SUN FOCUS INVESTMENT LTD v. TANG SHING BOR AND ANOTHER

HCA538/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 538 OF 2007

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REASONS FOR DECISION

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1. On 22 January 2013, this court ruled in favour of the plaintiff in respect of its application to advance a new cause of action based on an oral cooperation agreement despite the expiration of the applicable limitation period: see judgment dated 22 January 2013 (“Judgment”).

2. More than 6 months have expired since the Judgment.  The parties have not moved any closer to the trial of this action, which was commenced in March 2007.  Instead, they are further bogged down by yet more interlocutory arguments.  Given the fact that the sum claimed in this action is only in the region of RMB 3 million, the delay in bringing the action to trial and the costs so far incurred in the endless interlocutory squabbles are horrendous.  There has been a long struggle by the plaintiff to properly formulate its case.  It is plain from the procedural history that the defendants are exploiting the plaintiff’s difficulties to the fullest.  They are determined to fight every step without regard to costs. 

3. The time must have come for the court to keep a firm control over this action.  From now on, any unnecessary or unmeritorious interlocutory argument will be heavily penalised on costs, and the parties are to focus their energy on bringing this action to trial.  

4. There were 3 matters before the court:

(1)   An application by the plaintiff to file a fresh statement of claim as a result of the Judgment and for directions on the further conduct of its agency claim (which turned upon an argument based on s 26 of the Limitation Ordinance, Cap 347 (see para 32 of the Judgment));

(2)   The defendant’s application for a trial as a preliminary issue of the plaintiff’s authority to sue;

(3)   The costs of the hearing on 16 April 2013 (“Hearing”).

5. The plaintiff’s application was disposed of without dispute because of its abandonment of the agency claim.  However, various directions were given by the court with a view to expediting the trial of this action.

6. The application of the defendants was granted with various directions and no costs order was made in respect of the Hearing. I indicated that short reasons for these decisions will be given.  These are the reasons.

Authority to sue

7. The defendants’ application was premised upon the contention that this action has not been properly sanctioned by validly appointed directors of the plaintiff.  Further, they relied upon a court of appeal authority in support of their case that the challenge should be dealt with prior to trial: Liquidation Committee of Foshan Hongda Development v East Legend Investment Ltd [2009] I HKLRD 169. 

8. It is to be noted that the evidence relied upon by the defendants was available to them in 2009 and no step had been taken to make the challenge until shortly before the Hearing.  I do not believe that the delay can be explained away by the plaintiff’s problem in formulating its case.  A challenge on the authority to sue undermines the validity of the action.  Such behaviour goes against one of the principles propounded in Fushan Hongda – challenge on the lack of standing by a plaintiff to commence an action must be raised at the outset.  Perhaps the defendant had been waiting for the limitation period for the plaintiff’s cause of action to expire.  This may be a matter to be revisited when costs are considered.

9. The plaintiff’s answer to this application was quite simple.  It maintained that there was at the material time a validly appointed director of the plaintiff as reflected in the public record. Further, this action, on its face, is for the benefit of the plaintiff.  There was therefore no reason to doubt the authority in question. 

10. It is true that the company record supported the plaintiff’s contention.  However, there was undisputed evidence from the defendants that the constitution of the plaintiff required its directors to retire from office at every AGM.  Further, it was alleged that the plaintiff had not held any AGM since 2005.  If the allegation is true, there could be no properly constituted board of directors at the time of commencement of this action. 

11. The evidence concerning the lack of AGM since 2005 was unsatisfactory.  It was advanced by the 2^nd defendant without identifying the source of the information.  However, it is alarming that such a simple point has not been contradicted by the plaintiff with any evidence. 

12. Given the uncontradicted evidence and guided by the principles set out in Foshan Hongda, this court acceded to the application.

13. However, I declined to stay this action pending the resolution of the preliminary issue.  The inordinate delay in bringing this action to trial militated against a stay.  As regards the costs which may be wasted if the defendants succeed on the preliminary issue, I understood from the parties that the outstanding work required to be completed to get this case ready for trial is not extensive.

Costs of the Hearing

14. The Hearing was scheduled to take 30 minutes to deal with the plaintiff’s application for filing fresh statement of claim and the conduct of its agency claim. 

15. Regardless of the abandonment of the agency claim at the hearing on 6 August 2013, the application was unnecessary.  This court had indicated in the Judgment that leave to file a fresh statement of claim would be granted.  The defendants would have consented to the matter had the plaintiff not refused to remove the agency claim in the fresh statement of claim.  That refusal was unreasonable.  Further, directions had already been given by Deputy High Court Judge Mimi Chan (as she then was) on the further conduct of the agency claim on 3 February 2013.

16. However, the Hearing was rendered ineffective by reason of the inclusion of the defendants’ Summons to challenge the plaintiff’s authority to sue.  As agreed by the parties at the Hearing, it was not possible to deal with all the applications in the allotted time. 

17. In light of these circumstances, the appropriate course is not to make any order as to the costs of the Hearing.