TSANG YUK KIU ANNA v. ETERNAL GRAND DEVELOPMENT LTD AND OTHERS

HCA 1290/2018

[2019] HKCFI 1927

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1290 OF 2018

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DECISION

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1.  This is the plaintiff’s appeal against the decision of Master Jenkin Suen dated 15 November 2018 where he struck out the amended writ of summons and the amended statement of claim (“ASOC”) dated 22 June 2018. He also dismissed the plaintiff’s summons dated 5 July 2018 for leave to re-amend the amended writ of summons and the ASOC.

The plaintiff’s pleaded case

2.  In short, the pleaded case of plaintiff (“P”) in the amended statement of claim is that:

(1)   She is the executrix under the last will of the deceased who passed away on 5 August 2015.

(2)   The deceased was a director and the beneficial owner of 2,000 shares of the 1^stdefendant (“D1”), a company incorporated in Hong Kong.

(3)   The 2^nd to 8^th defendants (“D2” to “D8”) were indigenous villagers in Sai Kung and were at all material times the registered owners of various plots of lands in Sai Kung (“the subject lots”). 

(4)   D1 took over the development of the subject lots pursuant to a release and procurement agreement dated 3 November 2007 (“the Agreement”).

(5)   P discovered in the deceased’s possessions copies of powers of attorney made on 6 November 2007 by D3 to D8 in favour of D1. She believes that D1 has beneficial interest in the subject lots. 

(6)   Despite repeated requests by P, D1 failed or refused to clarify its right, benefit and interest in the subject lots.  It is also said that without an order from the court, D1 will not disclose its interest in the subject lots and the deceased’s interest will be jeopardized. 

(7)   P therefore sought:

(a)   a declaration that D1 does hold right benefit and interest in the subject lots together with D2 to D8; and

(b)   an order for D1 to D8 to disclose their respective interests in each of the subject lots. 

3.  On 27 June 2018, D2 to D8 took out the application to strike out P’s claim on the ground that:

(1)   P does not have any locus standi to claim in that she does not have any interest of a material character to be enforced or protected under against D2 to D8.

(2)   It discloses no reasonable cause of action. 

4.  In response, P took out an application to amend the ASOC by, inter alia, adding particulars under the Agreement, changing the averment of belief to asserting D1’s beneficial ownership as a matter of fact, and that D2 to D8 are holding the subject lots as trustees for D1.

5.  Further, P also deleted the prayer for an order for D1 to D8 to disclose their respective interests and revised the declaration sought to the effect that D1 is the beneficial owner of the subject lots and that D2 to D8 have no beneficial ownership and/or interest in them. 

Principles

6.  The principles in an application to strike out are trite.  I shall not repeat them.  One of the main issues in this application is on the principle on granting declaratory relief. 

7.  It is common ground that the existence of a cause of action is not strictly necessary. Order 15, rule 16 provides that a party may seek a declaration in an action without obtaining other or further relief.  Nevertheless:

“Where specific relief, other than a declaration, is not claimed, the jurisdiction to make a binding declaration of right should be exercised with great caution” (see Hong Kong Civil Procedure 2019 Vol 1, paragraph 15/16/3).

Discussion

8.  Mr Lee Tung-ming together with Mr Clement Wong for D2 to D8 referred the court to the decision of the Court of Appeal in Terrian Ltd & others v Oriental Peer Co Ltd [1988] 1 HKLR 246 at 255B–C and submitted that the court should not exercise its discretion to grant declaratory relief to a shareholder in respect of the beneficial ownership of the assets of the company as it has no interest, legal or equitable, in the subject matters of the declaration sought. 

9.  It is submitted that P has no interest in the subject matter of the declaration sought and therefore lacks locus standi and has no reasonable cause of action to claim against D2 to D8 for the declaratory relief.  It is emphasized that P is suing as and only as shareholder of D1, and P is seeking a declaration that the company, ie D1, is the beneficial owner of the subject lots.  Reliance is placed on the well-known principle of separate legal personality as explained by Lord Millett NPJ in WaddingtonLtd v Chan Chun Hoo (2008) 11 HKCFAR 370 at paragraph 47.

10.  As explained by the Court of Appeal in Terrian, the crucial question in that matter (as in the present case) is whether the court, in the proper exercise of its power under Order 15, rule 16, can properly grant the declaratory relief (at 251G–J):

“ In our judgment the central and decisive issue in this appeal is whether, assuming all the allegations pleaded in Oriental’s amended counterclaim (or in the draft re-amended counterclaim contained in the appeal bundle) to be established, it would be a proper exercise of the court’s power under Order 15, rule 16 to make the declaration sought in the prayer to Oriental’s amended counterclaim against the applicants. The answer to this question is vital to both the strike out and the joinder issue because the only reason for adding the applicants as defendants to Oriental’s amended counterclaim is to obtain a binding declaration against them determining which of them has a beneficial interest in the Redhill site.

If the court can properly grant such a declaration against the applicants there can be no ground for striking out the amended counterclaim against the applicants and the joinder issue falls away.  If, on the other hand, the court cannot properly grant the relevant declaration, the amended counterclaim against the applicants should be struck out and the court should not permit the joinder of the applicants to continue solely for the purpose of maintaining a claim for a declaration which the court cannot properly make against the applicants.”

11.  In upholding the decision of Mortimer J (as he then was) in striking out Oriental’s counterclaim against Polly Jack and Zeta, Clough JA(as he then was) when giving the judgment of the Court of Appeal held that:

“ In the light of the authorities cited above the decision of Mortimer, J. that on the facts pleaded in the present case the court could not properly exercise its discretionary jurisdiction to grant the declaration sought by Oriental against the applicants, was plainly and obviously right. The subject matter of the declaration sought was the beneficial interest in an undivided half share of the Redhill site which is the property of one or other of the applicants. Terrian, as a shareholder of Polly Jack, has no legal or equitable interest whatsoever in the property (if any) of that company.

This is trite law but it is too often overlooked and, as Lord Russell of Killowen observed in E.B.M.Co.Ltd.v.DominionBank [1937] 3 All ER 555 at p. 564 it is ‘of supreme importance that the distinction should be clearly marked, observed and maintained between an incorporated company’s legal entity and its actions, assets, rights and liabilities on the one hand, and the individual shareholders and their actions, assets, rights and liabilities on the other hand.’

As the English Court of Appeal emphasised in Prudential Assurance Co. Ltd. v. Newman Industries Ltd. (No. 2) [1982] 1 Ch 204 at p. 223A–B, shares are merely a right of participation in the company on the terms of the articles of association. The same point was made by Lord Buckmaster in Macaura v.Northern Assurance Co. Ltd. [1925] AC 619 at p. 626 where he indicated that the shareholder has no right to any item of the company’s property but is entitled to a share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound up.

If Terrian is not entitled to any interest in Polly Jack’s property by virtue of its shareholding in that company, then a fortiori Oriental, which has contracted to acquire Terrian’s shares and to take an assignment of the benefit of Terrian’s alleged loan to Polly Jack, has no such interest, nor can Orientalhave any interest in the subject matter of the declaration which it seeks to obtain against the applicants in furtherance of its contractual rights against Terrian.

In our judgment it is plain and obvious, on final analysis, that the facts of this case fall within the dictum of Pickford, L.J. in the Guaranty Trust Co. [v Hannay & Co [1915] 2 KB 536] case at p. 562 (with which we respectfully agree) indicating specifically circumstances where the court should not exercise its discretion to grant declaratory relief, namely circumstances where the party seeking such relief has no legal or equitable interest in the subject matter of the declaration and is seeking the opinion of the court regarding the beneficial ownership of that subject matter in order to help him in other transactions. Put another way by reference to the dictum of Lord Sterndale, M.R. in Hanson v. Radcliffe Urban Council [[1922] 2 Ch 490] at p. 507 cited above, there are no rights as between Orient and either of the applicants which are capable of definition by reference to the beneficial interest of either of the applicants in the Redhill site.For the same reason, in the language of Sir Robert Megarry, V.-C. in the Malone [v Metropolitan Police Commissioner [1979] 1 Ch 344] case the declaration sought by Oriental against the applicants in its amended counterclaim is not concerned with a matter which is justiciable as between Oriental and either of the applicants.

Furthermore nothing is pleaded in the amended counterclaim which provides the basis for any derivative claim by Oriental on behalf of Polly Jack in relation to the Redhill site; nor is anything pleaded to indicate that if Orient were to acquire Terrian’s minority shareholding in Polly Jack, the rule in Foss v. Harbottle (1843) 2 Hare 461 would not stand in the way of similar derivative proceedings by Orient.

Accordingly it follows that Oriental has no reasonable cause of action either apart from Order 15, rule 16 or under that rule against the applicants and the judge was right to strike out the amended counterclaim against them.  As we have already indicated above, if the court cannot properly grantthe declaratory relief sought by Oriental there can be no proper purpose in permitting the continued joinder of the applicants solely for the purpose of maintaining a claim for a declaration against them which can never properly be made.”

   (at 254F – 255G)

12.  Mr Enzo Chow together with Mr Jevons C H Chan for P placed heavy reliance on DHCJ To’s decision in Koo Ming Kown v Rev Mr Mok Kong Ting & Others [2018] HKCFI 967 (4 May 2018) and submitted that the court’s decision to grant declaratory relief is wide and may be exercised whether the applicant has any cause of action. 

13.  It is further submitted that the law has changed since Terrian and the latest state of the law has been summarized in Koo Ming Kown, which demonstrated that a more flexible approach should be adopted.  It is said that under the so‑called “real interest requirement”, the applicant has to show “a real interest in the subject matter of the declaration”. The interest will have to be of a material character and brought by a party with a genuine and legitimate interest in obtaining the decision against an adverse party as opposed to merely raising academic or hypothetical question or raising one out of curiosity. 

14.  Further, the court adopts the “practical utility approach” by asking whether the court’s jurisdiction to grant declaratory relief was properly exercised instead of applying nice tests as if it were raising a strict jurisdictional issue (see Koo Ming Kown at paragraphs 16 to 18 at pages 8 to 9).

15.  I see no inconsistency between the approach of DHCJ To in Koo Ming Kown and the principle explained by the Court of Appeal in Terrian.  There is, in substance, no difference from the approach taken by the Court of Appeal in Terrian that: “the effect of the rule [Order 15, rule 16] is to give a general power to make a declaration whether there be a cause of action or not, and at the instance of any party who is interested in the subject matter of the declaration” (at 253H, citing Guaranty Trust Co at 562 per Pickford LJ) and that the crucial question is whether the court, in the proper exercise of its power, can properly grant the declaratory relief.  The Court of Appeal then considered the interest that the claimant had in the subject matter of the declaration sought and held that it had none, and therefore declaratory relief could not properly be granted.

16.  Mr Chow submitted that although P’s interest in the subject lots is strictly “reflective”, ie limited to P’s beneficial interest in the value of the 2,000 shares in D1, it is nevertheless a real interest, and giventhe law in respect of the grant of declaratory relief is developing, the court should not exercise its summary jurisdiction to strike out the claim in an interlocutory application.  However, he fairly accepts that he cannot distinguish the situation before the court in this matter and the relevant facts in Terrian.  

17.  Mr Chow also referred the court to the passage in Zamir and Woolf, The Declaratory Judgment (4^th ed) at paragraphs 5-12 to 5‑27 where the authors sought to distinguish between the older authorities suggesting a need for rights to be infringed and the more recent authorities (such as In re S (Hospital Patient: Court’s Jurisdiction) [1996] Fam 1), demonstrating a more flexible approach suggesting that an interest in the outcome of the proceedings is sufficient. 

18.  Despite the authorities referred to, I am of the view that P’s beneficial interest in the shares of D1 is insufficient and the rationale of the Court of Appeal in Terrian is applicable here and ought to be followed especially when it is accepted that the situation is similar insofar as the relevant facts are concerned. 

19.  In light of the aforesaid, I agree with the conclusion of the learned master.    

The appeal is academic insofar as D3 to D8 are concerned 

20.  Mr Lee also raised an additional point on the appeal being academic insofaras D3 to D8 are concerned given the lots held by them have been disposed of since the hearing below.  The well-known decision of the House of Lords in Ainsbury v Millington [1987] 1 WLR 379 and the decision of the Court of Appeal in Kuok Hong Neng v Yuen Sik Wah CACV 261/2002 are referred to.

21.  Mr Lee also submitted that there is no suggestion that the assignees ought to be joined and it is difficult to see how the court can make any binding declaration of rights in respect of the six lots in question.

22.  In reply, Mr Chow sought to suggest that the issues as between P and D3 to D8 are not academic.  If the court is to find in favour of P, there could potentially be a tracing claim of the proceeds received by D3 to D8 by P. 

23.  Given the conclusion that the court reached ie that it should not exercise its discretion in granting any declaratory relief in favour of P, the potential claim that P may have against D3 to D8 in respect of the sale proceeds cannot be an answer to the complaint.  This is particularly so when part of the relief sought is a declaration that D2 to D8 have no beneficial ownership or interest in the subject lots which must be the case given the disposal. 

24.  In light of the aforesaid, the plaintiff’s appeal is dismissed. 

Costs

25.  Insofar as costs is concerned, costs of the action including costs of the hearing before Master Suen and the hearing before me be to the 2^nd to 8^th defendants with certificate for one counsel only.  I appreciate that both sides appeared with two counsel but Mr Lee very fairly accepted that the issues before the court are not particularly complex.  There is therefore no justification for 2 counsel.