analysis as to the nature, status and treatment of the 18% Funds and 16.3m Payment both in the sum of AUD16,3000,000 was sufficient to dispose of the Amendment Summons, Mr Wong SC submitted the 18% Funds only formed part of the Funds, and the real issue in the present action was the true state of the accounts of HK Yunnan Tin as at 4 March 2011 in light of the understanding/dealings pertaining to the treatment of all contributions by the involved parties, ie the Funds.

IV.  LEGAL PRINCIPLES

(a)  Joinder of parties

82.  Order 15 rule 4(1) of the RHC provides as follows: 

“Subject to rule 5(1), two or more persons may be joined together in one action as plaintiffs or as defendants with the leave of the Court or where –

(a) if separate actions were brought by or against each of them, as the case may be, some common question of law or fact would arise in all the actions, and

(b) all rights to relief claimed in the action (whether they are joint, several or alternative) are in respect of or arise out of the same transaction or series of transactions.”

83.  Order 15 rule 6(2)(b) of the RHC provides as follows: 

“Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application –

……

(b) order any of the following persons to be added as a party, namely –

(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.”

84.  The objects of Order 15 rule 6(2)(b) of the RHC as to joinder of parties are (a) to prevent multiplicity of actions and to enable the court to determine disputes between all parties to them in one action, and (b) to prevent the same or substantially the same questions or issues being tried twice with possibly different results, which objects are achieved by enabling a person not a party to be added as a party.[32] In Wing Mou Construction Co Ltd (in liquidation) v Cosmic Insurance Corporation Ltd and Mansion Holdings Ltd (Third Party),[33] it was said the object of Order 15 rule 4(4) of the RHC is to ensure all relevant matters in dispute in the action can be effectively adjudicated upon by the court and all relevant parties are before it, and under Order 15 rule 6(2)(b) of the RHC the court can “on such terms as it thinks just” permit a person to be joined as a defendant thereby allowing that person to participate (to whatever extent permitted by the court) in the action.

85.  Hong Kong Civil Procedure 2018 states as follows:[34]

“…… This rule should be construed so as to bring all parties to disputes relating to one subject-matter before the court at the same time so that the disputes may be determined without the delay, inconvenience and expense of separate actions and trials …… Under it the court has power to secure the determination of all disputes relating to the same subject matter, without delay and the expense of separate actions ……. A liberal application should be given to O 15, r 6, particularly in the aftermath of the Civil Justice Reform, so as to ensure that, as far as possible, all matters in dispute between the parties are completely and finally determined, and all multiplicity of legal proceedings with respect to any of those matters is avoided. ……

Furthermore, on whether a new party should be joined, the test is whether there is a bona fide claim and a proper question to be tried as between the plaintiff and the intended defendant that is necessary or just and convenient for resolution between them as well as between the plaintiff and the defendant in the present proceedings ……

……

…… The court will not, however, decide questions of right on applications under the rule ……

……

Finally, it was recently held by Deputy Judge Kent Yee in Wong Shan Shan v. The Incorporated Owners of Yue Wah Mansion (unrep., HCA1086/2013, [2015] H.K.E.C. 156)[35] that there is no requirement for an applicant to show merit of his case under this rule. ……”

86.  Idmiston Ltd v Asian Master Enterprises Ltd & anor[36] applied the test for necessary interest of the party to be joined under Order 15 rule 6(2)(b) of the RHC as formulated by Lord Diplock in Pegang Mining Co v Choong Sam,[37] ie “will his right against or liabilities to any party to the action in respect of the subject matter of the action be directly affected by any order which may be made in the action”.

87.  In Wong Chun Loong Tony v Ada Ltd,[38] it was held that the court’s power to add a party under Order 15 rule 6(2)(b)(ii) of the RHC requires some interest in that party which is some way directly related to the subject matter to the action (and mere commercial interest in its outcome divorced from the subject matter of the action is not enough), but the existence of a cause of action between that party and one of the parties to the cause or matter is not a necessary prerequisite for this purpose. But “if the court is to have jurisdiction under (b)(ii) it is initially necessary that the question or issue mentioned in (b)(ii) should be common to (1) the intervener and a party to the cause or matter and (2) the parties to the cause or matter”.

88.  In Man Whi Chung v Man Ping Nam & anor,[39] DHCJ  A Cheung (as he then was) held that under Order 15 rule 6(2)(b)(i) of the RHC it is essential for an intending defendant to show he is sufficiently interested in the proceedings to be joined as an additional party, and even though the court has a wider jurisdiction to allow joinder under Order 15 rule 6(2)(b)(ii) of the RHC, there must exist between the person seeking to intervene and any party to the cause or matter “a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter”. Although a distinction should be drawn between an intervener with a legal interest and one who merely has an indirect and commercial interest (which is not enough) in the subject matter of the litigation, the court may allow a person with a doubtful interest in the subject matter of the litigation to be joined so that the doubt over his interest can be resolved at trial together with the relevant issues between the original parties.

89.  Thus, even though “[generally] a plaintiff who conceives that he has a cause of action against a defendant is entitled to pursue his remedy against that defendant alone”, and “[he] cannot be compelled to proceed against other persons whom he has no desire to sue”, “a person who is not a party may be added as defendant against the wishes of the plaintiff either on the application of the defendant or on his own intervention, or in rare cases by the court on its own motion”, and “the jurisdiction of the court under this rule is entirely discretionary”.[40] “Where the presence of a third party before the court is necessary to ensure that all matters in dispute were effectively dealt with, the court may add the third party as a proper party in the proceedings, even though there is no cause of action against that party ……”[41]

90.  Ma J (as he then was) in Wing Mou Construction Co Ltd (in liquidation)[42]held that although “[all] persons who have a legitimate legal or financial interest in the outcome of the matter in dispute are relevant parties”, “[the] court still retains a residual discretion to decide whether or not the order sought should be made”: 

“(5) The exercise of the court’s discretion in any given case depends on a number of factors. Of course, the court must first identify exactly the ambit of the order sought before considering what are the relevant factors going towards the exercise of discretion. No exhaustive list of factors can be enumerated but I would suggest the following will regularly feature: the individual prejudice to the parties in the event an order is or is not made, the stage that the action has reached when the application is made, any delay in making the application and any delay that may be caused should an order be made. What weight the court will give to any particular factor will depend on the precise form of the order or orders sought.

(6) Ultimately, the discretion is exercised bearing in mind of the two sub-rules I have earlier set out and, as with any exercise of discretion by the court, orders should only be made where necessary, just and convenient.”

91.  In Hong Kong Civil Procedure 2018, it was said “…… [the] power given by the rule is, however, widely exercised ……. though the addition of new parties may cause new expense and necessitate new evidence …… But, generally speaking, the court will make all such changes in respect of parties as may be necessary to enable an effectual adjudication to be made concerning all matters in dispute …..”[43]

(b)  Costs

92.  Interlocutory costs   Order 62 rule 3 of the RHC provides as follows: 

“(2) If the Court in the exercise of its discretion sees fit to make any order as to costs of or incidental to any proceedings (other than interlocutory proceedings), the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.

(2A) If the Court in the exercise of its discretion sees fit to make any order as to the costs of and incidental to any interlocutory proceedings, it may, subject to this Order, order the costs to follow the event or make such order as it sees fit.” (my emphasis)

93.  It is trite that the issue of costs is a matter of discretion for the court, and subject to established legal principles, the court has a wide discretion, especially in relation to costs in interlocutory proceedings. Hong Kong Civil Procedure 2018[44] states that after the Civil Justice Reform (“CJR”), “…… the principle that costs normally follow the event is no longer the prescribed usual order but is instead just an option”.

94.  At the same time, the special matters set out in Order 62 rule 5 of the RHC, to the extent they are applicable, are relevant as to how the court will exercise the discretion in interlocutory applications.[45] Order 62 rule 5 of the RHC provides that:

“(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account –

……

(e) the conduct of all the parties;

……

(2) For the purpose of paragraph (1)(e), the conduct of the parties includes –

(a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d) conduct before, as well as during, the proceedings.”

95.  The new post-CJR approach was explained in Waxman & anor v Li Fei Yu & anor,[46] and more recently in Daimler AG (formerly known asMercedes-Benz AG) v Helge Herbert Leiduck appointed by Order to represent the estate of Herbert Heinz Horst Leiduck, deceased & anor.[47]

96.  In Waxman & anor, To J at pp 431 - 432 and 434 summed up the approach as follows: 

“14. There is a wide spectrum of interlocutory proceedings. It is impossible to make any meaningful list of all the circumstances which are relevant for considering what is the appropriate type of costs orders in each factual situation.  Generally, the ultimate merit of the claim or defence are not relevant, but the lack of merit or a real risk of such lack of merit is.  If at the end, a claim is bound or is likely bound to fail, the opponent should not be burdened with unnecessary interlocutory proceedings and all the costs that those proceedings will incur. If a party pursues interlocutory proceedings for the purpose of delaying the evitable or for the purpose of seeking an impossible claim, he should be deprived of his costs even if he succeeds in the interlocutory proceedings.  Hence, an order that a successful party shall have his costs only if he succeeds in the action, or bear his own costs or even pay the opponent’s costs are possible options under the new r 3(2A), depending on the court’s perception of where justice lies.

……

19. Summing up on the post-CJR position, I think the court has much wider discretion as to costs in interlocutory proceedings. Unlike other proceedings, the general rule of costs following the events do not apply.  The court is entitled to take into account all the circumstances of the case, including those set out in r 5, to make such order as it thinks fit. In the exercise of its discretion, the court may take the issue-based approach or may take into account merit of the parties’ case or the possible outcome of the action.  The circumstances of interlocutory proceedings are so numerous that it is impossible to make any general rule.  Costs to follow the event and costs be to the successful party’s costs in the cause are obvious options.

20. As for the onus of proof, I think it is the same post-CJR as it was pre-CJR.  It must be the successful party’s burden to satisfy the court as to the type of costs order it is entitled.  To begin with, the successful party is assisted by the general rule of costs to follow the event.  By the mere fact of being successful, the successful party has discharged the evidential burden of showing it is entitled to costs.  Thus, effectively, the evidential burden is on the unsuccessful party to adduce sufficient evidence or argument that some other or lesser order is appropriate, such as no order as to costs, costs be to the successful party’s costs in the cause or costs to the unsuccessful party.  In the absence of evidence or convincing argument to the contrary, the successful party would also have discharged the legal burden.   Costs to follow the event would be the appropriate order to make.   If the unsuccessful party is able to discharge that evidential burden, it will be the legal burden of the successful party to show that he is entitled to the costs order which he seeks.  In reality, having heard the interlocutory application, it would be quite obvious to the court what costs order would best serve the justice between the parties without relying on the burden of proof.”

97.  Mr Li SC submitted that given such approach, it was not invariably the case an unsuccessful party in interlocutory proceedings would pay costs to the successful party. He pointed to a number of authorities where the court did not order costs in favour of the party making an application for joinder even though the application was opposed.[48] But Mr Chan SC submitted some of these cases concerned costs order nisi only (which suggested the question of costs had not been fully argued) or agreed costs in the cause. Mr Chan SC referred to two other authorities whereby the court allowed the contested joinder application with costs.[49] Since both Mr Li SC and Mr Chan SC referred to the above authorities for illustration rather than for principle, I do not propose to discuss them in detail although I have considered them.

98.  In Daimler AG (formerly known as Mercedes-Benz AG), Lisa Wong J at paras 10 - 14 explained as follows:  

“10. Where the indulgence of the court is sought and contested ……, the practice has developed, even before the CJR, of distinguishing between two set of costs:

(1) the costs of and occasioned (or thrown away or wasted) by the indulgence being granted and the costs of the summons by which the application for indulgence is made; and

(2) the costs of the contested substantive hearing.”

99.  Settlement  The court should consider the terms of the parties’ agreement on the substantive relief sought in order to assess whether the applicant has obtained what they sought. In Re Lucky Ford Industries Ltd,[50] Harris J held that if judgment was entered for relief sought by the petitioner pursuant to a consent order or the respondent had withdrawn his objection to the relief sought by the petitioner resulting in judgment in his favour, costs would follow the event. But the position was more complex where a case was settled and the terms of the settlement did not involve granting any relief, and the petitioner only obtained something substantive under the terms of an agreement. Harris J went on to say: 

“14. In my view having regard to O.1A r.1 the correct approach to determining costs in cases which do not involve the court granting substantive relief is for the court to first consider the terms of settlement and assess whether the petitioner has obtained substantially what he sought in the petition. If he did it will not be necessary or appropriate for the court to consider the evidence and arguments directed to the merits of the case and whether or not the petitioner would have been successful if the petition had gone to trial. The petitioner will be treated as having been successful and entitled to his costs.

15. There may be cases in which it is not clear from the terms of  settlement whether it can fairly be said that the petitioner has  been substantially successful. In such cases the court will have to determine whether it is probable that the petitioner would have been substantially successful. This may require a consideration of the merits of the case, but this process should be as economical as is consistent with the court’s duty to decide the issue fairly.”

100.  Proper approach In respect of the Joinder and Amended Joinder Summonses, Mr Li SC confirmed it was not P’s contention that Ds acted unreasonably in making their joinder application, but he suggested the pivotal consideration was whether P had acted reasonably in resisting Ds’ joinder application up to May 2017 and later changing his stance over the matter. Mr Chan SC submitted this would not be right approach because such argument if taken to its logical conclusion would mean that even if the applicant acted reasonably in issuing, pursuing and succeeding (after contest or by consent/concession) the interlocutory application, the respondent would not have to pay costs if he had not acted unreasonably. Mr Chan SC submitted in such circumstances justice would have required the respondent to pay costs of the application unless he can show the applicant acted unreasonably.

101.  In my view, whilst the court now has greater discretion and flexibility on costs in interlocutory proceedings by taking into account all circumstances (eg the factors in Order 62 rules 5(1)(e) and 5(2) of the RHC), Ds must be regarded as the successful or substantially successful party in relation to their joinder application (when P eventually conceded to join PRC Yunnan Tin and HK Yunnan Tin in the present action) (see paragraph 20 above), and they were therefore assisted by the general rule of costs to follow the event in discharging the evidential burden of showing they were entitled to costs. In the circumstances, it was for P to adduce sufficient evidence/argument to establish his proposed costs orders (see paragraph 44 above) were appropriate, and if cogent evidence/argument in this respect was absent, costs to follow the event would be the appropriate order.

102.  Whilst I agree with Mr Li SC that I should bear in mind P’s conduct/manner in resisting Ds’ joinder application and later changing his stance, it would not be the sole or pivotal consideration. In my view, the fact (as Mr Li SC conceded) Ds did not act unreasonably in issuing/pursuing the joinder application and my conclusion that they were the substantially successful party must also be relevant to the exercise of discretion on the question of costs (see Order 62 rule 5(2)(a) of the RHC). The correct approach was for the court to consider the parties’ conduct in the overall context of Ds’ joinder application, but practically speaking, as To J explained in Waxman & anor, it would be obvious to the judge who had heard the interlocutory application what costs order would best serve the justice between the parties without relying on the burden of proof. I propose to turn to the issue of costs on the basis of the above considerations.

V.  COSTS BETWEEN P AND DS

103.  As discussed above, the essence of P’s argument for his stance on costs (see paragraph 44 above) was that he had not acted unreasonably in resisting the joinder application during the period before PRC Yunnan Tin filed the PRCYT Summons on 10 April 2017, and in later changing his stance over the matter. But Ds claimed P failed to adduce sufficient evidence/argument to show P’s proposed lesser costs order would be appropriate.[51] Given the above contentions, it would be necessary to turn to the history of the Joinder and Amended Joinder Applications, which showed that P had resisted Ds’ joinder application for quite a while before he eventually acceded to such application.

104.  The Writ of Summons in the present action was issued on 11 August 2011. The Joinder Summons[52] and Amended Joinder Summons[53] were filed on 17 July and 14 November 2014 respectively (ie 3½ years and 3 years before the 3^rd Hearing on 19 December 2017). Such summonses came before me at the 1^st Hearing on 19 December 2014. After hearing some submissions from Mr Chan SC and Mr Li SC, I adjourned such summonses to the 2^nd Hearing that was eventually scheduled to be heard on 28-29 July 2015.

105.  Delay  Mr Li SC submitted P’s initial opposition to Ds’ joinder application was justified given the delay in taking out such application, and further given the complication it would cause to the present action and the prejudice it would cause to P (ie the case was ready to be set down for trial but for Ds’ joinder application). I am unconvinced by such argument. In my view, if there were significant delay that would result in irreparable prejudice to P, I am unable to see why P would have conceded to have PRC Yunnan Tin and HK Yunnan Tin join as parties to the present action.

106.  As for P’s complaint of delay in making the joinder application and delay that might be caused to the trial of the present action, I note Ds’ application for specific discovery was disposed of in December 2013, and P thereafter discovered more than 3,000 pages (5 box files) of documents mostly in connection with accounts/ledgers of the Group Companies. As a result of Ds’ review of such documents and further investigation into the issue of AUD16,300,000 (see footnote 52 above), which required a bit of time, Ds filed the Joinder Summons on 17 July 2014. I am not persuaded there was