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HCA 2922/2017
[2018] HKCFI 2111
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 2922 OF 2017
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BETWEEN
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CONVOY GLOBAL HOLDINGS LIMITED |
1st Plaintiff |
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CONVOY COLLATERAL LIMITED |
2nd Plaintiff |
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CSL SECURITIES LIMITED |
3rd Plaintiff |
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AND
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CHO KWAI CHEE ROY |
1st Defendant |
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WONG LEE MAN QUINCY |
2nd Defendant |
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MAK KWONG YIU MARK |
3rd Defendant |
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YAN YE KAI BYRON |
4th Defendant |
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FONG SUT SAM ROSETTA |
5th Defendant |
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LAM CHI KEUNG |
6th Defendant |
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MA YIU HO PETER |
7th Defendant |
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CHAN NGAI SANG KENNY |
8th Defendant |
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NG MEN KIT BILLY |
9th Defendant |
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LEE DEREK HO YIN |
10th Defendant |
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CHAN LAI YEE CHRISTIE |
11th Defendant |
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POON HOR YEE AMY |
12th Defendant |
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MA CHUN MING |
13th Defendant |
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CHAN SZE LOON ALFRED |
14th Defendant |
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HON SIU HONG |
15th Defendant |
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LAM CHI YUNG PAUL |
16th Defendant |
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WONG MAN SEK |
17th Defendant |
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NG YAO KWOK |
18th Defendant |
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CHAN WANG FAI ANDY |
19th Defendant |
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CHEUNG WAN HUNG GILBERT |
20th Defendant |
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LING KOON WAH |
21st Defendant |
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EVER ROBUST HOLDINGS LIMITED |
22nd Defendant |
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CHINA GREEN (HOLDINGS) LIMITED |
23rd Defendant |
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CLASSICTIME INVESTMENTS LIMITED |
24th Defendant |
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FASTEK INVESTMENTS LIMITED |
25th Defendant |
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CHO KWAI YEE KEVIN |
26th Defendant |
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KWOK HIU KWAN |
27th Defendant |
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CHEN PEI XIONG |
28th Defendant |
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HUI KA WAH RONNIE |
29th Defendant |
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ATHENA POWER LIMITED |
30th Defendant |
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CAPITAL MATE LIMITED |
31st Defendant |
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CHINA DYNAMIC ENTERPRISES LIMITED |
32nd Defendant |
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LUSTER WEALTH LIMITED |
33rd Defendant |
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PERFECT GROWTH LIMITED |
34th Defendant |
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TOWN HEALTH CORPORATE ADVISORY |
35th Defendant |
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AND INVESTMENTS LIMITED |
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CHAN KA CHUNG |
36th Defendant |
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LIN CHEUK FUNG |
37th Defendant |
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LING WAI HOI |
38th Defendant |
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POON CHUN YIN |
39th Defendant |
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| Before: |
Hon Harris J in Chambers |
| Date of Hearing: |
5 September 2018 |
| Date of Decision: |
19 September 2018 |
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D E C I S I O N
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Introduction
1. The 26th Defendant, Cho Kwai Yee Kevin, applies to strike out the action brought against him in these proceedings by the 1st Plaintiff (“Convoy”), which is the listed holding company of the Convoy Group and two of its subsidiaries which are the 2nd and 3rd Plaintiffs. The Convoy Group provides various forms of financial services. The principal claim pursued in this action concerns a placement of shares in Convoy in October 2015. It is alleged that the placement was an unlawful scheme implemented by the 1st Defendant, Roy Cho the brother of Kevin Cho, resulting in shares being allotted to his undisclosed nominees and that the placement’s principal purpose was to entrench Roy Cho’s control of Convoy. It is Convoy’s case that Kevin Cho was one of the nominees and that he received 279,996,000 shares pursuant to the placement to hold on behalf of Roy Cho (“Shares”).
2. The relief sought against Kevin Cho in the prayer to the Amended Statement of Claim is as follows:
(1) an order that the allotment is void or has been rescinded and set aside;
(2) an order that Kevin Cho account for the profit made or pay equitable compensation for dishonest assistance, unlawful means conspiracy or lawful means conspiracy as a consequence of receipt by him of margin finance from the 3rd Plaintiff;
(3) general or special damages; and
(4) the normal incidental orders for interest, costs and further or other relief.
3. The facts and matters pleaded in the body of the Amended Statement of Claim, which refer indirectly or directly to Kevin Cho, to support the prayer for relief is in summary as follows:
(1) Kevin Cho was one the nominees of Roy Cho to whom shares in the placement were allotted (referred to in the Amended Statement of Claim as “Alleged Independent Placees”).
(2) Kevin Cho is Roy Cho’s brother.
(3) Crystal Choi, the daughter of Francis Choi, who is alleged to be a funder of Roy Cho, has been a business partner of Kevin Cho for more than 10 years.
(4) Kevin Cho purchased the Shares with margin finance provided by the 3rd Defendant pursuant to a funding arrangement for which the 3rd Defendant was set-up intended to facilitate the purchase of shares by the Alleged Independent Placees (“Circular Financing Arrangement”).
4. Allegation (4) is made as part of a general allegation against all the Alleged Independent Placees. As is in fact apparent on the face of the Amended Statement of Claim it is misconceived in the case of Kevin Cho. The placement took place on 29 October 2015. Kevin Cho subscribed for HK$97,998,600 worth of shares and paid cash. He subsequently obtained margin finance from the 3rd Defendant to support purchases of shares in other companies: HK$10,231,132.22 on 31 December 2015 and HK$23,911,363.40 on 29 March 2016.[1] The pleaded facts do not support allegation (4) in the case of Kevin Cho. I will consider them later in this decision in relation to the clam for equitable compensation.
5. In summary, Kevin Cho applies to strike out the claim against him on four grounds:
(1) He sold the shares before the commencement of the action. There is thus no realistic prospect of the court making an order setting aside the allotment.
(2) He paid cash for the shares. He did not use margin finance provided by the 3rd Plaintiff and a claim based on the provision of margin finance to the alleged nominees (many of whom did use margin finance) is not relevant to him.
(3) He has repaid the margin finance he obtained sometime after the placement to purchase shares in other listed companies and, therefore, there is no realistic prospect of the court ordering him to pay damages in respect of this facility.
(4) The Amended Statement of Claim makes serious allegations, but the pleading of them is vague and embarrassing and is liable to be struck out.
Relevant Legal Principles
6. The principles by reference to which the court determines applications to strike out are settled and uncontroversial:
(1) The power to strike out is to be exercised only in plain and obvious cases. If the statement of claim, however complicated, reveals no sustainable cause of action, the court will likely order it to be struck out: see Cheung Chui Sou‑ying v Personal Representatives of the estate of Cheung Yuk‑luen [2]per Barker J.
(2) Where the court comes to the conclusion after full argument that the case is plainly apt for striking out, the court should not decline to strike it out merely because the issues are difficult or complicated: Byjoy Ltd v Thorogood Estates Ltd [3]per Clough J.
7. Even in a strike-out application, the court does not blithely accept the affidavit evidence of the resisting party. If, having regard to the contemporaneous documents, inherent probabilities, and other compelling evidence, the affidavit evidence is incredible, the court would not be slow to exercise its power to strike out the claim. The court would approach the matter from a commercial and common sense point of view and not lose sight of the overall picture presented to the court: Infinity Development v Bank of China[4] per Chu J (as she then was).
Kevin Cho’s argument
8. The focus of the argument advanced by Ms Chan on behalf of Kevin Cho is the flaws in the relief sought. However, it seems to me more helpful to start with a consideration of the adequacy of the case pleaded against Kevin Cho generally and whether or not it is demurrable or so wanting in necessary particulars as to justify striking out on the grounds that it is embarrassing and, alternatively, vexatious.
9. The claims made against Kevin Cho are serious. He is said to be a knowing party to a scheme involving breach of fiduciary duty by amongst others his brother and both unlawful and lawful means conspiracy. Mr Wong accepts that no facts or matters demonstrating direct involvement are pleaded against Kevin Cho. The case is based on inference to be drawn from the facts and matters to which I have referred in [3]. Cases in which the court is invited to infer serious misconduct need to be approached with care. In Nina Kung v Wong Din Shin [5] Ribeiro PJ explains the correct approach:
“In HKSAR v Lee Ming Tee & Securities and Futures Commission (2003) 6 HKCFAR 336, Sir Anthony Mason NPJ acknowledged the need for such a disciplined approach to the drawing of inferences and in particular for inferences of fraud or serious misconduct to be drawn only where such inferences are compelling. Dealing with an allegation that senior SFC officers had deliberately and improperly terminated an investigation in order to avoid compromising the standing of the subject of the investigation who was acting as an expert witness in a criminal trial in which the SFC was interested, his Lordship stated:
… that conclusion was not to be reached by conjecture nor, as the respondent submitted, on a mere balance of probabilities. It was to be plainly established as a matter of inference from proved facts. (at §72)”
10. As Sir Anthony Mason explains (quoting Lord Nicholls in Re H [6]) in Lee Ming Tee at [71]:
“When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the...
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