XCHRX HCK CHINA INVESTMENTS LTD. AND ANOTHER v. WAH NAM GROUP LTD.

HCCW 130/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 130 OF 2000

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DECISION

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1. On 15 March 2000, I heard an application made by the petitioners in HCCW 166/2000 for me to reconsider or vary an order that I had made on Friday 10 March 2000, which order had not been perfected at the request of those petitioners made on Monday 13 March 2000.

2. At the hearing on 15 March 2000, certain statements were made from the Bar table and I gave an order for affidavit evidence to be filed. Affidavit evidence has since been filed, although not in compliance with my directions as to time. These affidavits are:

- the 3rd Affirmation of Alfred Cheung Tze Fat (for the Company) filed on 17 March 2000,

- the Affirmation of Raymond Ng Chi Hin filed on 18 March 2000 (for the petitioners in HCCW 166/2000),

- the 4th Affirmation of Alfred Cheung filed on 21 March 2000, and

- the Affidavit of David Alexander McKellar filed on 22 March 2000 (for the petitioners in HCCW 130/2000).

3. None of the parties has sought to make further submissions. After consideration of the matters submitted to me on 15 March 2000 and the contents of these affirmations/affidavit, I take the view that I should not vary my order for the reasons which follow.

The application for validation

4. In a series of hearings on 8, 9 and 10 March 2000, I heard an application by Wah Nam Group Limited ("the Company") for validation orders under s.182 Companies Ordinance.

5. In substance, there were three transactions which the Company sought to have validated. On 10 March 2000, I delivered a decision dismissing the application in respect of the transactions set out in Item (1) in the schedule attached to the Company's summons. The Company did not proceed with the application in respect of Item (3) after argument.

6. The transactions set out in Item (2) concerned a placing and subscription. Item 2(a) concerned the placing by Mr Chim Hiu Fei of 100m. shares to 36 placees. I did not validate this transaction for the reasons set out in my decision of 10 March 2000.

7. Item 2(b) concerned the issue to Mr Chim of 100m. new shares in the Company at 10 cents each, with the proceeds to be applied towards payment into Court which the Company was required to make under an Order made by Beeson J. on 17 December 1999 in HCA No. A12439/99 ("the HCA Order "), prior to the petitions being issued.

8. The Company is appealing that Order and its counsel says that for that reason, it has not sought a stay of those proceedings under s.181 Companies Ordinance. Although it is open to any creditor or contributory to apply for a stay under that section, no-one has done so.

9. In the meantime, therefore, the order is still effective and the Company has been in breach in failing to make payment.

Decision to validate the subscription and payment into Court

10. My decision delivered on 10 March 2000 has been transcribed and I would not repeat it here. By way of summary, I said I assumed that it would be to the benefit of the Company to make payment into court under the HCA Order. Court orders should be obeyed and there has been no stay of the HCA Order notwithstanding the issue of the petitions.

11. I also took into account the fact that the HCA Order was for payment into Court under Order 29 rule 13, which provides:-

" ... the amount of any interim payment ordered to be made shall be paid to the plaintiff unless the order provides for it to be paid into court, and where the amount is paid into court, the Court may, on the application of the plaintiff, order the whole or any part of it to be paid out to him at such time or times as the Court thinks fit."

12. It appeared to me, no authorities having been submitted to me to the contrary, that the requirement under that Rule that an application had to be made to Court for payment out (as distinct from a situation where a payment into Court could be immediately accepted by the plaintiffs) would be a sufficient safeguard that the money paid in would not become the property of the plaintiffs in the Action (who are also the petitioners in HCCW 130/2000).

Further submissions on application to reconsider or vary

13. On 15 March 2000, Mr Mok Yeuk-chi counsel for the petitioners in HCCW 166/2000, submitted that payment into court under O.29 r.13 was analogous to payment into court under O.14. If that were the case, the plaintiffs in the Action would become secured creditors (In re Ford Ex parte The Trustee [1900] 2 QB 211, W. A. Sherratt Ltd v John Bromley Ltd [1985] QB 1038) and therefore, would be preferred to other unsecured creditors. The court should not order validation if it would be unfair to the general body of unsecured creditors.

14. He also submitted that there was a hidden agenda to the Company's intention to make payment in, because Mr William Chan, who had previously been the single largest shareholder of the Company, was a rival claimant to the funds which the plaintiffs in the Action were claiming, and which were the subject of the order for payment into Court.

Decision

15. I take the view that I ought not, in the exercise of my discretion, to reconsider or vary the order I made on 10 March.

Secured creditors argument

16. First, I am not persuaded that payment into Court under O.29 r.13 would make the plaintiffs secured creditors. It would appear to me on the interpretation of O.29 r.13 and O.29 r.17 that the Court retains a wide discretion over funds paid into Court as interim payment.

17. Order 29 rule 17 provides that : -

"Where a defendant has been ordered to make an interim payment or has in fact made an interim payment, whether voluntarily or pursuant to an order, the Court may, in giving or making a final judgment or order, or granting the plaintiff leave to discontinue his action or to withdraw the claim in respect of which the interim payment has been made, or at any other stage of the proceedings on the application of any party, make such order with respect to the interim payment as may be just, and in particular -

(a) an order for the repayment by the plaintiff of all or part of the interim payment; or

(b) an order for the payment to be varied or discharged;

(c) ..."

[emphasis added]

18. The reference to the `discharge' of the payment must be to discharge of a payment into Court, because if the payment had been made to the plaintiffs, the order could only be for repayment.

19. The wording of r.17 is very wide. No similar rule for the discharge of payment can be found in the rules regarding payment into Court under O.22 r.1 and r.8, or O.14.

20. In making such order "as may be just", the Court would, in my view, take all relevant circumstances into account, including the fact that the defendant is a company against whom petitions to wind-up have been presented (including one by the plaintiffs in the Action) and the fact that the Action (including the order for interim payment) might have been stayed had an appeal not been lodged.

21. Accordingly, I do not think that Mr Mok's concern, that the payment of the subscription proceeds into Court pursuant to the HCA Order would make the plaintiffs secured creditors, is well-founded.

22. At this juncture, I should note that it was Mr McKellar's submission for the plaintiffs in the Action/the petitioners in HCCW 130/2000 that under the terms of the HCA Order, interim payment was to be made to the plaintiffs, with the plaintiffs then making payment into Court.

23. Paragraph 2 of the Order provides that "the 1st Defendant [the Company] do make an interim payment to the 1st and 2nd Plaintiffs in the amount of HK$24 million plus outstanding interest, such amount to be paid into Court within 21 days from the date hereof".

24. Whilst I can see that the first part of the Order refers to "an interim payment to the 1st and 2nd Plaintiffs", it is clear, for the reasons following, that this does not mean that the Company was first to make payment to the plaintiffs, and the plaintiffs were then to make payment into Court.

25. If such a 2-stage payment was envisaged, one would expect different deadlines for the 1st stage, and then for the 2nd stage. That would have to be the case because the money from the Company would have to be credited to the plaintiffs' account first before the plaintiffs made payment into Court.

26. Alternatively, if it were to be suggested that there would just be 1 payment, directly from the Company to the Court, then no purpose is served by ordering the Company to hand the draft to the plaintiffs first, and then for the plaintiffs to hand the same draft to the Court. Further, the plaintiffs' own case is that the amounts were ordered to be paid into Court because of a rival claim from Mr Chan. Mr Chan's interests would not be protected if the plaintiffs could get their hands on the money this way.

27. In my view, the reference to the "1st and 2nd Plaintiffs" was in contradistinction to paragraph 1 (where the Company was ordered to make interim payment of $6m. to the 1st Plaintiff only), to show that the interim payment of $24m. into Court was in relation to the two amounts alleged to be owed to the 1st and 2nd Plaintiffs, viz. $9m. and $15m. respectively.

Hidden agenda argument

28. In respect of Mr Mok's 2nd submission, there was no evidence to suggest that Mr Chan still has any control over the board of the Company, or that the Company is not being run with the best interests of the Company at heart. The Court cannot be asked to speculate in the absence of evidence. If the petitioners in HCCW 166/2000 have a case that the Company is not being run properly, they have remedies available to them under the Companies Ordinance, such as the appointment of a provisional liquidator. No such application, properly grounded in evidence, has been made.

29. Further, it is open to the petitioners to apply for a stay of the Action under s.181 Companies Ordinance if they consider that there are sufficient grounds for a stay. If a Court order has not been stayed, it should be obeyed.

Mr Chim's position

30. Further, I take the view that in the exercise of my discretion, it would be wrong to vary my order made on 10 March 2000 given the possible effect of any variation on Mr Chim's position.

31. The subscription was an exercise in raising funds from Mr Chim for payment into Court. There is no evidence that Mr Chim is not an independent third party dealing with the Company at arms' length. He entered into the Placing and Subscription Agreement on terms that time was of the essence.

32. One of the conditions was the Listing Committee of the Stock Exchange agreeing to grant a listing of and permission to deal in the subscription shares within 14 days from the date of the Agreement made on 28 February 2000 (i.e. by 13 March 2000) .

33. The Listing Committee was asked to grant listing and permit dealing in the subscription shares on the basis that the proceeds were to be paid into Court. After I delivered my decision on Friday 10 March, the Stock Exchange was informed of the development by the Company and a revised application, omitting reference to the intended subscription under Item (a), was received by the Stock Exchange on Saturday 11 March.

34. On Monday 13 March 2000, the application was granted by the Stock Exchange. Pursuant to the grant of the application, the certificates were prepared on 15 March and the new shares were issued and were paid for by Mr Chim on 16 March 2000.

35. Although on the morning of Monday 13 March, the petitioners in HCCW 166/2000 had written to the Court with submissions on the form of the order to be perfected, it was not until 15 March that the present application for reconsideration or variation of the order was made, although earlier dates had been offered by the Court. No application was made for a stay of the order, and transactions were effected on the strength of the order.

36. Thus the situation is that on 13 March 2000, Mr Chim had been told that the Stock Exchange had granted approval to listing and dealing, and the Exchange's approval had been made on the basis that the proceeds were to be paid into Court. If the Exchange were now to be told that the proceeds were not to be paid into Court but to a receiver (as Mr Mok suggests), it would be necessary for the Listing Committee to reconsider the matter. In those circumstances, Mr Chim might well have an opportunity to withdraw from the transaction, given the time limits agreed upon in the Subscription Agreement, which were waived only to enable the certificates to be prepared.

37. Further, funds have been made available by Mr Chim and shares have been issued. In my view, it would be wrong for the Court to unravel these transactions at this late stage, particularly when it had been open to the petitioners in HCCW 166/2000 since 4 March 2000 (when the summons was served on them) to apply to stay the proceedings in the Action if they considered payment into Court under that action to be prejudicial to them.

38. In all the circumstances, I would decline to reconsider or to vary my order made on 10 March 2000. I would make an order nisi that the costs of this application follow the costs of the application to validate, i.e. that they be costs in the cause in the Petition.