HONG KONG WAH SANG INDUSTRIAL CO LTD v. THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD

HCMP 2219/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2219 OF 2007

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R U L I N G

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1.  In essence this is a dispute between Mr Guy Lam and his father Mr Lam Pak Cheung (“LPC”) in respect of the affairs of the 1^st Applicant, a Hong Kong company incorporated in February 2003, whose shares are owned as to 99% by the 2^nd Applicant, a PRC company, and LPC as to the remaining 1%.  The originating summons, in its original form, was brought by the 1^st Applicant alone against the Respondent bank for orders requiring the Respondent to provide it with copies of its bank statements and cheques drawn on its behalf during the periods referred to in the originating summons in respect of its two accounts held with the Respondent.  One would consider this to be a perfectly straightforward matter of a customer company asking its bank for copies of its bank statements and cheques.  The request on behalf of the 1^st Applicant was made by Guy Lam acting in his capacity as its director.  Nevertheless, it had come to the Respondent’s notice from solicitors acting on behalf of LPC and a Mr Tsang Wai Chung that Guy Lam’s appointment as a director had not been validly made and that as a result he lacked the authority to make such a request of the Respondent on behalf of the 1^st Applicant.  It was being said that only LPC and Mr Tsang could make such a request.

2.  This placed the Respondent in a difficult position and in consequence it refused to let the 1^st Applicant have the documents that it had asked for.  Hence the issuing of the originating summons.  Having been served with the summons, the Respondent applied and obtained orders to make LPC and Mr Tsang third parties, the effect and intention of which would be that these parties would substantively contest the authority of Guy Lam to ask for these statements on behalf of the 1^st Applicant.  I should also refer to the fact that there is on-going litigation in this court between Guy Lam and LPC by themselves and through corporate parties over the control and running of various companies in which they are interested.

3.  Guy Lam’s motives for having a sight of the 1^st Applicant’s bank statements and cheques are in order to confirm his suspicion that LPC and his associates have unlawfully removed up to $30 million from the 1^st Applicant’s accounts and if the statements confirm these suspicions, he would wish to take proceedings to recover these amounts on the 1^st Applicant’s behalf.  And so that is how and why the originating summons in its original form was constituted.

4.  As I understand it, given the challenge being made to the validity of Guy Lam’s appointment as a director of the 1^st Applicant and therefore his authority to act on its behalf to ask the Respondent for copies of the statements and cheques and the factual disputes that such a challenge raise, which may not be appropriate to the originating summons procedure, Guy Lam has enlarged the summons by applying and obtaining an order from me earlier this morning to make a Norwich Pharmacal application directed to the Respondent bank by the now 2^nd Applicant who is a 99% shareholder in the 1^st Applicant.  The purpose of this application is to enable the 2^nd Applicant to bring a derivative action on behalf of the 1^st Applicant against LPC and his faction, if I may so refer to them, in respect of this suspected removal of these large amounts of money from the 1^st Applicant’s bank accounts.  In this regard, this Norwich Pharmacal application is also sponsored by Guy Lam, who purports to bring it as the 2^nd Applicant’s Legal Representative and as such fully authorized to make such application on its behalf.

5.  The expression Legal Representative in PRC company law is a term of art and the holder of such an office would undoubtedly be able to bring proceedings of this type on the 2^nd Applicant’s behalf and nobody before me today appears to contest that proposition.

6.  Now from that somewhat lengthy introduction, I come to the subject matter of this ruling which is a summons by LPC to be joined as 2^nd Respondent to the now enlarged [re-amended as it now is] originating summons and to oppose the 2^nd Applicant’s Norwich Pharmacal application.  The ground of opposition is that Guy Lam, by resolution of the Board of Directors of the 2^nd Applicant dated 20 July 2006, has been removed as a director and the legal representative of the 2^nd Applicant, a copy of which resolution is exhibited to the 3^rd affidavit of LPC dated 14 May 2008.

7.  If I hold that this is a valid resolution, it is said that Guy Lam would lack the authority and standing to mount a Norwich Pharmacal application of this sort on behalf of the 2^nd Applicant and therefore that I should not make the order.

8.  Mr Rimsky Yuen SC, for the 2^nd Applicant, objects to LPC’s joinder as 2^nd Respondent on the basis that given the nature of a Norwich Pharmacal application which is directed to, in this instance, a Respondent bank there is no room for the appearance of LPC in such proceedings.  And so, this is very much a procedural objection.  LPC would have to show that he has a sufficient interest in the application to enable him to be joined.  His summons is brought under O.16 r.4(4) of RHC, which it seems to me is not the correct Order to go under.  I would have thought that he should have applied under O.15 r.6 and I propose to allow an amendment to his summons for that to happen.

9.  In objecting to the joinder, Mr Yuen submits that it is for the Applicant to decide who to sue and, in general that must be a correct submission to make.  Nevertheless, where a party can bring itself or himself within the joinder provisions of O.15 r.6 then the court is able to exercise its discretion to allow such party to be included in the matter being litigated.  Therefore, LPC must show that he comes within the terms of O.15 r.6(2)(b)(i) or (ii).  These provisions are at page 235 of the current practice and I do not propose to recite them here.  What Mr Kwok Siu Hay, for LPC, says is that his client wishes to be heard on the question of whether Guy Lam has the necessary locus to mount this Norwich Pharmacal application, questioning his standing as a director and/or legal representative of the 2^nd Applicant.

10.  I have already heard argument in some detail from Mr Yuen, on this issue, the high point of his submission being that when one looks at B2/160 there is there a document from the Shenzhen Industrial and Commercial Administrative Bureau dated 30 September 2006, in other words after 20 July 2006 resolution, which shows that Guy Lam is still the 2^nd Applicant’s Legal Representative which is sufficient for him to be able to make this Norwich Pharmacal application.

11.  It strikes me that provided LPC can bring himself within either limb of O.15 r.6(2)(b) then he ought to be allowed to join as 2^nd Respondent.  Unless Mr Yuen is able to show that if he were to do so, he would be bound to fail in his submission that Guy Lam was validly removed by the resolution of 20 July 2006.  If he can, then it would be pointless to allow LPC to be joined and I should exercise my discretion against a joinder.  If LPC’s case is fairly arguable, I would have thought that he ought to be let in.  This it seems to me is the proper analysis and approach to adopt.

12.  As to whether LPC comes within O.15 r.6(2)(i) or (ii), I am of the view that, given the contest as I have set it out, r.(2)(b)(ii) would certainly be wide enough to provide him with a sufficient interest to be joined and to argue his ground substantively.  O.15 r.6(ii) is in these terms:

“(2)  Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the court may on such terms as it thinks just and either of its own motion or on application –

…

(b)  order any of the following persons to be added as a party, namely –

(i)     …

(ii)     any person between whom and any party to the cause or matter there may existed a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court if would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.”

13.  It strike me that these provisions cover LPC’s situation as between himself, the 2^nd Applicant, Guy Lam and indeed the bank (currently the only Respondent) and that it is “just and convenient” for the court to determine the issue of Guy Lam’s locus to make these Norwich Pharmacal application on behalf of the 2^nd Applicant.

14.  This being so I must now decide whether the question which Mr Kwok wishes to argue on LPC’s behalf is one that it is effectively bound to fail or whether it is “fairly arguable” to borrow from the language of O.18 r.19.  It seems to me that the threshold for entry by LPC is not a particularly onerous one.  Whilst LPC may well have something of an uphill task to persuade me that Guy Lam was validly removed by the 20 July 2006 resolution, his ground is not so hopeless that I should shut him out at this stage.  His position remains “fairly arguable” and I will therefore allow him to be joined so that I can hear his argument substantively.  Accordingly, Mr Kwok must have an order in terms of paras.1, 2 and 3 of his summons.  I will leave costs to the end and we can now proceed to hear out the Norwich Pharmacal application on its merits essentially, I assume, between the 2^nd Applicant and the now constituted 2^nd Respondent.