BOOMAN AUTOMOBILE & METAL LTD AND OTHERS v. JAW SIU WAH

DCCJ3272/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3272 OF 2011

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DECISION

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1.  On 5 November 2012, Master KK Pang entered summary judgment in favour of the plaintiff for the sum of HK$239,895 together with interest thereon, and dismissed the amended counterclaim. The defendant now appeals against that adjudication.

2.  The plaintiffs’ case on summary judgment is that the defendant is liable to pay the licence fees in arrears:-

(1)  as a licencee of the 1^st plaintiff; and

(2)  pursuant to a contractual duty owed to the 2^nd to 17^th plaintiffs under Shareholders’ Agreement to give effect to the decisions of the board of directors of the 1^st plaintiff.

The striking out application is a contractual claim against the 1^st plaintiff for breach of contractual duties under the Agreements.

3.  The 1^st plaintiff was incorporated in 1979.  The 2^nd to 17^th plaintiffs are the current registered shareholders of the 1^st plaintiff.  On 25.7.1979 by an agreement (“the Heads of Agreement”) entered into amongst the 19 shareholders (including the defendant) of the 1^st plaintiff they agreed to contribute money to the 1^st plaintiff for the purchase of Sub-section 1 of Sections A-C Lot T37 in Demarcation District No 76 (“the Land”).  It was further agreed that after acquiring the Land, the 1^st plaintiff would licence the Land to the parties of the Heads of Agreement.  The 1^st plaintiff acquired the Land on 30.8.1979 and on 4.6.1982 the shareholders of the 1^st plaintiff entered into a shareholders agreement (“the Shareholders Agreement”) which sets out a scheme under which the Land would be divided amongst the shareholders to carry on their respective business operation.  It regulates the duties and obligations amongst the shareholders of the 1^st plaintiff.  It conferred upon the board of directors of the 1^st plaintiff full power to manage the Land.  It provides that it is a duty of each shareholder of the 1^st plaintiff to give effect to the decisions of the board of directors of the 1^st plaintiff.  The above-said agreements are hereinafter referred to as the Agreements. 

4.  Pursuant to the Agreements, the 1^st plaintiff licensed various parts of the Land to its shareholders in early 1980.  An area of about 10,000 sq ft (“the Assigned Area”) was licensed to the defendant.  On 11.1.1980, the 1^st plaintiff obtained from the Government a temporary waiver which permitted the Land to be used for business purposes.  The 1^st plaintiff has been paying to the Government waiver fees payable under the waiver.  The 1^st plaintiff has no other source of income.  On 18.1.1980, by a board resolution (endorsed by the defendant as a director and shareholder of the 1^st plaintiff), the 1^st plaintiff decided to levy fees from the licensees of the 1^st plaintiff in proportion to the area of the Land they occupied.  Since then the 1^st plaintiff has been levying fees upon its licensees and the unit price of the fees were adjusted from time to time, in accordance with the inflation of its expenses.  The defendant paid his share of licence fees levied by the 1^st plaintiff from 18.1.1980 to 31.10.2003.  But it refused to pay any licence fee thereafter.  The defendant admitted that he was allotted the Assigned Area by the 1^st plaintiff pursuant to the agreements, that he had been occupying the Assigned Area all along, and that he had been paying licence fees until 31.10.2003.

5.  The defence counsel submits that the 1^st plaintiff has no locus standi to sue pursuant to the Agreements because it is not a party to the Agreements.  The licence to the defendant was not granted on a contractual basis.  There is no contract between the 1^st plaintiff and the defendant in relation to the payment of the licence fee.  Hence there is no basis for the 1^st plaintiff to claim the alleged licence fee against the defendant.

6.  The claim of the 1^st plaintiff against the defendant is not pursuant to the Agreements, but made on the basis that it is the owner of the Land.  The 1^st plaintiff is the owner of the Land.  This is evidenced by Clause 7 of the Heads of Agreement which provides:-

“After the purchase of the land each party shall be given a licence by the Company to use an approximate area of land as set out in the said schedule hereto.”

Under paragraph 4(1) of the Amended Defence and Counterclaim, the defendant admitted that the Land was acquired by the 1^st plaintiff on or about 30.8.1979.  Being the owner and the licensor of the Land, the 1^st plaintiff is entitled to charge licence fees from its licensees.  Therefore it has the locus standi to institute these proceedings.

7.  The defence counsel further submits that by virtue of clauses 4 and 7 of the Heads Agreements and recital 4 and clause 1 of the Shareholders Agreement, his licence to occupy the Assigned Area was not subject to any obligation to pay the licence fees.  But the 1^st plaintiff is not a party to the Agreements. The provisions of the Agreements are not binding on him.  Hence this argument submission must fail.

The claim of the 2^nd to 17^th plaintiffs

8.  The 2^nd to 17^th plaintiff is seeking a declaration that the defendant is obliged to pay the loss to the 1^st plaintiff and an order that the defendant do so.  The cause of action against the defendant is based on the Agreements.  Sub-clauses (1), (2) and (6) of Clause 4 of the Shareholders Agreement conferred upon the Board of Directors of the 1^st plaintiff full power to manage the Land and impose a duty on each party of the Shareholders’ Agreement to give effect to the decisions of the Board of Directors from time to time.  The 2^nd to the 17^th plaintiffs and the defendant are parties of the Shareholders Agreement.  Hence the 2^nd to the 17^th plaintiffs are entitled to claim against the defendant for breach of such duty.

9.  The defendant argues that he is only liable to pay the administrative fees and indemnity under clause 9 of the Shareholders Agreement.  Clause 9 provides:-

“The parties hereto hereby agree that each will use his allotted portion of the said Land for lawful business operation in accordance with the terms of the Crown Lease and such modification thereof. In the event of any Government Department giving notice that an operation is unlawful then the party of such operation shall immediately cease operation and abide by the conditions and directions of such notice …… Each party herein shall at all times keep the Company indemnified against all costs, proceedings, claims, fines which may arise out of the party’s operation on his respective alloted portion of the said land”

Clause 9 concerns the use of the allotted portion of the Land for lawful business operation in accordance with the terms of the Crown Lease and the indemnity of payment which may arise out of the party’s operation on his alloted portion of the Land.  It is not related to the charging of licence fees.  It does not touch on the scope of the defendant’s obligation to make payments of licences.

The striking out application

10.  The defendant’s counterclaims is for overpayments that he made between 18.1.1980 to 31.10.2003.  The counterclaim was instituted on 23.11.2011, exceeding the 6 years limitation stipulated under section 4(1) of the Limitation Ordinance.  Therefore this claim is statute-barred.  In any event the 1^st plaintiff is rightly entitled to charge the licence fees on the Assigned Area.  Hence there cannot be any overpayment made by the defendant.

11.  The defendant pleaded that he was entitled to an injunction and damages by breach of the Agreements on the part of the 1^st plaintiff for allotting part of the Assigned Area which belongs to an adjacent land.  The 1^st plaintiff is not a party to the Agreements.  Therefore there cannot be any breach of the Agreements on the part of the 1^st plaintiff.  The claim for an injunction must therefore fail.

12.  The counterclaim cannot never succeed; hence it must be struck out.

13.  For all these reasons this appeal must be dismissed.

Costs

14.  I make an order nisi, to be made absolute in 14 days’ time, that the defendant do pay the plaintiffs the costs of this application, to be taxed, if not agreed, with certificate for counsel.