XCHRX ALLSON CLASSIC HOTEL (HK) LTD. v. HARVEST STAR INTERNATIONAL LTD.

1995, No. CL106

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

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J U D G M E N T

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1. This is an application by Mr. Kenneth Kwok of Queen's Counsel and Miss Susan Kwan on behalf of Harvest Star International Limited to strike out the Amended Points of Claim on the grounds that they disclose no reasonable cause of action against the Defendant and/or that they are frivolous, vexatious and an abuse of the court.

2. The Defendant is being sued in Commercial List No. 106 by Allson Classic Hotel (HK) Limited in proceedings which arise essentially out of a management agreement(s) relating to the Ramada International or Ramada Renaissance Hotel.

3. Various actions have been commenced and some have been stayed at some time or other, in Hong Kong and Hawaii, involving the successive holders or assignees of the benefits and/or burdens under the agreement. Two actions have been consolidated.

4. The Defendant company acquired the hotel in question in July 1994 from Abundance one of the parties to the various actions. Notice of the transfer of business was published in the Gazette and in various newspapers to comply with section 5 of Cap. 49, the Transfer of Businesses (Protection of Creditors) Ordinance, on the 20th May 1994.

5. By section 4(1) of the Ordinance, the notice would have become complete one month after the last publication in the notice i.e. 20th June 1994. The transfer took place, I am told, on the 8th July 1994. In those circumstances the transferee of the business, the Defendant, would have ceased, to be liable "for all the debts and obligations" of the transferor.

6. However this exemption from liability is subject to the circumstances set out in section 4 subsection 5. It is sub-subsection (a) which is the operative one since no proceedings were commenced against the Defendant until almost one year later, viz. 30th June 1995 - the transfer was on the 8th July.

7. Subsection (a) reads "if proceedings are instituted against the transferor in respect of any liability of the transferor arising before such notice has become complete and out of the carrying on of his business", the notice shall be deemed incomplete. Proceedings were commenced against the transferor on the 17th June 1994 i.e. before the notice was complete. These were Hong Kong Commercial List 108. There were also proceedings in existence against the transferor in Hawaii. There were other proceedings in existence in respect of which "the final determination" had not been made. Furthermore subsection 6 had been complied with in respect of all such proceedings.

8. In the light of this subsection (5)(c) it is clearly arguable that the notice of the transfer is incomplete and therefore the transferee not free from liability.

9. I am bound to say I have some sympathy for the Defendant, Mr. Kwok having very helpfully and attractively presented the issues against the background of a detailed chronology. The Plaintiffs could have made the Defendant a party to CL 108, commenced by writ on the 17th June 1994. Not having done that, but having nevertheless notified the Defendant of the proceedings (CL 108) against Abundance, by letter of the same date and of the Hawaiian proceedings in respect of which they said, if Allson was successful, then the Defendant would be liable, they did not then commence proceedings for almost another year. The delay is curious and given the history of this cause of action, surprising.

10. I am satisfied that the notice itself is in order. Clearly "date of transfer" in the notice includes "intended date" of transfer - see interpretation section 2. Furthermore to the extent that section 9 (limitation of time for institution of proceedings) falls to be considered, the "date on which the transfer in respect of which the liability arose, took effect" must refer to the 8th July 1994, the actual date of transfer, not the 1st August the "intended date of transfer". The operative words "date on which the transfer ... took effect" can mean only the 8th July 1994.

11. Having said that I have to remind myself that it is not for me to judge the merits of the action or to examine closely whether the cause of action falls within the terminology of the Ordinance, or conduct a preliminary hearing of this action. The construction of the Ordinance, particularly of sections 3(1), 4(1), 4(4), (5), (6) and 9 call for argument and close consideration. They are not so unarguably clear or unequivocal in relation to the issues as to support the Defendant's contention. And the Plaintiff's case is essentially for a declaration under the Ordinance that the Defendant is liable to it as transferee of the hotel business. The authorities are however, very clear as to the criteria I should adopt in considering an application which seeks to halt a Plaintiff, even a dilatory Plaintiff in his tracks and I have had regard particularly to the paragraphs headed "Exercise of powers under order 18 r. 19 of the R.S.C. (18/19/7)" (2nd, 3rd and 4th paragraphs) which I do not need to set out.

12. Nor do I consider that the proceedings are "obviously frivolous or vexatious and unsustainable, or an abuse of the process of the court." I do not think it proper, having made the findings above, to indulge in some piece meal striking out of various parts of the Amended Points of Claim. Individually I am satisfied that they do not in any event meet the description accorded to them in the summons. These are matters to be dealt with at trial. If they cannot be sustained and are found to be wild or vexatious then there are remedies in costs available to the Defendant at the discretion of the trial judge.

13. Accordingly I dismiss this application with costs to the Plaintiff in any event.