CHAU YUET CHING BRENDA v. CHAN BO MAN WILLIAM AND OTHERS

HCA 652/2017

[2024] HKCFI 3694

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 652 OF 2017

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(BY ORIGINAL ACTION)

(BY COUNTERCLAIM)

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D E C I S I O N

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Introduction

1.  This is an application by the 7^th Defendant in the original action (“D7”) and the 8^th Defendant in the original action (“D8”) by way of a summons dated 24 July 2024 (“Summons”) for an order that the Plaintiff in the original action (“P”) do further fortify her undertaking as to damages in respect of the injunction dated 19 January 2018 and granted Ng J against D7 and D8 (“the 2018 Injunction”). On 19 December 2024, this Court heard the Summons and reserved its decision. This is the Court’s decision.

Background

2.  In the original action, P seeks reliefs against D7 and D8, alleging that her sole shares in two companies (“Lucky Top” and “More Harvest”) were fraudulently transferred to parties associated with the 1^st Defendant in the original action, and ultimately to D7 and D8. It is further alleged that D7 and D8 were not bona fide purchasers for value without notice.

3.  On 19 January 2018, P obtained the 2018 Injunction against D7 and D8 such that they would not deal with the shares in the two companies nor the two properties that were being held by them respectively (“the Two Properties”). But that injunction was made subject to P’s cross-undertaking to compensate any loss of D7 and D8 if the Court in due course decides that they should be so compensated. As part of the 2018 Injunction, P was ordered to fortify the cross-undertaking by making a payment into court of HK$350,000 which P duly did.

4.  After more than 6 years and on 25 July 2024, D7 and D8 filed the Summons seeking further fortification and relying on the following circumstances or grounds which they say are “significant” or “compelling”:-

(i)  The age of P being 88 years old in 2024;

(ii)  Falling property prices in 2024;

(iii)  Accumulated loss of rental income from the Two Properties since 2017.

Relevant legal principles

5.  In Hui Chi Ming v Koon Wing Yee [2011] 1 HKLRD 260 (at §§34 and 36), Coleman DJ (as he then was) held that it falls to the defendant (or applicant) to show that there is a likelihood of a significant loss arising as a result of the injunction granted, and that there is a basis for the belief that the plaintiff would be unable to make good the loss. In the event of a late application, there is the need to show “some significant change in circumstances” or “compelling circumstances”.

6.  In Yan Yu Ying v Leung Wing Hei [2022] 3 HKLRD 270 (at §82), K Yeung J held that it is valid to ask whether the plaintiff’s financial position is such that, viewed fairly, may be said to raise realistic doubts as to the plaintiff’s ability to honour the undertaking.

Discussion

7.  Turning to the first circumstance or ground being relied upon by D7 and D8, namely, that P has turned 88 years old in 2024. In her skeleton submissions, counsel for D7 and D8, Ms Yang, contended[1]: “Given the age of P, D7 and D8 are worried that if anything happens to P’s health between now and the conclusion of the action, there may be complications and/or difficulties for D7 and D8 in enforcing P’s undertaking as to damages.”

8.  The Court can dispose of this ground quickly. The personal worries or speculations of D7 and D8 are not relevant, particularly when Ms Yang conceded at the hearing that there is simply no evidence to show that P’s health has changed in any material way so as to affect her ability to honour her undertaking in due course, if that becomes necessary. To support this ground, the burden is on D7 and D8 to show a significant change in P’s health and they have failed in that regard.

9.  Turning to the second circumstance or ground. D7 and D8 submit that given the falling residential property prices (down by some 14.9% in the 1^st quarter in 2024 compared to the same period in 2023) and the fact that they are prohibited by the 2018 Injunction from selling the Two Properties, they are suffering losses which may be increasing.

10.  More or less the same ground for fortification was relied upon recently by the applicant in Lau Lai Shan Lisa v Zhang Qi & Ors.[2023] HKCFI 1465 but Cheng J rejected it (at §20):-

“20. I do not consider that the evidence relied on by the 1^st Defendant demonstrates any significant change of circumstances or compelling circumstances as to why the court should entertain the application for fortification.

20.1 Fluctuations in property values in response to external events are normal and to be expected. The evidence adduced does not suggest that the fluctuations are out of the ordinary.

20.2 The graph of the property index relied on shows an upward gradient between about 2016 and 2018, a bit of a drop between 2018 and 2019, and then a relatively overall flat gradient between 2019 and 2022. Roughly speaking, the level of the index in June 2018 is similar to the level of the index in 2022. Even assuming that the index accurately reflects the fluctuations in value of the City Point Property (there is no evidence in this regard), this would mean that the absolute value of the City Point Property has not in fact fallen since the time of the Injunction.

20.3 From the graph, it does not seem that the property market was on an upward trend as at June 2018; rather, the index had started falling some time prior to that. Insofar as the 1^st Defendant suggests that at the time of the Injunction, she was not particularly concerned that the Plaintiff might not be good for her cross-undertaking by reason of her ownership of the City Point Property, this would have been against the background of (and despite) the property market moving downwards. The contrast she now seeks to draw between property market trends then and property market trends now should be seen in this light.

20.4 It is said that the property market is predicted to continue to fall until 2025, based on the articles adduced in evidence. However, the articles were generally written in the context of the restrictions imposed during the Covid-19 pandemic and the associated economic conditions. Several of the articles report the predictions made by Goldman Sachs Group Inc, who said that social distancing rules would combine with rising unemployment and higher borrowing rates to dampen demand, and that this would be reflected in lower home prices. A South China Morning Post article of 17^th June 2022 reported that property developers had mostly written off the first quarter of 2022 when strict social distancing rules forced them to scrap their home sales from January to April 2022. Another South China Morning Post article of 27^th July 2022 reported the Financial Secretary as saying that the movement in home prices in the second half of 2022 would depend on the pandemic. In other words, the articles and predictions relied on were just snapshots at particular points in time (mostly around March to July 2022), and market conditions will continue to change.

21. I therefore do not agree that the downturn in the property market starting in 2022 constitutes a significant change of circumstances, or special circumstances, justifying the revisiting the issue of fortification of the Plaintiff’s cross-undertaking as to damages.”

11.  Further, counsel for P, Ms Kang, submitted that even accepting the accuracy of the information on property prices as produced by D7 and D8, the level of property index in 2024 sees no drastic change as compared to that of 2017, which was the year in which D7 and D8 purportedly purchased the shares of Lucky Top and More Harvest which held the Two Properties. In other words, it cannot be said that D7 and D8 would have suffered a significant loss when the prices of the Two Properties cannot be shown to have fallen sharply since 2017. The Court notes that in any event, P has sufficient assets to cover any potential loss in that regard, a matter that the Court will turn to later.

12.  I therefore take the view that some of the observations of Cheng J apply equally to the present case. Fluctuations in property values are normal and to be expected, and the downturn in the property market in recent years does not constitute a change of circumstances so significant as to justify revisiting the issue of fortification of P’s cross-undertaking as to damages.

13.  Turning now to the last ground being relied upon by D7 and D8, namely, that given they have not received any rental income from the Two Properties since 2017, the longer that remains to be the case, the greater the loss they will suffer. Based on the market rental value, they claim that their potential loss amounts to some HK$3.69 million. D7 and D8 advance other bases to calculate the potential loss but they produce results which are all less than HK$3.69 million.

14.  To oppose the Summons, P has produced affirmation evidence to show that she owns a property located at Park Haven in Hong Kong, which was purchased at the price of HK$17,567,000 in 2014, being free from any encumbrances[2]. Even taking into account the downturn in the property market, the value of this property clearly well exceeds the amount of further fortification being sought by D7 and D8, or any damages that they may claim in due course. This Court is therefore not satisfied that there are realistic doubts as to P’s ability to honour her cross-undertaking to pay damages to D7 and D8, if that becomes necessary in due course.

15.  This Court has therefore considered the merits (or demerits) of the above three grounds which are being relied upon in this Summons by D7 and D8, both individually and collectively, but they fail to persuade the Court that further fortification is necessary. The Court has further noted the observations by Le Pichon DJ (as she then was) in her Decision of 11 November 2019 relating to this action, including that the inference is compelling that subsequent transfers in Lucky Top and More Harvest[3] bear the hallmarks of sham transactions. They were observations throwing light on the merits of P’s claims which this Court may take into account in considering and indeed ruling against further fortification[4].

16.  For the above reasons, I find the Summons to be devoid of merits. I therefore dismiss it and order that the costs of and incidental to the Summons be to P, to be taxed if not agreed.

Ms Kinsey Kang, instructed by Messrs. Kwan & Chow, for the Plaintiff (by Original Action)

Ms Eugenia Yang, instructed by Messrs. Patrick Mak & Tse, for the 7^th and 8^th Defendants (by Original Action)

HCA 652/2017

[2021] HKCFI 1797

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 652 OF 2017

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(By Original Action)_

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 (By Counterclaim)

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DECISION

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INTRODUCTION

1.  On 7 April 2021, I handed down my decision (the “Decision”) allowing the application of the Plaintiff by Original Action and the 1^st and 2^nd Defendants by Counterclaim (the “Plaintiff”) to strike out parts of the Amended Defence and Counterclaim (“AD&C”) of the 1^st to 6^th Plaintiffs by Counterclaim (the counterclaim plaintiffs (“CCP”) ) with costs to the Plaintiff.  The Plaintiff now applies to vary that costs order to the extent that the costs be taxed on an indemnity basis, if not agreed, and be paid forthwith, with certificate for two counsel. 

Leave to file affirmation in opposition

2.  The CCP sought leave to file the 4^th Affirmation of Chan Bo Man William (the “Costs Affirmation”) in relation to factual matters touching upon the issue of costs and the Plaintiff’s application herein.  The affirmation relates to affairs between the CCP and their former solicitors, Messrs Au & Associates as well as the CCP’s cash flow problems.

3.  The Plaintiff opposes the application on the ground that these problems are not matters which the Court should take into account in exercising its discretion on the issue of costs.  If the CCP had issues with their former solicitors, they should make a complaint to The Law Society of Hong Kong against them.  The Plaintiff also argues that in any event the Court should not place much weight on the affirmation because the Plaintiff is not in a position to verify the matters which allegedly happened between the CCP and their former solicitors; and more importantly, there are conflicting evidence from the CCP as to their financial means.   Except in relation to the cash flow problems, I agree with the rest of the Plaintiff’s submission.  I admitted the affirmation, subject to consideration as to the weight to be attached.

Certificate for two counsel

4.  The Plaintiff’s ground for seeking certificate for two counsel is the nature and level of complexity of the striking-out application.  The parts of the AD&C sought to be struck out involves claims for more than $160 million out of the total claims of about $180 million and with $24 million locked up in court which is of particular importance to the Plaintiff.   The amount involved is substantial.  The case requires an understanding and analysis of the case as a whole.

5.  The CCP’s counter argument is that the application did not require such a heavyweight team of counsel and the variation sought seems to be a calculated attempt by the Plaintiff to stifle them by way of legal costs.  They refer to the letter dated 2 March 2020 from the Plaintiff’s legal team to the CCP asserting that the merits of the Plaintiff’s striking-out application was so strong that the CCP should have acceded to the application upon receiving the said letter.  They argue that the Plaintiff’s skeleton was only a rehash of the same arguments contained in the letter.  They also submit that this Court struck out parts of the AD&C on two fronts, namely uncertainty and on the CCP’s failure to remedy their pleading or provide particulars.  Hence, they submit the striking-out application was not so complex as to merit two counsel.

6.  As the Plaintiff submits, the substantive hearing itself may not involve prolonged argument, but the decision to engage counsel was made prior to the hearing and dependent on the evidence filed and issues arising therefrom.  The CCP filed the 3^rd Affirmation of Chan Bo Man William in opposition raising a series of issues in response to the letter.   Each of these issues may lead to complex arguments in the substantive hearing.  It is reasonable for the Plaintiff to be prepared for addressing the Court on these issues.  Whether the CCP did take the points and how they chose to argue the issues in the substantive hearing was for the CCP and does not affect the inherent complexity of the issues involved. 

7.  The striking-out application should also be viewed in the context of the entire case.  It was the CCP who chose to make the action complicated by making the Counterclaim, raising numerous issues and obtaining an injunction.  They were represented by two counsel in previous proceedings.  It is reasonable for the Plaintiff to anticipate that they will be represented by the same legal team and be prepared for it.  Having heard the application, I consider the complexities as raised by the CCP and as anticipated by the Plaintiff made it appropriate for the certificate to be granted.

Immediate taxation and payment forthwith

8.  Counsel have no disagreement that the relevant principles for ordering immediate taxation are set out inMidland Business Management Ltd v Lo Man Kui (No 2)[1]. The factors to be taken into consideration are:

(1)   whether the interlocutory application and the costs incurred are separate and distinct from the main proceedings;

(2)   the justice of making such an order having regard to the effect on the respective parties’ cash flow;

(3)   the amount at stake on taxation was sufficient to justify the expense of separate taxation instead of global final taxation; and

(4)   the possibility that there might be no trial.

9.  First, having regard to the background of the Plaintiff’s case and of the CCP’s case as set out respectively in paragraphs 13 to 19 and 20 to 31 of the Decision, I am satisfied that the costs of the striking-out application are severable and self-contained from the rest of the action.  The eventual outcome of the trial of this action will not have any impact on the costs order made at this stage of the proceedings. 

10.  Second, the CCP argue that the Plaintiff has no cash flow problems but they have; and immediate taxation would effectively stifle their defence.  In the Costs Affirmation, the CCP claimed that they are impecunious as part of the basis for its security for costs application.   With their counterclaim having been struck out, they are merely defendants and have no choice to participate in these proceedings.  Despite the proceedings were first commenced in July 2017, the Plaintiff chose not to expeditiously deal with the same resulting in several interlocutory skirmishes.  If immediate taxation is ordered, the CCP will be unable to defend the Plaintiff’s claims despite the same cries out for investigation and the Plaintiff will be able to obtain relief in the absence of any real genuine resistance.

11.  However, while asserting their own impecuniosity on the one hand, the CCP claimed that the 1^st to 4^th Defendants by Original Action were solvent and their business were of going concern[2]; the 2^nd Defendant has substantial cash coming in[3]; he has nearly $18 million in assets and the liabilities were mainly due to related companies and directors[4]; and he has over $1.7 million receivables as of May 2021[5].  In the circumstances, it is difficult to see how an order for immediate taxation will stifle the CCP’s defence.

12.  Besides, since CJR, costs arising from interlocutory skirmishes are usually payable forthwith.  This is particularly so for costs arising from striking out applications, whether of statement of claims or defence.   These claims and defences should not have been raised in the first place.  If a party raises such claims or defences, how could it rely on its own impecuniosity to argue that an order for immediate taxation requiring it to reimburse what its opponent had been made to unnecessarily incur would be unjust?  It should also be noted that it was the CCP who raised these interlocutory skirmishes by making these unmeritorious counterclaims which the Plaintiff rightly sought to have them struck out.  The CCP’s impecuniosity has little weighting in determining where the balance of justice lies.

13.  Third, the costs of the striking out application are fairly substantial, with involvement of a leading counsel and justify separate taxation.  There is no reason why the Plaintiff should be kept out of her money until trial, which would be a considerable time away.

14.  Lastly, in view of the above, I would not speculate on the possibility whether there would be no trial.

15.  In conclusion, the factors weigh in favour of immediate taxation.

Indemnity costs

16.  For reasons as explained in paragraphs 72 and 75 of the Decision, the CCP’s counterclaim are frivolous, vexatious and an abuse of process.  Indemnity costs are justified under the principle in Choy Yee Chun (Personal representative of the estate of Chan Pui Yiu) v Bond Star Development Ltd[6].

17.  Further, as submitted by the Plaintiff, the CCP’s resistance to the striking-out application is unwarranted and unreasonable.  They have been fully informed of the basis of the striking-out application via the Plaintiff’s solicitors’ letter of 2 March 2020.  They were asked to discontinue their counterclaim within 14 days.  They should know that their case has no merit and is frivolous, vexatious and an abuse of process of the court.  They did not respond.  They did not provide particulars which they hitherto failed to provide.   They reneged on what they had explicitly promised the court without ever giving any explanation.   They offered no meaningful resistance to the striking-out application at the hearing.  In the end, the Plaintiff’s application wholly succeeded.  Accordingly, indemnity costs are justified.

Conclusion

18.  For the above reasons, I allow the Plaintiff’s application for variation of the costs order to the extent that the costs be taxed on indemnity basis, if not agreed, and be paid forthwith, with certificate for two counsel.  As for the costs of the variation application, I make the usual order of costs on party and party basis with certificate for one counsel only but to be paid forthwith.

19.  The parties have no disagreement as to the directions for the further conduct of the proceedings.  Those directions are made accordingly.

HCA 652/2017

[2021] HKCFI 640

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 652 OF 2017

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DECISION

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INTRODUCTION

Introduction

1.  This is the application of the Plaintiff by Original Action who is also the 1^st Defendant by Counterclaim, and of the 2^nd Defendant by Counterclaim, Pink Diamond Holdings Limited (“Pink Diamond”), to strike out parts of the Amended Defence and Counterclaim (“AD&C”) filed by the 1^st to 4^th Defendants by Original Action and the 1^st to 6^th Plaintiffs by Counterclaim.

2.  The Plaintiff by Original Action and Pink Diamond seek to strike out paragraphs 80, 82(d), 82(e) and 83 of the AD&C and the related relief under prayers (6), (7) and (9) on the grounds that they:

(1)   disclose no reasonable defence and/or cause of action;

(2)   are frivolous or vexatious;

(3)   may prejudice, embarrass or delay the fair trial; and/or

(4)   constitute an abuse of the process of the court.

3.  They also seek two consequential orders, if their striking out application is successful, namely, that:

(1)   The counterclaim against Pink Diamond be dismissed with costs; and

(2)   The sum of $24 million paid into court by the Plaintiff pursuant to an order by consent dated 16 January 2019 be paid out to the Plaintiff.

Dramatis Personae

4.  To avoid confusion, hereafter I shall refer to the Plaintiff by Original Action and the 1^st Defendant by Counterclaim as “the Plaintiff” and all the other parties by Original Action or by Counterclaim by their individual names.  I shall also refer to the plaintiffs by Counterclaim collectively as the counterclaim plaintiffs (“CCP”).

5.  The Plaintiff is an elderly widow over 80 years of age.  She has a son, Chau Brandon Clairborne Kwok Fung (“Brandon”).  The Plaintiff is a well-known socialite and for a short time prior to her marriage, practised as a barrister.

6.  She was the owner of shares in Manyrich Investment Limited (“Manyrich”), More Harvest Investment Limited (“More Harvest”) and Lucky Top Enterprises Limited (“Lucky Top”) (collectively, “the Plaintiff’s companies”) which were investment companies holding residential properties of substantial market value until the events that led to the injunction order obtained by the Plaintiff.   Those sharesform the subject matter of the injunction order.  The Plaintiff and Brandonwere the directors of Manyrich and Brandon was the sole director of More Harvest and Lucky Top.

7.  The Plaintiff is also the owner of four other companies, namely, Noble Crest, Million Globe, Full Honest and East Victory (collectively, the “Four Other Companies”).  Brandon is the sole director of these four companies.

8.  Pink Diamond is a company incorporated in the British Virgin Islands. 

9.  The 1^st Defendant (“William”) is a decoration consultant who had been known to the Plaintiff since 1966.  He performed renovation work for the Plaintiff’s properties.

10.  The 2^nd, 3^rd, 4^th and 6^th Defendants by Original Action (respectively, “BMC Decoration”, “BMC Holdings”, “BMC Construction” and “Double Huge”) are associated companies under William’s control.

11.  The 5^th, 7^th and 8^th Defendants by Original Action are Hong Kong residents.

12.  Talent Express Consultants Limited (“Talent Express”) is and was at all material times a company incorporated in Hong Kong which manages properties as its main business.

Background

13.  In mid-2016 the Plaintiff told William that the mortgage repayments for her many properties were high and she wanted to sell them to obtain cash flow.  William offered to help her with finding potential purchasers and estate agents to handle the sale as well as obtainingmortgages from Bank of China (Hong Kong) Limited (“BOC”) which offered more favourable terms.

14.  Sometime in November 2016, William visited the Plaintiff, accompanied by a lawyer and an accountant, with a bundle of documents for the purpose of instructing agents to sell the Plaintiff’s properties and for transferring mortgages to BOC (the “November 2016 documents”).  Believing in William, the Plaintiff signed the documents without reading them.  She was not given a copy.

15.  In January 2017, the Plaintiff and Brandon were alerted by the auditorof her companies that certain records had been registered at the Companies Registry removing Brandon as director and replacing the incumbent company secretaries with other entities.  The Plaintiff did not know why that was the case and instructed the auditor to rectify the records.

16.  On 21 January 2017, the Plaintiff’s solicitors wrote to Three A Advisory Limited (“Advisory”), which had been appointed company secretary as a result of the November 2016 documents, to the effect that those documents (appointing Advisory as company secretary, changing the auditor and the registered office of the Plaintiff’s companies) were procured by “wrongful representation, pressure and influence” exerted by Advisory’s representative on the Plaintiff.  The solicitors demanded Advisory to immediately cease representing to third parties that it is the company secretary, failing which the Plaintiff would apply for an injunction.

17.  William made several visits to the Plaintiff in the early part of February 2017.  On 15 February 2017, William arranged for the Plaintiff to sign a bundle of documents at the office of a firm of accountants, DC Associates, which the Plaintiff believed had to do with appointing estate agents and transferring mortgages to BOC.  They turnedout to include instruments of transfer, bought and sold notes indicating thatthe Plaintiff transferred at nominal consideration the shares of her companies;company records of the Plaintiff’s companies removing Brandon as director, replacing the incumbent company secretaries and changing the registered office address of the companies.

18.  On 17 February 2017, one of the Plaintiff’s staff queried whether she had borrowed money from financial institutions.  That eventually led to the Plaintiff making a report to the police.

19.  On about 17 March 2017, the Plaintiff learned that that there was a purported transfer of shares in Manyrich in favour of William and/or BMC Decoration.  On 24 March 2017 Hong Kong Hoi Shun Limited acting on behalf of William asserted that William was the shareholder of Lucky Top.  That led to the commencement of the current proceedings.  The Plaintiff obtained an injunction order prohibiting William and BMC Decoration, and BMC Holding (by undertaking), from dealing with the Plaintiff’s 9,999 shares in Manyrich; prohibiting William and BMC Decoration from dealing with the sole share in More Harvest and the sole share in Lucky Top pending trial of the Plaintiff’s claim or further order. The Manyrich matter was temporarily settled by a consent order dated 16 January 2019 upon the Plaintiff’s paying $24 million into court.

The counterclaim

20.  The CCP’s case appears to be as follow.  The Plaintiff owed BMC Decoration, BMC Construction and Talent Express a total of $20,567,241 (the “Outstanding Debts”). 

21.  In July 2016, the Plaintiff sought to engage William to develop some residential properties on her two pieces of lands in Mang Kung Uk and Sheung Yeung Village (the “New Projects”), but without finalizing details of steps and work involved.

22.  In August 2016, the Plaintiff orally agreed with William to pay the Outstanding Debts and to provide securities for developing the New Projects by charging her shares in her companies or proceeds of the shares to the CCP (the “August Agreement”).  Under that agreement, William has the right to sell the Plaintiff’s companies and apply the proceeds of the shares to repay the Outstanding Debts and to complete the New Projects.  The work involved, the costs and all necessary payment for completion of the New Projects were still unknown.

23.  Shortly after the conclusion and in breach of the August Agreement, the Plaintiff transferred the shares in the Four Other Companies to Pink Diamond in September 2016 (the “Pink Diamond Transfers”).

24.  On 23 November 2016, the Plaintiff entered into a written agreement with BMC Construction to survey two lots of land in Sheung Yeung Village, and to install a fence with a door thereat for the price of HK$869,000.

25.  On 29 November 2016, the Plaintiff entered into a written agreement with William on behalf of BMC Strategic to develop her land in Mang Kung Uk for $27.4 million and charged her shares in Noble Crest to secure her liability thereunder (the “MKU Agreement).  Under that agreement, BMC Strategic would finance the development and building costs and land premium.

26.  On 1 December 2016, the Plaintiff entered into a similar written agreement with William on behalf of BMC Holdings to develop her two lots of land in Sheung Yeung Village for $137.05 million and charged her shares in Manyrich to secure her liability thereunder (the “SY Agreement).

27.  Both BMC Strategic and BMC Holdings had commenced works on the lands (paragraph 18(d) of AD&C).

28.  In February 2017, the Plaintiff transferred:

(1)  her shares in Noble Crest to BMC Strategic as security pursuant to the MKU Agreement;

(2)  her shares in Manyrich to BMC Holdings as security pursuant to the SY Agreement;

(3)  her shares in More Harvest to BMC Construction as security for the sum of $560,000 payable under her agreement with BMC Construction dated 23 November 2016 for building a fence on the land in Sheung Yeung Village;

(4)  her shares in Lucky Top to BMC Decoration as security for a sum of $13,357,241 owed to BMC Decoration;

(5)  her shares in Full Honest, Million Globe and East Victory to BMC Investment (HK) Limited, BMC Planning (Int’l) Limited and BMC Intech (Int’l) Limited respectively for unspecified purpose; these transferees are not parties to these proceedings.

29.  As the Plaintiff failed to pay the Outstanding Debts and costs and payments arising from the New Projects, BMC Strategic and BMC Holdings suffered loss and damage comprising of loss of profits and disbursements (paragraph 83 of AD&C).

30.  The CCP sought to sell Lucky Top and More Harvest to third parties, namely Yeung Chau Oi and Double Huge, ie the 5^th and 6^th Defendants by Original Action.  The sale was halted because of the injunction obtained by the Plaintiff against William and BMC Decoration.

31.  BMC Holding’s claim for a charge over the shares in Manyrich in the counterclaim was released and discharged by a consent order through the Plaintiff’s payment into court the sum of $24 million.  As a result and since the date of the consent order, the Plaintiff took back the shares in Manyrich free from BMC Holding’s alleged charge.   The sum of $24 million remains in court pending final determination of the actual amount, if any, owed by the Plaintiff to BMC Holdings or further order.

An overview of the Plaintiff’s striking out application

32.  The Plaintiff seeks to strike out paragraphs 80, 82(d), 82(e) and 83 of the AD&C and the related relief.  She attacks the counterclaim as unarguable on four fronts: 

(1)  the alleged August Agreement is so uncertain in its terms that it could not be a concluded or binding agreement; and as a result, there is no breach of any alleged August Agreement;

(2)  BMC Holdings’ and BMC Strategic’s respective claims for loss and damage on the basis of the Plaintiff’s breach of the MKU Agreement and SY Agreement are so inherently inconsistent and contradictory that they are bound to fail;

(3)  BMC Construction’s claim was in respect of works which were substantially un-performed; and

(4)  there is no evidence that the Pink Diamond Transfers were made with intent to deceive creditors and the CCP are not prejudiced.

CLAIM UNDER THE AUGUST AGREEMENT

No binding or enforceable August Agreement by reason of uncertainty

33.  At paragraph 83 of AD&C, the CCP plead:

“Further, [the Plaintiff] has wrongfully refused to perform the August Agreement and has not repaid any part of the Outstanding Debts or any of the costs and payments arising out of and/or in connection with the New Projects. As a result, the [CCP] have suffered loss and damage.”

By this plea, the CCP pleaded (1) a concluded binding and enforceable August Agreement; (2) the Plaintiff’s failure to pay the Outstanding Debts; (3) the Plaintiff’s failure to make payments in connection with the New Projects, ie under the MKU Agreement and SY Agreement; and (4) they suffered loss and damages as a result.  A finding that the August Agreement is not a concluded binding agreement does not necessarily mean that this paragraph may be struck out in its entirety because there are other elements pleaded which are linked to other paragraphs.  However, such a finding may have a bearing on paragraph 81 under which the CCP seek specific performance of the August Agreement and, in the alternative, loss and damages suffered as a result. 

34.  Mr Chang SC, counsel for the Plaintiff, submits that the August Agreement did not constitute a binding or enforceable agreement including for the New Projects and/or the mortgage/charge of the Plaintiff’s seven companies on account of its ambiguity and lack of certainty.  The starting point for this submission is that if an agreement is to be enforced as a contract, the parties to the agreement must have reached agreement on all its essential terms which must be expressed with sufficient clarity to permit enforcement.  Putting it the other way, if the terms of an agreement are incomplete, unclear, ambiguous or uncertain, it will often be assumed that the parties did not intend their agreement to be legally binding, or that they have not yet reached a final agreement: see Michael Furmston, The Law of Contract[1].

35.  It is the CCP’s pleaded case that the Plaintiff wanted to engage William or his companies to develop the New Projects (paragraph 12 of AD&C) and William told her that he and his companies could only do so if she would pay off part of the Outstanding Debts and/or provide security for costs in respect of the New Projects and the Outstanding Debts (paragraph 13 of AD&C).   

36.  Then, the Plaintiff said she could (1) obtain the necessary funds to finance the costs of the New Projects and/or to repay the Outstanding Debts and/or (2) provide security for the same by selling and/or utilizing the properties that she held through her various companies and/or by taking control of and selling and/or utilizing the shares of the companies holding such properties (paragraph 14(a) of AD&C).  She wanted William to help her identify all the companies which were holding her properties (paragraph 14(b) of AD&C).  She wanted to take control of those companies and make arrangement to sell them because she was experiencing serious cash flow problems (paragraph 14(e) of AD&C).  Then, William helped her and identified the seven companies.    In short, the Plaintiff was alleged to have said she could obtain funds by selling her companies holding properties or by selling the properties or provide security using those companies; and she asked William to identify the companies for her, which William did. 

37.  That was the situation before the parties entered into the August Agreement.  Mr Chang SC submits that at that stage, the options were open and the essential terms of the agreement were undecided in that the Plaintiff had not decided whether to sell the properties held by her companies or the shares in those companies to pay the Outstanding Debts and costs of the New Projects or to use those properties or shares as security to enable her to do so.  In that regard, the Plaintiff did want to sell some of her properties or companies so as to ease her cash flow problems.

38.  That also remained to be the situation at the time of the making of the August Agreement in August 2016, according to the CCP’s Answers to the Supplemental Request for Further and Better Particulars of the AD&C of the 1^st to 4^th Defendants by Original Action and the 1^st to 6^th Plaintiffs by Counterclaim.  In answer to the request made of paragraph 16 of the AD&C, the CCP replied that at the time of the August Agreement, the full details of the New Projects had yet to be finalized and the costs were unknown.  A number of matters were still left open, such as the contract price, how many residential properties were to be created in the New Projects and whether the Plaintiff’s seven companies were to be set aside for providing funding.  William was still in the course of helping the Plaintiff to ascertain the market value of the properties owned by the seven companies.  The market value was not ascertained until mid-September 2016.  Hence, Mr Chang SC submits that at the time of the making of the August Agreement, it was not decided as to the shares of which of the seven companies would be mortgaged and/or charged, or whether they were to be sold straightaway. 

39.  On the other hand, Ms Chan, counsel for the CCP, submits that a striking out should only be attempted in the plainest and most obvious case, and that the present case is nowhere near the requisite threshold for striking out.  She submits, quoting Yu Man Fung Alice v Chiau Sing Chi Stephen[2], that the court will only hold that a contract or some part of it is void for uncertainty if it is legally or practically impossible to give the agreement or that part of it any sensible content.  Whether the parties had intention to create legal relations is a question of fact that must be determined by considering the full circumstances, such as the relationship of the parties, the subject matter of the agreement, the language used in the agreement and the manner in which the agreement has been made.  Each case is fact sensitive.  I have no

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DECISION ON COSTS

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1.  This is the application of the plaintiff (by original action) and the 1^st defendant (by counterclaim) to vary the costs order nisi made in the Decision dated 11 November 2019 (“the Decision”) which provided for (1) the costs of (a) the discharge summons and (b) the variation summons be the plaintiff’s costs in the cause and that (2), there be no order as to costs for the amendment summons.

2.  For present purposes, reference should be made to the Decision regarding the 3 summonses then before the court, the submissions of the parties described therein and the Court’s reasoning for its Decision.

3.  The plaintiff proposed that the costs order be varied as follows:

(a)   costs of and occasioned by the 3^rd defendant’s application under the Summons dated 6 July 2018 be paid by the 3^rd defendant to the plaintiff forthwith, on an indemnity basis, to be taxed, if not agreed, with certificate for 2 counsel;

(b)  costs of the 1^st and 2^nd defendants’ application to discharge the injunction under the discharge summons be the plaintiff’s costs in the cause save that the plaintiff’s costs of the 9 October 2019 hearing (“the 2019 hearing”) in dealing with the 1^st and the 2^nd defendants’ application be paid by the 1^st defendant and the 2^nd defendant forthwith, with certificate for 2 counsel, to be taxed if not agreed;

(c)   costs of the plaintiff’s variation summons be the plaintiff’s costs in the cause, save that the plaintiff’s costs of the 2019 hearing in dealing with the variation summons be paid by the 1^st defendant and the 2^nd defendant forthwith, with certificate for 2 counsel, to be taxed if not agreed; and

(d)  the plaintiff’s costs of the 2019 hearing in dealing with the amendment summons be to the plaintiff, to be paid forthwith, with certificate for 2 counsel, to be taxed if not agreed. 

Costs order as varied

4.  Having considered the written submissions of the parties, the costs order nisi should be varied as set out in §19 below.

The 2019 hearing was unnecessary

5.  The 1^st to 3^rd defendants do not challenge the court’s view (see §74 of the Decision) that the Dormeuil Freres’ approach was applicable.

6.  The 3^rd defendant made an application by summons to discharge the undertaking it had given. In its submissions in opposition to the variation application it took issue with the court’s observation at §69 of the Decision that it (the 3^rd defendant) had provided its undertaking embodied in a court order made on 4 May 2017 by consent without any reservation whatsoever. The 3^rd defendant sought to rely on the letters dated 6 April 2017 and 10 April 2017 from its solicitors (“Undertaking by Letters”) made on a without prejudice and non-admission basis.

7.  But on 26 April 2017, based on facts showing that the 3^rd defendant had breached that Undertaking by Letters, the plaintiff made its application which resulted in the undertaking embodied in the Court order of 4 May 2017. That undertaking embodied in the court order was plainly made without any reservation. It follows that the 3^rd defendant should not have made its application for discharge.

8.  As regards the 1^st and 2^nd defendants, in view of the fact that the plaintiff had repeatedly advocated the Dormeuil approach since the hearing in December 2018, their insistence on seeking resolution of the factual dispute (as to the material non-disclosure) at the 2019 hearing was unreasonable.

9.  In so far as it was said that the effect of the variation to the costs order nisi sought by the plaintiff regarding the costs of the 2019 hearing is that the court would be deciding the issue of costs before deciding on the issue of material non-disclosure, that submission is misconceived.

10.  The variation relates only to the costs of the 2019 hearing as distinguished from the costs of the earlier hearings and/or the costs of the 1^st and 2^nd defendants’ application under the discharge summons which fall to be decided after trial by the trial judge.

11.  Having regard to the without prejudice letters from the plaintiff’s solicitors to the defendants’ solicitors dated 12 and 22 August 2019 containing proposals for the disposal of all 3 summonses, had they been reasonably considered by the defendants, the 2019 hearing could and would have been avoided.

12.  The conduct of the 1^st to 3^rd defendants in insisting on the resolution of the factual dispute (as to material non-disclosure) at the 2019 hearing was entirely unreasonable. Their rejection of the proposals is deprecated and merits sanction. 

13.  As regards the amendment summons, it is clear that its resolution at the 2019 hearing mirrored the plaintiff’s proposals repeatedly made for its disposition prior to the 2019 hearing. Had those proposals been reasonably considered, the amendment summons would have been disposed of without any need for a hearing. The plaintiff seeks an order for costs of the amendment summons with certificate for 2 counsel. Whilst I agree the plaintiff should be awarded her costs, the matter was not one that would justify the award of such certificate.

Immediate taxation

14.  The matters to be taken into consideration when deciding whether or not to make an order for immediate taxation are the following: (i) the extent to which the proceedings are from a taxation point of view separable and self-contained from the rest of the action; (ii) the justice of making such an order having regard to the effect of the cash flow of the respective parties; and (iii) whether the amount at stake on the taxation were sufficient to justify putting the parties to the expense of having a separate taxation: see Midland Business Management Limited v Lo Man  Kui (No2) [2011] 2 HKLRD 667 at §7 applying the test set out in Kickers International SA v Paul Kettle Agencies Limited [1990] FSR 436, 429.

15.  In my view, the costs of the 2019 hearing are separable and self-contained from the rest of the action. There is nothing in the hearing bundles to suggest that the making of an immediate taxation order will have any effect on the cash flow of the 1^st to 4^th defendants. Further, that those costs are fairly substantial is also apparent and would justify the expense of a separate taxation.

16.  In the circumstances, I take the view that the unreasonable conduct of the 1^st to 4^th defendants does warrant an order for immediate payment.

Costs order as varied

17.  It is appropriate that the costs order nisi be varied such that the 1^st to 3^rd defendants should bear the costs of the 2019 hearing, that the plaintiff should additionally have the costs of the 3^rd defendant’s application to discharge its undertaking under the discharge summons (other than the costs of the 2019 hearing), and that the plaintiff’s costs of the defendants’ discharge summons and the plaintiff’s variation summons otherwise be costs in the cause.

18.  Whilst the 3^rd defendant (having given an undertaking without reservation) ought not have applied for its discharge, the court’s disapproval of such conduct is sufficiently reflected by ordering that plaintiff should additionally be given its costs of that application (other than the costs of the 2019 hearing). I do not consider that those costs should be awarded on an indemnity basis.

19.  Accordingly, the costs order as varied is as follows:

(a)  Costs of and occasioned by the 3^rd defendant’s application under the Summons dated 6 July 2018 be paid by the 3^rd defendant to the plaintiff forthwith, to be taxed, if not agreed, with certificate for 2 counsel.

(b)  Costs of the 1^st and 2^nd defendants’ application to discharge the injunction under the discharge summons be the plaintiff’s costs in the cause save that the plaintiff’s costs of the 2019 hearing in dealing with the 1^st and the 2^nd defendants’ application be paid by the 1^st defendant and the 2^nd defendant forthwith, with certificate for 2 counsel, to be taxed if not agreed.

(c)   Costs of the plaintiff’s variation summons be the plaintiff’s costs in the cause, save that the plaintiff’s costs of the 2019 hearing in dealing with the variation summons be paid by the 1^st defendant and the 2^nd defendant forthwith, with certificate for 2 counsel, to be taxed if not agreed.

(d)  The plaintiff’s costs of the 2019 hearing in dealing with the amendment summons be to the plaintiff, to be paid forthwith, with certificate for counsel, to be taxed if not agreed.

Written submissions by Mr Denis Chang SC, Ms Po Wing Kay and Ms Kinsey Kang, instructed by Peter K S Chan & Co, for the plaintiff (by original action) and the 1^st and 2^nd defendants (by counterclaim)

Written submissions by Mr Avery Chan and Mr Lai Chun Ho, instructed by Au & Associates, for the 1^st to 4^th defendants (by original action) and the 1^st to 6^th plaintiffs (by counterclaim)

HCA 652/2017

[2019] HKCFI 2778

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 652 OF 2017

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BETWEEN

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DECISION

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1.  There are three summonses before the court:

(a) the summons dated 6 July 2018 of Chan Bo Man William (“D1”), BMC Decoration Limited (“D2”) and BMC Holdings (International) Ltd (“D3”) (“the discharge summons”) for an order to discharge (i) the injunction against D1 and D2 (“the injunction order”) granted ex parte on 29 March 2017 and continued on 6 April 2017 restraining D1 and D2 from dealing with the shares in three companies described below belonging to the plaintiff and (ii) the order of undertaking given by D3 on 4 May 2017 not to deal with the shares in Manyrich Investment Limited (“Manyrich”);

(b) the summons of D1 – D3 and BMC Construction Centre Limited (“D4”) dated 12 December 2018 (“the amendment summons”) for leave to amend a set of Further and Better Particulars (“2^nd FBP”) of the Amended Defence and Counterclaim (“ADCC”); and

(c) the summons dated 20 June 2019 of Chau Yuet Ching Brenda (“the plaintiff”) to vary the injunction order against D1 and D2 (“the variation summons”).

2.  At the conclusion of the hearing, my Decision was reserved which I now give.

INTRODUCTION

3.  The plaintiff is an elderly widow over 80 years of age with a son Chau Brandon Clairborne Kwok Fung (“Brandon”) who is married to Jenny Wong (“Jenny”).  The plaintiff is a well-known socialite and for a short time prior to her marriage, practised as a barrister.

4.  She was the owner of shares in Manyrich, More Harvest Investment Limited (“More Harvest”) and Lucky Top Enterprises Limited (“Lucky Top”) (collectively “the plaintiff’s companies”) which were investment companies holding residential properties with substantial market value until the events that led to the injunction order. Those shares form the subject matter of the injunction order. The plaintiff and Brandon were the directors of Manyrich and Brandon was the sole director of More Harvest and Lucky Top.

5.  The injunction order prohibited D1, D2 and (by undertaking) D3 from dealing with the plaintiff’s 9,999 shares in Manyrich, D1 and D2 from dealing with the sole share in More Harvest and the sole share in Lucky Top pending trial of the plaintiff’s claim or further order. The Manyrich matter has been settled: D3’s claim under a charge over those shares was released and discharged by a consent order dated 16 January 2019 (“the January 2019 order”) through a payment into court of $24 million by the plaintiff who has since held those shares free from D3’s charge. It is common ground that the injunction order over Manyrich is no longer required although it is the defendants’ position that it should not have been granted in the first place and falls under its discharge summons.

6.  The plaintiff seeks to vary the injunction order to restrain D1 and D2 from dealing with the sole share in Lucky Top and the sole share in More Harvest pending judgment or further order of the court which if granted would leave Manyrich outside the scope of the injunction order.

7.  In addition to the plaintiff’s companies, the plaintiff was also the owner of four other companies known as “the Pink Diamond Companies” and in each case, Brandon was the sole director.

BACKGROUND

8.  The plaintiff has known D1 since 1996 in relation to renovation work for her properties. In mid-2016 the plaintiff let it be known to D1 that the mortgage repayments for her many properties were high and she wanted to sell them to obtain cash flow. D1 offered to help her with potential purchasers and estate agents to handle the sale as well as obtaining mortgages from the Bank of China (“BOC”) which offered more favourable terms.

9.  Sometime in November 2016, D1 visited the plaintiff accompanied by a lawyer and an accountant and brought along a bundle of documents (“the November 2016 documents”) for the purpose of instructing agents to sell the plaintiff’s properties and for transferring mortgages to BOC. Believing in D1, she signed the documents without reading them. She was not given a copy.

10.  In January 2017, she and Brandon were alerted by the auditor of her companies that certain records had been registered at the Companies Registry removing Brandon as director and also replacing the incumbent company secretaries with other entities. The plaintiff did not know why that was the case and instructed the auditor to rectify the records.

11.  On 21 January 2017, the plaintiff’s solicitors wrote (“the solicitors’ letter”) to Three A Advisory Limited (“Advisory”) which had been appointed company secretary as a result of the November 2016 documents to the effect that those documents (appointing Advisory as company secretary, changing the auditor and the registered office of the plaintiff’s companies) were procured by “wrongful representation, pressure and influence” asserted by Advisory’s representative on the plaintiff. The solicitors demanded that Advisory immediately cease representing to third parties that it is the company secretary failing which the plaintiff would apply for an injunction.

12.  D1 made several visits to the plaintiff in the early part of February 2017. On 15 February 2017, D1 arranged for the plaintiff to sign a bundle of documents (“the February 2017 documents”) at the office of a firm of accountants, DC Associates, which she believed had to do with appointing estate agents and the transfer of mortgages to BOC. They turned out to include instruments of transfer, bought and sold notes indicating that the plaintiff transferred at nominal consideration the shares of her companies; company records of the plaintiff’s companies removing Brandon as director, replacement of the incumbent company secretaries and registered office address of the companies.

13.  On 17 February 2017, one of the staff queried whether she had borrowed money from financial institutions. That eventually led to reporting the matter to the police.

14.  She learned that on about 17 March 2017 that there was a purported transfer of shares in Manyrich in favour of D1 and/or D2. On 24 March 2017 Hong Kong Hoi Shun Limited (“Hoi Shun”) acting on behalf of D1 asserted that D1 was the shareholder of Lucky Top. That led to the injunction order and the commencement of the current proceedings.

I. THE DISCHARGE SUMMONS

15.  D1 – D3 put forward two grounds for discharging the injunction order: (a) material non-disclosure at the time the plaintiff made her ex parte application, and (b) futility of the injunction order as Lucky Top and More Harvest are no longer in the hands of D1 and D2.

(A) Material non-disclosure

16.  The ex parte injunction was obtained on the basis that the plaintiff had been fraudulently induced by D1 whether by himself or acting in concert with D2 his company and/or their agents and servants into signing the November 2016 documents and the February 2017 documents in that they included instruments of transfer of shares in the plaintiff’s companies in favour of D1 or D2.

17.  Mr Chong, counsel for D1 to D4 submitted that the plaintiff’s case of fraud against his clients is critically dependent upon her professed lack of knowledge of the true intent and effect of the November 2016 documents and the February 2017 documents, he submitted that such a claim is unsustainable but for a proper understanding, the context against which the documents were signed is required.

18.  At the forefront of Mr Chong’s submissions was the fact that the solicitors’ letter (that did not allege fraud) was never brought to the attention of the judge. Had that been done, it would have raised questions as to why the plaintiff was nevertheless willing to sign a bundle of documents again having, as it were, already had her fingers burnt the previous November.

19.  The defendants also criticised the plaintiff’s description of dealings with D1 (in her 1^st affirmation at §§19 – 20) as being wholly inadequate.

20.  D1 and D2 relied on the following matters, namely, (i) the outstanding debt; (ii) the August agreement; (iii) the plaintiff’s knowledge as regards the effect of the November 2016 documents; and (iv) the plaintiff’s knowledge as regards the effect of the February 2017 documents.

21.  So far as the relevant context is concerned, in broad outline, the defendants’ case is as follows:

(a) D1 and D2 submitted that the outstanding debt is indisputable given:

(i) the document dated 22 September 2016 (“the 2016 acknowledgement”) signed by the plaintiff acknowledging that she owed D2 $13,359,241 for services rendered between February 2006 and July 2016; and

(ii) the document dated 18 May 2012 (“the 2012 acknowledgement”) signed by the plaintiff acknowledging that she owed Talent Express a sum of $6 million for management services in relation to her land in Wong Chuk Yeung (“the WCY property”) as well as the legal costs of $352,611.48 Talent Express/Lam[1] had incurred on her behalf for a judicial review application in respect of the WCY property.

(b) It was then said that against that indisputable existence of the outstanding debt, in July 2016, the plaintiff approached D1 regarding the development of her lands in Sheung Yeung Village and Mang Kung Uk (“the new projects”) as she was experiencing financial difficulties.

(c) The plaintiff and D1 reached an agreement in August 2016 whereby D1 would procure the relevant companies to complete the new projects for her and in return D1 and the relevant companies would have the right to sell the plaintiff’s shares in the plaintiff’s companies and the proceeds would be applied to repay the outstanding debt and to complete the new projects (“the August agreement”).

(d) To facilitate its performance, the plaintiff requested D1 for assistance in removing Brandon as director of the plaintiff’s companies and appointing the plaintiff in his place and it was against that background that the November 2016 documents were signed.

(e) On 7 February 2017, upon realising that Brandon was reinstated as director the plaintiff again requested D1’s assistance to (i) again remove Brandon as director and (ii) effect the transfer of the shares of the plaintiff’s companies to the relevant companies which could on-sell the same to raise funds for the new projects.

22.  Mr Chong submitted that it was for that purpose that the plaintiff signed the February 2017 documents and that the plaintiff knew exactly what she was doing when she signed the November 2016 documents and the February 2017 documents. There was simply no fraud which was the basis upon which the plaintiff had obtained the ex parte injunction. 

23.  That, it was said, is supported by “direct evidence” showing that the plaintiff signed the documents of her own free will, namely voice recordings. D1 had secretly recorded a conversation between himself, the plaintiff and other unidentified persons on 26 September 2016 and at another meeting that took place at the plaintiff’s home on 7 February 2017, eight days before the February 2017 documents were signed on the 15 February 2017.  Transcripts of those recordings (said to be incomplete) were exhibited to D1’s 2^nd affirmation.

24.  The court did not consider it a useful exercise to have selected passages read out in court. Mr Chong then agreed to submit a list of the relevant passages and the conclusions to be drawn from them after the hearing with leave to the plaintiff to submit a written response. That has duly taken place.

25.  Since the hearing, the defendants have filed a list stating three conclusions referencing relevant pages of the transcripts. Those conclusions are that (i) the plaintiff knew full well that the effect of the November 2016 documents was to, among [other] things, remove Brandon as a director of the plaintiff’s companies; (ii) there was an internal struggle between the plaintiff and Brandon as to the control of the plaintiff’s companies as well as other monies and properties; and (iii) the plaintiff instructed D1 again to remove Brandon as a director of the plaintiff’s companies to get back control of those companies in performance of the August agreement.

26.  The plaintiff does not admit the authenticity of the voice recordings. Both recordings are said to be incomplete and have been disclosed by D1 on a selective basis. Further, the plaintiff submitted that the selected pages do not support the conclusions sought to be drawn. None of the pages relied on for conclusion (i) specifically referred to the November 2016 documents. They therefore cannot show that the plaintiff knew the nature and effect of the documents signed in November 2016. Nor was there specific reference to the August agreement and the new projects and thus do not support conclusion (iii) that the plaintiff wanted to get back control of the companies for the purpose of performing the August agreement.

27.  It was also noted that some pages[2] show that the plaintiff did not know that Brandon had been removed and it was D1 who suggested that Brandon be removed again and that he would assist the plaintiff to prepare the documents. On that basis, it could not be shown that the plaintiff knew she had to remove Brandon again.

28.  It should be noted that secret recordings of conversations have been held to be contrary to the right to freedom and privacy of communication under Article 30 of the Basic Law and carried with it significant elements of inherent unfairness. The weight to be placed on such evidence depended on how it came to exist, in particular the unfairness to the plaintiff that he had no opportunity to examine the footage to determine if any other passages should be put before court at all: see Chan Sung Lai v Chan Sung Lim Paul [2015] 4 HKLRD 268 at §§20, 22 – 23, 28 – 33.

29.  The observations of DHCJ To made in Cheer Sky Ltd v Chan Yuet Sheung [2019] HKCFI 606 (HCA 939/2014, 7 March 2019) at §§48 – 49 are particularly apposite:

“ 48. … I am always sceptical about the probative value of such evidence. Such recording is certainly reliable evidence of what was said during the conversations, but not necessarily of its truth. The party taping the conversation must have certain purposes to achieve, including to induce the other party to say things which are advantageous to him or prejudicial to the other side. The other party who does not know that the conversation was being taped, may have unwarily adopted what was put to him without much thought. In assessing the reliability of the conversation, I would adopt the following approach. Anything said by the party taping the conversation which is against his interest would be given more weight. Anything that he said which is to his interest is self-serving and will be given no weight. Anything prejudicial said by the party being recorded would have to be tested against the totality of the evidence before weight is given to that piece of evidence.

49.  In assessing weight to be given to a piece of conversation, it is always desirable to listen to the recording than to read the transcript. The intonation and tone of the speaker may give an impression which is very much different from that given by reading a transcript.”

30.  Those observations were made in the context of the trial. We are here concerned with interlocutory proceedings which make it even less satisfactory for the court to attempt to evaluate selected passages without the complete picture to come to some conclusion on material non-disclosure based on secret recordings.

31.  Pausing here, it is to be noted that despite the presence of professionals (a solicitor and an accountant) at the 15 February 2017 meeting, neither of them has provided an affidavit/affirmation of what transpired at the meeting. That is surprising.

32.  Those matters aside, the relevant context which the defendants acknowledge is required for a proper understanding of the fraud claim is one that is fraught with highly controversial events and matters. Mr Chong then sought to downplay the relevance of the underlying transactions as not being the focus of the discharge summons. The question for the court was whether the plaintiff had lied to the court when obtaining the ex parte injunction.

33.  That is all very well but it is clear from his oral submissions that the outstanding debt is the central or core feature underpinning the present application for discharge.

34.  Far from the outstanding debt being “indisputable”, the opposite is true. Even the authenticity of the acknowledgement of debt itself is challenged. If the outstanding debt cannot be established with sufficient certainty at this stage, it necessarily undermines the rest of the defendants’ case regarding the August agreement and the share transfers and the raison d’être of the February 2017 documents.

35.  The outstanding debt, the August agreement, the new projects and the share transfers are all disputed as to which matters voluminous evidence has been filed. 

36.  Reverting to the point made at the outset concerning the significance of solicitors’ letter that had not been drawn to the attention of the judge, Ms Po, junior counsel for the plaintiff, submitted that the solicitors’ letter was written between the signing of the November 2016 documents and the signing of the February 2017 documents. When in January 2017, the plaintiff realised from her auditor of the changes in the company records, she immediately had those rectified and caused the solicitors’ letter to be written.

37.  Thereafter, prior to her signing the February 2017 documents on 15 February 2017, D1 had come to her house on several occasions: on 7 February when the 2^nd secret recording was made, on 10 February when D1, his accountant, lawyer and other persons visited her, but Jenny had turned up which interrupted D1’s purpose for making that visit. Later, but before 15 February 2017, D1 visited her house again and told her that he had some other documents for her to sign to appoint estate agents and to effect changes on mortgages.

38.  Ms Po submitted that the fact that the plaintiff told D1 that she would prefer signing documents in the presence of others and not alone with D1 in her house was her way of taking appropriate precautionary measures to protect herself. It was only after her refusal to sign on that occasion that D1 arranged for the February 2017 documents to be signed in Kwun Tong in the presence, inter alia, of his solicitor and accountant: see the plaintiff’s affirmation in support of the ex parte application at §§19 – 22.

39.  It was submitted that contrary to the defendants’ submissions, that the plaintiff should have signed the February 2017 documents is not inexplicable at all.

40.  Mr Chang SC leading counsel for the plaintiff submitted that the issue of material non-disclosure should be adjourned to trial given the serious factual disputes, citing Dormeuil Frères SA & Anor v Nicolian International (Textiles) Ltd [1988] 1 WLR 1362 where the Vice Chancellor stated (at 1368H – 1369A) as follows:

“ To discover whether an ex parte order has been improperly obtained, the court first has to consider the evidence as it was at the time of the application for the ex parte order and then a mass of evidence designed to demonstrate that that evidence was misleading or failed to make full disclosure. The real question at the time of the inter partes hearing should not be what has happened in the past but what should happen in the future. On the hearing of the inter partes motion it is impossible to make any concluded finding of fact, yet the court is being asked to reach a conclusion on the issue of non-disclosure without full knowledge of the circumstances. This attempt involves a minute examination of detailed allegations and counter-allegations, the exact materiality of which may not be clear to the judge in the interlocutory hearing, in circumstances when that is not necessary for the future conduct of the case.

      The cost in time and money to the parties in a complex case can become vast and the waste of court time quite unacceptable.”

41.  The Vice Chancellor (in the Dormeuil Frères case) went on to state that he shared the view expressed by Slade LJ in Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350 at 1359B–E:

“ Nevertheless, the nature of the principle, as I see it, is essentially penal and in its application the practical realities of any case before the court cannot be overlooked. By their very nature, ex parte applications usually necessitate the giving and taking of instructions and the preparation of the requisite drafts in some haste. Particularly, in heavy commercial cases, the borderline between material facts and non-material facts may be a somewhat uncertain one. While in no way discounting the heavy duty of candour and care which falls on persons making ex parte applications, I do not think the application of the principle should be carried to extreme lengths. … I have suspected signs of a growing tendency on the part of some litigants against whom ex parte injunctions have been granted, or of their legal advisers, to rush to the Rex v. Kensington Income Tax Commissioners [1917] 1 K.B. 486 principle as a tabula in naufragio, alleging material non-disclosure on sometimes rather slender grounds, as representing substantially the only hope of obtaining the discharge of injunctions in cases where there is little hope of doing so on the substantial merits of the case or on the balance of convenience.”

42.  Those principles have been applied in recent cases in Hong Kong: see Top Gains Minerals Macao Commercial Offshore Ltd v TL Recourses PTE Ltd HCMP 1622/2015 (18 November 2015) at §§59 – 61; Lau Wing Yan & Ors v Chu Kong & Ors HCA 2562/2014 (30 May 2016), at §§47 – 48; and Pandora A/S & Anor v Glamulet International Ltd & Ors HCA 2941/2015 (26 July 2016) at §§15 and 20.

43.  Mr Chong made no oral submissions as to why those principles are not relevant in the present case. In his written submissions, reference was made to the decision of Chu J (as she then was) in Minton Optic Industry Co Ltd v Multispark Ltd HCA 9619/2000, 7 July 2001 which was said to refer to an important distinguishing feature in Dormeuil Frères in that it concerned an Anton Piller order.

44.  As DHCJ Sakhrani summarised in the Pandora case at §20, the Vice Chancellor (at p 1370) remarked that similar considerations apply when dealing with an Anton Piller order, a Mareva order and also in the case of an ordinary ex parte injunction, emphasising that the question whether the earlier ex parte order should be set aside is not an urgent matter and is only relevant to the cross-undertaking in damages.

45.  The Vice Chancellor concluded (at p 1370D) that:

“ in the ordinary case, it is wrong on the hearing of an inter partes motion to go into the huge complexities involved in seeking to disentangle at that stage whether there was full disclosure when the ex parte order was obtained. The matter should normally be dealt with at trial …. The right course, therefore, would normally be to adjourn an application to set aside the ex parte order to be dealt with at the trial.”

46.  Given the defendants’ acknowledgement of the importance of the context for the November 2016 documents and the February 2017 documents, the fact that the context involves matters that are highly controversial and disputed, I do not see how the court can be in any position to decide the issue of material non-disclosure if it is to do justice to the parties.

47.  In my view, the Dormeuil Frères principles are applicable in this case.

(B) The futility issue

48.  This will be considered in conjunction with the plaintiff’s variation summons.

II. THE VARIATION SUMMONS AND THE FUTILITY ISSUE

(1) Transfers of Lucky Top and More Harvest after 15 February 2017

49.  The February 2017 documents included a transfer dated 16 February 2017 of the sole share of Lucky Top from the plaintiff to D2 in consideration of $1. That led to a series of transfers summarised in the table below:  

Lucky Top Transfers
Date	Transferor	Transferee	Documents signed	Consideration	Director
16 February 2017	Plaintiff	D2	Instrument of Transfer; Bought and Sold Notes	$1	Plaintiff
28 February 2017	D2	D6	Sale and purchase agreement (“1st SPA”)	$10,557,000
3 March 2017	D6	D7	2nd SPA	$5,800,000
8 March 2017	D2	D6	Instrument of Transfer; Bought and Sold Notes	$10,557,000	D1
8 March 2017	D6	D7	Instrument of Transfer; Bought and Sold Notes	$5,800,000
9 March 2017					D6

50.  The February 2017 documents also included a transfer on 16 February 2017 from the plaintiff to D4 of her sole share in More Harvest for $1. That also led to a series of transfers summarised in table below:

More Harvest Transfers
Date	Transferor	Transferee	Documents signed	Consideration	Director
16 February 2017	Plaintiff	D4	Instrument of Transfer; Bought and Sold Notes	$1	Plaintiff
28 February 2017	D4	D5	Sale and purchase agreement (“1st SPA”)	$10,300,000
8 March 2017					D1
9 March 2017	D4	D5	Instrument of Transfer; Bought and Sold Notes	$10,300,000	D5
9 March 2017	D6	D8	2nd SPA	$5,800,000
10 March 2017	D5	D6	3rd SPA	$5,800,000
17 March 2017	D5	D6	Instrument of Transfer; Bought and Sold Notes	$10,300,000
	D6	D8	Instrument of Transfer; Bought and Sold Notes	$5,800,000

51.  D2 claimed that the injunction order had the effect of interrupting D2’s sale of Lucky Top to D6 on 8 March 2017 and the transfer of the share in More Harvest by D4 [3] to D5 on 9 March 2017. When the solicitors for D1 and D2 revealed those transfers, they failed to reveal details of the sale as well as the subsequent transfer of Lucky Top to D7 and of More Harvest to D8.

52.  As a result, the plaintiff obtained an ex parte injunction on 18 April 2017 (“the 2^nd injunction”) against D5 and D6 which was continued by an order dated 21 April 2017.

53.  The letter from the Inland Revenue Department dated 27 July 2017 revealed that Lucky Top as well as More Harvest had been transferred. The plaintiff subsequently obtained an injunction against D7 in respect of Lucky Top and against D8 in respect of More Harvest on 19 January 2018 (“the 3^rd injunction”).

54.  D1 and D2 submitted that the injunction order is redundant and so serves no useful purpose in that D1 never had any interest in Lucky Top and D2 had sold the sole share in Lucky Top on 8 March 2017 to D6 against whom there is the 2^nd injunction.

55.  However, as noted in §14 above, Hoi Shun on behalf D1 had asserted on 24 March 2017 that D1 was the shareholder of Lucky Top.

56.  It will be seen from the Lucky Top table that on 8 March 2017 D2 sold the share to D6 for $10.557 million and on the same day D6 sold the shares to D7 at a huge discount of approximately 45%.  Those transactions are not explicable unless D2, D6 and D7 were D1’s nominees.

57.  When Hoi Shun sent its letter of 24 March 2017 asserting D1’s ownership, as at that date, D7 should have been the owner with D6 as director. On that analysis, it was submitted that D6 and D7 could only have been D1’s nominee. In any event, D1 and D2 were well aware of the 8 March transfer from D2 to D6 and as a result of Hoi Shun’s letter, D1 must have been D6’s principal.

58.  So far as D2 is concerned, although there are share transfer documents signed to transfer the share in Lucky Top to D6, the registered member is unknown. The ultimate transferee, D7, pleaded that he has not been registered as a member. In those circumstances, it is clearly necessary to restrain D2 from dealing with the share in Lucky Top.

59.  The More Harvest transfers also contain inexplicable features. When D6 entered into the 2^nd SPA with D8 on 9 March 2017, it had not yet acquired any interest or title to More Harvest. It can be seen from the More Harvest table above that D5 did not sell the share to D6 until the following day ie 10 March 2017 (the 3^rd SPA).  As had happened in Lucky Top[4], D5 having just acquired the property from D4 for $10.3 million disposed of it under the 3^rd SPA at a similar huge discount.

60.  In his affirmation dated 6 July 2018, D1 asserted (at §§67 – 68) that performance of the sale and purchase agreements signed with D6 in respect of Lucky Top and with D5 in respect of More Harvest had been interrupted by the injunction order and that D1 had only received partial payment of $0.5 million each from D5 and D6. In that regard, D7 and D8 (the ultimate transferees of Lucky Top and More Harvest) alleged in their defence and counterclaim of 9 January 2018 that their respective acquisitions were not completed.

61.  The plaintiff’s solicitors sought clarification by letter dated 14 March 2019 regarding (a) the current status of each of the sales in respect of Lucky Top and More Harvest; (b) the outstanding steps towards completion if the sales had been “interrupted” as alleged.

62.  In the same letter, the plaintiff’s solicitors asked in respect of (a) Lucky Top, if D2 would be willing to pay the sale proceeds of $10.557 million into court, and (b) More Harvest, if D4 would be willing to pay the sale proceeds of $10.3 million into court, pending resolution of the action.  

63.  Notwithstanding an indication given on 10 May 2019 that they would revert by 31 May 2019, and despite a follow-up letter from the plaintiff’s solicitors on 28 May 2019 intimating that a variation summons might be necessary failing any response, the defendants’ solicitors never replied.

64.  In the circumstances, the inference is compelling that subsequent transfers in Lucky Top and More Harvest bear the hallmarks of sham transactions.

65.  It was submitted that if D1 and D2 are not restrained, the injunction restraining them from representing themselves as directors would go. It should also not be overlooked that they are in possession of a set of green boxes. All this points to the need to continue the injunction order.

66.  In addition to the above matters, the plaintiff also relied on what Mr Chang referred to as the Chanel principle, a reference to the English Court of Appeal’s decision in Chanel Ltd v F W Woolworth & Co Ltd [1981] 1 WLR 485 which was set out in §5 of the plaintiff’s skeleton submission dated 5 December 2018 for 13 December 2018 hearing before Peter Ng J.

67.  The Chanel principle addresses three different situations:

(i) the court would only generally consider varying or discharging an interim injunction or any undertaking on good grounds or change of circumstances being shown (at 492D–E);

(ii) in an interim order where it is made effectively by consent, or following an inter partes hearing when both parties were legally represented and had full opportunities to bring to the court’s attention matters relevant to the making of the order, the person seeking to vary interim order is not entitled to do so as of right or to re-argue it as if it were a re-hearing. The burden is on the party seeking to vary the order to show either there has been some significant change of circumstances or it has become aware of facts that it could not have reasonably found out at the time of the interim order: see Chanel (492H – 493A); Keep Bright Ltd v Super Auto Investments Ltd HCCT 16/2010 (12 January 2012) at §45(2); and

(iii) the parties may re-open the arguments of afresh if they had contemplated at the time of the interim order that the issues there under would be revisited or where the injunction by its terms show that it was not substantively disposed but adjourned sine die generally with liberty to apply: Butt v Butt [1987] 1 WLR 1351 at 1354F–G per Nourse LJ, cited in Keep Bright at §45(3).

68.  In the present case, the ex parte injunction was continued by an order dated 6 April 2017 by consent “without prejudice to the 1^st and 2^nd Defendant’s rights to apply for variation discharge …”.  The discharge summons was not taken out until 6 July 2018, exactly 15 months later. 

69.  No complaint was made at the time about material non-disclosure nor was there any indication of any intention to make an application. Rather, on 12 April 2017, D4 gave a voluntary undertaking not to deal with More Harvest. Then on 4 May 2017, D3 provided its undertaking by consent without any reservation whatsoever. It was submitted, and I agree, that D3 cannot seek to revisit the matter now.

70.  The matters upon which D1 and D2 rely for the discharge application were all in their possession at the time of the inter partes hearing.  They did not see fit to ask for an adjournment to put in evidence in answer to the plaintiff’s evidence then. No explanation has been given for this long delay.

71.  It was suggested by Mr Chong that it was because nothing was happening in the action. That would not appear to be the case given the various transfers made in Lucky Top and More Harvest that required the plaintiff to apply for the 2^nd and 3^rd injunctions and to make further amendments to its statement of claim as a result. In any event, by February 2018, the defendants had filed their ADCC.

72.  D1 and D2 are not relying on a change of circumstances. Rather, had they contemplated to revisit the matter, that should have been done promptly and, in any case, within a reasonable time. For my part, I do not consider that a general reservation of rights enables a party to sit on his hands for as long as he wishes and do nothing. In any event, as the plaintiff submitted, there was and is no urgency to revisit the matter.

CONCLUSION ON THE DISCHARGE AND VARIATION SUMMONSES

(I) The discharge summons

73.  For the reasons set out above, I have no hesitation in rejecting the futility argument.

74.  The present case is clearly one where it would be appropriate to adopt the Dormeuil Frères’ approach given the plethora of disputed facts and the voluminous evidence involved

75.  Accordingly, it is ordered that the argument of material non-disclosure be adjourned to be dealt with at trial. There is to be an order nisi that the costs of the discharge summons be the plaintiff’s costs in the cause.

(II) The variation summons

76.  I am also satisfied that there is sufficient evidence to justify the variations to the injunction order that the plaintiff seeks.

77.  Accordingly, there is to be an order in terms of paragraph 1 of the variation summons.

78.  There is also to be an order nisi that the costs of the variation summons be the plaintiff’s costs in the cause.

(III) The amendment summons

79.  This summons was taken out by the defendants for leave to amend the Answer to the Supplemental Request for Further and Better Particulars of the ADCC of D1 to D4. They had earlier given particulars of loss suffered by D3 in relation to the Sheung Yeung project comprising loss of profits and disbursements and the loss suffered by BMC Strategic Partners (International) Limited, the 5^th plaintiff by counterclaim, in relation to the Mang Kung Uk project comprising loss of profits and disbursements. The proposed amendment seeks to swap the company name and the monetary figure given in those particulars.

80.  Meanwhile the plaintiff had been asking for particulars of the figures claimed since loss of profits and disbursements are “special damages” that must be explicitly claimed with all necessary particulars: see Lam SikYing v Lam Sik Shi & Anor HCA 4713/2001 (21 September 2015) at §§25 – 29. Those particulars have not been provided. In §31 of their written submissions the plaintiff put forward two alternative solutions to resolve those matters.

81.  At the hearing, when pressed by the court, the defendants intimated that they are willing to provide the particulars sought. Accordingly, the amendment was allowed on the basis that the particulars would be provided as soon as possible.

82.  There is to be an order nisi that there be no order as to costs for the amendment summons.

Mr Denis Chang SC, leading Ms Po Wing Kay and Ms Kang Yanan, instructed by Peter K S Chan & Co, for the plaintiff (by original action) and the 1^st and 2^nd defendants (by counterclaim)

Mr Patrick Chong and Mr Lai Chun Ho, instructed by Au & Associates, for the 1^st to 4^th defendants (by original action) and the 1^st to 6^th plaintiffs (by counterclaim)