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Shun Hing Holdings Co Ltd And Others v Li Kwok Po David And Others

Judgment Cited authorities 13 Cited in Precedent Map Related
Vincent
Judgment Date13 May 2020
Neutral Citation[2020] HKCA 309
Year2020
Judgement NumberCACV509/2018
Subject MatterCivil Appeal
CourtCourt of Appeal (Hong Kong)
CACV509/2018 SHUN HING HOLDINGS CO LTD AND OTHERS v. LI KWOK PO DAVID AND OTHERS

CACV 509/2018
and CACV 510/2018
(Heard together)

[2020] HKCA 309

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 509 OF 2018

(ON APPEAL FROM HCA 664/2012)

________________________

BETWEEN

SHUN HING HOLDINGS COMPANY LIMITED 1st Plaintiff
SHUN HING ELECTRONIC HOLDINGS LIMITED 2nd Plaintiff
SHUN HING ELECTRONIC TRADING COMPANY LIMITED 3rd Plaintiff
SHUN HING TECHNOLOGY COMPANY LIMITED 4th Plaintiff
and
LI KWOK PO DAVID (李國寶) also known as DAVID LI KWOK PO &amp CHOI FAN KEUNG VIC (蔡奮強),
Executors of the Estate of Mong Man Wai William, Deceased
 1st Defendant
MONG SIEN YEE CYNTHIA 2nd Defendant
MONG TAK YEUNG DAVID 3rd Defendant
WONG PUI FAN 4th Defendant
MONG PUI YEE PERLIE
(formerly a minor but now of full age)		 5th Defendant
and
MONG TAK YEUNG DAVID Third Party

________________________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 510 OF 2018

(ON APPEAL FROM HCA 2417/2014)

________________________

BETWEEN

SHUN HING ELECTRONIC HOLDINGS LIMITED 1st Plaintiff
SHUN HING ELECTRONIC TRADING COMPANY LIMITED 2nd Plaintiff
and
WONG PUI FAN Defendant

________________________
(HEARD TOGETHER)

Before: Hon Lam VP, Yuen and Au JJA in Court

Date of Hearing: 10 October 2019

Dates of Supplemental Submissions: 6, 20 and 27 March 2020

Date of Judgment: 13 May 2020

________________________

J U D G M E N T

________________________


Hon Lam VP (giving the Judgment of the Court):

Introduction

1. These are appeals against the decision (“the Decision”) of Anthony Chan J (“the Judge”) on 10 September 2018, in respect of the striking out of certain claims in HCA 664/2012 (“the 664 Action”) and refusal of leave to file a fresh statement of claim in HCA 2417/2014 (“the 2417 Action”).

2. This is the second time these Actions have come before this Court. Previously, by a decision dated 30 September 2016, the Judge struck out the claim in the 2417 Action (being a personal claim for knowing receipt). By a judgment dated 21 August 2017, this Court dismissed the Plaintiffs’ appeal against that decision, but granted leave to the Plaintiffs to make an application for leave to file a fresh statement of claim to advance a claim based on proprietary tracing.

3. The background to these proceedings has been summarized by the Judge in [2] to [11] of his decision dated 30 September 2016. In short, the Plaintiffs in these proceedings are members of the Shun Hing Group, a successful business empire founded by the late Dr Mong. By the 664 Action, the Plaintiffs seek to recover from the estate of Dr Mong (“Estate”) a total sum in excess of HK$872 million. The Plaintiffs’ case is that the said sum was wrongfully appropriated from the Plaintiffs by Dr Mong in breach of his fiduciary duties as director of the Plaintiff companies.

4. The 1st Defendants in the 664 Action are the Executors of the Estate. The remainder of the Defendants are the beneficiaries of the Estate. The 2nd and 3rd Defendants (“Cynthia” and “David”) are the children of Dr Mong from his first marriage. The 4th Defendant (“Madam Wong”) is the widow of Dr Mong, and the 5th Defendant (“Perlie”) is the daughter of Dr Mong and Madam Wong.

5. The Plaintiffs in the 664 Action only seek relief against the Executors of the Estate, no relief is sought against the other defendants.

6. In the 2417 Action, the 2nd and 3rd Plaintiffs in the 664 Action (“SHEH” and “SHET”) seek to recover from Madam Wong a total sum of HK$280 million which Dr Mong gave to Madam Wong and which is alleged to represent part of the monies wrongfully appropriated by Dr Mong from the Shun Hing Group. Madam Wong is the only defendant in that action.

7. The only parties taking part in these appeals are the Plaintiffs and Madam Wong and Perlie. The Executors of the Estate, David and Cynthia did not take part. However, as noted by the Judge at [9] of the decision of 30 September 2016, David is the largest single shareholder of the 1st Plaintiff (“SHHC”) and a Liberian company called Timmerton Co Inc (“Timmerton”).

The Applications and the Decision Below

8. After the dismissal of the previous appeal by this Court, the Plaintiffs took out the application for leave to file a fresh statement of claim in the 2417 Action by way of an Amended Summons dated 6 October 2017 (“SOC Summons”).

9. In the meantime, the parties took out the following applications:

(1) Madam Wong filed a Summons on 1 December 2017 for a stay of the 2417 Action pending the disposal of the 664 Action (“Stay Summons”);

(2) The Plaintiffs filed a Summons on 23 March 2018 in both Actions for them to be heard and tried together (“Heard Together Summons”); and

(3) Madam Wong and Perlie filed a Summons for the pleas concerning breach of fiduciary duty and/or breach of trust (“Relevant Pleas”) in the 664 Action be struck out by way of a Summons dated 29 June 2018 (“Striking Out Summons”).

10. These 4 Summonses came before the Judge on 15 August 2018. By the Decision dated 10 September 2018, the Judge dismissed the SOC Summons and acceded to the Striking Out Summons. With the previous statement of claim having been struck out, as a result of the dismissal of the SOC Summons, the 2417 Action is no longer extant. Hence the Judge made no order on the Stay Summons and the Heard Together Summons.

11. The Judge’s reasoning can be summarized as follows:

(1) At [31] of the Decision, the Judge defined the issue as “firstly, whether the loans were approved by the directors. If the loans were approved, I fail to see any basis for contending that Dr Mong had acted in breach of fiduciary duty.”

(2) The Judge considered what he described as “incontrovertible evidence” ([32] of the Decision), namely:

(a) The Audited Financial Statements (“AFS”) of the Shun Hing Group, which booked the unauthorized transfers as “amounts due from shareholders”, “amounts due from related companies” or “long term receivables from related parties”. In the corresponding notes, particulars of the loans were disclosed pursuant to s.161B of the Companies Ordinance, Cap.32 then in force (“the CO”). The stated borrower was Timmerton, a company used by Dr Mong as treasury or depository for various matters including his personal affairs. (see [11] and [13] of the Decision)

(b) The Representations made by the directors accompanying the AFS (set out in [16] of the Decision), whereby the directors acknowledged their responsibilities on the fair presentation of the consolidated financial statements and confirmed that there were no additional facts applicable to the consolidated financial statements that had not been disclosed to the auditors. David, as the director of the Plaintiffs, signed each set of the Representations relating to the AFS. (see [16]-[17] of the Decision)

(c) The continued treatment of the unauthorized transfers as “loans” in the AFS for the year 2010, after the death of Dr Mong (Dr Mong passed away on 21 July 2010). (see [19] of the Decision)

(3) In the face of the aforesaid “incontrovertible evidence”, the Judge found it “very difficult to understand how it can be maintained that the loans were not approved by the directors.” (see [32] of the Decision)

(4) The Judge then went on to consider the pleading in paragraph 15B(5) of the Re-Re-Re-Amended Reply in the 664 Action (“the Reply”), as follows:

“ The Plaintiff Companies had never considered whether Timmerton would have the financial capability to repay any amount recorded as due from it to the Plaintiff Companies pursuant to the Initial Treatment, because it was the Plaintiff Companies’ expectation that the late Dr. Mong would resolve the matter prior to his death by making appropriate accounting adjustments and/or payments by himself…” (“the Expectation Plea”)

(5) The Judge found that such an expectation “tends to fortify the proposition that the loans were approved by the directors”. He reasoned that the directors “must have known of and agreed to the loans with the expectation that the matters would later be ‘resolved’ by Dr Mong, otherwise there [is] nothing to call for an expectation.” (see [33] of the Decision)

(6) Next, the Judge criticised the evidence put forward by the Plaintiffs in respect of the Expectation Plea. The Judge criticised the absence of any evidence from David and found the evidence of Mr Tam (a director of SHET and the Financial Controller of the Group) unsatisfactory as a mere “regurgitation of the Plaintiffs’ pleadings”. (see [35] of the Decision)

(7) In the light of the “incontrovertible evidence” that the loans were approved by the directors and the absence of any evidence to suggest otherwise, the Judge rejected the Plaintiffs’ argument that the loans had to be ratified by the shareholders. He also rejected the Plaintiffs’ contention that the General Meetings which adopted the AFS would not suffice for the purpose of ratifying the unauthorized transfers. The Judge held that ratification was not necessary as there was no breach if the loans were approved by the directors. (see [37]-[39] of the Decision)

(8) Finally, the Judge rejected the Plaintiffs’ reliance on s.157HA of the CO on the basis that the approval by the company in general meeting could be a process (as opposed to an isolated act) and that non-compliance of the provision did not equate with breach of fiduciary duty. (see [41]-[43] of the Decision)

12. For the above reasons, the Judge found that the Plaintiffs had no viable case on breach of fiduciary duty. The Judge therefore allowed the Striking Out Summons and dismissed the SOC Summons. (see [46]-[47] of the Decision)

Grounds of Appeal

13. The appeals were originally scheduled to be heard on 13 March 2020. By reason of the...

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