04 March 2021
In the recent decision of Polyline Development Ltd v Ching Lin Chun and Others  HKCFI 483, Mr Recorder Manzoni SC struck out the Plaintiff’s statement of claim and action on a number of grounds. At para. 9 of the judgment, the learned Recorder highlighted the length of the submissions and evidence put forward by the parties, before remarking that “it may be thought that if such voluminous material is necessary in order to persuade the court that the claim is obviously unsustainable, the application is somewhat ambitious”.
As it turned out, however, in an extraordinary 70-page judgment, the learned Recorder came to the firm view that the Statement of Claim, described by one side as being a “kitchen sink” (para. 20), was indeed liable to be struck out.
The Plaintiff was a developer of Ding Houses in the New Territories. It had been in liquidation since June 2003. In the Statement of Claim, the Plaintiff (acting by its liquidators) pleaded a lengthy list of causes of action, including resulting trust, constructive trust, breach of fiduciary duty, sham transactions, claim for an account, unlawful means conspiracy, intention to defraud creditors, dishonest assistance and knowing receipt.
While the judgment meticulously discussed each of the above in turn, this article will highlight a number of interesting features.
The Merits/Facts – Briefly Stated
At its heart, the Plaintiff’s pleaded case was that the 1st to 3rd Defendants breached their fiduciary duties owed to the Plaintiff. This arose because, prior to its liquidation, the directors had caused the transfer of properties out of the Plaintiff for no or inadequate consideration.
The learned Recorder pointed out that the pleaded case was not inconsistent with the pleaded business model of the Plaintiff. The subject transfers simply could not be said to have been made in breach of a fiduciary duty when they were pleaded as having been made with an intent to complete a certain step as part of the business model. Thus, the learned Recorder concluded that the basis of the breach of fiduciary claim was not clearly identified in the Statement of Claim, and the claim and the other related claims were struck out for being demurrable.
On the resulting trust claim, based on nil consideration, while the learned Recorder held that there was a reasonable cause of action disclosed in the statement of claim on its face, his Lordship went on to conclude that this claim should nevertheless be struck out as bound to fail in light of the doctrine of contractual estoppel and the evidence adduced in this application (see paragraphs 126-130).
In his Judgment, the learned Recorder reviewed the principles on the pleading of dishonesty. At para. 64, the learned Recorder came to the view that “at least where dishonesty is expressly pleaded, the necessary particulars of facts for the relevant cause of action do not need to be in themselves consistent only with a conclusion of dishonesty or fraud for the pleading to be legitimate.”
In an earlier decision (The New China Hong Kong Group Limited & Another v Ng Kwai Kai Kenneth & others (Unrep., HCA 519/2010, 11 February 2011)), Fok JA (as his Lordship then was, sitting as an Additional Judge of the Court of First Instance) appears to have expressed the view that when the cause of action requires dishonesty, a plea of facts consistent with honesty is unsustainable and insufficient. In Polyline at para. 65, the learned Recorder refused to “accept that it is a trite proposition that a pleading which expressly pleads dishonesty needs also to plead facts which are consistent only with dishonesty and which cannot themselves permit of an innocent explanation, and that if it does not it should be struck out”. Having regard to the remarks of Fok JA, the learned Recorder was of the view that “[I]f Fok JA (as he then was, albeit sitting as an additional judge of the court of first instance) has indeed expressed the contrary view (which is not entirely clear given the limited scope of his analysis of the point), with the greatest of respect to his seniority and experience, I do not consider myself to be bound by it and I do not consider it to be right.”
Contractual Estoppel and Receipt Clauses
In respect of the resulting trust claim, reliance was placed on the doctrine of contractual estoppel, arising out of the receipt clauses found in the relevant assignment deeds. The learned Recorder held (at para. 129) that the doctrine, applying well-established common law precedents, did apply as between the immediate parties to the transaction. It thus follows that the plea of resulting trust likewise became liable to be struck out as being bound to fail.
However, the learned Recorder assumed, without deciding, that it would not apply “to prevent a claim by a company against a director for a breach of fiduciary duty in entering into the contract in the first place, or as against any accessories to that breach of fiduciary duty” (para. 129). This question does not strictly arise in the case, and there was therefore no reason for embarking upon a detailed analysis.
Limitation and Laches
On the issue of limitation, while the learned Recorder accepted that the primary period of limitation in respect of all the claims has expired against all the Defendants (other than the claims in respect of which there was no limitation period), a statement of claim could only be struck out on this ground if the limitation defence was “manifestly and immediately destructive of the plaintiff’s claim” (para. 141). As such, his Lordship held (obiter) that the case was not one where the limitation period for all claims had unquestionably and inevitably expired. In light of the Plaintiff’s arguable case based on section 26 of the Limitation Ordinance to extend the limitation period, the learned Recorder would not have struck out any claims on the ground of limitation.
For the same reasons, the Statement of Claim would not have been struck out for laches as the question of where the balance of justice lies was not plain and obvious at this stage of proceedings.
Barrie Barlow SC (who was not the pleader) acted for the Plaintiff; Michael Lok, led by Horace Wong SC, acted for the 1st, 6th to 12th, 14th to 16th and 18th Defendants; Anson Wong SC and Martin Kok acted for the 4th Defendant.