CHAN KOON HAU formerly known as CHAN MONG CHOW v. LAM KONG MAN

HCA 327/2017

[2019] HKCFI 830

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 327 OF 2017

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D E C I S I O N

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1.  The action between the parties concerns a dispute over the ownership of the business trading in the name of Wai Tat Trading Company (“Wai Tat Trading”) and of a wholly foreign‑owned enterprise in Shenzhen called Ho Kit Plastic (Shenzhen) Company Limited (“Ho Kit PRC”).

2.  The plaintiff’s case is that she and her husband, Lam Kung‑ho, had set up, run and owned the business of Wai Tat Trading, albeit it was registered as a sole proprietorship, and that, as such, they also owned Ho Kit PRC until 2016.

3.  The defendants, who are the 4 sons of the plaintiff and Lam, accept that the plaintiff and Lam set up and initially ran Wai Tat Trading and Ho Kit PRC, but contend that they soon took over management of the business and that Wai Tat Trading was transferred to the 2^nd and 3^rd defendants by the plaintiff, voluntarily, in around April 2016, and the 2^nd and 3^rd defendants as a result became the shareholder of Ho Kit PRC.  Essentially, therefore, the defendants’ case is one of gift.

4.  The plaintiff, in reply, denies that she had in any way voluntarily transferred the partnership of Wai Tat Trading to the 2^nd and 3^rd defendants.  She has also said that any document that might have been filed for the purpose of the transfer of the partnership was not issued or signed by her.

5.  At the time of issuing the writ, the plaintiff also applied by summons for interim injunctive relief to restrain the defendants from further changing the partnership structure or ownership of Wai Tat Trading or the structure, management or ownership of Ho Kit PRC.

6.  On 10 March 2017, the summons was adjourned for substantive argument, upon the defendants’ undertakings in terms covering in substance the interim relief sought by the plaintiff.

7.  On 6 June 2017, shortly before the substantive hearing of the plaintiff’s application, the defendants gave undertakings of a similar nature and consented to an order for them to disclose all the assets of Wai Tat Trading and Ho Kit PRC.

8.  The undertakings were recorded in the order made by consent by Deputy Judge To on 6 June 2017.  In particular, the defendants undertook not to dispose of the shares and interest of Ho Kit PRC to any third parties and also not to incur liabilities for or on behalf of or in the name of Ho Kit PRC in any aggregate sum over RMB30,000 per month.

9.  From around mid‑2018 onwards, however, the plaintiff has discovered apparent breaches of undertaking by the defendants and, by originating summons in HCMP 2182/2018, they applied for an order for committal of the defendants for contempt.

10.  After a hearing on 17 January 2019, Chung J was satisfied that the defendants had been guilty of contempt of court in having acted in breach of the undertakings I have described, by disposing of the shares and interest of Ho Kit PRC to a third party called 深圳市谷神通商貿易有限公司 on or about 29 October 2018, and in obtaining a loan of RMB5 million for Ho Kit PRC from a third party on or about 1 June 2018, and incurred legal costs of RMB500,000 for and on behalf of Ho Kit PRC in certain Mainland proceedings on or about 31 August 2018.

11.  Accordingly, his Lordship ordered that a warrant for committal be issued against the defendants and, importantly for present purposes, that unless the defendants purge their contempt within 7 days by reverting the ownership of the shares and interest of Ho Kit PRC back to Wai Tat Trading and discharging all the liabilities of Ho Kit PRC under the aforesaid loan and reimbursing Ho Kit PRC in respect of the legal costs in relation to the Mainland proceedings, the defendants “be debarred from defending HCA 327/2017 and the defence therein be struck out”.

12.  It is evident from the materials before me that the defendants have not purged their contempt and therefore that by operation of the order of Chung J, the defence of the defendants in these proceedings stand struck out.

13.  On the plaintiff’s application by summons dated 1 March 2019 for judgment in default of defence, I am satisfied that based on the Amended Statement of Claim she has filed, to which there is now no defence, she is in principle entitled to judgment.

14.  There are prayers for certain declarations among other things, such as a declaration that the 2^nd and 3^rd defendants have, since April 2016, held Wai Tat Trading and its assets on trust for the plaintiff and that the business registration records showing the 2^nd and 3^rd defendants to be partners or proprietors were in effect null and void.

15.  It is of course the general practice of the court not to make declarations without a trial, but this rule of practice is subject to the paramount duty of the court to do justice to the plaintiff.  In the present case, I am satisfied that a mere order against the defendants to return the assets to the plaintiff would not be sufficient to protect the plaintiff, especially in connection with third parties.  A declaration by the court that Wai Tat Trading’s assets are held for the plaintiff will earmark the assets as the plaintiff’s property and at least potentially put them out of the reach of other creditors of the defendants (see 巨展皮具香港有限公司 v上海兄弟海運有限公司 [2018] HKCFI 53 at paragraph 28 per Deputy Judge Keith Yeung, SC).

16.  For these reasons, there will be an order in terms of the draft minutes of order submitted by Ms Po this morning, subject to the necessary amendments and modifications.

17.  (Discussion with plaintiff’s counsel on the terms of the order)

18.  I make an order in terms of the draft as amended.