CHUNG KONG MATERIALS (JV) LTD (IN LIQUIDATION) v. CROWN ASIA ENGINEERING LTD AND ANOTHER

HCA 635/2022

[2024] HKCFI 53

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 635 OF 2022

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BETWEEN

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DECISION

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A. THE APPEAL

1.  This is the Plaintiff’s appeal against the Order of Master Elizabeth Cheung (the “Master”) dated 3 April 2023 (the “Order”).

2.  The Order was made pursuant to the 1^st Defendant’s summons dated 12 December 2022 (the “Summons”) by which the 1^st Defendant applied, inter alia, to strike out §§5, 10 to 18 and 25(a) of the Re-Amended Statement of Claim (the “RASOC”) on the grounds that they disclose no reasonable cause of action and/or under the inherent jurisdiction of the Court (the “Striking-out Application”).

3.  In this appeal, the Plaintiff also seeks leave from this Court to amend the RASOC marked in violet as per the draft Re-re-Amended Statement of Claim (the “Draft RRASOC”) (the “Amendment Application”).

B. MATERIAL FACTS

4.  The Plaintiff was a limited company incorporated under the laws of Hong Kong carrying on business relating to marine works and transportation of construction materials.

5.  The Plaintiff was ordered to be wound up pursuant to the Order made by Master Dick Ho dated 21 October 2020. The Plaintiff is currently under the administration of the Liquidators.

6.  The 1^st Defendant is a limited company incorporated under the laws of Hong Kong carrying on business as a sub-contractor for marine works and transportation of soil and sand between Hong Kong and the Mainland.

7.  The 2^nd Defendant is a company incorporated in the Mainland involving in the business of selling building materials.

8.  It is the Plaintiff’s case that :-

(1) On or around 8 July 2015, the Plaintiff and the 2^nd Defendant reached an agreement in that the Plaintiff was appointed as the 2^nd Defendant’s lawful representative and/or agent in entering into contract with the 1^st Defendant with regard to two construction projects in Hong Kong, namely, Hong Kong Government’s project - Tuen Mun - Chek Lap Kok Link works (HY/2012/08) (“HKG Project”) and MTRC’s cross-harbour tunnelling works (MTRC-1121) (“MTRC Project”) (the “Agency Agreement”);

(2) The Plaintiff then under its own name and on behalf of the 2^nd Defendant entered into a sub-contract with the 1^st Defendant in that the Plaintiff shall transport excavated materials (such as sands, soils, etc.) from sites of HKG Project and MTRC Project in Hong Kong to the Mainland for reclamation work in PRC (the “Sub-Contract”);

(3) The total amount payable by the 1^st Defendant under the Sub-Contract for the HKG Project as claimed by the Plaintiff is HK$9,874,496.07; whilst, the total amount due to the Plaintiff under the Sub-Contract as certified by the 1^st Defendant is HK$9,435,472.22;

(4) The 1^st Defendant had settled HK$6,199,975.64 to the Plaintiff leaving the sum of HK$3,674,520.43 (the “Outstanding Sum”) of which HK$3,235,496.58 was the certified sum by the 1^st Defendant.

9.  Given the above, it is the Plaintiff’s case that the Sub-Contract was duly performed and the 1^st Defendant was liable to settle the Outstanding Sum. The Plaintiff and the 1^st Defendant are parties to the Sub-Contract.

10.  By an order of Master Lai dated 20 May 2022, sanction to commence the present proceedings in the name of the Plaintiff was given to the Liquidators. On 27 May 2022, the Plaintiff then commenced the present action against the 1^st and the 2^nd Defendants and in particular, claiming against the 1^st Defendant for the Outstanding Sum.

11.  By a letter dated 20 December 2022, from the 1^st Defendant’s solicitors, Messrs Yiu & Associates, the 1^st Defendant raised the argument that as the Plaintiff merely entered into the Sub-Contract as an “agent” of the 2^nd Defendant, the Plaintiff has no right to sue the 1^st Defendant in this action.

12.  On 12 December 2022, by way of the Summons, the 1^st Defendant took out the Striking-out Application.

C. ANALYSIS

13.  The crucial issue in this appeal is whether, in light of the pleaded facts including the proposed amendments, the Plaintiff has the standing and authority to sue the 1^st Defendant.

14.  The starting point of analysis is that the Plaintiff was and is at all material times the agent of the 2^nd Defendant. The agency relationship is clearly stipulated in the “HKG Appointment Agreement” (one of the agreement evincing the Agency Agreement) :-

“我司 [the 2^nd Defendant] 现委托(乙方)中港物料联营有限公司 [the Plaintiff] 与 冠亚工程有限公司 [the 1^st Defendant] 就上述物料往中国内地所签的合约，日期为二零一五年七月八日，为我司(甲方)的合法代表公司 ” (emphasis added)

15.  It is well established that where an agent enters into a contract on behalf of a principal, the right and standing to sue on a contract lies with the principal only, not the agent. In this regard, Wright J held in Montgomerie v United Kingdom Mutual Steamship Association [1891] 1 QB 370 at 371 that:-

“There is no doubt whatever as to the general rule as regards an agent, that where a person contracts as agent for a principal the contract is the contract of the principal, and not that of the agent; and, prima facie, at common law the only person who may sue is the principal, and the only person who can be sued is the principal…” (emphasis added)

16.  In Chinavest v Chan Keung Un, Roy [1998] 4 HKC 453, Godfrey JA at 458I to 459A said:-

“The second point, however, is whether in fact the action is properly constituted. The plaintiff originally argued that it was entitled to bring these proceedings in its own name as the agent of the sellers. Had the matter rested there, I would have found it difficult to conclude that this action was properly constituted. The law is clear; proceedings taken by an agent have to be taken in the name of the principal, not the agent…” (emphasis added)

17.  It is pertinent to note that, it is the Plaintiff’s own pleaded case at §10 of the Statement of Claim that it entered into the Sub-Contract (which is partly oral and partly written) purely as an agent for and on behalf of 2^nd Defendant with the 1^st Defendant:-

“10. In accordance with the Agreement, the Plaintiff in its own name for and on behalf of the 2^nd Defendant entered into a subcontract (“the Subcontract”) with the 1^st Defendant as contained in and/or evidenced by the following:-

(a) 香港砂料進口協議書(往雙水鎮) dated 8^th July, 2015 (“the Subcontract for the HKG Project-Shuangshui Town”).

(b) The Subcontract for the HKG Project-Shuangshui Town as amended in or about January 2016 (“the Amended Subcontract for the HKH Project-Shuangshui Town”)

…

(d) An oral agreement entered into between the Plaintiff on behalf of the 2^nd Defendant and the 1^st Defendant in or about August, 2015 in respect of the Hong Kong Project (“the Oral Subcontract for the HKG Project-Shuangshui Town”)

(e) 香港砂料進口大陸附加協議書dated 4^th December, 2015 in respect of the Hong Kong Project (“the Supplemental Subcontract for the HKG Project-Shuangshui Town”)…” (emphasis added)

18.  I agree that from the Plaintiff’s own pleaded case, it only entered into the Sub-Contract as an agent of the 2^nd Defendant:

(1) When pleading who the parties to the Sub-Contract were in the Statement of Claim, the Plaintiff specifically qualified its involvement in the Sub-Contract as purely being the 2^nd Defendant’s agent;

(2) The pleaded fact that the Sub-Contract was entered into in the Plaintiff’s name is specifically qualified by “for and on behalf of the 2^nd Defendant” only. In other words, the Plaintiff makes it unambiguously clear in the Statement of Claim that its role in the Sub-Contract was acting as an agent of the 2^nd Defendant only, but not otherwise;

(3) According to the Plaintiff, the Sub-Contract was entered into “[I]n accordance with the Agreement”, under which the 2^nd Defendant appointed the Plaintiff as its “lawful representative or otherwise agent” to enter into the Sub-Contract (see §7 of the Statement of Claim), thereby indicating that the Plaintiff only entered into the Sub-Contract as an agent of the 2^nd Defendant and should not be liable for any liability that might arise from the Sub-Contract;

(4) The Sub-Contract is pleaded to be partly written and partly oral. Insofar as the oral component is concerned, it is the Plaintiff’s pleaded case that the 2^nd Defendant entered into such agreement with the 1^st Defendant in its own right, and not in the Plaintiff’s name, in contrast to the opening sentence of §10 of the Statement of Claim (see §10(d) of the Statement of Claim: “An oral agreement entered into between the Plaintiff on behalf of the 2^nd Defendant and the 1^st Defendant…”)

19.  Hence, the real parties to the Sub-Contract are the 1^st and 2^nd Defendants (not the Plaintiff). The Plaintiff has no right/standing to sue the 1^st Defendant for any claim arising out of the Sub-Contract. The only party who has the right/standing to pursue such claim, should it choose to, is the 2^nd Defendant.

20.  As Barma J (as he then was) stated in Liu Yiu Keung v Keen Lloyd Resources Ltd [2006] 3 HKLRD 280 at §§9 to 10, there are undesirable consequences in allowing an agent to pursue claim on behalf of its principal where no cause of action vests in the agent:-

“9. …an attorney cannot sue in his own name on behalf of his principal where no cause of action vests in the attorney…if an attorney were to be permitted to sue in his own name, undesirable consequences could follow, in that (for example) an impecunious company might be able to avoid having to give security for costs, or the real plaintiff might be able to avoid liability for costs in the event that his claim failed. To those examples might be added the possibility that a foreign plaintiff might equally be able to avoid having to give security for costs, or that a person who should properly be the plaintiff in the proceedings might be able to avoid having to make proper discovery.

10. …In my view, it is not necessary, nor is it appropriate, to attempt to evaluate, in the context of a striking-out application, whether or not any abuse would likely to ensue. It seems to me that the principle exists to prevent potential abuse of the sort described, and it matters not, in any particular case, whether or not some such abuse is in fact likely to occur. (emphasis added) ”

21.  Mr Leung for the 1^st Defendant submitted that it is the Plaintiff’s pleaded case at §6 of the Statement of Claim that the 2^nd Defendant (i.e. the Plaintiff’s principal) is “at all material times a company incorporated in mainland China” (i.e. not a Hong Kong party). As such, had the 2^nd Defendant (i.e. the real plaintiff) commenced proceedings against the 1^st Defendant on the Sub-Contract, it would have been required to give security for costs. There is, therefore, a potential abuse that the 2^nd Defendant might be hiding behind the Plaintiff in the present proceedings to avoid having to give security for costs, which is precisely the kind of potential abuse that the principle described in Liu Yiu Keung seeks to prevent. This is in addition to the other potential abuses, such as avoiding liability of the 2^nd Defendant for costs in the event that its claim fails and/or avoiding liability of the 2^nd Defendant to give security for costs due to its impecuniousness.

22.  Additionally, the 1^st Defendant also submitted that even on the Plaintiff’s pleaded case, the Plaintiff has no interest in the Outstanding Sum. The only party who has any interest and has any standing to pursue the Outstanding Sum is the 2^nd Defendant.

(1) According to the pleaded contractual arrangements in the Statement of Claim, the Plaintiff is only entitled to a service fee (at the rate of HK$3.0 per ton of materials transported) and refueling charges for the vessels provided by the 2^nd Defendant. After deducting the said sums, all the remaining sums received from the 1^st Defendant under the Sub-Contract belong to and shall be paid to the 2^nd Defendant.

(2) It is the Plaintiff’s pleaded case that it is entitled to service fee in a total sum of HK$1,267,323.825 (“Service Fee”), which it is entitled to deduct from the payments by the 1^st Defendant before paying the balance to the 2^nd Defendant. According to the Plaintiff, it has, to date, received a total sum of at least HK$6,199,975.64 from the 1^st Defendant, which is well over and above the value of the Service Fee.

(3) In other words, the Plaintiff has already been fully paid the Service Fee, which is the Plaintiff’s only pleaded interest in the said contractual arrangements, with the remaining balance of HK$4,932,651.815 due to be paid to the 2^nd Defendant by the Plaintiff. As such, the only party who has any interest in the Outstanding Sum is the 2^nd Defendant, and not the Plaintiff.

23.  In the present case, on the pleaded facts, there is no privity of contract between the Plaintiff and the 1^st Defendant as it is the Plaintiff’s case that the 2^nd Defendant is the real contracting party and the Plaintiff’s role was to act as an agent of the 2^nd Defendant and not otherwise. The pleaded effect is therefore the privity of contract is between the 2^nd Defendant (as the principal) and the 1^st Defendant.

24.  Further, although the Plaintiff entered into the Sub-Contract as the sole contracting party, Mr Leung is right that it is the Plaintiff’s pleaded case that the 2^nd Defendant was the sole contracting party (the Plaintiff’s role being an agent of the 2^nd Defendant only).

25.  Still further, the Subcontract was partly written and partly oral. The 2^nd Defendant entered into the oral agreement in its own right (see §10(d) of the Statement of Claim). Accordingly, on the Plaintiff’s own case, the Plaintiff was not a contracting party or at least was not the sole contracting party (in light of the oral component of the Sub-Contract).

26.  In view of the above analysis, I am of the view that the Master is correct in holding that:-

“It is trite law that where an agent enters into a contract on behalf of a principal, the right and standing to sue on that contract lies with the principal only and not the agent…

On a plain reading of this paragraph [i.e. paragraph 10 of the Statement of Claim], what was pleaded is that the plaintiff has entered into the subcontract as an agent in the conventional sense, with all the usual incidents that it carries, including the well-established principle that an agent has no right to sue on a contract in his own name. It is no answer in my view to say that in the absence of any positive case of D1 to the contrary, the question of whether D1 was aware that the plaintiff was acting as agent must be assumed in the plaintiff’s favour.

It is incumbent on the plaintiff to plead all material facts that constitute this cause of action. In order for the plaintiff, who has expressly pleaded its role as agent, to have a viable claim against the 1^st defendant, it is necessary for the plaintiff to positively establish that D1 was not aware that the plaintiff was acting in the capacity as agent. Having failed to do so, the statement of claim does not disclose any viable cause of action against the 1^st defendant.

In the circumstances, I accept the claim as presently formulated is liable to be struck out on at least one of Mr Leung’s arguments. This is because I am satisfied, to put it another way, it is plain and obvious that on the basis of the current pleadings, P is not the proper plaintiff of the claims and to the reliefs sought in this action…” (emphasis added) (See Transcript pp. 2M to 3R)

27.  I am of the view that the analysis of the Master cannot be faulted. The Master has also reminded the Plaintiff that if it likes to assert that the 1^st Defendant was not aware of the agency relationship, the Plaintiff has to positively establish the same.

28.  Ms Ng for the Plaintiff does not seriously dispute with the legal proposition that in an agency relationship, only the principal can sue unless the principal is an undisclosed principal. On the Statement of Claim as it currently stands, I am of the view that it should be struck out.

29.  Thus, by way of the Amendment Application, the Plaintiff seeks to introduce the plea of undisclosed principal. The critical issue is whether such plea can salvage the Plaintiff’s case.

30.  Ms Ng is right that this Court should determine the application for striking out in view of the amendments which the Plaintiff seeks to introduce. If the proposed amendments can cure the Plaintiff’s pleaded case, then the Plaintiff’s case should not be struck out.

31.  The proposed amendments as set out in the Draft RRASOC includes:-

(1) Additional particulars in respect of the fact of the agency relationship between the Plaintiff and the 2^nd Defendant where it is expressly pleaded that the Defendant is/was an undisclosed principal of the Plaintiff in entering into the Sub-Contract : §§10, 10(d), §13A;

(2) Amendment to the effect that the Plaintiff entered into the Sub-Contract with the 1^st Defendant under its own name and for and on behalf of an undisclosed principal D2: §§7, 10, 25(a).

32.  The Plaintiff submitted that the proposed amendments together with the original pleaded case of the Plaintiff enable it to advance its case on undisclosed principal and to clarify that the Plaintiff also enter into the Sub-Contract under its own name. These are the real questions in controversy between the parties to be dealt with at trial.

33.  The single most important issue, as far as this Court is concerned, in the final analysis, is whether the proposed amendments are inconsistent with the original pleading. The 1^st Defendant’s case is basically that the case of undisclosed principal was not advanced and could nowhere to be found in the Plaintiff’s pleadings. It is submitted that had the 2^nd Defendant been an undisclosed principal, there would be no point in the Plaintiff’s pleading of the agency arrangement, specifically qualifying its involvement in the Sub-Contract as an agent only at §§7 and 10 of the Statement of Claim. This necessarily implies that the 1^st Defendant had the knowledge that the 2^nd Defendant was the Plaintiff’s principal at the time of the Sub-Contract.

34.  I can see the force of the 1^st Defendant’s submissions. However, on reflection, this is a striking out application and the Court should allow the real issues to be determined. This Court refers back to §§7 and10 of the Statement of Claim, there is nothing there which pleads that the 2^nd Defendant is a disclosed principal. The agency principal relationship is pleaded in a neutral way. There are no pleaded material facts which support a case of disclosed principal. I agree that it can be said that it does gives rise to an impression that the Plaintiff’s case is one of disclosed principal. However, I am of the view that it could equally be said that the Plaintiff simply pleads that it was and is the 2^nd Defendant’s agent, without specifically whether the 2^nd Defendant is or is not disclosed principal.

35.  The question then becomes whether the Plaintiffs are entitled to clarify that by way of amendment to tighten or make clear its pleaded case. I am of the view that the Plaintiff should be entitled to do so. There is no inconsistence between a pleaded case that A is an agent of B and a revised plea that A is an agent of B (as undisclosed principal). The latter merely supplies more information.

36.  Mr Leung for the 1^st Defendant relied heavily on the oral part of the Agency Agreement and submitted that the Sub-Contract is pleaded to be partly written and partly oral. Insofar as the oral component is concerned, the Plaintiff’s case is that the 2^nd Defendant entered into the agreement in its own right (not in the Plaintiff’s name) with the 1^st Defendant. Accordingly, on the Plaintiff’s own case, the existence of the 2^nd Defendant as the principal was clearly known to the 1^st Defendant.

37.  However, §10(d) only pleads that “An oral agreement entered into between the Plaintiff on behalf of the 2^nd Defendant…”. That does not necessarily mean that the 1^st Defendant was told about the agency relationship. There is nothing to prevent an oral agency agreement with an undisclosed principal from being entered into.

38.  Further, at §13A of the proposed Draft RRASOC, it is specifically pleaded that:

“The Plaintiff further avers that, at all material times, the identity and the role of the 2^nd Defendant had not been stated nor disclosed in the Subcontract. Further, at all material times, the 1^st Defendant only communicated and liaised with the Plaintiff in respect of the performance of the Subcontract.”

39.  The above plea is a matter for trial.

40.  Ms Ng for the Plaintiff submitted that there is no suggestion, in the RASOC, that the 1^st Defendant was aware of the 2^nd Defendant’s involvement in the Sub-Contract, nor is there any knowledge on the part of the 1^st Defendant of the 2^nd Defendant’s involvement in the Sub-Contract; nonetheless, it is now expressly pleaded in the Draft RRASOC that the 2^nd Defendant’s identity was not made known to the 1^st Defendant before and during the course of the Sub-Contract.

41.  It was submitted that on the face of those agreements or documents, the contracting parties were the Plaintiff and the 1^st Defendant and the 1^st Defendant only, this is particularly so when it is expressly pleaded that the Sub-Contract was also entered into by the Plaintiff “in its own name”.

42.  Further, the terms of those agreements or documents evidencing the Sub-Contract contain no reference to the 2^nd Defendant and/or the 2^nd Defendant’s role (as principal) in the Sub-Contract at all. On a plain reading of the Sub-Contract itself, the transportation works would be performed and undertaken by the Plaintiff solely and it is entitled to the Outstanding Sum.

43.  Ms Ng fairly admitted that in the RASOC, it might not be so clear on the issue of whether the Plaintiff also entered into the Sub-Contract under its own name. Nonetheless, the facts or terms of the Sub-Contract as pleaded demonstrate that the Plaintiff itself is a contracting party to the Sub-Contract and, more importantly, it is pleaded that the benefit/remuneration under the Sub-Contract conferred upon the Plaintiff alone.

44.  It is further submitted that the refinement of the Plaintiff’s case that the same entering into the Sub-Contract under its own name and as an agent of undisclosed principal is merely a “different legal formulations of the cause of action of the Plaintiff”, as opposed to inconsistent allegations of fact which is not allowed. (See: Yu Man Fung Alice v Chau Sing Chi Stephen HCMP 307/2015 & CACV 13/2016 (unreported, 20 January 2016) at §§25-28)

45.  I am of the view that it is not plain and obvious that the proposed amendments are inconsistent with the original Statement of Claim. As such there is no issue on the need to give an explanation as to why the Plaintiff seeks to introduce an inconsistent plea.

46.  Secondly, the 1^st Defendant also submitted that in any event, the Plaintiff has no authority to sue. However, it is well established that an agent is entitled to sue under a contract in a case of undisclosed principal: Bowstead & Reynolds at §9-012:

“Undisclosed principal. Where the principal is undisclosed at the time of contracting, the contract is made with the agent, and he is personally liable and entitled on it. There is no need for the agent to join the principal as a party. However, the principal also may intervene to sue, and may be sued, but the latter only subject to the general rule that nothing must prejudice the right of the third party to sue the agent if he so wishes. This is therefore a case where both agent and principal are liable and entitled. The doctrine of election, referred to above, may raise problems when the agent is sued.” (emphasis added)

47.  In Chitty on Contract, 33^rd Edition, Volume 2, at §31-088, the learned editors said:

“Undisclosed principal An important exception to the rule that an agent is neither entitled to sue nor liable to be sued on a contract made by him in a purely representative capacity is to be found where an authorised agent makes the contract in his own name without disclosing the fact that he is acting on behalf of another. On such contracts he can sue and be sued in his own name because he is then to all appearances the real contracting party. The intervention of the undisclosed principal may put an end to the agent’s right of action, but not necessarily to the third party’s right of action against the agent.” (emphasis added)

48.  Mr Leung for the 1^st Defendant submitted that according to the Plaintiff’s own pleaded case, the Agency Agreement between the Plaintiff and 2^nd Defendant expressly excludes the Plaintiff’s authority as an agent to do anything that may affect the 2^nd Defendant’s loss and profit in the Subcontract. In particular, it is a pleaded term of the Agency Agreement at §8(g) of the draft RRASOC that:-

“六. 该上述两个项目的经营管理权归东莞润信 [i.e. the 2^nd Defendant] 所有，实现自负盈亏其他任何人不得干预，此前所发生的码头塌堤，莫树坚的¥ 400,000人民币船租的费用全部由东莞润信承担，另中港物料负责在2016年1月底前向香港冠亚追回¥120,000人民币皮带船修复费。

6. The trading management right of the abovementioned two projects belongs to the 2^nd Defendant and the 2^nd Defendant shall solely bear the loss and enjoy the profit, which no one shall intervene, interfere or meddle with. The 2^nd Defendant shall solely be responsible for erstwhile embankment collapse at the pier and the whole of ¥400,000 being vessel hiring charges of 莫树坚. On the other hand, the Plaintiff shall be responsible for demanding payment of conveyor-belt vessel repairing costs from Crown Asia before end January 2016.” (emphasis added)

49.  It is submitted that whether or not the 2^nd Defendant chooses to pursue the Outstanding Sum is entirely a matter for the 2^nd Defendant, and not for the Plaintiff as agent, to decide. The commencement of the present Action claiming for the Outstanding Sum is clearly “intervening, interfering or meddling” with the 2^nd Defendant’s loss and profit in the Sub-Contract, the authority for which has been expressly excluded under the Agency Agreement. In other words, based on the Plaintiff’s pleaded case, it has no authority to commence the present Action based on the Sub-Contract against the 1^st Defendant.

50.  However, I am of the view on a proper construction of Clause 6 of the Agency Agreement, it cannot be said to have the effect of excluding the agent, namely, the Plaintiff’s right to sue. The right to sue is not an intervention, interference or meddling with the 2^nd Defendant’s loss and profits. If the Plaintiff’s right to sue is to be excluded, one would have expected that terms to such an effect would be set out in clear and unambiguous manner.

51.  Thirdly, the 1^st Defendant further submitted that in light of the liquidation of the Plaintiff and the insolvency regime, the commencement of the present Action against the 1^st Defendant is not in the interest or for the benefit of (or is against the interest of) the 2^nd Defendant (i.e. the Plaintiff’s principal) and thus is without the authority of the 2^nd Defendant. I disagree.

52.  I am of the view that the Plaintiff’s right and/or authority to sue is not inconsistent or in conflict with the 2^nd Defendant’s interests. There is an arguable case, at least, that the Plaintiff is correct in saying that the 2^nd Defendant in fact owes it a sum of HK$4,235,193.57 (namely, the indemnity sum of HK$2,967,869.75 plus the service fee at HK$1,267,323.825). This exceeds the outstanding sum of HK$3,674,520.43. The 1^st Defendant’s calculation fails to take into account the fact that all the 1^st Defendant’s repayments to the Plaintiff were transferred to the 2^nd Defendant in full, without the deduction of the service fee of HK$1,267,323.825. As such, it is at least arguable that the 2^nd Defendant is not a creditor of the Plaintiff. There will not be a situation where the 2^nd Defendant would have to file a proof of debt and to be ranked pari passu with other unsecured creditors.

53.  In any event, even if the above calculation is wrong, there is no reason why it would not be in the interest of the 2^nd Defendant to claim the Outstanding Sum. Ms Ng submits that the Plaintiff upon recovery of the outstanding sum on behalf of the 2^nd Defendant will hold the same on trust for the 2^nd Defendant and then it is a matter of set-off between the Plaintiff and the 2^nd Defendant.

54.  Mr Leung for the 1^st Defendant submitted that there is an inherent conflict of interest between the Liquidators and the 2^nd Defendant in the present action against the 1^st Defendant. Any recovery of the 2^nd Defendant’s entitlement under the Subcontract (if any) by the Liquidators in the name of the Plaintiff as agent will first be used to pay off all the relevant costs, charges and expenses in the winding up, including the Liquidators’ own fees. In other words, the Liquidators are seeking to profit from the present action at the expense of the 2^nd Defendant. The Liquidators’ interest is therefore in direct conflict with that of the 2^nd Defendant insofar as the claim for the Outstanding Sum is concerned.

55.  However, I note Ms Ng’s submission on behalf of the Liquidators that the fruit of the claim “would never become part of P’s estate available for inter alia distribution amongst creditors” and that subject to “principal-agent indemnity” the Plaintiff would release the whole recovered sum to the 2^nd Defendant. The Liquidators are officers of the Court and the Court will take their words seriously. The Liquidators are at liberty to make such an offer and/or undertaking to address the 1^st Defendant’s concern on this issue.

56.  Finally, the 1^st Defendant submitted that to allow the Plaintiff to continue to pursue the present claim will be grossly prejudicial to the 1^st Defendant in that it will be exposed to another claim for the same sum by the 2^nd Defendant as the principal on a later date: the 2^nd Defendant would not be bound by the Plaintiff’s earlier claim which was transparently made against the 2^nd Defendant’s interest and thus without authority.

57.  First, this Court has already ruled that the Plaintiff does have the authority to sue. Secondly, in any event, the 2^nd Defendant is a party to these proceedings. It will be duly served in due course and it could take whatever steps it deems to be in its best interest. However, it is not right to strike out the Plaintiff’s claims at this stage, in particular, when it is unclear to the Court as to what substantive defence the 1^st Defendant has in relation to the Outstanding Sum.

D. DISPOSITION

58.  For all the reasons stated above, this Court makes an order that:

(1) the Amendment Summons is allowed with costs to the 1^st Defendant, to be taxed on a party to party basis, if not agreed;

(2) the appeal is allowed on the ground of the proposed amendments. The costs of and occasioned by the appeal are to be paid by the Plaintiff to the 1^st Defendant, on a party to party basis, if not agreed, as the Plaintiff only succeeds on the basis of its proposed amendments. But for the proposed amendments, this Court would have dismissed the appeal.

59.  The above costs order nisi will be made absolute within 14 days from the date of this Decision unless an application is taken out to vary the same within the 14 days period.

60.  Finally, it remains for this Court to thank counsel for their helpful assistance.