KUDETA LTD AND OTHERS v. CHRIS AU AND OTHERS

HCA 183/2014 &
HCA 2063/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 183 OF 2014

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2063 OF 2015

________________________

________________________

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APPLICATION FOR VARIATION OF
COSTS ORDER NISI

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1.  This is the 1^st defendant’s (Au) application to vary the costs order nisi following my decision on 29 July 2016 in relation to an application by Au for specific discovery against the 1^st, 3^rd and 4^th plaintiffs (by original action) (the plaintiffs) and the 5^th defendant (by counterclaim) (Essence) in relation to 3 classes of documents. The other parties oppose the variation application which was dealt with by way of written submissions.

2.  This Court made a costs order nisi that Au pays the costs of the discovery application of the plaintiffs and Essence forthwith.  The order was made in view of the inordinate and unexplained delay in taking out the application; the generality and width of the application which unnecessarily occupied the parties to address its terms and scope; and the limited extent to which Au was successful in his application.

3.  The delay in making the specific discovery application was inexcusable and no adequate or plausible explanation was proffered to my satisfaction.  As I stated in my decision, I seriously considered not granting the application because of the inordinate delay.  In his written submission, Au seeks to reduce the period of delay involved but the fact remains even on his account of relevant events the delay was substantial and was exacerbated by the timing of the application, being made just prior to trial when the parties would be preparing their cases. 

4.  In light of my comments in my decision, there is no answer to the generality and width of the application.  It was framed in general and broad terms and lacked specificity.  It unnecessarily burdened the other parties and the court in having to consider an application whose ambit was broad and wide.  Bear in mind this was an application for specific discovery, not general discovery.

5.  Au argues that this was not a case that his application was not successful to “a very limited extent” but rather it was “partly successful”.  It is clear from my decision whichever way you describe the outcome of the application that the resultant discovery order very much narrowed down what was originally sought.

6.  In any event, it was because of the foregoing matters considered together that I made the order nisi as to costs. 

7.  I should add that I gave a direction on 4 August 2016 that costs should be summarily assessed on paper without the need for an oral hearing.  Under Order 62, rule 9A of the Rules of the High Court, a court may if it considers appropriate to do so make a summary assessment of the costs by ordering payment of a sum of money to that other party in lieu of taxed costs. 

8.  I consider a summary assessment of costs a highly effective and efficient means to deal with the question of quantum.  This is particularly so following an interlocutory application where the court can promptly and accurately assess the quantum of costs claimed.  It also brings finality to the issue of costs and therefore saves time and avoids further proceedings and further costs. 

9.  Au takes issue with the statement of costs of the plaintiffs and Essence.  I have considered the objections to the statement of costs and I see no reason why they should not be allowed. 

10.  Au submits that the costs order nisi should be varied by making instead an order that there be “no order as to costs” between the parties.  He also submits in the alternative that if the Court does not agree to this order then it should be varied so that he only pays a fraction of the costs of the plaintiffs and Essence “in any event” to reflect the partial success of his application, and in the further alternative that if the Court considers that Au should bear the costs of the plaintiffs and Essence that the costs order should be that Au pays the costs of the plaintiffs and Essence “in any event” and not “forthwith”. 

11.  I am not convinced by the submissions on behalf of Au in relation to the substantive argument or the proposed alternatives.  I should add that I ordered that costs be paid forthwith because of the nature and circumstances of the application which have been addressed in my decision. The application is refused and I order that the costs order nisi be made absolute. There will be an additional order that Au pays forthwith the costs of Essence in relation to this application in the amount summarily assessed. 

In respect of HCA 183/2014:

In respect of HCA 2063/2015:

HCA 183/2014 &
HCA 2063/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 183 OF 2014

________________________

________________________

AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2063 OF 2015

________________________

________________________

________________________________________

APPLICATION TO VARY TERMS OF ORDER

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1.  The 1^st defendant opposes a variation of an order this Court made on 4 August 2016 following its decision on 29 July 2016 that references to “another” in paragraph 50 of the decision be taken as a reference to the 1^st and 3^rd plaintiffs (by original action). Paragraph 50 reads:

“50. I will grant the application to the extent that Essence is to file and serve a list of documents which are or have been in its possession, custody or power, consisting of its bank records in relation to (1) the payments of funds from Kudeta BVI, namely, remittances of dividends or distributable profits, to Essence and any payment or transfer of those funds to another from September 2010 to October 2012 and (2) the payment of the proceeds of sales of Essence’s shareholding to L Capital and any payment or transfer of those funds to another from January to February 2014.” (Emphasis added)

2.  This paragraph concerned the Court’s order that the 5^th defendant (by counterclaim) (Essence) file and serve a list of documents in relation to the payment or transfer of funds by Essence to “another” of funds received from Kudeta BVI from September 2010 to October 2012 and from the proceeds of sale of Essence’s shareholding to L Capital from January to February 2014. 

3.  The 1^st defendant argues that the references to “another” in paragraph 50 should not be taken as a reference to the 1^st and 3^rd plaintiffs only, and should be taken to mean “any individual or entity that has received such funds from Essence which Essence in turn received from (1) Kudeta BVI and (2) L Capital as referred to in paragraph 50”. 

4.  The 1^st defendant argues that the term “another” had been used in a previous order in relation to Rocky Cape.  That discovery order was sought by the 1^st defendant to ascertain whether the 1^st, 2^nd and 3^rd plaintiffs had an interest in Rocky Cape.  As I understand it, the present discovery order was sought by the 1^st defendant to ascertain whether the 1^st or 3^rd plaintiffs had an interest in Essence as pleaded by him.  Although it is submitted by the 1^st defendant that it was to show or establish the beneficial ownership of Essence. 

5.  I made it abundantly clear in my decision that this application for specific discovery was made very late in the proceedings when it could have been made a lot earlier.  I was very conscious of the potential disruption it would cause to the proceedings and the burden it would place on the disclosing parties at this late and critical stage of the action.  This was all the more reason to ensure that this exercise of discovery was not a fishing expedition placing an unreasonable and unnecessary burden on the disclosing parties. 

6.  The terms of the order were made bearing in mind its purpose and context.  The purpose of the order as I understood it was to ascertain whether the 1^st and 3^rd plaintiffs have an interest in Essence.  The context of the application was that it was made when the case had reached an advanced stage and was about to go to trial.

7.  The 1^st defendant’s pleaded case is that Essence is owned by the 1^st plaintiff, the 3^rd plaintiff and the 6^th defendant (by counterclaim) (Yew).  The pleaded case by the opposing parties is that Essence is wholly owned by Yew.  It appears that Dr Knut Unger is the sole shareholder and director of Essence who holds the shares on trust for Yew. 

8.  It is argued by Essence that the 1^st defendant should not obtain discovery of documents that show the transfer of funds to other parties which are not relevant to the pleaded case of the parties or any issues in dispute in these proceedings and that the disclosure ordered should be confined to the 1^st and 3^rd plaintiffs as they, in the context of this order, are the only parties relevant within the terms of the pleaded cases and the issues in dispute. 

9.  The 1^st defendant argues that the order should be directed to any other parties in order to ascertain the full picture.  I find this argument indicative of a fishing exercise in search of materials in the hope of uncovering a matter or raising allegations, as opposed to eliciting evidence through the justifiable pursuit of documents relevant to issues in dispute. 

10.  The 1^st defendant also argues that the 1^st plaintiff, the 3^rd plaintiff or Yew may have used nominees for the receipt or payment of funds but this opens up the possibility of further discovery.  The 1^st defendant seems to acknowledge that there should be some limit on the scope of discovery and submits in the alternative that the references to “another” in paragraph 50 should be taken as a reference to “bank account(s) held or controlled by the 1^st Plaintiff (by Original Action) or the 3^rd Plaintiff (by Original Action) or the 6^th Defendant (by Counterclaim)”.  I agree with this alternative suggestion.  Essence in its submission does not oppose the alternative suggestion. 

11.  Having considered the submissions and the issue before me, I do not see there being justification to direct the order to any other parties (“another”) and I order that the word “another” should be replaced by (i) the 1^st plaintiff, 3^rd plaintiff or Yew; and/or (ii) bank accounts held or controlled by the 1^st plaintiff, the 3^rd plaintiff or Yew. 

12.  I anticipate that the disclosing parties are able to comply with the order relatively promptly and I order that compliance with the order be made within 7 days from the date hereof.

In respect of HCA 183/2014:

In respect of HCA 2063/2015:

HCA 183/2014 &
HCA 2063/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 183 OF 2014

________________________

________________________

AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2063 OF 2015

________________________

________________________

________________________

D E C I S I O N

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Introduction

1.  By summons dated 24 June 2016, the 1^st defendant applies for specific discovery against the 1^st, 3^rd and 4^th plaintiffs (by original action) and the 5^th defendant (by counterclaim) in relation to 3 classes of documents.

2.  This is the second time that the 1^st defendant has made an application for specific discovery.  He previously made one in April 2015 which included specific discovery for most of the documents sought by the present application, except it was only directed to the plaintiffs (by original action), and not to the 5^th defendant (by counterclaim) (Essence) as it is now.  The previous application was rejected by this Court.  The present application therefore begs the question why should it be entertained if it was previously rejected and is now made after a significant period of delay and at a very late stage of the proceedings, shortly before the case is fixed for a lengthy trial.

Application for specific discovery

3.  The specific discovery against each of the parties is generally particularised by the Schedule attached to the summons.  The Schedule reads:

“1. Bank statements, payment instructions, authorisations and receipts of all bank accounts held or controlled by the 5^th Defendant (by Counterclaim) in HCA 183/2014 including but not limited to the bank account held by the 5^th Defendant (by Counterclaim) in HCA 183/2014 with OCBC Singapore with the account number 629488487001 in respect of the following:-

(1) all payments into the 5^th Defendant (by Counterclaim)’s in HCA 183/2014 bank account(s) in respect of dividend payments made by KDT BVI to the 5^th Defendant (by Counterclaim) in HCA 183/2014 for the period September 2010 to January 2014;

(2) all payments out of the 5^th Defendant (by Counterclaim)’s in HCA 183/2014 bank account(s) in respect of the dividend payments received from KDT BVI by the 5^th Defendant (by Counterclaim) in HCA 183/2014 for the period September 2010 to January 2014;

(3) all payments into the 5^th Defendant (by Counterclaim)’s in HCA 183/2014 bank account(s) in respect of the sale proceeds of the sale of the 5^th Defendant (by Counterclaim)’s in HCA 183/2014 shares in KDT BVI to L Capital for the period January 2014 until the present;

(4) all payments out of the 5^th Defendant (by Counterclaim)’s in HCA 183/2014 bank account(s) in respect of the sale proceeds received from L Capital (for the sale of the 5^th Defendant (by Counterclaim)’s in HCA 183/2014 shares in KDT BVI to L Capital) for the period January 2014 until the present; and

(5) bank statements, payment instructions /authorizations/receipts of all bank accounts held or controlled by the 1^st and 3^rd Plaintiff (by Original Action) in HCA 183/2014 and the 6^th Defendant (by Counterclaim) in HCA 183/2014, into which funds from the 5^th Defendant (by Counterclaim) in HCA 183/2014 were remitted from September 2010 to present.

2. The Interim Statements of the 4^th Plaintiff (by Original Action) and the 5^th Defendant (by Counterclaim) in HCA 183/2014 for the period from September 2010 to present; and

3. The Cashbook of the 5^th Defendant (by Counterclaim) in HCA 183/2014 for the period from September 2010 to present.”

4.  For ease of reference I will refer to each set of documents in the Schedule as Class 1, 2 and 3 documents respectively. 

5.  Except for an order as to costs, the orders sought for specific discovery are twelve in total and are as follows:

“1. The 5^th Defendant (by Counterclaim) in HCA 183/2014 does within 14 days of the date of this order file and serve on the 1^st Defendant (by Original Action) in HCA 183/2014 a further and better list of documents which are or have been in its possession, custody or power relating to the matters in question in this action, including but not limited to the documents specified in the attached Schedule, and if any of the documents have at any time been but are no longer in its possession, custody or power, stating when it parted with them and what has become of them;

2. The 5^th Defendant (by Counterclaim) in HCA 183/2014 does within 14 days of the date of this order file and serve an affidavit verifying the further and better list of documents, and stating whether any of the documents or classes of documents referred to and specified or indicated in the attached Schedule is or are or has or have at any time been in its possession, custody or power; and if the same or any of them, having at any time been, be not now in its possession, custody or power, stating when it departed of them and what has become of them;

3. The 5^th Defendant (by Counterclaim) in HCA 183/2014 does produce those documents mentioned in the said further and better list of documents which are in its possession, custody or power for the 1^st Defendant (by Original Action)’s in HCA 183/2014 inspection within 7 days thereafter;

4. The 1^st Plaintiff (by Original Action) and the 3^rd Plaintiff (by Original Action) in HCA 183/2014 do within 14 days of the date of this order file and serve on the 1^st Defendant (by Original Action) in HCA 183/2014 a further and better list of documents which are or have been in their possession, custody or power relating to the matters in question in this action, including but not limited to the documents specified in paragraph no.1(5) of the attached Schedule, and if any of the documents have at any time been but are no longer in their possession, custody or power, stating when they parted with them and what has become of them;

5. The 1^st Plaintiff (by Original Action) and the 3^rd Plaintiff (by Original Action) in HCA 183/2014 do within 14 days of the date of this order file and serve an affidavit verifying the further and better list of documents, and stating whether any of the documents or classes of documents referred to and specified or indicated in paragraph no.1(5) of the attached Schedule is or are or has or have at any time been in their possession, custody or power; and if the same or any of them, having at any time been, be not now in their possession, custody or power, stating when they departed of them and what has become of them;

6. The 1^st Plaintiff (by Original Action) and the 3^rd Plaintiff (by Original Action) in HCA 183/2014 do produce those documents mentioned in the said further and better list of documents which are in their possession, custody or power for the 1^st Defendant (by Original Action)’s in HCA 183/2014 inspection within 7 days thereafter;

7. The 1^st Plaintiff (by Original Action) and the 4^th Plaintiff (by Original Action) in HCA 183/2014 do within 14 days of the date of this order file and serve on the 1^st Defendant (by Original Action) in HCA 183/2014 a further and better list of documents which are or have been in their possession, custody or power relating to the matters in question in this action, including but not limited to the documents specified in paragraph no.2 of the attached Schedule, and if any of the documents have at any time been but are no longer in their possession, custody or power, stating when they parted with them and what has become of them;

8. The 1^st Plaintiff (by Original Action) and the 4^th Plaintiff (by Original Action) in HCA 183/2014 do within 14 days of the date of this order file and serve an affidavit verifying the further and better list of documents, and stating whether any of the documents or classes of documents referred to and specified or indicated in paragraph no.2 of the attached Schedule is or are or has or have at any time been in their possession, custody or power; and if the same or any of them, having at any time been, be not now in their possession, custody or power, stating when they departed of them and what has become of them;

9. The 1^st Plaintiff (by Original Action) and the 4^th Plaintiff (by Original Action) in HCA 183/2014 do produce those documents mentioned in the said further and better list of documents which are in his possession, custody or power for the 1^st Defendant (by Original Action)’s in HCA 183/2014 inspection within 7 days thereafter;

10. The 1^st Plaintiff (by Original Action) in HCA 183/2014 do within 14 days of the date of this order file and serve on the 1^st Defendant (by Original Action) in HCA 183/2014 a further and better list of documents which are or have been in its possession, custody or power relating to the matters in question in this action, including but not limited to the documents specified in paragraph no.3 of the attached Schedule, and if any of the documents have at any time been but are no longer in his possession, custody or power, stating when he parted with them and what has become of them;

11. The 1^st Plaintiff (by Original Action) in HCA 183/2014 do within 14 days of the date of this order file and serve an affidavit verifying the further and better list of documents, and stating whether any of the documents or classes of documents referred to and specified or indicated in paragraph no.3 of the attached Schedule is or are or has or have at any time been in his possession, custody or power; and if the same or any of them, having at any time been, be not now in his possession, custody or power, stating when he departed of them and what has become of them;

12. The 1^st Plaintiff (by Original Action) in HCA 183/2014 do produce those documents mentioned in the said further and better list of documents which are in his possession, custody or power for the 1^st Defendant (by Original Action)’s in HCA 183/2014 inspection within 7 days thereafter.”

6.  The obvious point to make about the application is that the terms are general and the scope is wide.  No attempt has been made to specifically particularise the documents sought for disclosure.  It is expressed in wide and sweeping terms as if to cast a net as far and wide as possible in the hope of catching something.  This application is made at a time when the standard disclosure between the parties has taken place long ago.  Only at the hearing of the application was any attempt made by the 1^st defendant to define and limit the orders sought.

The basis of the application

7.  The 1^st defendant seeks to support the application by his 23^rd affirmation dated 24 June 2016.  This application for specific discovery primarily focuses on the banking records of Essence. 

8.  The 1^st defendant notes that the parties agree that Essence has held beneficial and/or legal interests in Kudeta Limited (the 1^st plaintiff in HCA 2063/2015) (referred to as Kudeta BVI or KDT BVI) but do not agree as to who the ultimate beneficial owners of Essence were at various times.  The 1^st defendant claims that this is an issue in the proceedings because the question of the beneficial ownership of Essence will have a bearing on the beneficial ownership of Kudeta BVI. 

9.  Mr Tony Tam of Messrs Lo and Lo, solicitors, appeared on behalf of the 1^st defendant in the present application and now acts on his behalf in these proceedings.  The 1^st defendant has had at various times different firms of solicitors act for him, truncated with periods when he has acted in person. 

10.  Mr Tam confirmed that the object of the application seeks disclosure of documents that show or establish the beneficial ownership of Essence.  And yet, the application does not specifically request disclosure of such documents, but it may be argued that given the loose and fluid arrangement between the parties as to their interests in Kudeta BVI, such documents if they exist may not show the full picture. 

11.  The central issue in this case is the beneficial ownership of Kudeta BVI which has been held by various corporate entities and in various percentage interests from time to time.  The relevant entities are the 3^rd defendant, Retribution Limited (Retribution), the 4^th plaintiff, Rocky Cape International Limited (Rocky Cape), and Essence Investments Limited.  Prior to 30 January 2014, Retribution held 72.5% and Essence held 27.5% of the shares in Kudeta BVI.  The two companies are separate entities and it appeared that they operated separately from each other.  On 30 January 2014, L Capital KDT Limited (L Capital) acquired a 51% stake in Kudeta BVI and Retribution held the remaining 49% stake. 

12.  A key issue in dispute between the plaintiffs and the 1^st defendant is the beneficial ownership of Retribution, in particular between the 1^st plaintiff, 3^rd plaintiff and the 1^st defendant.  The 1^st defendant argues as part of his case that the beneficial ownership or interests which they or others associated with them may have in Essence could be relevant to the ultimate determination in these proceedings as to the beneficial ownership and interests held in Retribution and in Kudeta BVI. 

13.  The 1^st defendant in his 23^rd affirmation notes that Essence is a company incorporated and registered in the Marshall Islands.  The sole nominee shareholder and director is Dr Knut Unger, a lawyer based in Singapore.  He also notes that it is agreed by the parties that from about 26 January 2011, Essence held legal ownership of 27.5% of the shares of Kudeta BVI.  He further notes that the defendants’ pleaded case is that the beneficial owners of Essence included the 1^st plaintiff, the 3^rd plaintiff and Mr Yew Kuan Cheong (Mr Cheong), whereas the plaintiffs’ pleaded case is that at the material times Essence was beneficially owned solely by Mr Cheong. 

14.  It is the 1^st defendant’s case that the legal ownership of Essence does not reflect the beneficial ownership and therefore documents showing the flow of funds between various parties in the proceedings are likely to provide evidence as to the beneficial ownership of Essence and ultimately the beneficial ownership of Kudeta BVI.  Such evidence, it is submitted, may come from the payment of dividends by Kudeta BVI to Essence and the proceeds of the sale of Essence’s shareholding in Kudeta BVI to L Capital and the distribution of those funds to another or others.

15.  Mr Tam in his written submission dated and filed on the day of hearing, qualified to some extent the terms and scope of the documents sought in the Schedule.  As to item 1(1) the documents sought were for the period from September 2010 to October 2012.  As to item 1(2) the documents sought were for the period from September 2010 to February 2013. This was extended by four months from October 2012 in order to cater for any delay in the remittance of dividends.  As to item 1(3) the documents sought concern the remittance of the sale proceeds of Essence’s shareholding in Kudeta BVI to L Capital for the period from January to February 2014.  As to item 1(4) the documents sought relate to the sale proceeds received by Essence from L Capital which were paid to Mr Cheong.  The periods that the documents cover have not been changed and are from January 2014 to the present.  As to item 1(5) the documents sought relate to the payment of dividends or sale proceeds received by Essence to the 1^st and 3^rd plaintiffs.  The periods that the documents cover have not been changed and are from September 2010 to the present.

16.  The 1^st defendant points out that on 17 November 2014 his former solicitors wrote to the solicitors for the plaintiffs requesting amongst other things bank statements as to the beneficial ownership of the various parties involved in the period since the incorporation of Kudeta BVI.  Furthermore, if such documents were not disclosed an application would be made for specific discovery.  The plaintiffs filed and served their list of documents on 4 December 2014 which was received by the 1^st defendant’s solicitors on 12 December 2014.  He claims that the review of the disclosed documents is ongoing but it was immediately apparent that the plaintiffs had failed to disclose documents relating to the beneficial ownership and bank statements of Essence. 

The previous application

17.  This brought about the previous application for specific discovery in April 2015 where the 1^st defendant essentially requested from the plaintiffs the banking records in relation to Essence.  The matters mentioned by the 1^st defendant in his 23^rd affirmation in support of the present application were also made in his 8^th affirmation in support of the previous application made by him. 

18.  The previous application was solely directed to the plaintiffs and the class of documents sought by the 1^st defendant to be disclosed were described as follows:

“(a) Bank statements, payment instructions / authorizations / receipts of all bank accounts held or controlled by the 4^th Plaintiff in the period from 20 July 2009 to present, including but not limited to the bank account held by the 4^th Plaintiff with OCBC Singapore with the account number 629561168001.

(b) Bank statements, payment instructions / authorizations / receipts of all bank accounts held or controlled by Essence in the period from 22 October 2010 to present including but not limited to the bank account held by Essence with OCBC Singapore with the account number 629488487001.

(c) Bank statements, payment instructions / authorizations / receipts of all bank accounts held or controlled by the 1^st Plaintiff, 2^nd Plaintiff and 3^rd Plaintiff into which funds from the 4^th Plaintiff and/or Essence were remitted from 20 July 2009 to present.”

19.  As can be seen, the disclosure related to all the banking records of the 4^th plaintiff, Rocky Cape, from 20 July 2009 to present; Essence from 22 October 2010 to present; and the 1^st, 2^nd and 3^rd plaintiffs in relation to funds received by Rocky Cape and Essence from 20 July 2009 to present. 

20.  This Court by its decision dated 27 April 2015 granted the application in relation to Rocky Cape in so far as to cover the bank records in relation to the payment of funds from Kudeta BVI to Rocky Cape’s bank accounts and any payment or transfer of those funds to another, and the bank records of the 1^st, 2^nd and 3^rd plaintiffs in relation to remittances from Rocky Cape attributable to payments from Kudeta BVI.  The plaintiffs had agreed to disclose the documents in (c) above for the period up to October 2012 which was the date from when no further payments were made by Kudeta BVI to Rocky Cape. 

21.  This Court refused the application in relation to Essence primarily because the discovery was directed to the plaintiffs and not to Essence and at that stage it appeared that there was a lack of evidential materiality of the documents in relation to the original claim.  The plaintiffs had argued that they did not possess or control the documents in (b) above and that the discovery of them should be directed to Essence.  This was acknowledged by Mr Tam in his written submission.[1]

22.  It seems the 1^st defendant’s then solicitors wrote to Essence’s solicitors on 28 April 2015 requesting discovery of the banking records of Essence.  However, this was rejected by Essence’s solicitors in a letter dated 5 May 2015 on the basis that no explanation had been given as to why the beneficial interest in Essence was an issue to be decided at trial and how it concerned the 1^st defendant, and also because the scope of the documents sought was too wide. 

23.  There was discovery between the parties but it was not until 24 June 2016 that the present application was taken out.  The delay in making the application is a relevant matter that needs to be addressed, especially at this late stage in the proceedings, with a lengthy trial due to start in early November 2016. 

The relevant legal principles

24.  Like the previous application, this application is made pursuant to Order 24, rules 3 and 7 of the Rules of the High Court which seeks from the Court a total of twelve orders against the specified party or parties to file and serve either a list or affidavit of documents which are in the possession, custody or power of the party or parties concerned.

25.  The relevant legal principles applicable to a specific discovery application are contained in paragraphs 13 to 20 of the April 2015 decision.  Suffice to say, the 1^st defendant has the burden of demonstrating the relevance of the disclosure sought which is primarily to be judged with reference to the pleaded cases of the parties and that it is necessary either for disposing fairly of the cause or matter or for saving costs.

26.  As described by Sir John Donaldson MR in Davies v Eli Lilly & Co [1987] 1 WLR 428, civil litigation is conducted with the “cards face up on the table”.  An order for specific discovery normally arises after the standard disclosure directions have taken place.  The court’s powers in ordering disclosure are particularly wide, especially in cases where a claim involves serious fraud allegations and such disclosure is necessary in order to address any problems that may arise.  As a general rule, a party must disclose those documents it has in its possession, custody or power that it intends to rely on or which adversely affect its case and this extends to such documents that it has had in its possession, custody or power.  The principal purpose of disclosure is to enable the parties to evaluate and ascertain the strength or weakness of their respective cases, so as to encourage appropriate resolution of the dispute between the parties and the saving of costs. 

27.  There are three essential prerequisites for the jurisdiction to be invoked.  First, the documents or classes of documents exist which the other party had not disclosed.  Secondly, the documents relate to a matter in issue in the action.  Thirdly, the documents are, or have been, in the possession, custody or power of the other party.  A court will not make the order unless the discovery sought is shown to be relevant to an issue in the pleaded cases of the parties and that it is necessary either for disposing fairly of the action or for saving costs.  As I stated in §17 of the April 2015 decision:

“Relevance is highly important in the exercise of discovery and will primarily be determined by reference to the pleadings. The threshold test is that the documents sought must be relevant in that it is reasonable to suppose that they may directly or indirectly enable the party requiring the discovery either to advance his own case or undermine the case of the opposing party but subject to the limitation that the discovery is not be used as a fishing expedition. The court can still refuse the application if the documents being sought are unlikely to contain or yield information of sufficient evidential materiality to the pleaded case of the parties as to make their disclosure necessary for the fair disposal of the proceedings or to save costs. This is stipulated under Order 24 rule 8.”

28.  It has been held that in deciding whether or not to make an order for specific discovery the court will take into account all the circumstances of the case, including any delay in making the application: Harris v The Society of Lloyd’s [2008] EWHC 1433. 

29.  In civil litigation, courts are driven to ensure that cases are fairly and efficiently disposed of.  It is in this regard that courts exercise their case management powers to ensure proper focus and preparation for trial without any undue delay or disruption to the proceedings. Courts will therefore take into account any inappropriate delay in making an application for discovery, especially when it may have adverse consequences to the parties in preparing and presenting their cases, and to the carriage of the case overall.  Ultimately, courts will be very much guided by whether the application is truly necessary for the fair and efficient disposal of the case.  See Citibank NA v Days Properties Ltd, CACV 192/2013, 29 November 2013, unreported, at §15 per Lam VP; and Chun Wo Building Construction Ltd v Metta Resources Ltd, HCCT 29/2013, 22 March 2016, unreported, at §§1-3, 31-33 per A Chan J. 

Opposition to the application

30.  The parties, the subject of the application, the plaintiffs and Essence, oppose it because no adequate explanation for the delay has been provided by the 1^st defendant.  It is noted that the trial of this action will commence on 7 November 2016 with a case management conference fixed for 30 August 2016, and yet the present application was taken out more than 14 months after the April 2015 decision.  It is also noted that the present application was not foreshadowed at the case management hearing on 19 February 2016 and no explanation has been given by the 1^st defendant for the substantial delay which has occurred in making the present application.  They generally complain that the description of the class of documents remains exceptionally broad in scope and for all intents and purposes it is the same class of documents that is sought by the 1^st defendant, as previously rejected. 

31.  Both the plaintiffs and Essence particularly address the three classes of documents that have been requested to be disclosed by the 1^st defendant.  In respect of Class 1 documents, it is submitted that this Court has already determined that there is no evidential materiality of this class of documents to the original claim in its decision of April 2015 and it should not be allowed to be re-litigated.  They both complain that the matters covered are extensive, broad in scope and cover a very wide period of time, from “September 2010 to present”. 

32.  The plaintiffs point out that the 1^st defendant as part of his pleaded case has stated that the Kudeta business ceased to distribute dividends or to make any payments by way of shareholder loans as intended dividends after October 2012 to all its shareholders.  This was noted in the April 2015 decision and discovery was limited to documents up to October 2012. 

33.  The plaintiffs also take issue with the 1^st defendant’s contention that the ultimate beneficial ownership of Essence is an important issue for trial.  They note that the L Capital agreements confirmed the ownership of Kudeta BVI and that Mr Cheong is the beneficial owner of Essence, and that in any event the 1^st defendant has failed to understand that the mere payment or transfer of money to Essence from the 1^st and/or 3^rd plaintiffs does not evidence any beneficial ownership by them in Essence. 

34.  The plaintiffs in particular note that they have already confirmed in these proceedings that they do not have in their possession, custody or power any documents related to Essence.[2]  They also note that they have already carried out disclosure of bank statements pursuant to the Court’s order of 27 April 2015 where the 1^st and 3^rd plaintiffs in their supplemental list of documents dated 18 May 2015, disclosed their bank statements from 20 July 2009 to October 2012. 

35.  There appears to be no discernment by the 1^st defendant in his request for the documents to be disclosed under the Class 1 documents.  The parties complain that this application for further and specific discovery is a fishing expedition.  I have to agree with their grounds of complaint given the generality and width of the application.  In addressing and considering the present application, the parties and the Court have been heavily and unnecessarily burdened in relation to its terms and scope. 

36.  In respect of the Class 2 documents, it is submitted by Essence that the documents do not exist and therefore are not in its possession, custody or power.[3] Equally, the plaintiffs also confirmed that they do not have these documents in their possession, custody or power.[4] 

37.  In respect of the Class 3 documents, it is submitted by Essence that this class of documents are not relevant for the same reasons as the Class 1 documents, although it is further submitted that there is no independent basis to order specific discovery for this class of documents.  The plaintiffs also make the point that this request is misdirected at them. 

38.  They note that the explanation now given by the 1^st defendant in his 23^rd Affirmation as to the relevance and necessity of these documents in the present application is the same as the explanation given by him in his 8^th Affirmation filed in support of the previous application which was rejected by the Court.  They further note that this application is for the most part identical to the previous rejected application.  The previous application was rejected by the Court mainly because it was directed at the plaintiffs and because it also lacked evidential materiality to the original claim.

39.  The 1^st defendant makes the point that the April 2015 decision was essentially refused because it was directed to the plaintiffs instead of Essence and that since that decision the parties have made amendments to their respective pleadings and evidence has been filed and exchanged which makes the issue of Essence’s beneficial ownership evidentially material. 

40.  It is claimed by the 1^st defendant that he requested the documents of Essence through his solicitors by letter dated 27 April 2015.  A reply was made on 31 July 2015 where Essence’s solicitors said that their client’s discovery of relevant documents was not due until 3 August 2015.  As already mentioned, that does not fully reveal what occurred.  The solicitors for Essence replied on 5 May 2015 and refused the request on the grounds of relevance and the width of the documents sought. 

41.  The 1^st defendant also claims that he was occupied with other matters in relation to these proceedings from August 2015 to May 2016 and that explains the delay in making the application.  He further claims that he indicated his intention to make the present application at the hearing in these proceedings on 19 February 2016. 

42.  Even so, this seriously questions why it has taken the 1^st defendant this long to make basically the same application but this time directed to Essence instead of the plaintiffs, although the plaintiffs have also been mentioned in some of the orders sought. If it was of such significance to the 1^st defendant’s case, why has it taken so long for this application to be made?  It should be noted that both Essence and Mr Cheong were made parties to the counterclaim by the 1^st defendant on 31 March 2014.  So they were parties to these proceedings back when the previous specific discovery was made and yet they were not made the subject of an application for specific discovery until now. 

The question of delay

43.  I must say that I do not find any of these matters provide an adequate explanation for the lateness of this application. Essence has been a party to these proceedings since March 2014 and that was well before the previous application for specific discovery.  I therefore have to consider the timing of the application and the impact it will have on the parties from whom disclosure is sought.  This has been an intense and strenuously fought litigation that has now been running for over three years which has been inundated with numerous interlocutory and pre-trial applications. 

44.  A previous set of trial dates were aborted a little under a year ago largely due to a last-minute application from the 1^st defendant.  In similar circumstances, this application has been made some four months before the trial is fixed to commence.  The application seeks disclosure from the parties of an array of banking and financial records that traverse many years.  It will place an onerous burden on the parties and would require them to carry out an extensive disclosure exercise at a time when they would otherwise be preparing themselves for trial.  There is also concern that the outcome of this disclosure exercise may spawn a number of unnecessary and collateral applications.  It is not insignificant that this application comes at a time when all pre-trial matters were in the process of being completed in readiness for trial, including the filing of the experts’ joint note on 22 July 2016. 

45.  Upon careful reflection, I have decided not to reject the application because of the unexplained and unacceptable delay.  It will, however, have a bearing on the question of costs.  I had to strike a balance between the issue of delay on one hand, and the relevance of the disclosure on the other.  I have narrowly come down in favour of the latter. 

The terms of the disclosure

46.  There is also the question whether the application for specific discovery is properly directed to the issue to which it is said to relate.  My overall impression is that the terms of the application are broad and wide and lack the necessary specificity. 

47.  A sweeping request for documents without displaying the appropriate particularity, relevance and necessity is unacceptable.  It has to be directed to a specific issue or issues in the pleaded cases and confined to what is necessary and no more.  No attempt has been made by the 1^st defendant to properly address his application.

48.  The purpose of the present application as claimed by the 1^st defendant is to discover documents showing the beneficial ownership of Essence.  But no such documents have been requested, and instead the 1^st defendant wants a wide range of banking and financial records to identify and trace any financial dealings between Essence and the plaintiffs.  Whilst it does raise an eyebrow as to the width and scope of the application, it is arguable that certain banking and financial records could or would reveal the financial dealings or stake that a person has in a company which may lead to determining what if any beneficial interest he may hold in it. 

The order for disclosure

49.  In general terms, I am prepared to accept the relevance of certain documents within the Class 1 documents as part of the 1^st defendant’s case.  I am not satisfied that the Class 2 and 3 documents should be the subject of disclosure.  The Class 2 and 3 documents are not documents in the possession, custody or power of the plaintiffs and so no order should in any event be made against them for disclosure of these documents.  The same applies to Essence in relation to the Class 2 documents.  In relation to the remaining documents, I am of the view that the 1^st defendant is merely fishing to see what is out there. 

50.  I will grant the application to the extent that Essence is to file and serve a list of documents which are or have been in its possession, custody or power, consisting of its bank records in relation to (1) the payments of funds from Kudeta BVI, namely, remittances of dividends or distributable profits, to Essence and any payment or transfer of those funds to another from September 2010 to October 2012 and (2) the payment of the proceeds of sale of Essence’s shareholding to L Capital and any payment or transfer of those funds to another from January to February 2014. 

51.  I will not make an order against the 1^st and 3^rd plaintiffs to disclose their bank records from September 2010 to October 2012, as they have already disclosed them pursuant to my order arising from the April 2015 decision.  I will make an order against the 1^st and 3^rd plaintiffs to disclose their bank records in relation to the receipt of funds from Essence of the proceeds of sale of Essence’s shareholding to L Capital for the period from January to February 2014. 

Discovery complaints against the 1^st defendant

52.  The plaintiffs in their written submission also complain about the 1^st defendant’s failure to properly carry out his discovery obligations in these actions.  They specifically complain that discovery by the 1^st defendant has been carried out either in a piecemeal fashion or not at all as required.  They note that previously undisclosed documents have been referred to or produced by the 1^st defendant’s expert.  They also note that previously disclosed documents are redacted copies of bank statements. 

53.  The plaintiffs submit that the 1^st defendant is withholding relevant documents or parts of the relevant documents and is choosing to make selective discovery in these actions. 

54.  I will hear the parties on this matter and address it at the case management conference to be held on 30 August 2016. 

The question of costs

55.  On the question of costs, my preliminary view is to rule against the 1^st defendant even though he has, to the very limited extent that I have ordered, succeeded in his application.  First, because of the generality and width of his application which has unnecessarily occupied the parties in order to address its terms and scope.  Secondly, because of the inordinate and unexplained delay that has been occasioned by the application.  As I have noted, it could very well have adverse and unfair consequences on the other parties as well as disrupting the proceedings altogether. The order granted does touch on a relevant issue in the defendant’s case, but as I indicated I was close to refusing it because of the inordinate delay and the stage of the proceedings when it was made. 

56.  I will therefore make an order nisi that the 1^st defendant pays the costs of the plaintiffs and Essence forthwith. 

HCA 183/2014 &
HCA 2063/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 183 OF 2014

________________________

AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2063 OF 2015

________________________

D E C I S I O N

________________________

1.  This is yet another application between the warring parties in this long-running civil dispute. The parties are the investors in a highly successful restaurant and bar business operating in Singapore. After a majority stake in the business was sold to an outside interest, a dispute erupted between the investors that were to remain in the business (the plaintiffs (by original action) and the plaintiffs (by counterclaim to counterclaim)) and the investor who was to leave the business (the 1^st defendant (by original action)). In general terms, there are two key aspects to the dispute between the parties. The first concerns allegations by the remaining investors that the leaving investor misappropriated and misapplied funds of the business. The second concerns an issue over the percentage interests that the investors hold in the business and their entitlement to the funds of the business and to the funds of the acquisition by the outside interest for the majority stake in the business.

2.  This Court has sought through a number of decisions granting injunctive relief to keep the parties at bay in order to prevent them from attacking each other and destroying the goose that laid the golden egg, the highly successful restaurant and bar business in Singapore.  I regret say that the Court’s orders are like a water filled balloon: when you push down on one end and another end pops up.  So it is the case in the present application.

3.  The application as amended by the plaintiffs is for an order that the 1^st and 2^nd defendants forthwith remove, Casey Au (the brother of the 1^st defendant), from the Board of Directors of the 3^rd defendant; that the following be set aside (a) the shareholders resolution dated 27 January 2016 regarding the appointment of Casey Au as director of the 3^rd defendant, (b) the shareholders resolution dated 28 January 2016 regarding the resignation of the 2^nd defendant as director of the 3^rd defendant, and (c) the minutes of meeting of the Board of Directors on 29 January 2016; and that the 3^rd plaintiff be authorised on behalf of the 3^rd defendant to instruct solicitors on its behalf in relation to HCA 3030/2015.

4.  On 28 July 2015, this Court granted a mandatory injunction to the plaintiffs whereby the 1^st and 3^rd plaintiffs were to be appointed directors of the 3^rd defendant (by original action), the corporate entity through which the 1^st, 2^nd and 3^rd plaintiffs, the 1^st defendant and others, supposedly hold their interests in the business.  It was basically granted because at that stage the 3^rd defendant was controlled by the 1^st defendant and his nominee, the 2^nd defendant (by original action) and there were issues and disputes between them and the plaintiffs in relation to the affairs of the 3^rd defendant, which is holding a substantial portion of the funds paid by the outside interest for the majority stake in the business and is itself subject to litigation, both as a party to these proceedings and in relation to other actions.  By the arrangement put in place under the mandatory injunction order, the plaintiffs were in a position to be appraised of and involved in the affairs of the 3^rd defendant and to that extent their alleged interests in the company would, in the meantime, be protected.  Prior to this order, on 26 March 2014, the Court granted a prohibitory injunction order which included conditions that the 1^st defendant not act in a manner contrary to the interests of the 3^rd defendant and not in accordance with the written intentions and instructions of all the beneficial shareholders of the 3^rd defendant, including the 1^st to 3^rd plaintiffs. 

5.  The impetus for this application seems to come from the mandatory injunction order applied for by the plaintiffs and granted by this Court, where as a result the Board of Directors of the 3^rd defendant consisted of the 1^st and 2^nd defendants, on one side, and the 1^st and 3^rd plaintiffs, on the other side.  Because of this even split between them, it was agreed by the parties that a legal opinion be obtained as to who was entitled to be Chairman and have the casting vote in the case of a deadlock.  I am informed that the legal advice was provided by Mr Richard Morgan QC, an English Senior Counsel conversant in the laws of the British Virgin Islands (BVI), where the 3^rd defendant was incorporated.  Under Articles 62 and 63 of the Memorandum and Articles of Association of the 3^rd defendant, if at a Board meeting the directors are unable to choose a Chairman for any reason, then the “oldest director present” at the meeting shall preside as Chairman and in case of an equality in votes the Chairman shall have a second or casting vote.  The legal opinion was that in accordance with BVI law the “oldest director present” means the oldest director by age.  

6.  It is submitted by the plaintiffs that this application is justified because the 1^st defendant has attempted to subvert the Court’s order dated 26 March 2014 by failing to notify and obtain the written consent of all of the beneficial shareholders of the 3^rd defendant in relation to the 2^nd defendant being replaced as a director of the company by Casey Au. 

7.  It is argued that the 1^st defendant has procured the appointment of his brother as a director of the company solely because he is, according to his date of birth, the oldest person by age amongst the directors of the company, and would therefore be appointed as the Chairman of the Board of Directors of the company and have a casting vote in the event of a deadlock.  It is complained that instead of liaising with the 1^st and 3^rd plaintiffs as to how best to protect the company in HCA 3030/2015, an action commenced by Herbert Smith Freehills in relation to outstanding costs which the plaintiffs claim was solely incurred by the 1^st defendant and in which the company is a defendant, the 1^st defendant instead focused on how best to obtain control of the company so as to continue to use it for his own gain. 

8.  Whilst it is acknowledged by the plaintiffs that there is nothing wrong with the director wanting to resign from her position as a director of a company, they alleged that this is a prime example of a blatant manipulation of the current status quo in relation to the 3^rd defendant as evidenced by the following two key facts.  First, the 2^nd defendant’s resignation as a director occurred only after the receipt of a binding legal opinion confirming that the correct interpretation of Article 62 of the company’s Memorandum and Articles of Association was that the oldest director by age would be appointed the Chairman and who would therefore have a casting vote in the event of a deadlock.  Secondly, the 1^st and 2^nd defendants’ failure to comply with the prohibitory injunction order by failing to notify and seek the written consent of the beneficial shareholders of the company before removing the 2^nd defendant as a director of the company and appointing Casey Au as a director in her stead. 

9.  It is complained by the plaintiffs that they were only notified of this purported change in directorship during the company’s Board meeting on 29 January 2016 when the 1^st defendant’s BVI lawyers attended the meeting and handed to the 1^st plaintiff and the plaintiffs’ solicitor, Mr Barry Hoy of Robertsons, a set of documents purportedly notifying of the change of directorship.

10.  In response, the 2^nd defendant argues that there is no juridical basis for the application.  The 2^nd defendant submits that there is nothing wrong in her resigning from the Board of the 3^rd defendant and appointing Casey Au in her stead.  It is also argued that the application seeks to regulate the internal affairs of the 3^rd defendant which is a BVI entity and accordingly the application is misconceived as it relates to matters to be dealt with under BVI law. 

11.  The 1^st defendant who appears in person in response to the application submits that the current application is an example of the plaintiffs attempting to manipulate the Court for their own ends.  The 1^st defendant submits that the application would not be made if his brother was younger than the 3^rd plaintiff who is currently the oldest by age on the Board of Directors.  He also submits as to whether this is an appropriate matter for the Court to entertain, given that there is concern with the composition of a legally appointed Board done in compliance with BVI law.  He states that the 2^nd defendant communicated with him that she no longer wished to be a director because of concerns of future conflict between the parties which she is currently imbued in which has caused her considerable amount of distress.  The plaintiffs on the other hand argue this is all part of a scheme to take control of the company and point to the suddenness and timing of the 2^nd defendant’s resignation and the replacement of her by the 1^st defendant’s brother who would be the oldest director by age on the Board. 

12.  The 1^st defendant submits that the 2^nd defendant appointed his brother to replace her as a director which she was legally entitled to do as the sole legal shareholder of the 3^rd defendant and his brother had previously been an employee of the business and was well qualified to perform the duties as a director of the 3^rd defendant. 

13.  The 1^st defendant states that what took place on 29 January 2016 was as follows.  During the Board meeting, his BVI lawyers, Mr Ray Ng and Mr Nathan Powell of Ogier, a firm that specialises in BVI law, were in attendance at the meeting.  Both he and his brother called into the meeting by teleconference and at the outset he advised the parties that the 2^nd defendant had resigned as a director and appointed his brother in her place.  He instructed his BVI lawyers to pass on his brother’s appointment papers to the solicitor for the plaintiffs, Mr Hoy, for review.  His BVI lawyers advised the meeting that the appointment of the 1^st defendant’s brother as a director was in accordance with the company’s Memorandum and Articles of Association and in compliance with BVI law.  He says that at this stage, which had not been alluded to in the material submitted by the plaintiffs, Mr Hoy commented that subject to verification of the documents, it appeared that all was in order and that they accepted the appointment of Casey Au as a new director, and the meeting then proceeded as there was a quorum. 

14.  The first item of business was the tabling and acceptance of the legal opinion of Mr Richard Morgan QC who advised that the oldest director by age would be appointed Chairman of the meeting which all parties in attendance were in agreement.  It was at that stage the appointment of Chairman was raised that a dispute arose because the oldest by age was Casey Au and not the 3^rd plaintiff. 

15.  The 1^st defendant points out that the plaintiffs are not objecting to the appointment of Casey Au on grounds of competence or conflict, or to the 2^nd defendant, as the legal shareholder, having the right to appoint a new director to replace herself.  He notes that they are solely objecting because they claim not to have received proper notice under the prohibitory injunction order.  He argues that even if the plaintiffs were given notice, they have not put forward any argument as to why this appointment could not proceed, and in any event the requirement for notice and consent from the plaintiffs under the prohibitory injunction order was only for matters in relation to the best interest of the 3^rd defendant.  He submits that this matter did not fall within that ambit of the terms of the prohibitory injunction order. 

16.  The BVI lawyer for the 1^st defendant, Mr Ray Ng, in his affirmation acknowledged his attendance at the Board meeting of the 3^rd defendant on 29 January 2016.  He confirms the account by the 1^st defendant as to what took place at the meeting.  He states that Mr Hoy, the solicitor for the plaintiffs, reviewed the documentation in relation to the resignation of the 2^nd defendant and the appointment of Casey Au as a director, whereupon he stated that subject to verification of the documentation it would be assumed that Casey Au was appointed a director and entitled to attend, and that the meeting had a quorum.  He points out that at that stage no one objected to Casey Au’s appointment as a director, or to the meeting proceeding on basis as declared by Mr Hoy.  He states that no point was taken as to whether prior notification of the change of directorships was required or as to the timing of such notification.  He also states that it was only when it was pointed out that Casey Au was the oldest director present and therefore should be appointed the Chairman in accordance with the legal advice that had been tabled that objection was raised by the plaintiffs to Casey Au’s appointment as a director.  It was then he states that Mr Hoy raised a series of objections to the appointment of Chris Au and allegations of non-compliance of the Court’s injunction order.  He states the meeting came to an end when the telephone conference line was terminated and they then left and returned to the offices of Ogier, where the meeting was resumed by the 1^st defendant and Casey Au (via telephone conference link) without the 1^st and 3^rd plaintiffs present (via telephone conference link). 

17.  Both Mr Hoy and the 1^st plaintiff in the evidence that they filed, did not mention the apparent initial acceptance of the resignation of the 2^nd defendant and the appointment of Casey Au as claimed by the 1^st defendant and Mr Ng, although in response they take issue with the accounts given by the 1^st defendant and Mr Ng as to what happened at the meeting. 

18.  Mr Hoy in his affidavit takes issue with Mr Ng’s account of the sequence of events.  He states that when the resignation of the 2^nd defendant and the appointment of Casey Au were mentioned, he immediately stated that the plaintiffs had not been given prior notification of the purported change in directorship of the 3^rd defendant.  He states that he briefly reviewed the documents and stated that “subject to verification of the accuracy and/or validity of the alleged resolutions” Casey Au could be assumed to be a director for the purposes of the Board meeting.  He states that this did not constitute an acceptance of Casey Au’s appointment as a director as being valid and binding, and that he clearly raised reservations on behalf of the plaintiffs as to the validity and timing of Casey Au’s appointment.  He said that the Board meeting had been convened to resolve pressing matters facing the 3^rd defendant, in particular to resolve the appointment of legal representatives on behalf of the 3^rd defendant in HCA 3030/2015 to prevent the entering of judgment in default against the 3^rd defendant in the action.  He also takes issue with the contentions of Mr Ng in relation to the Board meeting that subsequently took place in the offices of Ogier which he complains was not validly convened. 

19.  The 1^st plaintiff in his affirmation reiterates that the issue at hand in relation to the present application concerns the removal and appointment of a director that affects the interests of the 3^rd defendant and therefore violated the terms of the prohibitory injunction order.  He points out that the 3^rd defendant is facing litigation in HCA 3030/2015 over substantial legal fees incurred by the 1^st defendant and therefore has a conflict of interest as a result.  He also expresses concern about the appointment of Casey Au and queries whether he is able to exercise an independent mind in relation to the affairs of the 3^rd defendant, but the same complaint was previously made when the 2^nd defendant was a director.  He also takes issue with the accounts given by the first defendant and Mr Ng as to what took place at the meeting.  He states that at no stage was the appointment of Casey Au accepted without question and complains about the lack of notification of the change of directorship.  He also expresses concern that the company is being manipulated in order to bear the liability of the legal fees incurred by the 1^st defendant and of possible future action by the 1^st defendant to the detriment of the 3^rd defendant.  He explains that the plaintiffs are keen to ensure that the interests of the 3^rd defendant are protected and that there is no abuse or misuse of the company and the funds under its control.

20.  I am not in a position to resolve on the papers the factual disputes between the parties, in particular between the lawyers, but from what I have before me, there is not a sufficient basis to warrant my intervention in this matter by the orders sought in the plaintiffs’ application.  I make no ruling in relation to the events that took place at the meeting and the subsequent meeting, they are not matters for me to decide in addressing this application, and I express no view in relation to them.  I have set out what has taken place and what is alleged by the parties.  They are separate and distinct matters for the relevant party to pursue and take the appropriate action.  What this matter highlights, is the extent of the squabbling and manoeuvring that is taking place between the parties that has unfortunately spawned a lot of unnecessary litigation.

21.  The application is refused and I make an order nisi that the plaintiffs pay the 1^st and 2^nd defendants’ costs, to be taxed if not agreed. 

22.  I should sound a cautionary note about the involvement of lawyers in their client’s affairs.  Lawyers acting for a party in a dispute should be mindful of their professional responsibilities and be very careful not to get embroiled in their client’s dispute, as it could have serious professional ramifications. 

In respect of HCA 183/2014:

In respect of HCA 2063/2015:

HCA 183/2014 &
HCA 2063/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 183 OF 2014

________________________

________________________

AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2063 OF 2015

________________________

________________________

(Heard Together)

_______________

D E C I S I O N

_______________

Introduction

1.  There are two summonses before me in relation to two separate actions where each of the plaintiffs makes application to consolidate the two actions so that they can be heard together. 

2.  The first action is HCA 183/2014 and the second action is HCA 2063/2015.

3.  I will briefly describe the two actions and without intending any discourtesy I will refer to the individual parties by their surname and the corporate parties by an abbreviation of the corporate name.

4.  The first action was instituted in January 2014 by the 1^st, 2^nd, 3^rd and 4^th plaintiffs (Patel, Cohen, Apostolides and Rocky Cape respectively) against the 1^st, 2^nd and 3^rd defendants (Au, Ho and Retribution respectively) and later in that action Au instituted a counterclaim against the four plaintiffs, Essence, Yew and Retribution which were the 1^st, 2^nd, 3^rd, 4^th, 5^th, 6^th and 7^th defendants by counterclaim (Patel, Cohen, Apostolides, Rocky Cape, Essence, Yew and Retribution respectively).  Essence and Yew later instituted a counterclaim to the counterclaim against Au, Ho and Prime Mark Group Ltd which were the 1^st, 2^nd and 3^rd defendants by counterclaim to counterclaim (Au, Ho and Prime Mark respectively).

5.  The second action was instituted in September 2015 by the 1^st, 2^nd and 3^rd plaintiffs (Kudeta, Iconic Locations and Iconic Entertainment respectively) against the 1^st, 2^nd, 3^rd and 4^th defendants (Au, Ho, Retribution and Prime Mark respectively).

6.  Both sets of plaintiffs seek an order in their respective action that the trial of the action be heard together with or immediately before or after the trial of the action of the other by the same judge.

Issue of service in the second action

7.  At the hearing of the consolidation applications which were heard together, a somewhat bizarre situation arose where Au appeared in person and Ho was legally represented to challenge the application in the first action but both were technically not present in relation to the same application in the second action. 

8.  I was informed by Mr David Chen, counsel for the plaintiffs in the second action, that service had been effected of the amended writ of summons and of the consolidation application on Au, Retribution and Prime Mark.  Au claimed he had not been served with the papers in relation to the consolidation application even though he had been served with the amended writ which he had yet to acknowledge. 

9.  Mr Chen also informed me that service of the action had been effected on Ho by registered post and insertion in the letterbox at her address but the papers for the consolidation application had been returned.  Evidence had been filed by the plaintiffs of service of the amended writ and application on Ho by sending them at her last known address in Hong Kong and on Au by sending them at one of his two last known addresses and at his office in Singapore (pursuant to an order from Master Ho for service out of the jurisdiction).  Service of the proceedings was effected on Retribution and Prime Mark at their respective registered office. 

10.  When I asked Mr Martin Ho, counsel for Ho, what was her position in relation to the application in the second action, he said he had no instructions.  It is to be noted that notwithstanding the position taken by Au and Ho in relation to the application in the second action, they clearly had notice of the application in the second action and addressed in detail both applications in their written and oral submissions before the Court. 

Relevant legal principles

11.  Order 4 rule 9(1) of the Rules of the High Court (RHC) provides:

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

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

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

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

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

12.  In Sincere View International Ltd v Kenco Investments Ltd, HCA 301 and 569/2005, 3 February 2006, unreported, Kwan J (as she then was) explained at §4 that:

“In deciding whether to order consolidation of actions, the court has an unfettered discretion. The power is to be exercised in a flexible way with regard to the particular circumstances of the situation. The objective of such an order is to save time and costs. There is no hard and fast rule that just because the parties are identical and some common question of fact or law is involved in both actions, it would be expedient and proper to order consolidation.”

13.  The court has an unfettered discretion in deciding whether to order consolidation of two or more causes or matters.  Even though the power is to be exercised with some degree of flexibility, a court must nevertheless be satisfied that it would be proper and expedient to make such an order, having regard to the particular circumstances of the situation, including, amongst other things, that the objective of such an order is to save time and costs, and that where there is a substantial overlapping of issues and parties, it is desirable to resolve the disputes in the different actions on one occasion by the same judge: Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd, HCA 1957 and 2196/2005 and 714 and 886/2007, 10 April 2008, unreported, at §§40 and 41 per Chu J (as she then was). 

14.  In Re The Prudential Enterprises, Limited, HCCW 594/1999 and HCA 1240 and 4225/2001, 19 August 2003, unreported, Chu J (as she then was) concluded in that case that given the substantial overlapping of issues and parties, it was desirable that the disputes in the three actions be resolved on one occasion and by the same judge, but on the question as to whether they should be tried together or one after another, she explained that the matter had to be approached from the perspective of case management rather than principles of law.  In this regard, she said at §8 that: “In making case management decisions, the court is primarily concerned with savings of time and costs, and also with the avoidance of unnecessary delay, undue complexity and overloading of issues.” 

15.  Chu J went on to examine the practical implications of trying the actions together and whether there were real and tangible benefits in the efficient and just disposal of the cases by doing so, weighing up the relevant factors and circumstances, which included in that case, the additional time needed to address further issues, the adoption or admission of the evidence of witnesses in subsequent trials, the risk of losing reserved trial dates and the different stages the actions had reached before going to trial. 

16.  It is pertinent to note that in more recent times as a result of the Civil Justice Reform, the emphasis is on the efficient and just resolution of disputes before the courts and case management is therefore important in ensuring that this is achieved.  See the underlying objectives of Order 1A of the RHC.  Accordingly, when addressing an issue of consolidation, the Court should take a practical and commonsense approach to meet the justice of the situation. 

17.  In Zuckerman on Civil Procedure, Principles of Practice, Third Edition, at §13.12, it was explained that the ultimate aim of consolidation was to avoid wasting party and court resources in a multiplicity of proceedings that involve identical or similar issues and to protect defendants from the cost and vexation of having to defend in separate proceedings against essentially the same allegations.  To this end, it was noted that the essence of the matter is that the court will order different claims to be tried together when there is substantial overlap between them or where trying them separately would create a risk of irreconcilable decisions.  See generally Hong Kong Civil Procedure, 2016, at §4/9/2.

18.  For the purpose of the consolidation rule, it has been held that a cause or matter becomes “pending” as soon as the writ of summons has been issued and this can invoke the court’s jurisdiction to entertain an application for the consolidation of two or more causes or matters even though one or more of the writs have not been served.  This statement of principal was held in Arab Monetary Fundv Hashim and Ors (No 4) [1992] 1 WLR 1176, at 1180F-H, where the Court of Appeal applied a broad construction to the consolidation rule which it agreed was intended to give the court wide powers to control its own process.  This is relevant in this case, as there seems to be some dispute between the parties as to whether or not the amended writ of summons in the second action has been served.  Any reliance on this point would appear to be academic, given that both Au and Ho are before the Court in relation to same application by the plaintiffs in the first action.

Brief description of the two actions

(a) The first action

19.  There is a long history in relation to the first action that has involved the parties in an intense legal and personal battle.  The case concerns a dispute between a group of investors of a highly successful restaurant and bar operating in Singapore. 

20.  The controlling company of the business is Kudeta, a British Virgin Islands company, which it operates through two Singaporean companies, Iconic Locations and Iconic Entertainment (the two Singaporean companies were previously named Ku De Ta SG and KDT Entertainment).  The various investors have held their interests in the Kudeta business either through Retribution or Essence which changed on 30 January 2014 when L Capital Investments Ltd (L Capital) acquired a 51% majority interest in Kudeta.

21.  The plaintiffs allege that Au, through his nominee, Ho (the sole shareholder and director of Retribution which holds an interest in Kudeta), has misappropriated and misapplied funds belonging to the business and has sought to prejudice the contractual relations with L Capital.

22.  It is claimed that the parties entered into a General Agreement whereby it was agreed, amongst other things, that Kudeta would become an investment holding company and distribute its profits (“distributable profits”) to the partners in the joint venture.  In breach of the General Agreement, however, some of the distributable profits were divested from Kudeta, Iconic Locations and Iconic Entertainment.  The funds divested from Kudeta over the period from 2009 to 29 January 2013 approximated HK$29.5 million; and the funds divested from Iconic Locations and Iconic Entertainment over the same period approximated HK$3.7 million.

23.  It is also claimed that Ho held the 1,000 registered shares in Retribution on trust for Patel, Apostolides and Au pursuant to a Declaration of Bare Trust.  In breach of the trust, Ho under the control and/or instruction and as the nominee of Au caused some of the distributable profits to be transferred away from Kudeta.  The funds divested from Kudeta over the period from 30 January 2013 onwards approximated HK$0.43 million; and the funds divested from Iconic Locations and Iconic Entertainment over the same period approximated HK$4.89 million.

24.  Under the agreements of the L Capital acquisition, L Capital paid on 30 January 2014 a total consideration of SGD38,100,537.89 for a 40.1% stake in Kudeta in two tranches of SGD11,984,782.89 (which was transferred to the bank account of Retribution) and SGD26,115,755 (which was transferred to the bank account of Essence).  A part payment for the acquisition from L Capital of SGD16,675,880 was arranged to be transferred to a Hong Kong bank account of Retribution and these funds have been frozen pursuant to an injunction order. 

25.  Also in dispute between the parties is the percentage interest held by the various investors in the business (through Retribution or Essence) and whether there was an agreement to buy out Au as he has claimed.  The plaintiffs claim that they beneficially own a 75.3% stake in Retribution and that Patel and Apostolides are entitled to a two-thirds share of the monies held by Retribution under the Declaration of Bare Trust. 

26.  Au in early 2015 issued a counterclaim against the four plaintiffs, Essence, Yew and Retribution on the grounds that at the time of the L Capital acquisition, he held 35.5% of Kudeta and it was agreed that he would be paid SGD33,732,539.50 for his stake.  The defendants by counterclaim deny there was such an agreement.

27.  Essence and Yew issued a counterclaim to the counterclaim in which it is claimed that Au breached the General Agreement and that he and Ho breached their fiduciary duties owed to Essence and Yew in relation to the payment of distributable profits.

(b) The second action

28.  The second action has been initiated by Kudeta and the two holding companies which operate the restaurant and bar in Singapore. 

29.  It is claimed that over a period from October 2010 to January 2014, Au had control and power over the management of the plaintiff companies.  It is also claimed that Retribution and Prime Mark are the corporate vehicles of Au and that Ho was a nominee and under the control and/or instruction of Au.  It is alleged that over this period Au caused the plaintiff companies to transfer funds to himself and/or his affiliated parties.  It is further alleged that the transfers served no commercial purpose and were detrimental to the interests of the plaintiff companies and aggregated around HK$42 million.  It is claimed that the funds transferred from Kudeta approximated HK$32 million and that from Iconic Locations and Iconic Entertainment approximated HK$10 million.

30.  These figures are taken from forensic accountant reports prepared by Deloitte & Touche Financial Advisory Services Pte Ltd pursuant to the instructions given by the plaintiffs of the first action. 

31.  The plaintiff companies seek repayment from the defendants of the HK$42 million on the grounds of breach of fiduciary duties, knowing receipt and dishonest assistance, constructive trust, unjust enrichment, abuse of separate legal personality and conspiracy of the defendants against the Kudeta business.

(c) Common claim of the two actions

32.  The similarity between the two actions was explained in the 10^th Affirmation of Patel as follows:

“3. This Action (i.e. HCA 183/2014) concerns a shareholders’ dispute between myself and my fellow Plaintiffs (who are all shareholders in the KDT Business in some manner or another) of the one part and the Defendants (who are also all shareholders in the KDT Business in some manner or another) of the other part.

4. The disputes center around 3 key issues, the third of which raises issues of law and fact which are common with those in HCA 2063/2015:-

(i) the extent of the parties’ respective shareholdings at all material times;

(ii) the extent of the parties’ (in particular the Plaintiffs’) respective entitlements to distributable profits flowing from the KDT Business which were payable to the shareholders in KDT BVI; and

(iii) alleged siphoning off of the KDT Business’ funds by the 1^st Defendant which led to the Plaintiffs being either underpaid and/or never paid at all.

…

6. HCA 2063/2015 is an Action instituted by the KDT Business against the same Defendants (by Original Action and by Counterclaim to Counterclaim) in HCA 183/2014 over the key issue of the alleged siphoning off by the Defendants of funds which ordinarily belonged to the KDT Business and would have been used by the KDT Business for itself or for provision to its shareholders as distributable profits. The 4^th Defendant in 2063/2015 is Prime Mark Group Limited, a corporate vehicle of the 1^st Defendant which also received some of the funds which are the subject of 183/2014.

7. It is therefore a common theme between myself and my fellow Plaintiffs’ claims, the 5^th and 6^th Defendants’ (by Counterclaim) claims and the KDT Business’ claims against the Defendants that the 1^st Defendant wrongfully and, in the Plaintiffs’ case, in breach of a shareholders’ agreement, used a significant portion of the KDT Business profits for his own benefit under the guises of his excessive and unauthorized salaries, housing entitlements and alleged 10% EBITDA bonuses. This financial mismanagement and/or breach of the shareholders’ agreement did the KDT Business immense financial harm and also prejudiced the position of myself and my fellow Plaintiffs as shareholders of the KDT Business who were denied the share of distributable profits to which we were entitled.

8. It is clear, therefore, that there is a substantial overlap between the claims pursued by the Plaintiffs in this Action and the Plaintiffs in HCA 2063/2015 in that:-

(i) there are common questions of law or facts that arise in both Actions, namely the entitlements and extent of such entitlements to funds that the Defendants siphoned off which either belonged to the KDT Business or belonged to the KDT Business’ shareholders; and

(ii) the relief claimed by the Plaintiffs in both Actions emanate from the same series of transactions that the 1^st Defendant carried out with the aid of his fellow Defendants whereby funds that ordinarily belonged to the KDT Business or its shareholders were instead paid out by the 1^st Defendant under questionable pretexts.”

33.  It is submitted by the parties for consolidation of the two actions that the issue of the funds (with some slight differences) is common between them.

34.  It is pointed out that the main issues which arise for determination in relation to the funds in both actions are:

(1) whether the funds were transferred from Kudeta, Iconic Locations and Iconic Entertainment to various recipients as set out in the forensic accountant reports;

(2) whether the transfers of the funds were justifiable or constituted a breach of contract and/or breach of trust; and

(3) whether the defendants are liable to repay the funds or part thereof to the plaintiffs.

35.  It is submitted that there are common questions of fact or law that arise in both actions, and the rights to relief claimed are in respect of or arise out of the same transaction or series of transactions.

36.  The first action raises other issues but it is submitted that the propriety of the transfers of the funds forms the crux of the first action and will take up the most time in trial.

37.  It is argued that even though the various causes of action advanced in the first action appear to be on different legal bases for the recovery of the funds in the second action, they in fact largely overlap with those pleaded in the second action.  It is noted, however, that the claims in the first action in relation to interference with contractual rights and loss to the plaintiffs under the L Capital investment raise distinct issues which do not immediately overlap with the relevant issues in the second action, although it is submitted that their resolution would not take up a significant amount of time.

Submissions

38.  The parties for consolidation are the plaintiffs in the two actions and the 5^th and 6^th defendants by counterclaim in the first action.  The parties against are the 1^st and 2^nd defendants in the two actions.

Argument for consolidation

39.  The following is a summary of the arguments for consolidation. 

40.  First, there are clear common questions of law and fact arising out of both of the first and second actions.  In particular, both actions concern practically identical relief against practically identical parties arising out of the same transactions.  Even though the claims under the first action are more extensive than the second action, it is principally concerned with the same claim, that is, the alleged siphoning off of funds of the Kudeta business by Au.  The plaintiffs in the second action will mainly rely on the evidence presented by the plaintiffs in the first action. 

41.  It is submitted that consolidation of the two actions is highly desirable for the following reasons.  In order to determine whether the alleged funds that have been siphoned off by Au and Ho belonged to the Kudeta business or to the beneficial shareholders of the Kudeta business. The relief claimed by the plaintiffs in both actions emanate from the same series of transactions that Au and Ho allegedly carried out from October 2010 to January 2014.  A hearing of the two actions together would address Au’s allegation of the plaintiffs in the first action falling foul of the reflective loss principle and the Court can therefore ensure there is no double recovery.

42.  I consider there is clear overlapping of issues and parties between the two actions that would make it highly desirable in the interests of justice for them to be dealt with on the one occasion by the same judge.  There is no doubt that the claims of the first action are more extensive than the second action but the principal claim between the two of them is the alleged siphoning off of the funds of the Kudeta business by Au.

43.  Secondly, it follows because of the commonality between the two actions that having them heard together would result in considerable saving of time and costs for all parties and the Court.  It is noted that it would be undesirable from a case management point of view if the parties were required to call evidence and make submissions on two separate occasions before two different judges in respect of the same factual matters and issues. 

44.  Thirdly, there can be no complaint by Au or Ho of any prejudice occasioned by the two actions being heard together.  In particular, given that the original dates of the trial of the first action have been vacated due to the need for more time for the parties to prepare witness statements and expert reports, there will be ample opportunity to enable the parties to the second action to attend to all procedural matters without any delay or adverse impact on a trial for the two actions. 

45.  It seems it will be some months before trial dates will be fixed for the first action and most likely in the second half of the year.  This should provide sufficient time to address by appropriate directions all pre-trial matters in relation to the second action.  It has also been indicated by the plaintiffs of the two actions that given the overlap of issues and evidence between them, not many additional hearing days will be required by having the two actions heard together. 

46.  Fourthly, there is no substance to the forum non conveniens objection taken by Au and Ho.  It is noted that no application has been made to stay the second action on this ground and Au and Ho have in any event already submitted to Hong Kong’s jurisdiction in relation to the first action. 

Argument against consolidation

47.  The following is a summary of the arguments against consolidation.

48.  First, the two actions are at different stages before going to trial.  It is argued that the second action is still in its infancy and pre-trial matters will take time before the case is ready for trial.  It is pointed out that Ho is still to be served with process of the second action, although this is disputed.  It is further argued that in the first action it has been emphasised that a speedy trial is needed to minimise any prejudice flowing from the injunctive relief granted and to secure a prompt resolution of the dispute which is acting against the interests of the parties by being unduly prolonged.  As I have indicated, it is most likely that a trial of the first action will take place in the second half of this year and this will provide appropriate time to deal with the pre-trial matters for both actions so that they may be heard together.  Any concern about delay can be addressed by appropriate directions and strict adherence to requirements and timeframes. 

49.  Secondly, there is another forum more convenient to deal with the dispute.  It is argued that the second action should be tried in Singapore and not Hong Kong due to the doctrine of forum non conveniens (this is a discretionary power where a court may dismiss a case because another court or forum is better suited to hear it).  Such an application sometimes involves considering whether the court chosen by the plaintiff is inconvenient for witnesses or poses an undue hardship on the defendant.  The basic principle is that a stay will only be granted on this ground where the court is satisfied that there is some other available forum, having jurisdiction, which is the appropriate forum for the trial of the action, in that the case may be tried more suitably for the interests of all the parties and the ends of justice. See Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460 at 476; Rambas Marketing Co LLC v Chow Kam Fai David [2001] 3 HKC 250 at 253G to 255E per Recorder Geoffrey Ma SC (as the Chief Justice then was).  It is important to note that it is not enough to identify factors that connect the case to a particular jurisdiction but rather to focus on the appropriateness of the forum from the point of view of the trial of the action. 

50.  In response to this argument, the plaintiffs of both the first and second actions note that Au and Ho have submitted themselves to the jurisdiction in the first action and most of the matters of law and fact in the second action will be the subject at trial in relation to the first action: Murthy & Anor v Sivajothi & Ors [1999] WLR 467; Swiss Life AG v Moses Kraus [2015] EWHC 2133.  They say that there is no substance to the argument or prejudice to the defendants as a consequence. 

51.  In any event, I do not see any need to address the matter as it will depend on whether an application is made on the doctrine of forum non conveniens and the basis of the argument in support of such an application. 

52.  During the course of argument, Au, in support of his submission that the proper jurisdiction to try the second action was Singapore, pointed out that there were currently three sets of civil proceedings in Singapore involving him and Iconic Locations and Iconic Entertainment.  He produced copy documents in relation to three suits: 570/2015 Iconic Locations Singapore Pte Ltd v Catalunya Pte Ltd for SGD$1,136,024.74; 237/2015 Iconic Locations Singapore Pte Ltd v Tony’s Pizza for SGD$32,734.59; and 761/2015 Catalunya Pte Ltd v Iconic Entertainment Pte Ltd for SGD$495,241.28.  I am told that the second suit which is for a small amount has settled, but other than that I do not have sufficient information to accurately assess the relevance and impact the suits would have on the claim of the alleged siphoning off of funds under both actions.  As Mr Chen has rightly pointed out, any funds relevant to the claim that have been recovered in other proceedings can be simply deducted from the broader claim made in the two actions. 

53.  Thirdly, there are no common questions of law and fact.  It is argued that the first action concerns a private contractual arrangement between the shareholders of the Kudeta business whereas the second action concerns allegations that Au breached duties owed to the plaintiff companies as a director/chief executive officer. 

54.  This argument is somewhat simplistic and broad. The claim by the plaintiffs in the first action covers essentially the breach by Au of a general agreement between the investors of the Kudeta business; it does deal with other heads of claim that concern allegations of Au’s role as a director and control of the various corporate entities involved.  The second action deals with more or less the same subject as contained in the first action in relation to the misappropriation and misapplication by Au of funds from the three plaintiffs of the second action. 

55.  Fourthly, the consolidation would result in an irregularity because the two sets of plaintiffs are represented by different firms of solicitors which procedurally may act to the disadvantage of the defendants, in that it would allow each set of plaintiffs to cross-examine the others’ witnesses and have the advantage of being able to put leading questions to a witness who would be substantially on the same side.  See Lewis v DailyTelegraph (No 2) [1964] 2 QB 601.

Further submissions

56.  Au in a letter to the Court dated 9 January 2016 made further submissions in relation to the application in the second action by questioning the right of the plaintiffs to bring the proceedings.  Written submissions in reply were submitted by the other parties on 13 January 2016. It is to be noted that the written submission from the solicitors of Ho supported the argument of Au which was to the effect that L Capital, contrary to the terms of the acquisition agreements, has instituted the second action. 

57.  All that needs to be said at this stage is that the second action has been instituted by the separate legal entities, Kudeta, Iconic Locations and Iconic Entertainment, and the issue that has been raised by Au has not been made the subject of any application before the Court.  There is no need for me to comment any further on the matter.

Discussion

58.  I am satisfied that the claim in the second action concerns practically the same funds and seeks redress, even though on a different basis, from the same parties as the claim contained in the first action. The second action is seeking recovery of funds belonging to the three plaintiff companies from Au and his related entities by dishonest misappropriation and in breach of his fiduciary duties.  The first action is similarly seeking recovery of the funds on the basis that Au breached the General Agreement as to the distribution of the profits of the Kudeta business to the investors of the joint-venture.  On the information before me, it is clear that the plaintiffs in the second action are relying on the forensic accounting evidence of the plaintiffs in the first action as well as other evidence that goes to the allegation of the misappropriation and misapplication of the funds of the Kudeta business.  There is clear overlap both in terms of the claim and evidence between the two actions, even though the first action has more extensive claims. 

59.  I should note that there seems to be no issue between the parties that if the two actions are tried in Hong Kong that they should be heard by the same judge, even though Au and Ho argue that the second action should be tried in Singapore.  I am obviously of the view that the two actions should be heard on the same occasion and before the same judge. 

60.  As stated by Chu J in Re Prudential Enterprises Ltd once it is decided that the actions should be resolved on the one occasion and by the same judge, the question as to whether they should be tried together or one after another is a matter of case management where the court is primarily concerned with savings of time and costs, and also with the avoidance of unnecessary delay, undue complexity and overloading of issues.  Normally, in deciding what is the most appropriate method in trying two or more actions, a court will consider the advantages and disadvantages from a case management perspective.

61.  I agree with the submissions of the parties seeking consolidation that there are distinct advantages from a case management perspective in having the two actions heard together.  The advantages include:

(i) One judge instead of two can consider all the evidence in one trial, so as to prevent any chances of conflicting judgments.

(ii) Less time will be spent and more costs will be saved, as matters will not be duplicated.

(iii) Factual witnesses such as Au and Ho, who are common defendants in both actions, will only need to give evidence once instead of twice in court and the same applies to expert witnesses and other common evidence.

(iv) The parties in both actions can appoint one single joint expert on each side for both actions in order to avoid the possibility of multiple expert witnesses appearing in two different actions.  It is noted that the plaintiffs in the second action rely on the expert evidence of the plaintiffs in the first action.

(v) Trial bundles can be compiled for one single action so as to avoid duplication.

(vi) One judge can consider two sets of pleadings in one trial to avoid the need for parties in both actions compiling one consolidated set of pleadings.

(vii) The possibility of res judicata and/or double recovery is minimised. 

62.  On the issue of forum non conveniens, there is as yet no such application or any other application in the second action that would have any bearing at this stage on whether or not to consolidate the two actions.  Until such time as an application or applications are made and determined, it is difficult to assess what impact, if any, this would have on a decision to consolidate.  Putting off a decision to consolidate on the possibility of a future application would act contrary to its purpose of ensuring the proper and expedient resolution of the litigation.  It is important in the circumstances of this case that if the two actions are to be tried together that a decision is made as early as possible so that the necessary pre-trial matters are appropriately dealt with according to a timeframe for the trial of the two actions.  I do note, however, that consolidated actions may be deconsolidated if the circumstances arise that warrant such a decision by the court: Lewis v Daily Telegraph (No. 2) [1964] 2 QB 601. 

63.  On the issue of irregularity, I see more of an advantage than a disadvantage in making the consolidation order.  Any irregularity as suggested can be appropriately addressed by the remedial measures available to a court in controlling its processes and ensuring the parties receive a fair trial.  But if the circumstances warrant it, the second action can be heard immediately after the first action to address any risk of injustice.  I will leave that option open but in the meantime the two actions will proceed on the basis that they will be heard together before the same judge. 

64.  I should stress that I have come to this view on the information and material before me, and in order to ensure that no unnecessary delay or disruption occurs to the trial of the two actions on the assumption that the second action is to be tried in Hong Kong. 

Conclusion

65.  For the foregoing reasons, I grant the consolidation order sought by the plaintiffs in the two actions.  I make an order nisi that costs of the applications be in the cause.