KERRY FRANCIS MOORE also known as KERRY MOORE v. JENNEX CORPORATION LTD AND OTHERS

HCMP 2109/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2109 OF 2015

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DECISION ON COSTS

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1.  The present proceedings concerned the Shineland Trust of which the applicant (“Moore”) was the beneficiary, and in particular 2 shares in the 5^th respondent Shineland Corporation Limited (“Shineland”) (“Shineland Shares”) one of which was held by the 1^st respondent Jennex Corporation Limited (“Jennex”) (“Jennex Share”) and the other was held by the 2^nd respondent Raymond Lo also known as Lo Kin Kei (“Lo”) (“Lo Share”). Lo was a solicitor and partner of Joseph Chu Lo and Lau (“Firm”), and the 3^rd respondent Correstone Limited (“Correstone”) was a service company owned by the Firm. Lo and Correstone had resigned as directors/shareholders of Jennex, thus leaving Jennex with no director or shareholder. The 4^th respondent Thomas Scott Farnen (“Farnen”) was not involved at this stage of the proceedings, and had asked to be excused.

Background

2.  Moore claimed Jennex failed to comply with its basic duty as outgoing trustee to transfer the trust shareholding (ie the Jennex Share) to Marketing Trustees Limited (“MTL”) as the new trustee of the Shineland Trust, and likewise Lo as nominee shareholder of the Lo Share which he held for Moore’s benefit failed to transfer the Lo Share to MTL on Moore’s instructions.

3.  On 2 September 2015, Moore commenced the present proceedings by originating summons (“OS”) to claim against Jennex, Lo and Correstone for inter alia: (a) declarations that the Shineland Shares were held by Lo and Jennex respectively as nominees for the benefit of Moore and as trustee for the Shineland Trust, (b) orders for transfer of the Shineland Shares to MTL, (c) order for Lo/Correstone to take all required steps to ensure Jennex transferred the Jennex Share to MTL, and (d) order for Jennex to take whatever additional steps required to transfer the Shineland Trust estate to MTL.

4.  On 10 November 2015, Moore’s solicitors de Bedin & Lee (“dB&L”) wrote to Lo’s/Correstone’s solicitors Smyth & Co (“SCo”) asking for transfer of the Lo Share to MTL. On 11 November 2015, SCo sent to dB&L signed instrument of transfer and bought and sold notes for the Lo Share. Subsequent correspondence between dB&L and SCo indicated bought and sold notes were not required, and a new signed instrument of transfer for the Lo Share was sent to dB&L on 27 November 2015.

5.  On 18 November 2015, Moore filed the Amended OS to correct the name of Lo. On 24 December 2015, Moore filed the Re‑Amended OS (“Re-Amended OS”) to add Farnen as the 4^th respondent.

6.  On 9 December 2015, dB&L noted that transfer of the Shineland Shares had to be approved by Shineland’s director(s), and asked Lo to take steps to obtain such approval by (a) using his position within Correstone to instruct Correstone (ie Jennex’s shareholder) and his position as registered shareholder of Jennex to appoint himself as Jennex’s director, (b) using his position as Jennex’s director to call a Shineland shareholders’ meeting, and (c) attending such meeting on his own behalf and as representative of Jennex to appoint himself as Shineland’s director and then approve the share transfers to MTL.

7.  On 16 December 2015, SCo replied stating Lo/Correstone had resigned from all nominee positions in Shineland and Jennex in May 2015, so they were no longer Moore’s nominee (in respect of Shineland or any other company) and did “not see any basis for [Moore’s] requests”. On the same day, dB&L replied that Lo’s/Correstone’s nominee obligations would only end if the Shineland Shares were successfully transferred to Moore’s order, so they were required to take whatever steps necessary to fulfil the instructions of the appointer (ie Moore). In their reply dated 29 December 2015, SCo disagreed and stated “[until] the Beneficiaries provide joint instructions or the Court gives directions in respect of [Jennex], [Lo] can only deliver a signed Instrument of Transfer in respect of [the Lo Share]”.

8.  On 27 September 2016, the Re-Amended OS was heard by DHCJ Kwok SC. On 3 November 2016, DHCJ Kwok SC handed judgment (“Judgment”). By the Judgment, DHCJ Kwok SC (a) granted declarations that the Jennex Share was held by Jennex as trustee of the Shineland Trust and that the Lo Share was held by Lo as nominee shareholder for the benefit of Moore, (b) ordered Jennex and Lo to transfer the Shineland Shares to MTL within 7 days (“Transfer Order”), failing which “[Moore] is at liberty to apply to a judge to order the transfer(s) to be carried out by some other fit and proper person to effect the transfer(s)” (“Breach Order”), and (c) granted a cost order nisi under Order 42 rule 5B(6) of the Rules of the High Court (“RHC”) that Moore’s costs be taxed on indemnity basis and paid by Lo, Correstone and Farnen  (“Kwok Order”).

9.  The cost order nisi under the Kwok Order was subsequently varied by consent to the effect that Moore’s costs be taxed on indemnity basis and paid severally by Farnen (as to 70%) and Lo/Correstone (as to 30%). There was no appeal or variation of the Kwok Order that Lo, Correstone and Farnen were to pay Moore’s costs on indemnity basis.

10.  In the Judgment, DHCJ Kwok SC said as follows:

(a)  In relation to the Lo Share, Lo was willing/ready to abide by any order the court might make in relation to the Lo Share, but had not explained why he had not done so without a court order.

(b)  In relation to the Jennex Share, whilst Lo/Correstone claimed to adopt a neutral position as to whether Jennex held the Jennex Share on trust for Moore, Lo/Correstone had resigned as directors/shareholders of Jennex, thus leaving Jennex with no director or shareholder. DHCJ Kowk SC held that as Moore was the sole beneficiary/protector of the Shineland Trust, the Jennex Share should be transferred to MTL.

(c)  DHCJ Kwok SC took the view that “[this] is an unnecessary litigation. [Lo] should not have made it necessary for [Moore] to apply to court”.

11.  For the Jennex Share, dB&L wrote to Jennex and Correstone (as Jennex’s shareholder) on 8 November 2016 to enquire on the transfer of such share to MTL pursuant to the Judgment, and SCo replied on the following day that Jennex had no director or shareholder and requested for Moore’s proposal for steps be taken for the Jennex Share to be transferred to MTL.

12.  For the Lo Share, dB&L wrote to SCo on 7 November 2016 to enquire on the transfer of such share to MTL pursuant to the Judgment, and SCo replied on 9 November 2016 that they had on Lo’s behalf delivered a signed instrument of transfer to Moore’s solicitors on 27 November 2015 that was pending approval by Shineland’s director, and suggested it would be appropriate to apply to court for appointment of a new director and/or company secretary (to which Lo would have no objection) as Jennex had no functioning director.[1]

13.  On 9 November 2016, dB&L replied by pointing out the Judgment required Lo to transfer the Lo Share and it was no answer to say a signed instrument of transfer had been provided a year ago as it was insufficient to complete such transfer. dB&L suggested Lo/Correstone should adopt the steps set out in paragraph 6 above to effect transfer of the Shineland Shares to MTL.

14.  On 10 November 2016, SCo in their reply to dB&L maintained that Lo’s obligations were limited to executing the share transfer documents provided on 27 November 2015, and noted DHCJ Kowk SC declined to make the “specific orders” as proposed by Moore’s counsel (akin to the chain of actions requested by Moore as set out in paragraph 6 above) (“Specific Orders”) at the hearing before him. Further, since Lo/Correstone had resigned as Jennex’s nominee shareholders, they might be exposed to further criticism by re-appointing themselves as Jennex’s directors,[2] so SCo suggested seeking further guidance from the court and reiterated their earlier request for proposals for further court directions.

15.  On the same day, dB&L replied to note Lo’s/Correstone’s refusal to abide by the order of DHCJ Kwok SC. On 11 November 2016, SCo wrote to dB&L to reiterate their stance and to reserve their right to refer their correspondence to the court on the question of costs. On 16 November 2016, dB&L expressed their disagreement and noted Lo’s/Correstone’s continued refusal to abide by the order of DHCJ Kwok SC.

16.  On 21 November 2016, Moore filed a summons (“Summons”) for (a) orders pursuant to Order 45 rule 8 of the RHC that he be at liberty to take necessary steps (including appointing officers and amending the company registers of Shineland) to effect transfer of the Shineland Shares to MTL, (b) further or alternatively, an order under section 633 of the Companies Ordinance Cap 622 (“CO”) in respect of the matters in paragraph 21(a)-(e) below, (c) an order that Lo hand over to Moore Shineland’s books/records, accounts and registers, (d) an order that Shineland be joined as a party to the present proceedings, and (e) leave to further amend the Re-Amended OS to enable the orders in terms of (a)-(c) above to be made.

17.  On the same day, Moore filed his 4^th affirmation in support of the Summons (“Moore 4^th Aff”). The Moore 4^th Aff complained that (a) Lo’s prior stance (ie he could not effect the transfer of the Lo Share without a court order) was inconsistent with his later stance (ie he had already abided by the court order by providing the share transfer documents on 27 November 2015), (b) if Lo’s case was he could take no action beyond handing over the share transfer documents, it should have been made clear to Moore/court instead of saying he would abide by a future court order, and (c) it was inconsistent for Lo/Correstone to suggest Moore should apply to court to resolve the situation (to which they would not object) and at the same time indicate they would seek costs against Moore if he did so.

18.  By their letter dated 25 November 2016, SCo indicated the directions in the Summons were agreed in substance and enclosed a draft Consent Summons (with minor amendments to ensure that the relief sought was sufficiently specific) for signature with a view to vacate the hearing. On 29 November 2016, SCo delivered Shineland’s company kit to dB&L in accordance with paragraph 4 of the Summons.

19.  On 5 December 2016, Lo/Correstone filed Lo’s 2^nd affirmation in response to the Summons (“Lo 2^nd Aff”). The Lo 2^nd Aff claimed that all along SCo had been seeking to engage with dB&L to agree directions, but Moore insisted Lo should reappoint himself as director of Jennex/Shineland to effect/approve the transfer of the Shineland Shares and to update Shineland’s register, but as Lo/Correstone had resigned as nominees they might be exposed to further criticism by re-appointing themselves as Jennex’s directors. SCo suggested the parties should by consent seek further directions from the court, but Moore issued the Summons in terms similar to the proposal in the supplemental skeleton submissions of Lo’s counsel dated 26 September 2016 (“Lo’s Submissions”). However, in light of the developments in paragraph 18 above, Lo/Correstone contended the only outstanding issue would be costs. It was said that since this matter could have been dealt with by consent and the hearing on 7 December 2016 would have been unnecessary, there was no reason to visit Lo/Correstone with any costs order.

20.  At the hearing of the Summons on 7 December 2016, I granted leave for Shineland to be joined as a party to the present proceedings, leave for Moore to further amend the Re-Amended OS in the manner set out in the paragraph below, leave for Moore to file a summons for leave to amend the Summons to state with particularity the steps under paragraph 16(a) above, and leave for More to file/serve further supporting affirmation and to restore the Summons or amended Summons for substantive hearing.

21.  On 8 December 2016, Moore filed the Re-Re-Amended OS (“Re-Re-Amended OS”) to add Shineland as the 5^th respondent and to seek an order under section 633 of the CO that (a) Shineland’s register of members be rectified by inserting the name of MTL as holder of the Shineland Shares, (b) Shineland was to issue forthwith and deliver to MTL a share certificate in respect of the Shineland Shares, (c) Moore was to rectify Shineland’s register of members for carrying out the order into effect, (d) a declaration that the share certificates issued by Shineland in the name of Jennex and Lo were null and void, and (e) notice of rectification be given to the Registrar of Companies.

22.  On 15 December 2016, SCo wrote to dB&L to reiterate Jennex had no director/shareholder, and noted even though Moore had to take steps pursuant to my order dated 7 December 2016 before they could seek the substantive reliefs sought, Lo/Correstone had made clear at the hearing on 7 December 2016 and in correspondence they “do not object to an order being made to appoint [Moore] as the person to effect the share transfer on behalf of Jennex pursuant to RHC O.45 r.8 and/or to rectify Shineland’s register pursuant to the [CO]”. SCo even suggested that a consent summons be prepared for such purpose, and reminded that whilst Lo/Correstone were keen to assist Moore, they were (as explained) unable to take any action on behalf of Jennex since they had resigned as nominee directors/shareholders.

23.  On 6 January 2017, Master K Lo granted leave for Moore to amend the Summons. On the same day, Moore filed the Amended Summons (“Amended Summons”) that spelled out the particular steps for the reliefs sought under paragraph 16(a) above, ie (a) Moore as authorised signatory on behalf of Jennex do sign the instrument of transfer in relation to the Jennex Share, (b) Moore do attend the Stamp Office to arrange stamping of the instruments of transfer in relation to the Shineland Shares and to pay the adjudication fee, (c) Moore do sign as authorised signatory Shineland’s written resolution of shareholders on behalf of Jennex and Lo to appoint new directors, (d) Moore do appoint new directors of Shineland and lodge relevant notification to the Companies Registry, and (a) Moore do call a meeting of the directors of Shineland to approve the transfer of the Shineland Shares to MTL, to update Shineland’s statutory books and share certificate records, and to authorise Moore to sign/seal new share certificates for MTL.

24.  On 10 January 2017, Moore filed the affirmation of his solicitor Morris Helen Alexandra (“Morris Aff”) in support of the Amended Summons. The Morris Aff set out the particularised “necessary steps” for transfer of the Shineland Shares from Lo/Jennex to MTL.

25.  The Amended Summons came before me for hearing on 2 March 2017. I granted an order in terms of the Amended Summons with no order as to costs between Moore and Jennex/Shineland, but the issue of costs between Moore and Lo/Correstone was reserved for determination by this court by way of paper disposal.

Costs

26.  Parties’ respective stance On 16 March 2017, Moore by his counsel Mr Lynn and Lo/Correstone by their solicitors SCo lodged written submissions on the issue of costs.  Moore asked for an order that save and except for the costs order made in paragraph 5 of my order dated 7 December 2016 Lo shall pay Moore’s costs of and occasioned by the Summons and Amended Summons to be taxed on indemnity basis if not agreed. Lo’s primary stance was that he should not be liable for such costs. Alternatively, if this court should consider Lo liable for some of Moore’s costs, such costs should be limited to 1 summons, 1 supporting affidavit and 1 short hearing to explain the reasons for the application.

27.  Moore’s case Mr Lynn submitted that the Kwok Order required Lo/Jennex to transfer the Shineland Shares within 7 days, failing which Kerry would be at liberty to apply to court. Mr Lynn argued that DHCJ Kowk SC was of the view that Lo could/should have made the transfers, so it was not enough for Lo to deliver a signed instrument of transfer in respect of the Lo Share in November 2015, which DHCJ Kwok SC was aware and obviously did not regard as sufficient as he went on to grant the Kwok Order requiring Lo to transfer the Lo Share within 7 days. Hence, Lo had to take requisite steps over and beyond the provision of the signed instrument of transfer to effect such transfer.  Mr Lynn reminded that the proposed directions under both Order 45 rule 8 of the RHC and section 633 of the CO would only arise where there was non-compliance with the Kwok Order by Lo/Jennex who were “disobedient parties”.

28.  Mr Lynn submitted that bearing in mind Order 45 rule 8 of the RHC provides “……. the Court may direct that the act required to be done may, so far as practicable, be done by the party by whom the order or judgment was obtained or some other person appointed by the Court, at the cost of the disobedient party, and upon the act being done the expenses incurred may be ascertained in such manner as the Court may direct and execution may issue against the disobedient party for the amount so ascertained and for costs”, Lo should be liable for costs of and occasioned by the Summons and Amended Summons to be taxed if not agreed on indemnity basis. Mr Lynn contended that since DHCJ Kwok granted the costs order nisi in the Kwok Order on indemnity basis (from which there was no appeal or application for variation), costs to be awarded to Moore for enforcement of the Kwok Order “cannot be on a more forgiving basis now that [Lo] has disobeyed a clear order for transfer of the [Shineland Shares], and has again made it necessary for [Moore] to apply to court, thereby again creating unnecessary litigation and wastage of court time and costs”. Mr Lynn suggested the affront was even greater as Lo’s non-compliance was based on essentially the same reasoning that had been rejected by the DHCJ Kwok from which there was no appeal.

29.  Lo’s case  SCo argued that Lo/Correstone had not obstructed (and in fact had assisted) Moore in obtaining the reliefs sought in the Summons and Amended Summons in order to gain control of Shineland, and it was Moore who had conducted the Summons and Amended Summons in such way that led to unnecessary costs being incurred. SCo submitted that the inter-partes correspondence showed that Lo/Correstone helpfully sought to agree directions with Moore with a view to give effect to the Kwok Order, and such correspondence must be viewed against the fact (a) DHCJ Kwok SC declined to (i) make orders in paragraphs 5-6 of the Re-Amended OS because they were not sufficiently specific and (ii) make the Specific Orders proposed by Moore’s counsel at the hearing, (b) Lo’s Submissions put forward a sensible approach for further directions to be sought from the court under Order 45 rule 8 of the RHC and section 633 of the CO, and (c) although the Judgment ordered Lo/Jennex to transfer the Shineland Shares to Moore’s new nominee MTL, it did not identify how Jennex’s shares was to be transferred, how the share transfers should be registered or new directors appointed.

30.  SCo submitted that since Lo had provided the relevant share certificate and signed instrument of transfer in respect of the Lo Share to Moore in November 2015, the ensuing correspondence between dB&L and SCo showed that Lo/Correstone reasonably suggested the parties to seek further directions from the court to give effect to the Kwok Order. It was said Moore generated unnecessary costs by insisting that Lo should appoint himself as director of both Jennex and Shineland to (a) effect transfer on behalf of Jennex, (b) approve the share transfer and (c) update Shineland’s registers. SCo submitted that given (i) Jennex had no director/shareholder and Lo was a former nominee shareholder/director, (ii) the beneficial ownership of Jennex was uncertain as DHCJ Kwok SC did not rule on the same, and (iii) the bitter dispute between Moore and Farnen, Lo’s cautious and not unreasonable reluctance to adopt Moore’s suggestion was understandable lest he be subjected criticism or litigation by re-appointing himself as Jennex’s director and/or take action on its behalf. SCo submitted that without clear protection by court order it was not appropriate for Lo to follow Moore’s unilateral instructions in respect of matters concerning Jennex (including appointing its officers), and hence there was no unreasonable refusal or failure on Lo’s part.

31.  SCo submitted that it was obvious from the Summons that Moore ultimately adopted the proposals in Lo’s Submissions (which steps would not require Lo’s input) and not those in dB&L’s correspondence or in the Specific Orders, so Moore should have agreed to the approach proposed in Lo’s Submissions in which case substantial costs could be saved. Lo had never disagreed with such approach and even took steps to assist Moore to ensure the reliefs sought in the Summons and Amended Summons were sufficiently specific to be able to get approval from the court. SCo contended that Lo had incurred not insignificant costs in corresponding with dB&L and dealing with the hearing on 7 December 2016 as Moore insisted that Lo must act in accordance with the Specific Orders. For the aforesaid reasons, SCo submitted that Lo should not be liable for Moore’s costs in respect of the Summons and Amended Summons.

32.  Without prejudice to Lo’s primary stance that he was not liable for Moore’s costs in respect of the Summons and Amended Summons, SCo reminded that the Summons had to be amended but not through Lo’s fault, so Moore’s costs (even if Lo should bear such costs) should be limited to preparing 1 summons and 1 supporting affidavit, and attending a short hearing to explain the reasons for his application (which costs should not exceed $30,000). SCo submitted that “bearing in mind no order as to costs was made in respect of half of the hearing on 7 December 2016”,[3] Lo’s costs liability (even if he should bear part of the costs of the Summons and Amended Summons) should not exceed $20,000.

33.  Discussion  There was no dispute that costs are in the discretion of the court. The starting point was the Kwok Order which was clear and precise. By the Transfer Order, Jennex and Lo were ordered to transfer the Shineland Shares to MTL within 7 days. As pointed out by Mr Lynn, the primary obligation for transfer of the Shineland Shares to MTL under such order fell on Jennex and Lo. SCo asked this court to read the Transfer Order in the context of the matters in paragraph 29(a)-(c) above. But plainly DHCJ Kwok SC was aware of the matters in paragraph 29(a)-(b) above, but nevertheless granted the Transfer Order. Moreover, although the Judgment did not condescend upon the mechanism on how the Shineland Shares were to be transferred, how they should be registered or how new directors were to be appointed, the tenor of the Judgment (and it was plain from the Transfer Order) that it was for Lo/Jennex to effect rather than for Moore to seek the transfer of the Shineland Shares to MTL, which formed the basis for the DHCJ Kwok SC’s observations set out in paragraph 10(c) above. In short, DHCJ Kwok SC was unconcerned as to the mechanism of the transfer of the Shineland Shares at that stage because he held it was incumbent upon Lo/Jennex to take whatever appropriate and necessary steps to carry out and achieve such transfer.

34.  As there was no appeal against the Transfer Order, it was not for this court to revisit or debate whether Lo/Correstone had been reasonable in making the suggestions in Lo’s Submissions or whether there was lacuna in the Judgment as to who were the beneficial owner of Jennex. Further, the fact that Lo/Correstone had concerns over taking the steps proposed under the Specific Orders or as set out in paragraph 6 above and felt they might be open to criticism or litigation had they taken such steps was neither here nor there. After all, the Transfer Order squarely required them to effect the transfer of the Shineland Shares within 7 days. In my view, the mere signing of the instrument of transfer was not compliance with the Transfer Order. Since it was no longer open to Lo/Correstone to argue whether their stance was reasonable in face of the mandatory and directive nature of the Transfer Order, it was quite clear they were in breach of the Transfer Order 7 days after the Kwok Order.

35.  On such basis, I see nothing untoward in dB&Lee (a) complaining of breach of the Transfer Order and urging for compliance, and (b) rejecting the explanation put forward by Lo/Correstone as to why they did not see themselves doing more than providing the instrument of transfer to effect transfer of the Lo Share under the Transfer Order. Thus, Moore could not be faulted for the initial inter‑partes correspondence up to mid-November 2016.

36.  The Breach Order was, as Mr Lynn submitted, the fallback provision put in place by DHCJ Kwok SC in the Judgment in case Lo/Jennex failed to comply with the Transfer Order. By the Breach Order, Moore was at liberty to apply to court for directions to effect the transfer of the Shineland Shares when Lo/Jennex failed to do so. In my view, it was at this stage that the court would be concerned with the mechanism of the transfer. And quite shortly after the Judgment (ie about 18 days later), Moore issued the Summons for such purpose. In my view, since Lo/Jennex failed to comply with the Transfer Order, and Moore had to resort to the Breach Order, I see no reason why Lo should not bear the costs of the relevant application to the court on indemnity basis.

37.  The only question was whether Moore’s conduct of the application under the Breach Order would detract from such position. In this respect, two matters were of note. First, for effective transfer of the Shineland Shares via the mechanism of court directions pursuant to the Breach Order, (a) Shineland ought to be joined as a party so that it would be bound by the relevant directions, and (b) the Re-Amended OS had to be amended to seek the relief under section 633 of the CO, and then consequently the Summons had to be amended to seek such relief. These anterior procedural applications had to be made and resolved before the substantive application under the Breach Order could be properly mounted. In such circumstances, the hearing on 7 December 2014 could not have been avoided whether or not Lo/Correstone was cooperative or even helpful in not objecting to the substantive directions.  Secondly, after the anterior procedural applications were resolved, the substantive application under the Breach Order could not have been made by consent given the existence of unrepresented parties.  Thus, the hearing on 2 March 2007 again could not have been avoided. In the circumstances, whether ultimately the directions sought and granted pursuant to the Breach Order were same or similar to what had been proposed by Lo/Correstone, I cannot see how the course of the applications and hearings would have been different.

38.  It was suggested that Moore should have agreed to the proposed directions put forward by Lo/Correstone. However, I am unable to see how it would have saved costs since the procedural and substantive applications and consequent hearings were still required. The fact that Lo/Correstone did not disagree with the directions sought under the Breach Order did not detract from the fact that Lo/Jennex were in breach of the Transfer Order which therefore necessitated the enforcement under the Breach Order.

39.  It was also suggested that Lo had incurred significant costs in corresponding with dB&L and in respect of the hearing on 7 December 2016. I have found that the hearing on 7 December 2016 was necessary to deal with anterior procedural issues which could not be dealt with by consent given the existence of unrepresented parties. Further, part of the correspondence was due to Lo’s/Correstone’s stance that there was no unreasonable refusal or failure on their part in compliance with the Transfer Order, which Moore had to refute. By the time DHCJ Kwok SC made the Transfer Order which was binding on Lo, Lo’s anterior reasons for not taking further steps to effect the transfer as ordered were no longer sufficient answer for his non-compliance of such order.

Conclusion

40.  For all the above reasons, I grant an order that save and except for costs orders made on 7 December 2016, Lo do pay to Moore costs of the Summons and Amended Summons (including all costs reserved, if any) on indemnity basis to be taxed if not agreed.

HCMP 2109/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2109 OF 2015

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JUDGMENT

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Introduction

1. These proceedings were commenced by originating summons.  So far as I am aware, none of the respondents has contended that these proceedings should be converted into a writ action by reason of the existence of or need to resolve factual disputes.

2. Kerry Francis Moore, also known as Kerry Moore, (“Kerry”) is the applicant.  Jennex Corporation Limited (“Jennex”) is the 1^st respondent.  Raymond Lo, also known as Lo Kin Kei, (“Raymond”) is the 2^nd respondent.  Correstone Limited (“Correstone”) is the 3^rd respondent.  Thomas Scott Farnen (“Thomas”) is the 4^th respondent.

3. These proceedings were brought in relation to two shares in Shineland Corporation Limited (“Shineland”).

The Raymond held share in Shineland

4. One share is held by Raymond who acknowledged that he held the share “on trust for and on behalf of Kerry” and Raymond said he “is willing and ready to abide by any order which this court deems fit to make in relation to” this share.  What he has not explained is why he has not done so without an order of the court.

5. In relation to the Raymond held share in Shineland, Thomas deposed in §44 of his 2^nd affirmation that:

“The effect of the terms of the Shineland Nominee Agreement was tolerably clear; [Raymond] was to hold his one [Shineland] share on trust for [Kerry] …”

6. Thus, there is no dispute that Kerry is entitled to have the Raymond held share in Shineland transferred to Marketing Trustees Limited.

The Jennex held share in Shineland

7. The other share in Shineland is held by Jennex.

8. Kerry’s case is that this share is held by Jennex on trust for him under the Deed of Trust dated 24 July 2003 made by Jennex as “Trustees” with the Settlor.  Clause 16(b) of the Deed provided that:

“The ‘Trust Fund’ means … (b) all further money, investments or other property paid or transferred by any person or persons to or placed under the control of and (in either case) accepted by the Trustees as additions to the Trust Fund”.

9. There is no dispute that the Shineland share was transferred to Jennex.  What remains is the question of acceptance by Jennex as an addition to the Trust Fund.

10. (1)  Kerry affirmed in §32 of his Third Affirmation that:

“Last but not least, [Thomas’] case conflicts with the way the Shineland Trust has been administered going as far back as 2004. I refer in particular to the documents entitled ‘Shineland Trust Financial Statements for the Year Ended 30 June 2004’ (the ‘Shineland Trust 2004 Financial Statements’) and ‘Shineland Trust Financial Statements for the Year Ended 30 June 2005’ (the ‘Shineland Trust 2005 Financial Statements’). These financial statements were prepared by Mr Owen Williams, a New Zealand qualified accountant, who had prepared financial Statements for each of the sub‑trusts from 2004 onwards.”

(2)  The Shineland Trust 2004 Financial Statements showed “Income Dividends Received” and “Trustees Income”, both of US$639,624.  Kerry was identified as “Beneficiaries”.  Jennex was the “Trustees” under the “Shineland Trust Particulars as at 30 June 2004” and “Joseph Chu Lo and Lau” were named as solicitors.  Raymond is a solicitor and partner of Joseph Chu Lo and Lau (“Raymond’s Firm”).

(3)  The Shineland Trust 2005 Financial Statements showed “Dividends Received” of US$651,808.  Kerry was identified as “Beneficiaries”.  Jennex was the “Trustees” under the Particulars for the Shineland Trust as at 30 June 2005 and Raymond’s Firm were named as solicitors.

(4)  Mr John Hui has made no application to have Kerry attend for cross‑examination on his 3^rd affirmation.  He also told me categorically that he was not challenging the authenticity of the financial statements.  Authenticity being not in issue, it is irresponsible for Mr John Hui to allege, without any or any cogent evidence, that the financial statements were “manufactured” or the like: see the section under “Postscript” below.  I accept the two financial statements as credible evidence that the Jennex held Shineland share had been accepted by Jerry as an addition to the Trust Fund and that the share had been held by Jennex on trust for Kerry. 

11. Mr Wilson Leung claimed that Raymond and Correstone adopted a neutral position as to whether the Jennex held share was held on trust for Kerry.  Raymond is a solicitor and partner of Raymond’s Firm and Correstone is a service company owned by Raymond’s Firm.  Raymond and Correstone had both resigned as director and shareholder of Jennex leaving Jennex with no director or shareholder.

12. Raymond argued that they acted as nominees in accordance with the Trustee Appointment Agreement and all their actions on behalf of Jennex therefore required approval from all four Appointors.  This argument is similar to Thomas’ argument as to which see below.  The “Trustee Appointment Agreement” does not require approval from all Appointors for actions on behalf of Jennex.  I reject Raymond’s argument.

13. Jennex was the trustee for the Shineland trust but Thomas argued that Jennex held the Shineland share beneficially.

14. It is not disputed that the profits from the Shineland share were held by Jennex on trust for Kerry.  But, Mr John Hui contended that holding the profits from the share on trust did not mean that the share was held on trust.

15. To start with, this contention seems illogical. If the Shineland share was held by Jennex beneficially, how did the dividends paid out on or profits from the Jennex held Shineland share become trust property? Moreover, what is the point of holding a share beneficially if the profits or dividends are not?

16. There is an undated written document entitled “Terms and Conditions for Acceptance of Appointment as Trustee” made by (1) Jennex as “The (sic) Trustee”, (2) Owen Neil Williams, Joel Martin Truscott, Kerry and Thomas as “the [sic] Appointors”, and (3) The Partners of [Raymond’s Firm]. The “Background” in the document read as follows:

“Background:

(A) The Appointors are beneficiaries under the Jennex Trading Trust, Fraiser Trust, Shineland Trust and the East Orient Trust and instrumental in establishing and financing such trusts;

(B) The Appointors wish to appoint the Trustee as sole Trustee of the Fraiser and Shineland Trusts (‘the Trusts’)

(C) The Trustee will provide nominee Director and Shareholder services to companies associated with and/or owned and controlled by the Jennex, Shineland, Fraiser and East Orient Trusts;

(D) Partners of the Firm will also provide nominee Director and/or nominee shareholding services to companies associated with various trusts;

(E)  …”

17. Mr John Hui contended that Recitals C & D established that Raymond and Correstone were nominees of all four Appointers, ie Owen Neil Williams, Joel Martin Truscott, Kerry and Thomas.

18. I have no hesitation in rejecting Mr John Hui’s contention as wholly unmeritorious.  Recitals C and D established nothing of the sort.  The point is so obvious that it is not capable of much elaboration.

19. Mr John Hui asserted in §9 of the 4^th respondent’s Skeleton Submissions that the beneficiaries of the four sub‑trusts are:

Sub‑trust	Beneficiary/beneficiaries
Shineland Trust	Kerry
East Orient Trust	Thomas and his ex‑wife
Fraiser Trust	Joel Martin Truscott
Peninsular Housing Trust	Owen Neil Williams

20. Thus, each of the four Appointors (Thomas’s ex‑wife was a co‑beneficiary with Thomas) has his own sub‑trust. 

21. Just as Kerry has no business to meddle in the East Orient Trust, Thomas has no business to meddle in the Shineland Trust.  If Mr John Hui’s contention were tenable, Thomas and the other two Appointors could meddle in the Shineland Trust, then Kerry and the other two Appointors could meddle in the East Orient Trust.  This is plain nonsense and defeats the purpose of each of the four Appointors (Thomas’s ex‑wife was a co‑beneficiary with Thomas) having his own sub‑trust.

22. I hold that Thomas and the other two Appointors had no interest, no right and no say in the Shineland Trust.

23. As Kerry is the sole beneficiary and protector of the Shineland Trust, the Jennex held Shineland share should also be transferred to Marketing Trustees Limited.

Disposition

24. I make an order in terms of §§(1) – (4) of the Re‑Amended Originating Summons.

25. If Raymond and Jennex should fail to make the transfers as directed by me, Kerry is at liberty to apply to a judge to order the transfer to be carried out by some other fit and proper person to effect the transfer.

26. The trust (and sub‑trust) structure is complicated.  The events date back a couple of decades.  There is no or no proper introduction or explanation of the factual background.  The documents and authorities filed (nine lever arch files in all) are voluminous and most of them have not been referred to at the hearing.  P C Woo & Co lodged a bundle called “Core Hearing Bundle (2)”.  This bundle was hardly referred to.  The arguments range over a large number of issues, most of which are irrelevant.  Much of Thomas’ affirmations and arguments are irrelevant and inadmissible.

Costs order nisi

27. This is an unnecessary litigation.  Raymond should not have made it necessary for Kerry to apply to court.

28. Thomas’ conduct (including the conduct of his counsel) is deplorable.

29. I make an order nisi under Order 42, rule 5B(6) of the Rules of the High Court, Cap 4A, that Kerry’s costs be taxed on indemnity basis and paid by the Raymond, Correstone and Thomas.

Postscript

30. Before leaving this case, I must record the conduct of Mr John Hui in persisting to make very serious allegations in the course of his submissions. 

31. These proceedings were commenced by originating summons.  So far as I am aware, none of the respondents has contended that these proceedings should be converted to a writ action by reason of the existence and need to resolve factual disputes.  If the very serious allegations made by Mr John Hui were material to the resolution of the litigation, he should have applied to convert the proceedings to a writ action.  But he has not.

32. A litigant or counsel must not make very serious allegations (including fraud) without cogent evidence supporting the same.  This much is trite and I will cite two cases to make good this proposition.

33. In Associated Leisure Limited and others v Associated Newspapers Limited [1970] 2 QB 450 at p 456, Lord Denning MR said:

“… the rule, well settled, which I will read from Gatley on Libel and Slander, 6th ed. (1967), p. 462, para. 1046:

‘A defendant should never place a plea of justification on the record unless he has clear and sufficient evidence of the truth of the imputation, for failure to establish this defence at the trial may properly be taken in aggravation of damages.’

I have always understood such to be the duty of counsel.  Like a charge of fraud, he must not put a plea of justification on the record unless he has clear and sufficient evidence to support it.”

34. In Choy Bing Wing v Chief Executive of HKSAR China and others [2006] 1 HKLRD 666 at §9, J Lam J (as he then was) said:

“The Writ contained very serious allegations which should not be advanced without cogent evidence supporting the same. It is well established that the court will not allow allegations of such nature to be made without proper evidence and if they were made irresponsibly, it will exercise its inherent jurisdiction to strike out the same (see C S Low Investment & Others v Freshfields [1991] 1 HKLR 12 at p.23A–D; Tam Chi Kok Gabriel v Fok Eugina (unrep., HCA No 1859 of 1992, [2003] HKEC 723); Re Gagich (unrep., HCAJ No 361 of 1995); 林哲民訴特佳機器廠有限公司及另一人 (unrep., CACV No 122 of 2004) para.25).”

35. Mr John Hui criticised the Financial Statements relied on by Mr Andrew Lynn. I asked Mr John Hui whether he was disputing authenticity and he replied in the negative.

36. Soon after his reply, he used the word “manufactured”.  I did not see how he could responsibly allege manufacture of a document if he was not disputing authenticity.  I stopped him and he withdrew the “manufacture” allegation.

37. Having withdrawn the allegation of “manufacturing”, he felt it proper to go on to allege that the document was “created by this party in favour of one position”.  I asked him to prove the “creation” of the document.  He made no attempt to do so.

38. Undaunted, Mr John Hui went on to accuse Kerry of trying to alter the checks and balances initially imposed and tried to “extract” money from this trust.

39. I asked him to make good his allegation.  What he did was to assert that the application “is premeditated by an ulterior motive of extracting money from the trust structure by altering the balance …”.

40. Making very serious allegations without any or any cogent evidence in support is serious misconduct.  Smearing does not take Thomas’ case any further.