YICK FONG ENTERPRISES LTD v. CHENG CHUI CHEE MICHAEL AND ANOTHER

HCA 2724 /2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2724 OF 2006

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D E C I S I O N

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Application

1. By a summons filed herein on 2 January 2007, Madam Chui Majorie (“Madam Chui”) of the Defendant applied to strike out the Statement of Claim herein under Order 18 rule 19 of the Rules of the High Court (“RHC”) and the inherent jurisdiction of the Court.

Background

2. On 10 December 2000, Madam So Lan Fong (the “Deceased”) died in Hong Kong, leaving an estate (the “Estate”) of about $25 m.  She also left a Will dated 24 June 2000 (the “Will”).  By the Will, after deposing a specific landed property to Madam Chiu, the Deceased devised her remaining estate in equal shares for the followings.

(a)	Madam Chiu,
(b)	The son of the Deceased, Mr. Cheng Chiu Chee Michael (“Mr. Cheng”), the other Defendant in the proceedings herein,
(c)	Mr. Michael Cheng Jr. (the “Grandson”), the son of Mr. Cheng, and
(d)	Madam Cheng Margarita (the “Granddaughter”), the daughter of Mr. Cheng.

3. By the Will, the Deceased also appointed both Madam Chiu and Mr. Cheng as executors and trustees thereof.  However, disputes occurred between them and Madam Chiu eventually sought to resolve under HCMP 1271/2006 as to who should be the administrator.  I heard the substantive argument on 4 December 2006 and reserved my decision to be delivered.  On 15 December 2006, I handed down a Written Decision agreeing the proposal made by Madam Chiu, which was supported by both the Grandson and the Granddaughter, that HSBC Trustee (Hong Kong) Limited, should be appointed as an independent administrator to administer the Estate.

4. However, it has transpired that on 7 December 2006, i.e. when the parties were waiting for my said Decision under HCMP 1271/2006, Mr. Cheng together with another director Madam Mui Ching Lai (“Madam Mui”) (whereby the validity of her appointment is now disputed), commenced the present proceedings in the name of Yick Fong Enterprises Limited against Madam Chiu and Mr. Cheng himself as the Personal Representatives of the Deceased.

5. Madam Chiu complained that the present proceedings were issued for ulterior motives.  The Writ was not served and she never resided on the address provided therein.  She only came to attention of the proceedings herein when somebody told her that they appeared on the South China Morning Post.

6. Anyway, on 19 December 2006, she instructed her solicitor to file an acknowledgment of service for herself.  Further, the said summons for striking out was issued on 2 January 2007.  Madam Chiu’s application was supported by the Grandson, the Granddaughter as well as the their mother, who is also ex-wife of Mr. Cheng.  On the other hand, Mr. Cheng and Madam Mui opposed the same.  The matter was argued before me on 23 May 2007.  Mr. Emerson of Messrs. Burke, Fung & Li acted for Madam Chiu and Mr. Jonathan Chang of Counsel represented the Plaintiff.  Having heard from the parties, I reserved my decision to be handed down.  Further, to see if how the proceedings were to be carried on, I also directed Mr. Emerson to obtain views of HSBC Trustee (Hong Kong) Limited for an appointment under Order 15 rule 15 RHC to represent the Estate in the proceedings herein.  Parties’ relevant correspondences were made available to me in about the latter half of June 2007.

7. The law relating to striking out application is clear.  For our purpose, it suffices to recap that this Court will only exercise its summary power to strike out in plain and obvious case.  The burden of proof lies on the applicant.  This Court should not embark a mini-trial on affidavit evidence.  Finally, the mere fact that the case is weak and not likely to succeed shall not be a ground for striking out.

8. Mr. Chang helped to identify 3 grounds relied upon by Mr. Emerson for his striking out application:

“	(1)	The claim for HK$24,542,554 against the estate of the Deceased was “unfounded and unsubstantiated” because the entry showing such a loan in the Plaintiff’s company record was only made for accounting purposes and was not a real loan.
	(2)	The action was brought without proper authority of the Plaintiff’s board of directors.
	(3)	The Applicant had ceased to be the personal representative of the Deceased’s estate and for this reason this action should not be continued against her.”
		(paragraph 18 of Mr. Chang’s skeleton)

I agree with such classification and will deal with them one after the other.

Real Loan?

9. Mr. Emerson said that the Plaintiff was a family company set up by the Deceased.  She owned 98.5% of the shares.  She was the chairlady, secretary as well as the sole operator.  She provided all funds to the company.  It was only for the purpose of accounting purpose that the sum of HK$24,542,554 was entered as “amount due from a director [the Deceased]”.  There was not such loan at all.

10. As a layman, I can understand the line of argument.  However, bearing in mind the concept that “a limited company is a separate entity as distinguished from its shareholders and directors”, I find it hard to accede to the argument.  I further heard no argument on exceptions to allow this court to “pierce the veil” in the circumstances.  Certainly, one also needs to bear in mind that we are in the context of a striking out application, not proper trial.  It therefore suffices for me to dispose this ground of striking out upon the conclusion that, prima facie, the accounting record before this Court shows that the Deceased did owe the debt to the Plaintiff.

Authority to sue?

11. Regarding the complaint that the present proceedings were commenced without proper authority, I note the following evidence.

(a)	Shareholdings of the Plaintiff:
	“	7.	The issued ordinary shares of the Plaintiff up to the date of the Defendant’s death were held in the following proportions:-
			Defendant			98.5%
			Defendant’s son Cheng Chiu-Chee Michael			1%
			Defendant’s daughter-in-law Agnes Wong			0.5%
			(ex wife of Cheng Chiu-Chee Michael)
			The shares held by Cheng Chiu-Chee Michael and his ex-wife the said Agnes Wong were gifts to them by the Defendant.”
			(Affirmation of Madam Chiu filed herein on 2 January 2007)
(b)	Directorship of the Plaintiff:
		(i)	Madam Chiu deposed on 2 January 2007 that:
			“	5.	Up to the date of the Defendant’s death on 10th December 2000, the Directors of the Plaintiff were:-
					Defendant So Lan Fong
					Defendant’s son Cheng Chiu-Chee Michael
					Defendant’s grandson Michael Jr. Cheng Sau-Yip (son of Cheng Chiu-Chee Michael)
				6.	In June 2005, a replacement Director, namely, Mui Ching-Lai, mistress of Cheng Chiu-Chee Michael, was irregularly appointed by Cheng Chiu-Chee Michael as a Director of the Plaintiff, otherwise the existing Directors of the Plaintiff continued in office.”
		(ii)	The Grandson also deposed on 2 January 2007 the followings:
			“	7.	After the death of my grandmother on 10 December 2000, my father and I were the only remaining Directors of the Plaintiff.  In or about June 2005, I was tricked into signing for the appointment of Mui Ching Lai, my father’s mistress, as a Director of the Plaintiff by my father and his solicitor Fong Yin Cheung.  I never wanted to appoint Mui Ching Lai as a Director of my grandmother’s companies and I definitely regret being so foolish.  I have since lodged a complaint against the unethical conduct of the said Fong Yin Cheung to the Law Society.”

12. However, Mr. Cheng as well as Madam Mui filed similar affirmations on 17 May 2007 arguing that:

“

… I am advised by my legal advisers and verily believe that as a matter of law such argument was flawed, for the simple reason that me and my partner, representing the majority in the board of directors of the Plaintiff, can always agree to (and for the avoidance of doubt, do hereby agree to) ratify this action being brought under the name of the Plaintiff, and Michael Cheng Jnr as the minority director has no cause for complaint; as for Ms Agnes wong, she is only a shareholder of the Plaintiff, and her consent was not necessary to bring this action in the Plaintiff’s name because this is a matter solely within the purview of the board of directors of the Plaintiff.”

13. It is also noted that the Grandson further argued that he had not been given notice of the director’s meeting of the Plaintiff approving the commencement of the present proceedings, and that the written resolutions of the Plaintiff dated 29 April 2005, purporting to appoint Madam Mui as an additional director, was also said to be forged as he had never signed on the same.  The matter was reported to the Waterfront Police Station under WFO07012437.

14. As it can be seen from the above, there are serious disputes of facts between the parties.  Both Mr. Emerson and Mr. Chang have attempted to persuade me to decide the matter summarily in favour of their own clients.  However, after thoughts, I do not consider appropriate to do so.  As cited as per paragraph 18/19/24 at page 341 of HKCP:

“

where the court was unable to decide the question of authority – which is in essence a question of fact (or maybe a mixed question of fact and law), the court should not dismiss the application (as would have been the case in an ordinary application to strike out a pleading), nor should it try to attempt the impossible by making a finding of fact on affidavit evidence without cross-examination.  Instead it should adjourn the hearing and give appropriate directions for the determination of the objection at an adjourned hearing, such as the cross-examination of the deponents of the affidavits/affirmations that have been filed by the parties in relation to the objection … (Effectively) if there is any real doubt about the authority to sue, the question must be resolved first, before the case should be allowed to proceed any further; in the determination of the question, the burden is on those suing in the name of the company to establish consent to the commencement of the action, on a balance of probabilities – if the standard of proof is not achieved, then there is no consent and the name of the company must be struck out and the action dismissed.  Put another way, either there was authorization or there was not.”

15. Since both parties have not addressed this Court on the directions they would like to seek, I believe that it would be appropriate to adjourn the summons for the time being, pending directions to be agreed or decided by this Court to dispose the argument on “Authority to Sue”.

Who should be the proper defendant?

16. Finally, as to the point that both Madam Chiu and Mr. Cheng should no longer be named as defendant herein upon my appointment of HSBC Trustee (Hong Kong) Limited as the independent administrator in HCMP 1271/2006, it appears that both parties have no strong argument on the same.  However, given the fact that it takes time for HSBC Trustee (Hong Kong) Limited to comply with the formalities before the formal Grant can be issued, I have attempted to seek the parties’ view for the purpose of Order 15 rule 15 RHC.  Unfortunately, no consensus can be reached and I therefore do not consider it appropriate to do anything for the time being. 

Conclusion

17. In conclusion, I direct that:

(a)	The Defendant’s summons for striking out is adjourned sine die with liberty to restore before me.
(b)	Parties are at liberty to apply for further directions regarding the dispute as to whether the Plaintiff had and/or has the necessary authority to commence and continue the action herein.
(c)	Costs of the said summons for hearing on 23 May 2007 be reserved.