JESSOP & BAIRD (HONG KONG) LTD v. THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD

HCMP 2296/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2296 OF 2016

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REASONS FOR DECISION

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Introduction

1.  On 1 September 2016, the plaintiff issued an Originating Summons against the defendant (“HSBC”) which effectively seeks an order that HSBC’s records for the plaintiff’s HSBC bank account be updated to reflect the change in management of the plaintiff company with an attendant change in authorised signatories (“the OS”).

2.  On the first return date of the OS on 23 September 2016, Mr Barlow SC attended with Mr Jonathan Chang, stating that they represented two persons who wished to intervene in the OS.  Those two persons were Marrakesh Investments Limited (“MIL”), a 50% shareholder in the plaintiff which is owned and controlled by a Mr Robert Ng Man Choong (“Mr Ng”), and Ms Neo Hwee Khim (“Ms Khim”), a director or former director of the plaintiff (the validity of her resignation or removal being a disputed matter).  On the basis of various undertakings mentioned below, I adjourned the OS and the as‑yet not filed summons seeking leave to intervene (“the Intervention Summons”) for 7 days.

3.  At the adjourned hearing on 30 September 2016, I granted leave for MIL and Ms Khim to intervene in the plaintiff’s OS.  I stated I would give my reasons for allowing the intervention, which I now do.

Background

4.  The OS was supported by Mr Jessop’s affirmation of 1 September 2016.  Mr Jessop is the owner and controller of Tangiers Holdings Limited (“THL”), the other 50% shareholder of the plaintiff.  Mr Jessop deposes to the resignation of Ms Khim as director of the plaintiff on 19 July 2016, leaving Mr Jessop as sole director; and to the passing of a board resolution dated 20 July 2016 for the removal of Ms Khim and a Ms Lee Wai Ling as bank signatories on the plaintiff’s HSBC account.

5.  On 4 August 2016, HSBC informed Mr Jessop that the bank account had been frozen.  Mr Jessop did not know why at that stage.

6.  It later transpired, as Mr Jessop’s 2^nd affirmation of 20 September 2016 deposed, that Ms Khim had written a letter of 21 July 2016 to HSBC to state that her resignation was void and invalid, and no bank mandate changes should be accepted.

7.  The OS was listed for hearing on 23 September 2016.

8.  The OS was served on Ms Khim on 8 September 2016, although she was not formally a party.

9.  Late on 22 September 2016, Mr Ng, director of MIL, and Ms Khim instructed Messrs PC Woo to issue the Intervention Summons supported by an affirmation of Mr Ng.

10.  On 23 September 2016, the intended interveners appeared by Mr Barlow SC and Mr Chang, and sought adjournment of the OS to the Companies Court to be heard with MIL’s unfair prejudice petition, the first hearing date of which I was told would be in November 2016 (“the Petition”). The Petition, mentioned in Mr Brown’s skeleton on behalf of the plaintiff (although not in Mr Jessop’s evidence) is a petition filed on 31 August 2016 by MIL against THL and the plaintiff alleging unfair prejudice and seeking a buy‑out order.  The Petition refers to Ms Khim’s resignation, alleged to be under duress, and seeks the appointment of Mr Ng or his nominee as director of the plaintiff.

11.  The plaintiff by its counsel, with the support of evidence already filed, submitted that it needed to pay its business expenses and to be able to operate its bank account to do so.  Mr Brown characterised the last minute attempted intervention as a hijacking of the OS of which Ms Khim, and thereby Mr Ng, had had plenty of notice.

12.  Mr Barlow accepted that his application was very late in the day.  He was prepared to give an undertaking for an application to be made by MIL for the appointment of an interim receiver or for an injunction, to be heard within 7 days.  It was clarified by Mr Barlow that the intention was not just to issue but actually make an urgent application to be heard within 7 days.  (I note that this is not clear from the undertaking recorded in the order of 23 September 2016.)

13.  On that basis, I made an order that identified expenses could be made out of the plaintiff’s HSBC bank account, and the OS and Intervention Summons be adjourned for 7 days.  It was listed for hearing on 30 September 2016.

14.  By an affirmation of the plaintiff’s solicitor filed on 29 September 2016, the plaintiff provided a 3^rd draft affirmation of Mr Jessop with an undertaking to file the sworn version upon returning from travelling.  ‌This draft 3^rd affirmation of Mr Jessop provided an update:

(a) There had not to the plaintiff’s knowledge been any injunction or receivership application made by MIL.

(b) MIL’s unfair prejudice petition was defective, and this was a matter to be addressed at a hearing before Mr Justice Harris on 3 October 2016.

(c) Further invoices needed to be paid by the plaintiff.

(d) Steps had been taken by Mr Ng to jeopardise the Company’s business by effectively shutting down the factory operated by another company controlled by Mr Ng, PD Clothing & Textiles (Zhong Shan) Limited (“PDCT”).  Mr Jessop states that the plaintiff manufactures goods, operates a factory, employs factory workers via PDCT as the plaintiff’s “trustee”.

(e) The plaintiff needed to access funds in its HSBC account (with a balance in excess of HK$21 million) to re‑employ factory workers, find new manufacturing facilities and acquire any necessary machinery in order to continue the plaintiff’s operations.

15.  The plaintiffs’ skeleton argument sought (1) dismissal of the Intervention Summons, and (2) an order in terms of the OS.

16.  Shortly before the hearing on 30 September 2016, I was provided with (1) MIL’s solicitor’s affirmation exhibiting a draft application by MIL for the appointment of receivers alternatively an injunction, stated to be intended to be made before Harris J on 3 October 2016, although the matter had not been accepted for hearing in the absence of supporting evidence; (2) skeleton submissions for the intended interveners seeking an order to join them as interveners, and an order for the OS to be adjourned to the Companies Court to be heard with the receivership/‌injunction application.

17.  At the hearing on 30 September, Mr Barlow SC appearing for MIL (with Ms Ebony Ling) informed me that the affirmation of Mr Ng in support of the receivership/injunction application had been finalised and he passed me a copy of the affirmation (without exhibits).  It is clear that MIL has not complied with the undertaking made on 23 September 2016, but that it is attempting to have its application heard very shortly, and is now in the hands of the court.

18.  I was initially tempted to again adjourn the Intervention Summons and OS, with orders for release of a specific amount of funds from the HSBC account to meet necessary business expenses.

19.  However, Mr Brown for the plaintiff informed me that in light of the actions taken by Mr Ng through PCDT, the manufacturing work done by that company as agent for the plaintiff was going to cease on the day of the hearing, and the plaintiff would have significant expenses to find alternative manufacturing facilities in order to meet the plaintiff’s orders, and that this needed to be done urgently over National Week.  He further submitted that it was inappropriate to give MIL and/or Mr Ng the benefit of a complete freeze of the plaintiff’s bank account without them having established any entitlement to an injunction although it had been given that opportunity. Mr Brown stated it was not possible for the plaintiff to estimate the expense needed to find alternative manufacturing facilities, as opposed to quantifying the amount needed to discharge outstanding business invoices as was done on the last occasion.

20.  Mr Barlow SC repeatedly submitted that there was no business of the plaintiff in light of the cessation of the manufacturing facilities, and suggested that the plaintiff now proposed to start a new business.  I acknowledged that there was no doubt a dispute as to who was responsible for the cessation of the manufacturing facilities by Mr Ng’s company as agent for the plaintiff, but insofar as the plaintiff had to adapt to find alternative manufacturing facilities in order to meet its orders, I could not see why that was not part of the business of the plaintiff.

21.  I was persuaded by the plaintiff’s arguments, and therefore decided not to simply again adjourn the Intervention Summons and OS, but to hear argument on at least the Intervention Summons.

Intervention

22.  Order 15, rule 6(2) of the Rules of the High Court provides:

“ (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 –

(a) ...

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

(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii)   any person between whom and any party to the cause or matter there may exist 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 it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.”

23.  Mr Brown submitted by reference to Chong Kai Man v Kwan Yau Hang HCA 1298/2011, 30 September 2013 (unreported) that the purpose of Order 15, rule 6(2) was to ensure that there was not a proliferation of actions arising out of a single cause of action, and, at the same time, to ensure that an action should not be overburdened by turning a clearly defined cause of action into something far greater.  Further, a plaintiff should not be vexed against its will by having to face more than one opponent at trial, this adding to the time and expense of the action.

24.  He further referred to Wong Chun Long Tony v Ada Ltd[1991] 1 HKC 86 where the Court of Appeal stated that to satisfy the second limb of Order 15, rule 6(2)(b) it was necessary that the issue for determination should be common to (1) the intervener and a party to the cause or matter and (2) the parties to the cause or matter.

25.  Mr Brown submitted that the issue in the OS is simply whether HSBC has to follow its client’s instructions, and that is an issue between the plaintiff and HSBC, whereas the issue between the plaintiff and the intended interveners is whether Ms Khim was subject to duress before her resignation which is a dispute to be resolved elsewhere.

26.  Mr Barlow SC responds that the real issue in the OS is whether the original bank mandate or the new bank mandate applies to the plaintiff’s HSBC account, and which mandate HSBC should obey.  The intended interveners wish to litigate as defendants as to which bank mandate is valid. HSBC have taken the position they will not object to the OS but abide by any order the court makes.

27.  I agree with Mr Barlow that the court has jurisdiction to join MIL and Ms Khim to the OS under both limbs of Order 15, rule 6(b).  I accept his characterisation of the issue in dispute in the OS, which is an issue as between the plaintiff and HSBC, as well as between the plaintiff and MIL and/or Ms Khim.  I agree that the issue will not be effectually determined without MIL and Ms Khim’s participation.

28.  Mr Brown submits that the court should not exercise its discretion in favour of allowing MIL and Ms Khim to be joined. He referred to Wing Mou Construction Co Ltd (in liquidation) v Cosmic Insurance Corp LtdHCCT 40/2001, 6 June 2002 (unreported) at paragraphs 15(4) – (6).

29.  I have therefore considered (1) the potential prejudice to the parties in the event that I permit the intervention; (2) the stage the OS has reached; (3) the delay in making the intervention application; and (4) any delay that may be caused if I permit the intervention.  These factors are not exhaustive but counsel did not submit there were other factors I should take into account.

30.  Mr Barlow submitted that so far as he was concerned, the papers were complete and the OS was ready for determination, although he accepted that there may be a need for cross‑examination of the deponents.  He submitted (and I accept) that although the intervention application was made at the eleventh hour in terms of the first hearing of the OS, there was no real delay in making the application in light of the fact that (he says) MIL became aware of the OS on 14 September 2016 (although I note Mr Brown suggests that it may have been as early as 8 September when the OS was served on Ms Khim, but I do not think the difference of 6 days is material). It is material to my decision that if I permit the intervention of MIL and Ms Khim, with an obviously necessary adjournment of the OS, that, in light of Mr Barlow’s submissions, the adjournment need not be long.

31.  Mr Barlow submitted that the outcome of the OS was important to both shareholders in the plaintiff, and that it was just and fair for the court to hear a defence of the original bank mandate, and MIL as 50% shareholder and Ms Khim as director and signatory under the original mandate were the right persons to defend the original mandate.  I accept those submissions.

32.  My concern was the potential prejudice to the plaintiff’s business operations if the OS was further adjourned.  Mr Barlow did not object to identified invoices being paid out of the HSBC account.  As mentioned above, he asserted that the plaintiff no longer had business operations in light of Mr Ng having closed the factory; but I do not accept that.

33.  I am conscious that Mr Barlow’s clients have not to date obtained any interim injunction to prevent the plaintiff (by its current management) from operating the HSBC bank account, despite their assertions that the changes in management have not been validly made. Accordingly, I should proceed on the basis that the current management of the plaintiff is prima facie entitled to operate the HSBC account in the interests of the plaintiff.

34.  It seems to me that prejudice to the plaintiff’s business operations can be avoided if the plaintiff acting by its current management (and therefore with the new bank mandate) is permitted to operate the HSBC account for ordinary business expenses which would include the as yet unquantifiable expenses of manufacturing facilities and workers in order to meet the plaintiff’s orders and keep the business going.  Mr Brown suggested, and I agreed, that an order akin to a validation order pursuant to section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) would be suitable.

35.  I indicated that I would permit the intervention of MIL and Ms Khim in the OS, and adjourn the OS to a date to be fixed (initially for directions), on terms that the plaintiff by its current management would be permitted to operate the HSBC bank account to meet ordinary business expenses without HSBC being required to inquire into the nature of withdrawals.  I granted an order in terms of paragraphs 1 and 3 of the Intervention Summons.

36.  Counsel liaised to  agree a form of order on the OS, which was approved by me, as follows:

“1. Hongkong and Shanghai Banking Corporation Limited (‘HSBC’) do unfreeze the Plaintiff’s bank account maintained with HSBC with account number 491‑385563‑838 (the ‘Banking Account’) to the extent of any amount to be used for the purpose of paying the expenses in the ordinary course of the business of the [Plaintiff].

2. HSBC shall be under no obligation to verify for themselves whether any transaction through the [Plaintiff]’s bank accounts is in the ordinary course of business.

3. The [Plaintiff] shall provide to Marrakesh Investments Limited and Tangier Holdings Limited respectively, within 14 days of the end of each calendar month, a brief statement of accounts summarising the expenses and payments of the [Plaintiff] for the relevant calendar month.

4. The Intended Interveners be joined as the 1st and 2nd Interveners in the proceedings.

5. The hearing of the Plaintiff’s Originating Summons be adjourned for directions with 30 minutes.

6. Costs in the cause of the Originating Summons.”

37.  I also indicated that the plaintiff should give serious consideration to listing the OS before Mr Justice Harris (who is dealing with the Petition), so that the court was properly informed as to the various related applications being made by each shareholder camp.