HKCFI 975
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 985 OF 2019
||LAM MAN LAI
||HUI PO WOON
||OJ VC LIMITED
||WONG CHUNG MANG JONAH
||HUI HA LAM
||Hon Coleman J in Chambers (Open to Public)
|Date of Written Submissions:
||18 and 28 May 2020
|Date of Decision:
||3 June 2020
D E C I S I O N
1. This matter comes before the Court on the plaintiff’s summons dated 8 October 2019 (“Summons”), by which the plaintiffs seek various declarations, and affirmations from the defendants providing certain requested information, or alternatively judgment in fixed sums for “restitution, damages, and equitable compensation”. As the margin note identifies, the summons is for default judgment against the 1st and 2nd defendants pursuant to RHC Order 19 rule 7.
2. The proceedings were commenced by writ of summons dated 5 June 2019. On the writ was a specially endorsed Statement of Claim (“SOC”). The plaintiffs claim against the 1st defendant for breach of a declaration of trust dated 26 June 2014, in that the 1st defendant sold certain shares without the plaintiffs’ instructions. Those shares are two parcels (together, “Trust Shares”) of 18,000 shares and 6,000 shares in Semk Products (Holdings) Limited (“Semk Holdings”). The plaintiffs claim against the 2nd defendant for dishonest assistance of the 1st defendant’s breach of trust.
3. The plaintiffs claim four types of relief on a “further or alternatively” basis, being:
(1) tracing and a claim for equitable title against the 1st defendant
(a) the 1st plaintiff claims: (i) 843.75 shares in Semk International Holdings Ltd (“Semk International”), and (ii) 750 shares (being 1.5%) in ENS International Enterprises Limited (“ENS”) (Semk International and ENS together, “Two Companies”);
(b) the 2nd plaintiff claims: (i) 281.25 shares in Semk International, and (ii) 250 shares (being 0.5%) in ENS;
(2) an account by the 1st and 2nd defendants;
(3) restitution by the 1st defendant to the 1st plaintiff of HK$2,160,000 and to the 2nd plaintiff of HK$720,000;
(4) equitable compensation by the 1st and 2nd defendants.
4. By summons dated 16 July 2019, the 1st and 2nd defendants sought an extension of time for filing their Defence and Counterclaim (if any). On 18 July 2019, Master Kot made an unless order permitting the 1st and 2nd defendants until 4pm on 15 August 2019 to file their Defence and Counterclaim (if any), failing which they would be debarred from doing so and the plaintiffs would be at liberty to apply for judgment to be entered. No Defence having been filed, the plaintiffs issued the Summons.
5. The matter first came before me on 8 November 2019. On that occasion, I was informed that the 1st and 2nd defendants had made an open offer by their solicitors’ letter dated 6 November 2019 (“Open Offer”), so that it ought not to be necessary nor appropriate to grant any form of order sought by the Summons. As that letter was only shortly before the hearing, I was asked to and I agreed to adjourn the matter for a few days to permit further discussions between the parties.
6. The skeleton argument filed by then Counsel appearing for the 1st and 2nd defendants also indicated that the 2nd defendant has a claim against the 2nd plaintiff for no less than HK$21 million in a separate matter, and that the 1st and 2nd defendants were desirous that a global settlement be reached. That was part of the practical basis upon which I was invited to adjourn the Summons, to permit the parties to engage in settlement negotiation.
7. When the matter came back before me on 28 November 2019, no resolution had yet been reached and there remained apparently unanswered queries between the parties. I therefore directed the 1st and 2nd defendants to respond to the plaintiffs’ solicitors’ letter dated 21 November 2019 (see below) within 14 days, and further adjourned the matter to a hearing on 21 January 2020.
8. That hearing was later vacated by consent and re-fixed for 10 March 2020. Nevertheless, that date fell within the General Adjournment of Proceedings and so, following correspondence between the parties and the court on 9 and 17 March 2020, I made a further order dated 17 March 2020. That order directed that:
(1) unless the matter had been resolved by consent between the parties before 27 April 2020, the parties should agree and lodge with the court an agreed bundle by 4:30pm on 27 April 2020;
(2) unless the matter had been resolved by consent between the parties before 18 May 2020, the parties should file and exchange written skeleton submissions by 4:40pm on 18 May 2020;
(3) the parties should file and exchange any reply submissions by 4:30pm on 28 May 2020;
(4) thereafter, the court would dispose of the matter on the papers without an oral hearing;
(5) costs reserved.
9. The agreed bundle of court documents and correspondence has been filed, and written submissions have been filed and exchanged. This is my Decision.
B. THE OPEN OFFER
10. As already stated, the Open Offer from the 1st and 2nd defendants was made by letter dated 6 November 2019.
11. After (a) summarising and confirming parts of the plaintiffs’ pleading in the SOC, and (b) acknowledging that the Trust Shares had been transferred to the 3rd defendant, and (c) asserting that the 1st and 2nd defendants had not engaged in any further transaction, transfer or dealing with the subject matter of the consideration, but (d) identifying there had been certain dividends received in respect of Semk International (“Dividends”), the detail of the Open Offer was put forward.
12. That detail was that there should be a consent summons for the plaintiffs to discontinue the action against the 1st and 2nd defendants on the following terms:
(1) the 1st defendant would
(a) transfer to the 1st plaintiff within 14 days of the order to be made:
(i) 843.75 shares in Semk International
(ii) 750 shares (being 1.5%) in ENS
(iii) proceeds of sale of 18,000 shares of Semk Holdings at HK$0.01 per share, thus HK$180; and
(iv) the sum of HK$472,500 (being HK$3,150,000 x 15%) representing his share of the Dividends, plus interest at judgment right from the date of the writ until payment
(b) transfer to the 2nd plaintiff within 14 days of the order to be made:
(i) 281.25 shares in Semk International
(ii) 250 shares (being 0.5%) in ENS
(iii) proceeds of sale of 6,000 shares of Semk Holdings at HK$0.01 per share, thus HK$60; and
(iv) the sum of HK$157,500 (being HK$3,150,000 x 5%) representing her share of the Dividends, plus interest at judgment right from the date of the writ until payment
(2) the 1st and 2nd defendants would jointly and severally:
(a) pay to the 1st plaintiff the sum of HK$2,160,000 as claimed in §36(a) of the SOC; and
(b) paid to the 2nd plaintiff the sum of HK$720,000 as claimed in §36(b) of the SOC; and
(c) pay interest on both sums at judgment rate from the date of the writ until payment
(3) pay the plaintiffs’ costs of the action, to be taxed if not agreed.
13. The first alternate might be termed the “Share Claim Offer” and the second alternate the “Restitution Claim Offer”. It was noted that the Restitution Claim Offer was the same as that sought in §5 of the Summons.
C. THE SUBMISSIONS
14. In his submissions, Mr Kam Cheung, Counsel for the plaintiffs, reminds me that the parties have been in active settlement negotiations, but (as revealed in the open exchanges) the plaintiffs’ priority is to recover the subject shares. Therefore, I shall proceed on the basis that the plaintiffs have elected to proceed by pursuit of the tracing of shares and relevant accounts, and not on the alternate possible pursuit of restitution or damages.
15. Mr Cheung identifies the problem, however, is that the plaintiffs do not know what has happened to those shares, and in particular do not know whether the 1st and 2nd defendants’ shareholding has been diluted or whether the shares in question have been made subject to any encumbrance. That is why the plaintiffs’ solicitors raised the two questions in their letter dated 21 November 2019, asking (1) whether ENS has been restructured, reorganised, or whether its total number of shares has been increased since 6 September 2016, and (2) whether Semk International has been restructured, reorganised, or whether its total number of shares has been increased since 25 February 2019.
16. Mr Cheung says that, for reasons not known to the plaintiffs, the 1st and 2nd defendants have been refusing to allow the plaintiffs any chance to carry out due diligence. All that they are willing to provide is a personal indemnity in case the shares are subject to encumbrances. As a result, the plaintiffs’ position remains the same as set out in their solicitors’ letter dated 29 January 2020.
17. By the terms of that letter, the plaintiffs required a guarantee from the 1st and 2nd defendants to the court and to the plaintiffs that neither ENS nor Semk International...