JOHN ROBERT LEES AND DESMOND AND OTHERS v. BURKE, FUNG & LI AND OTHERS

HCCW 373/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 373 OF 2002

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D E C I S I O N

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1.  There is before me a summons issued by the liquidators of Promail International (HK) Limited (“Promail”) on 12 April 2005 against Burke, Fung & Li solicitors, Billion Points Limited (“Billion Points”) and Promail International Club Limited.

2.  The summons was made under section 197 of the Companies Ordinance, Cap. 32.  The liquidators seek the following orders:

(1) a declaration that no trust exists or ever existed between Billion Points as trustee and Promail International Club Limited as beneficiary regarding the payment of $3.5 million made by Promail on 18 September 2000 to Chan, Leung and Cheung solicitors (“CLC”) as stakeholder and now held by Burke, Fung & Li as agent for CLC; and

(2) an order that Burke, Fung & Li do pay forthwith $3.5 million to the liquidators or as the liquidators may direct.

3.  Under section 197, where a winding-up order has been made, the liquidator shall take into his custody, or under his control, “all the property and things in action to which the company is or appears to be entitled”.

4.  For the liquidators to succeed on this application, as submitted by Mr Manzoni for the liquidators, the court would need to be satisfied that the money is not the subject of a trust, and that it is unlikely there would be any beneficiary who may appear to make a claim for the money.  I would add, as it is obvious from the submission, that the court would also need to be satisfied the money belongs to Promail and should be returned to its liquidators.

5.  Of the respondents to the summons, Billion Points and Promail International Club Limited have been struck off the register of companies under section 291 on 3 March 2006 and have been dissolved.  Burke, Fung & Li, is the only respondent to appear in this application.  Mr Fung of this firm has made submissions to the effect that the money does not belong to Promail as this was a gift in favour of the members of Promail International Club (“the Club”), and as there are no members of the Club, the money should go to the government as bona vacantia.

6.  At the hearing today, Mr Fung informed me that he formally withdraws this submission.  I understand there is now no opposition from Burke, Fung & Li.  The background matters in the summons may be stated as follows.

7.  Promail was incorporated on 1 March 1999.  In 2000, it was discovered by the police that Promail had operated a “pyramid selling” scheme.  On 19 December 2000, a restraint order under section 15 of the Organised and Serious Crimes Ordinance, Cap. 455 was made in respect of the assets of Promail held by Promail and by various individuals.  In January 2001, two of the directors of Promail were charged with conspiracy to defraud and they were convicted.  A winding-up order was made against Promail on 10 July 2002.  On 21 March 2003, a regulating order under section 227A was made and the liquidators were appointed.

8.  The sum I am concerned with in the amount of $3.5 million was paid by Promail to its solicitors CLC by a cashier order dated 16 September 2000.  On 18 September 2000, CLC issued a receipt acknowledging that they had received the sum from Promail and that it was paid to them as stakeholders in relation to a matter which was the subject of legal consultation.

9.  According to the files of CLC disclosed in this application, and the affirmation of Kelvin Cheung Ka Wai, a former equity partner of CLC, during July or August 2000 to November 2000, Promail had consulted CLC in setting up a members’ club, being the Club I have mentioned earlier.  Mr Cheung was instructed that the Club was intended to be a benefit to the customers of Promail.  However, only club house rules, regulations and bye-laws were drafted, no memorandum or articles of association of the Club were ever prepared.  Besides, the documents drafted were never approved or adopted.

10.  Billion Points was incorporated on 8 September 2000.  Promail and a director of Promail became shareholders on 28 September 2000.  Two of the directors of Promail were appointed directors of Billion Points.  The purpose of acquiring Billion Points was for it to act as trustee to hold the $3.5 million to be paid by Promail.  I will come back to the matter of the intended trust.

11.  Promail International Club Limited was incorporated on 1 September 2000 under its former name.  The name was changed to its present name on 11 October 2000.  On 28 September 2000, the shareholders were changed to Promail and a director of Promail.  Two of the directors of Promail were appointed directors of this company.  According to Mr Cheung, this company was to be the “executive arm” of the Club.

12.  No annual return had ever been filed in respect of Billion Points or Promail International Club Limited since their incorporation.  As mentioned, both have now been struck off.

13.  Mr Cheung deposed that the Club has never been formed and no member has ever been recruited.  I have no reason to find otherwise.  I note that there was a business registration certificate of Promail International Club Limited.  This certificate stated that the name in which Promail International Club Limited carried on business was Promail International Club and that the certificate was valid for a 12-month period commencing 1 September 2000.  Notwithstanding this business registration certificate, I am satisfied that the documents essential for the formation of the Club had not been approved and some had not even been prepared.  No business had in fact been carried out by Promail International Club Limited at any time, whether in the name of the Club or at all.

14.  I am satisfied on the evidence before me that there is clear intention to create a trust and that the $3.5 million paid by Promail was not an outright gift to the Club.

15.  Firstly, payment was not made or intended to be made to the Club or to Promail International Club Limited.  Secondly, there was clear mention in the documents that the $3.5 million held by CLC as stakeholders was eventually to be held on trust by Billion Points as trustee.  Indeed that was the purpose for which Billion Points was acquired.  Thirdly, it is clear from the files of CLC that files were opened and correspondence exchanged with Promail and they all spoke about the formation of the trust.

16.  What is not so clear is the identity of the beneficiary, whether this was Promail International Club Limited or the Club.

17.  There was a board resolution of Billion Points dated 12 October 2000, by which it was resolved that Billion Points agreed to act as the trustee to hold the money and other assets given or donated by Promail “for the benefit of Promail International Club Limited”.  It was further resolved that CLC were to be retained as solicitors to draft a trust deed for this purpose and that CLC were to be authorised to hold any money given by Promail for and on behalf of Billion Points as stakeholder pending the execution of the trust deed and other related documents.  No trust deed was found in the papers of the liquidators or CLC.  It is confirmed by Mr Cheung that no trust deed had been drafted.

18.  There are other documents pointing to the Club, not Promail International Club Limited, as the beneficiary of the $3.5 million.  They are set out in paragraph 7 of Mr Manzoni’s submissions.  There is also the understanding of Mr Cheung who deposed that the money was held by CLC pending formation of the Club and intended for the benefit of the Club, not for Promail International Club Limited, which was to be the executive arm of the Club.

19.  It is not necessary to resolve the question who the beneficiary was.  Regardless of whether the beneficiary was Promail International Club Limited or the Club, it is clear that the intended trust has failed, for one or more of these reasons: there is no certainty as to the beneficiary; if the Club were the beneficiary, it was never established; if Promail International Club Limited were the beneficiary, it has been dissolved.

20.  As the declared trust has failed for one or more of the above reasons, the trust property is held by the trustee on a resulting trust for the settlor, namely Promail.

21.  I am satisfied that the liquidators are entitled to the relief in their summons.  I make an order in terms of paragraphs 1 and 2.  The liquidators are also to have interest accrued on the sum of $3.5 million since 18 September 2000.

22.  As for the costs of this application, it seems to me that Mr Fung withdrew his opposition too late.  I make an order that Burke, Fung & Li should pay the costs of the liquidators for the hearing today.  Save as aforesaid, there will be no order as regards the liquidators’ costs of this application.