HCMP 3179/2013
[2022] HKCFI 339
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO 3179 OF 2013
_______________________
| | IN THE MATTER OF A J K Company Limited (the “Company”) |
| | and |
| | IN THE MATTER OF sections 100 and 114B of the Companies Ordinance (Cap. 32) (the “Ordinance”) |
| | and |
| | IN THE MATTER OF Order 102 of the Rules of the High Court (Cap. 4, subsidiary legislation) |
_______________________
| BETWEEN | | |
| | LONG HAI HONG (龍海紅) | Applicant |
| | AND |
| | CHAN YU, LYDIA (陳宇) | 1st Respondent |
| | A J K COMPANY LIMITED | 2nd Respondent |
| | LIU DAN (劉丹) | 3rd Respondent |
HCA 175/2018
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 175 OF 2018
______________________
| BETWEEN | | |
| | LONG HAI HONG (龍海紅) the administratrix of the estate of LEE SO WINSTON (李甦), deceased (suing on behalf of herself and all other shareholders in the 5th Defendant other than the 1st to 3rd Defendants) | Plaintiff |
| | AND |
| | LIU DAN (劉丹) | 1st Defendant |
| | XING ZHIRONG (邢治榮) | 2nd Defendant |
| | CHAN YU, LYDIA (陳宇) | 3rd Defendant |
| | CHINA TERRY LIMITED | 4th Defendant |
| | (中偉利有限公司) | |
| | A J K COMPANY LIMITED | 5th Defendant |
______________________
HCA 721/2019
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 721 OF 2019
______________________
| BETWEEN | | |
| | LONG HAI HONG (龍海紅) the administratrix of the estate of LEE SO WINSTON (李甦), deceased | Plaintiff |
| | AND |
| | LIU DAN (劉丹) | 1st Defendant |
| | CHAN YU, LYDIA (陳宇) | 2nd Defendant |
______________________
HCA 1537/2019
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 1537 OF 2019
_______________________
| BETWEEN | | |
| | LONG HAI HONG (龍海紅) the administratrix of the estate of LEE SO WINSTON (李甦), deceased | Plaintiff |
| | AND |
| | LIU DAN (劉丹) | 1st Defendant |
| | XING ZHIRONG (邢治榮) | 2nd Defendant |
_______________________
| Before: | Hon B Chu J in Chambers (Open to Public) |
| Dates of Hearing: | 15 December 2021 |
| Date of Decision: | 28 January 2022 |
_______________________
DECISION
(On being tried together)
_______________________
Introduction
1. The question to be decided by this Court herein is whether these 4 actions should be tried together. The 4 actions concern claims by Madam Long Hai Hong (“MadamLong”) in her personal capacity or in her capacity as the administratrix of the estate of her late husband Lee So Winston (“Estate”).
2. The 4 actions are briefly:
(1) HCMP 3179/2013 (“Rectification Action”) - this is an action commenced by an originating summons issued on 25 November 2013, and subsequently amended on 20 January 2014 and by Madam Long in her personal capacity to seek an order, amongst other things, to strike out the name of Madam Liu Dan (“MadamLiu”) as a shareholder from the register of the company AJK Company Limited (“AJK Co”) and for Madam Long’s name to be entered as shareholder. The defendants in this action are Chan Yu, Lydia (“ LydiaChan”), AJK Co and Madam Liu.
(2) HCA 175/2018 (“China TerryAction”) – this is a derivative action commenced by writ on 19 January 2018 and by Madam Long in the capacity of the administratrix of the Estate (“Administratrix”) and on behalf of herself and all other shareholders in AJK Co (save for the defendants therein) concerning the transfer of AJK Limited’s 35.36% shareholding in a Beijing company called北京托普世紀科技企業孵化器有限公司 (“Beijing Toupu”) to a company called China Terry Limited (“China Terry”) on 29 January 2012. The defendants in this action are Madam Liu, Mr Xing Zhirong (“MrXing”), Lydia Chan, China Terry and AJK Co.
(3) HCA 721/2019 (“Partnership Action”) – this is an action commenced by writ on 25 April 2019 by Madam Long in the capacity of the Administratrix in respect of the assets belonging to a partnership under the name of A.J.K. Company of which Winston, Madam Liu and Lydia Chan were partners (“AJK Partnership”). The defendants in this action are Madam Liu and Lydia Chan.
(4) HCMP 1537/2019 (“Prosperous Gain Action”) – this is an action commenced by writ on 22 August 2019 by Madam Long in the capacity of the Administrarix in respect of ownership of certain shares of a Hong Kong limited company called Prosperous Gain Enterprise Limited (“Prosperous Gain”). The defendants in this action are Madam Liu and Mr Xing.
3. In the 4 actions, the parties (save Lydia Chan) have filed their respective pleadings but have not yet proceeded with discovery or filing of witness statements. So far, Lydia Chan has not participated in any of the 4 actions.
4. On 2 March 2021 Madam Long issued a summons seeking an order that the 4 actions be tried together before the same judge and for consequential case management directions for discovery and the filing of witness statements (‘Summons”). Madam Liu, Mr Xing, China Terry, and AJK Co (which is currently under the management and control of Madam Liu and Mr Xing) (collectively “Ds”) oppose the Summons.
5. Counsel Mr Bernard Man SC and Mr Derek JY Chan appeared for Madam Long at the hearing before this Court, and Mr Ambrose Ho SC, Mr Mike Lui and Ms Kelly Cheng appeared for Madam Liu, Mr Xing and China Terry. Mr Brian Chok appeared for AJK Co, who adopted the submissions made by Mr Ho on similar points for AJK Co.
Legal principles
6. Order 4 rule 9(1) of the Rules of the High Court (RHC) provides as follows:
“Where two or more causes or matters are pending, then, if it appears to the Court-
(a) that some common question of law or fact arises in both or all of them, or
(b) that the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or
(c) that for some other reason it is desirable to make an order under this rule,
the Court may order those causes or matters to be consolidated on such terms as it thinks just or may order them to be tried at the same time, or one immediately after another, or may order any of them to be stayed until after the determination of any other of them.”
7. Mr Man SC referred the Court to what was said by Chu J, as she then was, in paragraphs 40 and 41 of Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd HCA 1957 and 2196/2005 and 714 and 886/2007 (unrep), 10.04.08, namely where there is a substantial overlapping of issues and parties, it is desirable to resolve the disputes in the different actions on one occasion by the same judge. Apart from savings in hearing time and costs, the common witnesses will be saved the inconvenience of having to repeat their evidence and be repeatedly cross-examined on the same subject matter. By having the same trial judge, the risk of inconsistent findings will also be removed.
8. Whether several actions should be tried together or sequentially is a matter of case management rather than law. In making case management decisions, the Court is primarily concerned with savings of time and costs and also with the avoidance of unnecessary delay, complexity, overloading of issues and the inconvenience of having experts and witnesses repeating their evidence: HKCP 2022 Vol. 1, at paragraph 4/9/2, page 80.
9. Mr Man has further submitted that in more recent times as a result of the Civil Justice Reform, the emphasis on the efficient and just resolution of disputes before the courts and case management is therefore important in ensuring that this is achieved[1] and accordingly, when addressing an issue of consolidation, the Court should take a practical and common sense approach to meet the justice of the situation, referring to what was held by Zervos J in paragraph 16, Kudeta Ltd & Others v Chris Au, HCA 183/2014, HCA 2063/2015 (unrep), 14.01.16.
10. There is no dispute on the general legal principles.
Brief background
11. The material background facts can be gleaned from the various affirmations filed by Madam Long and Madam Liu.
12. Lee So Winston (“Winston”) was an American Chinese who seemed to have lived in Beijing since at least 1992. According to Madam Long, she and Winston were lawfully married in 1992 in Mainland China. There were no children born out of their marriage. Further, according to Madam Long, since their marriage, she has been a full time housewife and was solely dependent on Winston for the financial support of herself and her maiden family members (including her parents and her younger brother).
13. It is not really disputed by Madam Long or by Madam Liu that Winston had undergone a prior marriage with a woman Wang Yinping (“Madam Wang”)[2]. Madam Liu does not accept that there was a valid marriage between Madam Long and Winston. There was also a purported marriage between Winston and another woman Ting Ting Lee (“Madam TT Lee”).
14. It is Madam Liu’s case that she first met Winston in 1988 and they were business partners from 1993 onwards, and that in 1998, she and Winston started a romantic relationship and they started to cohabit as lovers. It was Madam Liu’s evidence that she had met Madam Long through Winston, but was told by Winston at the time that Madam Long and Madam TT Lee were both his former girlfriends.
15. Winston died unexpectedly on 18 September 2013, aged about 55[3]. He died intestate in Beijing. According to the letters of administration granted to Madam Long, Winston was stated to have died domiciled in Mainland China.
16. According to Madam Liu, it was only on the day of Winston’s death that she was shown by Madam Long a copy of her marriage certificate with Winston, but Madam Liu was later also told by Madam TT Lee that she and Winston were married in the State of Nevada in the United States on 16 March 1991.
17. Anyway, Madam TT Lee then commenced litigation against Madam Long in Beijing to seek a declaration that the marriage between Madam Long and Winston was void. According to Madam Long, Madam TT Lee’s claim was dismissed on 21 May 2015 and the Beijing Court declared that Madam Long was the lawful widow of Winston.
18. On 17 August 2017, Madam Long was granted the letters of administration of Winston’s estate in Hong Kong[4].
19. AJK Co was incorporated under the laws of Hong Kong on 21 April 1992. On the Memorandum and Articles of Association, there were two subscribers at the time of incorporation, namely Cheung Chau Bing and Poon Neng[5]. The former solicitor acting for AJK Co had produced a copy of the register of members of AJK Co (“Register of Members”)[6]. It would appear from the Register of Members that there had been a number of changes in the persons holding the issued shares of AJK Co.
20. First, according to the Register of Members, on 27 December 1995, Lydia Chan became a shareholder holding 999,999 shares out of 1,000,000 issued shares of HKD 1 each, and a Hui Sing became a shareholder holding the remaining one shares.
21. On 28 March 1998, Hui Sing transferred his/her one share to Winston, and this appeared to be when Winston was first registered as a shareholder of AJK Co. On 26 October 1998, Winston transferred his one share to Mr Xing who then came onto the scene and Winton ceased to be a shareholder. About 3 weeks later, on 14 November 1998, Lydia Chan transferred 949,999 shares out of the 999,999 shares held by her to Mr Xing and 25,000 shares held by her to Winston, with the remaining 25,000 shares continued to be held by her. As a result thereof, Winston became a shareholder again holding 25,000 shares, with Lydia Chan holding her remaining 25,000 shares and Mr Xing holding 950,000 shares[7].
22. On 17 March 2001, Lydia Chan transferred her 25,000 shares to Winston, as a result of which Winston held 50,000 shares and Mr Xing held 950,000 shares.
23. Then, on 6 January 2005, Mr Xing transferred 940,000 out of his 950,000 shares to Madam Liu and the remaining 10,000 shares to Lydia Chan. On the same date, 6 January 2005, Winston also transferred 20,000 shares out of the 50,000 shares held by him to Lydia Chan. As a result of these transfers, Madam Liu held 940,000 shares, Lydia Chan held 30,000 shares and Winston held 30,000 shares.
24. On 2 November 2011, Madam Liu transferred the 940,000 shares held by her in AJK Co (“Disputed Shares”) to Madam Long (“2011 Transfer”). On 3 January 2013, the Disputed Shares were transferred from Madam Long back to Madam Liu (“2013 Transfer”). There was no change to the shareholding of Winston and Lydia Chan from 6 January 2005 until the date of Winston’s death.
25. Mr Xing was a director of AJK Co between 20 October 1998 and 30 March 2012. At the time of the 2011 Transfer, the directors of AJK Co were Madam Liu, Mr Xing and Lydia Chan[8]. On 30 March 2012, both Mr Xing and Madam Liu resigned as directors and were replaced by Winston and Madam Long. On 3 January 2013, Mr Xing was re-appointed as a director when Madam Long was said to have resigned. Lydia Chan appeared to have also resigned as a director on 3 January 2013[9]. As at 14 June 2013, the only directors of AJK Co were Winston and Mr Xing[10]. After Winston’s death, Madam Liu was re-appointed as a director on 29 September 2013[11].
26. AJK Co is presently controlled by and/or under the management of Madam Liu and Mr Xing.
27. Madam Long’s case is that AJK Co was founded by Winston who was the beneficial owner of the company, and that since its incorporation, the shares of the company had been held on behalf of Winston by various nominees who were his trusted subordinates, including the Disputed Shares which were held by Madam Liu on behalf of Winston between 6 January 2005 and 2 November 2011. It is Madam Long’s case is that Winston decided to gift to her the Disputed Shares[12], and that was the reason why the 2011 Transfer took place, and Winston arranged for the Disputed Shares to be transferred from Madam Liu’s name to that of Madam Long’s[13].
28. According to Madam Long, in May 2011, AJK Co became the controlling shareholder of 北京漢威大廈物業有限公司 (“Beijing Hanwei”) which was incorporated on 24 November 1994 under Mainland law and which owns Hanwei Plaza, an office building in the Chaoyang District in Beijing.
29. Madam Liu denies that Winston was all along the beneficial owner of AJK Co. According to Madam Liu, the Disputed Shares were transferred on 6 January 2005 to her by Mr Xing who had been her business partner for many years, and that at the time of the transfer, AJK Co was an empty shell, with no foreign investments, fixed assets or any subsidiary companies and therefore no consideration was payable.
30. The reason why Mr Xing transferred to her the Disputed Shares was that she and Mr Xing were planning a real estate project in Beijing (“Tuopu Project”) and that the plan was that a project company would be established and she would be the main investor and leader in the project and AJK Co would be the foreign investor. She had agreed for Winston and Lydia Chan to each hold 30,000 shares, or 3% of the issued shares in AJK Co. Further Madam Liu’s case in the Rectification Action is that AJK Co was never a shareholder of Beijing Hanwei, and that the shareholder was at all material times AJK Partnership.
31. Anyway, according to Madam Liu, she is and/or was at all material times the beneficial owner of the Disputed Shares, and that the 2011 Transfer took place because due to Madam Liu’s then business operational needs, she wished to have a nominee to hold temporarily for her the Disputed Shares which were at that time registered in her name (“Nominee Arrangement”).
32. Madam Liu’s evidence is that she then asked Winton to help her to find a nominee, and that Winston suggested 3 persons, Madam Long, his former wife Madam Wang and the younger brother of Madam Wang. Madam Liu said as she was not familiar with the latter two, she chose Madam Long to be her nominee, and that she had asked Winston to help with the arrangement and communications with Madam Long. That was why Winston arranged for the 2011 Transfer to take place. Later, towards the end of 2012, as she no longer needed the Nominee Arrangement, she then instructed Winston to arrange for the Disputed Shares held by Madam Long to be transferred back to her, and to terminate Madam Long’s directorship in AJK Co, and this resulted in the 2013 Transfer.
33. As for the Tuopu Project, the project company Beijing Tuopu was incorporated on 9 January 2007 under the law of Mainland China. It is the developer and owner of two land plots of site area of over 67,800 square metres in the Fengtai District in Beijing named Tuopu Science and Technology Park. The Mainland investor/shareholder of Beijing Tuopu is 北京世紀星空影業投資有限公司 (“Beijing Century”) and the foreign investor/shareholder is AJK Co. The initial investment injected by Beijing Century was US$4.5 million (ie 45%); and AJK Co was US$5.5 million (ie 55%). AJK Co subsequently sold a further 19.64% to Beijing Century in two transactions in 2007 and 2009. As a result, the shareholding of Beijing Tuopu held by AJK Co was since then reduced to 35.36% (“Tuopu Shares”).
34. By a share transfer agreement dated 29 January 2012 (“Tuopu Agreement”), AJK Co purported to sell to China Terry the Tuopu Shares at a consideration of USD 4.95m which was to be paid in one lump sum to AJK Co within 3 months of the date of the agreement. The shareholders of China Terry are Madam Liu (99.99%) and Mr Xing (0.01%) and Madam Liu has been a director of China Terry since 12 April 2012.
35. It is Madam Long’s case that the sale of the Tuopu Shares was at an undervalue and that Madam Liu, Mr Xing and Lydia Chan (as directors of AJK Co) failed to procure the agreed consideration of USD 4.95m to be paid by China Terry. Madam Long thus issued the China Terry Action to seek various reliefs including a declaration that China Terry held/holds the Tuopu Shares as constructive trustee for and on behalf of AJK Co.
36. Upon Winston’s death, the AJK Partnership was dissolved by operation of law under section 35(1) of the Partnership Ordinance, Cap 38. It is Madam Long’s case that based on assertions made by Madam Liu, the assets at dissolution should include bank balances, shares in Beijing Hanwei (as it is Madam Liu’s case that it was not AJK Co but AJK Partnership which held the shares in Beijing Hanwei) and all profits /dividends received or receivable by or on behalf of AJK Partnership. Madam Long issued the Partnership Action to seek amongst other things a declaration that the AJK Partnership has been dissolved as from 18 September 2013, an account of all dealings, transactions and/or profits made by the AJK Partnership at and after the date of dissolution and an inquiry as to the assets, property and effects belonging to the AJK Partnership as at 18 September 2013.
37. As for Prosperous Gain, according to Madam Long, this company was originally incorporated as a shelf company under the laws of Hong Kong on 14 September 1993. It is the sole owner and shareholder of Beijing Golden Land Building Co Ltd 北京高斕大廈有限公司 (“Beijing Golden Land”) which developed the Golden Land Building in Beijing. Winston acquired Prosperous Gain in 1993 to invest and to hold an interest in the Beijing Golden Land as the foreign investor and to fund the development of the Golden Land Building in Beijing.
38. According to Madam Liu, Beijing Golden Land was first established as a Sino-Foreign Cooperative Joint Venture between Prosperous Gain and other Mainland joint venture partners, and that Beijing Golden Land only became a wholly foreign owned enterprise in or around November 2013 when the other joint venture partners exited from it.
39. As at 22 October 1993, Winston beneficially owned 100% of the issued shares in Prosperous Gain, of which 6,000 shares (60%) were held in his own name and 4,000 shares (40%) were held on trust by one Chan Ching as his nominee. Thereafter there had been various changes in the registered shareholding and board compositions at Prosperous Gain. Lydia Chan, Mr Xing and Madam Liu and one Cheung Chau Bing had at one stage or another been registered as a shareholder. According to Madam Long, these persons were all Winston’s friends and that the shares held by those persons in their respective names were held as nominees for Winston who was the beneficial owner of 100% Prosperous Gain, and who had until his death retained practical control over Prosperous Gain and its assets, being the sole authorised signatory to the bank account of Prosperous Gain. Further, notwithstanding the various changes in the registered shareholding and board compositions, Winston had remained a director and Chairman/Vice Chairman of Beijing Golden Land and its sole legal representative from 12 June 1996 until the date of his death.
40. As at the date of Winston’s death, there were 180,000 shares registered in Winston’s own name (“Winston’s Shares”). It is Madam Long’s case that on about 30 December 2016, Lydia Chan purported to transfer the then 180,000 shares under her name and held on trust for the Estate to Mr Xing and that on about 31 December 2016, Prosperous Gain under the management of Madam Liu and Mr Xing purported to allot 1,500 shares to Mr Xing. As a result of the transfer and the allotment, the registered shareholders and their respective shareholding have since become are Madam Liu 5,640,000 shares (75.2%), Mr Xing 1,650,000 shares (22.4%) and Winston 180,000 (2.4%).
41. It is Madam Long’s case that the above transfer by Lydia Chan and the allotment of shares were without the consent of the Estate. Madam Long issued the Prosperous Gain Action to claim amongst other things a declaration that the shares held by Madam Liu are held as bare trustee for the Estate and the shares held by Mr Xing are held as constructive trustee for the Estate, and an account and inquiry of all profits generated by the shares held by them.
42. Madam Liu and Mr Xing deny that they ever held shares in Prosperous Gain on trust for and/or behalf of Winston and they never owed Winston or Madam Long as the Administratrix any fiduciary duty as trustee or nominee. Prosperous Gain had issued a separate action HCA 2268/2017 to claim against the Estate for alleged misappropriation by Winston of Prosperous Gain’s funds from its bank account in Hong Kong while Winston had control of such account due to the trust Madam Liu had upon him.
Grounds of opposition to the Summons
43. Madam Liu, Mr Xing , and China Terry oppose the Summons on mainly the following grounds[14]:
(1) there is no significant overlap of parties or issues among the 4 actions;
(2) in any event, the application is premature because one cannot reliably tell the overlap, if any, of evidence among the 4 actions; and
(3) the order sought carries the possible tactical consequence, intended or not, of causing unfair disadvantages to Madam Liu, Mr Xing and China Terry at trial.
44. AJK Co opposes the Summons on essentially the same grounds as (i) and (ii) above, and further on the ground that the order sought would likely to cause embarrassment at the trial due to conflict of interest in the dual role of Madam Long.
Whether any substantial overlap of real issues
45. In my view, one should start with analysing what are the real issues in each of the 4 actions.
46. In the Rectification Action, Madam Long’s claim is that Winston gifted the Disputed Shares to her and that she then became the sole beneficial owner of the Disputed Shares upon the 2011 Transfer, and then on 6 January 2014, several months after Winston’s death, she found out about the 2013 Transfer which was effected without her knowledge or consent.
47. As pointed out by Mr Ho himself, the premise of Madam Long’s claim is her assertion that at all times Winston owned all the issued shares in AJK Co and all other shareholders including Madam Liu, Mr Xing and Lydia Chan were merely his subordinates and business associates holding those issued shares as his nominees[15].
48. Thus, the real questions to be determined in the Rectification Action include (1) who was the beneficial owner of AJK Co, and in particular, the Disputed Shares prior to the 2011 Transfer, namely whether it was Winston or Madam Liu, and in this connection, the source of funds for the investments of AJK Co would be a relevant issue; (2) if it was Winston who was the beneficial owner, whether the beneficial ownership of the Disputed Shares was acquired by Madam Long by way of gift from Winston upon the 2011 Transfer; and (3) if Madam Long had acquired the beneficial ownership of the Disputed Shares, whether Madam Long has remained the sole beneficial owner of the Disputed Shares, notwithstanding the 2013 Transfer.
49. At the heart of the dispute is the relationship as between Winston, Madam Liu, Mr Xing and Lydia Chan since 1993.
50. As for the China Terry Action, Madam Liu, Mr Xing and China Terry had attempted to strike out Madam Long’s claim as a result of which DHCJ Dawes SC dismissed the striking out application and handed down his Reasons for Decision on 19 July 2019[16].
51. As summarised by DHCJ Dawes therein[17], the defence of Madam Liu, Mr Xing and China Terry is amongst other things, that Madam Liu was/is the beneficial owner of the Disputed Shares prior to the 2011 Transfer, and that the Tuopu Agreement was made to implement the “Restructuring Plan” of Madam Liu, who alleged that in 2011, at around the same time of her deciding to have the Nominee Arrangement, she was looking into other business opportunities in Beijing and planned to use the AJK Co as a vehicle to invest indirectly into those potential new businesses, and anticipating the financial risks associated with the potential new businesses and with a view to safeguarding her interest in Beijing Tuopu then held through AJK Co, Madam Liu decided to restructure the interests in Beijing Tuopu with her own to be held by another company controlled by her, ie China Terry. Further, it is said that the Tuopu Agreement was nothing but a formality. Insofar as the consideration is concerned, it is alleged no payment was ever intended to be made because the transfer under the Tuopu Agreement was only to implement the Restructuring Plan with Madam Liu to remain as the ultimate controller of Beijing Tuopu and that Madam Liu, Mr Xing and Winston had knowledge of and agreed to this arrangement.
52. Whether Winston or Madam Liu was/is the beneficial owner of the Disputed Shares prior to the 2011 Transfer, and whether Madam Long has become the beneficial owner of the Disputed Shares thereafter and was the beneficial owner as at the time of the Tuopu Agreement on 29 January 2012/or the time of the “Restructuring Plan” will clearly be real issues which have to be determined in the China Terry Action, so will the relationship between Winston, Madam Liu and Mr Xing.
53. As for the Partnership Action, according to public records, AJK Partnership was registered as Lydia Chan’s business on 1 October 1995 and that from 1 October 1995 to 12 January 2005, Lydia Chan was the sole proprietor of AJK Partnership, and then, Madam Liu and Winston joined as partners on 13 January 2005, and since then AJK Partnership became a partnership. In the defence filed by Madam Liu in the Partnership Action, Winston had not made any investment or contribution into the AJK Partnership, and that since Madam Liu and Winston joined AJK Partners as partners in 2005, AJK Partnership had no business other than holding bank accounts in Hong Kong and that at the time of Winston’s death, he only maintained a bank account which was closed in 2016.
54. Further, in her defence, it is Madam Liu’s case that the AJK Partnership never had any interest or share in Beijing Hanwei which was established on 24 November 1994 and that AJK Partnership had not been a shareholder and had not made any investment into or received any dividend from Beijing Hanwei[18]. However, in the Rectification Action, Madam Liu’s claim is that AJK Co was never a shareholder of Beijing Hanwei and that the foreign investor was the AJK Partnership.
55. The real issues which have to be determined are whether it was AJK Co or AJK Partnership which was the foreign investor of Beijing Hanwei. According to Madam Long, AJK Co became the controlling shareholder of Beijing Hanwei in May 2011. If it was AJK Co which was the foreign investor of Beijing Hanwei, whether Winston’s interests in such investment held through his interests in AJK Co had been gifted/transferred to Madam Long, in part or in whole, as a result of the 2011 Transfer. If it was the AJK Partnership which was the foreign investor, as according to the business registration record, Winston and Madam Liu joined Lydia Chan as partners since 12 December 2004, again, the relationship between Winston, Madam Liu and Lydia Chan would be relevant issues and in particular, how was the investment funded and/or the extent of each of their partnership share.
56. In the Prosperous Gain Action, Madam Long’s case is that Winston acquired Prosperous Gain in 1993, and that he beneficially owned 100% of the issued shares in Prosperous Gain from then until the date of his death and that all the various shareholders were holding their respective shares as nominees for and on behalf of Winston. On the other hand, it is the case of both Madam Liu and Mr Xing that they and Winston were business partners since 1993 and that they never held their shares on trust for Winston. Further, Madam Liu and Winston had agreed that madam Liu would be the primary person in charge of the Beijing Golden project and that she would own the majority economic interest in the project. Again, one of the real issues is the true relationship as between Madam Liu, Mr Xing and Winston.
57. Having considered the real underlying issues in the 4 actions, I have come to the conclusion that there is a substantial overlap of the real underlying issues in the 4 actions and that the issues in the 4 actions are inextricably linked.
Whether any substantial overlap of parties in the 4 actions
58. Mr Ho has set out a table in his Skeleton Submissions as to the involvement of various parties and submits that Madam Liu is the only common defendant/respondent in all the 4 actions and there is no substantial overlap of parties in the 4 actions. Mr Ho’s table is substantially reproduced hereinbelow[19]:
| Rectification
HCMP 3179/2013 | China Terry
HCA 175/2018 | Partnership
HCA 721/2019 | Prosperous Gain
HCA 1537/2019 |
Applicant/Plaintiff |
Long | Long
(personal capacity) | Long
(administratrix) | Long
(administratrix) | Long
(administratrix) |
Respondents/Defendants |
AJK Co | R2 | D5 | Not party | Not party |
Liu | R3 | D1 | D1 | D1 |
Xing | Not party | D2 | Not party | D2 |
China Terry | Not party | D4 | Not party | Not party |
[Lydia] Chan | R1 | D3 | D2 | Not party |
59. As said earlier, AJK Co is under the management and control of Madam Liu and Mr Xing and has been since Winston’s death. China Terry is also under the management and control of Madam Liu and Mr Xing. In the Partnership Action, as Lydia Chan has so far not appeared, Madam Liu is essentially the only defendant. It is clear that the main protagonists in the 4 actions are in effect Madam Long, Madam Liu, and Mr Xing who takes Madam Liu’s side and supports her case.
60. Although Mr Xing is not named as a party in the Rectification Action, he had been the registered shareholder of the Disputed Shares before he transferred them to Madam Liu at no consideration and apart from the period between 30 March 2012 and 3 January 2013, he has been a director of AJK Co since 14 November 1998 until the present. So far, Mr Xing has already filed 3 affirmations in the Rectification Action[20], and he will clearly be a key witness in relation to the issue of who was the real beneficial owner of the Disputed Shares in the Rectification Action. Similarly, in the Partnership Action, even though he is not named as a party, Mr Xing will again be a key witness as to whether it was AJK Co or AJK Partnership who was the foreign shareholder of Beijing Hanwei being a director of AJK Co at the time of the foreign investment in Beijing Hanwei, and whether the source of the funds in the investment was from AJK Co or AJK Partnership.
61. Even though AJK Co is not named as a party in the Partnership Action, clearly as the issue is whether AJK Co or AJK Partnership was the foreign investor in Beijing Hanwei, AJK Co will be essentially involved. In any event, although AJK Co and China Terry not named as parties in all the actions, the witnesses giving evidence on behalf of these two companies are very likely to be Madam Liu and Mr Xing.
62. Mr Chok has listed a number of potential witnesses respectively in the 4 actions. However, as said earlier, Madam Long, Madam Liu and Mr Xing are clearly the main protagonists and the key factual witnesses in the 4 actions.
63. Having considered all the above, I am of the view, there is a substantial overlap of parties and witnesses in the 4 actions.
Whether premature
64. In each of the 4 actions, the issues have been defined by the pleadings and they are now pending discovery and exchange of witness statements. The main protagonists Madam Long, Madam Liu and Mr Xing, have each filed detailed affirmations, deposed by Madam Long on one side, and by Madam Liu and Mr Xing on the other, whether on behalf of themselves respectively or on behalf of China Terry and AJK Co.
65. As set out earlier, the disputed issues are not complicated even though the events may have spanned over a long period of time. In my view there are really no special circumstances as to why the Summons is said to be premature. In fact, if the 4 actions are directed to be tried together, directions will be made at this stage for there to be one consolidated witness statement from each of the key witnesses, instead of them having to each make 4 witness statements or one in each of the 4 actions. This will in fact reduce inconsistencies in the evidence of each witness, which has already been noted in Madam Liu’s evidence in relation to the foreign investor of Beijing Hanwei.
Whether any conflict of interest
66. Mr Chok has submitted that due to the dual role Madam Long is undertaking in the 4 actions, namely in her personal capacity and her capacity as the Administratrix, if the ownership of the Disputed Shares becomes a live issue at the trial, this may put Madam Long in an embarrassing position as she has to advance her case in the Rectification Action but at the same time to speak on behalf of Winston in both the Rectification Action and also the China Terry Action[21].
67. It seems to me from what was submitted above that if there is indeed a conflict, then whether there be a trial together or not, Madam Long will still be put in an embarrassing position in the Rectification Action. Anyway, as seen below, I am not satisfied that there will be embarrassment at trial.
68. Madam Long obtained letters of administration from the High Court of Hong Kong on 17 August 2017 as the lawful widow of Winston. Winston died intestate leaving Madam Long, his lawful spouse, and his mother but without leaving any issue. According to the 2nd affirmation filed by Madam Long’s solicitor, under the Mainland Succession Law, Madam Long is entitled as a beneficiary to half of the Estate, and Winston’s mother is entitled to the remaining half[22]. There is no dispute to this.
69. As set out earlier, in the Rectification Action, it is Madam Long’s case that Winston gifted her the Disputed Shares, and she became the beneficial owner of the Disputed Shares upon the 2011 Transfer. It is Madam Liu’s case that Madam Long was a nominee for her, ie Madam Liu, and it is not Madam Liu’s case that Madam Long was a nominee for Winston. The interests of the Estate are therefore not engaged in the Rectification Action.
70. As submitted by Mr Man, in the China Terry Action, it is not disputed that the Estate is the holder of 30,000 issued shares, or 3% of the total issued shares of AJK Co. Madam Long commenced this action on behalf of herself and all other shareholders of AJK Co (other than Madam Liu, Mr Xing and Lydia Chan) to recover AJK Co’s interest in Beijing Tuopu. If Madam Long succeeds in this action, she would recover substantial value for the Estate, of which she is a major beneficiary. Similarly, in the Partnership Action and Prosperous Gain Action, Madam Long is seeking to recover the interests of Estate in the AJK Partnership and in Prosperous Gain. If she succeeds in these two actions, she would recover substantial value for the Estate, of which she is a major beneficiary.
71. As to whether Madam Long would be able to delineate her dual capacities without jeopardising the interest of the Estate, I agree with Mr Man there is no issue raised in the pleadings that would operate to give rise to any potential conflict of the nature as submitted by Mr Chok.
72. Having considered the above, I am not satisfied that there is conflict of interests in Madam Long suing and/or giving evidence in her dual roles and/or two capacities, or an order for a trial together will cause embarrassment at trial.
Any unfair disadvantages to Ds at trial
73. Mr Ho has submitted that Madam Long has never participated in, and does not claim to have knowledge of the business dealings amongst Madam Liu, Mr Xing and Winston and that she could only attempt to build her case based on documents in the public or from discovery by the other parties in the 4 actions and in cross-examination.
74. Mr Ho submits that there is a possibility of unfair advantage to Madam Long (or disadvantage to Ds) arising from compelling an individual, such as Mr Xing who is not a witness or defendant in one action to attend a joint trial, and be subject to cross-examination by Madam Long’s team, just because he is a witness or defendant in one or more of the other actions – because even if he only addresses those matters which concern him (or the party/parties for which he testifies) in his witness statement, he can be cross-examined on any other “irrelevant” matters in the hope that some useful information can be extracted for substantiating Madam Long’s case in that action.
75. It is not really clear what “irrelevant matters” were being referred to above. Mr Xing is already in the arena of the Rectification Action and the Partnership Action although he is not named as a party in either of those two actions, having filed affirmations on behalf of AJK Co to state amongst other things in relation to the beneficial ownership of the Disputed Shares, which is one of the hotly disputed issues in all 4 actions. In fact, Madam Long’s case against Mr Xing is simple, that he was a nominee/trustee for Winston insofar as any shares registered in his name whether in AJK Co or Prosperous Gain. His relationship with Winston and Madam Long is clearly relevant. I am not satisfied that there is sufficient evidence of any possible unfair disadvantages to Ds.
Conclusion
76. In light of all said above, and bearing in mind the underlying objectives of the CJR, I have come to the view that the 4 actions should be tried together before one judge to save costs and time and to avoid any inconsistent findings by having 4 separate trials.
77. I am prepared to grant an order in terms of the Summons. Costs of and occasioned by this application be costs in the cause, with certificate for two counsel.
| ( Bebe Pui Ying Chu )
Judge of the Court of First Instance
High Court |
Mr Bernard Man SC and Mr Derek J Y Chan, instructed by MinterEllison LLP, for the Applicant / Plaintiff in all 4 actions
Mr Brian Chok, instructed by Humphrey & Associates, for the 2nd Respondent in HCMP 3179/2013 and 5th Defendant in HCA 175/2018
Mr Ambrose Ho SC, Mr Mike Lui and Ms Kelly Cheng, instructed by Kobre & Kim, for the 3rd Respondent in HCMP 3179/2013, the 1st, 2nd and 4th Defendants in HCA 175/2018, the 1st Defendant in HCA 721/2019 and the 1st and 2nd Defendants in HCA 1537/2019
[1] See the Underlying Objectives of Order 1A, RHC
[2] See para 12, B1:192
[3] B1:59
[4] B1:4
[5] See B1:46
[6] Exhibit “KJ-1” of the affirmation of Kang Jian, 06.01.14, at B1: 85-91
[7] In para 3 of Mr Xing’s 1st affirmation in the Rectification Action, he stated he was beneficial owner of 950,000 shares.
[8] See para 7, Mr Xing’s 1st affirmation in the Rectification Action, A1:177
[9] See para 3(2), Reasons for Decision, [2019] HKCFI 1827
[10] See para 8, A1:178
[11] See para 9, A1:178
[12] At para 8, A1:152
[13] B2:316
[14] See para 6, Ho’s Skeleton Submissions
[15] In para 23, Ho’s Skeleton Submissions
[16] [2019] HKCFI 1827
[17] At paras 4 & 5
[18] At paras 5.1 to 5.5, A2:292-293
[19] See para 15, Ho’s Skeleton Submissions
[20] See the Index
[21] At paras 24, 25, Chok’s Skeleton Submissions
[22] See para 13, the 2nd affirmation of Chan Keith Kay Fung, of Madam Long’s solicitors MinterEllision LLP