ALLIED WELI DEVELOPMENT LTD (In Liquidation) v. CHUANG YUE-CHIEN EUGENE AND OTHERS

HCA 57/2018

[2026] HKCFI 1251

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 57 OF 2018

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D E C I S I O N

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1.  I will continue to adopt the defined terms and expressions in my Decision herein handed down on 17 September 2025 [2025] HKCFI 4299 (“the Decision”). In the Decision, I referred to the Yellow Green Version of P’s proposed amendments to the ASoC. The proposed amendments have since been formally made in the Re-Amended Statement of Claim (“RASoC”). Hereinbelow, I will refer to P’s averments by reference to the RASoC.

2.  By the Decision, I

(a)  dismissed with costs Chuang’s summons dated 17 August 2023 in its entirety, which included an application to strike out the ASoC for disclosing no reasonable cause of action, being an abuse of process and/or embarrassing and to consequentially dismiss the action as against him, or alternatively, to strike out such parts of the ASoC as set out in the Annex to the summons on the same grounds;

(b)  acceded to part of Lo’s summons dated 11 September 2023 in that I ordered the striking out of such part of the ASoC pleading, and all claims therein against Lo based on, the allegations that Lo was a de facto director of the Company, but dismissed the remainder and ordered Lo to pay P 40% of P’s costs; and

(c)  gave leave to P to amend the ASoC per the Proposed Green Amendments as revised by the Yellow Green Version save the proposed amendments on the parts of the ASoC ordered to be struck out.

3.  By their respective summonses both dated 2 October 2025, Chuang and Lo seek leave to appeal against the Decision; and on Chuang’s part, only for leave to appeal against my refusal to strike out and consequentially dismiss the action against him.  They both also therein apply for a stay pending appeal of the direction requiring them to file their respective Defence within 28 days after the Order was sealed, or alternatively, for an extension of time until 28 days after the determination of their leave applications or of their substantive appeals if leave be granted.

4.  By consent, the summonses are to be disposed of on papers without an oral hearing.  Having considered the parties’ written submissions, this is my decision.

CHUANG’S APPLICATION FOR LEAVE TO APPEAL

The Proposed Grounds of Appeal

5.  Chuang attached a draft Notice of Appeal (“Chuang’sDNOA”)  to his summons.  The proposed grounds of appeal are stated therein by way of 16 paragraphs in 11 pages.  However, each paragraph of itself does not seem to form a distinct ground of appeal, and the 16 paragraphs seem to read like submissions in skeletal form.  I agree with the comments of Mr Bartlett (leading Ms Law)  that it is difficult to distil Chuang’s precise grounds as Chuang’s DNOA and skeleton submissions (“Chuang’s Skeleton”)  essentially comprise 22 pages of densely packed criticisms. 

6.  In Chuang’s Skeleton, submissions (essentially in the form of densely packed criticisms)  are not organized or developed under any particular proposed ground of appeal, but they are organized under the following 6 headings (and therein merely occasionally referencing some of the paragraphs in Chuang’s DNOA)  :

(1)  “No viable RASOC Fraud Claim against D1”;

(2)  “No viable RASOC de facto directorship claim”;

(3)  “No viable RASOC shadow directorship claim”;

(4)  “No viable RASOC fraudulent conspiracy claim”;

(5)  “No viable dishonest knowing assistance claim”; and

(6)  “No viable ‘negligent breach’ claim”;

7.  Thus, in assessing below whether the threshold of showing that the proposed appeal has a reasonable prospect of success has been met, I can but endeavour to try to understand and identify Chuang’s complaints under each of these headings regarding errors that he thinks this court has made in the Decision.

“No viable RASOC Fraud Claim against D1”

8.  One of the complaints now raised, as I understand it, is that “the demurrability of the RASOC’s purported fraud claims against D1 is clear from its structure and core pleas”[1] in that Section D of the RASoC pleading “the Fraud” “[contains] no plea against (or even mention of)  [Chuang]”[2] and that P pleaded the “Ungrounded Causation Inference Plea” which is “obviously incorrect, irrational and impermissible in law”[3], and that the lack of pleaded particulars of the “Fraud Actus Reus”[4] makes the fraud plea not viable.

9.  This complaint boils down to being yet another iteration and in substance a rehash of Chuang’s central complaint that P was unable to plead particulars as to “who did what, when and how” in relation to the transactions forming the Re-organization and the Asset Strip. The argument, put forth in many forms at the hearing, has been considered by this court and dealt with in the Decision.  Chuang’s present related complaint (§4 of Chuang’s DNOA)  that Chuang’s point at the hearing that P failed to give any, or any satisfactory, “core particulars” requested in Chuang’s 45-page Requests for Particulars of the Plaintiff’s Statement of Claim was “barely mentioned” in §119 of the Decision and not being treated as “important consideration” has no substance, as I have considered it as part of Chuang’s such central complaint and P’s alleged failure to so give the “core particulars” did not add anything further.

10.  Next is a complaint that I erred in law in disregarding or disapplying the principles which were quoted in §2 of Chuang’s DNOA and which were referred to there as the “Fraud Pleading Principles”.

11.  However, not included as part of the “Fraud Pleading Principles” in Chuang’s DNOA or Chuang’s Skeleton were the principles and observations made by learned judges in other cases cited by Mr Bartlett at the hearing (which were not disputed by Mr Barlow), which I summarized in the 4 sub-paragraphs of §69 of the Decision.  They concern the court’s recognition that direct evidence of fraud is relatively rare, that fraudsters not only would hide their tracks but would do so with skill, that fraud cases are often proved based on inference from circumstantial evidence, and that the relevant concept is “sufficiency”, which comes into play when one considers whether sufficient particulars have been pleaded so that the opposite party has sufficient notice of the case he has to meet.  This court also there said that it found instructive K Yeung J’s observation (made after surveying the relevant cases)  that underpinning the reasons for the rules that allegations of fraud must be pleaded distinctly and with the utmost particularity are the notion of fairness and justice which is relevant in considering the sufficiency of the particulars that have been pleaded.

12.  Those principles and observations are as much part of the relevant principles as the selective and so-called “Fraud Pleading Principles” now emphasized by Mr Barlow.

13.  I thus understand Chuang’s present complaint of error is that this court should only apply the so-called “Fraud Pleading Principles” and not these other principles and observations; and apply the so-called “Fraud Pleading Principles” mechanically and rigidly in the manner Chuang has been advocating.

14.  In the present case, the factual circumstances are, and the RASoC pleaded P’s claim in such a sequence and manner by first alleging, that the Asset Strip (together with the Reorganization as allegedly a pretence for the Asset Strip and allegedly to achieve other connected purposes)  was shown to be a set of fraudulent and dishonest transactions under the pleaded factual setting.

15.  I held in §85 of the Decision that the pleaded factual allegations are already sufficient to sustain a case that (a)  at or around the time of the Re-organization and the Asset Strip, the shareholders and directors of the Company ought to have regard to the overriding creditor’s interest of Penta, (b) the Asset Strip when implemented would plunge the Company into insolvency by depleting completely its assets for no good consideration, to the great prejudice of its creditors, particularly Penta, (c)  there was thus a breach of fiduciary duties on the part of the directors; and (d)  the shareholders of the Company could not effectively authorize the Asset Strip (or later on ratify them if they had not been authorized).  Thus, I concluded in Section F.2. of the Decision that the pleaded averments in the RASoC were already sufficient to show that under such factual setting the Asset Strip by its nature was dishonest.  The requirement that the element of fraud or dishonesty has to be distinctly and sufficiently pleaded to that extent has been fulfilled.

16.  P then essentially pleaded that Chuang “caused” the Re-organization and the Asset Strip as he was a de facto and/or shadow director of the Company at the time, who (together with Lo)  exercised control over the affairs of the Company.  I then set out in Section F.3. of the Decision Chuang’s contentions that there is no reasonable cause of action pleaded against him and considered under Section F.4. of the Decision as to whether reasonable cause of action has been disclosed that Chuang was a de facto and/or shadow director of the Company at the material times.

17.  Having considered all the relevant authorities, including those emphasized by Mr Barlow, but no less those cited to me by Mr Bartlett, and applying those principles to the very unique circumstances of this case as I have explained in the Decision, I came to the conclusion that P’s fraud case against Chuang has been sufficiently pleaded, and in any case as a matter of discretion it ought not be struck out.

18.  Thus, it is an empty and unsubstantiated complaint that I “disapplied” or “disregard” the relevant principles concerning the pleading of fraud.

19.  Next, under §10 of Chuang’s DNOA, based on the contended premise that I have adopted “a wrong approach”, it is complained essentially that the reasons for me adopting such “a wrong approach” “appear to be” my taking into consideration of circumstances set out in §§108 to 111 of the Decision, which were then quoted out of context and labelled as “belief” and “suspicion” in §10 of Chuang’s DNOA, and described as “speculative conjecturing” in §9(3)  of Chuang’s Skeleton.

20.  The matters alluded to in §§108 to 111 of the Decision were :

(a)  In §108, I accepted P’s submission that the inability to plead the “who did what, when and how” was not the fault of the Liquidators or P;

(b)  In §109, I said “On the contrary, for such complex transactions involving such substantial value as those comprised in the Asset Strip, the complete unavailability of relating documentation from the Company and the inability to produce any such documentation by the persons examined in the 286B Examinations, and their claimed complete lack of knowledge and recollection, including the claimed lack of knowledge of the Receivables Assignment by the 12 related companies involved are staggering, to say it mildly.  As observed by DHCJ Jin Pao SC in Leung Chin Sing, Rabo v Ko Chun Hay, Kelvin in [2021] HKCFI 2242 at [42] : “The prevalence of e-mails, text messages and other forms of electronic communication is such that most agreements or discussions which are of legal significance, even if not embodied in writing, leave some form of electronic imprint: Blue v Ashley [2017] EWHC 1928 (Comm)  at [65] per Leggatt J (as he then was); Music Holdings Property HK Ltd v Ooi Lean Choo [2020] HKCFI 1312 at [58] per Ng J”.  On my part, I find it most difficult to postulate that such state of affairs was the result of otherwise than some careful, thorough and elaborate engineering by those who wanted to have the tracks covered.”;

(c)  In §110, I said I was persuaded by Mr Bartlett that the approach adopted by Sales J in Nokia Corp v AU Optronics was relevant and apt here and that I would also allow P, as the claimant on such an unlevel playing field, “a measure of generosity”; and

(d)  In §111, I accepted Mr Bartlett’s submission that in the circumstances of this case, it was reasonable for P to pursue the 2 pleas of de facto directorship and shadow directorship against Chuang as broad alternatives.

21.  To dispel any misunderstanding, this court did not consider as a reason not to strike out any “hope that “later on” the absent “evidence in support of shadow directorship might come up” and enable a complaint fraud plea to be made” as suggested or complained in §10(3)  of Chuang’s DNOA, which contains a misquote out of context of what I said in §111 of the Decision.  In §111 of the Decision, I dealt with Chuang’s complaint against P pleading de facto and shadow directorship on the part of Chuang as alternatives.  For ease of reference, I quote §111 in full and let the contents speak for themselves :

“111. Third, I accept Mr Bartlett’s submission that in the circumstances of this case, it is reasonable for P to pursue these 2 pleas as broad alternatives. It seems to me that the particular circumstances of this case make it fall within a classic case where the Court would allow alternative pleas lest there would be a risk of unfairness and injustice against P in that later on evidence in support of shadow directorship might come up (or even later on one or some of the 286B Examinees somehow resile from what they said in the 286B Examinations and say something very different), P might then have difficulty proving de facto directorship while its claim based on shadow directorship, though supported by such evidence surfaced later, was already struck out.”

22.  In §§108 to 111 of the Decision, I have given my reasons as to why I came to those views.  In Chuang’s DNOA and Skeleton, there are mere criticisms without any discussions as to the correctness of my reasons. It is evident from reading the Decision that I did not use those circumstances as reasons to “disapply” or “disregard” established principles concerning pleading fraud, as Chuang now complains.  Rather and as said, I have considered the matters in the round and regard those as circumstances I could and should take into account in exercising my discretion as to whether to strike out.

23.  In all, there is no reasonable prospect of success regarding these complaints as grounds of appeal.

“No viable RASOC de facto directorship claim”

24.  Chuang’s Skeleton only contains 2 paragraphs under this heading - §§11 and 12.  Paragraph 11 contains 5 sub-paragraphs in which Chuang purportedly summarized §§94 – 98 of the Decision.  In the Decision, I dealt specifically with P’s plea of de facto directorship under §§92 – 100.

25.  It is then complained in §12 of Chuang’s Skeleton :

“12 Thus, having cited (in J#72 [3/69])  our law’s requirements for any viable claim of de facto directorship, in the manner cited in para. 11 above, the Deputy Judge illogically and impermissibly disapplied or disregarded those requirements (c/f DNOA#6(1)  and 12 [1/6-7 and 10-11])  and allowed the RASOC’s hopelessly non-compliant and demurrable plea of de facto directorship against D1 to remain (while simultaneously striking out the same plea against D20).

This paragraph merely states a conclusion or assertion of error without laying out any detail reasoning.

26.  In §§94 to 98 of the Decision, I identified the averments in the RASoC concerning various conducts, matters and circumstances which singly or together can be regarded either as holding out by the Company and/or as conducts on Chuang’s part assuming the status and functions of a director (and not the conducts of a manager below the board level)  or receipts of substantial benefits by Chuang from the Company qua its director or Chuang assuming de facto control of the Company.

27.  I particularly noted in §95 of the Decision P’s averments that Chuang, despite his claim that he has retired from managing the affairs of the Company and the Group, essentially was representing the Company or the Group in, and has placed himself at the centre of, the key negotiation discussions with Zwaanstra on behalf of Penta between December 2010 and July 2012 concerning Penta’s investments in Freeman, and then Penta’s investments in Mascotte, and then Penta’s claim against the Company.

28.  I do not think it has been shown that I erred in holding that the RASoC disclosed a reasonable cause of action that Chuang was a de facto director of the Company at the material times.  There is no reasonable prospect of success regarding Chuang’s proposed appeal under this heading.

“No viable RASOC shadow directorship claim”

29.  In §§101 to 113 of the Decision, I dealt specifically with Chuang’s striking out concerning P’s shadow directorship plea against him.

30.  In §101, I quoted in full Chuang’s contentions, as set out in §43(2)  of Chuang’s written submissions for the hearing, and summarized them in §102 - “In short, Chuang complained that in respect of each of the de jure directors, there was no particular instance(s)  pleaded with details showing Chuang “directed” that particular de jure director so to act in relation to the affairs or business of the Company, and that the particular de jure director acted accordingly, and such as to show that the particular de jure director was accustomed so to act”.

31.  As I understand it, Chuang’s present complaint of error is premised upon the insistence that the averments required to support the allegation that a particular de jure director was accustomed to act according to Chuang’s directions or wishes must only be pleaded in the form of specific instances or occasions with particulars as to time, place, who and what; and cannot be proved by inference and / or supported by averments on circumstantial settings or factual matters supporting the drawing of such inference.

32.  As I noted in different places in the Decision, including §103, that P’s case is a broad one that Chuang was in control of the Company’s affairs, with some pleaded facts tend to show such control by way of de facto control while some others tend to show such control through puppets; and P has, pleading its case the best it can, averred to one specific instance that Chuang had instructed another de jure director so to act (see §104 of the Decision)  and then averred to all the circumstantial matters in support of their case that there were such de facto control or control in the shadow by Chuang.

33.  In §§103 to 112 of the Decision, this court has considered (a)  the viability of P’s case, which by and large is a circumstantial one, (b)  the practical difficulty, and therefore practical injustice, that P might face if they are required conventionally to plead in a clear-cut and mutually exclusive manner which acts / transactions fall within the allegation of de facto directorship and which fall within shadow directorship, (c)  the prejudice that Chuang may suffer if he is to plead to and meet a case as presently pleaded, (d)  the inability to plead “who did what, when and how” is not the fault of the Liquidators or P, but very much likely the result of the deliberate and elaborate efforts of those who wanted to have the tracks covered, (e)  evaluating the matter under the notion of fairness and justice.  In the result, I came to the conclusion that the shadow directorship case that Chuang is to meet is reasonably set out and defined and that in the proper exercise of my discretion I should refuse to strike out the shadow directorship claim against Chuang.

34.  In the rather unique circumstances of this case and bearing in mind it is a matter of discretion as to whether such claim should be struck out, I am not convinced that it has been demonstrated that the intended appeal against my refusal to strike out the shadow directorship claim against Chuang has a reasonable prospect of success.

“No viable RASOC fraudulent conspiracy claim”; “No viable dishonest knowing assistance claim”; and “No viable ‘negligent breach’ claim”

35.  These 3 headings are addressed under §§15 to 21 of Chuang’s Skeleton.

36.  They can be convenient dealt with together. Indeed, while they are now separated out and addressed each under a separate heading according to the respective causes of action, Chuang did not present his striking out case at the hearing by reference to each of these specific causes of action or by reference to these headings. 

37.  Regarding the conspiracy claim, as noted in §135 of the Decision, Chuang’s challenge against the “demurrability” of P’s pleaded case of conspiracy consisted of the challenge that the plea that Chuang “caused the Plaintiff to … undergo the Asset Strip” was demurrable (§B31(3)  of Annex B to Chuang’s written submissions).  I have addressed that one challenge in §§132-136 of the Decision by first setting out the pleaded averments in the RASoC and then expressed my view and reasoning (in §136)  that because I have found sustainable P’s broad case that the Asset Strip was “caused” by Chuang as he was in control of the Company at the material times as a de facto and/or shadow director and when all other de jure directors were mere “puppets”, I reject that challenge.

38.  It is now asserted in §§15 and 16 of Chuang’s Skeleton that P’s pleaded case of conspiracy was “[an] open defiance of the Fraud Pleading Principles” and my reasoning was “inapplicable to demurrable purported pleas of fraudulent conspiracy”.  It seems that in this complaint Chuang is again relying on the application of his selective “Fraud Pleading Principles” in the manner he has been advocating, which I have addressed above.  I find no reasonable prospect of success of the proposed appeal regarding this complaint. 

39.  The sole complaint under the headings of “No viable dishonest knowing assistance claim” and “No viable “negligent breach” claim” is that I dismissed this part of Chuang’s striking out application without specifically addressing or deciding its ground.  That is so because at the hearing, there was really no “this part of Chuang’s striking out application” as is suggesting now.  As said, Chuang’s case for striking out was not presented by reference to, nor was this court addressed regarding the striking out of each specific cause of action, but Chuang’s then presentation consisted of attacks on various flaws of P’s pleaded case under certain topics, themes or points, which were identified and alluded to in §§78, 87, 91-92, 101-102, 114, 117-120, 125, 128-129, 132, 135, 138, 142, 145 and 146 of the Decision and which I have endeavoured to address there.

40.  There are no merits nor reasonable prospect of success in Chuang’s present complaint in this regard.

41.  In the premises, I refuse to grant leave to appeal to Chuang.

LO’S APPLICATION FOR LEAVE TO APPEAL

42.  Lo seeks to appeal against the Decision regarding my refusal to strike out as against Lo the pleas of (a)  shadow directorship, (b)  conspiracy to injure by unlawful means, and (c)  dishonest assistance; and to consequentially dismiss the action as against Lo.

43.  A draft Notice of Appeal was annexed to Lo’s summons.  In it was raised proposed Grounds 1 to 6 concerning shadow directorship, Grounds 7 – 9 concerning conspiracy and Grounds 10 and 11 concerning dishonest assistance.

Grounds 1 to 6 – shadow directorship

44.  I dealt with Lo’s challenges to the plea of shadow directorship in §§166 to 170 of the Decision.  However, as I stated in §162 there, I was persuaded by Mr Bartlett that I might look at the pleaded matters cumulatively, which were extensively set out in §160.  I should therefore state clearly here that in coming to my decision refusing to strike out the shadow directorship plea as against Lo, I had borne in mind and taken into consideration all the matters set out in §160.

45.  Ground 2 essentially is a rehash of Lo’s main argument at the hearing that P has not pleaded in the RASoC “any specific allegation concerning [Lo] capable of supporting an allegation that all or a majority of the directors of the Plaintiff were accustomed to act in accordance with [Lo’s] instructions at the material times”.  For now, I will leave aside the “majority of the directors” part to be dealt with under the discussion relating to Ground 3.

46.  The linchpin of Lo’s such contention is that each pleaded allegation is to be examined individually to see if it supports the “accustomed to act in accordance with Lo’s instructions” element.  As have mentioned, I accepted P’s submission that the pleaded matters can be looked at cumulatively (§162).  I have summarized P’s pleaded case in §166 of the Decision, which as have mentioned, should also include the matters P relied on as have been extensively set out in §160 of the Decision.  P’s case that the 6 de jure director nominees were accustomed to act in accordance with Lo’s instructions, as I noted in §166(g), would largely be proved by inference.

47.  It is complained in this Ground that I should apply the same reasoning in §§156, 157 and 159 of the Decision.  In §§156 and 157, I dealt with one of Mr Yu’s submissions concerning the plea of de facto directorship.  There, I expressed the view that the averments that Lo received quite a number of substantial benefits from P and other companies within the Group over certain periods of time cannot support any directorial act concerning those receipts on the part of Lo (who was then not a de jure director of any of the giving companies).  However, P’s reliance on those receipts in the context of the shadow directorship plea is very different.  P’s pleaded case in that regard, in a nutshell, is that the de jure director(s)  of those giving companies at the time was/were one or some of the 6 named nominees of Lo, it is therefore to be inferred that such substantial outlays were authorized by the respective directors of the giving companies (thus, directorial acts), and taking into account the repetition over periods of time and the fact that the amounts were substantial, it is to be inferred that these nominees were accustomed to act in accordance with Lo’s instructions to confer such substantial benefits to herself.  Thus, I think there is no merits to the complaint that the same reasoning expressed in §§156 and 157 should have been applied to P’s plea of shadow directorship.

48.  In §159 of the Decision, in gist I accepted Mr Yu’s submission that the matters pleaded in §§110.9 and 111 of the RASoC did not show any directorial act on the part of Lo.  Contrary to what are now complained in Ground 2.3 and 2.4 and as can be gauged from the Decision, I did not regard the matters pleaded in those 2 paragraphs as supportive of P’s shadow directorship claim against Lo.

49.  Ground 3 complains that I should have analysed the plea by considering whether it has been averred that a majority of the de jure and de facto directors were acting in accordance with Lo’s instructions.  Lo’s submission is that this “majority” is an essential legal requirement to establish shadow directorship.

50.  P’s pleaded case is that the Company’s corporate governance under its Articles included the role of “Permanent Managing Director” who had the authority to exercise all the powers, authority and discretion vested in the directors generally; and that the Permanent Managing Directors for the period from 12 November 2009 onwards were exclusively Lo’s nominees.  As I noted in §72 of the Decision, there quoting the summary of principles by Coleman J in Cyberworks Audio Video Technology Ltd - “Each case gives rise to a question of fact and degree, where all relevant factors must be taken into account and looked at in their context. It is the cumulative effect of all relevant factors that guides the Court” (Cyberworks Audio Video Technology Ltd §56(2)).  The English Court of Appeal case of Re Mumtaz Properties Ltd [2011] EWCA 610, cited by P, is an example of how the court would take into account the specific situation concerning corporate governance of the company in question.  In the unique facts of this case, I accept P’s submission that shadow directorship may be established by reference to control over those with majority control, and not necessarily be established by reference to control over the majority number of de jure and de facto directors.  I also accept P’s submission that to the extent that such is a novel proposition of law, it is not one which ought to be resolved in a striking out application.

51.  Grounds 4 and 5 complain that I erred in concluding that the 8 transactions pleaded in RASoC §110 showed a pattern of behaviour, but that the 8 transactions are at best isolated incidents, and they in any case are not capable of supporting “a definite inference” that Lo “routinely” issued directions to the nominees who routinely followed them, that they did not show that Lo alone and not Chuang was the person directing the alleged fraud.   However, in pleading a case based on inference, it is not required that the inference to be drawn from the primary facts must reach the threshold of a “definite” inference.  Nor in establishing shadow directorship, it needs to be pleaded and then proved that the shadow director must routinely issue directions to the puppet directors or he must be the only person in control of the affairs of the company.  Lo is here effectively trying to raise the hurdles much higher than they should be and then says P tumbled.  In a striking out application on the ground that no reasonable cause of action has been disclosed, the court is concerned only with the sufficiency of the pleading, and Lo’s such contentions do not show that this court erred in my assessment in that regard.

52.  Ground 6, I understand, complains that I “excused” P from the otherwise consequence of striking out because I gave P “a measure of generosity” (§§108-111 and 169 of the Decision). Evidently, by striking out the de facto directorship claim against Lo, it can be seen that I have not thereby excused P from having to plead a reasonable cause of action.  Rather, I have considered all the relevant matters in the round (as set out in the Decision, which I will not repeat here), including the matters alluded to §§108-111, and came to the decision refusing the striking out of the plea of shadow directorship.  There is now no complaint raised that the matters alluded to §§108-111 were irrelevant matters that I should never have taken into account.

53.  I conclude that there is no reasonable prospect of success in the proposed appeal against my refusal to strike out the shadow directorship plea.

Grounds 7 to 9 - Conspiracy

54.  These 3 Grounds can be addressed together.

55.  P’s case of conspiracy was pleaded in Section G.2 of the RASoC, with the conspiratorial agreements pleaded in §145 there and the overt acts pleaded in §144.

56.  These 3 Grounds are essentially rehashes of Lo’s Contentions 1 to 3 at the hearing.  By these 3 Grounds, Lo complains that I erred in rejecting those 3 Contentions.  The 3 Contentions (together with Contention 4, which is not relevant here)  were summarized in §171 of the Decision:

“a.  First, there is no pleading of the conspiratorial agreement between each of the Defendants as to when the agreement was reached, or between whom or how it was reached, and there is no indication of the nature of the agreement other than the mere assertion that they combined together to carry out the alleged fraud of stripping P of its assets (“Contention 1”);

b.  Second, the overt acts relied on against Lo are clearly deficient (“Contention 2”);

c.  Third, there is no viable allegation that Lo was aware of the alleged Asset Strip, or had intention to procure the same (“Contention 3”); and”

57.  Ground 7 complains that I erred in rejecting Contention 1, in that I wrongly distinguished Pido v Compass Technology Ltd [2010] 2 HKLRD 537, a case Lo relied on heavily to contend that particulars of  “whenthe agreement was reached, or between whom or how it was reached, and an indication of the nature of the agreement other than that they were to carry out the alleged fraud of stripping the Plaintiff of its assets” (my added emphasis)  must be pleaded.

58.  I have set out my full reasons in rejecting Contention 1 in §§172-180 of the Decision.  In this Ground, Lo does not engage in a discussion as to how I erred in those reasoning but just complains that I erred.  There is no reasonable prospect of success on this Ground.

59.  Ground 8 centres on my holding in §185 of the Decision essentially that, for the purpose of striking out, the capacity in which Lo approved of and participated in the Re-organization is neither here nor there.

60.  As I understand it, Lo’s contention is that she approved the Re-organization merely as a shareholder of Ristora and hence it was the act of Ristora and not Lo that approved the Re-organization.  It was contended that somehow such a contention would necessarily and completely absolve Lo from the claim of conspiracy - whether by disentitling P to claim that Lo (instead of Ristora)  was the conspirator, or that her approval of or participation in the Re-organization could never amount to an overt act on her part.  In my view, such a contention could, and should be properly, raised and formulated by Lo as a defence and then properly and fully ventilated at trial; it hardly shows that it is plain and obvious that P’s claim against Lo for conspiracy should be struck out. This Ground has no reasonable prospect of success.

61.  Ground 9 challenges the correctness of my views and reasoning in §§187 and 188 of the Decision wherein I concluded that the matters pleaded in the RASoC were already sufficient to support an allegation that Lo was at the time aware of the Asset Strip, and that it could then be inferred that she would have constructive knowledge that the Asset Strip would involve a breach of duties by the Company’s directors and would be to the prejudice of the Company’s creditors (including Penta)  and was therefore dishonest.  In this Ground, there is again no discussion as to how my reasoning in §§187 and 188 was said to be incorrect.  This Ground has no reasonable prospect of success.

Grounds 10 and 11 – Dishonest assistance

62.  Ground 11 complains that I erred in finding that there was a sufficient plea of dishonesty.  It essentially is the same complaint raised in Ground 9, which I have dealt with above.

63.  Ground 10 complains that I ought to have struck out the dishonest assistance claim as there is no particulars pleaded as to the details of acts constituting the assistance, but only broad descriptions of such acts are pleaded in §151 of RASoC.  For the reasons I expressed in §§192-200 of the Decision, despite such lack of particularity I refused to strike out this claim as a matter of exercising my discretion.  I adhere to the view that such was a proper exercise of my discretion in the unique facts of this case and for those reasons.  I do not think there is a reasonable prospect of success in appealing against my such exercise of discretion.

64.  In the premises, I would not grant leave to appeal to Lo.

STAYING THE DIRECTION TO FILE AND SERVE THEIR RESPECTIVE DEFENCE; EXTENSION OF TIME ?

65.  Chuang seeks the interim stay / time extension arguing that his appeal has very strong grounds, that the appeal would be rendered nugatory, that he would be “forced to file a non-compliant Defence containing multiple “bare denials”” if no stay or time extension is granted, and that it would save judicial resources in that Chuang does not need to make a similar application before the Court of Appeal.

66.  Lo seeks the interim stay / time extension if leave to appeal is granted so as to avoid a wastage of costs in preparing the Defence in case Lo successfully strike out the action against her.

67.  I accept P’s submissions that the chance of success, especially in striking out the entire action, of Chuang’s and Lo’s appeal is not strong and that this action has been delayed for too long.  Moreover, the potential waste of costs, when compared to the amount claim in this action and the costs that Chuang and Lo have already spent to resist the Liquidators’ investigations and P’s claim, is not at all a significant factor.

68.  I would refuse the applications of Chuang and Lo to stay the direction or to extend time.

DISPOSAL

69.  I dismiss the respective summons of Chuang and Lo in their entirety with the order, on nisi basis, that they pay P’s costs with certificate for 2 counsel.

70.  I thank Mr Bartlett SC, Mr Barlow SC, Mr Yu SC, Ms Law, Mr Chan and Mr Lam for their assistance.

Mr Jeremy Bartlett SC and Ms Jacqueline Law, instructed by Messrs Herbert Smith Freehills Kramer, for the Plaintiff

Mr Barrie Barlow SC and Mr. Pat Lun Chan, instructed by Messrs Haldanes, for the 1^st Defendant

Mr Benjamin Yu SC and Mr. Keith Lam, instructed by Messrs Gibson, Dunn & Crutcher, for the 20^th Defendant

HCA 57/2018

[2025] HKCFI 6195

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 57 OF 2018

______________

______________

_______________

D E C I S I O N

_______________

1.  I will continue to adopt the defined terms in my Decision handed down on 17 September 2025 [2025] HKCFI 4299 (“the Decision”).

2.  By the Decision, I dismissed Chuang’s summons dated 17 August 2023 in its entirety with an order nisi on costs that Chuang should pay P’s costs, including all costs reserved, with certificate for 2 counsel, and also dismissed the rest of Lo’s summons dated 11 September 2023 but acceded to part by ordering the striking out of such part of the ASoC pleading, and all claims therein against Lo based on the allegation, that Lo was a de facto director of the Company. On the basis that Lo was partly successful and P’s claims against Lo based on shadow directorship were salvaged only by the very recent Proposed Green Amendments and the Yellow Green Version[1], I ordered on nisi basis that Lo should only pay 40% of P’s costs, also including all costs reserved, with certificate for 2 counsel.

3.  By summons dated 2 October 2025, Chuang, with written submissions annexed thereto, seeks to vary the costs order nisi to that he should also only pay 40% of P’s costs or such reduced sum as the Court finds just and reasonable.

4.  The sole contention there advanced in support of the variation was summarized in §8 of the submissions :

“As a matter of consistency, insofar as the Deputy Judge sustained the shadow directorship claims against the 1^st and 20^th Defendants for the same reasons (cf J#106 & J#169), clearly his exercise of discretion as to costs should have also been decided in the same way.”

5.  As acknowledged in §8 and also §9 of Chuang’s submissions, Chuang’s basis for seeking such variation is premised on the contention that P’s claims against Chuang based on shadow directorship were also only salvaged by the belated changes in or additions of averments introduced by the Proposed Green Amendments and the Yellow Green Version.

6.  That premise, however, is not correct.

7.  In §§101-113 of the Decision, I dealt with whether there is a reasonable cause of action disclosed against Chuang that he was a shadow director of the Company at the material time. I began by setting out in §101 Chuang’s specific contention against P’s plea of shadow directorship, which was that §108.1 to §108.16.6 of P’s ASoC contain no averment of primary facts capable of supporting any plea of shadow directorship. While Chuang made a myriad of criticisms over many aspects of P’s ASoC, that was the bone of contention and thrust of Chuang’s case that there was no reasonable cause of action concerning P’s claims against Chuang based on shadow directorship.

8.  It is therefore most pertinent to note that P made but only one change in the Proposed Green Amendments and the Yellow Green Version so far as §108.1 to §108.16.6 of P’s ASoC are concerned, which was the addition of the new sub-paragraph §108.6A, which only pleaded that Chuang since 20 January 2012 in fact held some indirect interest in the Company via holding some 6.39%, later increased to 12.91%, interest in Freeman.

9.  In the ensuing discussions in §§102-112 of the Decision, leading to my conclusion at §113 that P’s claims against Chuang based on shadow directorship are sustainable and would not be struck out, I have not referred to the said newly added §108.6A or any averments concerning P’s claims against Chuang based on shadow directorship introduced in the other parts of the Proposed Green Amendments and the Yellow Green Version. Though the newly added §115A in the Proposed Green Amendments and the Yellow Green Version to an extent pleaded clearer and improved P’s pleaded case of shadow directorship against Chuang, in successfully resisting Chuang’s contentions, it was not pivotal and I would not regard, for costs purposes, that P’s such claims were salvaged by any averments pleaded in the new §115A.

10.  Moreover, I also accept, as has been pointed out in P’s written submissions :

a.  That Chuang’s summons dated 17 August 2023 included therein (i) an application to set aside the ex parte order of Master Phoebe Man dated 13 January 2022 renewing the validity of the writ for another year, (ii) an application to strike out the Statement of Claim on the ground that it constituted an abuse of process for a number of reasons, for which substantial affirmation evidence was filed by Chuang and P, and (c) an application to strike out numerous individual paragraphs of the Statement of Claim based on different reasons as set out under 10 different categories in the Annex to Chuang’s said summons.

b.  Chuang was unsuccessfully in all of the above-mentioned applications, over which substantial time and costs were incurred, and which were not at all affected by the late introduction of the changes or averments in the Proposed Green Amendments and the Yellow Green Version.

c.  In refusing to strike out P’s claims against Chuang based on de facto directorship, I have expressly stated in §100 of the Decision that I found that the ASoC already disclosed a reasonable cause of action. I have also rejected all the other grounds / contentions raised by Chuang for striking out P’s ASoC without the need to resort to the averments newly introduced by the Proposed Green Amendments and the Yellow Green Version.

11.  In other words, and in my view, the time and costs spent on Chuang’s application to strike out P’s claims against Chuang based on no reasonable cause of action on the shadow directorship claim, when compared with the time and costs spent on all the other aspects of Chuang’s summons together, were in any case but a relatively minor component.

12.  This is unlike Lo’s situation in that her summons only applied for striking out and only based on no reasonable cause of action, and that the de facto directorship aspect was a substantial part, over which Lo was successful; while P’s shadow directorship plea and claims against Lo, as I noted in the Decision, were salvaged by the averments newly introduced by the Proposed Green Amendments and the Yellow Green Version. Hence, my said costs order against Lo.

13.  For all these reasons, and as a matter of discretion, I refuse Chuang’s application to vary and make the costs order nisi against him absolute, and order on nisi basis that Chuang pays P its costs of this application.

Messrs Herbert Smith Freehills Kramer, for the Plaintiff

Messrs Haldanes (written submissions dated 2 October 2025) and Mr Chan Pat Lun (written reply submissions dated 17 November 2025), instructed by Messrs Haldanes, for the 1^st Defendant

HCA 57/2018

[2025] HKCFI 4299

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 57 OF 2018

______________

______________

_______________

D E C I S I O N

_______________

A.  INTRODUCTION

1.  Before me for determination are 2 summonses.

2.  The first is the 1^st Defendant (“Chuang”)’s summons taken out on 17 August 2023

a.  to set aside the ex parte order of Master Phoebe Man dated 13 January 2022 renewing the validity of the Writ in this action for one year as from 9 January 2022; and

b.  to strike out the Statement of Claim (“SoC”) for disclosing no reasonable cause of action, being an abuse of process and/or embarrassing and to consequentially dismiss the action as against him, or alternatively to strike out such parts of the SoC as set out in the Annex to the summons on the same grounds.

3.  The second is the 20^th Defendant (“Lo”)’s summons taken out on 11 September 2023 to strike out the Plaintiff (“the Company” or “P”)’s claims against her on the ground that such claims disclose no reasonable cause of action.

4.  This action has a long history with the underlying events going back to 2011.

5.  The Company was a BVI company founded by Chuang in 1996. Chuang was its permanent managing director from 1 November 1996 to 11 November 2009. Lo is Chuang’s wife and has been the largest identified ultimate beneficial owner of the Company.

6.  The Company was wound up on 22 February 2016 upon a creditor’s petition as it has been denuded of all its very substantial assets which were then valued at about HK$3.8 billion. The liquidators of the Company (“the Liquidators”) were appointed on 8 July 2016. Their investigations into the affairs of the Company met with fierce resistance, unusual difficulties and non-cooperation and were hardly fruitful.

7.  The Writ in this action was issued in January 2018. Its validity was repeatedly extended to give time to the Liquidators to progress their investigations.

8.  The central events complained of giving rise to P’s present claims are the re-organization of the Company’s shareholdings in March and April 2012 and then immediately followed by what P refers to as the “Asset Strip” that occurred in May 2012 divesting all the Company’s very substantial assets to a related company for no known valuable consideration rendering the Company a judgment proof empty shell while keeping these assets essentially in the control and ownership of the original ultimate shareholders of the Company.

9.  P now claims that Chuang and Lo, among others, are liable and claims from each of them damages, equitable compensation and/or restitution in the tune of HK$3.76 billion odd.

B.  P’s CLAIM AS PLEADED

10.  On 7 June 2024, the SoC was amended pursuant to O.20 r.3(1). The Amended Statement of Claim (“ASoC”) is a lengthy document consisting of 55 pages. The background and substantive matters are there pleaded protractedly but the contents are a bit disjointed and scattered with some partial repetitions here and there. I will attempt to summarize them in gist with some re-organization and paraphrasing, as follows.

B.1.  Events leading to the Asset Strip

11.  The Company was an investment holding company closely associated with Chuang who, as said, founded it in 1996. In December 2022, it was registered as a non-Hong Kong company under the then Companies Ordinance.

12.  In early 2011, Penta Investment Advisers Limited (“Penta”) subscribed for 500 million shares in Freeman Financial Corporation Limited (“Freeman”), a company listed on the HKEX and at the time a major indirect shareholder of the Company. Penta suffered a heavy loss thereby.

13.  In May 2011, Mr Zwaanstra of Penta (“Zwaanstra”) had 2 lunch meetings with Chuang. Shortly after in June 2011, Penta decided, and did so in July 2011, to invest by subscribing for shares in Mascotte Holdings Limited (“Mascotte”) which was also a company listed on the HKEX and another indirect shareholder of the Company. The subscription was for 550 million shares at HK$0.40 per share for the total consideration of HK$222 million odd. Penta this time required the Company to, and the Company did, sign a deed of guarantee dated 24 June 2011 (“the Guarantee”) by which the Company agreed to pay Penta the difference in Mascotte’s share price should certain conditions occur.

14.  On 10 January 2012 and following a drop in the price of Mascotte’s shares, Penta called on the Company to honour the Guarantee. The Company engaged in negotiations with Penta until 6 February 2012 when the Company through its solicitors Messrs Lam & Co (“Lam&Co”) informed Penta that it refused to comply with Penta’s demand on the basis that the Company had never agreed to the terms of the Guarantee and that the Guarantee was not duly executed by the Company.

B.2.  The Re-organization and the Asset Strip

15.  P pleaded under Section D in the ASoC entitled “the Fraud” that amidst Penta’s demand on the Guarantee, the following re-structuring in the Company’s shareholding and the “Asset Strip” took place through a series of transactions in the short time span from March to May 2012. P averred that these matters and transactions were pleaded to the best of P’s knowledge, which was limited because the investigations of the Liquidators were obstructed.

16.  It was pleaded that in April and May 2012, the following transactions (together “the Re-organization”) occurred :

a.  On about 16 April 2012, all shares in Cordoba Homes Limited (“Cordoba”), a shareholder of the Company holding 47.96% shares, were acquired by HEC Capital Limited (“HEC Capital”), with the existing shareholders of Cordoba receiving “an equivalent interest” in HEC Capital;

b.  On 17 April 2012, HEC Capital acquired HEC Development Limited (“HEC Development”), a BVI Company, for the consideration of US$1;

c.  On 30 April 2012, the shareholders of 19.78% of the Company’s shares (“the 19.78% Shareholders”) assigned their shareholding in the Company to HEC Development in exchange for “an equivalent interest” in HEC Capital;

d.  On 4 May 2012, HEC Capital acquired the entire share capital of Hennabun Capital Group Limited (“Hennabun (Cook Islands)”), a company incorporated in the Cook Islands, for the consideration of US$100;

e.  On 8 May 2012, the Company changed its name from its then name Hennabun Capital Group Limited to Allied Weli Development Limited; and

f.  On 16 May 2012, the Company entered into a share swap agreement pursuant to which (i) the Company’s shares (32.26%) originally held by Freeman Financial Services Limited were cancelled, (ii) an equivalent number of shares in the Company were issued to Hennabun (Cook Islands), and (iii) the Company was allocated shares in HEC Capital which it “distributed to” Freeman Financial Services Limited.

17.  P pleaded that following these transactions, HEC Capital became the indirect 100% shareholder of the Company through holding the entire share capitals of respectively HEC Development, Cordoba and Hennabun (Cook Islands); while the 19.78% shareholders, the shareholders of Cordoba and the shareholders of Freeman Financial Services Limited became indirect owners of the shares in the Company through indirectly owning “an equivalent interest” in HEC Capital.

18.  Importantly, P pleaded that

a.  There was no legitimate commercial rationale for the Re-organization;

b.  The Company’s 2013 audit work papers recorded the Re-organization as the reason for making the transactions comprising the “Asset Strip”;

c.  P inferred that “the purpose of the [Re-organization] was to provide a pretence for the Asset Strip and/or to add an additional layer of corporate entities between [the Company] and its publicly listed shareholders, to further distance them from the Asset Strip”[1].

19.  P averred that immediately following the Re-organization and from 17 May 2012 to 25 May 2012, the Company divested itself of all its valuable assets for no valuable consideration by the following transactions :

a.  On 17 May 2012, the Company declared an in specie dividend (“the Dividend”) of the entire issued share capital in its wholly own subsidiary Hennabun International Group Limited (“HIGL”), a BVI company, which essentially held the interest in 28 other indirect subsidiaries of the Company. Thereafter, HIGL became wholly owned directly by the Company’s shareholders. The value of the Dividend was stated to be HK$257,138,624 in P’s audited accounts for the year ended 31 March 2013 (“the 2013 Audited Accounts”).

b.  On 25 May 2012, the Company transferred the legal and beneficial ownership of its property, plant and equipment and deposits for leasehold improvements to HIGL (“the Assets Transfer”). In the 2013 Audited Accounts, these assets were valued at HK$52,528,000 and the consideration for the Assets Transfer was stated to be “netting off the amounts due with the Company’s fellow subsidiaries”.

c.  Also on 25 May 2012, the Company assigned its account receivables and payables due to and due from its former subsidiaries in the total net amount of HK$3,456,490,572 to HIGL for the consideration of HK$1 (“the Receivables Assignment”).

20.  It was averred[2] that the Company’s audited financial information as at 31 March 2012 (before these transactions) and 31 March 2013 (after these transactions) was respectively :

	Audited accounts for the year ended (HKD)
	31 March 2012	31 March 2013
Total assets	2,972,280,662[3]	61,214
Total liabilities	(117,206,614)	(217,650)
Net assets	2,855,074,048	(156,436)

21.  P averred that the declaration and payment of the Dividend, the Assets Transfer and the Receivables Assignment were part of a single fraudulent scheme which P referred to as “the Asset Strip”, and that the Asset Strip was dishonest, as “its effect was to render [the Company] insolvent and unable to pay its debts, including Penta’s demand under the Guarantee, (b) shield [the Company]’s assets from its creditors; and (c) preserve the value of [the Company]’s assets for the benefit of its direct and indirect shareholders”[4].

22.  Concerning documentations relating to the Asset Strip, the ASoC only averred that “The Liquidators have recovered a board resolution in respect of the Plaintiff’s declaration of the Dividend but have been unable to identify any board or shareholder resolution in respect of the Asset Transfer and Receivables Assignment”[5] . It was also not pleaded whether individual board members have been named in that resolution or have signed the same.

23.  In this connection and generally, Mr Bartlett SC, senior counsel for P (leading Ms Law), has been repeatedly and painfully emphasizing that the Liquidators’ investigations were met with fierce resistance, obstruction and non-cooperation, that the Liquidators were provided with no books and records of the Company despite much effort to obtain them and all involved claimed they have no meaningful information, documents or recollection of what happened; and as a result, only scanty information was available to P.

B.3  P’s case against Chuang and Lo regarding their involvement in the Re-organization and the Asset Strip

24.  It was pleaded that Chuang “was a major beneficial owner of the Plaintiff, holding an indirect 41.12% interest in the Plaintiff as of 22 June 2010”[6] and Lo “was the largest known beneficiary of the Asset Strip”[7] .

25.  P’s pleaded case in this regard is that following Chuang’s resignation as the Permanent Managing Director “Mr Chuang and Ms Lo together exercised control over the Plaintiff’s assets and affairs, in their capacity as de facto and/or shadow directors”[8] and “the Asset Strip was undertaken at the express or implicit instruction of Mr Chuang and Ms Lo, with the assistance or acquiescence of the Plaintiff’s then current and former directors and officers, Ms Liao Miao Ling Cindy (the 4^th Defendant), Mr Pak William Eui Won (the 5^th Defendant), and Ms Tong So Yuet (the 7^th Defendant)”[9].

26.  It was also pleaded[10] that Chuang and Lo “caused” the Company to, inter alia, participate in the Re-organization, undergo the Asset Strip, be sold to a purported third party, move its books and records to Taiwan and redomicile in the Marshall Islands.

27.  It is then pleaded respectively in section E.3 and section E.4 of the ASoC that they have control over the Company. These will be alluded to below.

B.4.  De jure directorship of the Company at the time of the Re-organization and the Asset Strip

28.  The de jure directorship of the Company throughout the years was set out in Schedule 1 of the ASoC. Relevantly at the time of the Re-organization and the Asset Strip (March to May 2012),

a.  the 4^th Defendant Ms Liao Miao Ling Cindy (“Liao”) was the Permanent Managing Director from 11 November 2009 to 7 May 2012[11];

b.  Mr Foelan Wong (“F Wong”) was a director from 30 December 2010 to 7 May 2012; and

c.  Lee Tze Mun (“TM Lee”) was the Permanent Managing Director from 7 May 2012 to 7 August 2015.

29.  Thus, TM Lee was the sole de jure director of the Company at the time of the Asset Strip. However, TM Lee unexpectedly passed away during the course of the Liquidators’ investigations[12].

B.5.  The roles of Liao, the 5^th Defendant Mr Pak William Eui Won (“Pak”), and the 7^th Defendant Ms Tong So Yuet (“Tong”)

30.  Concerning their roles, it was pleaded in the ASoC thus:

a.  Liao also “held at least six other directorships within the Group and/or the Restructured Group”[13], but without specifying which companies and when she held a directorship therein.

b.  Pak was a director of the Company from 11 September 2009 to 30 December 2010 and “was a director of at least 4 other entities within the Group and/or the Restructured Group”[14], but without specifying which companies and when he held a directorship therein.

c.  Tong was a director of the Company from 8 October 2004 to 20 December 2010, the company secretary of the Company from 2002 to November 2014 and “was a director or officer of at least 16 other entities in the Group and/or the Restructured Group”[15], but without specifying which companies and when she held a directorship or office therein.

B.6.  Directorship of the other companies which were parties to the transactions in the Re-organization and the Asset Strip?

31.  I note at this juncture that there is no averment in the ASoC as to who the director(s), officer(s) or controlling minds of the other companies involved in the Re-organization and the Asset Strip (namely, Cordoba, HEC Capital, HEC Development, Hennabun (Cook Islands), Freeman Financial Services Limited and HIGL) were at the material times, save it was pleaded that

a.  on 16 April 2012 Pak was appointed a director of HEC Capital[16] ;

b.  “On 16 April 2012, Ms Lo’s nominated director to the board of Cordoba, Ms Wong Oi Lin (“Ms Wong”), became a director of HEC Capital. Ms Wong was also a director of HEC Development and Hennabun (Cook Islands)(both direct shareholders of the Plaintiff) and signed the reorganization agreement on behalf of Hennabun (Cook Islands)”[17].

32.  I would note, in this connection, that the ASoC averred that

“106.6 … the Receivables Assignment involved the assignment of inter-company debts and receivables from the Plaintiff to HIGL. At least 12 Group entities recorded as debtors of or creditors to the Plaintiff at the relevant time have subsequently confirmed through their solicitors that they have no knowledge of the assignment.”

B.7.  Other events pleaded under Section D of the ASoC as part of the fraud

33.  P then pleaded in Section D of the ASoC and grouped under 4 different headings the following events and matters as part of the fraud[18].

34.  Under section D.4 in the ASoC under the heading “Mr Chuang’s offer to settle the dispute on behalf of the Plaintiff”, P averred in gist that

a.  On 28 May 2012 (days after the Asset Strip), Chuang met with Zwaanstra to discuss Penta’s investment in Mascotte. Then on 6 July 2012, Chuang made a written offer to Zwaanstra and referring to a possible rights issue by Mascotte that “I would like to offer to pay you in two years’ time an amount (the “Voluntary Payment”) which represents the future appreciation in the share price of Mascotte calculated on the basis of 500 million shares”;

b.  On 18 July 2012, Zwaanstra replied to Chuang accepting the offer but without prejudice to Penta’s rights against the Company under the Guarantee; and

c.  However, on 24 July 2012, Chuang purported to withdraw the offer by letter and no payment was ever made by Chuang.

35.  Under Section D.5 in the ASoC under the heading “Attempts to resist enforcement of the Guarantee”, P pleaded in gist that :

a.  On 11 September 2012, Penta commenced HCA 1656/2012 against the Company to enforce the Guarantee. The trial took place between 16 and 24 September 2014 in which Liao and Pak gave evidence. On 14 October 2014, the question of liability was held in Penta’s favour and the Court rejected the evidence of Liao and Pak as “completely disingenuous”[19].

b.  On 7 November 2014, the Company lodged an appeal against the judgment.

c.  “Also in November 2014, the Plaintiff was purportedly sold out of the Restructured Group to a Taiwanese buyer, Mr Lee Kuo-Juy. All of the Plaintiff’s books and records were purportedly moved to Taiwan. No explanation has ever been offered for why (a) a third party purchaser would acquire the Plaintiff at the time when it had been stripped of its assets and found to be liable under the Guarantee; or (b) Ms Tong and Mr Pak would continue to act on behalf of the Plaintiff for many years after the sale (as pleaded in paragraph 106.5 below). It is inferred that the sale was a contrived attempt to put relevant documents and information out of the reach of liquidators in the event of the Plaintiff’s winding up.”[20]

d.  On 12 January 2015, the trial of HCA 1656/2012 on quantum took place. On 21 January 2015, judgment[21] was handed down assessing damages in the sum of HK$210,366,448 and awarded interest at 2.5% per annum from 6 February 2012.

e.  On 12 February 2015, the Company appealed against the judgment on quantum and on the next day issued summonses for stay of execution pending the outcome of the appeals, which summonses were dismissed on 16 April 2015[22].

f.  On 18 August 2015[23], the Court of Appeal dismissed the Company’s appeals against liability and quantum. On 11 December 2015, the Company’s application for leave to appeal to the Court of Final Appeal was dismissed[24].

36.  Under Section D.6 in the ASoC under the heading “Attempts to avoid the Plaintiff’s winding up”, P averred in gist that :

a.  On 24 July 2015, Penta issued a statutory demand to the Company based on the judgment debt in HCA 1656/2012 for an amount of HK$235 million odd, which was unmet.

b.  On 6 August 2015, the Company moved its place of registration to the Marshall Islands and purported to move the conduct of its management and business to Taiwan and/or the Marshall Islands in order to void a winding up in Hong Kong.

c.  On 29 August 2015, Penta presented a petition in Hong Kong to wind up the Company, which was opposed on the ground of the move mentioned in (b) above. On 22 February 2016, the Court rejected the grounds of opposition and made a winding up order[25].

d.  On 21 March 2016, the Company appealed against the winding up order which was dismissed by the Court of Appeal on 11 July 2017[26].

e.  In the meantime on 8 July 2016, the Liquidators were appointed.

37.  Under Section D.7 in the ASoC under the heading “Obstruction of the Liquidators’ investigations”, P pleaded that:

a.  The Liquidator’s initial investigations met with a lack of cooperation from “those best place to assist”, such lack of cooperation included:

i.  no books and records were provided;

ii.  the Liquidators were told that the Company never operated from its registered principal place of business and they were escorted out from that place by security guards;

iii.  the Liquidators’ efforts to obtain information and documents from, and interviews with, the Company’s former board members and management (including each of the Defendants) and with its direct and indirect shareholders were met with resistance, obstruction and non-cooperation; and

iv.  the documents produced by Lam&Co in April 2018 and March 2019, claimed to be all the documents, did not include any written instructions from the Company, notes of calls or meetings between personnel of the Company and Lam&Co, internal communications between handling solicitors in Lam&Co; and the narratives in the invoices issued by Lam&Co to the Company obscured the identity of the individual instructing Lam&Co on behalf of the Company.

b.  Only the Company’s former auditors provided some “meaningful assistance”[27].

c.  On 29 June 2018, the Liquidators applied for an order under section 286B of the Companies (Winding up and Miscellaneous Provisions) Ordinance Cap 32 against each of the present 5 Defendants, F Wong, TM Lee, Lam&Co and Mr Andrew Lam (“Lam”) (founder of Lam&Co and a full-time consultant to the Company at the time of the Asset Strip) (“the 286B Application”).

i.  The 286B Application was opposed by the respondents who obstructed and delayed leading to the hearing of the application taking place over 5 days between 11 March and 17 September 2019.

ii.  On 12 May 2021, the Court made production and examination orders against all the respondents (save TM Lee who by then had passed away)[28]. The Defendants did not comply with the production order by providing their affidavits within 21 days; instead, they issued summonses for leave to appeal against the order, extension of time to comply with and/or a stay of execution of the order. These summonses were dismissed[29]. Appeals against their dismissals were also dismissed[30].

iii.  Between 16 June and 28 November 2022, each of the Defendants herein, F Wong and Lam were orally examined (“the 286B Examinations”), during which “each Defendants maintained that they were not the controlling mind and will of the Plaintiff at the time of the Asset Strip and that they did not know who was”[31].

d.  P pleaded that the affidavits ultimately produced by the Defendants herein in purported compliance with the product order were “cursory, incomplete and contained limited new information”[32] and that “It is implausible that those most closely involved with the Plaintiff’s affairs had no understanding of who the ultimate decision makers were”[33].

B.8.  The Company’s corporate governance

38.  This topic is pleaded in Section E of the ASoC. The introductory §100 pleaded thus:

“The fraud pleaded in Section D above was facilitated by the absence of a rigorous, formal and transparent corporate governance structure within the Plaintiff, the Group and the Restructured Group. The failings within the Plaintiff’s corporate governance also provided the platform for Mr Chuang and Ms Lo to exercise control over the Plaintiff’s affairs without holding formal appointments.”

39.  In gist, P pleaded that the Company’s “corporate governance structure was opaque and operated with a high degree of informality”[34] at the time when and after Chuang was a de jure director and the Permanent Managing Director and that such was “to be inferred from” a number of matters including

a.  none of the de jure directors and officers who succeeded Chuang were the ultimate decision maker, the directors claimed not to have performed substantive duties, not remunerated for their directorship, not to have involved in or have knowledge of key events occurring during their tenure, passed resolutions without considering the interest of the Company, while performed roles to which they believed they had not been appointed;

b.  shareholder resolutions were passed in an informal way; and

c.  no written resolutions for key transactions were identified by the Liquidators.

40.  Next, P pleaded “the Group and the Restructured Group operated without strict demarcation between legal entities and formal appointments. This is to be inferred from the following matters”[35] , which included that the corporate records were not kept at the relevant corporate offices, that directors and officers held multiple appointments in various companies in the Group, that they continued to act for entities long after resigning from their formal positions, but decisions were made on behalf of the entities in the Group without the relevant directors’ knowledge or involvement.

41.  These are followed in the ASoC by Section E.3 and E.4 thereof, which as said, respectively pleaded Chuang’s and Lo’s control over the Company.

B.9.  Breaches of duties, conspiracy and dishonest assistance; loss and damage

42.  The duties owed by Chuang and Lo (and other Defendants) to the Company were pleaded in Section C of the ASoC. I would particularly note that it was pleaded that all the Defendants as de jure, de facto and/or shadow directors of the Company owed fiduciary duties to the Company, among other aspects, “to have regard to the interests of creditors if the Plaintiff was (or was about to enter into a transaction or a series of transactions which would cause it to become) insolvent or in a position of doubtful solvency”[36].

43.  P then pleaded (a) in Section F, that both Chuang and Lo (and other Defendants) breached the fiduciary, common law and statutory duties owed to the Company (b) in Section G, that they together with other Defendants and TM Lee conspired to use unlawful means to injure the Company, (c) in Section H, that they assisted in the breach of duty, and (d) in Section I, that the Company thereby suffered loss and damage in the sum of HK$3,766,157,196, being the value of the assets stripped from the Company for no valuable consideration.

C.  CHUANG’S SETTING ASIDE APPLICATION

C.1.  The issuance of the protective writ, the 1^st to 4^th extensions

44.  In December 2017, the Liquidators filed two writs (HCA 2995/2017 and HCA 2996/2017) to preserve potentially valuable claims while their investigations continued. The Liquidators let these 2 unserved writs lapsed. Then, on 9 January 2018, they filed the writ herein which re-stated and added to their claims and added other defendants[37]. The writ herein served as a protective writ and was intentionally not served to any defendants.

45.  The validity of the writ was then extended 3 times, each time for another year by the orders of different Masters upon the ex parte application of P - the first order was made on 31 December 2018 renewing the writ for 12 months from 9 January 2019 (“the 1^st Extension Order”), the second was made on 31 December 2019 renewing the writ for 12 months from 9 January 2020 (“the 2^nd Extension Order”), and the third on 25 January 2021 further renewing the writ for 12 months from 9 January 2021 (“the 3^rd Extension Order”).

46.  About 6 months after the 1^st Extension Order was made, Chuang issued his summons dated 29 July 2019 to set aside the 1^st Extension Order[38] on the grounds stated in the summons that :

“(1) As at 31 December 2018, the Plaintiffs had failed to provide good reasons for the Court to extend the validity of the Writ until 8 January 2020.

(2) The Plaintiffs’ ex parte application for the Order incorporated material falsehoods and/or material non-disclosures concerning the 1^st Defendant”.

47.  That set aside application was dismissed by Deputy High Court Judge Le Pichon (as the learned retired JA then serving as) by her decision handed down on 27 October 2020 ([2020] HKCFI 2746). Her Ladyship rejected all the grounds and contentions advanced by Chuang including that there were abuses of process in different ways and there was material non-disclosure. Her Ladyship also specifically noted that the judgment on the 286B Application was pending and that the resulting document production and oral examinations might hopefully provide insight into who was responsible for orchestrating the Asset Strip, their commercial purposes and who ultimately received the benefit of those transactions.

48.  Chuang’s application for leave to appeal was readily dismissed by Her Ladyship on 30 March 2021 ([2021] HKCFI 854). The renewed application for leave to appeal was also dismissed by the Court of Appeal on 4 August 2021 ([2021] 4 HKLRD 69).

49.  Between the time of the handing down of the decision of DHCJ Le Pichon and the said CA decision, the 3^rd Extension Order was applied for and granted on 25 January 2021; and Recorder Jason Pow SC handed down his judgment on 12 May 2021 granting the 286B Application.

50.  However and as mentioned, the 286B Examinations only took place over a year later between 16 June and 28 November 2022.

51.  On 13 January 2022 and upon P’s ex parte application, Master Phoebe Man ordered that the validity of the writ herein be renewed for another 12 months from 9 January 2022 (“the 4^th Extension Order”).

52.  On 3 January 2023, the writ herein was served on Chuang. On 8 May 2023, the SoC was filed.

C.2.  Dismissing Chuang’s Setting Aside Application

53.  Chuang now seeks to set aside the 4^th Extension Order on the sole ground that “the Plaintiffs had failed to provide good reasons in support of their 6 January 2022 ex parte application”[39] .

54.  It is trite and not disputed that in deciding whether to exercise the discretionary power under Order 6 rule 8(2) of the Rules of the High Court to extend the validity of a writ, the Court should adopt a 2-stage approach. At stage 1, the Court must be satisfied that there is good reason to extend time; if this stage is passed, then at stage 2, the Court exercises its discretion considering all relevant circumstances, including prejudice and hardship (§6/8/3 Hong Kong Civil Procedure 2025, the CA decision [2021] 4 HKLRD 69 at §17).

55.  As noted, DHCJ Le Pichon and the CA had already rejected all the contentions then advanced by Chuang arguing that there was no “good reason” to renew the validity of the writ herein and held that there was “good reason”, one of which was to give the Liquidators time to conduct the 286B Examinations.

56.  At the time the 4^th Extension Order was applied for in January 2022, the 286B Examinations had yet to take place. Thus, it is evident to me that at the time, the holdings of DHCJ Le Pichon and the CA that there was “good reason” were still very much pertinent and controlling.

57.  Mr Barlow SC (leading Mr Chan), senior counsel for Chuang, challenged that there was no “good reason” relying on but one rather interesting contention.

58.  It was argued that reading from various parts of the 8^th Affidavit of John Howard Batchelor filed in support of the application for the 4^th Extension Order (“Batchelor 8^th”) (namely part of §§208.3, 208.4, 208.5, 210, 212 and 238) [40], the Liquidators were to be taken as having made “the Liquidators’ Ex Parte Assurances :

“Batcherlor 8^th … thereby assur[ed] the ex parte Master in respect inter alia of D1 that, once the Liquidators’ investigations were completed, they would not serve or pursue fraud claims against [D1] unless they were known to be viable, capable of being particularised and supported by evidence (the “Liquidators’ Ex Parte Assurances”)”[41] (all original emphasis).

59.  It was then submitted[42] that “following the service on D1 of the Writ and (more particularly) the SoC, it became apparent that the Liquidators’ Ex Parte Assurances were false”, and thus, the reasons advanced to Master Phoebe Man which she relied upon “were not genuine (or bona fide) good reason” and “the true position” ought to have been made aware to the Master at the time or later on upon the Liquidators’ continuous duty to make full and frank disclosure. Thus, it was contended that, pursuant to O.32 r.6, the ex parte 4^th Extension Order should be set aside.

60.  Reading fairly and reasonably the parts of Batchelor 8^th so relied on by Chuang, Mr Batchelor was essentially saying on behalf of the Liquidators, and all that were said were, that the grounds relied on were the same as those relied on in support of the last extension application, that they acknowledged that serious allegations were involved such that they were concerned to avoid moving forward precipitously, that they were not yet in a position to assess whether the potential claims were viable and whether they would be pursued in any event and that the most viable remaining avenue for them to further their understanding was through the 286B Examinations which had not taken place.

61.  Thus, I do not find that the Liquidators had made the so-called Liquidators’ Ex Parte Assurances, and, with respect, am unable to accept the assertion that such had been made. I would also mention that while it was accused barely that the reasons advanced by the Liquidators to Master Phoebe Man were “not genuine (or bona fide)”, Chuang in his written submissions did not point to any evidence or matter substantiating his accusation save maintaining his stance that P had no viable claims. I therefore do not think the accusation was justified.

62.  Moreover, and in any case, the claim that the so-called Liquidators’ Ex Parte Assurances were “false” was implicitly premised on the fact that Chuang’s stance that the Liquidators in fact had no viable claims against him was “true” in the sense that it has been firmly established. Such a stance by its nature is a conclusion, and not any “truth”, and is one that is presently much disputed in this action. There is simply no basis for Chuang to assert that the Liquidators should have accepted or must accept this “truth” (essentially conceding and discontinuing P’s claims against Chuang) or to assert that the Liquidators were under a duty to inform the Court “this truth” pursuant to the Liquidators’ duty to continuously make full and frank disclosure (even for argument’s sake that such duty is assumed to exist).

63.  In the premises, Chuang’s ground to set aside is wholly without substance or merits and his Setting Aside Application is accordingly dismissed.

D.  LEGAL PRINCIPLES RELEVANT TO THE STRIKING OUT APPLICATIONS

D.1.  General principles on striking out

64.  The general principles on striking out are trite and not disputed and need not be rehearsed here.

65.  One aspect though Mr Yu SC (leading Mr Lam), senior counsel for Lo, particularly drew attention to, and not disputed by Mr Bartlett, was that while usually on a striking out application on the basis of no reasonable cause of action, the factual allegations in the pleading in question would be taken as true, however, when it is shown to be plain and obvious that the plaintiff’s case has no factual basis, the power to strike out can be exercised, as held by G Lam J (as the learned JA then was) in Lam Kit Sing v Chungshan Commercial Association, Hong Kong (HCA 2011/2014, unrep., 29 June 2016) :

“18. Ms Catrina Lam, who has appeared with Mr Martin Ho on behalf of the plaintiff, argued that on a strike-out application, the factual allegations in the pleading in question must all be taken as true. While that may be the proper approach in most applications, Ms Lam’s proposition is in my view too widely stated. There are authorities that show that the court’s power to strike out a pleading can be exercised where it is plain and obvious that the plaintiff’s case has no factual basis: Oh Jae-Hoon, Eugene v Richdale [2004] 4 HKC 315, at paragraph 15, or has no “solid basis capable of proof” and is a “myth” with “no substantial foundation”, per Lord Herschell in Lawrence v Lord Norreys (1890) 15 App Cas 210, 220, or presents “a tissue of improbabilities which ought not to be sent to proof”, per Lord Watson at page 222; see also Overseas Trust Bank v Coopers & Lybrand [1990] 1 HKLR 568 at 583. Thus if a plaintiff pleads as a fact something which can clearly be shown to be incontrovertibly false, then on an application to strike out on that basis the court is not bound to accept the allegation as true and to proceed on a fictional basis.”

D.2.  Pleading fraud claims and inferences

66.  Mr Barlow placed great emphasis on the following trite principles:

a.  Allegations of fraud must be pleaded distinctly and with the utmost particularity. He cited the following passages by Lord Millett in Three Rivers DC v. Bank of England (No 3) [2003] 2 AC 1 (§§184 to 186) :

“184. It is well established that fraud or dishonesty … must be distinctly alleged and as distinctly proved; that it must be sufficiently particularised; and that it is not sufficiently particularised if the facts pleaded are consistent with innocence: see Kerr on Fraud and Mistake 7^th ed (1952), p 644; Davy v. Garrett (1878) 7 Ch D 473, 489; Bullivant v. Attorney General for Victoria [1901] AC 196; Armitage v. Nurse [1998] Ch 241, 256. This means that a plaintiff who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest and not merely negligent, and that facts, matters and circumstances which are consistent with negligence do not do so.

185. It is important to appreciate that there are two principles in play. The first is a matter of pleading. The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him. If the pleader means “dishonestly” or “fraudulently”, it may not be enough to say “wilfully” or “recklessly”. Such language is equivocal. ……

186. The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient. This is only partly a matter of pleading. It is also a matter of substance. As I have said, the defendant is entitled to know the case he has to meet. But since dishonesty is usually a matter of inference from primary facts, this involves knowing not only that he is alleged to have acted dishonestly, but also the primary facts which will be relied upon at trial to justify the inference. At trial the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in a case of fraud. It is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with honesty. There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved.” (emphasis by Mr Barlow);

b.  A party should not be permitted to plead a vague and unparticularized case of fraud in the hope of making it good after discovery (Hong Kong Civil Procedure 2025 §18/8/19); and

c.  It is well established that the court will not allow allegations of fraud to be made without proper evidence and if they are made irresponsibly, the court will exercise its inherent jurisdiction to strike out the same (Hong Kong Civil Procedure 2025 §18/8/19).

67.  Mr Barlow also cited Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 (§§185-187, 230 and 233 to 234) to remind that to establish fraud (and it was forgery in that case) it is not enough merely to raise “suspicious circumstances”, rather, any inference of fraud or dishonesty must be properly grounded in, and justified by, primary facts.

68.  Mr Bartlett did not dispute these principles. He readily accepted that where dishonesty is a matter of inference from primary facts, Chuang and Lo are entitled to know the primary facts which would be relied on to justify the inference.

69.  Mr Bartlett drew particular attention to:

a.  The fact that direct evidence of fraud is relatively rare and fraud claims are often pleaded and proved in reliance on inferences. He cited the following observations by Mimmie Chan J in Guangdong Shunde Zhanwei Trading Ltd v Sun Fung Timber Co Ltd [2022] 1 HKLRD 441 at§§39-40:

“39. GD has emphasized, and I accept, that claims of fraud must be proved by cogent evidence and that inferences of dishonesty must be found in primary facts. However,the courts do not lose sight of the fact that direct evidence of fraud is relatively rare, and that fraudsters would be skilled at hiding their tracks.As Arden LJ observed at [89] of her judgment in Dadourian Group International Inc v Paul Francis Simms, Jack Dadourian, Helga Dadourian [2009] EWCA Civ 169:

‘Fraudsters rarely sit down and reduce their dishonest agreement to writing. Frauds are commonly proved on the basis of inviting the fact-finder to draw proper inferences from the primary facts.’”

40. The learned editors of Grant QC and Mumford QC, Civil Fraud: Law Practice & Procedure also stated at para.34-072:

‘In proving fraud or dishonesty, it is usually necessary to persuade the court to draw inferences from primary facts; direct evidence of fraud is relatively rare. The requirement for a claimant in proving fraud is that the primary facts proved give rise to an inference of dishonesty or fraud which is more probable than an innocent explanation.It is important to have in mind that it is of the essence of establishing a case based on inference from circumstantial evidence that the whole is greater than the individual parts: an allegation of (for example) a dishonest state of mind can therefore be made out by inference from an accumulation of primary facts, none of which on their own would prove the allegation to the requisite standard.’”

(emphasis by Mr Bartlett)

b.  When considering challenges to allegations of dishonesty based on inferences, the law is not that the pleaded particulars of primary facts need to be in themselves consistent only with an inference of dishonest and fraud, rather, it would be sufficient if on the basis of those pleaded primary facts, an inference of dishonesty is more likely than one of innocence or negligence; and the Court in considering whether to strike out is not concerned with whether the evidence at trial will or will not establish fraud but only with whether facts are pleaded which would justify the plea of fraud (JSC Bank of Moscow v Kekhman [2015] EWHC 3073 (Comm) at §20; and Polyline Development Ltd v Ching Lin Chuen[2021] HKCFI 483, Recorder Manzoni SC at §63);

c.  “If circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought, in a civil case decided on the balance of probabilities it does not matter that the conclusion falls short of certainty, and that conclusion is not to be regarded as mere conjecture or surmise” (per Coleman J in Cyberworks Audio Video Technology Limited v Mei Ah (HK) Co Ltd[2020] HKCFI 398 at §96);

d.  The observations made by Keith Yeung J in Delco Participation B.V. v HWH Holdings Limited[2019] HKCFI 2923:

“40. Underpinning the reasons for those rules [ie that allegations of fraud must be pleaded distinctly and with the utmost particularity] are in my view the notion of fairness and justice:

(a) In Aktieselskabet, immediately after setting out those rules, Bokhary JA explained at p 270F that:

‘None of the basic rules of pleading have anything to do with technicality. All of them have everything to do with practical justice.’ (Emphasis added, same in this paragraph below.)

(b) In Deak Perera Far East Ltd v Deak & Ors [1995] 2 HKC 28, Mortimer JA observed at p 38A to C that:

‘It is well settled that fraud must only be pleaded when there is sufficient evidence. It must then be pleaded specifically and the party must give full particulars of the case upon which it relies. If he fails to particularise his case in his original pleading, he will be ordered to do so before discovery. This is so even in cases such as this where some of the facts are known only to the other party.

The principle is that it is not just to permit a party to raise a vague unparticularised case on the pleadings in the hope of making it good after discovery. Equally, if a party has evidence of fraud and he gives sufficient particulars, justice requires that he be allowed to proceed even if his case is augmented after discovery.’

(c) …

(d) As explained by Lord Millett in Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1, the purpose of the “special rule” under discussion is to give the opposite party sufficient notice of the case he has to meet:

…

(e) …

41. This notion of fairness and justice has relevance when it comes to considering the “sufficiency” of the particulars that have been pleaded:

(a) Whilst superlatives like “utmost” and “full” have been used, the main consideration remains the “sufficiency” of the particulars provided (see also the authorities discussed above);

(b) The concept of “sufficiency” comes into play when one considers whether sufficient particulars have been provided so that the opposite party has sufficient notice of the case he has to meet — see eg Three Rivers;

(c) The concept of “sufficiency” comes further into play when deciding whether sufficient particulars have been provided so that the party pleading fraud “be allowed to proceed even if his case is augmented after discover” — see Deak Perera per Mortimer JA;

(d) It may be noted that the nature of fraud being what it is, and secrecy being the badge of fraud, the party alleging and seeking to prove fraud might not be in the position to provide full particulars at the pleading stage, pending discovery, so as to satisfy in full the “special rule”. However, if sufficient particulars have been provided in the pleadings so as to give the opposite party sufficient notice of the case it has to meet, the alleging party may as a matter of fairness and justice be allowed to proceed to discovery so as to augment his case. As observed by Bowen LJ in Leitch v Abbott (1886) LR 31 Ch D 374 (at pp 378‑379):

‘Ought, then, the generality of an allegation of fraud to be a bar to the right to discovery? It seems to me that the very fact that the pleader is unable to plead except in general terms, is in many cases the very reason why he should have discovery from the other party, so as to enable him to plead the fraud in detail. If at a particular stage of an action you are stopped by reason of your ignorance of some fact which is known only to the other party, that is the very reason why you should have discovery of that fact from him, and what difference does it make whether you are stopped at the trial or before?’

(e) Deak Perera and Leitch v Abbott were both considered by the Court of Appeal in Haifa International Finance Co Ltd v Concord Strategic Investments Ltd [2009] 4 HKLRD 29 at §§17 and 18. The correctness of those cases have not been doubted. In Haifa, the plaintiff’s claim based on fraud which lacked particulars was struck out without the opportunity of going for discovery and interrogatory because the plaintiff had failed to provide even the threshold level of particularity. As held by Cheung JA at §23 and §24:

‘23. In my view the plaintiff has not even reached the stage where it can be said that it has sufficiently pleaded a general case of fraud and it is merely the particulars that are lacking and allowance should be given to it to flesh out the details later on…

24. In my view the plaintiff has not satisfied the threshold that the law requires for pleading when it seeks to pursue a case of fraud against the first defendant.”

(f) Beyond the seriousness of the charge, there is in fact nothing magical in the word “fraud”. Every set of pleadings will have to be looked at on a case by case basis with the notions of fairness, justice and sufficiency in mind so as to decide whether F&BPs should be ordered, or whether the accuser has sufficiently pleaded a “general case of fraud” so as to be permitted to flesh out the details later on;

(g) …”

70.  Mr Bartlett also prayed in aid as apt here the observations made and the approach adopted by Sales J (as he then was) in the competition case of Nokia Corp v AU Optronics [2012] EWHC 731 (Ch) in which the learned judge held that a “measure of generosity” should be allowed in favour of the claimant. In that case, Nokia only pleaded very limited but best particulars known to it and was unable to specify precisely the nature, content, details and implementations regarding the secretive anti-competitive agreements or concerted practices of the defendants in view of the secret and complex nature of such arrangements. In refusing to strike out the pleaded claims against D12 and D22 as disclosing no reasonable cause of action, Sales J observed and reasoned:

“62. In a case involving an allegation that a secret cartel has operated in breach of Article 101 there is an inevitable tension in domestic procedural law between the impulse to ensure that claims are fully and clearly pleaded so that a defendant can know with some exactitude what case he has to meet (and also so that disclosure obligations can be fully understood, expert witnesses given clear instructions and so on), on the one hand, and on the other the impulse to ensure that justice is done and a claimant is not prevented by overly strict and demanding rules of pleading from introducing a claim which may prove to be properly made out at trial, but which will be shut out by the law of limitation if the claimant is to be forced to wait until he has full particulars before launching a claim. …

…

67. In my judgement, the availability of such procedural protections for a defendant to ensure that a claim is fully and properly explained in good time before trial (as against the possible loss to a claimant of an entire, potentially meritorious claim), indicates that in resolving the tension referred to above and determining whether a cause of action has been sufficiently pleaded it a statement of case (particularly in the claim form and/or the particulars of claim when an action is commenced), the balance is to be struct by allowing a measure of generosity in favour of the claimant. Such an approach is appropriate and in the overall interests of justice and the overriding objectives set out in CPR Part 1.1. It is an approach supported by the authorities cited above.”

D.3.  Pleading de facto and shadow directorship

71.  Mr Bartlett and Mr Yu have addressed this Court rather extensively on the law in determining whether one is or is not a de facto director or shadow director, so has Mr Barlow to an extent who also adopted the address by Mr Yu.

72.  The classic starting point would be the judgment of Millett J (as he then was) in Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180 (at p.183a to 183e). Since then, there have been a number of decisions on the topic. A helpful summary was given by Coleman J in Cyberworks Audio Video Technology Ltd v Mei Ah (HK) Co Ltd[2020] HKCFI 398 at §§53 and 56, which I gratefully quote:

“53. Hence, directors may be of three kinds: (1) de jure directors, being directors who have been validly appointed to the office of director; (2) de facto directors, being persons who assume to act as directors without having been appointed validly or at all; and (3) shadow directors, being persons in accordance with whose directions or instructions the directors of the company, or a majority of them, are accustomed to act.

54. These classes or types of directorship are recognised because the law requires that persons who act as directors and who thereby exercise the powers and discharge the functions of a director, whether validly appointed or not, must accept the responsibilities which are attached to the office.

55. In Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180 at 183, Millet J usefully gave descriptions of de facto and shadow directors, and the differences between them. Those “influential” descriptions have been considered and slightly revised in numerous subsequent cases, including Re Gemma Ltd (in liq) [2008] BCC 308; HMRC v Holland [2010] 1 WLR 2793; Re Mumtaz Properties Ltd [2011] EWCA 610; McKillen v Mislad (Cyprus) Investments Ltd (Coroin Limited) [2012] EWHC 521 (Ch); Smithton v Naggar [2014] 1 BCLC 602; and Elsworth Ethanol Co Ltd Hartley [2015] 1 BCLC 221 – many of which were considered and applied by DHCJ Handsworth in Karla Otto Ltd v Bulent Eren Bayram [2017] 2 HKLRD 124.

56. My own summary of the principles is as follows:

(1) The essence of deciding whether a person has acted as a de facto or shadow director is to consider whether that person has acted in such a way that he is to be taken to have assumed – and for the Court to impose on him – a director’s duties and responsibilities in relation to the subject company.

(2) Each case gives rise to a question of fact and degree, where all relevant factors must be taken into account and looked at in their context. It is the cumulative effect of all relevant factors that guides the Court. But those who assume to act as directors and who thereby exercise the powers and discharge the functions of a director must accept the responsibilities of the office, whether they are validly appointed or not, and whether they claim to be a director or claim not to be.

(3) In order to make a person liable for misfeasance as a de facto director, it must be shown that the person was part of the corporate governing structure, namely the system by which the subject company’s business is directed and controlled, and that he assumed a role sufficient to impose on him a fiduciary duty to the company. That may require the Court to consider the company’s business and whether the person’s acts were directorial in nature.

(4) Often, a de facto director is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such. Though that is not a necessary feature, it may be weighty evidence in support of the conclusion that a person acted as a director in fact. So might the evidence that third parties considered that he was a director. The Court will not focus on what the person was called by the company or by himself, or (by extension) what others called him, but instead the Court will look to see what he actually did. The Court will consider if he was the sole person directing the affairs of the company, or acting on at least an equal footing with others in directing its affairs, whether those others were validly appointed or not.

(5) It is not sufficient to show that the person was concerned in the management of the company’s affairs, or undertook tasks in relation to its business, which can properly be performed by a manager below board level. Rather, it is necessary to plead and prove that the person undertook functions in relation to the company which could properly be discharged only by a director. That is because it is only the exercise of such functions which give rise to the corresponding duties and responsibilities. If it is unclear whether the acts of the person are referable to an assumed directorship or to some other capacity, and so long as the Court does not strain the facts on this question, the person is entitled to the benefit of the doubt.

(6) The definition of shadow director is to be construed to give effect to the legislative intention ascertainable from the words used, and the mischief aimed at, where the purpose of the legislation is to identify those (other than professional advisers) with real influence in the corporate affairs of the company. It is, however, not necessary that such influence should be exercised over the whole range of the company’s corporate activities which are decided by the board.

(7) To establish that a person is a shadow director of a company, it is necessary to allege and prove: (1) who are the directors of the company whether de jure or de facto; (2) that the person directed or instructed those directors how to act in relation to the particular sphere of activity of the company relevant to the enquiry, or that he was one of the persons who did so; (3) that those directors, or a majority of them, acted in accordance with such directions; and (4) that they were accustomed so to act, in a pattern of behaviour in which the board, or a majority of its members, did not exercise any discretion or judgment of its own but acted in accordance with the directions of others. A shadow director is a puppet master pulling the strings of the true directors who are his puppets or stooges.

(8) For a person to be taken as a shadow director, it is not necessary that all the true directors should act in accordance with the directions of the shadow director; it is enough that a majority do so. It is also sufficient to show that the properly appointed directors, or a majority of them, cast themselves in a subservient role or surrendered their respective discretions in the face of directions or instructions from the alleged shadow director.

(9) The concepts of de facto and shadow directorships are primarily separate and distinct, and in many (perhaps most) cases will be mutually exclusive. For example, in many cases the de facto director holds himself out as a director, even though not validly appointed, whilst the shadow director usually claims not to be a director at all and, as the very name suggests, lurks in the shadows. But recent authorities acknowledge that there may be some erosion in the distinction. Considering the extent of the erosion is unlikely to be helpful. Rather, the focus should always be on the relevant factors taken as a whole and on the question whether the individual has acted in such a way as triggers a director’s duties and responsibilities owed to the subject company.

(10) Acts outside the period when the person is said to have been a de facto or shadow director may throw light on whether he was a de facto or shadow director in the relevant period.”

73.  I take note that Coleman J began his above summary with the observations that each case gives rise to a question of fact and degree, where all relevant factors must be taken into account and looked at in their context, and it is the cumulative effect of all relevant factors that guides the Court. Regarding de facto directorship, high authorities had expressly stated that circumstances vary widely from case to case and had declined to formulate a single decisive test, as said by Lord Hope of Craighead in HMRC v Holland [2010] 1 WLR 2793 at §39 after reviewing the authorities, thus:

“39. … It is plain from the authorities that the circumstances vary widely from case to case. Jacob J declined to formulate a single decisive test in Secretary of State for Trade and Industry v Tjolle [1998] 1 BCLC 333, as he saw the question very much as one of fact and degree. He was commended by Robert Walker LJ in Re Kaytech International plc [1999] 2 BCLC 351, 423 for not doing so, and I respectfully agree that there is much force in Jacob J's observation. All one can say, as a generality, is that all the relevant factors must be taken into account. But it is possible to obtain some guidance by looking at the purpose of the section. As Millett J said in Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180, 182, the liability is imposed on those who were in a position to prevent damage to creditors by taking proper steps to protect their interests. As he put it, those who assume to act as directors and who thereby exercise the powers and discharge the functions of a director, whether validly appointed or not, must accept the responsibilities of the office. So one must look at what the person actually did to see whether he assumed those responsibilities in relation to the subject company.”

D.4.  Pleading conspiracy to injure by unlawful means

74.  The elements to be pleaded in such a claim have been examined and summarized by Q Au-Yeung J in Chan Wai Keung Lawrence v Au Chi Man Albert[2021] HKCFI 2096:

“25. Four elements must be pleaded to sustain a case of conspiracy: Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537, per Ma CJHC (as he then was) at §17:

(1) The agreement between two or more persons. The means of carrying out the agreement, whether lawful or unlawful, must be set out.

(2) The intention to injure the plaintiff, whether predominant (in the case of a lawful means conspiracy) or merely an intention to injure (in the case of an unlawful means conspiracy).

(3) The acts that were carried out pursuant to the agreement and the stated intention.

(4) The damage caused to the plaintiff.

26. In relation to the 1^st element, conspiracies are usually concealed, so the existence of an agreed mechanism can only be inferred from overt acts. Nevertheless, the formulation of a party’s cause of action should clearly and cogently be made in the pleadings. It should not be left to an exercise of drawing inferences: Pido v Compass Technology, §25.

27. In relation to the 2nd element, intention to injure must be pleaded. Although intention could be a matter of inference, the facts and circumstances must be examined to see what inferences could be drawn. Jackson Xu Zhao Ze v Tsai Tim Yuen, CACV 117/2013, 10 April 2014, §5.

28. In JSC BTA Bank v Ablyazov (No. 14) [2020] AC 727, §6, Lord Sumption and Lord Lloyd-Jones JJSC stressed that the 4 established economic torts have been carefully defined to avoid “trespassing on legitimate business activities or imposing any wider liability than can be justified in principle”. In respect of lawful means conspiracy, a distinction is drawn between deliberately injuring the plaintiff in the “absence of just cause” or “legitimate interest”, and exercising of a right to advance one’s own interest by lawful means albeit the foreseeable consequence of which is to damage the interest of others:

‘10. What is it that makes the conspiracy actionable as such? To say that a predominant purpose of injuring the claimant in the one case and the use of unlawful means in the other supply the element of unlawfulness required to make a conspiracy tortious simply restates the proposition in other words. A more useful concept is the absence of just cause or excuse, … A person has a right to advance his own interests by lawful means even if the foreseeable consequence is to damage the interests of others. The existence of that right affords a just cause or excuse. Where, on the other hand, he seeks to advance his interests by unlawful means he has no such right. The position is the same way and the means used are lawful but the predominant intention of the defendant was to injure the claimant rather than to further some legitimate interest of his own. This is because in that case it cannot be an answer to say that he was simply exercising a legal right. He had no interest recognised by the law in exercising his legal right for the predominant purpose not of advancing his own interests but of injuring the claimant. In either case, there is no just cause or excuse for the combination.’ (underline added)

29. In relation to the 3rd element, the gist of the tort of conspiracy is not the conspiratorial agreement alone, but that agreement plus the overt act causing damage. An overt act is one which shows that the conspiratorial agreement has already been made. Allegations of knowledge, common purpose and intention (which are not acts) cannot alter the lack of a proper plea of overt act with the aforesaid characteristics. Such allegations also have to be viewed with some caution, because, when the mass of particulars pertaining to them are examined, it can be seen that they involve piling one layer of inference on top of another in order to obtain the end product. See Jackson Xu Zhao Ze, HCA 902/2011, 22 May 2013, §§12-13, DHCJ Winnie Tam SC, following Aktieselskabet Dansk Skinsfinansiering v Wheelock Marden & Co. Ltd [1994] 2 HKC 264, 272C-G, 273B-C.

30. … dishonesty is not an element of lawful means conspiracy …

31. The origins of all conspiracies are concealed and it is usually quite impossible to establish when or where the initial agreement was made, or when or where other conspirators were recruited. It is not necessary that every overt act is done by every conspirator, but the act must be done pursuant to the conspiracy. Nor is it necessary for the conspirators to join the conspiracy at the same time, but the parties to it must be sufficiently aware of the surrounding circumstances and share the same object for it properly to be said that they were acting in concert at the time of the act complained of. In most cases, it will be necessary to scrutinise the acts relied upon in order to see what inferences can be drawn as to the existence or otherwise of the alleged conspiracy. Pak Win Investment Ltd v Chung Yuet Sheung Lorrain (unrep, HCA 419/2011, 9 February 2012), at §15, DHCJ Au-Yeung (as she then was), following Kuwait Oil Tanker Co SAK v Al Bader [2000] 2 All ER (Comm) 271 (CA). Pak Win was a case on unlawful means conspiracy but the principle should equally apply.

32. The pleader has to plead at least one overt act which is the act of all the alleged conspirators or, failing that, a number of overt acts which include at least one act on the part of each conspirator. If the pleader fails to do that, the plea is liable to be struck out altogether or as against some or one of the defendants. See ADS v Wheelock Marden, p272B-D, Bokhary JA (as he then was).

33. In reality, conspiracy is by its nature clandestine and difficult to uncover, so quite often proof is not readily obtained. Hence, the averments of conspiracy cannot be too precise. In an application to strike out a conspiracy claim, the court will look upon such an application with care, but at the same time bear in mind that those allegations that are not properly particularized will be oppressive to the defendant when the case goes to trial. The broad question for the court is whether, from the pleaded facts, it can be argued that the defendant sufficiently knows the plaintiff’s case on the conspiracy that they have to meet. See Chan Shu Chun and anor v Dr Kung Yan Sum & Ors (unrep, HCA 832/2014, 18 May 2017), DHCJ Marlene Ng (as she then was), at §107.

C4. Reliance on inference

34. Inferences are matters of evidence and cannot substitute material facts in pleading. Speculations and conjectures are impermissible in pleadings as the bases upon which inferences are invited to be drawn: Jackson Xu Zhao Ze (CA), §3.11.”

75.  Moreover, the “agreement” in this context is to be understood loosely:

a.  “It is not necessary to show is anything in the nature of an expressed agreement, whether formal or informal. It is sufficient if two or more persons combined with a common intention, or in other words, that they deliberately combine, albeit tacitly, to achieve a common end.” (Kuwait Oil Tanker [2000] 2 All ER (Comm) 271, at §111)

b.  “ … the word ‘agreement’ in this context does not mean an agreement in any contractual sense but a combination and common intention to do the act which is the object of the alleged conspiracy”. (Belmont Finance Corp v William Furniture (No. 2) [1980] All ER 393 at p.404, per Buckley LJ)

E.  THE PROPOSED GREEN AMENDMENTS

76.  On the first day of the hearing, P provided a draft summons, which was not yet filed, seeking leave to amend the ASoC per the draft attached to make amendments to §§97, 108, 110, 111, 115, 117 and 119 and to add new §§108.6A, 111.5A, 115A, 115B, 117A and 117B (“the Proposed Green Amendments”). In the course of the hearing, P further provided another revised draft proposing further revisions to the Proposed Green Amendments (marked with yellow markers) in §§108, 110, 115, 115A, 117A (“the Yellow Green Version”).

77.  Mr Yu and Mr Barlow’s position was that both the Proposed Green Amendments and the Yellow Green Version at best introduced better wordings or expressions but did not plead any additional relevant primary facts and thus did not assist P; and if any amendments therein were to be adjudged would cure or help cure P’s pleaded case, there should be adverse costs consequences to P which they would seek to argue in due course.

F.  CHUANG’S APPLICATION TO STRIKE OUT

F.1.  The Asset Strip was not unlawful?

78.  Mr Barlow first made the point that “unless ‘insolvent or in [known] serious financial difficulties’ a company is lawfully entitled to distribute its assets to its shareholders”[43], citing Tradepower (Holdings) Ltd v Tradepower (Hong Kong) Ltd (2009) 12 HKCFAR 417 Ribero PJ at §128. He further referred to Article 117 of the Company’s Articles of Association[44] (which provided that “Subject to Law, the Company in general meeting may from time to time declare dividends in any currency to be paid to the Members …”) to show that such power was reserved to the Company’s shareholders in general meeting.

79.  As I understood it, the point he made was that according to the financial information of the Company pleaded in the ASoC (see §20 above), the Company had very substantial assets as on 31 March 2012, and there was nothing pleaded in the ASoC that said that the Company was insolvent at the time of the Asset Strip, therefore P has not pleaded a case substantiating that the Asset Strip was unlawful.

80.  With respect, I do not think Ribeiro PJ held in Tradepower that the overriding interests of creditors arise only when the company “is insolvent or in serious financial difficulties”. I will quote what the learned PJ said in §§128 to 131 there:

“G.2 The overriding interests of creditors

128. The second reason for holding that ratification of the disposition is ineffective as a defence for the directors is again premised on Holdings being or becoming insolvent when or upon making the gift of the THK shares to Girvan. The overriding importance accorded by the modern law to creditors’ interests in such circumstances is now recognized. A ratifying resolution by a company’s members which would be capable of validating directors’ actions where the company remains perfectly solvent is ineffective where it is insolvent or in serious financial difficulties and where the effect of the directors’ action would be to prejudice its creditors.

129. The decision of Street CJ in Kinsela v Russell Kinsela Pty Ltd (in liquidation),[141] has been highly influential in this context. His Honour stated:

‘In a solvent company the proprietary interests of the shareholders entitle them as a general body to be regarded as the company when questions of the duty of directors arise. If, as a general body, they authorise or ratify a particular action of the directors, there can be no challenge to the validity of what the directors have done. But where a company is insolvent the interests of the creditors intrude. They become prospectively entitled, through the mechanism of liquidation, to displace the power of the shareholders and directors to deal with the company’s assets. It is in a practical sense their assets and not the shareholders’ assets that, through the medium of the company, are under the management of the directors pending either liquidation, return to solvency, or the imposition of some alternative administration.’

130. This principle was adopted by the English Court of Appeal in West Mercia Safetywear v Dodd[142] and by Sir Richard Scott VC (as Lord Scott of Foscote then was) in Facia Footwear Ltd v Hinchliffe,[143] where his Lordship noted developments of the law in this direction in the earlier Australian case of Walker v Wimborne,[144] and in New Zealand in Nicholson v Permakraft (NZ) Ltd,[145] where Cooke J (as he then was) stated:

‘On the facts of particular cases this may require the directors to consider inter alia the interests of creditors. For instance creditors are entitled to consideration, in my opinion, if the company is insolvent, or near insolvent, or of doubtful solvency, or if a contemplated payment or other course of action would jeopardise its solvency.’

131. As Chadwick LJ pointed out in MacPherson v European Strategic Bureau,[146] it is not open to the members and directors of a company in financial difficulties to distribute the company’s assets as if effecting an informal winding-up, to the prejudice of its creditors:

‘In my view, to enter into an arrangement which seeks to achieve a distribution of assets, as if on a winding up, without making proper provision for creditors is, itself, a breach of the duties which directors owe to the company; alternatively, it is ultra vires the company. It is an attempt to circumvent the protection which the Companies Act 1985 aims to provide for those who give credit to a business carried on, with the benefit of limited liability, through the vehicle of a company incorporated under that Act.’” (my emphasis)

81.  It thus seems to me rather clear on the facts of the Tradepower case and from reading the highlighted parts of the judgment and the quotations cited with approval by the learned PJ that the overriding interests of creditors would kick in when a company is in near or doubtful insolvency or where the contemplated action or transaction would jeopardize its solvency to the prejudice of the creditors.

82.  Mr Bartlett also referred to the observations made by Coleman J in §66 of Cyberworks (supra) :

“66. At the point in time when a company is insolvent or nears insolvency or is in doubtful solvency, or if a contemplated payment or course of action would jeopardise its solvency, the interests of the creditors ‘intrude’ on the directors’ duties, and will require the directors to take into account those interests. This may be termed the “creditors’ interests duty”. This arises because creditors become prospectively entitled through a liquidation to displace the power of the shareholders and the directors so as to deal with the company’s assets. The underlying principle is that directors are not free to take action which create a real, as opposed to remote, risk to the creditors’ prospects of being paid, without first having considered their interests rather than just those of the company and its shareholders. However, that does not give rise to any duty on the part of the directors owed directly to the creditors. Rather, the directors will owe a duty to the company to take care to protect the interests of creditors: see Geraghty, Sinclair & Snowden ‘Company Directors: Law and Liability’ at §6.122.” (my emphasis)

83.  In any case, this is a striking out application such that I do not need to make any firm holding on the contention beyond whether it is plain and obvious. Therefore, it suffices for me to hold, which I do, that it is far from plain and obvious that Mr Barlow’s above contention that the Asset Strip was not unlawful would inevitably prevail such as to justify a striking-out.

F.2.  Sufficient matters pleaded justifying the allegation that the Asset Strip involved a breach of duty and was dishonest

84.  In gist, P’s pleaded case included averments, among others, that Penta had a strong case against the Company to enforce the Guarantee against it, that the defence subsequently raised by the Company was unarguable and was raised to delay, that the Re-organization and the Asset Strip took place in a very compact timeframe shortly after Penta made its formal demand to the Company to honour the Guarantee, that there was no commercial rationale for the Re-organization, but that the Re-organization apparently was stated to be the reason for the Asset Strip, the Company did not receive any valuable consideration for at least 2 of 3 transactions comprised in the Asset Strip (namely the Assets Transfer and the Receivables Assignment), that the Asset Strip divested billions’ worth of assets from the Company rendering the value of the net assets held by the Company as on 31 March 2013 being negative HK$156,436, that for such complex and significant series of transactions there was literally next to no trace of documentary records discussing, authorizing and then implementing them, and that all who would in the normal course of things expected to have knowledge of them have “a case of collective amnesia”[45].

85.  These factual allegations, in my view, are already sufficient to sustain a case that

a.  at or around the time of the Re-organization and the Asset Strip, the shareholders and directors of the Company ought to have regard to the overriding creditor’s interest of Penta;

b.  the Asset Strip when implemented would plunge the Company into insolvency by depleting its assets for no good consideration, and in so doing to the great prejudice of its creditors, particularly Penta;

c.  there was thus a breach of fiduciary duties on the part of the directors; and

d.  the shareholders of the Company could not effectively authorize (or later on ratify if they had not been authorized) the Asset Strip.

86.  Thus, I readily accept Mr Bartlett’s submission that P’s above pleaded averments are already sufficient to show that the Asset Strip by its nature was dishonest, without the need, and despite the fact that P was unable, to plead further with precision the exact “who did what, when and how” in relation to the conception, authorization and then implementation of the transactions comprised in the Re-organization and the Asset Strip, as Chuang was complaining here.

F.3.  Chuang’s contentions that there is no reasonable cause of action against him

87.  Chuang’s contentions that there is no reasonable cause of action disclosed against him are :

a.  There is no viable constructive directorship plea (§§40 – 46 of his written submissions);

b.  The ASoC was demurrable (as set out in the 15-page Annex B to Chuang’s written submissions) because it was incomplete, unparticularized and equivocal in that there were 7 “existential failures” in the ASoC which were grouped under the headings of

i.  “Fraudulent Transaction?”

ii.  “Who did what, when and how?”

iii.  “Who benefitted from the ‘Fraud’?”

iv.  “What was the Plaintiff’s loss?”

v.  “Who directed the ‘Fraud’?”

vi.  “Causation of Loss?”

vii.  “Any Plaintiff’s actual loss?”

F.4  Reasonable cause of action disclosed that Chuang was a defacto and/or shadow director of the Company at the material times?

88.  P’s case, as Mr Bartlett submitted, was

a.  A brazen fraud was perpetrated on the Company.

b.  None of the Defendants, including Chuang and Lo, have ever claimed that the sole de jure director at the time of the Asset Strip – TM Lee – was the controlling mind and will of the Company at the time of the Asset Strip and all the Defendants claimed that he/she was not the controlling mind and will of the Company at that time either.

c.  But it was obvious that the fraud was directed by someone.

d.  The fraud was led by Chuang and Lo and that in doing so they were acting as de facto and/or shadow directors of the Company.

e.  By reason of the matters pleaded in ASoC §§103 to 108[46], P’s case that Chuang was a de facto and/or shadow director was clearly pleaded.

89.  As have mentioned, §§103 to 106 pleaded about the informality and opacity of the Company’s corporate governance and the lack of demarcation between legal entities and offices, which P averred facilitated the fraud and provided “the platform for Mr Chuang and Ms Lo to exercise control over the Company’s affairs without holding formal appointments”[47].

90.  The main parts of the pleading are ASoC §107 to 109 under the heading “Mr Chuang’s control over the Plaintiff”. As they were much debated, I will quote them in the Yellow Green Version in full (and underlining the proposed amendments for which leave to amend has not yet been given):

“107. Mr Chuang claims that his resignation as Permanent Managing Director of the Plaintiff on 11 November 2009 coincided with his retirement from business life in general and that he was not involved in the Plaintiff’s affairs or decision making thereafter. Mr Chuang's claim is untrue.

108. Mr Chuang continued to be closely involved in and exercised control over the assets and affairs of the Plaintiff, the Group and the Restructured Group following his formal resignation as Permanent Managing Director, either (a) directly as a defacto director; or (b) as a shadow director, through his network of nominees, which included (at least) Ms Tong, Mr Pak, Ms Liao, Mr Lee (each de jure directors of the Plaintiff at various times as pleaded in Schedule 1) and Mr Asiong Wong (whose role is pleaded in paragraph 110(b) below.

Mr Chuang’s ongoing directorial control over and involvement with the Plaintiff and other entities within the Group and Restructured Group is demonstrated by and/or to be inferred from the following matters. Where the matters alleged are corporate acts, each act was either caused by Mr Chuang exercising direct control over the pleaded entity or was caused by his nominee de jure directors appointed to that entity acting at his directions:

108.1 As of 22 June 2010, Mr Chuang held an approximately 41.12% ultimate interest in the Plaintiff.

108.2 On 8 December 2010, Mr Chuang met with Penta and produced a business card bearing the Plaintiff’s name (as pleaded in paragraph 40 above).

108.3 On around 20 December 2010, Mr Chuang caused the Plaintiff to borrow US$50 million from his friend, Mr Andrew Liu, at an interest rate of 10% pa. The loan was personally guaranteed by Mr Chuang.

108.4 In May 2011, Mr Chuang met with Penta to discuss Penta’s investment in Mascotte, an indirect shareholder of the Plaintiff (as pleaded in paragraph 42 above).

108.5 In August 2011, Mr Chuang caused a subsidiary of the Plaintiff to extend a HK$50 million interest free facility to the Plaintiff’s legal consultant, Mr Lam.

108.6 Between around March 2010 and September 2012, the Plaintiff paid over HK$27 million to redecorate the residential premises of Mr Chuang and Ms Lo, located at 85 Repulse Bay Road (the “Repulse Bay Property”), despite the Plaintiff having no ownership interest in the property. Further:

108.6.1 the Plaintiff’s audit work papers record the redecoration costs as “for director benefit”;

108.6.2 at least 3 redecoration invoices (dated 30 December 2011, 9 May 2012 and 10 May 2012) were marked to the attention of Mr Chuang;

108.6.3 at least 5 redecoration invoices (dated 3 March 20112, 9 May 2012, 10 May 2012, 9 June 2012, and 11 July 2012) and one email attaching an invoice (dated 16 December 2011) were approved and signed by Mr Huang on the Plaintiff’s behalf;

108.6.4 Ms Tong admits that she approved certain redecoration expenses in her capacity as a director of the Plaintiff despite having no idea how it benefited the Plaintiff; and

108.6.5 Mr Chuang claims to have obtained shareholder approval for the payment of the redecoration expenses at a private party with shareholders by way of a round of applause from the guests.

108.6A On 20 January 2012, Mr Chuang held an indirect interest in the Plaintiff via a 6.39% shareholding in Freeman (a publicly listed, substantial indirect shareholder in the Plaintiff). Mr Chuang’s interest in Freeman increased to 12.91% by 19 July 2012. Mr Chuang continued to hold his shares in Freeman until 10 October 2012, disposing of them shortly after Penta commenced the Guarantee Proceedings.

108.7 During the period May to July 2012, Mr Chuang met and corresponded with Penta’s founder, Mr Zwaanstra, With a view to settling Penta’s claim against the Plaintiff (as pleaded in paragraphs 62 to 67 above).

108.8 On 15 June 2012, HCG Corporate Services Limited, a subsidiary of the Plaintiff, paid HK$400 for new name cards to be printed for Mr Chuang.

108.9 Following the Asset Strip, further redecoration expenses for the Repulse Bay Property were invoiced to HIGL and at least two of those invoices (dated 18 September 2012 and 6 November 2012) were approved and signed by Mr Chuang.

108.10 In April 2013, Lam & Co requested Mr Chuang’s input on draft witness statements for use by the Plaintiff in the Guarantee Proceedings.

108.11 During the period January 2010 to March 2014, Mr Chuang charged HK$24.5 million to HEC Securities Ltd (a subsidiary of the Plaintiff prior to the Asset Strip) for entertainment expenses.

108.12 In October 2015, Mr Chuang married the Plaintiff’s largest known ultimate beneficial owner, Ms Lo, having been in a de facto relationship with her since at least 2011.

108.13 In 2017, several years after the Plaintiff had purportedly been sold to a third party Taiwanese buyer, Mr Chuang's associate, Mr Asiong Wong, paid the Plaintiffs legal costs of its opposition to the winding up order.

108.14 As of 12 November 2021, Mr Chuang was recorded as the sole beneficiary of a family trust holding a 61.99 per cent interest in Cordoba, the former majority shareholder of the Plaintiff and then a shareholder of the Restructured Group. According to Mr Chuang, the settlor of the trust was Ms Lo.

108.15 As of June 2022, Mr Chuang gave an interview where he purported to speak on behalf of Chung Nam Securities, a former subsidiary of the Plaintiff.

108.16 At all material times following his purported retirement:

108.16.1 Mr Chuang has remained the public face of the Plaintiff, the Group and the Restructured Group.

108.16.2 Mr Chuang did not consider the de jure directors who succeeded him to be capable of running the company. The Plaintiff’s two de jure directors from 30 December 2010 to 7 May 2012 were Ms Liao (who Mr Chuang described as not “fit for the position”) and Mr Wong (who Mr Chuang described as having “zero competence”).

108.16.3 Mr Chuang continued to take responsibility for the Plaintiff’s relationship with its shareholders and clients. He did not consider any of the de jure directors to be qualified to manage those relationships, because “they had no money” and lacked the “talent or culture to do so”.

108.16.4 Mr Chuang maintained an office at the China United Centre, 28 Marble Road, which he attended regularly to meet with the shareholders of the Group and the Restructured Group.

108.16.5 Mr Chuang continued to distribute lai see red packets to employees of the Group and the Restructured Group each year.

108.16.6 Mr Chuang was a wealthy individual who wielded considerable influence over the directors and employees of the Group and the Restructured Group.

Particulars : At various times during the period when the expenses were incurred, Mr Pak, Ms Tong, Ms Liao and Mr Lee were the de jure directors of the Plaintiff on the dates pleaded in Schedule 1.

109. The full extent of Mr Chuang’s involvement in and control over the Plaintiff’s affairs remains unknown to the Plaintiff due to the steps taken by Mr Chuang to conceal his involvement and to obstruct the Liquidators’ investigations.”

91.  Mr Barlow’s main contention was that none of the matters pleaded in §108.1 to §108.16.6 satisfy either the pleading or the substantive requirements for advancing a reasonably arguable case of de facto or shadow directorship as against Chuang.

92.  Specific to P’s plea of de facto directorship, Chuang submitted that §108.1 to §108.16.6 of the ASoC contained no averment of primary facts capable of supporting any plea that, post-November 2009,

a.  The Company held out Chuang as being its director;

b.  Chuang undertook functions in relation to the Company which could properly be discharged only by its director; and

c.  The very few potentially relevant averments do not plead any conduct which could not properly be performed by a manager below board level.

and “each of which is fatal to the plea”[48] .

93.  For the reasons given below, I accept Mr Bartlett’s submissions that the relevant parts of the ASoC have already pleaded sufficient foundation to support the plea that Chuang was a de facto director of the Company at the material times.

94.  The pleaded averments that following Chuang’s retirement, he remained the public face of the Company, the Group and the Restructured Group, and he continued to maintain an office at the China United Centre (which he attended to regularly meet with the shareholders of the Group and the Restructured Group), to take responsibility for the Company’s relationship with its shareholders and clients, and to distribute lai see red packets to employees of the Group and the Restructured Group each year (§108.16), in my view could, when considered with and against the circumstantial matters set out in §96 below, and further in view of express or tacit allowance by the Company for Chuang to continue to do so, be regarded as a holding out by the Company and/or even as conducts assuming the status and functions[49] of a director.

95.  The pleaded averments that Chuang, despite his claim that he has retired, essentially was representing the Company or the Group in, and placed himself at the centre of, the key negotiations / discussions with Zwaanstra on behalf of Penta: (a) that Chuang met with Zwaantra on 8 December 2010 and in that meeting producing his name card bearing the then former name of the Company, to discuss Penta’s investment in Freeman (ASoC §108.2), (b) and then Chuang had 2 lunch meetings with Zwaanstra in May 2011 to discuss the fall in Freeman’s share price and Penta’s further investment in Mascotte (which investment was made by Penta only about a month later)(ASoC §108.4), and (c) Chuang’s meeting and then correspondence with Zwaanstra during the period from May to July 2012 with a view to settling Penta’s claim against the Company (ASoC §108.7), in my view also could, when considered with and against the circumstantial matters set out in §96 below, and further in view of express or tacit allowance by the Company for Chuang to continue to do so, be regarded as a holding out by the Company and/or as conducts assuming the status and functions of a director, and not the conducts of a manager below the board level.

96.  I also accept that these pleaded circumstantial matters could lend support to P’s case that Chuang was a de facto director :

a.  From the Company’s incorporation in 1996 until November 2009, Chuang was its appointed Permanent Managing Director and had been exercising ultimate decision making power on behalf of the Company with limited engagement with his fellow directors but sought shareholders’ inputs informally (ASoC §103.3);

b.  At the material times, Chuang continued to hold a substantial ultimate beneficial interest in the Company, and as in June 2010 approximately 41.12% (ASoC §108.1);

c.  At the material times, the Company’s corporate governance remained opaque and informal, and de jure directors did not perform any substantive duties or play any meaningful role in directing the Company’s affairs even to the extent of signing resolutions without reading or understanding them, and were not remunerated for their directorship appointment (details pleaded in ASoC §105 and its sub-paragraphs);

d.  Lam claimed that while he was a full-time consultant to the Company, directors were changed “only in name” and “a change of director doesn’t mean that management has changed” (ASoC §105.5.2);

e.  Liao and F Wong, the 2 de jure directors of the Company at the time of the Re-organization, both claimed not to recall any details or have been involved in the Re-organization (ASoC §105.8.1 and §105.8.2);

f.  TM Lee, the sole de jure director at the time of the Asset Strip was unable or unwilling to provide any information to the Liquidators about the Asset Strip (ASoC §105.8.3); and

g.  Chuang himself did not consider the de jure directors who succeeded him to be capable of running the Company or qualified to manage the Company’s relationship with its shareholders and clients and he continued to take responsibility for such relationship management (ASoC §108.16.2 and §108.16.3)

97.  Moreover, the ASoC also averred to the fact that HK$27 million was paid by the Company between March 2010 and September 2012 to redecorate Chuang and Lo’s residence (“the Redecoration Expenses”) and that the Company’s audit work papers recorded the payment of the Redecoration Expenses as “for director [sic] benefit” (ASoC §108.6). The payment of such a large amount by the Company for the benefit of Chuang and Lo and the description of the nature of the payment in the audit work papers are primary facts to support an allegation that Chuang received substantial benefit from the Company qua director, and not qua manager or indirect shareholder.

98.  Further still, Chuang claimed to have obtained shareholders’ approval for the payment of the Redecoration Expenses at a private party with the shareholders by way of a round of applause from the guests (ASoC §108.6.5). Chuang’s claim that authorization from the Company to pay such a substantial sum to him and Lo (when they were formally only indirect shareholders) could be validly obtained in such a manner could also lend support to P’s case that Chuang was in de facto control of the Company.

99.  I do not specifically refer to other matters pleaded in ASoC §108 as it seems to me that my discussion on those above-mentioned would already suffice.

100.  In the premises, I find that the ASoC disclosed a reasonable cause of action that Chuang was a de facto director of the Company at the material times.

101.  Turning to Chuang’s specific contention against P’s plea of shadow directorship, which was that §108.1 to §108.16.6

“contain no averment of primary facts capable of supporting any plea that, post-November 2009:

(a) on any occasion D1 “directed” any specified director of the Plaintiff as to how he/she should act in relation to the affairs or business of the Plaintiff;

(b) on any such occasion, the specified director did act in accordance with D1’s said direction;

(c) that conduct of the Plaintiff and that director was repeated on multiple occasions, sufficient to constitute “a pattern of behaviour”;

(d) prior to 7 May 2012, [ASOC: Schedule 1], that “pattern of behaviour” [plus the requirements cited in sub-para. (2)(a) and (b) hereinabove] had been adopted by D4 and/or Foelan Wong [the former D3];

(e) during 7 May 2012 until at least 26 May 2012, that “pattern of behaviour” (etc) had been adopted by Mr. Lee [the former D2]; and

(f) during 17-25 May 2012, Mr. Lee committed the Plaintiff to each of the Transactions (and in particular the 3^rd) in compliance with directions from D1 that he was to do so;

– each of which is fatal to the plea.”[50] (original emphasis)

102.  In short, Chuang complained that in respect of each of the de jure directors, there was no particular instance(s) pleaded with details showing Chuang “directed” that particular de jure director so to act in relation to the affairs or business of the Company, and that the particular de jure director acted accordingly, and such as to show that the particular de jure director was accustomed so to act.

103.  Mr Bartlett submitted that the pleaded facts lay a strong foundation for the inference that Chuang continued, including during the material times, to exercise ultimate control over the Company long after his alleged “retirement”, but some pleaded facts tended to show Chuang was acting as a de facto director while others tended to show he was acting as a shadow director. It was thus impossible to maintain in any clear-cut fashion in what capacity he acted at all material times. P was confronted by circumstances in which each of the two has a reasonable possibility and thus the alternative plea of de facto / shadow directorship is reasonable and could not be faulted, relying on the obiter observation of Bokhary JA (as he then was) in ADS v Wheelock Marden & Co Ltd & Others, CACV 24, 25, 36, 37 and 104/1994 (unrep., 17 November 1994) at §31 : “If a pleader is confronted by circumstances in which each is a reasonable possibility, he is entitled to plead them in the alternative, and he would be wise to do so”.

104.  I would begin by noting that in the ASoC it was pleaded at least one such instances in which it was shown that Chuang had instructed another de jure director so to act, and the instance concerned the Company’s approval of the Redecoration Expenses. It was pleaded that 5 of the invoices and one email attaching an invoice of the Redecoration Expenses were approved and signed by Chuang, and that Tong (a de jure director of the Company from 8 October 2004 to 20 December 2010) admitted that she approved certain of the Redecoration Expenses in her capacity as a director of the Company despite her having no idea how the redecoration benefitted the Company (ASoC §108.6.3 and §108.6.4).

105.  P’s pleaded broad case, as have mentioned above, is that none of the de jure directors of the Company appointed post-November 2009 performed any substantive duties or played any meaningful role in directing the Company’s affairs even to the extent of signing resolutions without reading or understanding them; in other words, that essentially, they were all “puppets”. In this regard, I accept that the matters pleaded in Section E.1. and E.2. of the ASoC (§§103 – 106) relating to the governance of the Company (including some of the matters I have already alluded to above) are sufficient to sustain this allegation.

106.  If there is a sustainable claim that they were all “puppets”, the next logical question would be whether there is a sustainable claim that Chuang was the “puppet master”. Putting my conclusion above that there is a reasonable cause of action that Chuang was a de facto director of the Company at all material times together with the pleaded and sustainable allegation that all the de jure directors of the Company at the same material times were “puppets”, I take the view that there is a sustainable case that Chuang was the “puppet master”, or one of the “puppet masters”. As these allegations temporally covered a rather long period - from November 2009 to the time of the Asset Strip, I take the view that the “accustomed to act” element is also sustained.

107.  That being the sustainable broad case of P, and in the particular circumstances of this case, should the Court strike out P’s claim of shadow directorship because P was unable to specifically plead the details of each act concerning the affairs of the Company (save those mentioned in §104) that each of the de jure director did in accordance with the directions or instructions of Chuang ? For the following reasons, I would refuse to strike out.

108.  First, the inability to plead these details is evidently not the fault of the Liquidators or P.

109.  On the contrary, for such complex transactions involving such substantial value as those comprised in the Asset Strip, the complete unavailability of relating documentation from the Company and the inability to produce any such documentation by the persons examined in the 286B Examinations, and their claimed complete lack of knowledge and recollection, including the claimed lack of knowledge of the Receivables Assignment by the 12 related companies involved are staggering, to say it mildly. As observed by DHCJ Jin Pao SC in Leung Chin Sing, Rabo v Ko Chun Hay, Kelvin in [2021] HKCFI 2242 at [42] : “The prevalence of e-mails, text messages and other forms of electronic communication is such that most agreements or discussions which are of legal significance, even if not embodied in writing, leave some form of electronic imprint: Blue v Ashley [2017] EWHC 1928 (Comm) at [65] per Leggatt J (as he then was); Music Holdings Property HK Ltd v Ooi Lean Choo[2020] HKCFI 1312 at [58] per Ng J”. On my part, I find it most difficult to postulate that such state of affairs was the result of otherwise than some careful, thorough and elaborate engineering by those who wanted to have the tracks covered.

110.  Second, I bear very much in mind that the basic rules of pleading are concerned with practical justice and that the notion of fairness and justice underpin these rule (as observed by Keith Yeung J in Delco Participation B.V. (supra) after surveying the authorities). Considering the practical justice and evaluating the matter under the notion of fairness and justice and particularly in view of the fact that P’s inability to plead the specifics was very likely the result of deliberate and elaborate efforts by those who wanted to cover the tracks of these now alleged to be dishonest and fraudulent acts, I am readily persuaded by Mr Bartlett that the approach adopted by Sales J in Nokia Corp v AU Optronics (supra) is relevant and apt here and I too would allow P, as the claimant on such an unlevel playing field, “a measure of generosity”.

111.  Third, I accept Mr Bartlett’s submission that in the circumstances of this case, it is reasonable for P to pursue these 2 pleas as broad alternatives. It seems to me that the particular circumstances of this case make it fall within a classic case where the Court would allow alternative pleas lest there would be a risk of unfairness and injustice against P in that later on evidence in support of shadow directorship might come up (or even later on one or some of the 286B Examinees somehow resile from what they said in the 286B Examinations and say something very different), P might then have difficulty proving de facto directorship while its claim based on shadow directorship, though supported by such evidence surfaced later, was already struck out.

112.  Last, I have not lost sight of Mr Barlow’s submission, which has some force, that Chuang would suffer prejudice if the shadow directorship plea is allow to proceed without P having pleaded those details. However, in view of (a) the fact that the broad framework of P’s claim in this regard has been set out as mentioned above, such that the case Chuang is to meet is, in my view, reasonably set out and defined, (b) the fact that Chuang would have to prepare his defence against the de facto directorship plea which by and large cover the same period, the same events and his interaction and relationship with the same personnel as would in respect of his defence against the shadow directorship plea, I come to the view that the prejudice Chuang would suffer is relatively limited.

113.  In the premises, I hold that P’s shadow directorship plea against Chuang is sustainable and, as said, I would refuse to strike it out.

F.5.  Pleading “de facto and/or shadow director” demurrable?

114.  Mr Barlow also submitted that de facto directorship and shadow directorship are mutually exclusive concepts, and therefore the pleading that Chuang was “a de facto and/or shadow director” was demurrable. I understand that there is no serious dispute that these 2 types of directorships can be pleaded as alternatives, the complaint was that they should not be pleaded as “and/or”.

115.  However, as Coleman J summarized in Cyberworks, recent authorities acknowledge that there may be some erosion in the distinction between de facto and shadow directorship. More relevantly, as mentioned above, P’s case is pleaded broadly in that over the period (ie. at the material times) Chuang might be acting over some matters within that period as a de facto director, while over some others within that period as a shadow director.

116.  Moreover, a striking out based on this contention would effectively be forcing P, at this stage, to have to plead, in respect of any one relevant act / matter, by stating in a clear-cut manner whether the act / matter falls within the allegation of de facto directorship or falls within the allegation of shadow directorship. As I have held that P’s case of de facto and shadow directorship as against Chuang is each sustainable, so forcing P would cause unfairness and injustice to P, much more than would cause to Chuang by allowing P to plead “de facto and/or shadow directorship”. Thus, I am unable to accept that this contention is a good ground for striking out.

F.6.  The 7 “existential failures” making the ASoC demurrable?

117.  As said, Chuang’s contentions in this regard are contained in the 15-page Annex B to Chuang’s written submissions containing 68 paragraphs and many sub-paragraphs. Though these were grouped under different headings, most paragraphs essentially consisted of some assertive criticisms against what was said in a particular paragraph or groups of paragraphs in the ASoC and not necessarily according to the context they were pleaded in the ASoC. They were further supplemented in the Updated Reply Points for the 1^st Defendant. Such being the state of the contentions advanced, this Court would try to meaningfully deal with them under the following topics / themes.

118.  The first topic / theme is this, that because of the admitted lack of documents, the admitted inability on P’s part to plead the “who did what, when and how”, to plead the transactions documents and to identify the actual terms of the transactions comprised in the Asset Strip, to accurately name and specify who and to what extent he/she benefitted from the fraud and so on, and then together with the duty to plead fraud distinctly and with utmost particulars, that therefore, P failed as against Chuang “to plead any actual fraud case”[51] , “[to] disclose any reasonable cause of action for fraudulent breach of fiduciary duty”[52] , that “the ASOC’s fraud pleas are equivocal”[53] and “incomplete, unparticularized and equivocal”[54], “conjectural and hypothetical”[55] and that there was “no viable fraud pleas”[56].

119.  A similar contention was made by Mr Barlow, which was that P failed to give any, or any satisfactory, “core particulars” requested in Chuang’s 45-page Requests for Particulars of the Plaintiff’s Statement of Claim.

120.  Without any disrespect to Mr Barlow, I would content myself with dealing with this broad contention as one without delving into such numerous complaints and criticisms one by one.

121.  I would dismiss them as a ground for striking out.

122.  First, as I hold in sections F.1. and F.2. above, sufficient matters have been pleaded in the ASoC justifying the allegation that the Asset Strip involved a breach of duty and was dishonest in that such pleaded matters justify the allegation that by its nature the Asset Strip was dishonest. Second, P’s pleaded case is that Chuang is liable essentially because the Asset Strip was “caused” by Chuang (and Lo) exercising control over the Company’s assets and affairs in their capacity as de facto and/or shadow directors and the Asset Strip was undertaken at their express or implicit instruction, with the assistance or acquiescence of the other Defendants (ASoC §12.3). As I have held that there is a sustainable claim against Chuang as a de facto and/or shadow director at the material times, then whether Chuang did “cause” the Asset Strip is a matter of evidence (including circumstantial evidence) and proof at trial. Third, on the element of dishonesty on the part of Chuang, as the pleaded primary facts are that Chuang was involved in negotiating with Penta the settlement of its claim under the Guarantee, in my view, such facts sustain the allegation that Chuang knew that Penta had a viable (if not strong) claim under the Guarantee and what the claimed amount was and Chuang would have known that the Asset Strip would cause the Company its insolvency to the great prejudice to its creditors, and hence dishonesty.

123.  Thus, I am unable to accept that the lack of these particulars would be “fatal” or would make the fraud plea “not viable”.

124.  I have also explained in section F.4. above why I concluded that as a matter of practical justice, evaluating the matter according to the notion of fairness and justice and affording P a measure of generosity, I would not strike out P’s plea of shadow directorship due to P’s inability to plead certain particulars pertaining to that plea in the convention way. For the same reasons, and in the particular and unusual circumstances of this case, I do not consider Chuang’s complaints of lack of particulars, in their many forms as put by Mr Barlow, is a good ground for striking out.

125.  The next topic / theme advanced by Chuang related to the pleading of the loss of the Company. In gist, Chuang criticized thus:

“B.11 Further to paras B4 and B5 above, the ASOC’s incompleteness, lack of required particulars and equivocal/ambiguous pleas are manifest in (at least) the following 7 core areas, namely, the ASOC’s stark failure to plead the required primary facts or matters:-

…

(4) Identifying the alleged actual consequential loss or damage that the alleged “fraud” caused to the Plaintiff.

(5) …

(6) Explaining how the alleged conduct of D1 is supposed to have caused the c.HK$3.456 Billion alleged “loss” claimed in the ASOC and why the Plaintiff’s current shareholder, Mr. Lee Kuo-Jay (the former D61) should receive c.HK$3.245 Billion of it.

(7) Specifying the Plaintiff’s actual alleged consequential loss.”

(original emphasis)

126.  As have briefly mentioned above, the loss and damage was pleaded in Section I of the ASoC, and I quote :

“159. By reason of: [the various breaches of Chuang and the other Defendants, the conspiracy and their dishonest assistance], the Plaintiff has suffered loss and damage in the amount of HK$3,766,157,196, being the value of the assets stripped from the Plaintiff for no valuable consideration.

160. The loss and damage suffered by the Plaintiff comprises the following amounts :

160.1. HK$257,138,624, being the value of the dividend wrongfully declared on 17 May 2012 (as pleaded in paragraph 55.1 above);

160.2. HK$52,528,000, being the value of the assets wrongfully transferred from the Plaintiff to HIGL for no valuable consideration on 25 May 2012 (as pleaded in paragraph 55.2 above):

160.3. HK$3,456,490,572, being the value of the receivables wrongfully assigned to HIGL for no valuable consideration (as pleaded in paragraph 55.3 above).

161. In the premises, the Plaintiff is entitled to:

161.1. damages and/or equitable compensation (principally on a substitutive basis, and alternatively on a reparative basis) and/or restitution in the amount of HK$3,766,157,196 (or such other sum as the Court may allow), being the value of the assets fraudulently transferred away from the Plaintiff, against [the respective Defendants under various causes of action]

161.2. Interest …”

127.  As can be seen, P’s pleaded case on loss and damage is straight forward, namely, that the loss was the value of the assets dissipated by the Asset Strip, which P averred was caused by the various breaches and wrongful conducts complained of.

128.  As I understand it, Chuang made some criticisms against P’s case on the loss under the heading “What was the Plaintiff’s loss?” in §§B36-B40 of Annex B by reference to the financial information of the Company pleaded in §58 of the ASoC and P’s averment in §59 in passing that “the Plaintiff’s board and management failed to recognise an actual or contingent liability to Penta in the financial statements”.

129.  It was also contended by Chuang that (a) “neither the initial Dividend nor the Asset Transfer was capable of jeopardising the Plaintiff’s future (2015) solvency and therefore did not cause the alleged (or any) Plaintiff’s loss”[57] (original emphasis), and (b) “at its highest, the Plaintiff’s only potentially actionable consequential loss was the amount for which it says the Plaintiff’s 31 March 2013 Balance Sheet should have made the Alleged Absent Provision of HK$210,366,448”[58]

130.  Clearly Chuang was attempting to raise certain disputes there. However and evidently, such disputes, particularly such nuanced disputes as contended for there, should be ventilated by Chuang properly pleading his defence case setting out the facts and contentions he relies on to facilitate the proper adjudication of those disputes.

131.  In all, I am of the clear view that, regardless of whether Chuang’s purported disputes over P’s loss eventually may or may not prevail at trial, the present complaints raised about P’s pleading on the loss by the Company do not show such plain and obvious merits justifying a pre-emptive striking-out.

132.  The last topic raised in Annex B that I would address, for completeness, is Chuang’s contentions against the pleaded case of conspiracy against him.

133.  The overt acts of the conspiracy as against Chuang was pleaded in ASoC §144.1 :

“144. Pursuant to the conspiracy, each of the Defendants and Mr Lee carried out the following overt acts:

144.1 with respect to Mr Chuang, the matters pleaded in paragraphs 108 and 119.2 to 119.7 above;”

134.  I have already quoted ASoC §108 in §90 above. ASoC §119.2 to 119.7 read thus :

“119. … Mr Chuang and Ms Lo caused the Plaintiff to:

119.1. …

119.2. subsequently renege on its obligations under the Guarantee;

119.3. participate in the reorganization;

119.4. undergo the Asset Strip;

119.5. oppose the Guarantee Proceedings without any proper basis;

119.6. Be sold to a purported third party buyer and move its books and records to Taiwan in an attempt to put them beyond the reach of any liquidators; and

119.7. redomicile in the Marshall Islands in an attempt to avoid a Hong Kong winding up and subsequently opposed the winding up without any proper basis.”

135.  Chuang now contended[59] that in respect of the conspiracy case, P pleaded no alleged action of Chuang relating to the Asset Strip but only pleaded “the rhetorical meaningless general claim that D1 ‘caused the Plaintiff to undergo the Asset Strip’ ”.

136.  As I have mentioned, I find sustainable P’s broad case that the Asset Strip was “caused” by Chuang as he was in control of the Company at the material times as a de facto and/or shadow director and when all other de jure directors were mere “puppets”. For the same reasons, I do not accept that P’s case that Chuang did (or caused to be done) one or more of the alleged overt acts (while being unable to plead the particulars the lack of which is now complained of) was a mere “rhetorical meaningless general claim” that discloses no reasonable cause of action or is bound to fail. I thus reject that contention as a ground for striking-out.

F.7.  This action is an abuse of process by P ? The ASoC be struck out for being embarrassing?

137.  These 2 grounds, I think, can be dealt with succinctly.

138.  Chuang’s abuse of process strike out grounds are two fold:

“(1) ASOC pleas of conjectural and hypothetical fraud claims against D1 which are (a) unsupported by evidence; and (b) the “creation of [the] imagination of the “ Liquidators and/or their pleader; and

(2) post-limitation expiry warehousing of their publicly-accessible Writ, containing conjectural fraud claims against D1, followed by their service upon D1 of that Writ (and later, the SOC, revealing that those fraud claims are mere conjectures)”[60]

139.  For the reasons I have already expressed above, I am unable to accept that P’s fraud claims are “conjectural and hypothetical” or a “creation of imagination”.

140.  In respect of Chuang’s allegation of abuse by P “ware-housing” the Writ, I have set out above (a) the events and reasons relating to the Liquidators’ applications to extend the validity of the Writ for the periods they applied for, and (b) that these applications have been granted by the respective judicial officers, (c) that Chuang’s appeal against the 1^st Extension Order together with his challenge on the 2^nd Extension Order had been rejected by DHCJ Le Pichon and the CA had refused leave to appeal against her Ladyship’s decision, and (d) my decision above refusing Chuang’s Setting Aside Application. I think those are more than sufficient to deal with, and for me to reject, this accusation that the Liquidators abused the process by “ware-housing” the Writ.

141.  I find no merits in Chuang’s ground for striking out based on an abuse of process.

142.  Regarding striking out on the ground of embarrassment, Chuang contended that the “core embarrassment is enhanced by the pleader’s confusing attempts to plead multiple alternative allegations against D1”[61], “confusing … are the ASOC’s multiple attempts to substitute the pleading of material facts … with invitations to draw suggested “inferences”[62] and that “the ASOC in its entirety is embarrassing, D1 is entitled to have it struck out on this ground alone”.

143.  I have above dealt with and rejected the complaint of pleading the alternatives by the formulation “de facto and/or shadow director”, which is the one specific complaint in this regard. The complaints concerning the inadequacy of particulars as a ground for striking out have also been addressed and rejected above.

144.  In the premises and in the round, I do not find established that the ASoC was altogether so embarrassing that it ought to be struck out.

F.8.  The alternative application for striking out parts of the SoC listed in the Annex to Chuang’s summons

145.  The Annex to Chuang’s summons set out 10 groups, each group (save one) listing numerous selective paragraphs in the SoC, and against each group was stated the reasons for striking out. The stated reasons are respectively : “unnecessary and embarrassing repetition”, “free standing and meaningless plea concerning third parties”, “incomplete and irrational conjectural plea of [a certain topic or allegation]”, “illogical and irrational conjectural plea of [a certain topic or allegation]”, “matters of evidence” and “irrelevant but prejudicial opinions, comments and other non-factual matters”.

146.  In §3 of Chuang’s summons, it was only asked that the parts of the SoC set out in the Annex be struck out “UPON THE SAME GROUNDS as are stated in paragraph 2 above”, when paragraph 2 contained all the grounds. It is thus not at all clear which of such stated reasons falls within which of the grounds mentioned in paragraph 2 of the summons. In Chuang’s written submissions, this alternative application was not developed.

147.  It is trite that in the context of striking out, a party must not be too ready to find themselves embarrassed, that the mere fact that a pleading contains some unnecessary matters is not a sufficient ground for an application to strike out, and it is no part of the defendant’s duty to reform the plaintiff’s pleading.

148.  In all, I refuse to accede to this alternative application.

G.  LO’S STRIKING OUT APPLICATION

149.  Lo was claimed alongside Chuang for the same causes of action of breaches of various duties she owed to the Company as its de facto and/or shadow director, of conspiracy to injure the Company by unlawful means and of dishonest assistance.

G.1.  No reasonable cause of action that Lo was a de facto or shadow director of the Company at the material times?

150.  Mr Yu’s principal point was that none of the matters pleaded and relied on in the ASoC was capable of supporting the allegation that Lo was such a de facto or shadow director of the Company.

151.  The key averment of P’s claims against Lo as a “a de facto and/or shadow director” was pleaded in §117 of the ASoC:

“117. Ms Lo was a de facto and/or shadow director of the Plaintiff at all material times following her acquisition of Ristora in 2008 or 2009 and in any event during the period of the Asset Strip, by reason of the matters pleaded in paragraphs 103 to 106, 110 and 111 above.”

152.  References have been made above that §§103 to 106 pleaded about the informality and opacity of the Company’s corporate governance and the lack of demarcation between legal entities and offices, and I will not repeat them here.

153.  I will quote in full §110 to §112 in the Yellow Green Version (underlining the amendments proposed but leave to do so has not been granted) :

“E.4 Ms Lo’s control over the Plaintiff

110. Although Ms Lo held no formal position with the Plaintiff, together with Mr Chuang she exercised control over its affairs and those of its subsidiaries and shareholders and utilised their assets for her own private benefit, either (a) directly as a de facto director; or (b) as a shadow director through her network of nominees who were directors, officers, and/or authorized representatives of the Plaintiff and its subsidiaries and shareholder. These nominees included (at least):

(a) Mr Pak, Ms Liao, Ms Tong, and Mr Lee (each de jure directors of the Plaintiff at various times as pleaded in Schedule 1).

(b) Mr Asiong Wong, who was Ms Lo’s money manager and investment advisor, whose salary Ms Lo paid (directly or through Ristora), who managed Ristora on Ms Lo’s behalf, and who was a director of at least 62 entities within the Group and/or the Restructured Group, including many of those entities in the period 2011 to 2014.

(c) Ms Wong Oi Lin, who was a director of Cordora and at least 9 other entities within the Group and/or the Restructured Group.

Ms Lo’s network of nominee directors were accustomed to and did in fact act at her direction. The Plaintiff does not currently know the full extent of Ms Lo’s nominee network and reserves the right to plead further following discovery and the exchange of witness statements.

Ms Lo’s directorial control over the Plaintiff is to be inferred from the following matters, each involving corporate acts undertaken for Ms Lo’s personal benefit. Each corporate act was either caused by Ms Lo exercising direct control over the pleaded entity or was caused by her nominee de jure directors appointed to that entity acting at her direction.

110.1 In April 2007, Ms Lo sold a 10.21 carat diamond to Cordoba, a direct shareholder of the Plaintiff. To the best of the Plaintiffs knowledge, the buying and selling of precious gems was not part of Cordoba's business.

Particulars: At the time, Mr Asiong Wong was a de jure director of Cordoba.

110.2 In around 2008 or 2009, Mr Chuang gifted Ristora to Ms Lo. In December 2009, Ms Lo increased her interest in the Plaintiff by causing Ristora to subscribe for 750 million shares in Cordoba. The share subscription agreement provided for HK$100 million of the subscription price to be paid by a subsidiary of the Plaintiff, Chung Nam Finance Limited (“Chung Nam Finance”).

Particulars: At the time, Ms Tong and Ms Liao were the de jure director of Chung Nam Finance.

110.3 In March 2010, Chung Nam Finance paid for Ms Lo to take a trip to Sanya, China.

Particulars: At the time, Ms Tong and Ms Liao were the de jure director of Chung Nam Finance.

110.4 In May 2011, Chung Nam Finance, paid a HK$250,000 charitable donation on Ms Lo’s behalf.

Particulars: At the time, Ms Tong and Ms Liao were the de jure director of Chung Nam Finance.

110.5 In November 2011, Cordoba made an unexplained payment of HK$10 million to Ms Lo.

Particulars: At the time, Mr Pak was a de jure director of Cordoba. The payment was made following a request issued by Ristora, signed by Mr Asiong Wong.

110.6 Between around March 2010 and September 2012, the Plaintiff paid over HK$27 million to redecorate the Repulse Bay Property (as pleaded in paragraph 108.6 above). Further:

110.6.1 Ms Lo was responsible for the decoration of the Repulse Bay Property;

110.6.2 at least 10 redecoration invoices (dated between 3 March 2011 and 10 September 2012) were addressed to the Plaintiff at its corporate office and expressly marked to the attention of Ms Lo; and

110.6.3 a further redecoration invoice (dated 30 December 2011) was marked to the attention of Mr Chuang and copied to Ms Lo;

110.6.4 the reference in the Plaintiff’s audit work papers to the redecoration costs being “for director benefit” applies equally to Ms Lo; and

110.6.5 the private party at which shareholders are said to have approved the payment of the redecoration expenses was a party for Mr Chuang and Ms Lo.

Particulars: At various times during the period when the expenses were incurred, Mr Pak, Ms Tong, Ms Liao and Mr Lee were de jure directors of the Plaintiff (on the dates pleaded in Schedule 1) (and as pleaded at paragraph 108.6.4 above, Ms Tong admits to approving the expenses despite having no idea how it benefited the Plaintiff).

110.7 In June 2012, Ms Lo caused Ristora to purchase an 11.25 carat diamond ring for HK$18 million. The purchase price was paid by Cordoba.

Particulars: At the time, Mr Pak was a de jure director of Cordoba. The payment was made following a request issued by Ristora, signed by Mr Asiong Wong.

110.8 Following the Asset Strip, further redecoration expenses for the Repulse Bay Property were invoiced to HIGL (as pleaded in paragraph 108.6 above). At least 3 of those invoices (dated 18 September 2012, 1 November 2012, and 6 November 2012) were expressly marked to the attention of Ms Lo.

Particulars: At the time, Mr Pak was a director of HIGL.

111. In addition to exercising control over the Plaintiff, Ms Lo was aware of and approved the reorganisation and Asset Strip. This is to be inferred from the following matters:

111.1 Ms Lo was a sophisticated business woman who at the relevant time had served as a chairwoman or executive director of two listed Hong Kong companies, China Soft Power Technology Holdings Limited and Hi-Speed Financial Group Limited.

111.2 On 16 April 2012, Ms Lo consented to the reorganisation (as pleaded in paragraph 52.2(a) above).

111.3 On 16 April 2012, Ms Lo exchanged her indirect interest in Cordoba for an equivalent indirect interest in HEC Capital (the newly introduced entity which held the Restructured Group, following the Asset Strip).

111.4 On 16 April 2012, Ms Lo's nominated directors to the board of Cordoba, Ms Wong Oi Lin (“Ms Wong”), and Mr Pak, also became directors of HEC Capital. Ms Wong was also a director of HEC Development and Hennabun (Cook Islands) (both direct shareholders of the Plaintiff) and signed the reorganisation agreement on behalf of Hennabun (Cook Islands).

111.5 In around May 2012, at the time of the Asset Strip, Ms Lo held an indirect 22.2% interest in the Plaintiff and HIGL and was the largest known individual beneficiary of the fraud. This does not take into account the fact that as of 3 May 2012, Ms Lo held a further indirect interest in the Plaintiff through her undisclosed 7.88% shareholding in Willie International Holdings Limited (“Willie”)(a publicly listed substantial indirect shareholder of the Plaintiff).

111.5A On 25 May 2012, the final day of the Asset Strip, Ms Lo sold her 7.88% interest in Willie to HEC Capital.

111.6 In around November 2014, at the time of the Plaintiffs purported sale to a Taiwanese buyer, Ms Lo was the largest known ultimate beneficial owner of the plaintiff.

111.7 At all material times, Ms Lo was a wealthy individual who wielded considerable influence over the directors and employees of the Group and the Restructured Group.

112. The full extent of Ms Lo’s involvement in and control over the Plaintiff’s affairs remains unknown to the Plaintiff due to the steps taken by Ms Lo to conceal her own involvement and to obstruct the Liquidators’ investigations.”

154.  Mr Yu essentially submitted that the facts pleaded in §110 and §111 (a) were not directorial acts, direct or indirect acting through others, of Lo, (b) were predominantly about Lo being the recipient of some form of benefits from subsidiary companies of the Company or companies who were shareholders of the Company, and (c) could not justify an inference that Lo had so acted in relation to the affairs of the Company.

155.  In gist, the specific matters pleaded in ASoC §110 aver (with the companies involved highlighted in bold) :

a.  §110.1 averred that Lo was able to sell a 10.21 carat diamond to Cordoba when buying and selling gems was not Cordoba’s business;

b.  §110.2 averred that Chuang gifted Ristora to Lo, and the price of Ristora’s subscription of 750 million shares in Cordoba in December 2009 was paid by Chung Nam Finance Limited;

c.  §110.3 averred that Chung Nam Finance Limited paid for Lo’s trip in March 2010;

d.  §110.4 averred that Chung Nam Finance Limited paid HK$250,000 on Lo’s behalf;

e.  §110.5 averred that Cordoba made a payment of HK$10 million to Lo;

f.  §110.6 averred that the Redecoration Expenses were paid by the Company;

g.  §110.7 averred that Lo caused Ristora to purchase and paid for an 11.25 carat diamond ring;

h.  §110.8 averred that HIGL paid 3 invoices of further decoration expenses and the invoices were marked to the attention of Lo; and

i.  §110.9 averred that Lo’s nominee paid the Company’s legal costs of its opposition to the winding up order.

156.  It is thus clear that save that the specific matters averred to in ASoC §110.6 and §110.9 which have some connection with the Company, all the other specific matters were about benefits given by companies other than the Company to Lo who received them. They therefore were matters that did not involve the affairs of the Company and no directorial act (direct or indirect) on the part of Lo concerning the business or affairs of the Company was pleaded therein.

157.  ASoC §110.6 pleaded that Lo was one of the persons benefitted from the payment of the Redecoration Expenses by the Company. Further details were pleaded in its subparagraphs including (a) that 10 such invoices were addressed to the Company marked to the attention of Lo, (b) another invoice was marked to the attention of Chuang and Lo, (c) the reference in the Company’s audit work papers to the Redecoration being “for director benefit” applies equally to Lo, (d) the private party said by Chuang to be the occasion that the payment of the Redecoration Expenses by the Company was approved by its shareholders was a party for Lo, and (e) Tong admitted to approving the Redecoration Expenses despite having no idea how it benefitted the Company. I however note that unlike the averments pleaded against Chuang in relation to the Redecoration Expenses (ASoC §108.6), there was no averment that some of these invoices were approved and/or signed by Lo, while there was in the case of Chuang (ASoC §108.6.3). The fact that the invoices were marked to the attention of Lo is far from indicating that Lo received them in the capacity of a director of the Company as it was her residence that was being redecorated.

158.  Mr Yu submitted that it was merely pleaded that Lo received the benefit of the payment of Redecoration Expenses by the Company, such fact without more, did not justify an inference that Lo had approved or authorized in the capacity of a director of the Company the conferring of the benefit. I accept the submission as being sound in common sense and logic.

159.  I also accept Mr Yu’s further submissions that

a.  ASoC §110.9 merely averred that Lo paid the legal costs that otherwise would be paid by the Company, it was not even pleaded that Lo paid on behalf of the Company, and even if so, it did not indicate a directorial act as persons other than a director of the Company (say a shareholder) might have his/her reason to fund the opposition of a petition for a winding up order against the Company;

b.  The matters pleaded in ASoC §111 concerned Lo’s consent to, approval of or involvement in transactions forming part of the Re-organization or purported sale of the Company’s shares (ASoC §111.6); and these transactions or sale by their very nature, were dealings (directly or indirectly) concerning the Company’s shareholding or its shares, and not the affairs or business of the Company. Thus, they were not acts of Lo which were directorial in respect of the Company.

160.  Mr Bartlett submitted that the pleaded facts below should be looked at cumulatively[63] :

a.  Lo’s relationship with Chuang;

b.  Lo was a wealthy person and a sophisticated businesswoman;

c.  Lo’s obstruction of the Liquidator’s investigations;

d.  The Company’s opaque corporate governance and the lack of strict demarcation between legal entities and formal appointments within the Group;

e.  Lo consented in writing to the Reorganisation, which the Company’s audit work papers recorded was a preparatory step or reason for the transactions comprising the Asset Strip;

f.  Immediately before the Asset Strip occurred, Lo installed her nominees (Pak and Ms Wong Oi Lin (“OL Wong”)) to the boards of the entities involved in the Asset Strip (ASoC §111.4);

g.  Lo was the largest known ultimate beneficial owner of the Company, and therefore the largest known individual beneficiary of the Asset Strip (ASoC §111.5);

h.  Lo was responsible for the redecoration work carried out on her and Chuang’s home, for which the Company paid tens of millions of dollars (ASOC §110.6.1);

i.  Group entities, the directors of which were Lo’s nominees (namely Pak, Liao and Tong), repeatedly deployed assets for Lo’s personal benefit (ASoC 110) (including in the periods immediately before and after the Reorganisation and Asset Strip) such that there was a clear pattern of behaviour on the part of these nominees, who were de jure directors of the Company during the period from March 2010 to September 2012, to act at Lo’s directions.

j.  Further and in relation to the matters mentioned in the preceding sub-paragraph, that

i.  Pak and his wife, Ms Christin Chiu, continued to be closely involved in Lo’s investments. Mr Pak served as CEO and COO, and Ms Chiu served as an Executive Director, of Esprit Holdings Limited, a company limited on the Hong Kong Stock Exchange in which, as of 31 December 2012, Ms Lo held a 27.92% beneficial interest (ASoC §142).

ii.  Pak and Tong continued to receive advice from and give instructions to Lam&Co on behalf of the Company through to at least 2018, despite them having resigned as de jure directors of the Company in 2010 and despite the Company’s purported sale to a third party Taiwanese buyer in 2014 (ASOC §106.5).

iii.  For reasons which Pak was unable or unwilling to explain, in 2015 emails concerning the Company were also sent by Lam&Co to Pak’s wife, Ms Christin Chiu (ASOC §106.5).

iv.  Liao and TM Lee facilitated Chuang and Lo’s de facto and/or shadow directorships including by falsely holding themselves out to the Company’s auditors as having full control and understanding of the Company’s business (ASOC §124.10 and §134.3).

v.  Tong facilitated Chuang and Lo’s de facto and/or shadow directorships by acting as a channel for communications between them and the Company’s lawyers, Lam&Co (ASoC §129.10).

vi.  Pak facilitated Chuang and Lo’s de facto and/or shadow directorships in the manner as pleaded in ASOC §141.7 - namely, while he was de jure director of the Company, holding out to the Company’s auditor as having full control of the Company’s business and signing board resolutions of the Company without reviewing their contents, and after he has resigned as de jure director of the Company, he and his wife continued to be involved in the Company’s affairs up to at least 2018.

161.  When considering these matters, Mr Yu urged, and I accept, that the Court’s consideration and focus must be on the question (a) in respect of the plea of de facto directorship, whether the pleaded matters could sustain a plea that Lo was part of the corporate governing structure, or have assumed a director’s duties, responsibilities, status and/or functions sufficient to impose on Lo a fiduciary duty to the Company, and (b) in respect of the plea of shadow directorship, whether Lo directed or instructed the de jure directors how to act in relation to the activity of the Company relevant to the enquiry and those directors, or a majority of them, acted in accordance with Lo’s directions and were accustomed so to act and not exercising his/her own judgment and discretion.

162.  I am persuaded by Mr Bartlett that I may look at the pleaded matters cumulatively, but the question must remain as to whether the cumulative purport of those matters support and sustain these said requirements, or not.

163.  Looking at the pleaded matters listed in §160 above, whether singly or in combination, none is a primary fact amounting to a directorial act in relation to the Company by Lo or a holding out by the Company that she was a director or one in control of the affairs of the Company, or an assumption by Lo of the responsibilities, status and function of a director of the Company; and none is a primary fact supporting a more-likely-than-not inference of any of the above said.

164.  The one matter left was the reference in the audit work papers that the Redecoration Expenses were paid by the Company as being “for director benefit”. That alone, in my judgment, is not sufficient to sustain the plea that Lo was a de facto director of the Company at the material times.

165.  In the premises, I am driven to the conclusion that P’s plea in the ASoC that Lo was a de facto director of the Company at the material times and P’s claim against Lo as such ought to be struck out for disclosing no reasonable cause of action.

166.  Regarding the plea of shadow directorship :

a.  P pleaded that Lo acted as a shadow director through “her network of nominees”;

b.  These nominees included Pak, Liao, Tong, TM Lee, OL Wong and Asiong Wong;

c.  Pak was a de jure director of the Company from 11 September 2009 to 30 December 2010; Liao was the Permanent Managing Director of the Company from 11 Nov 2009 up to 7 May 2012 (when most of the transaction comprised in the Re-organization had taken place and 10 days before the first transaction in the Asset Strip); Tong was a de jure director of the Company from 8 October 2004 to 20 December 2010; TM Lee was the Permanent Managing Director of the Company succeeding Liao and during the Asset Strip; OL Wong was a director of Cordoba and at least 9 other entities within the Group and/or the Restructured Group; and Asiong Wong was Lo’s money manager and investment advisor, a director of at lest 62 entities within the Group and/or the Restructure Group and managed Ristora on Lo’s behalf;

d.  Thus, of the alleged nominees of Lo, TM Lee was a director of the Company during the Asset Strip while Liao was a director at the time of the Re-organization and up to days before the first transaction of the Asset Strip;

e.  P’s pleaded case was the governance of the Company at all material times were so opaque and informal that, among others, persons who was not formally appointed as a director would act as one; specifically, it was pleaded that Pak continued to be involved in the Company’s affairs up to 2018 and Pak and Tong acted for Chuang and Lo to give instructions to or communicate with Lam&Co in relation to the affairs of the Company;

f.  I also note what was pleaded in ASoC §108.16.2 and §108.16.3 that Chuang himself did not consider the de jure directors who succeeded him to be capable of running the Company or qualified to manage the Company’s relationship with its shareholders and clients; and

g.  By reference to the 8 transactions pleaded in ASoC §110 (§110.1 to §110.8), P pleaded that Cordoba, Chung Nam Finance Limited, the Company, Ristora and HIGL provided various personal benefits to Lo of substantial value while these companies were under the de jure directorships of a combination of the alleged 5 nominees of Lo, to justify that there was shown a pattern of behaviours that these 5 nominees were accustomed to acting according to Lo’s instruction or directions, albeit in the context of mostly companies related to the Company and not the Company itself. Thus, the allegation that the nominees, when they were de jure directors of the Company, were accustomed to acting on the instructions or directions of Lo regarding the affairs of the Company is an allegation to be proved by inference.

167.  I respectfully agree with what Coleman J recently said so succinctly in China Evergrande Group (In Liquidation) v Hui Ka Yan and Others [2025] 3 HKLRD 66 at §16: “Patterns can be persuasive”. I think P’s case as mentioned in sub-paragraph (g) in the preceding paragraph could be a matter P seeks to infer at trial.

168.  Against such a pleaded case is the challenge that there is the same inability on the part of P to plead any primary facts pertaining to any particular instance in which Lo gave a direction or instruction to any one of the de jure directors of the Company regarding certain specific affair or business of the Company or any primary fact supporting that these de jure directors of the Company were accustomed to act according to Lo’s instructions in respect of the affairs of the Company.

169.  In this regard, I am of the same views in respect of P’s claim of shadow directorship against Lo as those set out in §108 to §110 above on the same similar inability in respect of P’s claim of shadow directorship as against Chuang. I will not repeat them here but they are weighty in my consideration.

170.  In the premises, I hold that a reasonable cause of action on the plea of shadow directorship against Lo has been sufficiently disclosed here and I would refuse to strike it out. In case there is any future argument on costs, I would state clearly that I so hold as per the Proposed Green Amendments with the consideration of the additional averment that “Ms Lo network of nominee directors were accustomed to and did in fact act at her direction” in §110 of the Yellow Green Version.

G.2.  No reasonable cause of action regarding P’s conspiracy claim against Lo?

171.  Mr Yu raised 4 contentions against P’s claim against Lo for unlawful means conspiracy justifying striking it out for disclosing no reasonable cause of action[64]. They are

a.  First, there is no pleading of the conspiratorial agreement between each of the Defendants as to when the agreement was reached, or between whom or how it was reached, and there is no indication of the nature of the agreement other than the mere assertion that they combined together to carry out the alleged fraud of stripping P of its assets (“Contention 1”);

b.  Second, the overt acts relied on against Lo are clearly deficient (“Contention 2”);

c.  Third, there is no viable allegation that Lo was aware of the alleged Asset Strip, or had intention to procure the same (“Contention 3”); and

d.  Fourth, §141 of the ASoC pleading the conduct of Pak and attributing such conducts to Lo as her nominee (§141.7) is obviously unsustainable (“Contention 4”).

172.  For Contention 1, Lo relied heavily on the case Polyline Development Ltd v Ching Lin Chuen[2021] HKCFI 483 in which Recorder Manzoni SC struck out the unlawful means conspiracy claim thus :

“108. In the statement of claim there is no pleading of the conspiratorial agreement between each of D1, D2, D3, D7, D12, D13, D14, D15, D16, other than the mere assertion that they conspired together, or as between 2 or more of them. There is no suggestion as to when the agreement was reached, or between whom or how it was reached, and there is no indication of the nature of the agreement other than that it was to “defraud Polyline and/or misappropriate the Schedules 1 and 3 lots and to conceal such fraud and/or misappropriation and the proceeds thereof from Polyline”. In my view that is not sufficient.

109. The unlawful means alleged are pleaded, but without a pleading of the nature of the agreements pursuant to which those unlawful means were undertaken, the pleading of conspiracy must fail.

110. I strike out this claim.”

173.  Indeed, in that case the learned Recorder struck out all the causes of action, save resulting trust, as disclosing no reasonable cause and struck out the resulting trust claim as being bound to fail. The very brief reasons given by the learned Recorder as above quoted would be understood against the set of its own facts in that case.

174.  The relevant part of the facts, as can be gauged from the judgment were as follows. The plaintiff, a developer of Ding Houses in the New Territories, then in liquidation, sued 18 defendants, being its former directors, a number of companies (D12 to D18) and their directors, in respect of a large number of acquisitions, assignments and transfers of land (listed in Schedules 1 to 3) made by the plaintiff to various parties, including various defendants and their further transfers from one defendant to another. The unlawful means was said to be the transfers for no consideration or at a gross undervalue, the overt acts were said to be each transaction, and “in order to understand the conspiracy claim it is necessary to look at each individual transaction”[65]. The transactions involved were numerous up to 4^th layer transfers, the parties involved were numerous and the transfers spanned over a long period of time from 1992 to 2011 : (a) from the plaintiff to D12 on 30 May 2001 of the plots listed in Schedules 1 and 3, (b) D12 transferred all the Schedule 1 plots, except one, to D13 on 30 November 2002, (c) D13 then transferred the Schedule1 plots variously to D16 on 24 November 2011, D7 on 9 April 2005 and D14 on 29 August 2003, (d) there were further 4^th layer transfers of some of the Schedule 1 plots which the learned Recorder did not set out, (e) the plots listed in Schedule 2 were assigned by the plaintiff to various non-defendants in 1992, there were then various 2^nd layer, 3^rd layer and 4^th layer transfers of those, except one, since 2006 as a result of which they passed through the hands of at least one defendant at some point in time after 2006, and (f) the plots listed in Schedule 3 the plaintiff transferred to D12 on 30 May 2001, then D12 on 26 June 2002 transferred them to D15 which held them until 10 September 2007, when it transferred them all to a non-defendant[66].

175.  Against such unique facts and ludicrously loose and vague allegation of conspiracy, evidently the conspiratorial agreement could not have been simply “a combination”, but had to be based on some agreement (in its proper sense) amongst the large number of players involved in respect of so many transactions over such an extraordinary long period of time. It is evident from the judgment that the learned Recorder did not see it necessary to discuss, or had discussed, the authorities explaining the element of “conspiratorial agreement” to be pleaded. In my view, the learned Recorder’s reasons for striking out the conspiracy claim in that case must be so properly understood and be limited to the facts of that case; and the decision should not be viewed as having established some principles of wider application.

176.  It was also submitted that the judgment has been affirmed by the Court of Appeal [2023] HKCA 235. However, as can be seen from §33.1 to §33.3 of the CA judgment, the learned Recorder’s holding in that regard was not even challenged on appeal.

177.  I accept as correct the submissions by Mr Bartlett, which were not seriously challenged by Mr Yu, that the conspiratorial agreement in the context of a claim for conspiracy to injure by unlawful means does not have to be in the nature of an expressed agreement, it is sufficient if those involved combined with a common intention to achieve the common end (Kuwait Oil Tanker v Al Bader [2000] 2 All ER (Comm) 271 at §111, Belmont Finance Corp v William Furniture (No. 2) [1980] All ER 393 at p.404b to c; see §75 above).

178.  I also accept the submissions by Mr Bartlett that the following observations made by judges in different cases, again not seriously disputed, are apt and apposite here.

a.  “31. The origins of all conspiracies are concealed and it is usually quite impossible to establish when or where the initial agreement was made, or when or where other conspirators were recruited. It is not necessary that every overt act is done by every conspirator, but the act must be done pursuant to the conspiracy. Nor is it necessary for the conspirators to join the conspiracy at the same time, but the parties to it must be sufficiently aware of the surrounding circumstances and share the same object for it properly to be said that they were acting in concert at the time of the act complained of. In most cases, it will be necessary to scrutinize the acts relied upon in order to see what inferences can be drawn as to the existence or otherwise of the alleged conspiracy. …

33.  In reality, conspiracy is by its nature clandestine and difficult to uncover, so quite often proof is not readily obtained. Hence, the averments of conspiracy cannot be too precise.” Chan Wai Keung Lawrence V. Au Chi Man Albert and Others[2021] HKCFI 2096per Q Au-Yeung J at §31 and §33.

b.  “However, the courts do not lose sight of the fact that direct evidence of fraud is relatively rare, and that fraudsters would be skilled at hiding their tracks.”Guangdong Shunde Zhanwei Trading Ltd v Sun Fung Timber Co Ltd [2022] 1 HKLRD 441 per Mimmie Chan J at §39.

c.  “Fraudsters rarely sit down and reduce their dishonest agreement to writing.” Dadourian Group International Inc v Paul Francis Simms, Jack Dadourian, Helga Dadourian [2009] EWCA Civ 169 per Arden LJ (as she then was) at §89.

179.  It seems to me rather clear that the principal overt acts now complained of, namely, the various transactions comprised in the Re-organization and the Asset Strip, were so individually and together complexed, so closed in time, and necessarily involved the conducts of the relevant players, that it could be inferred, if not be readily inferred, that they were coordinated and orchestrated acts. Moreover, they were also very close in time to the event that P now said triggered the conspiracy, namely Penta’s demand for the Company to honour the Guarantee. Further, P’s pleaded case is that there were no documents or records or information provided that would indicate there was any commercial purpose or rationale for these transactions nor was valuable consideration given to the Company for divesting essentially all its assets. In my view, such matters, of themselves, justify the inference that there was a combination or were concerted acts in the sense of a common intention to achieve a common end of those alleged to be involved; even though P, as many other claimants, was unable to discover and provide the particulars the lacking of which is now complained of.

180.  In the premises, I am unable to accept Contention 1.

181.  Contentions 2 and 3 can be conveniently dealt with together.

182.  The gravamen of the challenge[67] was that P’s case was deficiently pleaded in that there is no averment justifying that Lo was even aware of the Asset Strip, that the matters pleaded in ASoC §§111.1-111.7 at most alleged that Lo was aware of and approved the Re-organisation qua indirect shareholder, but the Asset Strip could still be effected regardless of how the Company’s own shares were held by its direct or indirect shareholders.

183.  It was pleaded that the overt acts of Lo were those averred in ASoC §§110, 111 and 119.2 to 119.7. §§119.2 to 119.7 averred, among others, the participation in the Re-organization and undergoing the Asset Strip.

184.  The contention that the Asset Strip could still be effected without the Re-organization is neither here nor there for the purpose of considering whether a reasonable cause of action is disclosed. There is no pleading requirement that one overt act must be objectively causally related to another pleaded overt act.

185.  It is trite that the claimant of a conspiracy claim must plead at least one overt act. As have mentioned, it was not seriously disputed that the matters pleaded in ASoC §111 support the allegation that Lo was aware of and approved the Re-organisation, albeit in her capacity qua indirect shareholder of the Company. However, for the claim of conspiracy on the present facts, whether Lo was aware, approved and participated in the Re-organization qua director of the Company or qua indirect shareholder is neither here nor there.

186.  P’s pleaded case is that the Company’s 2013 audit work papers recorded the Re-organization as the reason for making the transactions comprising the Asset Strip, and that on the basis that there was no legitimate commercial rationale for the Re-organization, it can be inferred that the purpose of the Re-organization was to provide a pretence for the Asset Strip and/or to add an additional layer of corporate entities between the Company and its publicly listed shareholders, to further distance them from the Asset Strip.

187.  For these reasons, I am of the view that the matter pleaded in the ASoC are already sufficient to support an allegation that Lo was at the time aware of the Asset Strip:

a.  If the Re-organization was presented in the audit work papers as the reason for the Asset Strip, in my view, it can be inferred that those approving the Re-organization would be appraised of its “reason”, of why it was thought the Re-organization should take place, namely, the contemplation of executing the series of transactions comprised in the Asset Strip;

b.  As I have already said in §179 above, it can be inferred that the transactions in the Re-organization and the Asset Strip were coordinated and orchestrated acts; and

c.  The inherent probability would be that a substantial (if not largest) ultimate beneficial owner of shareholding of the Company would have been appraised of the imminent dispositions of virtually all the assets of the Company in a series of transactions following the Re-organization.

188.  On the basis that Lo’s aware of the Asset Strip can be so inferred, I think it could then be inferred that she would have constructive knowledge that the Asset Strip would involve a breach of duties by the Company’s directors and would be to the prejudice of the Company’s creditors (including Penta) and was therefore dishonest.

189.  I thus also reject Contentions 2 and 3.

190.  As for Contention 4, it is not apparent how the matters pleaded in section G.1. of the ASoC (containing §§141 and 142) entitled “The conduct of Pak” fit into P’s claim of conspiracy against Lo. In making Contention 4, save contending: “But none of the matters pleaded in §141.7.1 to 141.7.3 related to [Lo]. These sub-paragraphs cannot possibly support the inference that [Pak] acted as a nominee or at the direction of Lo. The plea is obviously unsustainable”, it has not been made clear by Lo how ASoC §141 was essential or pivotal to P’s claim of conspiracy, such that if Contention 4 were accepted, it would justify a striking-out. I see no need to adjudicate on the contention as the contention is neither hear nor there for the purpose of Lo’s application to strike out the conspiracy claim.

191.  In the premises, I would not strike out P’s claim of conspiracy against Lo.

G.3.  No reasonable cause of action in P’s dishonest assistance claims against Lo?

192.  There is no dispute on the general requirements establishing dishonest assistance liability. A helpful summary was provided by Coleman J in Cyberworks (supra):

“79. According to Lewin on Trusts (19^th Ed) at §40-014, the general requirements for dishonest assistance liability are as follows: (1) there is a trust; (2) there is a breach of trust by the trustee of that trust; (3) the defendant induces or assists that breach of trust; and (4) the defendant does so dishonestly.

80. The breach of trust by the trustee of the relevant trust need not itself be dishonest. What must be dishonest is the assistance. In other words, all that is required is that there is a breach of fiduciary duty, and that the assistance rendered was dishonest.

81. Whether someone acted dishonestly is to be evaluated objectively based on the person’s subjective knowledge: see for example Royal Brunei Airlines v Philip Tan Kok Ming [1995] 2 AC 378 at 389B-F. It means simply not acting as an honest person would in the circumstances. Carelessness is not dishonesty, so that for the most part dishonesty is to be equated with conscious impropriety. But the standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. So, if a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.”

193.  Lo’s challenge was two-fold, that the allegation of dishonesty was defective and the assistance has not been identified or sufficiently identified.

194.  On the contention that dishonesty has been defectively pleaded, by reason of what I said in §§186-188 above, I do not hold that the pleading on dishonesty in the ASoC was defective.

195.  P’s claim for dishonest assistance was stated to be a further and alternative claim for breach of duty against Chuang, Lo, Liao and Tong (ASoC §149). The allegation concerning the assistance by Lo (and Chuang) was pleaded in ASoC §151:

“151. Mr Chuang and Ms Lo assisted in the breach of duty in the following way:

151.1 They caused or assisted in or facilitated the Asset Strip;

151.2 They directed, encouraged or assisted others (including Ms Liao, Mr Wong and Mr Lee) to carry out the Asset Strip; and/or

151.3 They deliberately and/or willfully and/or recklessly refrained from preventing the Asset Strip despite being in a position to do so and knowing that it was being undertaken at their express or perceived instructions.”

196.  Mr Bartlett submitted that “the same facts relied upon to support the claim for breach of directors’ duty provide a strong foundation for concluding that if the trial Judge considers Chuang and Lo not to be de facto or shadow directors, they nonetheless assisted in the breach of duty by the other Defendants in the Asset Strip”[68].

197.  As I understand it, therefore, that in the event that it is not established at trial that Lo was a shadow director working through Liao and Tong as her “puppets”, P would like to preserve and thus mount this alternative claim that Lo assisted Liao and Tong in their breaches of duties. Liao’s breaches of duties were pleaded in ASoC §§122 – 127 and Tong’s in ASoC §§128 – 132. While the closeness of association between Lo and Liao and Lo and Tong were averred to in the ASoC.

198.  Again, the challenge comes down to P’s inability to plead the details and particulars as to specific conducts of Lo amounting to assistance given to Liao and Tong in their breaches of duties.

199.  Again, over this challenge I am of the same views set out in §108 to §110. Considering the matter broadly and in the round, I think it is reasonable for P to mount such a claim as an alternative or risk being denied an otherwise potentially good claim. In my judgment, P should be allowed “a measure of generosity”.

200.  I would accordingly refuse to strike out P’s claim of dishonest assistance against Lo.

H.  DISPOSAL

201.  In the premises, I dismiss Chuang’s summons dated 17 August 2023 in its entirety with an order nisi on costs that Chuang pays P’s costs, including all costs reserved, with certificate for 2 counsel, to be made absolute 14 days after.

202.  On Lo’s summons dated 11 September 2023, I order the striking out of such part of the ASoC pleading that Lo was a de facto director of the Company and of all claims in the ASoC against Lo based on such alleged de facto directorship; the remainder of Lo’s summons is dismissed.

203.  On costs of Lo’s summons, I think each party wins some with P winning the majority. I note and provisionally consider valid the point already made by Mr Yu that there should be costs consequences if P’s claims were salvaged only by the very recent Proposed Green Amendments and the Yellow Green Version when Lo’s summons was issued so long ago. Considering all these in the round, I would order on nisi basis that Lo pays P 40% of P’s costs, including all costs reserved, with certificate for 2 counsel, to be made absolute unless an application to vary is made within 14 days.

204.  There shall be leave to P to amend the ASoC per the Proposed Green Amendments (as revised by the Yellow Green Version) but of course leaving out those amendments to the parts struck out as just ordered. The parties are to liaise and agree within 14 days on a version of the ASoC striking out the appropriate parts and incorporating the green amendments for approval and annexure to the sealed order. Chuang and Lo shall file and serve their respective Defence within 28 days after the order is sealed.

205.  Lastly, it remains for me to thank Mr Bartlett, Mr Barlow, Mr Yu, Ms Law, Mr Chan and Mr Lam for their able assistance.

Mr Jeremy Bartlett SC and Ms Jacqueline Law, instructed by Messrs Kirkland & Ellis, for the Plaintiff

Mr Barrie Barlow SC and Mr. Pat Lun Chan, instructed by Messrs Haldanes, for the 1^st Defendant

Mr Benjamin Yu SC and Mr. Keith Lam instructed by Messrs Gibson, Dunn & Crutcher for the 20^th Defendant

HCA 57/2018

[2021] HKCFI 854

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 57 OF 2018

________________________

________________

______________

DECISION

______________

Introduction

1.  This is the application of the 1^st defendant Chuang Yue-Chien Eugene (“D1”) for leave to appeal the Decision handed down on 27 October 2020 (“the Decision”) dismissing D1’s application to set aside the ex parte order of Master Grace Chan dated 31 December 2018 (“the Extension Order”) renewing the validity of the unserved writ in this action until 8 January 2020.

2.  The unserved writ renewed by the Extension Order was issued by the 1^st plaintiff (an investment holding company founded by D1) (“the Company”) and the 2^nd plaintiffs, the joint and several liquidators of the Company appointed on 8 July 2016 (“the Liquidators”), to preserve potential claims identified by the Liquidators.

3.  The backdrop to the present writ is set out in the Decision (§§2-22). In outline it is as follows:

(a)     in January 2012, the Company was sued under a deed of guarantee by an investor;

(b)    the audited accounts of the Company as at 31 March 2012 showed net assets of HK$2.86 billion but by the time the Liquidators were appointed in July 2016, they found zero assets;

(c)     their investigations revealed a reorganisation of the Company in March and April 2012 followed by series of transactions in May 2012 through which the Company substantially divested itself of all its assets.

4.  The potential causes of action the Liquidators have identified are breaches of directors’ duty, dishonest assistance, knowing receipt, and unjust enrichment, conspiracy and negligence as appears from the current writ issued on 9 January 2018 against, inter alia, D1.  

5.  D1 advanced 2 grounds for setting aside the Extension Order, namely that: (1) no good grounds were provided for the grant of the Extension Order; and (2) there was material non-disclosure.

6.  D1’s summons to set aside was dismissed for the reasons set out at length in the Decision to which reference should be made.

D1’s draft notice of appeal (“the draft notice”)

(1)    Application of the principles set out in the China Medical case

7.  Although the draft notice sets out no fewer than 8 grounds of appeal, many of those grounds relate to the core issue which is whether this court correctly applied the principles laid down by of Court of Appeal in China Medical Technologies Inc (In Liquidation) v Bank of China (Hong Kong) Limited [2019] 2 HKLRD 710.  

8.  Having reviewed the Decision and the Court of Appeal’s decision, I see no reason to depart from what is stated in §§44-58 of the Decision where the China Medical principles were considered and applied.

9.  I see no basis for the submission that this Court failed to apply the China Medical principles or that they were incorrectly applied.

10.  As appears from §51 of the Decision, there are material differences between the facts in China Medical and those in the present case. When the “central point” to be considered is the adequacy of information for the liquidators to make an informed decision whether to proceed with the claims against the defendants, it is the facts of the particular case before the court and not those of what might appear to be a similar case (but involving a different set of facts) that are material.

11.  I remain of the view that “good reason” was made out to engage the exercise of the court’s discretion to grant an extension and an appeal based on those grounds has no reasonable prospects of success.

(2)    Material non-disclosure

12.  The submissions amount to nothing more than a re-argument of the matters raised at the hearing which have been fully considered and rejected for the reasons stated.

13.  No reasonable prospects of success have been shown for an appeal on this ground.

(3)  Failure to consider the balance of hardship

14.  This is one of several factors that the court takes into account in the balancing exercise performed when exercising its discretion. The court was well aware of D1’s hardship submissions which with all other relevant matters were taken into consideration.

15.  I can discern no prospect of success of an appeal based on this ground.

Conclusion and order

16.  D1’s application for leave is dismissed with costs to the plaintiffs, such costs to be summarily assessed and payable forthwith. Separate directions will be given for summary assessment.

HCA 57/2018

[2020] HKCFI 2746

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 57 OF 2018

________________________

________________

______________

DECISION

______________

1.  This is the substantive hearing of 2 summonses relating to a protective writ in this action issued on 9 January 2018 (“the Writ”):

(1)     The 1^st defendant Chuang Yue Chien, Eugene (“D1”)’s summons dated 29 July 2019 (“D1’s summons”):

(a)      to set aside the ex parte order of Master Grace Chan dated 31 December 2018 (“1^st the extension order”) renewing the validity of the (unserved) Writ until 8 January 2020 (§1) and for other relief (§§2-3); and

(b)      to strike out the indorsement of claim in the writ (§4).

(2)     The Plaintiffs’ summons dated 2 September 2019 to strike out D1’s summons under RHC O 18 r 19.

I.     BACKGROUND FACTS

2.  The 1^st Plaintiff, Allied Weli Development Limited (In Liquidation) (“the Company”) was an investment holding company closely associated with D1 who founded it in 1996 and served as its permanent managing director from 1 November 1996 to 11 November 2009.

3.  The 2^nd Plaintiffs, John Howard Batchelor and Kenneth Fung (“the Liquidators”) were appointed as the joint and several liquidators of the Company on 8 July 2016.

(A)     Events culminating in the winding-up of the company

4.  In June 2011, the Company entered into a deed of guarantee with Penta Investment Advisers Limited (“Penta”) in respect of an investment Penta had made in one of the Company’s 29 subsidiaries.

5.  In January 2012 Penta issued a demand under the guarantee for approximately HK$210 million.  The Company denied liability resulting in Penta having to commence proceedings in the High Court in September 2012 to enforce its claims.  The judge found for Penta on 14 October 2014. The Company’s appeal was dismissed on 18 August 2015 and its application to the Court of Appeal for leave to appeal to the Court of Final Appeal was refused on 11 December 2015.

6.  Penta presented a winding-up petition in October 2015 based on an unmet judgment debt assessed at HK$235 million.  The winding-up order of the Company was made in February 2016.  The Company appealed which appeal was ultimately dismissed in July 2017.

7.  Both Harris J and the Court of Appeal commented on the critical need for investigation into the affairs of the Company.  The Court of Appeal noted the drastic diminution of the Company’s assets: see Re Allied WeliDevelopment Limited, HCCW 337/2015, unrep., 22 February 2016 at §2 and CACV 58/2016, unrep., 18 July 2017 at §6.8.

(B)     Events precipitating the issuance of protective writs

8.  Upon their appointment on 8 July 2016, the Liquidators began their investigations into the affairs of the Company but their attempts to gather in and preserve its assets were frustrated by

(1)     the absence of any books and records of the Company being made available; and

(2)     the lack of any meaningful cooperation from the Company’s former directors, officers, solicitors and other persons previously involved in the affairs of the Company including D1.

9.  It transpired that shortly after Penta issued its statutory demand, on 6 August 2015, the Company moved its place of registration to the Marshall Islands and the conduct of the Company’s management and business was moved to Taiwan and/or the Marshall Islands.  Those matters created additional obstacles and inevitably hampered the Liquidators’ investigations.

10.  When the Liquidators visited the Company’s place of business shortly after taking office, they were told that the Company had never operated from that address and were escorted out by security.

11.  In July 2016, the Liquidators requested a meeting with D1[1] as well as incumbent directors and former directors and officers identified through public records all of whom are defendants in this action.  

12.  However, the Liquidators’ efforts from July 2016 onwards to obtain information and documents from, and for interviews with, former management, direct and indirect shareholders and related entities were met with fierce resistance, obstruction and non-cooperation. 

13.  Meanwhile, the Liquidators liaised with Jonten Hopkins, the Company’s auditors for documents. In April 2017, the auditors provided the Liquidators with the 4 years of audited accounts and audit papers of the Company from 2011 to 2014.

14.  In July/August 2018, Jonten Hopkins produced an additional 175,000 pages of documents to the Liquidators.

15.  While the Company’s audited accounts as at 31 March 2012 showed net assets of HK $2.86 billion, the Liquidators found zero assets[2].  Based on investigations they were able to carry out, it transpires that

(1)     following Penta’s demand under the guarantee in January 2012, in March and April 2012 the Company’s shareholding was substantially reorganised (“the Reorganisation”); and

(2)     in May 2012, the Company, through a series of transactions substantially divested itself of all its assets (its property, its interest in its subsidiaries, receivables and other assets) to associated companies under the control of the Company’s former indirect shareholders (“the Divesting Transactions”).

16.  The Divesting Transactions comprised 3 parts:

(1)     The Dividend (valued at over HK$257 million): an in specie distribution by the Company to its shareholders of the Company’s 100% interest in Hennabun International Group Limited (BVI) (“HIGL”)[3] and its 28 indirect subsidiaries.

(2)     The Asset Transfer: a transfer of over HK$52.5 million of assets to a “fellow subsidiary”.

(3)     The Receivables Assignment: the assignment of HK$2.6 billion of intercompany receivables to a “fellow subsidiary” for HK$1.

17.  Denuded of its assets, Company is wholly insolvent.  Yet, the Company had funds to fight the guarantee proceedings including an unsuccessful attempt to seek leave from the Court of Appeal to appeal to the Court of Final Appeal.

18.  There are letters of support from the Company’s ultimate holding company, HEC Capital Limited (Cayman) (“HEC Capital”) which expired on 31 March 2015.  That might have been a source of funding for the guarantee proceedings.

19.  Instructions for the appeal against the winding-up order was from an individual Lee Kuo-Juy of Taiwan said to be the Company’s sole shareholder.  When the Liquidators enquired as to the consideration received from the Taiwanese investor, the Company’s solicitors Lam & Co said there was nothing: there were no documents.  No further response was received.

20.  On 22 December 2017 the Liquidators having identified potential causes of action, issued 2 protective writs (“the 2017 writs”) against various individuals (including D1) to preserve potential claims relating to the Divesting Transactions.  On 9 January 2018, the Liquidators issued the present Writ against 66 defendants (including D1) and consolidated the claims in the 2017 writs into one.

21.  The potential causes of action are encapsulated in the indorsement of claim in the Writ, specifically, those arising out of the Company’s decision to enter into the guarantee and the subsequent non-performance of the deed, the Reorganisation, the Divesting Transactions and the preparation of the Company’s financial statements.

22.  Breaches of directors’ duty, dishonest assistance, knowing receipt, and unjust enrichment, conspiracy and negligence are the types of claims likely to be pursued.

(C)     Events since the writ

23.  Shortly after the Writ was issued, D1’s solicitors (“Haldanes”) requested the Plaintiffs’ solicitors (“Kirkland”) for service of all the writs upon D1, pursuant to RHC O 12 r 8A (1).

24.  In February 2018, Kirkland provided reasons why the Plaintiffs would not serve the writs on their clients.  Nothing further was heard concerning the request until July 2019. 

25.  In April and May 2018, Haldanes and Kirkland corresponded further regarding interview requests and provision of information without any agreement being reached.

26.  The Liquidators concluded that they had little option but to compel assistance from persons and entities believed to have information and/or documents, principally the past officeholders by making a section 286B application in HCCW 337/2015 (“HCCW 337”) against 9 respondents (“the respondents”) on 29 June 2018 (“the 286B application”).

27.  The 9 respondents other than (i) Lam & Co (solicitors for the Company), (ii) Andrew Lam[4] (at the material time a full-time consultant to the Company under a service agreement dated 1 June 2009) and (iii) Karen Lo (who is D1’s wife) were all former directors and/or officers of the Company.

28.  The Liquidators considered that the orders sought would enable them to reconstitute the Company’s knowledge, understand the reason for its collapse and to assess whether any viable claims exist, and if so, the defendants to such claims and prospects of recovery on any judgment.

29.  Obfuscation and obstruction on the part of the respondents resulted in evidence in opposition only being filed between 23 November and 13 December 2018, almost 6 months after the date of the Liquidators’ application. The hearing was scheduled for 11 and 12 March 2019.

30.  If the respondents’ evidence is taken at face value, none of them has any meaningful information, documents or recollection of what happened to the Company’s HK$2.86 billion worth of assets, who was involved and who benefited from the Divesting Transactions - a case of collective amnesia.

31.  Meanwhile, the documents produced by the former auditors in July/August 2018 required time for a high-level review to be conducted.

32.  The Liquidators considered that they needed further time and were not in a position to determine whether the Plaintiffs would proceed with any claims because of the significant challenges encountered in their investigations described above and further highlighted in §54 below.  They hoped to gain insight through the 286B application into who was responsible for orchestrating the Divesting Transactions and their commercial purposes and who ultimately received the benefit of those Transactions.

33.  It was in those circumstances that, on 21 December 2018, the Plaintiffs applied ex parte for an order extending the validity of the Writ for a period of 12 months (“the 1^st extension order”).

(D)    The 286B application

34.  The hearing took place on 11 and 12 March 2019 but was adjourned part heard with a further two-day hearing on 14 and 17 May 2019 before Recorder Jason Pow SC.

35.  On 6 May 2019 the Liquidators filed Batchelor 2 in HCCW 337 to update the Court on (i) the Liquidators’ review of the Jonten Hopkins documents and (ii) the progress of the 286B application.  This resulted in an adjournment[5] on 14 May 2019 to allow the respondents the opportunity to file evidence in reply.

36.  The hearing resumed on 13 August and concluded on 17 September 2019.  The decision has been reserved which is expected to be handed down in December 2020.

37.  Meanwhile, Haldanes filed a notice to act for D1 in this action on 12 July 2019 and on 29 July 2019, filed an acknowledgement of service of the writ and D1’s summons.  

38.  Also on 29 July 2019, the 7^th defendant (“D7”) one of the 9 respondents to the 286B application sought discovery from the Liquidators of documents referred to in Batchelor 1 and 2, pursuant to  O 24 rr 10-11A.

39.  An application for a 2^nd extension order was made ex parte and granted on 20 December 2019 extending the validity of the Writ to 8 January 2021 (“the 2^nd extension order”).

II.     D1’ S APPLICATION

40.  Mr Barlow SC, leading counsel for D1 advanced 2 reasons for setting aside the ex parte order (s):

(1)     no good grounds were provided for the grant of the 1^st and/or 2^nd extension order(s); and

(2)     there was material non-disclosure.

A. WHETHER THERE WERE GOOD GROUNDS 

(1) Abuse of Process

(a)   Delay in Appointing Liquidators

41.  D1’s submissions focused on abuse, starting with a complaint that the Liquidators could have been appointed in October 2014 after Penta obtained judgment against the Company.  Instead, Penta did not do so until July 2016.

42.  This complaint appears to be totally unfounded.  The Liquidators do not choose and cannot dictate the date of their own appointment.  In so far as there is criticism of the petitioning creditor, it is equally unfounded as it is premised on the petitioning creditor’s knowledge of the Reorganisation and Divesting Transactions, leaving the Company with no assets.

43.  There is not a scintilla of evidence to establish the necessary premise. Rather, the Company contested its liability all the way up to the Court of Appeal, creating the impression that it had the funds to do so.   

(b)  Adequacy of information for an informed decision

44.  Mr Barlow placed considerable reliance on the Court of Appeal’s judgment in China Medical Technologies Inc (In Liquidation) v Bank of China (Hong Kong) Limited [2019] 2 HKLRD 710 which, in his view, was a case with considerable similarities to the present case.

45.  In the China Medical case, the main issue was whether there were good reasons for the extension order.  Kwan JA stated (at §40) that the power to extend the validity of a writ under O 6 r 8 (2) should only be exercised for good reason, and whether there was good reason depended on all the circumstances of the particular case and the question whether an extension should be allowed was one for the discretion of the Judge.

46.  D1 relied heavily on the following passage from §60 of the judgment:

“… An extension would not have been justified to increase the liquidators’ knowledge in relation to the participation of the former management or other individuals in the fraud … nor in relation to the location of misappropriated assets.”

47.  Granted, the China Medical case did concern liquidators who had issued a protective writ and obtained an extension on the basis that they required further information before they could make an informed decision as to whether to proceed with any of the potential claims against the bank but that is as far as it goes.  The passage relied on cannot be applied in a vacuum, devoid of context.  Rather, it has to be viewed in the context of the facts of that case which, as explained below, are materially different from those pertaining in the present case.  

48.  In the China Medical case, pending an application under section 221 for the production of documents and oral examination of the bank’s employees, the liquidators applied for an extension of the writ, claiming that despite all reasonable efforts they required further information.  On that basis the master granted an extension.

49.  A week later, Harris J[6] dismissed the plaintiff’s section 221 application, holding, inter alia, that the liquidators did not need any more information to decide whether they had a viable claim.  The Court of Appeal dismissed the plaintiff’s application for leave to appeal in relation to that part of the decision.

50.  The bank successfully applied to set aside the extension on the basis that there were no good reasons for the extension and that the liquidators were guilty of material non-disclosure in failing to inform the master of the dismissal of the section 221 application.  The plaintiff unsuccessfully appealed that decision.

51.  D1 submitted that the present case is very similar to the China Medical case.  However, there are material differences.  That case concerned a claim by liquidators against a bank after investigations by liquidators showed that the plaintiff’s management had perpetrated a fraudulent scheme to misappropriate the plaintiff’s assets.  The action was against a 3^rd party ie the bank rather than the former directors and other persons and entities related to the Company.  It was not a case where the liquidators (as here) had to reconstitute the knowledge of the Company because, inter alia, of the matters stated in §8 above.  

52.  As Kwan JA remarked (at §45) “the central point … pertains to the adequacy of information for the liquidators to make an informed decision whether to proceed with the claims against the defendant.”  That consideration is necessarily highly fact-sensitive and the facts of a particular case cannot be transposed to another case with a different set of facts.

53.  Moreover, in the context of the section 221 application, Harris J reached a firm conclusion of the adequacy of information[7].  Whilst not determinative when it came to the setting aside application, after reviewing the evidence, Au-Yeung J reached the same conclusion.

54.  The challenges confronting the Liquidators in the present case are considerable and include the following:

(1)     the Liquidators started at a serious disadvantage in terms of time available for their investigations in that by the time they were appointed, over 4 years had already elapsed for potential claims in relation to the Reorganisation and Divesting Transactions;

(2)     they were then met with the situation described in §§8-19 above which was nothing less than a wall of resistance;

(3)     the lack of cooperation of the former directors and officers of the Company left the Liquidators with little choice but to make the 286B application on 28 June 2018 in the expectation of establishing a level playing field;

(4)     the 9 respondents to the 286B application took 6 months to file their affidavits/affirmations which only ranged from 5 to 9 pages in length;

(5)     other than D1 and his wife (D20), the remaining 7 respondents all appear to be affected by a general state of amnesia as regards events/transactions that occurred under their watch, at a time when they were in office[8];

(6)     that the Group may have operated in many respects as a single enterprise without a strict demarcation between legal entities and formal appointments within the Group[9] was a distinct possibility; and

(7)     the additional production of documents by the Company’s former auditors in July and August 2018 required time for a high-level review to be conducted.

55.  The circumstances prevailing in the present case is a far cry from those in the China Medical case, clearly distinguishable on the facts. Here, the Liquidators had no input and/or assistance from former management.  Rather, they had limited time within which to reconstitute the knowledge of the Company, piecing together such bits of information as they are able to uncover.

56.  D1 submitted that on the evidence adduced, the Liquidators had sufficient information to bring viable claims against 8 of the 66 defendants, namely D2 to D5 who were directors at the relevant time, D20 as well as two corporate entities within the group namely, D18 (Hennabun Capital Group Limited) and D15 (HEC Capital). 

57.  The individual defendants D1 named were D1’s co-respondents to the 286B application.  There would have been no need for the 286B application if D1 were correct.

58.  In my view, the notion that the Liquidators should proceed at half-cock in a case such as the present is risible.

(c)    Indorsement of Writ

59.  The generality, scope and breadth of the indorsement was the subject of adverse comment.  D1 described it as “bizarre”, covering every civil cause of action.

60.  Mr Lam SC, leading counsel for the Liquidators referred to Moulin Global Eyecare Holdings Limited v Olivia Lee Sin Mei (2014) 17 HKCFAR 466 where (at §28) in the context of the contents necessary for an indorsement, Gummow NPJ set out 4 propositions including the following:

“(b) The indorsement is not in the nature of a pleading, does not form part of the pleadings, and should not be read as such; rather, the indorsement marks out the perimeter or range of the area within which the plaintiff may express its claim in a formal fashion in the statement of claim whether as originally filed or as sought to be amended;”

61.  The Writ while broadly framed, nonetheless delineates the perimeter of the Liquidators’ claims, determined by the transactions described in, inter alia, §§15-16 above.  It is accepted that the Liquidators do not have sufficient information to particularise who did what, who knew what, who was the controlling mind of the Company but that is due to the difficulty confronted in reconstituting the knowledge of the Company in the absence of meaningful assistance from former management.

62.  It is to be noted that the formulation of protective writs is often necessarily broad: the protective writ in Re China Medical Technologies Inc [2016] 2 HKLRD 962 was also broadly framed but attracted no criticism from the Judge.

(2)       Material non-disclosure

63.  There are 3 respects in relation to which it was said that there had been material nondisclosure.  

(a)  Failure to disclose the speculative nature of the claim against D1

64.  D1’s case is that at the date of the 1^stex parte application, the 1^st Plaintiff had no known or identifiable cause of action against D1 in that there is no suggestion that D1 received any of the mis-applied assets or was enriched unjustly or otherwise; and no evidence concerning D1 to justify a fraud claim against him.  It was stressed that although D1 was the founder and had been managing director of the Company for many years, he “retired” in 2009.  The Reorganisation and Divesting Transactions about which complaint is made had nothing to do with D1 since they did not occur until 2012, well after his retirement.

65.  It was submitted that the Plaintiffs were seeking through the 1^st extension order to warehouse litigation and to allow the Liquidators to “fish” for a case not known to exist, in the hope that something would turn up.

66.  But the Liquidators have adduced evidence to show that D1’s “fingerprints” can be found on the Company’s dealings after his retirement such as the following:

(1)     D1 continued to retain a 41.12% indirect interest[10] in the Company;

(2)     the Company’s direct and indirect shareholders’ were the beneficiaries of the Reorganisation and Divesting Transactions (collectively “the events”) and D1’s wife Karen Lo (“D20”) was the largest known ultimate shareholder at the time;

(3)     D1 continued to be involved in the Company’s affairs before and after the events. In the guarantee proceedings, there is evidence that D1 met with Penta on a number of occasions even after Penta had already called on the guarantee; in July 2012 D1 offered (by letter) to make payments to Penta; and in April 2013, emails relating to the guarantee proceedings were sent and copied by Lam & Co, solicitors for the Company to D1 for his input;

(4)     payments of at least HK$21.7 million were made by the Company in 2011/2012 for the renovation of the property at 85 Repulse Bay Road which did not belong to the Company but was utilised by D1 and his then de facto wife, D20, and recorded in the Company’s account as “for director benefit” notwithstanding D1 and D20’s denial of holding any office at the time.

67.  Those matters were explored during the five-day hearing for the 286B application now pending decision.

68.  The need to look beyond the de jure directors to identify the true controlling mind and will of the Company follows from the fact that the de jure directors and the company secretary claimed to have no material knowledge and cannot shed light on the circumstances in which the Company divested itself of $2.86 billion of assets.

69.  In the circumstances, the characterisation of the Liquidators’ extension application as “a fishing exercise” is misguided and must be rejected.

70.  Choy Bing Wing v Chief Executive of HKSAR [2006] 1 HKLRD 666 and Nomura International Plc v Granada Group Limited [2008] Bus L R 1 were cited to the Court as examples of abuse.  In the present context, no meaningful assistance can be derived those authorities.

(b)     Failure to disclose at the time of the ex parte application that 12 months would not have been sufficient

71.  As appears from the chronology under section I (B) and (C) above, the respondents to the 286B application only filed their evidence in November/December 2018 after considerable procrastination, necessitating unless orders in some instances.

72.  The criticism that the Plaintiffs must have known that an extension of 12 months would be inadequate is both unjustified and unfair.  Specifically, the court’s diary is not a matter within the Plaintiffs’ control.

73.  It should be noted that even after the 286B application went part heard and the respondents were given leave to file evidence in reply to Bachelor 2, unless orders had to be made in relation to several of the respondents (including D1 and D20) for the filing of their reply evidence.  That D1 should now seek to shift the blame to the Liquidators by raising this unmeritorious ground of non-disclosure is regrettable.

74.  When a matter goes part-heard necessitating adjournments, scheduling difficulties often arise.  The Plaintiffs cannot be held responsible for the delay that has occurred when, in truth, the respondents have themselves caused and/or contributed in no small measure to that delay.

(c) Failure to disclose that an extension would deprive D1 of an accrued limitation defence

75.  D1 relied on the following extract from Kwan JA’s judgment in the China Medical case (referencing the categorisation made by Lord Brandon in Kleinwort Benson Ltd v Barbrak Ltd [1987] AC 597 at 615H-616C[11]):

“83. Limitation issues are of crucial importance to the exercise of the discretion whether to extend the writ and for how long … it would be unlikely for there to be good reason for extension in category (2) cases and even less likely in category (3) cases.

84. It is therefore incumbent on the liquidators to present the relevant limitation points clearly, unequivocally and comprehensively …”

76.  D1 again sought to place reliance on the facts of the China Medical case and referred to various passages of the judgment of Au-Yeung J.  But, as earlier noted, the China Medical case involved a totally different set of facts.  

77.  The question essentially is whether the Liquidators have presented a fair and accurate picture of potential arguments that D1 may raise.

78.  Time limitation issues are specifically addressed in section I.1 of Batchelor 1.  The potential causes of action set out in the Writ largely arise out of and in relation to the Reorganisation and Divesting Transactions with the latter occurring in May 2012.   

79.  The claims most likely to be pursued (for breach of directors’ duty, dishonest assistance, knowing receipt, unjust enrichment, conspiracy and negligence) could have accrued by 2012.

80.  §221 of Batchelor 1 states:

“Accordingly: (a) if the extension subject to the current application is not granted, certain Defendants may prima facie be entitled to assert a time limitation defence if a similar writ was issued now pursuing claims in connection with the Reorganisation and Divesting Transactions, which claims would have accrued more than 6 years ago; and (b) by corollary, if the extension order is granted, this will deprive those Defendants who would otherwise be entitled to assert such a time limitation defence from doing so.”

81.  §223 invited attention to certain claims set out in the indorsement in respect of which causes of action may have accrued more than 6 years prior to the issue of the Writ[12] which were then identified: (a) the Plaintiffs’ claim in respect of the entry by the Company into the guarantee on or about 24 June 2011; (b) withdrawals from the Company’s bank account referred to in 1(f) of the indorsement; and (c) possibly, letters of support given by HEC Capital to the Company in connection with the 2013 and 2014 Accounts.

82.  On a fair reading of section I.1 of Batchelor 1 summarised above, the Court’s attention had been drawn fairly and squarely to the fact that if the extension sought were granted, it could deprive certain Defendants from an accrued limitation defence. 

83.  In my view, it has not been shown that there has been any material non-disclosure on the part of the Plaintiffs.

84.  While Kwan JA expressed the view that it would be unlikely for there to be good reason for extension in a category (2) case, I do not read the China Medical case as precluding any extension ever being granted in category (2) situations.

85.  The Court still retains a discretion and whether it should be exercised is highly fact-sensitive. It would depend on the facts pertaining in the particular case and in an appropriate case, there could be good reason for exercising the discretion to grant an extension. The present case is one such case.

86.  For all the reasons set out above, D1’s summons is dismissed.

III.     THE PLAINTIFFS’ SUMMONS

87.  The Plaintiffs challenged D1’s locus to issue D1’s summons on the basis that in civil proceedings, the jurisdiction of the Court against a defendant is premised upon service being effected on him: see Cameron v Liverpool Victoria Insurance Co Ltd [2019] 1 WLR 1471 at §14 citing Dresser UK Ltd v Falcongate Freight ManagementLtd [1992] QB 502 with approval.

88.  It is common ground that the Writ has not been served on D1.

89.  The marginal notes to D1’s summons reference, inter alia, O 12 r 8; O 32 r 6.  Although O 12 r 8A was not specifically referenced, in view of the Court of Appeal’s decision in Premier Fashion Wears Limited v Chow Cheuk Man [1994] 1 HKLR 377, it was common ground that the omission does not disentitle D1 to relief under r 8A if the Court thought it appropriate.

90.  In his reply submissions, Mr Barlow submitted that O 32 r 6 entitles any person, whether a party or not, who is affected by an ex parte order to ask the Court to set it aside.

91.  He cited Shineland Corporation Limitedv Gladford Ltd & Others, HCMP 1972/2017, unreported, 30 November 2017 for the proposition that jurisdiction over the parties is founded on submission and not service.  While service is the usual manner of the Court assuming jurisdiction over a party, jurisdiction can arise by the party submitting itself to the same: see Shineland at §24.

92.  In view of that authority, Mr Lam acknowledged that the Court certainly has jurisdiction in the present case but drew a distinction between what he described as “the broader theoretical jurisdiction” as distinct from “the narrower practical jurisdiction”.  However, what was not clear to the Court was the dividing line between the broader and the narrower jurisdiction referred to and the appropriate litmus test is to be applied to determine into which category a particular case falls.

93.  Mr Lam submitted that except where the order made by the Court has a significant impact on the defendant such as a Mareva injunction or an AntonPiller order or where, as in Shineland, his property rights are affected the registration of a lis pendens over his property, “otherwise,” the Plaintiffs maintain that the proper procedure for a defendant would be to take out an application under O 12 r 8A.

94.  Those may be examples of what would fall within the narrower practical jurisdiction but is hardly a satisfactory approach since those examples cannot be exhaustive of the situations that could arise.

95.  As I understand it, the subtext of the submission is that the present case does not fall within the narrower practical jurisdiction and therefore the Court should not entertain the summons unless D1 can bring himself within O 12 r 8A which has a much higher threshold: see China Medical Technologies, Inc (in liquidation) v KPMG (a firm)[2018] HKCFI 655 (unrep,) 23 March 2018 and HKCP 2020 at 12/8A/1.

96.  InShineland, Recorder Stewart Wong SC did not consider the passage in the Dresser case cited by Lord Sumption in Cameron on which the Plaintiffs rely to be of assistance in that the Dresser case was decided in the context of article 22 of the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, concerning when a Court in a contracting state is first seised of an action: see §§26-28.

97.  The Plaintiffs referred to the decision of DHCJ To in D7’s application[13] in Allied Weli Development Limited (In Liquidation) v    Chuang Yue Chien[2020] HKCFI 2151 for discovery pursuant to O 24 rr  10-11A where (at §42) in rejecting D7’s application, the Judge was of the view that D7 had no right to participate in the hearing or to contest those applications and the only right exercisable by her was to invoke O 12 r 8A.

98.  That decision cannot assist the Plaintiffs in the present case because it did not concern an ex parte order affecting D7.

99.  For my part, either the Court has jurisdiction or it does not.  If it does have jurisdiction under O 32 r 6, then it is a matter of whether D1 can succeed on the merits.

100.  It follows that the Plaintiffs’ summons falls to be dismissed.

IV.     ORDER

101.  For the reasons set out above, it is ordered that (1) D1’s summons be dismissed and (2) the Plaintiffs’ summons be dismissed.

102.  There is to be in an order nisi of costs of

(1) D1’s summons in favour of the Plaintiffs with certificate for 2 counsel, and

(2) the Plaintiffs’ summons in favour of D1 with certificate for counsel,

such costs to be summarily assessed and payable forthwith.  Directions for summary assessment will be given separately.

HCA 57/2018

[2020] HKCFI 2151

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 57 OF 2018

________________________

________________________

________________________

DECISION

________________________

Introduction

1.  This is the 7^th Defendant’s application by summons dated 29 July 2019 (the “Summons”), pursuant to Order 24 rules 10, 11 and 11A of the Rules of the High Court for (a) an order that the Plaintiffs be required to produce for inspection and copying the documents identified in the Appendix to the Summons; and (b) permission to use the copy documents in related proceedings that have also been brought against her by the liquidators herein, ie the winding up proceedings in HCCW 337/2015.

2.  The 1^st Plaintiff (the “Company”) was an investment holding company closely associated with its founder, the 1^st Defendant.  In June 2011, the Company entered into a guarantee with Penta Investment Advisers Limited (“Penta”) in respect of an investment Penta made in one of the Company’s 29 direct and indirect subsidiaries.  Subsequently, Penta sued on the guarantee and obtained judgment in the sum of around $210 million against the Company.  On 22 February 2016, upon the petition of Penta in HCCW 337/2015, the Company was wound up.  The 2^nd Plaintiff are appointed as the joint and several liquidators of the Company (the “Liquidators”). 

3.  Extraordinarily, the Liquidators were denied access to any books and records of the Company upon their appointment. They were even refused entry to the Company’s premises and escorted away by security guards.  Their investigations into the affairs of the Company and their attempts to gather and preserve its assets were frustrated by the absence of any books and records of the Company being made available to them on their appointment; and the lack of meaningful cooperation from the Company’s former directors, officers, solicitors and other persons previously involved in the affairs of the Company, including the 7^th Defendant. 

4.  Subsequently, the Liquidators obtained from the Company’s former auditor and tax advisor, Jonten Hopkins, audited accounts and working papers for the Company for the period between 31 March 2011 and 31 March 2014.  The documents were supplied in two lots, one lot in 2017 (the “2017 Documents”) and the second lot under threat in 2018 (the “2018 Documents”)

5.  By December 2017 or January 2018, the Liquidators formed the opinion that prior to the commencement of legal proceedings by Penta and during the period 31 March to 25 May 2012 the Company had substantially reorganised its shareholding and may have fraudulently divested itself of all its assets thereby rendering it judgment-proof from its creditors (the “impugned transactions”), but further investigations were necessary to clearly understand, interalia, the commercial rationale of the impugned transactions.  The Liquidators believed the Company may have claims against various individuals and corporations associated with the impugned transactions but are not yet in a position to determine whether such claims, or which of them, should be pursued.  These potential claims may be the only means through which the Company’s creditors will be able to make any meaningful recovery in the liquidation. 

6.  On 22 December 2017, the Plaintiffs issued two protective writs in HCA 2995/2017 targeting the former officers and directors of the Company, including the 7^th Defendant, and in HCA 2996/2017 targeting potential beneficiaries and accomplices in relation to the impugned transactions.

7.  On 9 January 2018, the Plaintiffs issued the replacement protective writ in this action.  The replacement writ consolidated the claims in the two previous writs and added further claims.  The previous two writs were allowed to lapse unserved.

8.  By June 2018, the Liquidators concluded that meaningful assistance was unlikely to be provided by the directors and others involved without compulsory orders from the court.  Thus, on 29 June 2018, they applied within HCCW 337/2015, pursuant to section 286B and 286C of the Companies (Winding-Up and Miscellaneous Provisions) Ordinance Cap. 32, for orders against 9 respondents, including the 7^th Defendant herein, for the production of documents and an oral examination in relation to the impugned transactions (“S286B Application”).  The application was supported by the 2^nd affidavit of Mr Batchelor, one of the joint and several liquidators, in the winding-up proceedings (which is not the same one as “Batchelor 2” filed later in this action referred to in paragraph 11 below).  The S286B Application was heard before Recorder Jason Pow on 11 and 12 March, 14 May, 13 August and 17 September 2019 when it was concluded with decision reserved.

9.  In the meantime, on 8 January 2019, Mr Batchelor swore his 1^st affidavit in this action (“Batchelor 1”) in support of the Plaintiffs’ ex parte application to extend the validity of the replacement writ which had not been served. Specific relevant documents within the 2017 Documents (but not all the documents) were exhibited throughout that affidavit.  The Liquidators indicated that they had also reviewed the 2018 Documents and had decided to conduct a more intensive review.  The application was granted and the validity of the writ was extended to 8 January 2020.

10.  On 21 February 2019, at the request of the 7^th Defendant’s solicitors, Haldanes, and the other respondents to the S286B Application, Batchelor 1 filed in this action was included in the hearing bundle for the S286B Application.  At the time, the 7^th Defendant did not ask for production or inspection of all the 2017 Documents.  The hearing of the S286B Application commenced 11 March 2019.

11.  On 7 May 2019, in compliance with their continuing duty of full and frank disclosure, the Liquidators filed the second affidavit of Batchelor (“Batchelor 2”) in this action to update the court about their review of the 2018 Documents which they had only just completed.  The specific relevant documents within the 2018 Documents (but not all the documents) relied upon in Bachelor 2 were exhibited throughout that affidavit.  Given its relevance, a copy of Batchelor 2 with exhibits was included in the hearing bundles of the S286B Application.  That explains why the 7^th Defendant had a copy of Batchelor 1 and Batchelor 2 which had not been served on her in this action.

12.  At the resumed hearing of the S286B Application on 14 May 2019, the Liquidators were granted leave to rely on Batchelor 2 filed in this action.   The Liquidators only broadly referred to the remaining vast volume of documents which have not been exhibited to explain the nature and extent of their work, and to confirm that they have not been able to obtain from those other sources information sought through the S286B Application which they reasonably require.  The respondents requested for more than two weeks’ time to respond to the specific documents in Bachelor 2.  In rejecting their request, Recorder Pow acknowledged that the crux of Batchelor 2 was to update the court as to the state of the Liquidators’ knowledge or understanding after completing their review of the 175,000 pages of additional documents and that the areas of factual disputes remain largely the same as before.

13.  On 20 May 2019, while the S286B Application was on-going, Haldanes, then acting for 7^th Defendant solely in the S286A Application, asked for production and inspection of and only of the 2018 Documents.  No request was made in respect of the 2017 Documents.  In reply the Liquidators’ solicitors, Kirkland & Ellis (“K&E”) requested Haldanes to identify the issues in the S286B Application which they considered can only be fairly determined following production of the documents.  They did not respond.  Instead, on 29 July 2019, Haldanes filed a notice to act on behalf of the 7^th Defendant in this action and, without prior notice to the Plaintiffs, filed the present Summons seeking discovery of all the 2017 Documents and 2018 Documents.

14.  On 8 August 2019, K&E sought an explanation from Haldanes as to why the present Summons was issued when there was no proceeding on foot as between the Liquidators and the 7^th Defendant, and that Batchelor 1 and Batchelor 2 had not been served on her.  That letter identified precisely the jurisdictional issue raised in this Summons.  Other than a brief reply, Haldanes provided no substantive response. 

15.  The hearing of the S286B Application continued in August and September 2019.  The 7^th Defendant did not raise issues relating to this Summons or otherwise seek orders compelling production of the 2017 Documents and/or the 2018 Documents for the purpose of the S286B Application.  The hearing of the S286B Application concluded on 17 September 2019 with decision reserved.

16.  On 20 December 2019, Mr Batchelor swore his 6^th affidavit in this action (“Batchelor 6”) to support the Plaintiffs’ application for a second extension of the validity of the writ.  On 31 December 2019, the validity of the writ was extended for a further 12 months as from 9 January 2020. 

The law

17.  The 7^th Defendant’s application is made pursuant to Order 24 rules 10, 11 and 11A.  Order 24 rule 10(1), rule 11(1) and rule 13(1) provide as follows:

“10.Inspection of documents referred to in pleadings and affidavits (O. 24, r. 10)

(1)  Any party to a cause or matter shall be entitled at any time to serve a notice on any other party in whose pleadings, affidavits or witness statements served under Order 38, rule 2A, or experts’ reports, reference is made to any document requiring him to produce that document for the inspection of the party giving the notice and to permit him to take copies thereof.”

11.  Order for production for inspection (O. 24, r. 11)

(1)  If a party who is required by rule 9 to serve such a notice as is therein mentioned or who is served with a notice under rule 10(1)—

(a) fails to serve a notice under rule 9 or, as the case may be, rule 10(2), or

(b) objects to produce any document for inspection, or

(c) offers inspection at a time or place such that, in the opinion of the Court, it is unreasonable to offer inspection then or, as the case may be, there,

then, subject to rule 13(1), the Court may, on the application of the party entitled to inspection, make an order for production of the documents in question for inspection at such time and place, and in such manner, as it thinks fit.

13.  Production to be ordered only if necessary, etc. (O. 24, r. 13)

(1)  No order for the production of any documents for inspection or to the Court or for the supply of a copy of any document shall be made under any of the foregoing rules unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.

18.  The 7^th Defendant argues that Order 24 rule 10 regime is separate and distinct from the rules governing general discovery and specific discovery.  She argues that where the requirements are met, the applicant has a right to inspection.  The inter-relations between these rules have been settled by the Court of Appeal in Moulin Global Eyecare Holdings Limited (in Liquidation) v Olivia Lee Sin Mei[1].  Fok JA (as he then was) said in paragraphs 21 to 35:

“21. The Judge accepted that where a document is referred to in an affidavit in support of an application, the court will ordinarily order production because the purpose of requiring production is to give the opposite party the same advantage as if the document had been fully set out: see Matthews & Malek, Disclosure (4^th Ed.) at §§9.04-9.05.

22. He also considered that it was a theme running through many of the cases cited to him, including Quilter v Heatly (1883) 23 Ch D 42, Zida Technologies Ltd v Tiga Technologies Ltd [2001] 4 HKC 163; [2001] 3 HKLRD 698 and Rubin v Expandable Ltd [2008] 1 WLR 1099, that:

“… for practical purposes, a court is likely to take the view that absent any special factors, where a document has been referred to, it would generally be appropriate to regard its production as being so necessary as being in the interests of fairness and equality of information.”

…

31. I have set out above the rules of Court relevant to the present appeal. It is clear from those rules and from the authorities that have considered them (or the precursors to those rules) that there is a distinction between discovery of documents in an action in general and an application for production of documents referred to in pleadings or affidavits: see, in this respect, Quilter v Heatly per Lindley LJ at p. 49 and Shun Kai Finance Co Ltd v Japan Leasing (HK) Ltd per Rogers VP at pp. 523J-525B.

32. In the latter situation, where a party has referred to a document in his pleading or affidavit, the opposite party has a prima facie entitlement to see it, “unless good cause to the contrary is shewn” (per Jessel MR in Quilter v Heatly at p. 48), or “unless there is some sufficient ground for refusing production” (ibid per Lindley LJ at p. 50), or “unless he can shew good cause why he should not” produce it (ibid per Bowen LJ at p. 51).

33. Nevertheless, it is clear from the rules that any order for production for inspection under O.24 r.11 is expressly “subject to rule 13(1)” and that latter rule plainly places, on an applicant for an order for production, a burden to demonstrate to the court that “the order is necessary either for disposing fairly of the cause or matter or for saving costs”.

34. In Dynamic Way, Godfrey VP expressed the position thus (at p. 142B-D):

“We are concerned here with a document referred to in an affirmation, that is to say, the list of purchase orders mentioned in para 36. Although, prima facie, the party against whom it was sought to be used had a right to inspect this document and take copies of it, the court will not order production of the document for inspection unless the court is of the opinion that such an order is necessary either ‘for disposing fairly of the cause or matter or for saving costs’; see O. 24 r. 13 of the Rules of the High Court.”

35. There are thus two separate stages to be considered, although in practice these will usually be examined together. First, the party who has referred to the document in a pleading or affidavit bears the burden of showing good cause why an order for production should not be made. As a matter of practicality, at that stage, the fact of reference to a document in a pleading or affidavit will make it difficult for the referring party to contend that the document does not exist and it may also make it difficult for him to contend that it is not relevant. However, that is not the end of the inquiry as there is not then a presumptive rule in favour of an order for production and the referring party may be able to show, for example, that the document is privileged from production. In any event, under O.24 r.13 there remains, secondly, and independent of the first stage, a burden on the applicant for an order for production to show the court that the order is necessary either for disposing fairly of the cause or matter or for saving costs.

19.  In situations to which rule 10 applies, a party to whom pleadings or affidavits in a cause or matter has been served, has a prima facie entitlement to see the documents referred to therein.  He is entitled to make a request for inspection and production.  The burden is on the party who referred to the documents to show there is some sufficient ground for refusing production.  On the other hand, rules 11 and 13 make it clear that any order for production or inspection is expressly subject to rule 13(1) which places on an applicant for an order for production, a burden to demonstrate to the court that “the order is necessary either for disposing fairly of the cause or matter or for saving costs”.  Hence, the Court of Appeal developed the two-stage analysis.  Order 24 rule 10 cannot be construed as a presumptive, rigid or inflexible rule requiring production of a document as of right once it has been referred to in a pleading or affidavit.  Its production is subject to the court’s discretion under rule 13.

20.  The 7^th Defendant argues that since the 2008 Civil Justice Reform (“CJR”), rule 13 does not contain the discretionary override that the old rule used to contain as demonstrated in C.W. Rome v Punjab National Bank[2]. This question of discretionary override post-CJR was discussed in Moulin Global.  Fok, JA said at paragraphs 47-48 and 52:

“47.  Given the real reason and context for Rogers VP’s use of the phrase “very unusual circumstances”, I am quite satisfied that it is wholly wrong for the plaintiff to suggest that the decision in Dynamic Way constrains the court when it is considering, as it must under O.24 r.13, whether the applicant for an order for production has demonstrated that such an order is necessary either for disposing fairly of the cause or matter or for saving costs.

48. Such an approach would largely deprive the court of any discretion under O.24 r.13 when considering an application for production under O.24 r.11 and I do not accept that this is the effect of the rules or the authorities relied upon by the plaintiff.

…

52.  In requiring the court to consider the necessity of an order for the production of a document for the fair disposal of a cause or matter, O.24 r.13 confers, in my judgment, a broad discretion rather than a narrow or fettered discretion as the plaintiff would suggest.  That the discretion is broad rather than narrow or fettered is supported by the following passage in the judgment of Sir Thomas Bingham MR in Taylor v Anderton [1995] 1 WLR 447 at p. 462, which the Judge quoted, namely:

“… The crucial consideration is, in my judgment, the meaning of the expression ‘disposing fairly of the cause or matter.’ Those words direct attention to the question whether inspection is necessary for the fair determination of the matter, whether by trial or otherwise. The purpose of the rule is to ensure that one party does not enjoy an unfair advantage or suffer an unfair disadvantage in the litigation as a result of a document not being produced for inspection. It is, I think, of no importance that a party is curious about the contents of a document or would like to know the contents of it if he suffers no litigious disadvantage by not seeing it and would gain no litigious advantage by seeing it. That, in my judgment, is the test.””

There is no change in the wording of rules 10, 11 and 13 after CJR to justify the inference suggested by the 7^th Defendant.  By quoting with approval the dicta Bingham MR in the pre-CJR decision of Taylor v Anderton, the Court of Appeal expressly preserved the discretion post-CJR. 

21.  Thus, the correct approach in considering an application for discovery pursuant to Order 24 rule 10 is to adopt the two-stage analysis.  While as a matter of practice, the two stages are considered together, as a matter of logic, the burden is first on the applicant, ie 7^th Defendant, to show that production is necessary either for disposing fairly of the cause or matter or for saving costs; and if he is able to discharge that burden, the party who referred to the document, ie the Liquidators, has to show good cause for refusing production.  On the facts, this case is one in which the two stages could be analysed separately.  If 7^th Defendant fails to discharge the burden in the first stage, that basically is the end of her application.

The basis of the application

22.  The 7^th Defendant advanced two basis for seeking production of the documents.  Her first basis is to enable her and her legal advisor to consider and assess (a) whether to apply to set aside the two orders extending the validity of the writ in this action; and (b) how to defend herself against the claim in the writ.  Her second basis is to obtain the documents for the purpose of resisting the S286B Application for examination and production orders in the winding-up proceedings in HCCW 337/2015.

23.  In essence, the Liquidators’ objections are that the 7^th Defendant’s first basis is misconceived as the writ remains unserved and her second basis is equally untenable as the S286B Application has been concluded and in any event it is a matter for the Companies Court in its supervision of the winding-up proceedings.  

The documents sought

24.  The documents sought are all the 2017 Documents and all the 2018 Documents mentioned in Batchelor 1 and Batchelor 2.  The majority of these documents concern work undertaken by Jonten Hopkins for other entities in the group of companies to which the Company belonged during the same period.  The documents may be divided into two broad classes, namely:

(1)  audited accounts and working papers for the Company for the period between 31 March 2011 and 31 March 2014 produced to the Liquidators by Jonten Hopkins in around April 2017, ie the 2017 Documents; and

(2)  an additional 24,050 documents totalling approximately 180,000 pages (understood to be approximately 175,000 pages at the time of Batchelor 1) produced by Jonten Hopkins to the Liquidators under threat between July and August 2018, ie the 2018 Documents. 

25.  The Liquidators admit they have possession of the documents.  In fact, Batchelor 1 and Batchelor 2 with some specific documents which the Liquidators considered relevant to the ex parte application for extension of the writ had been provided to 7^th Defendant in connection with and for the purpose of the S286B Application. 

The context of this application

26.  Before considering the two-stage analysis, it would be helpful to set out the context in which this application arose.  The documents which the 7^th Defendant seeks production are not documents which have been served on her in this action, but are documents referred to in Batchelor 1 and Batchelor 2 filed in support of the ex parte application for extension of the validity of the writ.  She only came into possession of Batchelor 1 and Batchelor 2 in another set of proceedings which have now been concluded.  The application to which this discovery relates is therefore in respect of an action, the writ of summons of which has not yet been served on the 7^th Defendant.

Jurisdiction

27.  There is no dispute that the writ in this action has not been served on the 7^th Defendant.  The thrust of the Liquidators’ argument is that not until the writ has been served on the 7^th Defendant would this court has jurisdiction on this cause or matter over her.  Relying on Cameron v Liverpool Victoria Insurance Co Ltd[3], Mr Lam SC, leading counsel for the Liquidators, submits that it is trite law that the jurisdiction of the court in civil proceedings against a defendant is premised upon service of the writ having been effected upon him and not the mere issuance of the writ.  Conversely, unless and until such service has been effected, a putative defendant is not yet a party to the proceedings, which would neither be binding nor have any effect upon him (save the legal consequence of any order made pursuant to an ex parte application).

28.  Mr Barlow SC, leading counsel for the 7^th Defendant, argues that Mr Lam SC’s analysis is based upon a misunderstanding or misrepresentation of the relevance herein of the decision of the English Court of Appeal in Dresser UK Ltd v Falcongate Freight Management Ltd[4], quoted in Cameron v Liverpool Victoria Insurance Co Ltd,which is concerned with the interpretation of articles 21 and 22 of the Brussels Convention on Jurisdiction and the Enforcement of Judgements in Civil and Commercial Matters.  He also quoted Canada Trust Co v Stolzenberg (No 2)[5] in which Lord Steyn said “it is trite law that an action is begun in the High Court when a writ of originating summons is issued”, when expressing his disagreement with the Court of Appeal in Dresser v Falcongate.

29.  I respectfully disagree.  Except for the suggestion that a putative defendant is not a party to the proceedings until the writ has been served on him, the proposition advanced by Mr Lam SC is basically correct.  That proposition is also trite law as affirmed by Supreme Court of the United Kingdom in Cameron v Liverpool Victoria Insurance Co Ltd.  In that case, Lord Sumption said at paragraph 14, quoting Dresser v Falcongate:

“14. … There is no doubt that a claim form may be issued against a named defendant, although it is not yet known where or how or indeed whether he can in practice be served. But the legitimacy of issuing or amending a claim form so as to sue an unnamed defendant can properly be tested by asking whether it is conceptually (not just practically) possible to serve it. The court generally acts in personam. Although an action is completely constituted on the issue of the claim form, for example for the purpose of stopping the running of a limitation period, the general rule is that “service of originating process is the act by which the defendant is subjected to the court’s jurisdiction”: Barton v Wright Hassall LLP [2018] UKSC12, [2018] 3All ER 487[2018] 1 WLR 1119, (para [8]). The court may grant interim relief before the proceedings have been served or even issued, but that is an emergency jurisdiction which is both provisional and strictly conditional. In Dresser UK Ltd v Falcongate Freight Management Ltd, The Duke of Yare [1992] 2 All ER 450, [1992] QB 502, the Court of Appeal held that, for the purposes of the Brussels Convention (the relevant provisions of the Brussels Regulation are different), an English court was “seised” of an action when the writ was served, not when it was issued. This was because of the legal status of an unserved writ in English law. …”

30.  It is true that Dresser v Falcongate was concerned with construction of the Brussels Convention, but that construction was based on the legal status of an unserved writ under English law.  The parties’ position under an unserved writ under English law has been summarised by Bingham LJ in Dresser v Falcongate as follows[6]:

“… it is in my judgment artificial, far-fetched and wrong to hold that the English court is seised of proceedings, or that proceedings are decisively, conclusively, finally or definitively pending before it, upon mere issue of proceedings, when at that stage (1) the court’s involvement has been confined to a ministerial act by a relatively junior administrative officer; (2) the plaintiff has an unfettered choice whether to pursue the action and serve the proceedings or not, being in breach of no rule or obligation if he chooses to let the writ expire unserved; (3) the plaintiff’s claim may be framed in terms of the utmost generality; (4) the defendant is usually unaware of the issue of proceedings and, if unaware, is unable to call on the plaintiff to serve the writ or discontinue the action and unable to rely on the commencement of the action as a lis alibi pendens if proceedings are begun elsewhere; (5) the defendant is not obliged to respond to the plaintiff’s claim in any way, and not entitled to do so save by calling on the plaintiff’s to serve or discontinue; (6) the court cannot exercise any powers which, on appropriate facts, it could not have exercised before issue; (7) the defendant has not become subject to the jurisdiction of the court.

31.  As prescribed by Order 5 rule 4, civil proceedings in the High Court begin with filing of a writ of summons or an originating summons.  As affirmed by Lord Sumption, an action is completely constituted on the issue of the originating process but the general rule is that it is only upon service on the defendant that the defendant comes under the court’s jurisdiction.  The true position is that an action is completely constituted on the issue of the writ or originating process.  The parties named therein become parties to the action.  The court has jurisdiction over the cause or matter.  But the extent of the court’s jurisdiction varies depending on the stage of the proceedings.  Before service, the court’s jurisdiction is limited, for example, amending the writ, adding additional parties, granting extension of time as to its validity and so on.  But it has no jurisdiction over the party who has not been served with the process.  Upon service, the extent of the court’s jurisdiction is enlarged.  I do not think Canada Trust Co v Stolzenberg (No 2) would assist the 7^th Defendant because while it is true that an action is completely constituted on the issue of the writ, it is well-established principle that it is not until service of the writ has been effected on the defendant, would the court have jurisdiction over the defendant.  I think the above analysis of Lord Sumption’s dicta is sufficient to dispose of Mr Barlow SC’s argument, save two points.

32.  Firstly, Mr Barlow SC further seeks to justify 7^th Defendant’s ability to presently apply to set aside the ex parte orders based on Order 10 rule 1(5) and Order 12 rule 8(1).  He submits that should the 7^th Defendant decide to invoke these procedures, her application will be a rule 13 matter, which is likely to assist in saving costs.  When deciding whether or not to invoke those procedures, she will also need to consider the duty of any party whose legal rights are infringed by the ex parte litigation misconduct of another party to exercise the available legal procedure to alert the court to the litigation misconduct and to seek redress from it.  Any failure timeously to do so may disentitle the party affected from later obtaining discretionary relief from the court.  Thus, the clock is presently ticking on the matter of any application by the 7^th Defendant to set aside the ex parte orders.

33.  Again, with respect, that argument is also misconceived. As mentioned earlier, civil proceedings may begin with filing a writ of summons under Order 5.  Order 6 provides that a writ is valid for a period of 12 months which may be extended up to 12 months.  Order 10 and Order 12 respectively provides for service of the writ and acknowledgement of service.  Order 12 rule 8 deals with disputes about jurisdiction where a writ has been served and acknowledged.  Order 12 rule 8A deals with compelling service of an unserved writ and discontinuation of the action, where the writ has not been served. 

34.  Order 10 rule 1(5) provides as follows:

“1. General provisions (O. 10, r. 1)

(5)  Subject to Order 12, rule 7, where a writ is not duly served on a defendant but he acknowledges service of it, the writ shall be deemed, unless the contrary is shown, to have been duly served on him and to have been so served on the date on which he acknowledges service.”

35.  This sub-rule covers situations where service of the writ has not been effective, and in that sense was not duly served, but has been acknowledged and is therefore deemed served.  Where the writ is deemed served and service has been acknowledged, the court has jurisdiction over the defendant.  Rule 1(5) does not cover situation like the present case where the writ has actually not been served, has not been acknowledged and has not been deemed to have been served. This court plainly has no jurisdiction as yet over the 7^th Defendant in respect of the cause or matter stated in the writ.  The 7^th Defendant’s argument that it is open to her at present to apply to set aside the ex parte orders is utterly misconceived.

36.  Secondly, Mr Barlow SC argues that the “jurisdiction of the court” is a hopelessly broad concept unless it is placed in some relevant context.  He submits that the context suggested by Mr Lam SC is that this court’s jurisdiction “against a defendant” which would be appropriate if a defendant (fox example, a foreign defendant) was challenging service – but that is not the 7^th Defendant’s case.  The 7^th Defendant is domiciled and a resident in Hong Kong and is therefore unquestionably amenable to the jurisdiction of this court.  “Jurisdiction” is a broad concept.  It may mean geographical jurisdiction as Mr Barlow SC now argues.  Alternatively, it may mean juridical power, which is what I have hitherto been discussing.  There is no justification for Mr Barlow SC to now shift the focus from juridical power to geographical jurisdiction.

37.  Reference has been made to Dubai Bank Ltd v Galadari (No 2)[7] and C.W. Rome v Punjab National Bank[8]  by the 7^th Defendant in support of her argument that the court’s power under Order 24 rule 10 can be invoked at this stage, allegedly to promote or ensure a fair contest within an interlocutory matter.  In Dubai Bank, Slade LJ quoted Lindley LJ from Quilter v Healey[9] as follows:

“These rules were evidently intended to give the opposite party the same advantage as if the documents referred to had been fully set out in the pleadings.”

By relying on the words “cause or matter” in rules 10 and 13, the 7^th Defendant argues that the court’s power can be invoked in order to promote or ensure a fair contest within the trial or in any proposed summary disposition of the cause or in order to promote or ensure a fair contest within an interlocutory matter as in Dubai Bank.  In C.W. Rome, this regime was applied to interlocutory challenges to the court’s jurisdiction or to the validity or otherwise of purported service of the writ.

38.  There is no doubt that the purpose of these rules is to promote fairness.  The question is whether the rules may be invoked before the writ has been served.  In the two cases relied on by the 7^th Defendant, there was a cause or matter already on foot.  In Dubai Bank, the plaintiff applied ex parte for an injunction against one of the defendants restraining it from disposing of its property into which the respondent claimed diverted moneys could be traced.  The plaintiff is of course entitled to orders of inspection and production of documents to which reference had been made by that defendant in its affidavit filed in opposition to the injunction application.  The defendant has been served with an originating process.  The fact that the proceeding commenced by way of an application for ex parte injunction is irrelevant.  In C.W. Rome, the plaintiff insurers commenced proceedings for a declaration that two policies of insurance under which the defendants were the assured had been validly avoided and for repayment of sums paid pursuant to a claim under those policies.  The writ had been served and the defendants applied for orders that the service of the writ be set aside and/or it be declared that the writ had not been duly served.  It was for the purpose of dealing with the defendants’ summons that the plaintiff applied for discovery under Order 24 rule 7.  It was under those circumstances that the court held it had jurisdiction.  These two cases are distinguishable from the present case in which the writ has not been served.

First basis – setting aside the ex parte extension orders and defending the claim under the writ

39.  The 7^th Defendant’s first basis in support of her request for production is to enable her and her legal advisor to consider and assess (a) whether to apply to set aside the two orders extending the validity of the writ in this action and to understand whether the Liquidators have been frank and candid with the court when applying for the two extension orders; and (b) how to defend herself against the claim in the writ. 

40.  The 7^th Defendant’s application is based on Order 24 rule 10(1).  As already explained, the application of that rule is subject to rule 13.  Under the two-stage analysis, the 7^th Defendant bears the burden of proving that production is necessary to enable the cause or matter to be disposed of fairly and for saving costs; if she succeeds in discharging that burden, the Plaintiffs have to show good cause for refusing production. 

41.  The writ had been issued but remains unserved. For the first stage analysis, the first question one must ask is what is the cause or matter to be disposed of for which Order 24 rule 10(1) is sought to be invoked?  As was held in Dresser v Falcongate, not until the 7^th Defendant has been served with the writ, does this court has jurisdiction over her in respect of the cause or matter.  The 7^th Defendant has not yet come under the court’s jurisdiction.  She has neither liability nor obligation in respect of any cause or matter pleaded in the writ.  She has no obligation or need to participate in the action or to plead to the writ in any way.  The time has not come for her to defend herself against the claim in the writ, let alone for her and her legal advisor to consider how to defend.

42.  At this stage of the proceedings, the court’s jurisdiction is only against the Liquidators who issued the writ.  In the exercise of that jurisdiction, the court extended the validity of the writ twice upon the ex parte applications by the Liquidators.  The 7^th Defendant has no right to participate in the hearing or to contest those applications.   The only right exercisable by her is to invoke Order 12 rule 8A to compel service of the renewed writ on her or discontinuation of the action against her.  Under this rule, she may serve a notice on the Liquidators requiring them within a specified period not less than 14 days after service of the notice, either to serve the unserved writ on her or to discontinue the action as against her.  If the Liquidators fail to comply with the notice, she may apply to court for an order to that effect or to make such order as the court thinks fit.  Arguably, for that purpose the documents might be relevant.  As submitted by Mr Lam SC, an applicant who seeks to accelerate this legal process bears the burden of proving that it would be unjust if the proceedings are allowed to run its natural course or that the plaintiff’s reliance on the period of validity of the writ is unjust: China Medical Technologies Inc (in liquidation) v KPMG (a firm)[10]. Whether it is unjust is solely within the 7^th Defendant’s realm of knowledge.  As the 7^th Defendant chose not to invoke Order 12 rule 8A but sought discovery under Order 24 instead, I do not wish to speculate what was in her mind.  But not until she has invoked this rule, it is not open to her to challenge whether the Liquidators had been frank and candid with the court when applying for the two ex parte extension orders.  The discovery sought is premature.

43.  Putting aside the jurisdictional issue which renders any application to set aside the two extension orders premature, it is incumbent upon the 7^th Defendant, if she wishes to challenge those two ex parte orders, to allege with proper and sufficient particulars that the Liquidators have breached their duty to court. Except for some speculative comments contained in her affirmation, the 7^th Defendant has not provided a proper foundation for such allegations against the Liquidators.  To the extent that she is seeking to conduct an audit of all the 2017 Documents and the 2018 Documents to “verify” or “validate” the truthfulness of the Liquidators’ account in Batchelor 1 and Batchelor 2, she is plainly attempting to embark on a fishing exercise.  Fishing is generally impermissible for discovery.  In Re the Estate of Ng Chan Wah[11], Chu J (as she then was) said:

“It is not sufficient for the plaintiffs to say that because there is on the pleading allegation of improper conduct against the defendants as executors, they are entitled to test the basis of the estate accounts generally or to check the accuracy of the items presented in the estate accounts, irrespective of whether they are in issue. It is not the purpose of discovery to give the plaintiffs an opportunity to hunt around the documents in the hope that they will reveal some improprieties on the defendants’ part or will provide information for them to pursue more enquiries.” ”

There is no doubt that discovery will not be ordered for the purpose of “fishing” or to enable a party to turn a non-issue into an issue.  

44.  The 7^th Defendant also made other responses to the Liquidators’ objections.  She alleged that the Liquidators have “pursued” against her since December 2017.  That is not true as the Liquidators have decided not to serve the writ on her yet.  They have sought her assistance in investigating the affairs of the Company, though.  Her reference to the alleged limitation defence is also neither here nor there. The issue would have been considered by the court when granting the two extensions.  This may become a live issue when the Liquidators decide to serve the writ on her or when she invokes Order 12 rule 8A to compel service.  Then, she may seek to have the writ or the two ex parte orders set aside for that reason.  None of these have any relevance to her grounds for seeking discovery at this stage.

45.  On the state of affairs now before me, when asking myself the question “what is the cause or matter for which the production sought is necessary to enable it to be disposed of fairly and for saving costs”, the only answer is an emphatic “none”.  There is no live cause or matter which requires to be disposed of.  Order 24 rule 10 is not engaged.  The first basis of her application for discovery is misconceived.

Second basis - The S286B Application

46.  The circumstances leading to the making of the S286B Application and the hearing are set out in paragraphs 3 to 15 above.  The reason for making the application are set out in paragraphs 3 and 8.  In essence, the Liquidators were denied access to books and records of the Company and the former directors and officers of the Company, including the 7^th Defendant, were not forthcoming in assisting the Liquidators in their investigation into the affairs of the Company.  Paragraphs 10 to 15 describe how Batchelor 1 and Batchelor 2 in this action found their way in the S286B Application.  Paragraphs 13 and 14 describe how towards the end of the hearing of the S286B Application the 7^th Defendant suddenly sought, in this action instead of in the S286B Application, production of the documents exhibited to Batchelor 1 and Batchelor 2.

47.  The 7^th Defendant’s second basis for discovery is to obtain the documents for the purpose of the Liquidators’ S286B Application in the winding-up proceedings for examination and production orders.  That application has been concluded and is now pending for decision. That application is not a cause or matter in this action or a live cause or matter in the S286B Application.  Reliance on that application as a basis for discovery in this action may be readily dismissed on jurisdictional ground.  Anyway, I shall consider the 7^th Defendant’s argument on this ground for what it is worth.

48.  The 7^th Defendant said in paragraph 38 of her affirmation:

“… I believe that, if a proper and more thorough review of the Documents is undertaken the Court is likely to discover that the Liquidators already have enough information to proceed to make any claims that they actually have in respect of the Impugned Transactions …”

This is plainly a self-confessed attempt of fishing which for reasons as explained in paragraph 43 above is impermissible.

49.  Fishing and jurisdiction aside, the 7^th Defendant had been provided with a copy of Batchelor 1 and Batchelor 2 as early as 21 February 2019 and 14 May 2019 respectively.  Specific documents referred to in those two affidavits were exhibited to the affidavits.  But she made no request for inspection or production of the other 2017 Documents and 2018 Documents which were not exhibited.  The learned Recorder has already considered whether the Liquidators had provided a satisfactory description of all the documents for the purpose of determining the S286B Application.  At the hearing on 14 May 2019, Recorder Pow said:

“… Before the matter was last adjourned, it was the common understanding that the court will consider this application on all the materials so far presented. Mr Dawes SC was particularly concerned that during the adjournment, the applicants could put in a “one-liner” response saying they had considered the 175,000 odd pages of accounting papers [i.e. the 2018 Documents] and they made no difference to their case on reasonable requirement…

[2]  On 7 May 2019, the applicants filed Batchelor 2 in HCA [57/2018].  It effective (sic) stated that the liquidator had completed reviewing the 175,000 pages of papers in early May and updated the court with their view that the papers did not materially change their understanding of the Company and hence, the continual existence of “reasonable requirement” in support of the present application.  It was not a “one-liner”.  It provides reasons and referred to some specific documents which relate specifically to individual respondents.”

Apparently, the learned Recorder was satisfied that he had all the documents necessary for him to come to a conclusion whether the Liquidators had shown reasonable requirement in support of the S286B Application.  No application was made before the Recorder for inspection or production of the documents now sought. Instead, while the S286B Application was still on-going, the 7^th Defendant sought production in this action.  It must follow that the documents sought by this Summons is not necessary for the S286B Application.  Her express purpose is not a genuine purpose.  In the absence of a purpose relevant to the cause or matter, the 7^th Defendant has utterly failed to show how the discovery sought is necessary for disposing fairly of the cause or matter or for saving costs.  In any event, an order one way or the other in this action could not affect the Recorder’s decision in the S286B Application.

50.  The Liquidators suggest that the 7^th Defendant’s real purpose is to circumvent the Companies Court’s control of the examination process which she anticipates may be ordered against her.  If an order for examination is made against her, she may be entitled to advance notice, in general terms, of the topics on which she is to be examined.  There is no invariable rule or practice what further information or document should be provided to the examinee to prepare herself for the examination. It is a matter for the unfettered discretion of the Companies Court seized with the conduct of the examination to do what is fair in all the circumstances of the case.  A fair balance would be struck between the uninhibited right to legal advice and the need to ensure the integrity and effectiveness of the examination: see Re Kong Wah Holdings Limited (in liquidation)[12].  That decision is one which the Companies Court is best placed to make.  It would be improper and unprincipled for the 7^th Defendant to attempt to circumvent the process by seeking such information and documents in another action through the backdoor.  In the circumstances, the 7^th Defendant’s application for permission to use the documents in the S286B Application in the winding-up proceedings or for the purpose of any examination is inapt and completely beside the point.  In any case, the same request for leave was not sought under the Summons or requested in the draft order annexed to her skeleton submission. 

51.  In conclusion, insofar as the discovery is sought to produce the documents for use in the S286B Application, there is no cause or matter in this action to which discovery under Order 24 rule 10 is applicable.  As the hearing of the S286B Application has been concluded, any order of this court will have no effect on the Recorder’s decision in that application.  Furthermore, the 7^th Defendant has failed to satisfy this court of the genuine purpose of the application.  Hence, she has failed to discharge the burden of showing that discovery is necessary whether for disposing fairly of the cause or matter or for saving costs.  All in all, the 7^th Defendant has failed to discharge the burden of proof under the first stage of the two stage analysis.

Good cause why the order should not be made

52.  Having come to the above conclusion in respect of the first stage analysis, there is no need to consider the second stage analysis.  However, as is not unusual, good cause why the order should not be made may be drawn from the conclusion reached in the first stage analysis.  The absence of a live cause or matter for disposal for which the discovery sought is necessary for fair disposal and for saving costs is a good cause why the discovery should not be ordered.  Besides, there are particular reasons why the documents should not be produced to the 7^th Defendant at this stage of the proceedings.

53.  First and foremost, the documents were produced to the court by the Liquidators in the discharge of their duty of full and frank disclosure in connection with their application for extension of the validity of the protective writ.  There is no reason why the 7^th Defendant is entitled to obtain production before service of the writ or before a decision is made to prosecute the action against her.  Production of this kind would be particularly oppressive to the Liquidators who are duty-bound to preserve potential claims including to file and apply for extension of protective writs on a full and frank basis, while focusing their efforts and resources on reconstructing the affairs of the Company and determining whether to pursue claims against potential wrongdoers.

54.  Second, the 7^th Defendant has advanced no justifiable purpose for production.  She is not entitled to challenge the two ex parte orders extending the validity of the writ at this stage as she suggested.  There is no live cause or matter for disposal for which discovery is necessary.  Should the cause or matter become live when the writ is served on her or should she invoke Order 12 rule 8A to compel service of the writ or discontinuation of the action, she may apply for discovery at that stage.  As for her intention to use the documents obtained for challenging the S286B Application, the hearing has been concluded.

55.  Third, the 7^th Defendant has not shown any genuine purpose for which the discovery is sought.  There is a real likelihood that the purpose is to enable the 7^th Defendant to circumvent the Companies Court’s control of the examination process which she anticipates may be ordered against her.  If an order for examination is made against her, she may be entitled to advance notice, in general terms, of the topics on which she is to be examined.  She may seek discovery from the Companies Court at that stage, if appropriate.

56.  Fourth, the documents sought are voluminous. Apart from the audited accounts and working papers produced in 2017, ie the 2017 Documents, there is an additional 24,050 documents among the 2018 Documents totalling approximately 180,000 pages.  Though the use of USB memory stick may reduce the volume of paper involved, the documents sought are voluminous and not to be disclosed for no reason.  Furthermore, absent any genuine purpose for the production, the 7^th Defendant’s curiosity is not a reason for the Liquidators to satisfy her demand.

57.  Even if the 7^th Defendant succeeds in discharging the burden under the first stage of the analysis, the Liquidators have demonstrated good cause why the documents should not be produced.

Conclusion

58.  For the above reasons, the 7^th Defendant’s Summons has to be dismissed with costs with certificate for two counsel.  Such costs are to be assessed by summary assessment in Chambers.  The 7^th Defendant is invited to lodge with the court her objections to the Plaintiffs’ statement of costs with 14 days and to serve a copy to the Plaintiffs.  The Plaintiffs shall lodge their reply within 7 days thereafter.