YUAN CHU CHEN AND OTHERS v. CHEN MIN CHUN AND OTHERS

HCA 1714/2015

[2018] HKCFI 530

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1714 OF 2015

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REASONS FOR DECISION

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INTRODUCTION

1.  There were four applications before the court:-

(1)  the 1^st and 3^rd Defendants’ summons dated 11 January 2017 seeking to strike out the Plaintiffs’ Amended Statement of Claim and dismiss the present action against them (“the Strike Out Application”);

(2)  the 3^rd Plaintiff’s summons dated 20 March 2017 seeking leave to withdraw all his claims against the 1^st, 2^nd and 3^rd Defendants (“the Withdrawal Application”);

(3)  the 1^st, 2^nd and 4^th Plaintiffs’ summons dated 20 June 2017 seeking leave to amend the Writ of Summons and re-amend the Amended Statement of Claim as per the draft documents attached thereto (“the 1^st Amendment Application”); and

(4)  the 1^st, 2^nd and 4^th Plaintiffs’ summons dated 29 June 2017 seeking leave to (i) withdraw their earlier summons dated 20 June 2017, and (ii) amend the Writ of Summons and re‑amend the Amended Statement of Claim as per the draft documents attached thereto (“the 2^nd Amendment Application”).

2.  The Strike Out Application, in so far as it related to the 3^rd Plaintiff’s claims against the 1^st and 3^rd Defendants, and the Withdrawal Application, were heard on 29 June 2017 and disposed of by my decision handed down on 24 July 2017 (“the July Decision”). By the July Decision, I struck out the 3^rd Plaintiff’s Amended Statement of Claim and dismissed his action against all three Defendants, and reserved the question of costs as between the 3^rd Plaintiff and the 1^st and 3^rd Defendants to be dealt with after I had heard the remaining applications as between the 1^st, 2^nd and 4^th Plaintiffs and the 1^st and 3^rd Defendants.  The remaining applications were eventually heard on 22 November 2017 and 8 December 2017.  At the conclusion of the hearing on 8 December 2017, I dismissed the 1^st and 2^nd Amendment Applications, struck out the 1^st, 2^nd and 4^th Plaintiffs’ Amended Statement of Claims against all three Defendants, and dismissed their action against all three Defendants, with reasons to be given later.  This I now do.

THE 1^ST, 2^ND AND 4^TH PLAINTIFFS’ PROPOSED CLAIMS AGAINST THE DEFENDANTS IN THE DRAFT RE-AMENDED STATEMENT OF CLAIM ATTACHED TO THE 2^ND AMENDMENT APPLICATION

3.  For the reasons given in the July Decision, it is clear that the 1^st, 2^nd and 4^th Plaintiffs’ claims against the Defendants as advanced in the existing Amend Statement of Claim are unsustainable and ought to be struck out.  Mr Yip (on behalf of the 1^st, 2^nd and 4^th Plaintiffs) has not seriously argued otherwise.

4.  For the present purposes, the central question is whether the draft Re-Amended Statement of Claim (“the RASOC”) attached to the 2^nd Amendment Application gives rise to any reasonable causes of action and/or is obviously unarguable on the undisputed and/or indisputable facts as contended by Ms Tong (for the 1^st and 3^rd Defendants).

5.  The RASOC is not an easy document to follow.  Doing the best that one can, it would appear that the following facts and matters are alleged by the 1^st, 2^nd and 4^th Plaintiffs in the RASOC:-

(1)  The 1^st to 4^th Plaintiffs and the 1^st Defendant are siblings (collectively “the Children”).  Their father, the late Java Chen (“Mr Chen”), and their mother, the late Shan Lin Kam (“Madam Kam”), have both passed away (paragraph 1[1]).

(2)  The 2^nd Defendant was the Chief Executive Officer of HSBC, New York, which was involved in the financing of “New York FNT”, a group of corporations under the control of the Chen family (paragraph 4).

(3)  The 3^rd Defendant was a secretary employed by the Chen family, and her principal duty was to keep books and accounts according to the instructions given by members of the Chen family (paragraph 5).

(4)  On or about 6 October 1974, Mr Chen, Madam Kam and the 1^st Plaintiff entered into a written agreement (“the 1974 Agreement”), under which a trust of all shares and interests held by Mr Chen in companies in Hong Kong and the USA (including any shares and interests which he might acquire in future) was created for the benefit of Madam Kam and the Children (“the 1974 Trust”) (paragraphs 6 and 7).

(5)  FNT Foundation Corp (“FNT Panama”), formerly known as Overseas Dynamics Inc, was incorporated under the Panama Corporation Law on 18 March 1981 (paragraph 8).

(6)  The first subscribers to the Articles of Incorporation of FNT Panama were Roy Carlos Durling and Cecilio Augusto Castillero, each of whom agreed to subscribe for 1 share in FNT Panama (paragraph 8B).

(7)  The first directors of FNT Panama named in the Articles of Incorporation were William Su-Lian Cheng, Kenneth Kwong-Piu Wong and Susanna Bik-Chu Lung (paragraph 8B).

(8)  At a board meeting of FNT Panama held on 16 April 1982, William Su-Lian Cheng, Kenneth Kwong-Piu Wong and Susanna Bik-Chu Lung resigned as directors, and Mr Chen, the 1^st Defendant and the 3^rd Plaintiff were appointed as new directors, of the company (paragraph 9A).

(9)  On or about 7 May 1982, by two instruments entitled “Transfer of Subscription” (collectively the “1982 Transfers”), Madam Kam acquired the right to subscribe for 1 share in FNT Panama each from Roy Carlos Durling and Cecilio Augusto Castillero respectively (paragraph 9).

(10)  Neither Roy Carlos Durling and Cecilio Augusto Castillero, nor Madam Kam, ever exercised the right to subscribe for the 2 shares in FNT Panama.  Nevertheless, Madam Kam had absolute control and ownership over FNT Panama by virtue of her right to subscribe for the 2 shares in FNT Panama under the 1982 Transfers (paragraphs 9 and 11). 

(11)  Madam Kam’s intention was to use FNT Panama to receive and hold trust properties under the 1974 Trust, which was later re-confirmed by the 1986 Agreement (mentioned below), and/or to hold the properties of the Kam Foundation (mentioned below), for the welfare and benefit of the Children (paragraph 10).

(12)  By way of re-structuring of the family assets and for the purpose of implementing the 1974 Trust (which was later updated and re-confirmed by the 1986 Agreement), Mr Chen and the Children “injected their family assets into [FNT Panama] by transferring the shares of the companies held under the name of [Mr Chen] and the Children and other shares acquired … It is and was a common understanding amongst [Madam Kam, Mr Chen] and the Children that after the re-structuring the 1974 Trust would be applicable to [FNT Panama] which is a family asset” (see paragraph 10A).

(13)  The assets transferred to FNT Panama included:-

(a)  200 shares in First National Estate Investment Limited (“Estate”) by each of the 1^st, 2^nd, 3^rd and 4^th Plaintiffs and 199 shares in Estate by the 1^st Defendant; and

(b)  A total of 700 shares in First National Trading Company Limited (“Trading”) by the 3^rd Plaintiff in 1983 (paragraph 10B).

(14)  As a result, FNT Panama directly or indirectly holds all the shares in Estate, Trading and Raffle Manufacturing Associates Limited (collectively “the Hong Kong Subsidiaries”) (paragraph 10C).

(15)  The Hong Kong Subsidiaries hold a number of real properties in Hong Kong (paragraph 10D).

(16)  On 31 December 1983, Madam Kam established a private trust called “The FNT Foundation” (“the Kam Foundation”) for the welfare and benefit of the beneficiaries thereunder pursuant to a written instrument entitled “FNT基金會章程及經營業務規則” (“the Kam Foundation Articles”) (paragraphs 7.1 and 7.2).  Pausing here, I should mention that the Kam Foundation Articles were signed or purportedly signed by Madam Kam as “Founder” and Mr Chen as “Temporary representative”, but the authenticity of the Kam Foundation Articles is disputed by the 1^st and 3^rd Defendants.

(17)  Clause 8 of the Kam Foundation Articles provided that the initial beneficiaries and trustees were the 1^st to 4^th Plaintiffs and the 1^st Defendant (paragraph 7.3). 

(18)  On or about 2 September 1986, Mr Chen and Madam Kam entered into an “updated” written agreement (“the 1986 Agreement”), under which the 1974 Trust was “re‑confirmed” (paragraph 7A).  The 1974 Trust as updated or re-confirmed by the 1986 Agreement shall hereinafter be referred to as the “Family Trust”.

(19)  The 1986 Agreement provided (inter alia) that -

(a)  Madam Kam and the Children would own 100% of the unregistered bearer shares of FNT Panama (as mentioned in paragraph 8 of the July Decision, it is not in dispute that, as a matter of fact, no unregistered, bearer, shares in FNT Panama ever exist);

(b)  all persons holding shares in FNT Panama were to be representatives of or trustees for Madam Kam and the Children;

(c)  Madam Kam and the Children were entitled to participate in the management of FNT Panama as directors at any time; and

(d)  Madam Kam and the Children were entitled to transfer the shares in FNT Panama to their own names at any time (paragraph 7B).

(20)  At a board meeting of FNT Panama held on or about 5 April 1989[2], Mr Chen resigned as director, and Cheng Young Chong was appointed as new director, of the company.  As a result, the board of directors of FNT Panama comprised the 1^st Defendant, the 3^rd Plaintiff and Cheng Young Chong (paragraph 9B).

(21)  Since about 1989, the “Company Kit” of FNT Panama (containing, inter alia, a blank share book, an account book, a stock register book and company seals) and the original 1974 Agreement, 1986 Agreement, and Kam Foundation Articles had been kept in a safe deposit box at Wing Lung Bank held in the joint names of the 3^rd Plaintiff and 1^st Defendant (paragraphs 9 and 13).

(22)  On 1 May 1995, the 2^nd and 3^rd Defendants were appointed as directors of PNT Panama (paragraph 12C).  I should mention that, as can be seen from the purported minutes of the meeting of the shareholders of FNT Panama held on 1 May 1995, the 2^nd and 3^rd Defendants were appointed as directors in replacement of Cheng Young Chong and the 3^rd Plaintiff respectively.  The validity of the appointment of the 2^nd and 3^rd Defendants as directors of PNT Panama is disputed by the 1^st, 2^nd and 4^th Plaintiffs.

(23)  Madam Kam passed away on 13 February 2000.  Under her will, each of the Children was entitled to 20% of the stocks and shares left by Madam Kam.  At the time of her death, Madam Kam held the right to subscribe for 2 shares in FNT Panama for or on behalf of the Family Trust and a 1/6^th beneficial interest in the Family Trust.  On 2 April 2001, the 3^rd Plaintiff was granted administration of the estate of Madam Kam by the High Court of the HKSAR (paragraph 14).

(24)  On or about 28 August 2014, at a meeting held in a restaurant in Prudential Hotel at Nathan Road, the 1^st Defendant revealed for the first time to the 1^st to 4^th Plaintiffs that Madam Kam’s right to subscribe for the 2 shares in FNT Panama had been assigned to [the trustees of] a “FNT Foundation” for a nominal value (paragraph 17).

(25)  In or about May 2015, at another meeting in Prudential Hotel, the 1^st Defendant showed to the 3^rd and 4^th Plaintiffs a document which appeared to be a “Transfer of Subscription” (“the Alleged Transfer”) dated 30 December 1983, written in English and purportedly signed by Madam Kam (paragraph 17). It is the 1^st, 2^nd and 4^th Plaintiffs’ case that the purported signature of Madam Kam on the Alleged Transfer does not match her ordinary, usual, signature, and was not made by her.

(26)  According to the 1^st Defendant, Madam Kam’s right to subscribe for the 2 shares in FNT Panama had been assigned or transferred to the trustees of another private trust also known as “The FNT Foundation” (“the Chen Foundation”), being a trust established pursuant to a “Declaration of Trust” by FNT Panama and Mr Chen and executed by Mr Chen on 20 April 1983 in the State of New York, USA, in his capacity as President of FNT Panama and as Interim Trustee (paragraphs 17 and 17.2). 

(27)  In about May 2015, the 3^rd Plaintiff found out that that the 1^st Defendant had terminated the rental of the safe deposit box at Wing Lung Bank and taken away the Company Kit and other documents mentioned above without the consent of any of the Plaintiffs (paragraph 16).

(28)  On 15 January 2016, the 1^st, 2^nd and 3^rd Defendants purportedly passed a board resolution of FNT Panama to issue 2 shares in FNT Panama to the trustees of the Chen Foundation, namely, the 1^st, 2^nd and 3^rd Defendants and one Mr Paul Shen (paragraphs 17.2 and 17.4).

6.  In paragraph 12B of the RASOC, it is alleged that since 1982, the 1^st Defendant, by being appointed as a director holding and managing the assets of FNT Panama, has been acting as a trustee to hold and take care of the trust assets of the Family Trust.

7.  In paragraph 12C of the RASOC, it is further alleged that since 1 May 1995, the 2^nd and 3^rd Defendants, by being appointed and acting as directors of FNT Panama, have been holding and managing the assets of FNT Panama, “being the trust assets of the Family Trust”, jointly with the 1^st Defendant.

8.  The following causes of action are advanced by the 1^st, 2^nd and 4^th Plaintiffs against the 1^st, 2^nd and 3^rd Defendants in the RASOC:-

(1)  breach of the Family Trust;

(2)  misappropriation of trust assets;

(3)  knowing receipt of trust assets;

(4)  unjust enrichment;

(5)  conspiracy to commit “conversion of the right and interest in the shares of FNT Foundation Corp”; and

(6)  conspiracy to injure the interests of the Plaintiffs as beneficiaries of “FNT Foundation Corp”.

THE DRAFT RE-AMENDED STATEMENT OF CLAIM DISCLOSES NO REASONABLE CAUSE OF ACTION AND THE 1^ST, 2^ND AND 4^TH PLAINTIFFS’ CLAIMS AGAINST THE DEFENDANTS ARE PLAINLY AND OBVIOUSLY UNARGUABLE

(i)    The trust claims (items (1), (2) and (3))

9.  In the RASOC, it is alleged that the 1^st, 2^nd and 3^rd Defendants acted in breach of the Family Trust, misappropriated trust assets and/or knowingly received trust assets, in that:-

(1)  The 1^st Defendant failed and/or refused to (i) deliver the Company Kit, and the original 1974 Agreement, 1986 Agreement, and Kam Foundation Articles to the Plaintiffs, and (ii) “issue 4/5 of the two shares [in FNT Panama]” to the Plaintiffs, despite repeated requests and demands (paragraphs 15 to 16B).

(2)  The 2^nd and 3^rd Defendants, by reason of their long-term acquaintance and work relationship with Mr Chen, Madam Kam and the Children, and/or upon the commencement of these proceedings, knew or ought to have known of the arrangement in respect of the Family Trust, and are liable to return to the Plaintiffs “their entitled shares of the trust assets under the Family Trust” (paragraphs 16C and 16D).

(3)  The 1^st, 2^nd and 3^rd Defendants, having knowledge of the arrangement in respect of the Family Trust, misappropriated assets of the Family Trust by issuing 2 shares in FNT Panama to the trustee of the Chen Foundation on 15 January 2016 (paragraph 17.4).

(4)  Further or alternatively, the 1^st, 2^nd and 3^rd Defendants, by issuing 2 shares in FNT Panama to the trustee of the Chen Foundation, knowingly received trust assets and are liable to return the part of the trust assets to the Plaintiffs which they are entitled to.

10.  As pointed out by Ms Tong, the trust claims are premised upon a trust arising from the 1974 Agreement as supplemented by the 1986 Agreement.  This is confirmed by the 4^th Plaintiff in paragraph 11 of his 1^st Affirmation filed on 27 July 2017.  However, even if the 1974 Agreement and/or 1986 Agreement can somehow be regarded as constituting a trust, namely, the alleged Family Trust (which is disputed by Ms Tong), it seems clear that such trust could only cover shares held, or to be acquired, by Mr Chen in companies registered in Hong Kong or the USA (under the 1974 Agreement), or by Mr Chen and/or Madam Kam in companies registered in any jurisdictions (under the 1986 Agreement).  The 1974 Agreement and 1986 Agreement would not be binding on other persons who are not parties thereto, and cannot make their assets subject to the alleged Family Trust.

11.  It is, in my view, plain and obvious that the trust claims as currently advanced by the 1^st, 2^nd and 4^th Plaintiffs in the RASOC are unsustainable, for the following reasons.

12.  First, in relation to the shares in FNT Panama, as a matter of fact, neither Mr Chen nor Madam Kam ever held any shares in that company.  No share in FNT Panama was issued until 15 January 2016, when 2 shares were issued to the trustees of the Chen Foundation, although in the board resolutions of FNT Panama dated 15 January 2016, it is stated that the Secretary of the company is authorised to make annotations in the share register to show the trustees of the Chen Foundation as the holder of the 2 shares as from 30 December 1983, being the date of the Alleged Transfer.  Be that as it may, the trustees of the Chen Foundation are not parties to either the 1974 Agreement or the 1986 Agreement and are therefore not bound by those agreements.  There is no proper basis to contend that they hold, or agree to hold, the 2 shares in FNT Panama subject to any trust constituted by those agreements.

13.  Second, in relation to the right to subscribe for 2 shares in FNT Panama which Madam Kam acquired from the subscribers to the Articles of Incorporation of FNT Panama on 7 May 1982, it is important to note that the 1986 Agreement does not refer to any right to subscribe for shares in PNT Panama.  It refers, instead, to unregistered bearer shares in PNT Panama which, it is not disputed, never exist.  Further, Madam Kam’s right to subscribe for 2 shares in FNT Panama was transferred or assigned to the trustees of the Chen Foundation on 30 December 1983 under the Alleged Transfer, and such right has already been exercised, resulting in the issue of 2 shares in PNT Panama to the trustees of the Chen Foundation on 15 January 2016.  As earlier noted, the authenticity of the Alleged Transfer is disputed.  However, the proper party to challenge the Alleged Transfer would be Madam Kam during her lifetime and the personal representative of Madam Kam (ie, the 3^rd Plaintiff) after her death, instead of the 1^st, 2^nd and 4^th Plaintiffs.  No action has been taken to challenge the Alleged Transfer for over 30 years.  Mr Paul Shen, one of the trustees of the Chen Foundation to whom the 2 shares in FNT Panama were issued, has also not been joined as a party to this action.  Even if, as alleged by the 1^st, 2^nd and 4^th Plaintiffs in paragraph 10 of the RASOC, Madam Kam’s “intention” was to hold FNT Panama for the benefit of the Children, no proper basis has been pleaded in the RASOC to support any contention that she held the right to subscribe for 2 shares in FNT Panama upon the Family Trust constituted by the 1974 Agreement as supplemented by the 1986 Agreement.  It is also trite that a trust cannot be created by intention alone.  For all these reasons, I do not consider that the 1^st, 2^nd and 4^th Plaintiffs have advanced any arguable claim in the RASOC that Madam Kam’ right to subscribe for 2 shares in FNT Panama could be regarded as an asset of the alleged Family Trust.

14.  Third, in relation to assets injected into FNT Panama (including shares in Estate and Trading), it is clear from the relevant annual returns of Estate and Trading that some of the shares were transferred by the Children and other persons to FNT Panama. However, the Children (with the exception of the 1^st Plaintiff) and those other persons are not parties to the 1974 Agreement or 1986 Agreement, and are therefore not bound by the said agreements.  In paragraph 10A of the RASOC, it is alleged that, by way of re-structuring of the family assets and for the purpose of implementing the 1974 Trust (which was later updated and re‑confirmed by the 1986 Agreement), the Father and the Children injected their assets into FNT Panama, and “[i]t is and was a common understanding amongst [Madam Kam, Mr Chen] and the Children that after the re-structuring the 1974 Trust would be applicable to [FNT Panama] which is a family asset”.  No particulars of any relevant agreement amongst Mr Chen, Madam Kam and the Children, or of the alleged common understanding, are given.  It is also unclear as to whether the 1^st, 2^nd and 4^th Plaintiffs’ case is that the assets held by FNT Panama, as distinct from the shares in FNT Panama, are family assets.

15.  Fourth, the fact that the 1^st, 2^nd and 3^rd Defendants have been appointed and/or have acted as directors of FNT Panama (relied upon by the Plaintiff in paragraphs 12B and 12C of the RASOC) does not make them trustees of the Family Trust, or give rise to any implication that they hold or manage assets belonging to FNT Panama for or on behalf of the Family Trust.  On the contrary, as directors of FNT Panama, they owe fiduciary duties to the company, but not to the beneficiaries of the alleged Family Trust.

16.  Lastly, in relation to the “Company Kit” of FNT Panama, and the original 1974 Agreement, 1986 Agreement, and Kam Foundation Articles:-

(1)  Since the Company Kit belongs, in law, to FNT Panama, prima face any complaint ought to be made by FNT Panama.

(2)  Similarly, any complaint in respect of the original 1974 Agreement, 1986 Agreement, and Kam Foundation Articles ought to be made by the personal representative(s) of Mr Chen and Madam Kam respectively or the trustees of the Kam Foundation, as may be appropriate.

(ii)   The unjust enrichment claim (item (4))

17.  The unjust enrichment claim, as pleaded in paragraph 17.6 of the RASOC, is as follows:-

“Further or alternatively, the 1^st, 2^nd and 3^rd Defendants and Mr. Paul Shen are liable to return the 1^st, 2^nd, 3^rd and 4^th Plaintiffs’ entitled part of the trust assets back to them as a result of unjust enrichment.”

18.  It follows from the above conclusion that the trust claims as advanced in the RASOC are unsustainable that the unjust enrichment is also unsustainable.

(iii)   The conspiracy claims (items (5) and (6))

19.  In so far as the conspiracy claims are concerned, they are contained in a single paragraph of the RASOC, namely, paragraph 18, as follows:-

“The 1^st Defendant has actual knowledge that the 1^st to 4^th Plaintiffs and he are the beneficiaries of the assets of [FNT Panama] under the Family Trust. It is averred that the 2^nd Defendant and the 3^rd Defendant knew or ought to have known that that the arrangement of the Chen’s family and the 1^st to 4^th Plaintiffs and the 1^st Defendant are the beneficiaries of the assets of [FNT Panama] under the Family Trust. The 1^st Defendant together with the 2^nd and 3^rd Defendants conspired together to commit conversion of the right and interest in the shares of FNT Foundation Corp. In the alternative, the 1^st, 2^nd and the 3^rd Defendant[s] conspired to [injure] the interest of the Plaintiffs as beneficiaries of FNT Foundation Corp. As a result of … the conspiracy of the 1^st, 2^nd and 3^rd Defendants … the 1^st to 4^th Plaintiffs suffer loss and damage.”

20.  The plea of conspiracy against the 1^st, 2^nd and 3^rd Defendants is patently defective, in that there is no allegation of any agreement amongst them or any overt acts from which an agreement may be inferred.  Further:-

(1)  Conversion only lies in respect of dealings with corporeal (tangible) personal properties, but not intangible properties or choses in action such as shares (as distinct from physical documents evidencing the choses in action such as share certificates): see Clerk & Lindsell on Torts, 21^st Edn, paragraphs 17-35, 17-36 and 17-38.  There cannot, in law, be a conspiracy to commit “conversion of the right and interest in the shares of FNT Foundation Corp”.

(2)  The alleged conspiracy to injure the interests of the Plaintiffs as beneficiaries of FNT Panama is equally unsustainable in the absence of any plea, supported by proper particulars, that the predominant purpose of the 1^st, 2^nd and 3^rd Defendants was to injure the Plaintiffs.

21.  In all, I consider that the RASOC discloses no reasonable cause of action against the 1^st, 2^nd and 3^rd Defendants, and the 1^st, 2^nd and 4^th Plaintiffs’ claims against them are plainly and obviously unarguable.  I would not therefore allow the proposed amendments to the Amended Statement of Claim.  I have considered whether I should not dismiss this action altogether in order to give the 1^st, 2^nd and 4^th Plaintiffs yet another opportunity to put forward a viable statement of claim.  However, the RASOC is already their 5^th version of the Statement of Claim (including a version put forward in July 2016[3] and the version attached to the 1^st Amendment Application).  I do not consider that it would be right to grant any further indulgence to them.  Subject to possible arguments of res judicata/abuse of process (in respect of which I express no view), the 1^st, 2^nd and 4^th Plaintiffs may, if so advised, commence another action against the Defendants if they can formulate a proper claim.

DISPOSITION

22.  For the foregoing reasons, the 1^st, 2^nd and 4^th Plaintiffs’ summonses dated 20 June 2017 and 29 June 2017 respectively are dismissed, the 1^st, 2^nd and 4^th Plaintiffs’ Amended Statement of Claim against all three Defendants is struck out, and their action against all three Defendants is dismissed.

23.  On the question of costs, I make the following orders:-

(1)  the 3^rd Plaintiff shall pay the 1^st and 3^rd Defendants’ costs incurred in resisting the summons dated 20 March 2017 referred to in paragraph 1(2) above;

(2)  1^st, 2^nd and 4^th Plaintiffs shall, jointly and severally, pay the 1^st and 3^rd Defendants’ costs incurred in resisting the summonses dated 20 June 2017 and 29 June 2017 respectively referred to in paragraphs 1(3) and (4) above;

(3)  save as aforesaid –

(a)  the 1^st, 2^nd, 3^rd and 4^th Plaintiffs shall, jointly and severally, pay the 1^st and 3^rd Defendants’ costs of the action, including the costs of the summons dated 11 January 2017 mentioned in paragraph 1(1) above and all reserved costs, up to and inclusive of the hearing on 29 June 2017; and

(b)  the 1^st, 2^nd and 4^th Plaintiffs shall, jointly and severally, pay the 1^st and 3^rd Defendants’ costs of the action after 29 June 2017, including the costs of the hearings on 22 November 2017 and 8 December 2017.

24.  All the above costs are to be taxed if not agreed on a party and party basis.  I do not consider the circumstances in the present case are such as would justify ordering the costs awarded in favour of the 1^st and 3^rd Defendants to be taxed on an indemnity basis as sought by Ms Tong.

25.  Lastly, it remains for me to thank counsel for their assistance rendered to the court.

HCA 1714/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1714 OF 2015

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D E C I S I O N

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1.  This is an appeal by the 1^st and 3^rd Defendants (Defendants) against the summary assessment of costs made by Master S Lo on 17 January 2017 in respect of the costs awarded in favour of the Defendants after dismissing the Plaintiffs’ application to amend the Amended Statement of Claim on 19 December 2016.

2.  The Statement of Costs put before the learned Master by the Defendants for summarily assessment was in the total sum of HK$811,770.05.  In response, a Statement of Objections was filed by the Plaintiffs.  The assessment of the Master was in the sum of HK$193,000 (Assessment).  The parties were notified of the Assessment by way of a letter from the clerk of the Master.  The letter referred to the Statement of Costs and the Statement of Objections having been placed before the Master.  However, no reason for the Assessment was contained in the letter.

3.  At the first hearing of this appeal on 27 April 2017, in light of the complaint made by the Defendants about the lack of reason for the Assessment, they were invited by the court to write to the Master to obtain the same.  It should be noted that in light of the Statement of Costs, the Statement of Objections and the figures which were arrived at by the Master, it was self-evident that the Assessment was made after a process of evaluation.  The Defendants did not suggest otherwise.

4.  The invitation of the court was supported by the Plaintiffs and agreed by the Defendants.  On 9 May 2017, the reasons for the Assessment (Reasons) were provided by the Master.  Mr Ng, who appeared for the Defendants, agreed that it is legitimate for this court to refer to the Reasons for the purpose of this appeal. 

5.  I should say at the outset that I see no issue on the lack of reason provided with the Assessment on 17 January 2017.  In the context of summary assessment of costs, it is not unusual for the tribunal to have provided no reason: see, eg, Poon Shu Fan v Wong Tin Yan, CA, [2012] 5 HKLRD 512.  Indeed, even in cases of taxation of costs, reasons are not usually given, but will be provided in the event of a review of the taxation.

6.  The matter is put beyond doubt by the recent judgment of G Lam J in Cheung Hing v Wah Fung Resources Ltd [2017] 1 HKLRD 493.  The court has no general duty to give reasons in relation to costs orders, and O.42, r.5B(1) does not preclude the court from giving reasons for its costs assessment at a later stage when it becomes necessary to do so.

7.  In the context of an appeal from a master’s costs order, it is essential to obtain the reasons for the order because this court will not allow such an appeal unless the order is unreasonable or the master had erred in law: Hong Kong Civil Procedure 2018, vol 1, rubric 58/1/6.  This is consonant with the test adopted by the Court of Appeal for an appeal against a summary assessment of costs by a judge: Poon Shu Fan, supra.

8.  The parties are in agreement that this court should apply the test set out in Poon Shu Fan, and I shall do so.

9.  One of the main arguments advanced by Mr Ng is that the Assessment equated to a 76.22% reduction of the costs claimed by the Defendants.  I am not attracted by the argument.  It is a matter of substance, not percentage, as to the amount of costs which could be recovered by the Defendants as the winners of the contested amendment application on a party-and-party basis.  Otherwise, there will be a premium for making unrealistic claims for costs.

10.  I cannot agree with the Defendants that, on a global approach[1], the Assessment was disproportionately low.  I bear in mind that it was an amendment application resisted successfully on the technical ground that the amendment sought to introduce a claim which was not covered by the writ (see para 4 of the Reasons). 

11.  I next deal with the 3 main complaints of the Defendants in respect of the deductions made by the Master.  Firstly, the Master disallowed the costs associated with the expert evidence on Panamanian law adduced only by the Defendants.  The Master did not rely on such evidence and saw no need for it.  I was taken to some parts of the transcript of the hearing before the Master by Mr Ng.  With respect, I am unable to see that the view taken by the Master on the necessity of the expert evidence is erroneous. The fact that the evidence was only adduced by the Defendants speaks volumes. 

12.  Secondly, I agree with the Master that the total time and costs claimed by the Defendants’ solicitors (about 78 hours) were highly excessive, bearing in mind the nature of the application in question.

13.  Thirdly, counsel’s fee in the total sum of HK$301,500 was reduced by the Master to HK$90,000 based on his knowledge and experience as a taxing master.  With respect, I agree with the Master that this claim was quite excessive in the context of a 3 hour contested amendment application before a master. 

14.  I am unable to see any valid ground for this appeal, and it is dismissed with a costs order nisi in favour of the Plaintiffs, to be taxed if not agreed.

HCA 1714/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1714 OF 2015

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D E C I S I O N

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INTRODUCTION

1.  There were four applications before the court:-

(1)   the 1^st and 3^rd defendants’ summons dated 11 January 2017 seeking to strike out the plaintiffs’ amended statement of claim and dismiss the action against them (“the Strike Out Application”);

(2)   the 3^rd plaintiff’s summons dated 20 March 2017 seeking leave to withdraw all his claims against the 1^st, 2^nd and 3^rd defendants (“the Withdrawal Application”);

(3)   the 1^st, 2^nd and 4^th plaintiffs’ summons dated 20 June 2017 seeking leave to amend the writ of summons and re-amend the statement of claim as per the draft documents attached thereto; and

(4)   the 1^st, 2^nd and 4^th plaintiffs’ summons dated 29 June 2017 seeking leave to (i) withdraw their earlier summons dated 20 June 2017, and (ii) amend the writ of summons and re‑amend the statement of claim as per the draft documents attached thereto.

2.  Upon the court’s directions, the Strike Out Application, in so far as it related to the 3^rd plaintiff’s claims against the 1^st and 3^rd defendants, and the Withdrawal Application were heard on 29 June 2017, leaving the remaining applications to be dealt with later. 

3.  This is the court’s decision on the Strike Out Application, in so far as it related to the 3^rd plaintiff’s claims against the 1^st and 3^rd defendants, and the Withdrawal Application.

THE 3^RD PLAINTIFF’S CLAIMS AGAINST THE 1^ST AND 3^RD defendants

4.  The following matters are alleged in the amended statement of claim:-

(1)   The plaintiffs and the 1^st defendant are siblings (collectively “the Children”).  Their father, the late Java Chen (“Mr Chen”) and their mother, the late Shan Lin Kam (“Madam Kam”) have both passed away.

(2)   The 2^nd defendant was the Chief Executive Officer of HSBC, New York, which was involved in the financing of “New York FNT”, a group of corporations under the control of the Chen family.

(3)   The 3^rd defendant was a secretary employed by the Chen family, and her principal duty was to keep books and accounts according to the instructions given by members of the Chen family.

(4)   On or about 6 October 1974, Mr Chen, Madam Kam and the 1^st plaintiff made a written agreement (“the 1974 Agreement”), under which a trust of the following properties, namely, all shares and interests held by Mr Chen in various companies in Hong Kong and America (including any shares and interests which he might acquire in future), was created for the benefit of Madam Kam and the Children (“the 1974 Trust”).

(5)   On or about 7 May 1982, by an instrument known as “Transfer of Subscription”, Madam Kam acquired 1 share in FNT Foundation Corp (“FNT Panama”), representing the “entire shareholding (100%)” of FNT Panama.

(6)   FNT Panama, formerly known as “Overseas Dynamics Inc”, is a company incorporated under the Panama Corporation Law.

(7)   On or about 2 September 1986, Mr Chen and Madam Kam made an “updated” written agreement (“the 1986 Agreement”), under which the 1974 Trust was “re‑confirmed”.

(8)   The 1986 Agreement further provided that -

(a)   Madam Kam and the Children were to own 100% of the unregistered bearer shares of FNT Panama;

(b)   all persons holding shares in FNT Panama were representatives of or trustees for Madam Kam and the Children;

(c)   Madam Kam and the Children were entitled to participate in the management of FNT Panama as directors at any time; and

(d)   Madam Kam and the Children were entitled to transfer the shares in FNT Panama to their own names at any time.

(9)   Madam Kam “notionally” divided all unregistered shares in FNT Panama into 6 equal shares, and distributed one share each to the Children and herself.

(10)   The unregistered shares in FNT Panama were evidenced by share certificates (“the Share Certificates”) held in the custody or possession of the 3^rd plaintiff on trust for members of the Chen family, including Madam Kam and the Children.

(11)   In or about 1989, it was decided at a family meeting that the Shares Certificates should be held by the 3^rd plaintiff and the 1^st defendant jointly, and they decided to put the Shares Certificates in a safe deposit box jointly opened by them.

(12)   Madam Kam passed away on 13 February 2000 leaving a valid will.  Under that will, each of the Children was entitled to 20% of the shares in FNT Panama and “other companies” (unspecified).

(13)   On various occasions, the plaintiffs requested and/or demanded the 1^st defendant to deliver the Share Certificates to them, but the 1^st defendant failed and/or refused to do so without justification.

(14)   In May 2015, the 3^rd plaintiff discovered that the 1^st defendant had terminated the rental of the safe deposit box without any notification to or consent of any of the plaintiffs.

(15)   The 1^st defendant informed the plaintiffs that the unregistered shares of FNT Panama had been assigned to “FNT Foundation”, a trust established by Madam Kam for the welfare of the Children, for a nominal value.  The “Shares” have been illegally under the control of the 2^nd and 3^rd defendants “as a result of breach of trust and/or conversion” committed by the 1^st defendant.

5.  In paragraph 18 of the amended statement of claim, it is pleaded that:-

“The 1^st Defendant has actual knowledge that the 1^st to 4^th Plaintiffs and himself are the beneficiaries of the Share Certificates. It is averred that the 2^nd Defendant and the 3^rd Defendant knew or ought to have known [of] the arrangement of the Chen’s family and the 1^st to 4^th Plaintiffs and the Defendant are the beneficiaries of the Share Certificates. The 1^st Defendant together with the 2^nd and 3^rd Defendants conspired together to commit conversion of the Share Certificates and/or the unregistered shares of [FNT Panama]. In the alternative, the 1^st, 2^nd and 3^rd Defendant[s] conspired to [injure] the interest of the Plaintiffs as beneficiaries of [FNT Panama]. As a result of the 1^st Defendant’s breach of trust and/or the agreement between the Children, and the conspiracy of the 1^st, 2^nd and 3^rd Defendants, conversion of the Share Certificates, the 1^st to the 4^th Plaintiffs suffer loss and damage”.

6.  In the prayer for relief, the plaintiffs seek, inter alia:-

(1)   a declaration that the 1^st defendant holds the Share Certificates of FNT Panama on trust for the plaintiffs and the 1^st defendant;

(2)   an order for delivery up of the Share Certificates by the 1^st defendant;

(3)   a declaration that the assignment of the shares in FNT Panama is void ab initio, alternatively an order to set aside the “transfer of unregistered shares [in] FNT Panama and/or the Share Certificates”;

(4)   various accounts; and

(5)   damages.

THE 3^RD PLAINTIFF’S CLAIMS AGAINST THE 1^ST AND 3^RD DEFENDANTS AS CURRENTLY FORMULATED ARE PLAINLY AND OBVIOUSLY BAD

7.  It is, in my view, plain and obvious that the 3^rd plaintiff’s claims against the 1^st and 3^rd defendants as currently formulated are unsustainable.  In particular:-

(1)   The pleas in paragraphs 6 and 7 of the amended statement of claim relating to 1974 Trust seem to be irrelevant, there being no averment that Mr Chen ever held any share or interest in that company.

(2)   The plea in paragraph 14 of the amended statement of claim also seems to be irrelevant to any of the claims advanced by the 3^rd plaintiff against the defendants.

(3)   In so far as the 3^rd plaintiff’s case of breach of trust and conversion against the 1^st defendant is concerned, there is no allegation in the amended statement of claim that the 1^st defendant was responsible for, or was a party to, the alleged assignment of the “unregistered” shares in FNT Panama to FNT Foundation as pleaded in paragraph 17 of the amended statement of claim.

(4)   In so far as the 3^rd plaintiff’s case of conspiracy against the 1^st, 2^nd and 3^rd defendants is concerned, there is no plea of any agreement amongst them or any overt acts from which an agreement may be inferred.

(5)   There are also no facts or matters pleaded in support of the allegation that the “Shares” (being a reference to the alleged unregistered shares in FNT Panama) have been under the control of the 2^nd and 3^rd defendants.

8.  Some further and better particulars of the statement of claim were delivered on behalf of the plaintiffs on 3 November 2015, including particulars of the alleged breach of trust and conversion on the part of the 1^st defendant.  It is, however, trite that the function of particulars is not to make good an inherently defective pleading (see Hong Kong Civil Procedure 2017, at paragraph 18/12/1).  In any event, it is not in dispute that, as a matter of fact, no unregistered, bearer, shares of FNT Panama ever exist.  It is, I understand, also common ground that the “Share Certificates” referred to in the amended statement of claim do not exist either, although there might have been in existence a “blank share book” of FNT Panama (see paragraph 21(c) of the 2^nd affirmation of the 2^nd plaintiff dated 6 December 2016, which affirmation was filed on behalf of all plaintiffs, including the 3^rd plaintiff).  That being the position, it is clear that the 3^rd plaintiff’s claims in respect of the alleged unregistered shares in FNT Panama and Share Certificates are unsustainable. 

9.  That the 3^rd plaintiff’s claims as currently formulated in the amended statement of claim are unsustainable is not seriously disputed by him.  In his affirmation filed on 11 April 2017, the 3^rd plaintiff complained that his former solicitors who prepared the original statement of claim/amended statement of claim had wrongly pleaded the subject matter of his proprietary claim, failed to plead sufficiently cogent facts, and raised deficient causes of action against the defendants, and some aspects of the factual matrix were wrongly pleaded or were pleaded not in accordance with his instructions.   He further stated that he had lost confidence in his former solicitors.   Eventually, he made the Withdrawal Application on 20 March 2017 (and gave notice of change of solicitors on 31 March 2017).  On 24 March 2017, he commenced a fresh action (HCA 705/2017) against the 1^st, 2^nd and 3^rd defendants and two other parties.  A reformulated statement of claim was indorsed with the writ in the new action.  Ms Sara Tong (for the 1^st and 3^rd defendants) contended that the claims in the new action were also unarguable, and informed the court that the 1^st and 3^rd defendants intended to apply to strike out that action in due course.  It would not therefore be appropriate for me to analyse the 3^rd plaintiff’s reformulated claims in the new action in this decision.

THE 3^RD PLAINTIFF’S CURRENT CLAIMS SHOULD BE STRUCK OUT

10.  At the hearing on 29 June 2017:-

(1)   Ms Tong contended that the 3^rd plaintiff’s claims against the 1^st and 3^rd defendants in this action should be struck out instead of being allowed to be withdrawn.  She further submitted that, should the court be minded to grant leave to permit the 3^rd plaintiff to withdraw his current claims, such leave should be subject to certain terms and conditions, including (i) the 3^rd plaintiff should not commence or pursue any new claims against the 1^st and 3^rd defendants based on the same or substantially the same grounds, subject matters, or causes of action and/or for the same relief as claimed in the present action, and (ii) the 3^rd plaintiff should remain as a party to this action (with his name struck out as plaintiff and added as a defendant) but all proceedings against him should be stayed save as might be necessary to enforce any orders which the court might make as a condition for granting him leave to withdraw his claims.

(2)   Mr Nicolas Cooney SC (for the 3^rd plaintiff) did not actively resist the Strike Out Application.  He stated that the Withdrawal Application was necessary only if his client’s claims in the present action were not struck out.  His main concern was that the striking out or withdrawal of the 3^rd plaintiff’s claims in this action should not prejudice his new claims in HCA 705/2017.

(3)   Mr Bowie Yip (for the 1^st, 2^nd and 4^th plaintiffs) adopted a neutral position and did not make any submissions in respect of the Strike Out Application, in so far as it related to the 3^rd plaintiff’s claims against the 1^st and 3^rd defendants, or the Withdrawal Application.

11.  In these circumstances, it seems to me that the neat and appropriate course to take would be to strike out the 3^rd plaintiff’s claims herein against all three defendants. Making an order for striking out has the added advantage of avoiding arguments or future arguments as to whether any order granting leave to the 3^rd plaintiff to withdraw his claims should be subject to the above mentioned terms and conditions proposed by Ms Tong, and whether the 3^rd plaintiff’s new action should be regarded as being based on the same or substantially the same grounds, subject matters, or causes of action and/or for the same relief as claimed in the present action.  I may add that an order for striking out is an option open to the court in an application for discontinuance/withdrawal under Order 21, rule 3(1) of the Rules of the High Court, Cap 4A.

12.  The 2^nd defendant has not, I am told, been served with the writ in this action, and naturally did not take part at the hearing on 29 June 2017.  Nevertheless, I see no reason why the 3^rd plaintiff’s claims against the 2^nd defendant in this action should remain.

13.  I should also make it clear that the order for striking out herein is not intended to prejudice the 3^rd plaintiff’s new action against the 1^st and 3^rd defendants.  Whether such order has the legal effect of precluding the 3^rd plaintiff’s new action against them is a matter to be argued in due course, as to which I express no view.

DISPOSITION

14.  For the foregoing reasons, I strike out the 3^rd plaintiff’s amended statement of claim and dismiss his action herein against all three defendants.

15.  The parties have made submissions on costs, which I shall deal with after I have heard the remaining applications as between the 1^st, 2^nd and 4^th plaintiffs and the 1^st and 3^rd defendants mentioned at the beginning of this decision.

16.  Lastly, it remains for me to thank counsel for their assistance rendered to the court.