LACHLAN JAMES CHRISTIE v. HONG LOK YUEN INTERNATIONAL SCHOOL ASSOCIATION LTD

DCCJ 5517/2017

[2018] HKDC 489

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5517 OF 2017

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DECISION

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Introduction

1.  This is a decision on a short procedural point regarding Order 5A Rule 2(2) of the Rules of District Court. 

2.  The plaintiff is a fellow of the Hong Kong Institute of Certified Public Accountants.  This is an action commenced by the plaintiff against the defendant, a primary school in which the plaintiff’s two children attend.   The defendant is a company incorporated under the Companies Ordinance. 

3.  According to the plaintiff, in 2017, the plaintiff came to be aware of, among other things, the lack of supporting documentation to certain payments made by the defendant on account of certain expenses of the school.

4.  The plaintiff was overall seeking to improve the way the defendant was to be managed.  Rightly or wrongly, he resorted to commencing this legal action to enforce Article 80 of the Articles of Association of the defendant, thereby to cause a management committee to be set up under the Education Ordinance. The plaintiff sought only a declaration to this effect, and nothing else.

5.  Article 80(a) of the Articles of Association of the defendant on its face provides that the board of directors should nominate for each school established or carried on by the defendant a school management committee incorporated under the Education Ordinance.

6.  On 11 December 2017, this action was commenced.

7.  Recent events have overtaken the matter.  I understand that to address the plaintiff’s concerns, on 17 April 2018, the annual general meeting of the defendant had, among other things, passed a special resolution deleting from Article 80(a) the reference to the requirement for a management committee to be incorporated under the Education Ordinance; and applications have been filed with the Education Bureau for two directors to be registered as managers. 

8.  It seems to me that given the amendment of the Articles, this action itself is in my view more or less academic now.  At the hearing on 27 April 2018, the plaintiff has sensibly indicated readiness to resolve the matter in a practical and sensible manner.  

Order 5A Rule 2(2) of the Rules of District Court – carrying on proceedings by director

9.  The matter before me at this hearing was an application by the plaintiff’s summons dated 7 March 2018 for judgment to be entered in default of the defendant’s Defence.  The underlying facts happened before the amendment of the Articles in April 2018 - the principal of the school, who was not a director of the defendant, signed a purported Defence on 23 January 2018, relying on the Defence that despite the provisions of the Articles, the school was not a qualified body to form a management committee under the Education Ordinance.   The purported Defence was filed in breach of Order 5A Rule 2(2) of the Rules of District Court, which provides that a corporation may carry on proceedings by a director, such director being so authorized by the Board of Directors.  An affidavit has to be filed to exhibit the Board resolution.  

10.  In March 2018, the plaintiff applied to enter judgment under Order 19 Rule 7[1] on the ground that a purported Defence in breach of Order 5A Rule 2(2) amounted to no Defence being filed.  Subsequent to the application, the defendant instructed its solicitors which sought to remedy the situation by amending the Defence.  The summons for amendment also came before me at the hearing.

11.  This issue before me arising from the default judgment application and amendment application is nothing more than whether breach of Order 5A Rule 2(2) rendered the purported Defence a nullity.  If it did, then the amendment summons made no sense as there was no prior Defence to amend.  If the breach did not nullify the Defence, then it is right to amend the Defence to reflect that solicitors had properly taken over conduct, and to take into account the new developments.

12.  Anyway, at the hearing, the plaintiff sensibly agreed to extend time for the defendant to file a Defence, and not to press for default judgment[2].

13.  As things now stand, the issue more or less becomes an academic issue within an academic action.

Analysis

14.  Former occasions where the issue arose have tended to indicate that the breach was to be taken a nullity.  In Advance Fame Limited v Karley Communications Limited, DCCJ 245 of 2010, 10 November 2011, the learned District Judge Leung has treated a company appearing in breach of the Rule as “[having] never property acted in person” (para 9); in In The Matter of a wall signboard attached to external wall at 3/F to 10/F facing Hung Hom Station, China Travel (Cargo) Logistics Centre, No 1 Cheong Tung Road, Hung Hom, Kowloon, DCMP 545 of 2017, dated 6^th March 2017, the learned District Judge MK Liu has considered an appearance not by a director as “no participation” in the proceedings (para 17).  However, these observations seemed to be made in passing when other substantive issues were being considered, and of course, the issue was not argued, whether at all or seriously.

15.  After considering the further written submissions of Mr Dixon Co for the defendant, I am persuaded that the breach ought not render the step in question a nullity.  Solely deciding for this case, and under the circumstances before me, I consider that the breach should be capable of being taken as an irregularity under Order 2 Rule 1(1), and that leave be granted to the defendant for amending the Defence pursuant to the defendant’s summons dated 24 April 2018.

16.  Mr Co relied on Fabrique Ebel Societe Anonyme v MBO Far East (HK) Ltd [1985] 1 HKC 166[3], a case in which leave to issue contempt proceedings was not obtained in breach of the newly changed rules.  The error was discovered when the contempt proceedings has proceeded to substantive hearings.  The learned Hunter J considered that Order 2 Rule 1 has done away with the old distinction between nullities and irregularities whereby from then on every mistake and omission was to be regarded as an irregularity which the court could and should rectify so long as it could do so without injustice (at 168H-169D).  The learned Judge stated that in considering whether leave should be granted for rectifying an error, the question to ask was whether leave ought be granted at the material time in the first place if the application was properly made before him at that time (170A-B).

17.  In this case, there was evidence in the plaintiff’s affidavit dated 3 April 2018 that three of the Directors of the defendant delegated by the Board to manage this action had decided that the principal sign the Defence.  Hence, it is clear that the Defence though signed only by a non-director was not without any authority from the defendant.  In light of the above, I considered that had an application be brought before me at the material time the principal signed the Defence, for a leave to so to do despite Order 5A rule 2(2), I would also grant the leave.

18.  In any event, the subsequent issuing of application for amending the original Defence when the issue of authority was settled[4] indicated that the Defendant adopted, if not already before, the original Defence.

Other arguments for the defendant

19.  Mr Co argued for his client on additional grounds.  Though I need not resort to them in making my decision, it may be worthwhile to mention these other arguments.  Mr Co relied on a dicta of the learned Le Pichon JA in Typhoon 8 Research Ltd v Seapower Resources International Ltd [2014] 2 HKC 177, at 190A-B, to the effect that rules of attribution applied to regard act of a director be counted as act of the company when the director appeared for the company in Courts.  However, the statement was made in the different context of considering whether the company should be considered as litigant in person.  Mr Co argued that similarly, rules of agency should also apply and as such the person, though not a director, purporting to do an act for the company was also the company’s agent.  It was argued that signing of a court document was a step not necessarily requiring the director to do as long as it was done by the company’s agent.  It was argued that “carry on” in Order 5A rule 2 did not mean each and every steps.

20.  I believe that this argument is rather artificial as it really flies in the face of the language and spirit of Order 5A rule 2 which plainly insisted upon a director and a director with Board’s authorization to act.  It is a measure to guard against unauthorized person purporting to act for the company.  In any event, signing of a Defence is important enough to insist upon a director to perform.  Just an agent does not qualify because it would also render the authority uncertain. 

21.  Mr Co also argued on the basis of Max Share Ltd v Ng Yat Chi (No. 1) (1997-1998) 1 HKCFAR 72 where the Court of Final Appeal considered it acceptable for the name of counsel to be printed at the end of the party’s case paper, when the plain language of the rules required that case paper be signed by the counsel personally.  Mr Co argued that the court has accepted that where signing is required, it could be done by an agent (75J).  I believe that the context of Max Share is sufficiently removed from this case that the comparison cannot be drawn in an attempt to argue that the Defence here could be signed by just an agent of the company. 

Costs and orders

22.  Regarding costs, as the plaintiff has not insisted upon entering default judgement, at the end, and that the resolution of this academic issue is only needed for me to decide what orders to be made going forward ie whether to extend time for a fresh defence, or to allow amendment to the original defence, there should be no order as to costs of both the default judgment application and the amendment summons.

23.  I order that:-

(a)  leave be granted as per para 1 and 2 of the defendant’s amendment summons dated 24 April 2018;

(b)  the Amended Defence be filed within 7 days from the date hereof;

(c)  the plaintiff have leave to amend his Reply within 28 days from the date of the filing and service of the Amended Defence;

(d)  the plaintiff’s summons dated 7 March 2018 be dismissed; and

(e)  there be no order as to costs of the two defendant’s amendment summonses dated 28 March 2018, and 24 April 2018, and of the plaintiff’s summons dated 7 March 2018.

24.  There had been a suggestion by the defendant that this action ought to have been commenced in the Court of First Instance as it is the Court of First Instance that has jurisdiction over an action commenced under the Companies Ordinance.  It suffices for present purpose that this point was not pressed by the defendant before me, and required no decision by me on it.

25.  I thank Mr Co for the able assistance by way of the further written submission, and the plaintiff for the overall sensibility in approaching issues I raised.