THE JOINT AND SEVERAL LIQUIDATORS OF JOY RICH DEVELOPMENT LTD v. CHEN MUHUA (also known as WINKY CHAN) AND ANOTHER

HCCW 146/2013

[2022] HKCFI 3489

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 146 OF 2013

________________

________________

________________

_________________

D E C I S I O N

_________________

Introduction

1.  On 31 August 2022 I handed down a decision dismissing the Liquidators’ application to set aside an order of DHCJ Yee dated 29 May 2017 and allowing applications by the Chen Sisters challenging the Liquidators’ rejection of their proofs of debt. The Liquidators wish to appeal both decisions. There is no dispute that leave is not required to appeal the decision in respect of the proofs of debt. Two issues arise in respect of the dismissal of the Liquidators’ application. First, whether or not it is an interlocutory decision, for which leave to appeal is required. Secondly, if it is should leave be granted.

Is leave to appeal required?

2.  Section 14AA(1) of the High Court Ordinance, Cap. 4, provides:

“Except as provided by rules of court, no appeal lies to the Court of Appeal from an interlocutory judgement or order of the Court of First Instance in any civil cause or matter unless leave to appeal has been granted by the Court of First Instance or the Court of Appeal.”

3.  RHC O59 r21(1)(a) provides an exception in the case of an order determining in a summary way the substantive rights of a party to an action. The Liquidators contend that my decision to dismiss their application determined a substantive right and leave is, therefore, not required. The application was made pursuant to section 200(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap. 32 (“Ordinance”) and sought an order that:

“1. The Order granted by Deputy High Court Judge Kent Yee dated 29 May 2017 which granted leave to the 1^st and 2^nd Respondents to defend in the action commenced by Revelry Gains Limited under HCMP 430/2013 (‘Mortgagee Action’) against Joy Rich Development Limited (‘Company’) be set aside.

2. The Applicant do take over the conduct of the Mortgagee Action for the Company.”

4.  Pursuant to section 200(3) “The Liquidator may apply to the court in manner prescribed for directions in relation to any particular matter arising under the winding up.” The Liquidators were seeking an order that conduct of the action revert to them. This did not involve the determination of a substantive right. The order made by DHCJ Yee that I was asked to set-aside was an order made to regulate the conduct of one aspect of the liquidation. Although a liquidator is given the powers to conduct a winding up conferred by section 199 and Schedule 25 of the Ordinance (in the case of bringing or defending legal proceedings with the sanction of the court or the committee of inspection) this does not constitute a substantive legal right. In the case of the bringing or defending of legal proceedings the liquidator may make an application to the committee of inspection or the court for approval of the liquidator to do so. Refusal to allow the liquidator to do so does not determine a legal right. In my view the Liquidators need leave in order to appeal the dismissal of the first order.

Should leave be granted?

5.  Section 14AA(4) states that:

“Leave to appeal for the purpose of subsection (1) shall not be granted unless the court hearing the application for leave is satisfied that—

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard.”

6.  It is common ground that in order to satisfy this test it is not necessary for the applicant to demonstrate that the proposed appeal is likely to succeed; but it is necessary to satisfy the court that the appeal has merits and ought to be heard.[1]

7.  Mr Ko argued before me that the main reason that leave should be granted was because if the Liquidators are successful in overturning my decision to admit the Chen Sisters’ proofs it followed that they were no longer creditors, and this was sufficient change of circumstances to overcome my principal ground for dismissing the application to take over the Revelry Gains litigation, namely, that a change of circumstances had to be demonstrated and that none was. I would note that as the Notice of Appeal is currently formulated the Liquidators will argue that the Liquidators did not have to show a change of circumstance and appear to contend that absent bad faith or, presumably, unusual circumstances the Liquidators were entitled to take over the Revelry Gains litigation as of right. That argument does not seem to me to have sufficient merit to justify granting leave to appeal.

8.  Returning to Mr Ko’s principal argument, I accept that the Deputy Judge’s decision was premised on the assumption that the Chen Sisters were creditors and that if they are not this probably constitutes a change of circumstances, which is capable of justifying an application to overturn the original decision, although it may not be sufficient to achieve that result as the Chen Sisters may have an economic interest in the liquidation if the property which constitutes the Company’s sole asset is sold for sufficient to produce a surplus. Although in my view given this possibility and the fact that the Chen Sisters’ have had conduct of the litigation for some years, they should be allowed to continue to do so, however, the alternative view is not without merit and as the Liquidators are entitled to appeal my proof of debt decision as of right, I will grant leave to appeal.

9.  I will make a costs order nisi that the costs of the application for leave be costs in the appeal.