SUPER CRUISE LTD v. COSIMO BORRELLI AND OTHERS

HCA 1460/2013
[2018] HKCFI 434

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1460 OF 2013

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D E C I S I O N

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The application

1.  This is the application of the 1^st and 2^nd third parties by way of summons filed on 1 September 2017 to strike out the 3^rd Defendant’s (“D3’s”) claim against the 1^st and 2^nd third parties on the grounds that such claim discloses no reasonable cause of action and is an abuse of the process of the Court pursuant to Order 18 rule 19(1)(a) and (d) of the Rules of High Court Cap. 4A.

2.  This application is contested and the parties are legally represented.[1]

The relevant factual background

3.  For the discussion of the arguments between the parties, I shall briefly state the relevant facts as follows:

(a) The Plaintiff (“P) is a company where the third parties are 80% shareholders of it.

(b) The third parties had charged their shares to another company (“the Share Charge”).  A dispute had taken place between them and as a result, the chargee exercised its right under the Share Charge to appoint the first and second defendants (“D1 and D2”) respectively as the receivers of P.

(c) The third parties challenged the validity of such appointment.  However, the Court had confirmed the validity of the appointment by an order dated 19 June 2012 and confirmed by the Court of Appeal by its order dated 27 September 2013.[2] The third parties argued that the Court did not hold that the appointment of D1 and D2 to perform their receivers’ duties under the Share Charge.  But they admitted in their Defence to the Statement of Claim of the third parties’ proceedings that D1 and D2 were appointed as the receivers of P.[3]

(d) In the course of dealings by D1 and D2 as receivers (which the third parties object to their capacity), D1 and D2 dealt with P’s subsidiary’s assets and appointed D3, a corporation controlled by D1 and D2 to receive P’s assets.

(e) P as controlled by the third parties, claims against all defendants and seeks damages and/or equitable compensation from all of the defendants for loss allegedly suffered by the P.  As to D3, P seeks a declaration that D3 holds those sums on trust for P and also seeks the return of those sums.

(f) By third parties’ proceedings under O.16 RHC, Ds claim indemnity from the third parties.

(g) This application is only taken out almost four years after the Defence to the Ds’ Statement of Claim against the third parties, which was filed on 1 April 2014.

The parties’ stances on the applicable legal principles

4.  The parties rely heavily on the trite legal principles on striking out under O.18, r.19 RHC, which are as follows:

“The claim must be obviously unsustainable, the pleadings unarguably bad and that it be impossible, not just improbable, for the case to succeed before a court will strike out. If the court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious, then, there should be no striking out.” as was said by the Court of Appeal in Ha Francesca v Tsai Kut Kan (No.1) and Ors [1982] 1 HKC 382 at 392.

5.  The argument between the parties develops upon the above legal principles.

Order 16, rule 1, RHC

6.  In my view, they have misdirected this Court on the appropriate legal principles applicable to this application.  The third parties’ proceedings are provided and governed under O.16, r.1 RHC, which I shall set out below:

Third party notice (O. 16, r. 1)

(1) Where in any action a defendant who has given notice of intention to defend—

(a) claims against a person not already a party to the action any contribution or indemnity; or

(b) claims against such a person any relief or remedy relating to or connected with the original subject-matter of the action and substantially the same as some relief or remedy claimed by the plaintiff; or

(c) requires that any question or issue relating to or connected with the original subject-matter of the action should be determined not only as between the plaintiff and the defendant but also as between either or both of them and a person not already a party to the action;

then, subject to paragraph (2), the defendant may issue a notice in Form No. 20 or 21 in Appendix A, whichever is appropriate (in this Order referred to as a third party notice), containing a statement of the nature of the claim made against him and, as the case may be, either of the nature and grounds of the claim made by him or of the question or issue required to be determined.

The third parties’ argument

7.  The third parties’ argument is that D3 have no cause of action against them simply because there is no privity of contract between the third parties and D3, who is the agent of D1 and D2 only.  This is so even D1 and D2 were acting in their capacity as the receivers, who appointed D3 as their agent with the authority of the third parties as the principal under the Share Charge.[4] In my view, this is not the appropriate question to ask under Order 16, rule 1.  Mr Kwok considers that this factor should not be considered.  He submits that only O.18, r.19 should be considered for this application.  I disagree.

Factors considered

8.  In accordance with Order 16 and based upon the facts above, I shall take into account the following issues between P and D3, and therefore between D3 and the third parties:

(a) P claims against D3

(i) for a declaration that it holds the money paid by D1 and D2 as trustees for Plaintiff;

(ii) an account of the trust money;

(iii) an inquiry of the trust money received or possessed by it as to under what circumstances was the money paid into it and what has become of the trust money;

(iv) compound interest on the sum received by it;

(v) further or other reliefs, including all further necessary or appropriate accounts, inquiries and directions and

(vi) costs[5].

(b) It is quite apparent that D1 and D2 were acting as the receivers of P under the Share Charge when they were dealing with P’s subsidiary’s assets;

(c) D1 and D2 are entitled to appoint D3 as the corporate vehicle for receiving the assets of P in the course of receivership;

(d) The Share Charge provides for indemnity from the third parties for the expenses of D1 and D2 and also D3 as the vehicle for the discharge of their duties;

(e) The Share Charge also provides indemnity of liability of D3 as agreed by the third parties who are the signatories;

(f) The third parties have pleaded to Ds’ Statement of Claim in the third parties’ proceedings. In particular, in paragraph 23 (3) of the Defence, they pleaded:

“The Defendants have failed to give particulars as to their allegation of “negligence, mismanagement or breach of duty of the Third Parties and/or their then servants, agents or nominees as members of management of the Plaintiff and the Subsidiary”. The Third Parties reserve the right to respond when further and better particulars are provided.”

(g) It was the third parties’ decision to claim against D3 for the reliefs above. They did it through their corporate vehicle of P;

(h) It is clearly preferable for the court to hear all the evidence from the relevant parties in this action, including the third parties’ proceedings before coming to a determination;

(i) The third parties have relied upon their pleaded case for almost four years before taking out this application.

9.  The third parties’ summons is dismissed.

Costs and Order

10.  As to the costs of this application and today’s hearing, although the parties have agreed certain sum to be paid for this hearing, the parties agree that they have not referred this Court to Order 16 of the Rules of High Court, which I consider should be the main legal principle for my determination. On this basis, I consider that D3 should not be awarded the full costs.  Having taken this issue into consideration, I consider that the appropriate costs for this application, including the costs reserved and the hearing today, be $40,000 to be paid by the third parties to D3 within 28 days from the date hereof as agreed by the parties.

11.  I shall now make an order in terms as follows:

(a) The third parties’ summons is dismissed;

(b) The costs of this application as per paragraph 10 above.