NG WAI LING v. CHAN PING FAI RICKY AND ANOTHER

HCCW 260/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 260 OF 2008

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(Heard Together)

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D E C I S I O N

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The applications

1.  There are 2 summonses before me in each of the 3 petitions presented under sections 168A and 177(1)(f) of the Companies Ordinance, Cap. 32.  The petitions were presented on 13 June 2008.

2.  The first group of summonses were issued by the 1^st respondent in each of the petitions on 15 July 2008 for an order that the entire petition be struck out on the grounds it discloses no reasonable cause of action, it is frivolous or vexatious, or that it is an abuse of the process of the court.

3.  The other group of summonses were issued by the petitioner on 9 December 2008 for leave to amend the petition.  It is not in dispute that for the purpose of the strike out app1ication, the court should have regard not just to the existing petition but also to the proposed amendments in the petition (Re Prudential Enterprise Limited [2001] 2 HKC 687 at 692D).

4.  Much evidence has been filed in these applications.  A lot of it is immaterial.  Mr Benny Lo, who appeared for the 1^st respondent, has focussed on two broad grounds to strike out the petition.  The first is a jurisdiction point.  The second is a pleading point.

5.  The undisputed facts relevant to the first point may be stated as follows.

6.  The petitioner is the daughter of Madam Ngan Sa Yeung Amy, who passed away in May 2005.  The three companies that are the subject of these petitions were formed by Amy Ngan and the 1^st respondent.  They were equal shareholders and permanent directors.  Amy Ngan had made a will on 17 June 1993 appointing the petitioner the sole executrix of her estate and bequeathing her estate to her son Ng Tin Chu and her daughter, that is the petitioner, in equal shares.

7.  The petitioner has not obtained probate as yet.  She has instructed solicitors to handle the probate matter for her.  The delay in obtaining probate was due to estate duty clearance.  There was difficulty in assessing the value of Amy Ngan’s shareholding in the three companies.  Other than that, there would appear to be no dispute as to the petitioner’s entitlement to obtain probate.

8.  Under section 168A(5), it is provided that the personal representative of a person who, at the date of his death, was a member of a specified corporation, or any trustee of, or person beneficially interested in, the share of a specified corporation by virtue of the will or intestacy of any such person, may apply to court for relief under section 168A.

9.  In respect of a winding-up petition, it is provided in section 179(1) that it may be presented by the personal representative of a contributory.

10.  Mr Lo submitted for the 1^st respondent that as the petitioner has not obtained probate, the entire petition should be struck out, alternatively the prayer for winding up in the petition should be struck out.  In the further alternative, he indicated in oral argument for the first time that the petition under section 168A should be stayed and the prayer for winding up should be struck out.  His argument ran as follows.

11.  He acknowledged the legal principle that before probate is obtained, an executor has locus to commence legal proceedings, and may continue the same as far as that step where the production of the probate becomes necessary, and that it would be sufficient if the executor obtains the probate in time for that exigency.  In that respect, the position of an executor is different from that of an administrator.  This is because the title of an executor is derived from the will, whereas the title of an administrator is derived from the grant of the letters of administration (Chetty v Chetty [1916] 1 AC 603 at 608 to 609; Redwood Music Limited v B Feldman & Company Limited [1979] RPC 1 at 5 to 6; Yeung Yuk Yin v Chiu Tat Si & Another [2006] 2 HKC 142 at 145I to 148A, paras 11 to 19;Williams, Mortimer & Sunnucks on Executors, Administrators and Probate, 19^th ed, para 8-07).  The court has a discretion to stay proceedings until probate has been taken out and a reasonable time has elapsed after probate has been submitted to the inspection of the defendant (Yeung Yuk Yin, supra. at 148B to F, paras 20 to 22; Chao Yue Wah v Mo & Company (Hong Kong) Limited, HCA No. 2326 of 2001, 5 August 2003, Recorder A. Ho, SC, paras 19 and 23).

12.  Mr Lo contended that whilst the practice in civil litigation is to stay the action until probate has been obtained, a different approach should be adopted in a winding-up petition.  This is because the company being the subject of the winding-up petition would be adversely affected notwithstanding the stay of the petition.  By virtue of section 182, any disposition of the company’s properties after the presentation of the petition shall be void unless validated by the court.  He contended it would be unjust and unfair for an executor whose title has not been proved to impose the threat of winding up indefinitely over the head of the company, as a winding-up petition carries with it a stigma and may affect the ability of the company to carry on business, such as in raising funds.  So the petition which seeks winding up as an alternative relief should be struck out instead of being merely stayed.

13.  No authority was cited by counsel for striking out a winding-up petition in this situation.

14.  There was one reported case which was against the proposition advanced by Mr Lo but not cited by counsel.  In In re Masonic and General Life Assurance Company (1885) 32 Ch D 373, Pearson J rejected the submission that a creditor’s petition to wind up a company was demurrable in that it was presented before the petitioner had obtained probate.  No winding-up order was made against the company as it had tendered payment of the debts of all creditors who were before the court, but the court ordered the company to pay the petitioner’s costs.

15.  I have no hesitation in rejecting the argument that the whole petition, or the prayer for winding up should be struck out on the above basis.

16.  The petitioner has locus to present the petitions seeking relief under section 168A and a winding-up order in the alternative.  Further, in respect of the petitions under section 168A, irrespective of the petitioner’s capacity as executrix, she is beneficially interested in the shares which formed part of her mother’s estate, and is clearly entitled to petition under that provision by virtue of subsection (5).  There is no question of dismissing or staying the petitions under section 168A.

17.  The same facts are relied on to found relief under section 168A and to wind up the company.  It would make no sense to stay the winding-up petitions in that situation.  Besides, the petitions were presented only a month before the strike out summonses were issued.  As in Yeung Yuk Yin, supra., a number of steps would still have to be taken before these petitions are ready to be set down for trial.  And unlike Chao Yue Wah, supra., there is no indication that the petitioner’s entitlement to probate would be contested.  It is only a question of time when probate would be granted to her.  If the 1^st respondent has asked for a stay of the winding-up petitions (which he has not), I would not have granted a stay of the petitions at this early stage of the proceedings when there is nothing to suggest the petitioner might not succeed in obtaining probate.

18.  If a stay of the winding-up petitions would have been refused, I cannot see how a striking out could possibly succeed.

19.  I see no reason at all why the petitioner should have applied for a limited grant of administration under section 36 of the Probate and Administration Ordinance, Cap. 10, before she presented the petitions, as suggested by Mr Lo.  The position in Re Ho Wai Man [2006] 4 HKLRD 421 cited by Mr Lo was wholly different.  The petitions have a long way to go to reach the stage when the petitioner has to prove her title as executrix.  And the petitioner can apply for a limited grant at any time if there is prospect that the petitions are to be compromised.

20.  As for the alleged prejudice that might be occasioned to the companies pending the determination of the winding-up petitions, I am inclined to agree with Mr Jenkin Suen, counsel for the petitioner, that this is much exaggerated.  All three companies have sought validation orders and such orders were made in September 2008.  They are free to draw on the bank accounts in the ordinary course of business subject to a limit per month and subject to a condition, that a weekly schedule of payments be provided to the petitioner, to safeguard her position.  These terms cannot be regarded as onerous.  The companies’ business is the holding of properties for investment and rental management.  They could apply for further validation orders if and when required, if they should wish to sell or buy properties in future.  The inconvenience occasioned is no justification for striking out the winding-up petition or the winding-up relief.

21.  I turn to the other ground for striking out.

22.  Mr Lo contended the petition has failed to plead crucial material particulars to substantiate the petitioner’s case of any quasi-partnership between her (as opposed to her mother) and the 1^st respondent, and/or any agreement or common understanding as between her (as opposed to her mother) and the 1^st respondent, that might found her complaint of loss of trust and confidence in the 1^st respondent and her exclusion from management of the companies, so that it would be just and equitable to wind up the companies.

23.  He made the point that whatever may be the relationship, agreement or understanding between Amy Ngan and the 1^st respondent when they incorporated the companies, not all rights and expectations enjoyed by a deceased shareholder are capable of being transmitted to her estate and the personal representative.  And the rights and expectations which are personal in nature or based on the exercise of personal skill and judgment would not be capable of transmission in this way.

24.  Looking at the proposed amendments in paragraphs 16 and 17 of the petition as a whole, I am satisfied material averments were made in the petition of a quasi-partnership and common understanding and agreement between Amy Ngan and the 1^st respondent that would enure for the benefit of their successors as the companies were operated like “family companies”.  It was further alleged there was a common intention between the petitioner and the 1^st respondent that the petitioner should be entitled to participate in the business of the companies in her capacity as sole executrix of her mother’s estate.  Unlike the situation where the personal representative had never been involved in the business, the petitioner had been assisting her mother in the management of the companies since mid 2000 until her mother passed away in 2005, and this was at a time when the 1^st respondent had no involvement in the business.  Further, the petitioner was appointed a director of each of the companies by the 1^st respondent in December 2005,and it was only in January 2008that he sought to remove her as a director.  There would appear to be substantial involvement of the petitioner in the management of the companies for seven years.

25.  Whether the allegations of the petitioner regarding quasi-partnership and common intention can be made out is a matter for trial.  At the very least, I do not think it is plain and obvious on the existing evidence that these averments are bound to fail, notwithstanding the 1^st respondent’s evidence to the contrary and the submissions made on his behalf.

26.  Furthermore, as pointed out by Mr Suen, there are other complaints in the petitions that are not premised on quasi-partnership or common understanding or intention that the petitioner should participate in the management of the companies.  Those complaints, if established, would also found a petition to wind up the companies on just and equitable ground and for relief under section 168A.  It was alleged that the 1^st respondent operated his own company in the same construction related wall panelling business in 1993 that one of the subject companies’ was engaged in in the late 1980s; that there were three properties held by the 1^st respondent on trust for one of the companies and the 1^st respondent has sought to misappropriate these properties as his own; that he had borrowed $180,000 from one of the subject companies in March 2003which he did not repay.  There are additional allegations in the proposed amendments to the petition regarding wrongful reimbursement of entertainment and travelling expenses, and excessive remuneration to the 1^st respondent as a director and to his assistant.  I agree if one or more of these allegations of misconduct or breach of fiduciary duty are established, they may form the basis for winding-up relief or for relief under section 168A.

27.  I also rule against the 1^st respondent on the second broad ground for striking out.

28.  The app1ication for striking out is dismissed.  I order the 1^st respondent to pay two-thirds of the petitioner’s costs of the strike out application in any event.

29.  I allow the petitioner’s app1ication to amend each of the petitions as per the draft annexed.  The petitioner is to file and serve an amended petition in each of the proceedings within 7 days hereof with a verifying affirmation.  The costs of and occasioned by the amendment are to the respondents in any event.