SUN HSIEN LONG AND OTHERS v. WU WAI LEUNG DANNY

HCA 831/2018

[2024] HKCFI 1285

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 831 OF 2018

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(By original Writ and order to carry on dated 5 September 2019)

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REASONS FOR JUDGMENT

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1.  The Plaintiffs seek an assessment of damages in the sum of HK$10,707,030. On 4 September 2023, the Re-re-amended Defence was struck out, with interlocutory judgment on liability entered for the Plaintiffs, with damages to be assessed.

Background

2.  This case concerns the Plaintiffs’ claim for the Defendant’s return of value of an investment fund managed by the Defendant which was liquidated in October 2015, in the amount of HK$10,707,030. 

3.  In July 2005, the Plaintiffs and other agreed to pay US$6 million to the investment fund. 

4.  The contribution was transferred to a BVI company known as Diamond Unit which executed declarations of trust, whereby it acted as a nominee for the Plaintiffs and other, with its operational control vested in the Defendant. 

5.  The Defendant invested the funds primarily in a company known as Courage Marine, a company listed in Singapore and since June 2011 in Hong Kong. 

6.  In October 2015, the Plaintiffs and other decided to liquidate the investment fund, and a statement dated October 2015 (the “Statement”)  concerning the financial position of the investment fund was prepared and provided to the Plaintiffs.  It is provided in the Statement that 1,784,505 shares in Courage Marine at a price of HK$6 per share, totaling at HK$10,707,030 (the “Sum”), were held by a company named FUS of which the Defendant was a director. 

7.  However, the Defendant refused to return the Sum to the Plaintiffs.  By an email on 10 November 2015 from the Defendant to the 1^st Plaintiff, the Defendant claimed that he was entitled to keep the Sum for coordination services related to the listing of Courage Marine in Hong Kong in 2011.  The Plaintiffs denied the existence of such an agreement. 

8.  It is therefore the Plaintiffs’ case that they suffered loss, being the Sum less any reasonable remuneration to which the Defendant might successfully claim. 

9.  A witness statement is prepared by the 1^st Plaintiff to verify the Plaintiffs’ pleas for the purpose of this assessment. 

10.  The Defendant’s struck out defence basically denies the existence of the investment fund and the Defendant’s engagement, and claims that the Courage Marine shares were held for other purposes. 

11.  The Defendant was declared bankrupt on 6 December 2022 and the Official Receiver was appointed the trustee in bankruptcy.  

12.  On 29 May 2023, leave was granted to the Plaintiffs to proceed with this action on the conditions that no judgment would be enforced against the Official Receiver, and no application for costs would be made against her. 

13.  On 26 July 2023, the Official Receiver confirmed that she would not adopt the Defendant’s defence or assign the right of defence, and did not intend to participate in the proceedings. 

14.  On 4 September 2023, the Re-re-amended Defence was struck out, with interlocutory judgment entered for the Plaintiffs. 

Discussion

15.  In light of the position of the Official Receiver, the Defendant has no interest in his defence, as any right to defend the claim is vested in the Official Receiver: Bankruptcy Ordinance (Cap 6)  ss 12, 58, 61(b); Heath v Tang [1993] 1 WLR 1421 (CA)  at 1424E-G. 

16.  The Plaintiffs proceed with these proceedings for the purpose of proving debt within the meaning of s 34(3)  of the Bankruptcy Ordinance, including their costs: In re British Gold Fields of West Africa [1899] 2 Ch 7. 

17.  With the Re-re-amended Defence struck out, the allegations in the Statement of Claim are deemed to be admitted: Order 18 rule 13(1)  of the Rules of High Court (Cap 4); Top One International (China)  Property Group Company Limited v Top One Property Group Limited (CACV 269/2011; 20.7.2012)  at §7.

18.  As such, it is deemed to be admitted that the Defendant breached his contractual obligation in returning the Sum to the Plaintiffs since October 2015 in the amount of HK$10,707,030. 

19.  It is also deemed to be admitted that there was no agreement on any remuneration that the Defendant might receive, and the Defendant did not plead otherwise. 

20.  By reason of the above, it is ordered that: 

(a)  Damages is assessed at HK$10,707,030;  

(b)  Pre-judgment interest at the commercial rate plus 1% from 10 November 2015 until the date of judgment (4 September 2023)  and thereafter at judgment rate until payment; and

(c)  The Plaintiffs do lodge and serve its Statement of Costs on or before 13 May 2024.

Mr Josh Baker instructed by James Ho & Co. for the 1^st to 8^th Plaintiffs

Defendant acting in person being absent

Official Receiver and trustee of the estate of the bankrupt defendant being excused from the attendance

HCA 831/2018

[2019] HKCFI 2596

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 831 OF 2018

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BETWEEN

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DECISION

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1.  This was an appeal by Wu Wai Leung Danny (“the defendant”) from Master Wong’s decision dated 2 January 2019 dismissing his summons for security for costs. At the conclusion of this hearing, the decision was reserved which I now give.

The issue arising

2.  It is common ground that the plaintiffs are resident out of the jurisdiction.  The only issue is whether, in all the circumstances, an order for security for costs should be made and, if so, its quantum.

Background

3.  In outline, the plaintiffs’ case is that:

(a) in July 2005, the eight named plaintiffs collectively deposited an aggregate of USD 6 million (“the fund”) with Diamond Unit Investments Ltd (“Diamond Unit”), a company in which Sun Hsien-Long (“the 1^st plaintiff”) was substantially interested, such deposits not being in equal amounts;

(b) Chen Shin Yung (“Mr Chen”) was also an investor along with the plaintiffs but is not a party to these proceedings because his account has a negative balance;

(c) the 1^st plaintiff entered into an oral contract with the defendant (a director of First US Capital Limited (“FUS”)) that the defendant would manage the fund “including but not limited to having operational control of Diamond Unit”;

(d) there was no express agreement on the level of the defendant’s remuneration;

(e) in October 2015 the plaintiffs decided to terminate and liquidate the fund;

(f) the plaintiffs were provided with a statement in October 2015 (“the October statement”) relating to the shares in a company called Courage Marine (“CM”) which showed a holding of 1,784,505 shares with a value in excess of $10 million;

(g) notwithstanding the plaintiffs’ demand, the defendant failed to return the shares or to pay its equivalent in value to the plaintiffs;

(h) the plaintiffs seek damages for breach of contract.

4.  In his affirmations in support of his application for security, the defendant denied having entered into any oral agreement with the plaintiff and stated that he had never seen the October statement until a copy was obtained by his solicitors from the plaintiff’s solicitors nor did he ever have operational control of Diamond Unit.  On that basis, he maintained that he could not have “caused” it to be produced to the plaintiffs as is alleged.

5.  Although the defendant admitted that FUS does hold a quantity of CM shares, his stance was that those shares do not belong to Diamond Unit and/or the plaintiffs.

6.  As there is no alternative case put forward by the defendant, it is an all or nothing case. 

Whether security should be ordered

7.  Mr Benjamin Chain, counsel for the defendant, pointed out alleged deficiencies in the statement of claim, in particular as regards the allegation in §4 of the defendant “having operational control of Diamond Unit” where the relevant factual basis giving rise to such operational control being given to the defendant was not pleaded.

8.  The defendant sought to explain how FUS came to have its present holding of CM shares: 

(a) On 10 November 2015 in response to the 1^st plaintiff’s email concerning the holding of CM shares under the FUS account (stated in Carl’s report), the defendant stated that those shares represented fees for the listing of CM “in June 2011”: see defendant’s email to the 1^st plaintiff dated 10 November 2015

(b) In the defendant’s 1^st affirmation dated 19 September 2018 (“Wu 1^st”) at §§24 – 25, the defendant explained that FUS received the CM shares as remuneration for the listing of CM in Singapore in 2005 and represented “remuneration for the IPO works and not shares belonging to Diamond Unit and/or the 1^st to 8^th plaintiffs”.

(c) In his amended defence dated 24 October 2018 in responding to §14 of the statement of claim[1] pleaded in §13 of the amended defence that FUS’ holding of CM shares represented its fees “for the co-ordination services rendered and performed (by FUS)” for the Singapore listing in 2005.

(d) In his reply affirmation dated 10 November 2018 (“Wu 2^nd”) the basis for FUS’ holding of CM shares was expanded: not only did it represent remuneration from the Remuneration Agreement, but also “and/or purchases on the market”: Wu 2^nd at §8.

9.  It will be seen that the defendant’s explanation for FUS’ holding of the CM shares has evolved over time.

10.  The plaintiff relies on the following contemporaneous email exchanges between the 1^st plaintiff and the defendant on 9 and 10 November 2015:

(i) On 9 November 2015 6:16 pm, the 1^st plaintiff sent the following email to the defendant:

“ According to the report of Carl that there is one amount HK$10,707,030 still suspending (1,784,505 shares of Courage Marine under [the FUS account]) which shall be transferred to Diamond Unit’s account by you to conclude the overall transaction.

Since we have waited 3 weeks and Carl told us that you have been informed already so we would like to know when we can expect the action done to let the job complete???

Need your prompt reply to notify all shareholders”

(ii) On 10 November 2015 11:58 pm the defendant replied to the 1^st plaintiff with copies to Carl as well as to all the other plaintiffs:

“ … We would like to clarify that the shares held by [FUS] was the fees for the coordination services rendered and performed for the listing of Courage Marine in June 2011. With the listing in Hong Kong …”

11.  It is common ground that the Hong Kong listing took place in 2011 and apart from the remuneration agreement made in 2005 in relation to Singapore listing, there have been no further written agreements between CM and FUS and none in relation to the Hong Kong listing in 2011.

12.  Mr Jonathan Wong, counsel for the plaintiffs, submitted that the court has to decide whether the defendant’s response to the 1^st plaintiff’s email of 9 November stands up to scrutiny. He submitted that when confronted with the 1^st plaintiff’s demand, the defendant’s contemporaneous response was that he (the defendant) was entitled to retain the CM shares because they represented fees for coordination services rendered for the Hong Kong listing.

13.  Prima facie, the defendant’s stated reason in the 10 November email cannot be correct since no written remuneration agreement for the Hong Kong listing is in evidence. That is now common ground.

14.  Mr Chain sought to characterise the reference to the June 2011 listing in the defendant’s email of 10 November 2015 as a mistake. He referred to the defendant’s evidence that the 9 November 2015 email had come as “a bolt out of the blue” because prior to that email, he had heard nothing from the 1^st plaintiff since December 2014 when the defendant sent a ‘seasons greetings’ email and given that the Singapore listing took place a decade before the email in question, it is hardly surprising that the defendant misremembered or mixed up the listings and/or their dates.

15.  What clearly emerges from the 9 November email from the 1^st plaintiff is that (i) it was Carl who had provided the report to the 1^st plaintiff that showed the number of CM shares and their value mentioned in the email; (ii) that had taken place three weeks earlier; and (ii) Carl told the 1^st plaintiff that the defendant had already been informed.

16.  The defendant’s response sent the following day has to be viewed in that context and against that backdrop. It is worth highlighting that (i) Carl was obviously not a stranger but known to the defendant; (ii) accepting that the 1^st plaintiff’s email had come “out of the blue” and that the defendant had no clue as to what “report” the 1^st plaintiff could have been referring to, one would have thought the natural response would have been to write back to ask about the “report” that was being referred to; (iii) the email response expressed no element of surprise.

17.  Instead, the defendant immediately proffered an explanation of the basis of FUS’ entitlement to hold that amount of shares.

18.  Notwithstanding Mr Chain’s valiant efforts to persuade the court that the “mistake” in the 10 November email is “not even an issue in these proceedings” and at best something about which the defendant could be cross-examined as to credit, I remain unpersuaded.

Conclusion

19.  Having regard to all the circumstances, I do not consider this to be an appropriate case to order security for costs.

20.  It follows that the defendant’s appeal is dismissed. There is to be an order nisi of costs in favour of the plaintiffs, with certificate for counsel, such costs to be summarily assessed and paid within 14 days thereafter. Directions for summary assessment will be given separately.

Mr Jonathan Wong, instructed by James Ho & Co, for the 1^st to 8^th plaintiffs

Mr Benjamin Chain, instructed by Johnny K K Leung & Co, for the defendant