FONG WING SENG v. SHAHAAN SAKALIN AND OTHERS

HCA 1390/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1390 OF 2013

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J U D G M E N T

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Introduction

1.  The dispute in this action concerns the beneficial ownership and occupation of an office premise in Kingpower Commercial Building on Jaffe Road, Hong Kong (“Property”) registered in the name of the 5^th defendant (“Mega Grade”).  The present application before the court was a summons issued by the 3^rd defendant (“D3”) in November 2013 for the plaintiff (“P”) and/or his agents and/or servants to be forbidden to enter and/or required to vacate the Property.

2.  P claims to be one of the beneficial owners of Mega Grade and further claims that Mega Grade has allowed P and his family to use and occupy the Property so long as P continues to upkeep and pay all outgoings of the Property including the management fees and rates. 

3.  According to the Companies Registry record, D3 and the 4^th defendant (“D4”) were registered as directors of Mega Grade on the annual return/s of Mega Grade. It was not disputed that both of them were only nominee directors, and according to D3, she was/is  a nominee for her brother Wan Tak Choi (“WTC”), and it seemed so was D4.  P denied that D3 and D4, or WTC had ever been validly appointed as directors under Article 7 of the Articles of Association of Mega Grade, as it was his case that no ordinary or extraordinary general meetings had been held since about 2003 and there had been no written resolution of shareholders passed in relation to appointment of D3, D4 or WTC as directors.

4.  After issue of the writ on 29 July 2013, P had in August 2013 issued a summons seeking, among other things, an injunction against D3 and D4 to restrain them from acting as directors of Mega Grade until further order.  On 23 September 2013, this court handed down a judgment[1] (“Judgment”) and granted an order as sought by P[2].  The order (“Injunction Order”) states, among other things:-

(i) D3 and D4, whether by herself or himself or by their servants, agents, including but not limited to WTC or otherwise be restrained from acting as directors of Mega Grade or representing herself or himself as such until further order of the court save and except that they be authorized  to continue to defend P’s application in  the proceedings in the Labour Tribunal LDPE No 426 of 2013 (“LT Proceedings”);

(ii) Within 7 days, D3 and D4 do make an affirmation to disclose all document and information in relation to the purported second mortgage of the Property.

5.  After the Injunction Order, there was an incident when P changed the locks to the Property, and this led to the issue of D3’s Summons.

6.  At a hearing on 12 December 2013 of D3’s Summons,   various undertakings were given by the parties, the effect and result of which was that all keys of the Property were handed in to be held by the court and the parties agreed to each nominate a contact person with his/her mobile telephone number provided to the management office of the Property in case of emergency.  Upon such undertakings, this court ordered by consent that P and his agents and/or servants but not limited to his wife Madam Tjio (“Tjio”), and D3 and D4 and their agents, including but not limited to WTC are all forbidden to enter the Property and/or to tamper with or change the locks on the Property unless with leave of court (“Interim Consent Order”).

7.  D3’s Summons was later fixed for argument on 17 March 2014 before this court.  About 2 weeks after the conclusion of the hearing, D3’s solicitors sent to the court new documents filed in the main action which they would like to be inserted into the bundles and which they drew the court’s attention to. This then led to further supplemental submissions being lodged by both sides.

Brief Background

8.  According to P, he and the 2^nd defendant (“D2”) established Mega Grade in July 1997.  Since its incorporation, P’s shareholding and D2’s shareholding had been held through nominees/trustees.  Further according to P, there had always been two directors who were nominees for P and D2.  

9.  P claimed D2’s and his interest in Mega Grade was/is held by 1^st defendant (“D1”) and  a secretarial company called Universal Plus Corporate Services Limited (“Universal Plus”), who were the only registered shareholders on the Company’s last annual return.

10.  Mega Grade purchased the Property through an auction for a consideration of HK$850,000 on 18 March 2000 from a company called Sinotronix Investments Limited (“Sinotronix”).  P claimed he was also one of the beneficial owners of Sinotronix which was later de-registered on about 3 May 2002.

11.  It was P’s case that since 1990’s, P and his family had been allowed firstly by Sinotonix and later by Mega Grade to enjoy uninterrupted and peaceful occupation of the Property until they were suddenly evicted by the bailiff on 10 July 2013 by Mega Grade through its purported director D3.

12.  D3 had denied the above allegations.  It was her case that after Mega Grade had acquired the Property, although P and his family had occupied the Property, the directors of Mega Grade including D3 herself and WTC also occupied the Property, and that P only on rare occasions used the Property and further that WTC had been using the Property on full time basis for a continuous period of time.

13.  Further, according to D3, there was a lease from Mega Grade to one Wah Kee Lee Fat Company, a business owned by WTC, from 1 September 2003 to 31 August 2008 and that WTC had used the Property as his office throughout that period.

14.  WTC himself had alleged that he had lent money to P’s son William Fong and that the loans had not been repaid and that P and William Fong had agreed to sell the Property in order to repay, but no buyers could be found.  WTC then alleged that P had agreed to D3 being appointed as a director of Mega Grade to control the company and also D4, a property agent, was appointed as a director of Mega Grade to facilitate the sale. 

15.  Anyway, the recent confrontation between P on one side and D3, D4, and WTC on the other commenced in December 2012.  On 21 December 2012, WTC had attended the Property and attempted to evict P and his wife Tjio by changing the padlock of the metal gate of the Property, and after police intervention, WTC agreed to hand the new padlock to the management office of the Property pending P seeking legal advice.

16.  Thereafter, WTC’s solicitors sent a letter to the management office stating that WTC was the authorized person of Mega Grade to handle matters relating to the Property.  On 28 December 2012, WTC accompanied by the police then attended the Property and changed unilaterally the lock of the Property.

17.  This was then followed by a complaint letter from P’s solicitors to the police, WTC and the management office, and as WTC was unable to produce any authorization from Mega Grade, on 15 January 2013, P and Tjio went and re-changed the padlock of the Property and they regained possession the Property and according to them continued to occupy the Property.

18.  Thereafter, there was another incident in April 2013 when according to P, a Mr Wan alleging to be a tenant attempted to gain entry to the Property, and when access was denied, another report was made to the police.

19.  On 2 May 2013, Mega Grade issued the LT Proceedings by its purported authorized person D3 against an alleged tenant Deng for failure to pay rent and for possession. 

20.  A default judgment was then obtained by Mega Grade against Deng on 24 May 2013 in the LT Proceedings and a writ of possession to enforce the judgment and a possession order of the Property was granted to Mega Grade (“Possession Order”).  P had alleged that the tenant Deng was a fictitious person.

21.  It was not disputed that there had been no service of the LT Proceedings on P but it was pleaded in the defence of D3 and D4 that a notice to quit to occupier/s had been posted by the bailiff at the entrance of the Property on 25 June 2013, and a final notice was put up again 7 days later.

22.  The bailiff recovered possession of the Property under the Possession Order on 10 July 2013 and P was evicted therefrom.

23.  P and Tjio then immediately applied on 12 July 2013 to the Lands Tribunal, among other things, to (1) intervene in the LT Proceedings; (2) set aside the default judgment and the Possession Order; (3) seek an order that any person except P and Tjio and/or their authorized person/s be restrained from entering into the Property; and (4) P and Tjio be at liberty to change the lock installed at the entrance of the Property by the bailiff on 10 July 2013.

24.  The events which took place after this court granted the Injunction Order  and which led to the issue of D3’ Summons were:

(i) A decision dated 25 September 2013 was handed down by Judge Ko, the then Presiding Officer of the Lands Tribunal  (“LT Decision”) under which the default judgment dated 24 May 2013 made in the LT Proceedings and the Possession Order was set aside due to irregular service on the tenant Deng, but the other orders sought by P were not granted by Judge Ko;

(ii) In the morning of  21 October 2013 (not 13 October 2013 as it was stated by WTC), Tjio, accompanied by a lawyer, attended the Property to remove the padlock installed by purportedly Mega Grade on the Property;

(iii) The management office telephoned and alerted WTC who then reported the matter to the police. 

(iv) Apparently, upon showing the police and the management office a copy of the Injunction Order, Tjio was later allowed to change the locks on 21 October 2013.

The Issues

25.  The issues in the main action appear to be as follows:

(i) Whether D1 held/holds any of his shares in Mega Grade on trust for P, and if so, the extent of P’s beneficial interest in Mega Grade;

(ii) Whether Mega Grade had granted P a right to occupy the Property exclusively subject to P paying all upkeep and outgoings, and if so, whether P had been conducting business at the Property;

(iii) Whether D3 and D4 were validly appointed as directors of Mega Grade.

D3’s Cause of Action

26.  P’s Counsel Mr Chong had submitted that D3 must demonstrate that she had a cause of action against P before she could seek an interlocutory injunction.

27.  Mr Chong had referred this court to Ever Eagle Co Ltd v Fortune Trading Co Ltd & Another CACV 69/1993, 5 August 1993 where the Court of Appeal had applied [3] what was said by Lord Diplock in The Siskina (Cargo Owners) v Distos SA [1979] AC 201, namely “The right to obtain an interlocutory injunction is merely ancillary and incidental to the pre-existing cause of action”[4].

28.  The above was applied  in Tsai Shui Sheung & others v Ho Hong Chu HCA 662/2007, 19 September 2007 by Mr Recorder Kwok  SC who had referred to what was said by Lord Diplock in The Siskina :

“8. A right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own. It is dependent upon there being a pre-existing cause of action against the defendant arising out of an invasion, actual or threatened by him, of a legal or equitable right of the plaintiff for the enforcement of which the defendant is amenable to the jurisdiction of the court. The right to obtain an interlocutory injunction is merely ancillary and incidental to the pre-existing cause of action. It is granted to preserve the status quo pending the ascertainment by the court of the rights of the parties and the grant to the plaintiff of the relief to which his cause of action entitles him, which may or may not include a final…”[5].

29.  Mr Recorder Kwok SC then discharged the ex parte injunction order as the statement of claim disclosed no reasonable cause of action against the defendant.

30.  In the present case, D3 and D4 filed a defence on 20 January 2014[6], but there was no counterclaim by them.  They mainly denied the allegations pleaded by P in their defence and put P to strict proof of his allegations.

31.  Ms Herbert accepted that D3 or D4 would not have a cause of action in their personal/individual capacity, and any cause of action would lie in D3 and D4 being directors of Mega Grade, but because of the Injunction Order, they were not able to represent Mega Grade or file any defence on its behalf.

32.  There was no appeal against the Injunction Order by D3 or D4, nor had there been any application by D3 or D4 to vary the Injunction Order for them to file a defence on behalf of Mega Grade.   What is clear is that D3’s Summons was issued by D3 in her personal capacity, and not on behalf of Mega Grade.

33.  I accept Mr Chong’s submission that as the pleadings now stand, D3 in her personal capacity does not have any reasonable cause of action against P.

34.  D’s Counsel Ms Herbert, however, submitted that whether D3 has in her personal capacity a cause of action against P or not, the court has wide powers to grant injunctions under Order 29 and/or in its inherent jurisdiction in the administration of justice and to protect assets of Mega Grade until the trial, and that if an injunction is not granted, P could gain re-entry to the Property and there would be no urgency for P to proceed with the main action.  I will consider Ms Herbert’ submissions in this regard.

Whether the court should grant an injunction to D3

35.  It is trite law that, following American Cyanmid Co v Ethicon Ltd [1975] AC 396, the court will grant an interlocutory injunction where the applicant can show:

(i) That there is a serious question to be tried; and

(ii) That the balance of convenience lies in favour of granting the injunction.

36.  Ms Herbert submitted that there are serious questions to be tried in the present case, namely whether or not P is a beneficial owner of Mega Grade and whether P has the right to occupy the Property.

37.  The difficulty with D3 or D4’s case is that it was never pleaded in their defence, nor was it ever their case, that D3 and D4 themselves ever had/have any beneficial interest in Mega Grade, or that they ever had/have any beneficial interest in the Property.  In their defence, they did not deny P’s alleged beneficial ownership in Mega Grade, but only put P to strict proof of his allegations.

38.  Further, as mentioned earlier, and it was not disputed that D3 and D4 were/are only nominee directors.  As stated in the Judgment, WTC was registered in the annual return of Mega Grade as a director on 28 July 2004 but ceased on 28 July 2006.  D3 was then registered on the annual return to be a director on 28 July 2009, and D4 a director on 28 July 2012[7]. D3 had stated herself that she was/is only a nominee for WTC, and D4 appeared to be also a nominee for WTC as well.  It was never pleaded in the Defence by D3 or D4 nor was it ever their case that WTC had/has any beneficial ownership in Mega Grade or in the Property.

39.  As to the occupation of the Property, in the defence, D3 and D4 had pleaded that the Property was left vacant for over one year when it was being auctioned.  They denied that P had enjoyed uninterrupted and peaceful occupation of the Property to the exclusion of others until the sudden recovery of possession on 10 July 2013 under the Possession Order.  It was pleaded by them that the Property was leased by Mega Grade to the business owned by WTC from 1 September 2003 to 31 August 2008, and that WTC had used the Property throughout that period.  It was also pleaded that directors of Mega Grade and WTC had keys and access to the Property from 2003 to 2013.  

40.  What was pleaded in the defence was that WTC had the use of the Property during the 5 year period of the lease, until 31 August 2008.  What D3 said in her affirmation of 6 February 2014 filed on the same day as her defence seemed to be somewhat different.  She had said that after Mega Grade acquired the Property, P and his family had indeed occupied the Property, but the Property was only used by P on rare occasions, and that WTC had been using the Property on full time basis for a continuous period of time[8].  She had further said since 2003, the Property had been used by WTC, directors of Mega Grade including herself and P.  Her evidence was rather confusing, since on one hand she seemed to be saying that WTC was using the Property only during the 5 year lease to WTC’s business only, and yet on the other hand, she seemed to be saying all directors, WTC and P could use the Property and had been using the Property until 2013.

41.  Anyway, what had not been pleaded, nor was it ever D3’s or D4’s case, that they, or WTC, had been given any exclusive right to occupy the Property.  Further, apart from the alleged 5 year lease which expired in August 2008, there was no sufficient evidence at this stage that D3 or D4 or WTC was actually using/occupying the Property when the parties’ present confrontations started in December 2012, other than the Property was used as the registered address for Mega Grade.

42.  This was also reflected in the LT Decision when Ko J said based on the evidence then available before him, Mega Grade’s case in the LT Proceedings was “dubious”[9].  He accepted what was pointed out by P’s Counsel Mr Chong that Mega Grade should know, by reason of the December 2012 and April 2013 incidents, that P (and his associates) had been using the Property, and given the fact that P had been in possession, it was “absurd (to say the least)” for Mega Grade to attempt to recover possession of the Property through the LT Proceedings without regard to P’s position[10].

43.  During the LT Proceedings, it was D3 who was purported to be acting on behalf of Mega Grade.  Further, D3’s solicitor Mr Goh tried to explain to Ko J that Mega Grade did not retain the keys to the Property and did not know whether the occupants therein were associated with the tenant.  Firstly, what Mr Goh submitted was contrary to what was pleaded in the defence, namely that the directors of Mega Grade had the keys and access to the Property from 2003 to 2013 and secondly, as pointed out by Ko J, such submission did not sit comfortably with WTC’s own evidence that the tenant had never showed up at the Property[11].  Also, as pointed out by Ko J, the admission by Mega Grade that the tenant had never showed up at the Property after signing the tenancy agreement cast doubt on the purposed service and in the end, Ko J set aside the default judgment and the Possession Order due to irregular service.

44.  Further, on the issue of occupation, after P was evicted by the bailiff under the Possession Order, there was an inventory of goods and chattels drawn up by the bailiff.  There was no evidence that any goods and chattels in the Property had belonged to D3, or D4, or WTC.  On the contrary, by consent, item/s was/were released to P.  Thus, the present evidence would tend to support that it was P and his family/associates who were occupying the Property prior to the Possession Order.  The present “status quo” was only achieved by way of the Possession Order which had since been set aside.

45.  D1 was served out of jurisdiction, and he had filed a defence acting in person on 24 March 2014, without providing any address for service within the jurisdiction.  His defence was brief consisting of 3 short paragraphs only.  In the 1^st paragraph, he generally denied all the paragraphs in the amended statement of claim.  In his 2^nd paragraph, he specifically alleged that he owned/owns 100% equitable and beneficial interest in Mega Grade since its establishment, and in the 3^rd paragraph, he specifically alleged that had never authorized and/or allowed anybody to enter, possess, lease, sub-lease, mortgage and/or assign any interest of the Property held directly by Mega Grade.

46.  As observed by P’s Counsel, Mr Chong, notwithstanding the comprehensive particulars in the amended statement of claim, there was only a simple general denial by D1, with no particulars.

47.  By denying the entirety of the amended statement of claim, D1 seemed also to have denied what was pleaded in paragraph 21 thereof in relation to D3 taking those steps in the LT Proceedings on behalf of Mega Grade.  Also, by pleading specifically that he had never authorized and/or allowed anybody to enter, possess, lease, sub-lease, mortgage and/or assign any interest of the Property, which would contradict P’s case that he had the right to occupy, it also meant that the 5 year lease to WTC’s business from 1 September 2003 to 31 August 2008 was not authorized by D1, nor was the tenancy agreement allegedly entered into by D3 purportedly on behalf of Mega Grade with the alleged tenant Deng, nor was the  2^nd mortgage taken out by D3 purportedly on behalf of Mega Grade on 26 July 2013.

48.  In my view, D1’s defence did not really help D3’s position. 

49.  D2 had also been served.  Although D2 had issued a summons on 2 January 2014 to strike out P’s statement of claim, this was because no remedies had been sought against D2, and P had since amended the statement of claim to include a relief against D2, and there was no evidence at the hearing that D2 would continue with his summons.  In any event, D2’s strike out summons did not appear to have any relevance or implication on the present application by D3.

50.  Whether P held/holds any beneficial ownership in Mega Grade and the extent of P’s interest, and also whether P was granted a right to occupy the Property by Mega Grade are main issues in the action and serious questions to be tried, but such issues in my view would only concern P, and D1, D2 and Mega Grade.   In particular, D1, who claims to be 100% beneficial owner of Mega Grade, takes the view that P’s actions or occupation/use of the Property were/are in violation of D1’s rights, D1 could take out an injunction against P. The present summons was, however, not issued by D1, D2 or Mega Grade, nor had they ever taken out any such application against P.  Any application for preservation of assets should come from them or Mega Grade.  There was no evidence that D3 had been authorized by any of them to act and to issue D3’s Summons.  There was no sufficient evidence that D3 had invited D1 or D2 or Mega Grade to join in applying for an injunction, nor was notice of D3’s Summons given to D1 or D2 or Mega Grade.

51.  I accept Mr Chong’s submissions that D3 at this stage has no locus to issue a summons for an interlocutory injunction in terms as sought in D3’s Summons.  Even if D3 has a locus, I am not satisfied that the injunction sought is in relation to any serious question to be tried as between P and D3/D4.  Further, I am of the view that if D3 eventually were to succeed at the trial, she could be adequately compensated by damages for any loss caused by this court’s refusal to grant the injunction sought, and on the balance of convenience, I decline to grant the injunction to D3 as sought.  

52.  P had given an undertaking through Mr Chong that he would continue to pay all outgoings of the Property if he were to be allowed to move back in.  There was, however, no proper summons taken out by P for him to be allowed to move back into the Property, and in any event, such summons should be served on D1, D2 and Mega Grade.  I decline to make such an order at this stage.

53.  So far as the Interim Consent Order is concerned, the keys to the Property were handed in by a solicitors’ firm Messrs Ng, Au Yeung & Partners.  The Interim Consent Order was entered into as a result of D3’s Summons.  In view of the dismissal of D3’s Summons, the parties’ undertakings and paragraph 1 of the Interim Consent Order will be discharged.  

Order

54.  My order is thus as follows:

(i) D3’s Summons issued on 15 November 2013 be dismissed;

(ii) The undertakings and paragraph 1 of the Interim Consent Order be discharged and the keys of the Property currently deposited in the High Court be released to Messrs Ng, Au Yeung & Partners.

55.  As D3 is the unsuccessful party, I order her to pay the costs of D3’s Summons, including the costs reserved on 4 December 2013, to be summarily assessed and paid forthwith.  P is to submit his statement of costs within 14 days, D3 to submit her list of objections within 14 days thereafter, and P is to submit his response, if any, within 7 days thereafter. This is an order nisi which shall be made final after 21 days.

[1] I:A:49-65

[2] I:A:45-48

[3] At pg 4

[4] At 256

[5] At para 8, pg 7

[6] I:A:139-149

[7] Para 13, I:B:52

[8] Para 4(c), I:A:156

[9] Para 20, I:B:27

[10] Para 21, I:B:27

[11] Para 22, I:B:27