TAK FU PRINTING AND DYEING CO LTD v. WHALE FUND LTD

1990, No.A3686

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H E A D N O T E

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    Impecuniosity of a body corporate is not a ground upon which a director should be granted an Order under Order 5, rule 6(2) Of the Rules Of the Supreme Court to represent a limited company.

1990, No.A3686

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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J U D G M E N T

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1. This is an action by the plaintiff against the defendant for the sum of $225,207.90 or alternatively, damages for breach of contract. Solicitors, instructed by the defendant, filed a defence which included a set-off and counterclaim.

2. However, by an order made by Master Chan on the 13th December 1990 the defendant's solicitors ceased to act.

3. An ex parte application was subsequently made on the 28th January 1991 by Madam Tso Yee Lin, one of the two directors of the defendant for an order under 0.5, r.6 of the Rules of the Supreme Court for leave to represent the company in these proceedings in place of the former solicitors.

4. Order 5, r.6, provides-

(2) A body corporate may not begin or carry on any such proceedings in the Court otherwise than by a solicitor except-

(a) as expressly provided by or under any enactment; or

(b) where leave is given under paragraph (3) for it to be represented by one of its directors.

(3) (a) An application by a body corporate for leave to be represented by one of its directors shall be made ex parte to a Registrar and supported by an affidavit, made by the director and filed with the application, stating and verifying the reasons why leave should be given for the body coporate to be represented by the director, and in particular setting out such facts and matters as demonstrate that the body coporate could not otherwise be heard in the proceedings.

(b) The relevant resolution of the board of the body corporate authorizing the director to appear on its behalf if leave is granted shall be exhibited to the affidavit.

(4) No appeal shall lie from an order of the Registrar under paragraph (3) giving or refusing leave.

(5) Leave given by a Registrar under paragraph (3) may be revoked by the Court at any time.

(6) No appeal shall lie from an order of the Court revoking leave given by a Registrar."

5. In support of her application, Madam Tso filed an affidavit that exhibited the board resolution authorising her to appear and explained that due to financial difficulties, the defendant was no longer able to afford the costs of the solicitors. She contended that the defendant would suffer prejudice if it was not permitted to defend the action, although no details were set out. Upon this evidence, Master Jones made an order granting leave to Madam Tso to represent the defendant.

6. When the action came before me for hearing today, Mr Cheung of counsel appeared for the plaintiff, while Madam Tso appeared for the defendant.

7. I queried the order made by the master, as it had been made on the sole ground that the defendant was unable to pay its legal costs. Madam Tso in fact informed me from the bar table that the defendant had ceased business on the 31st August 1990 and has no assets. She went on to say that the defendant owes some hundreds of thousands of dollars to the shareholders. However, apart from the present writ no other writ has been served nor has any judgment been entered against the defendant. The only reason mentioned by Madam Tso for the defendant's continued existence was to pursue the counterclaim against the plaintiff in this action.

8. The English rule, 0.5, r.6(2) from which I understand the original Hong Kong rule emanated provides a blanket prohibition for a body corporate to be represented by anyone except a solicitor unless expressly provided by any enactment. A limited power is given to a body corporate under 0.12, r.1(2) and r.9(3) of the English rules to acknowledge service of a writ and originating summons and to give notice of intention to defend either by a solicitor or by a person duly authorised to act on the defendant's behalf.

9. Order 12, r.1(2) in Hong Kong follows the English rule, but the rule then proceeds to extend the jurisdiction as provided under 0.5, r.6 for sub-rules 2A(a) and (b), 2B, 2C and 2D mirror word for word sub-rules (3)(a), (b), (4), (5) and (6) of 0.5, r.6 as set out above.

10. Apart from the instant case I understand that on other occasions orders have been made by a master for a director to represent a company on the grounds of impecuniosity. However, this is the most important reason why an order should not be made for if a company is unable to afford legal representation to conduct its litigation, it amounts to strong prima facie evidence that the company is in all probability commercially insolvent and unable to pay its debts. In these circumstances, steps should be taken to wind up the company and for the liquidator appointed to determine whether an action should be commenced or defended.

11. I am satisfied that it was not envisaged by the Hong Kong rules that leave should be granted to a director to represent a company for the actual conduct of litigation as a result of a lack of sufficient funds. Any application for security for costs would amount to a fruitless exercise whilst the inevitable consequence for the other party, if it succeeds, will be an empty judgment.

12. Although I am not aware as to why the Hong Kong rules differ from the English rules, I can see no merit in the departure that has been made for it is unlikely that any other ground is likely to be put forward for leave to be granted to a director other than that of impecuniosity. Nevertheless, as the rule exists, I consider that it would not be objectionable for a director to represent a body corporate for such limited purposes as an application for an adjournment of an action to obtain legal advice or representation, to make an offer to pay a debt by instalments and for the purpose of a consent judgment and to the making of a compulsory winding up order.

13. However, as the ground for making the order in this ease was wrong in principle, I revoked the order made by Master Jones on the 28th January 1991.