GARSON REAL PROPERTY AGENCIES (H.K.) LTD (IN LIQUIDATION) v. HO PUI FONG

CAMP 476/2022

[2022] HKCA 1800

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 476 OF 2022

(ON APPEAL FROM HIGH COURT ACTION NO. 1648 OF 2017 AND COMPANIES WINDING-UP PROCEEDINGS

NO. 342 OF 2014 (CONSOLIDATED))

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 342 OF 2014

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(Consolidated by the Order of Mr. Recorder S. Wong, SC

dated 26November 2019)

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REASONS FOR DECISION

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Hon Cheung JA (giving the Reasons for Decision of the Court) :

1.  This is a renewed application by the defendant for leave to appeal against the decision of Linda Chan J who refused the defendant’s application to amend her defence. The Judge also refused to grant leave to appeal to the defendant. We dismissed the application at the conclusion of the hearing. We now give our reasons.

2.  The plaintiff is a company under liquidation.  The plaintiff claimed that the defendant who was its sole director and shareholder was in breach of her fiduciary duties towards the plaintiff by reason of her wrongful use of the plaintiff’s assets which were well in excess of $10 million when the plaintiff was insolvent or about to be insolvent (‘the impugned transactions’).  The defendant’s original defence was that she as the sole shareholder of the plaintiff consented to the impugned transactions and that she acted reasonably in the circumstances.  Her amended case now is that she was merely a nominee director of the plaintiff acting on the instructions of her husband Mr. Yuen Kwok Keung (‘Mr. Yuen’) who was the de facto director of the plaintiff.  She pleaded that she was acting under the duress and undue influence of her husband who had inflicted violence on her and she had no free will in carrying out the affairs of the plaintiff, including the impugned transactons.  She could not even resign from the plaintiff.

3.  The Judge refused to allow the amendment on three grounds :

1)  The proposed amendment did not give rise to any arguable defence;

2)  The defendant failed to show that she was not able to put forward the proposed defence due to the negligence of her former lawyers; and

3)  The amendment was made very late in the day.  The Judge exercised her case management power and refused the proposed amendment.

4.  The refusal to allow the amendment was a discretionary decision by the Judge and as such the defendant must show that it is reasonably arguable that the Judge’s discretion was plainly wrong in accordance with the well‑established principles governing appeals from a discretionary decision.

5.  We will first address the merits of the proposed amendment because if it does not constitute any arguable defence then it is futile to grant leave particularly at this late stage.  The principle established by a long line of English cases and applied in Hong Kong by cases such as Emirate Distributors Ltd v. AALL & Zyleman Co Ltd [2020] HKCFI 851 is that there is no differentiation in directors’ duties between a nominee director and any other director.  It is well established that a director owes fiduciary duty towards the company and a nominee director is required to act in good faith, to promote the success of the company for the benefit of its members as a whole and to avoid situations in which he has, or could have, a conflict of interest.

6.  Mr. Pang (together with Mr. Tsoi and Ms Cho) for the defendant was not able to refer to any authority to the Judge that a de jure director in the situation like that of the defendant owes no duty to the company.  He had referred to Re Galeforce Pleating Co. Ltd [1999] 2 BCLC 704 which in fact reaffirmed the principle we have stated in [5] above.  What he relied upon was the statement by Deputy Judge Elizabeth Gloster QC that if the nominee director was not prepared to take up such duties ‘the appropriaate course for her was to resign’.  He argued that the defendant was not able to resign in the present case.  We do not see how this case would assist the defendant because for whatever reason she remained as a director and therefore had to properly discharge her responsibilities as a director.  Before us, Mr. Pang relied on Poon Ka Man Jason v Cheng Wai Tao (2016) 19 HKCFAR 144 and argued that such duties can be modified.  What Spigelman NPJ of the Court of Final Appeal held was :

‘ 87.      In my opinion, a “scope of business test” may be applicable to a company director.  The facts and circumstances of a particular case may be such as to modify the subject matter to which the fiduciary duties of a director apply.  However, such modification must be binding in the corporate context.  Such modification does not need to be formal – as in a provision in the constitutive documents or a shareholders’ resolution – as long as it is, in substance, equivalent to a formal modification (eg Re Duomatic Ltd [1962] 2 Ch 365).’ 

7.  The emphasis is that the modification must be in substance equivalent to a formal modification.  We fail to see how the defendant’s case of acting under the duress and undue influence could bring it within the requirement of the formal modification.  The proposed amendment is inconsistent with this requirement.  The new defence is unarguable and it is futile to grant leave.

8.  In any event, the Judge’s exercise of her case management power cannot be faulted.  The defendant is putting forward a new case entirely different from her existing case.  This clearly must have an effect on the trial which will commence in January 2023.  The original major milestone date was already not observed.  The original trial of the case was in October 2021 but was adjourned upon the application of the defendant because she claimed that her former lawyer so advised her.  The summons to amend was only issued in July 2022 when the notice of hearing of the trial had already been issued in December 2021.  The Judge was clearly entitled to refuse the proposed amendment at such a late stage.　Mr. Pang submitted that the Judge was plainly wrong in the exercise of her discretion because she had only considered the prejudice to the plaintiff if the amendment was allowed and not the prejudice to the defendant if the amendment was disallowed.  We disagree.  Our view is that whatever prejudice the defendant may suffer is caused by her own doing. 

9.  As it is not reasonably arguable that the Judge was plainly wrong in the exercise of her discretion, the application is refused with costs to the plaintiff to be taxed on an indemnity basis.  The costs are summarily assessed at $140,000.