RE CHUNG KONG MATERIALS (JV) LTD

CACV 603/2018

[2019] HKCA 788

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 603 OF 2018

(ON APPEAL FROM HCCW 338 OF 2016)

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REASONS FOR JUDGMENT

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Hon Au JA (giving the reasons for judgment of the court):

A. INTRODUCTION

1.  By way of a petition presented on 26 September 2016, the petitioner sought to wind up Chung Kong Materials (JV) Ltd (“the Company”) for an unpaid debt (“the Debt”) of some $3.3 million.

2.  By way of the judgment (“the Judgment”) dated 27 November 2018, Anthony Chan J (“the Judge”) dismissed the petition.

3.  The petitioner’s case before the Judge is that it is the equitable assignee of the Debt owed by the Company to one Mr Lau, who has assigned the Debt to the petitioner.  The petition was opposed by Ms Ling as opposing contributory.  Ms Ling is one of the two directors and shareholders of the Company.

4.  The Judge dismissed the petition on the primary basis that, on the evidence, it was triable as to whether the petitioner was the equitable assignee of the Debt.  He also concluded that, in any event, even if the petitioner was an equitable assignee of the Debt, it should have joined Mr Lau in these proceedings as it was unclear as to whether Mr Lau (even if he was the rightful creditor) had retained any interest in the Debt.

5.  The petitioner appealed against the Judgment.  At the end of the hearing on 26 June 2019, we dismissed the appeal with costs, and indicated that we would hand down our reasons later.  This is what we do now.

B.   BRIEF BACKGROUND

6.  The background of the matter has been summarized by the Judge at paragraphs 4 - 19 of the Judgment.  We do not propose to repeat it here.  It is sufficient for present purposes for us to highlight the following.

7.  The Company has only two shareholders, who are also the directors, Ms Ling and one Mr Peter Chan (“Mr Chan”).

8.  It is common ground that the Company entered into two separate contracts (“the Contracts”) with Crown Asia Engineering Co Ltd (“Crown Asia”) to transport excavated materials arising from two major infrastructure works in Hong Kong to the Mainland.

9.  The Company in turn subcontracted the works under the Contracts to a Mainland company called “中港物料聯營有限公司” (“YS”), which was related to one Ms Wong.  Under this arrangement, the Company would take a service fee with the rest of the payments from Crown Asia under the Contracts being paid to YS.

10.  The petitioner’s case as to how the Debt arose and became owed to Mr Lau, who then assigned it to the petitioner, is as follows[1].

11.  Mr Lau is the chairman of Dongguan Redland Precast Concrete Products Ltd (“DG Redland”) in the Mainland and the chairman and shareholder of Hong Kong Redland Precast Concrete Products Ltd (“HK Redland”).  He was acquainted with Mr Chan, Ms Wong and a Mr Kwan of Crown Asia.  It was Mr Lau who introduced the business opportunity for the Contracts to Mr Chan (and thus the Company), as Mr Lau needed those excavated materials in the Mainland.  It is also Mr Lau who introduced Ms Wong to Mr Chan, which led to the subcontracts.

12.  However, given certain events, Ms Wong (and hence YS) became unable to continue to carry out the transportation works (which involved arranging and engaging vessels to transport the excavated materials to the Mainland) under the subcontracts.  Mr Lau came to help out.  He instructed his nephew, a Mr Liu, to arrange vessels (“the Liu Arranged Fleet”) to carry out and complete the transportation works.

13.  Under these transportation works carried out by the Liu Arranged Fleet, various fuel charges, transportation charges and repair charges were incurred.  After deducting certain payments already made by the Company, there was an outstanding sum of some $3.3 million (ie, the Debt) not paid by the Company.

14.  As these charges had already been (or would be) settled by Mr Lau “via” Mr Liu’s account (for the transportation and repair charges) and by HK Redland (for the fuel charges), the Debt was thus in fact owed to Mr Lau.

15.  At the end, Mr Lau decided to assign the Debt to the petitioner.  The petitioner says Mr Chan had knowledge of the assignment, and this is underlined by the Company’s letter (“the Confirmation Letter”) dated 18 August 2016 signed by Mr Chan, acknowledging and confirming that the Debt was owing to the petitioner.

16.  As the Company failed to repay the Debt notwithstanding the statutory demand served by the petitioner on it on 2 September 2016, the petitioner presented the petition to wind up the Company.

C.   THE JUDGMENT

17.  As mentioned above, the Judge dismissed the petition on the basis that (a) it was triable as to whether the petitioner was an equitable assignee of the Debt, and (b) alternatively, even if the petitioner was such an equitable assignee, it should have joined Mr Lau in these proceedings.

18.  The Judge explained why the question of the alleged equitable assignment was triable at paragraphs 20 - 27 as follows:

“20. The evidence is not free from ambiguity as to who had paid for the charges in question. However, it is undisputed that the Petitioner did not pay for them.

21. The Petitioner’s evidence was provided by Liu. According to him, the transportation charges (which included the storage charges) and the repair charges were paid by Lau ‘via Liu’s account’, and the fuel charges were paid by Lau’s company, Redland Precast Concrete Products Ltd (‘Redland’). There is no evidence that Lau had subsequently reimbursed Liu and Redland for these payments.

22. Ms Ng, who appeared for the Petitioner, asserted that the Petitioner is an equitable assignee of Lau, the creditor of the Company in respect of the Debt.

23. First of all, none of the invoices sent to the Company by the Petitioner (3 had been identified by Ms Ng) made any reference to the Petitioner being an assignee. The same can be said in respect of both the Statutory Demand and the Petition.

24. It is therefore unsurprising that Ling had challenged from day 1 the Petitioner’s entitlement over the Debt. Despite the challenge, the relevant evidence adduced by the Petitioner via Liu is consisted of the following (para 28 of Liu’s affirmation filed on 5 May 2017) :

‘雖然一直以來，都是我本人，按劉振明指示，直接安排、處理運載Materials的事宜，而劉振明本人及他的公司則支付所需的費用 / 開支 (見於上面第22段)，但據我從劉振明所得到的理解，這是一項商業活動，以公司作為承接運載Materials項目的單位，相比起用個人名義，是較為合適的，儘管如此，直到中港拖欠尾數事情出現為止，劉振明還沒有明確向Chan/中港表示，承接該項目的單位是哪一間公司，倘若沒有拖欠尾數的事情，一如運輸費及燃油費，他會在中港付款時或之前，才要求Chan/中港，把該筆尾數，支付給他所指定的公司。如今發生了中港拖欠尾數的事情，又鑑於本清盤案呈請人 (“呈請人”) 在2016年4月左右與Crown Asia 簽訂運載Materials合約 (見於下面第97及98)，劉振明於是決定呈請人是承接運載Materials項目的單位，是中港的債權人，向中港追討全筆尾數，而Chan亦同意呈請人為中港的債權人 (見於下面29段)。’

25. Putting aside Mr Li’s criticism that the above evidence should have come from either Lau or Chan (there is no evidence that Liu was authorised by Lau to give evidence on his behalf), what the evidence amounts to is that Chan (assuming that he had reimbursed Liu and Redland for the payment of the charges and thus had become the creditor of the Company) had simply nominated the Petitioner as the party to which the Company should repay the Debt.

26. Ms Ng relied upon the authority of William Brandt’s Sons & Co v Dunlop Rubber Co, Ltd [1905] AC 454 at 462 :

‘… “the document does not, on the face of it, purport to be an assignment nor use the language of an assignment.” [quoting the Court of Appeal below] An equitable assignment does not always take that form. It may be addressed to the debtor. It may be couched in the language of command. It may be a courteous request. It may assume the form of mere permission. The language is immaterial if the meaning is plain. All that is necessary is that the debtor should be given to understand that the debt has been made over by the creditor to some third person. If the debtor ignores such a notice, he does so at his peril. If the assignment be for valuable consideration and communicated to the third person, it cannot be revoked by the creditor or safely disregarded by the debtor.’

27. Based on the dicta, Ms Ng submitted that the above evidence is sufficient to demonstrate an equitable assignment for which there was no required formality. Much reliance is also placed on the Letter. I am reluctant to accept that the Letter constituted an acknowledgement of an assignment. Quite apart from the fact that it made no reference to an assignment, the evidence is that Chan and Lau were well acquainted with one another. It would not be surprising for Chan to have known that Redland was Lau’s company. It might be the case that Chan was simply assuming that Redland had paid the charges and hence issued the chasers to the Company. In other words, Chan might be entirely ignorant of an assignment, if there was one.” (emphasis added)

19.  He further explained why it was procedurally necessary for the petitioner to join Mr Lau at paragraphs 28 - 33 as follows:

“28. Even if the court is to accept that there was an equitable assignment in favour of the Petitioner, Mr Li submitted that Lau should have been joined in these proceedings. The court was referred to the recent case of T v A [2018] 3 HKLRD 730 at §55 where Chow J summarised the principles concerning whether an equitable assignee may sue the debtor without joining the assignor :

‘(1) The relevant cause of action is vested in the equitable assignee which is, strictly speaking, capable of being asserted by him alone without joining the assignor as a party to the action.

(2) There is, however, a long standing practice of the court that before giving final judgment in an action at the suit of an equitable assignee, the court would normally require him to bring the assignor before the court, either as plaintiff or as defendant, in order that the assignor would be bound by the result.

(3) The practice of requiring the assignor to be made a party to the action is a procedural, and not substantive, requirement.

(4) In exceptional circumstances, the court has power to dispense with the presence of the assignor.’

29. Further, in §58, the learned Judge explained that the procedural requirement for the joinder of the assignor is not to be taken as optional :

‘… The fact that the requirement is regarded as a procedural, as opposed to a substantive, one does not make it any less a requirement of the applicable law for T to be made a party to in the Arbitration. While is it true that the court (or arbitral tribunal) may, in an exceptional case, dispense with the requirement, that is not something which A can insist upon as a matter of legal right.’

30. Ms Ng had referred this court to the case of Pevonia International LLC v Pevonia Asia Ltd, HCCW 417/2012, 23 April 2014, §49, where To J held that there was no useful purpose to be served for joining the assignor:

‘Furthermore, the assignment of the debt in this group of invoices has been proved. Despite the lack of notice, the assignment nevertheless remains valid in equity: see Brandt’s Sons & Co v Dunlop Rubber Co. The assignee is entitled to sue in his own name, though it remains the practice that the assignee is normally required to join the assignor: see Brandt’s Sons & Co v Dunlop Rubber Co. Joining the assignor would serve a useful purpose, if the assignor has not disposed of the whole of his interest in the chose in action assigned. But where the assignor retains no interest in the chose in action and the assignment only fails to be statutory because it was not in writing or because no notice has been given, joining the assignor would serve no useful purpose. In the United Kingdom, there has been a move to dispense with joining the assignor under those circumstances: see Chitty on Contracts; The Aiolos; Weddell v JA Pearce & Major;and Raiffeisen Zentralbank Osterreich AG v Five Star General Trading LLC. As Cosmopro and Pevonia Inc had retained no interest in the debt and for the obvious reasons as stated in paragraph 46, I consider joining Cosmopro and Pevonia Inc in this petition wholly unnecessary and a waste of costs.’

31. Pevonia is quite a different case compared to the circumstances of the present. In that case, the learned Judge accepted the petitioner’s entitlement to sue as having arose out of the purchase of the assets of the original creditors (§39). The Judge further held that the course of dealings between the petitioner and the company was such that it was a ‘classical (sic) case of estoppel by convention’ (§46). In the premises, it should be regarded as an exceptional case where the court dispensed with the joinder of the assignor (see principle (4) under para 28 above).

32. In the present case, given the unsatisfactory nature of the evidence as analysed above despite Ling’s challenge; the lack of clear evidence whether Lau (assuming that he was the rightful creditor) has retained any interest in the Debt; and the absence of evidence that the assignment had been perfected with consideration provided by the Petitioner and notice of the assignment having been given to the Company (see William Brandt’s in para 26 above), the Petitioner was invited by this court to join Lau in these proceedings.

33.     Regrettably, the invitation was declined.  In the circumstances of this case, I do not believe that the court should grant a remedy of last resort to wind‑up the Company when it is in doubt over the Petitioner entitlement to the Debt.  I should add that the failure to join Lau in these circumstances tends to lend weight to Ling’s contention that the evidence adduced by the Petitioner does not set out an accurate picture.”

D.   THIS APPEAL

D1.   Grounds of appeal

20.  The petitioner raises four grounds of appeal to challenge the Judgment.  They are in gist these:

(1)   The Judge erred in finding at paragraph 25 of the Judgment that Mr Chan had nominated the petitioner as the party to which the Company should repay the Debt when Mr Liu’s affirmation evidence did not state and/or could not be interpreted so (“Ground 1”).

(2)   The Judge erred in rejecting the equitable assignment of the Debt from Mr Lau, Mr Liu and/or HK Redland to the petitioner at paragraph 27 of the Judgment (“Ground 2”).

(3)   The Judge erred in ruling that Mr Lau should be joined as a party to these proceedings in the case of an equitable assignment (“Ground 3”).

(4)   The Judge erred in ruling that Mr Lau should be joined as a party when under the Contracts (Rights of Third Parties) Ordinance, Cap 623 (“the Ordinance”) the petitioner may in its own right (therefore exclusively in its own name) to enforce the assignment contract between Mr Lau and the Company.  The Judge failed to consider at all in the Judgment the arguments raised in relation to the Ordinance (“Ground 4”).

21.  We would consider these grounds in turn.

D2.   Ground 1

22.  This ground is directed at the Judge’s observations at paragraphs 24 and 25 of the Judgment (as quoted above).

23.  Ms Ng for the petitioner submits that the Judge clearly made an error of fact when he said at paragraph 25 of the Judgment that “Chan (assuming that he had reimbursed Mr Liu and [HK] Redland for the payment of the charges and thus had become the creditor of the Company) had simply nominated the Petitioner as the party to which the Company should repay the Debt” (emphasis added).  Counsel submits that it is clear that Mr Liu in his affirmation is referring to Mr Lau but not Mr Chan who had assigned the Debt to the petitioner.

24.  There is nothing in this ground.  As Yuen JA indicated at the hearing, when these two paragraphs of the Judgment are read properly and objectively, the reference to “Chan” by the Judge in paragraph 25 is clearly a typographical error.  He must have intended that to be a reference to Mr Lau, in particular given the caveat provided in the bracket following the reference to “Chan” (since the only evidence before the court is the allegation that Mr Liu and HK Redland had been or would be reimbursed by Mr Lau).

25.  We therefore reject Ground 1.

D3.   Ground 2

26.  Under this ground, Ms Ng contends that the evidence supports clearly that Mr Lau has assigned the Debt to the petitioner, which is also expressly acknowledged by the Company by way of the Confirmation Letter.  The Judge is thus plainly wrong in concluding that the question of equitable assignment is triable.

27.  With respect, we think the Judge is plainly right in this conclusion.

28.  As summarized above, the essential elements of the petitioner’s case of the equitable assignment are these:

(1)   Mr Lau instructed Mr Liu to help out the Company by arranging vessels to carry out the transportation of excavated materials under the Contracts.

(2)   Mr Liu and HK Redland had paid for the charges incurred by those transportation works, which in turn became the Debt owed by the Company.

(3)   Mr Liu and HK Redland had been or would be reimbursed by Mr Lau for those payments, and hence Mr Lau became the creditor of the Company.

(4)   Mr Lau decided to assign the Debt to the petitioner.  The Company through Mr Chan was aware of and agreed to this assignment, as confirmed by the Confirmation Letter.

29.  However, we agree with the Judge that the evidence as presented in court is far from clear to establish these essential elements in light of the following:

(1)   Mr Lau himself has singularly failed to make an affirmation to confirm any of the above. Moreover, there is also no explanation (let alone any credible explanation) as to why he has not made an affirmation to support the petitioner’s case if it is true.

(2)   Similarly, Mr Chan himself has also failed to make any affirmation to confirm the same.  There is similarly no explanation in the evidence as to why he has not given any evidence.

(3)   The only evidence given in support of the petitioner’s case is coming from Mr Liu.  However, it is not even Mr Liu’s position in his affirmation that he has been authorized by Mr Lau to give evidence on his behalf for the purpose of this petition.  It is also not the case that Mr Liu is authorized by HK Redland to give evidence in this petition.

(4)   More importantly, there is no documentary evidence to show that Mr Lau has already reimbursed these payments if they had been made by Mr Liu and HK Redland.  In relation to this purported reimbursement, all that Mr Liu has said in his affirmation at paragraph 22 is: “Transportation Charges and [Repair Charges] had been (and/or will be) paid by [Mr Lau] via my account (see pages 119, 121, 123 and 125 of Exhibit ‘LJL-9’), and Fuel Charge had been paid Hong Kong Redland of [Mr Lau’s company]” (emphasis added).  Leaving aside that the alleged reimbursement is simply an assertion, it is also equivocal on its own as to whether the reimbursement had in fact been done (given the words as italicized above).  Further, it must be noted that, even if HK Redland has paid for the fuel charges as asserted, in the absence of any documentary evidence to show that Mr Lau has in fact reimbursed HK Redland to that extent, Mr Lau himself cannot be regarded as the creditor of the Company for that sum simply because HK Redland is allegedly “Mr Lau’s company”.

(5)   There is no evidence whatsoever to show that Mr Lau has an interest in or is related to the petitioner, or that he (or his companies) has any business dealings with the petitioner.  Hence, it is unknown as to why Mr Lau would assign the Debt to the petitioner.

(6)   The petitioner has never stated in the relevant invoices, the statutory demand and the petition that it is the assignee of the Debt.  It has also without any reason refused the Judge’s invitation to join Mr Lau as the assignor in these proceedings.

30.  Given the above:

(1)   There is neither direct evidence from Mr Lau, who is the key player in the alleged assignment, nor any documentary evidence to show (a) Mr Lau is in fact the creditor of the Debt (by reimbursing all the payments allegedly made by Mr Liu and HK Redland), and (b) Mr Lau has indeed assigned the Debt to the petitioner (even if he was the creditor).

(2)   The absence of Mr Lau’s own evidence is particularly telling when, as observed above, (a) there is no evidence to explain why Mr Lau would have assigned the Debt to the petitioner, which on the face of it is entirely unrelated to Mr Lau one way or the other, and (b) the petitioner refuses to join Mr Lau in these proceedings even though the Judge has invited it to do so.

(3)   Hence, all that is left to support the petitioner’s case is only the bare assertions by Mr Liu (who is neither the assignor nor the assignee) as to how the purported assignment had come about.

(4)   At any rate, such bare assertions cannot be regarded as sufficient evidence to prove on balance of probabilities all the above essential elements of the petitioner’s case.

31.  Viewed against the above inadequacy of the evidence, we also agree with the observations made by the Judge at paragraph 27 of the Judgment in relation to the evidential value of the Confirmation Letter to support the petitioner’s case.

32.  In the premises, in our view, the Judge is plainly justified to conclude that the petitioner has failed to show in a summary way that it is the equitable assignee of the Debt.  The petition to wind up the Company is rightly dismissed on this basis.

33.  We therefore also reject Ground 2.

D4.   Ground 3

34.  Given our conclusion in Ground 2 above, it is strictly speaking unnecessary to deal with Ground 3.  We will however dispose of it briefly as follows.

35.  Ms Ng has fairly not disputed that the authorities have established that, save in an exceptional case, it is a procedural requirement for an equitable assignee to join the assignor to sue the debtor.  See: T v A [2018] 3 HKLRD 730 at paragraph 55 per Chow J and the authorities referred to therein.

36.  Counsel’s contentions are that in a winding up case as in the present, even if Mr Lau has retained any interest in the Debt despite the assignment, he could still proceed to assert that interest in the proof of debt process after the winding up of the Company.  This constitutes an exceptional circumstance falling within the exception to the procedural requirement of joining the assignor.

37.  There is no merit in this contention.  Given the above questionable evidence relating to the purported assignment, this is plainly a case where the purported assignor should be joined to perfect the title to claim the Debt by way of the summary winding up procedure.  The proof of debt argument is missing the point, as the petitioner must first satisfy the court that it has the necessary locus to wind up the Company before it could rely on the proof of debt procedure as a fall back to say this is an exceptional case not to join the assignor.  The Judge is fully justified to observe at paragraph 33 of the Judgment that, given the doubtful evidential circumstances of this case, the court simply should not permit the petitioner to resort to a summary procedure to wind up the Company.

38.  Ground 3 must therefore also fail.

D5.   Ground 4

39.  There is again nothing in this ground.

40.  As confirmed by Ms Ng, this ground is premised fundamentally on the existence of the alleged assignment as the purported contract giving rights to a third party (the petitioner).  In other words, the reliance on the Ordinance adds nothing to the petitioner’s case if it cannot establish the equitable assignment.  In the premises, even if (but without determining it) such an assignment, if proved, could as a matter of principle constitute a contract giving rights to a third party for the purpose of the Ordinance, this ground still stands and falls together with the challenge of the Judge’s conclusion on the existence of the equitable assignment (ie, Ground 2).

41.  Given that we have rejected Ground 2, this ground must similarly fail.

42.  For this reason, it is therefore also understandable as to why the Judge, having concluded against the petitioner’s case on the equitable assignment, has not addressed in the Judgment Ms Ng’s reliance on the Ordinance.

E.   CONCLUSION

43.  The petitioner fails on all its grounds of appeal.  We have therefore accordingly dismissed the appeal with costs to the opposing contributory summarily assessed at $1,000.