SIN YUK PING v. HBFP LTD AND OTHERS

HCA 1578/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1578 OF 2005

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D E C I S I O N

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Introduction

1.  This is the defendants’ application to strike out the statement of claim and dismiss this action.

Background Facts

2.  The plaintiff was a director and shareholder (together with a Mr Ho) of Hung Mau Realty and Construction Ltd. (“Hung Mau”).  She used to hold 50% of the ordinary shares of Hung Mau.

3.  In July 2004, Hung Mau was in effect sold to Chevalier Construction (Hong Kong) Ltd. (“Chevalier”).  Since then, the ordinary shares of Hung Mau are held by Chevalier together with its nominee.  The plaintiff and Mr Ho merely hold its non-voting deferred shares which, according to the statement of claim herein, are of practically no value.

The Plaintiff’s Pleaded Case

4.  The gist of the plaintiff’s complaint as pleaded is essentially as follows.  The 2^nd to 4^th defendants were the 1^st defendant’s employees or agents.  A Wing Mau Construction Co. Ltd. (“Wing Mou”) was a creditor of Hung Mau.  The defendants, as the liquidators of Wing Mou, knowingly made false claims against Hung Mau to the effect that Hung Mau owed debts to Wing Mou.  At the end, the plaintiff and Mr Ho was forced to sell Hung Mau to Chevalier as a result.

5.  The alleged wrongful acts on which this action is based are:-

(a) the defendants maliciously commenced winding-up proceedings against Hung Mau (HCCW 611/2003) wherein they knowingly made false claims that Hung Mau was unable to repay debts to Wing Mou;

(b) the defendants made malicious false claims in the statutory demand and the petition against Hung Mau.

6.  The statement of claim alleges that as a result of the above wrongful acts, the plaintiff and Mr Ho were forced to give up their ordinary shares in Hung Mau to Chevalier in July 2004.  The plaintiff says she suffered loss because the non-voting deferred shares which she now holds are of practically no value.

The Causes of Action

7.  From the written skeleton submissions of the parties, the causes of action relied upon are the torts of:-

(1) malicious commencement of winding-up proceedings;

(2) malicious falsehood.

8.  The thrust of the defendants’ argument in this application is that the plaintiff does not have locus standi to bring this action.

(a) Malicious Commencement of Winding-up Proceedings

9.  It is common ground that the ingredients of this tort are, despite the absence of reasonable and probable cause, the tortfeasor initiated the proceedings which terminated in the claimant’s favour.

10.  The issue between the parties in relation to this cause of action is whether the liquidation proceedings, which form the basis of the tort, need to be taken against the plaintiff.  The plaintiff, relying on the following remarks in Chapman v. Pickersgill (1762) 2 Wils KB 145, submits that there is no such need:-

“Now wherever there is an injury done to a man’s property by a false and malicious prosecution, it is most reasonable he should have an action to repair himself … This action is for a tort: torts are infinitely various, not limited or confined, for there is nothing in nature but may be an instrument of mischief … ” (emphasis supplied).

11.  I disagree with the plaintiff for the following reasons:-

(a)     the above quote from Chapman was made in the context of an argument that the cause of action relied upon was not recognised by law.  As the court observed in Chapman at the beginning of the judgment: “Upon the arguing of this case, the first objection was, that this action will not lie … that no action of this sort was ever brought … ”.  The Chapman case is also cited in the textbooks in support of the proposition that the tort is recognised in law: see, for example, Clerk & Lindsell on Torts (2000) 18^th Ed., para. 16-43, text to n. 84;

(b)    the necessary elements required for the tort of malicious prosecution (of which malicious commencement of winding-up proceedings is one type) are well-known: Clerk & Lindsell, Ch. 16, especially para. 16-01, 16-43 and 16-44 onwards; see also Johnson v. Emerson (1871) LR 6 Exch 329; Gregory v. Portsmouth City Council [2000] 1 AC 419; Tibbs v. Islington Borough Council [2002] EWCA Civ 1682.  Among others, there is a requirement that the earlier proceedings (whether civil or criminal) involved the plaintiff.

12.  The plaintiff has also submitted that an analogy can be drawn between her relationship with Hung Mau and that between a partner and his partnership.  The analogy is inapt because it is trite law a company has a separate and distinct personality: Clerk & Lindsell, para. 4-78 and 4-100; Gatley on Libel and Slander (2004) 10^th Ed., para. 8.16.

(b)     Malicious Falsehood

13.  In relation to the tort of malicious falsehood, the plaintiff contends that a falsehood published against her goods is sufficient.  Reliance is placed on Clerk & Lindsell:-

“[The] essentials of this tort are that the defendant has published about the plaintiff words which are false, that they were published maliciously and that special damage has followed as the direct and natural result of their publication” (emphasis supplied) (para. 23-09);

“The false statement must concern the claimant or his property” (para. 23-10).

In the context of this action, the plaintiff’s goods would mean her shares in Hung Mau.  It is not the plaintiff’s pleaded case (nor is it otherwise argued) that the false claims against Hung Mau can somehow be regarded as false claims against her personally.

14.  The loss alleged in her pleading is not a loss arising from an alleged diminution of value of Hung Mau’s shares.  It is said to arise from the conversion of her ordinary shares to non-voting deferred shares.  But the false claims put forth were about Hung Mau’s inability to repay debts; the false claims are unrelated to the non-voting deferred shares.  Further, the direct and natural loss which may follow would be loss arising from an injury to its reputation and/or a diminution in the value of Hung Mau’s shares.  But it would not include the pleaded loss.

15.  Hence, there is a missing ingredient as well as an insufficient connection between the pleaded loss and the alleged false claims.

16.  As the defendants correctly point out, the alleged loss is not related to the so-called “reflective loss principle”: see Re Landune International Ltd., unrep., HCCW 1178/2004 (14 July 2005), para. 36 to 37; Johnson v. Gore Wood & Co. [2002] 2 AC 1, 35-36 and 62-67.

17.  For completeness, I should mention that, in the context of defamation (to which this tort is related: Gatley, para. 20.1), it appears that even for partnerships, a distinction has to be drawn between imputations against the partnership and those against individual partners: Gatley, para. 8.25.

Conclusion

18.  By virtue of the above matters, I will make an order in terms of para. 1 and 3 of the defendants’ summons.

Costs

19.  The parties have put forth their respective arguments on costs.  There is no disagreement as regards the usual rule that costs should follow the event.  There is however disagreement as regards the basis of taxation.

20.  The defendants submit that costs of this application should be taxable on indemnity basis.  The main ground being that, despite having been informed of the basis of this application before the summons was issued, the plaintiff still steadfastly pursues this action.

21.  Having considered the whole circumstance, I do not consider it appropriate to award costs on a higher basis of taxation.  Accordingly, costs of this application are to be paid by the plaintiff, to be taxed on party-and-party basis if not agreed.