WANG ZHENPING AND ANOTHER v. CHAMPION FINE INVESTMENT LTD AND ANOTHER

HCMP 2647/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2647 OF 2004

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BETWEEN

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HCA 200/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 200 OF 2005

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REASONS  FOR  DECISION

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Introduction

1.  HCMP 2647/2004 is a petition commenced pursuant to s. 168A, Companies Ordinance (Cap. 32) (“the petition”) seeking relief against the respondents (one of whom is the company) on the ground of unfairly prejudicial conduct.  HCA 200/2005 (“the High Court action”) is a claim that the shares now registered in the name of the petitioners (who are named as the defendants in the High Court action) (“the defendants”) are in truth held on trust for the 2^nd respondent (named as the plaintiff in the High Court action) (“the plaintiff”).

2.  This “reasons for decision” is concerned with the summons taken out by the defendants seeking the consolidation of the two proceedings.  At the end of the hearing, I granted an order as proposed by the plaintiff (with amendments) indicating that the reasons for doing so would be handed down later.  They are as follows.

3.  Ord. 4 r.9(1) provides:-

“Where two or more causes or matters are pending, then, if it appears to the Court-

(a) that some common question of law or fact arises in both or all of them, or

(b) that the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or

(c) that for some other reason it is desirable to make an order under this rule,

the Court may order those causes or matters to be consolidated on such terms as it thinks just or may order them to be tried at the same time, or one immediately after another, or may order any of them to be stayed until after the determination of any other of them”.

As stated in Hong Kong Civil Procedure 2006, para. 4/9/2, the main purpose of the power to consolidate conferred by the rule is to save time and costs.

4.  It is undisputed that one issue is common to both proceedings: whether the shares in the company now registered in the defendants’ names are in fact owned by them, or are merely held on trust for the plaintiff (“the trust issue”).  The trust issue in turn depends on whether the defendants have paid for those shares.  The plaintiff pleads that those shares have to be paid for by cash (but have not in fact been paid for) whereas the defendants claim that, by virtue of a shareholders’ agreement entered into in 1994, they have paid for those shares by way of payments or other contributions to the subsidiaries of the company.  Those payments or contributions occurred between 1992 and 1997.

5.  It is also undisputed that there is an additional issue in the petition: whether the plaintiff has been guilty of unfairly prejudicial conduct during the period from 1999 onwards (“the unfair prejudice issue”).  The plaintiff allegedly misappropriated assets belonging to the company and ousted the defendants from participating in the management of the company (which allegedly was in the nature of a qusi-partnership).

6.  The defendants, in support of their summons, submitted that the appropriate order is the consolidation of the two proceedings.  This is because:-

(1) the High Court action is in essence nothing more than a counterclaim in the petition;

(2) both the trust issue and the unfair prejudice issue will involve an assessment of witnesses’ credibility and findings of fact.  Consolidation will prevent the risk of inconsistent findings by two courts;

(3) the petition has progressed to a more advanced stage than the High Court action (affirmations have already been filed and served).  Pleadings have only just closed in the High Court action;

7.  The plaintiff agreed with the contention set out in para. 6(2) above to the extent that it is desirable to prevent the trust issue from having to be tried by more than one court.  However, he contended that the more efficient way of proceeding is to order the High Court action to proceed first while the petition be stayed in the meantime (or further order, whichever is the earlier).  The advantage of taking this course instead of the proposed consolidation is that the High Court action can be disposed of faster because it involves only the trust issue.

8.  The plaintiff also argued that the other “advantages” contended for by the defendants only have superficial attraction.  First, it is unhelpful to label the High Court action as “a counterclaim”; the important point is what course of further conduct is more efficient.  Secondly, although affirmation evidence has already been filed in the petition, with the common use of computer-based word processing software nowadays, it does not take much time or costs to extract the relevant parts from the affirmations for the purpose of preparing witness statements for use in the High Court action.  Finally, once a finding has been made in the High Court action regarding the trust issue, there will be an issue estoppel regarding that issue between the plaintiff and the defendants in the petition.  If the trust issue is in the plaintiff’s favour, there will in fact be no need to proceed with the petition.

9.  In short, I agree with the plaintiff’s above arguments and disagree with the defendants’ above submissions.

10.  For completeness, the other directions given in the High Court action at the end of the hearing were:-

(a) there be discovery of document by way of lists of documents within 28 days from the date of order and inspection of documents within 7 days thereafter;

(b) parties do have leave to file and serve signed statements of witnesses as to fact within 28 days after inspection of documents.  Such statements are to stand as evidence-in-chief unless the trial judge otherwise directs;

(c) the application for setting down the High Court action for trial be adjourned sine die with liberty to restore before the listing master.