FU HAY KIN v. BELL'S CONSTRUCTIONS (ASIA) LTD AND ANOTHER

HCMP 163/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 163 OF 2003

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JUDGMENT

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1.  This is an application by the Applicant in these proceedings, Mr Fu Hay Kin (“Mr Fu”), for a summary judgment against the 2^nd Respondent, Mr Ho Wai Kin Robert (“Mr Ho”), pursuant to RHC Order 28 rule 4(1). By his Originating Summons issued on 13 January 2003, Mr Fu seeks a declaration that Mr Ho should be personally responsible for all relevant debts of the 1^st Respondent company, Bells’s Constructions (Asia) Ltd (“the Company”), pursuant to section 168O of the Companies Ordinance (Cap. 32) (“the Ordinance”).

2.  Mr Fu’s case can be briefly stated. He says (and it is not disputed) that he is a former employee of the Company, and is also a judgment creditor of the Company for the total sum of $254,794.80 plus interest, pursuant to various orders of the Labour Tribunal made in his favour between July and September 2002. These sums remain unpaid, and the Company is now in creditor’s voluntary liquidation, as a result of a resolution to wind-up passed by its shareholders on 17 January 2003. In consequence these proceedings are stayed as against the Company, although they continue as against Mr Ho.

3.  The Company was, prior to its liquidation, a wholly owned subsidiary of Bells Construction and Techonolgies Pty Ltd, an Australian company in the construction industry in Tasmania. Mr Ho was a director of the 1st Respondent from the time of its incorporation until 5 February 1999, when he resigned as such director. It appears that the reason for his resignation was that he was adjudicated bankrupt on 14 January 1999, in HCB 1023 of 1998.

4.  Mr Fu’s claim is that despite having resigned as a director of the Company, Mr Ho continued to act as its general manager, and has, in that capacity, been concerned in or taken part in the management of the Company, without having first obtained leave to do so, contrary to section 156(1) of the Ordinance, thereby incurring personal liability for its debts incurred during the period in which he so acted while a bankrupt, pursuant to section 168O(a)(1) of the Ordinance.

5.  Section 156(1) of the Ordinance, so far as material, provides:-

“If any person being an undischarged bankrupt acts as director of, or directly or indirectly takes part in or is concerned in the management of, any company, except with the leave of the court by which he was adjudicated bankrupt, he shall be guilty of an offence and liable to imprisonment and a fine.”

6.  Section 168O, so far as material, provides:-

“(1) A person is personally responsible for all the relevant debts of a company if at any time –

(a) in contravention … of section 156 he is involved in the management of the company …

…

(3) For the purposes of this section the relevant debts of a company are –

(b) in relation to a person who is personally responsible under subsection (1)(a), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company …”

7.  In support of his case, Mr Fu made and filed an affidavit dated 10 March 2003, in which he deposed to various matters concerning:-

(1) the identity of the shareholders and directors of the Company;

(2) the fact that Mr Ho was the general manager of the Company, his business card describing him as such;

(3) Mr Ho’s shareholding in, and (prior to his bankruptcy) directorship of, a corporate director of the Company called Keenestates (HK) Co. Ltd (“Keenestates”);

(4) his employment by the Company as a project manager, pursuant to a letter of employment which he says was signed and agreed between Mr Ho and himself;

(5) the circumstances of his leaving the employment of the Company and his subsequent legal proceedings against the Company in the Labour Tribunal which resulted in his obtaining the judgment against the Company which I have already mentioned;

(6) his discovery of the fact that Mr Ho was a bankrupt, and that no leave had been granted to Mr Ho to take part in the management of the Company;

(7) documents and records of the Company obtained by his in the course of seeking to examine the Company as a judgment debtor, including records of its general ledger and records of its board meetings;

(8) the liquidation of the Company, and the conduct of the first meeting of its creditors;

(9) certain further documents and records of the Company obtained by him from its liquidators.

8.  In his affidavit, Mr Fu says that from at least November 1999 until the commencement of the winding up of the Company on 17 January 2003, Mr Ho directly took part in the management of the Company, and that this is evidenced by the various documents and company records which he has exhibited. Mr Fu relies (paragraph 30(c) of his affidavit) on the absence of directors’ resolutions in relation to the day to day business of the Company as evidence that its business must have been carried on or operated by Mr Ho, and (paragraphs 30(h) and (i) of his affidavit) points to the absence of any of the project files and other documentation which he would expect to exist, and which he says are likely to have been signed by Mr Ho, as evidence of an attempt to conceal the involvement of Mr Ho in the management of the affairs of the Company.

9.  In answer to this affidavit, on 26 May 2003 Mr Ho filed an affidavit dated 15 May 2003, in which he denies Mr Fu’s allegations. He says that he has never been involved in the management of the Company, and explains his role as being principally one of reporting to the directors of its parent company in Australia on the opportunities for building and construction work in Hong Kong. He says that this involved the identification of suitable business opportunities for the Company, but that he had no say in the decision making or policy making processes of the Company or in its management, being dictated to by the board of the parent company, which controlled his activities and determined what projects should or should not be taken on. He says that the only area in which he had any independent discretion to exercise was in the context of small fit out jobs within parameters agreed to by the parent company’s directors, and that his main role was to perform “audit tasks”, or some form of monitoring of the projects undertaken by the Company.

10.  An affidavit on behalf of Mr Ho was also filed by a Mr David Alan Hopkins, who is (or was) a director of Keenestates and who appears (although this is not stated in terms) to be an employee of the Company’s parent company. He states that Mr Ho was employed in order to assist in the effective operation of the Company, since Mr Hopkins did not himself speak Chinese. He says that on becoming bankrupt, Mr Ho was directed by the parent company to resign as director of the Company, but that in any event, Mr Ho had neither before nor after his basnkruptcy taken part in the management of the Company, and never had any say in the management of the Company. Mr Hopkins says that all decisions in relation to the business of the Company were made by the parent company’s board in Australia without reference to Mr Ho, who was required to carry out such decisions. Mr Hopkins goes on to state that the Company’s budgets and funding were also decided on by the parent company’s directors, without the participation of Mr Ho. Although Mr Hopkins considered that it was appropriate to describe Mr Ho as a branch manager, he considered that Mr Ho was merely carrying out the policy of the parent company, and did not make any decisions as to its direction, future, policies or management, and did not have any management role in the Company.

11.  Thereafter, Mr Fu took out the present application for a summary judgment by summons dated 12 June 2003, in support of which he filed a short further affidavit in which he referred to the matters stated by Mr Hopkins and asserted that this amounted to an admission of liability on the part of Mr Ho.

12.  At the hearing before me, Mr Fu contended that having regard to the lack of documentary substantiation for the matters stated in the affidavits filed on behalf of Mr Ho. little, if any, weight should be placed on those affidavits, and judgment should be entered for him forthwith. He submitted that Mr Ho’s involvement in the management of the Company was made out by reference to documents such as the employment letter addressed to the Applicant (referred to in his affidavit of 10 March 2003), and to a further letter dated 16 January 2002 to a Carpenter Works Company (contained in an exhibit to that affidavit, but not referred to in the body of the affidavit), confirming certain outstanding amounts and a payment schedule for such amounts, both of which were signed by Mr Ho as general manager of the Company.

13.  Mr Fu contended that the liability under section 156 (and hence under section 168O(1)(a)) was strict, in that mens rea was not required (see R v Brockley [1994] 1 BCLC 606), and that whether or not a person was concerned or took part in the management of a company (whether directly or indirectly) was a question of objective fact, and that the subjective perceptions of the person sought to be made liable or of any other person were not relevant considerations (see R v Doring [2002] BCC 838).

14.  Mr Ching, appearing for Mr Ho, did not, I think, dispute these propositions. Nor did he dispute that Mr Ho was a bankrupt as from January 1999, and was nonetheless described as general manager of the Company.

15.  However, he submitted that even if the question of being concerned in or taking part in the management of a company was to be determined by reference to objective standards, it remained necessary to make findings as to the underlying facts in order to determine whether or not, objectively speaking, those facts demonstrated that the person sought to be charged was actually concerned in or taking part in the management of the company in question.

16.  In this regard, he referred me to the Australian case of Commissioner for Corporate Affairs v Bracht [1989] V R 821, in which Ormiston J of the Supreme Court of Victoria considered the meaning of section 227(1) of Companies (Victoria) Code, which is in materially identical terms to section 156 of Ordinance, and held , inter alia, that:-

(1) “management” comprehends activities which involve policy and decision-making, related to the business affairs of the corporation, affecting the corporation as a whole or a substantial part of that corporation, to the extent that the consequences of the formation of those policies or the making of those decisions may have some significant bearing on the financial standing of the corporation or the conduct of its affairs; and

(2) being “concerned in” requires an involvement of some kind in the corporation’s decision-making process which is more than passing and involving some responsibility, but not necessarily of an ultimate kind whereby control is exercised.

17.  Mr Ching submitted that on the state of the evidence before me, it was not possible, without exploring the matter further by way of oral evidence and cross-examination if necessary, for me to come to a view as to whether or not Mr Ho was (even objectively speaking) concerned in or took part in the management of the Company, within the meaning of section 156. He pointed out that the terms of the employment letter addressed to Mr Fu do not enable any inference to be drawn as to whether the matters referred to in it were decided upon by Mr Ho on his own initiative, or were simply a statement of the terms of an offer which had been decided upon by others, which were conveyed to Mr Fu through him. Although he did not address me on the letter of 16 January 2002 to Carpenter Works Company (which was only mentioned by the Applicant in the course of his reply), it seems to me that the same point could be made in respect of it.

18.  Mr Ching also drew my attention to a summons which had just been issued by Mr Ho, seeking to strike out Mr Fu’s claim. He indicated that the basis for the application was that even on the basis of the material contained in Mr Fu’s evidence (insofar as it consisted of evidence rather than submissions), Mr Fu’s case did not disclose any involvement by Mr Ho in the management of the Company. However, as this application was not before me, and Mr Fu had had neither notice of it, still less an opportunity to consider whether or not to file further evidence by way of response to it, I do not propose to consider it further.

19.  Having carefully considered the submissions of both parties, I have come to the view that, assuming, without deciding (in the light of the pending summons to strike out) that there is a prima facie case made out by Mr Fu, this is not a suitable case in which to summarily determine his claim in his favour. The affidavits filed on behalf of Mr Ho make it clear that his case is that he was not in fact concerned in or taking part in the management of the Company. Although it is fair to say that no contemporaneous documentary material has yet been put forward by Mr Ho, it remains the case that there is the affidavit evidence not just of Mr Ho himself, but also of Mr Hopkins in support of Mr Ho’s position

20.  While I accept that neither Mr Ho’s nor Mr Hopkin’s view of Mr Ho’s role within the Company is conclusive, having regard to the objective nature of the question for consideration, I am of the view that the evidence does raise a triable issue as to whether or not Mr Ho was, despite his bankruptcy, taking part in or concerned in the management of the Company. In my view, in order to resolve that issue, it will be necessary to consider, perhaps in some detail, the manner in which the affairs of the Company were managed and carried out and in which it operated its business. I am not satisfied that it is possible to do so on the basis of the affidavit evidence alone, particularly as it currently stands.

21.  As I am satisfied that there is a triable issue as to the nature of the role or involvement of Mr Ho in the affairs of the Company, I must dismiss Mr Fu’s application for judgment.

22.  So far as costs are concerned, it seems to me that these should follow the event, and I therefore propose to make an order nisi that Mr Fu should pay Mr Ho’s costs of this application in any event, to be taxed on the party and party basis if necessary.