GOLDEN EASY INVESTMENTS LTD v. GLOBAL WAY ENGINEERING LTD

LDPE 1416/2024

[2024] HKLdT 88

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPE 1416 OF 2024

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BETWEEN

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JUDGMENT

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Background

1.  By a Notice of Application (Form 22) filed to the Lands Tribunal (“the Tribunal”) on 3 September 2024, the Applicant sought recovery of possession of Room 1713, 17/F, Wellborne Commercial Centre, 8 Java Road, North Point, Hong Kong (“the Property”) on the ground that a tenancy of the Property granted to the Respondent had expired on 31 August 2024 (“the 2022 Tenancy”) and that in addition, the Respondent had failed to pay the rent reserved in the 2022 Tenancy for the period since 1 May 2024.

2.  The 2022 Tenancy referred to was attached to the Notice of Application. It was in Chinese and dated 11 August 2022 whereby the Applicant let the Property to the Respondent for a term of two years commencing from 1 September 2022 to 31 August 2024 at a monthly rent of $11,000 inclusive Government rent, rates and management fees. Also, according to clause 2 of the tenancy, when the tenancy was due to expire, if the tenant wished to continue, terminate or renew the tenancy, it should serve one month’s prior notice; otherwise, the tenant should compensate the landlord by one month’s rental.[1]

3.  Attached to the Notice of Application are further grounds in support of the Application:

(1) The 2022 Tenancy had reserved a monthly rental of $11,000 and the tenancy expired on 31 August 2024. The Applicant had given written notice on 27 August 2024 to the Respondent that it had breached the 2022 Tenancy by being in rental arrears as the Respondent only paid $8,000 per month, ie less than the full rent for 4 months (May 2024 to August 2024), an underpayment of rent of $12,000.

(2) The Applicant on 12 July 2024 made written enquiry of the Respondent on whether it wished to renew the 2022 Tenancy. The Respondent did not provide one month’s written notice of its intention to renew the tenancy by 30 July 2024 as required pursuant to the 2022 Tenancy.

(3) The Respondent informed the Applicant on 14 August 2024 that it had signed a new tenancy agreement dated 14 June 2024 for a period from 1 July 2024 to 30 June 2026 (“the 2024 Tenancy”). The Applicant requested a copy of the 2024 Tenancy and informed the Respondent that the Board of Directors of the Applicant did not give any consent to the signing of the new tenancy and as such it was not valid and legally binding on the Applicant. The Applicant requested the Respondent to provide vacant possession of the Property on or before 31 August 2024.

(4) The Applicant provided further written notice to the Respondent on 20 August 2024 to provide vacant possession on or before 31 August 2024 and requested a copy of the 2024 Tenancy.

(5) The Respondent provided the Applicant with a copy of the 2024 Tenancy on 24 August 2024 which was signed by Fung Sau King (who is hereinafter referred to as “Auntie Daisy”), a director of the Applicant but also the mother of the sole director of the Respondent, Mr Kimmy Wong (who is hereinafter referred to as “Mr Wong”). The monthly rental reserved in the 2024 Tenancy was $8,000 which was $3,000 less than that reserved in the 2022 Tenancy, and less than the prevailing market rent of $11,000 per month. The Applicant provided further written notice to the Respondent on 27 August 2024 that the Respondent had breached the 2022 Tenancy by being in rental arrears and not paying the full rent on the due date each month for the months of May to August 2024, the Board of Directors did not provide prior consent to the 2024 Tenancy and as such it is not valid and legally binding on the Applicant. The Applicant requested the Respondent to deliver vacant possession of the Property on or before 31 August 2024, and to pay the unpaid rent of $12,000[2] on or before 31 August 2024.

4.  On 10 September 2024, the Respondent filed a Notice of Opposition. In gist, it stated that the 2022 Tenancy was superseded or renewed by the 2024 Tenancy entered on 14 June 2024 for the renewal term from 1 July 2024 to 30 June 2026 at a monthly rent of $8,000, with a rental deposit in the sum of $16,000. As a result, the rental deposit under the 2022 Tenancy in the sum of $22,000 was transferred to the 2024 Tenancy, with the remaining balance of $6,000 applied towards the rent for May and June 2024 (ie $3,000 each month). “Therefore, the Respondent was only required to pay the balance rent of $8,000 per month (ie $11,000 - $3,000) for May and June 2024.”

5.  The Respondent averred that Auntie Daisy, being a director of the Applicant, had actual, apparent or ostensible authority to enter into the 2024 Tenancy for and on behalf of the Applicant:

(1) Auntie Daisy was and still a director of the Applicant at all material times;

(2) Auntie Daisy signed and affixed the Applicant’s company chop on all the tenancy agreements of the Property (including but not limited to the 2022 Tenancy and the 2024 Tenancy) for and on behalf of the Applicant as the landlord with the Respondent as the tenant since 2017;

(3) There is no provision in the Articles of Association of the Applicant precluding the director, ie Auntie Daisy, from entering into a tenancy agreement for and on behalf of the Applicant;

(4) The Applicant never raised any issue with the tenancy agreements of the Property signed by Auntie Daisy including the 2022 Tenancy. The board of directors of the Applicant permitted Auntie Daisy to sign all the previous tenancy agreements and act in the management or conduct of the Applicant’s business, thereby representing to the Respondent that Auntie Daisy had the authority to enter on behalf of the Applicant a tenancy agreement of the Property;

(5) If, which was not admitted, Auntie Daisy had no actual authority from the board of directors to enter into any tenancy agreement of the Property, the Respondent was induced by such representation above to enter into the 2024 Tenancy.

Structure of the Applicant

6.  When the hearing began on 3 October 2024, Mr Chu, Dennis Hon Wing (hereinafter referred to as “Mr Chu Junior”), on behalf of the Applicant, tried to explain the internal structure of the Applicant in the following.

7.  The Applicant was incorporated on 27 May 1993 primarily to own/hold the Property which was purchased on 21 January 1994. The purchase money came from the inheritance Mr Chu Junior’s father (“Mr Chu Senior”) received from his parents. In late 1990s, Mr Chu Senior transferred the whole 4 shares of the Applicant to Mr Chu Junior, his sister (“Adeline”) and Auntie Daisy who was Mr Chu Senior’s second wife:

Shareholder:	Mr Chu Junior	Adeline	Auntie Daisy
No of Share(s):	1	2	1

8.  The Property has been the only asset of the Applicant and had been rented out since 1994 when Mr Chu’s Senior took all the rental income after the company business expenses were paid.

9.  During that period, Mr Chu Junior admitted that he and Adeline did not get involved in the management of the Applicant or the renting out of the Property because they treated the latter as Mr Chu Senior’s property. Mr Chu Junior alleged that Mr Chu’s Senior was the key decision maker.

10.  Mr Chu Junior also suggested that the rental income from the Property formed a significant part of the total income for Mr Chu’s Senior and Auntie Daisy to support their daily expenses.

Death of Mr Chu’s Senior

11.  However, Mr Chu’s Senior had a fall in July 2023 and owing to complications subsequent thereto, Mr Chu’s Senior was admitted to hospital and eventually passed away on 9 April 2024. Mr Chu Junior alleged that he himself, Adeline, Auntie Daisy, Mr Wong and other family members attended Mr Chu’s Senior funeral on 3 May 2024.

12.  According to Mr Chu Junior, Adeline contacted Raymond Tong (“Raymond”), the Applicant’s company secretary, in April 2024 suggesting a meeting on 3 May 2024 at which Mr Chu Junior and Adeline asked Raymond to find a solicitor in Hong Kong to assist in the sale of the Property and the winding up of the Applicant so as to simplify the ongoing arrangements (because Mr Chu Junior and Adeline have been residing overseas). Whereas Mr Chu Junior found it difficult to get hold of Auntie Daisy as she rarely picked up calls, Raymond agreed to assist in communicating with Auntie Daisy in relation to the above especially when they can communicate in Cantonese[3]. Mr Chu Junior and Adeline suggested also to Raymond that prospective buyers of the Property prefer buying properties that are vacant as the prospective buyers are more likely to be purchasing for their own use rather than as an investment. Vacant premises also allows the real estate agents easier access to show it to prospective buyers.

13.  As informed by Raymond, Auntie Daisy met Raymond on 11 June 2024 and was given notice that:

(1) Mr Chu Junior and Adeline would take over the management of the Applicant (when they together owned 75% shares);

(2) Mr Chu Junior and Adeline planned to sell the Property and wind up the Applicant.

14.  According to Mr Chu Junior, the following were discussed in the meeting:

(1) Board Resolution – it was resolved that Mr Chu Junior and Adeline be authorized signatories of the DBS bank account where the rental income from the Property was paid into and Auntie Daisy be removed as authorized signatory. Raymond wrote in an email[4]:

“I believe she understands that she is in the minority and it is natural that the majority should have control.”

- Auntie Daisy knows she no longer has control of the Applicant.

- Auntie Daisy knows that any major decisions requires board approval, having been explained the purpose of the written resolution of all the directors – so she know she can’t make unilateral decisions about signing a new tenancy agreement, otherwise in breach of Clause 15 of the Applicant’s Articles of Association.

(2) Sale of the Property – Auntie “Daisy is agreeable to sell the Property”.

(3) Existing tenancy – “Daisy advised that there is a stamped tenancy agreement signed between the parties whereby the tenancy commenced 6/1/2022 and will expire around July 2024.[5]” Raymond asked Auntie Daisy “to give him a copy”.

(4) Director’s Salary – it has been the practice when Mr Chu Senior was there that a sum of $8,000 would be drawn from the Applicant’s account as their living expenses and the same would be recorded as the director’s salary of Auntie Daisy.

(5) Future Tenancy – “I have told Auntie Daisy that when the current tenancy expires in July 2024[6], the negotiations for a new tenancy between the landlord and the tenant should be conducted between Dennis[7] and Mr Wong, and she should keep herself away from this matter to avoid a conflict of interest.”

- Auntie Daisy was specifically told not to negotiate a new tenancy agreement with her son to avoid a conflict of interest.

- But instead, she did the opposite and signed on behalf of the Applicant a new tenancy agreement (ie the 2024 Tenancy) with her son 3 days later, without authorization from the Board.

(6) Accounting documents – Raymond “asked her to locate all the accounting documents, including the latest tenancy agreement and bank statements, and passed them to Joyce (CPA firm) so that she can prepare the updated audited accounts.”

They asked Auntie Daisy (through Raymond, Joyce and directly) for the current tenancy agreement, but did not receive the 2022 Tenancy until 2 August 2024, ie over one and a half months after they first requested a copy.

(7) Common seal of the Applicant – Raymond “asked Daisy for the Common Seal but she has no knowledge of the Whereabouts.”

- Despite being asked to return the Common Seal to the Company as Auntie Daisy knows she no longer has control, and having stated she has no knowledge of the Whereabouts, she used the company seal on the 2024 Tenancy 3 days later, without the board’s authority, and breaching Clause 20 of the Applicant’s Articles of Association on the use of the Company Seal.

Submission of Mr Chu Junior

15.  Mr Chu Junior agreed that, as stated by the Respondent in the Notice of Opposition, it had been a tenant of the Property since 2017. Mr Wong of the Respondent is the son of Auntie Daisy and rented the Property because of the mother and son relationship between them. Mr Chu Junior submitted therefore the Respondent is not an independent third party in renting the Property from the Applicant. It is particularly dubious that Auntie Daisy and Mr Wong entered into the 2024 Tenancy three days after Auntie Daisy’s meeting with Raymond.

16.  Mr Chu Junior submitted further that Mr Chu Senior had always been the key decision maker. According to him, Mr Wong knows quite well that Auntie Daisy did not in the past make decisions on rent and tenancy unilaterally. As the rental income from the Property bears a significant portion of Mr Chu Senior’s and Auntie Daisy’s income, Mr Chu Senior would not have agreed to a rent at below market rent. Mr Chu Junior submitted that this is evidenced by the fact that the 2022 Tenancy was at $11,000 which should be the prevailing market rent as well.[8] The rental income is the only income of the Applicant.

17.  Mr Chu Junior also submitted that the timing of Auntie Daisy signing the 2024 Tenancy on behalf of the Applicant three days after being told not to do so is dubious:

(a) The rent of $8,000 per month is $3,000 (or 27%) less than the previous rent of $11,000 and is less than the current market rent.

(b) The 2024 Tenancy was signed 2.5 months before the expiry of the 2022 Tenancy which ended on 31 August 2024.

(c) The 2024 Tenancy was signed at a time when Mr Wong had known that Mr Chu Senior passed away and Mr Chu Junior and Adeline were taking control of the Applicant for the purpose of selling the Property.

(d) Auntie Daisy and Mr Wong are not independent 3^rd parties in the 2024 Tenancy arrangements. The first tenancy was initiated through the mother/son relationship, just like the act of the signing the 2024 Tenancy on 14 June 2024.

(e) There is nothing normal about Auntie Daisy and Mr Wong signing the 2024 Tenancy, and it is certainly inconsistent with past practice.

(f) Mr Chu Junior had emailed Mr Wong on 12 July 2024 enquiring whether he wanted to renew the 2022 Tenancy. Mr Chu Junior did not receive any response until 14 August 2024 where Mr Wong advised that he had signed the 2024 Tenancy on 14 June 2024. Mr Chu Junior submitted that it is very unusual for a tenant to ignore the landlord’s multiple correspondences about tenancy renewal, followed by registered letters and further email asking the tenant to provide vacant possession at the end of the tenancy, unless he knew that his mother does not have authority to sign the new tenancy agreement. According to Mr Chu Junior, a normal tenant, if it was at arm’s length relationship with the landlord, would simply reply to the first email that he had already signed a new tenancy agreement.

(g) Mr Wong is aware that his mother does not have any actual or apparent authority to sign a new tenancy agreement.

(h) The statement in the Notice of Opposition that the 2022 Tenancy “was superseded or renewed by a new tenancy agreement entered on 14 June 2024 for the renewal term from 1^st July 2024 to 30^th June 2026” contradicts Auntie Daisy’s statement that “when Robert[9] was there, due to the bad economic conditions, he agreed with Mr Wong that the monthly rent can be reduced to $8,000 starting May 2024.” Mr Chu Junior submitted that Mr Chu Senior would not have agreed to a $3,000 reduction of the monthly rent (and $3,000 below market), in the times when he was of sound mind. More importantly, Mr Chu Senior had been staying in a nursing home due to a stroke and he was not of sound mind to make such a decision.

18.  Mr Chu Junior alleged further irregularity arising from the rental arrangement in May and June 2024. He submitted that the rent for May and June 2024 were due on the 1^st day of the month whilst the 2024 Tenancy was signed on 14 June 2024. There was no legal or contractual basis for the tenant to pay $8,000 per month (instead of $11,000 as reserved in the 2022 Tenancy). Additionally, there are no terms in the 2024 Tenancy that state the Respondent was allowed to pay $8,000 for May and June, and to use $6,000 from the deposit to pay the rental for May and June 2024. There is no evidence that this was agreed at all.

19.  Mr Chu Junior summarized his position as follows that Mr Wong has actual and apparent knowledge that Auntie Daisy had no authority to sign the 2024 Tenancy:

(a) The 2024 Tenancy signed on 14 June 2024 was without approval from Mr Chu Senior following his death which was a material change in circumstances that Mr Wong knew. Signing a new tenancy agreement without Mr Chu Senior’s approval was inconsistent with past tenancies. Auntie Daisy was taking unilateral action without any express authority from the board.

(b) Signing the 2024 Tenancy 1.5 months before the end of the 2022 Tenancy was not only unusual but also inconsistent with Mr Wong’s past practice.

(c) The Respondent replied that it had paid $8,000 in rent since May 2024 but Auntie and Mr Wong’s stories as to when the 2024 Tenancy started were inconsistent. They did not know Mr Chu Junior for the Applicant would pursue this issue in the Tribunal and so the Grounds for Opposition were being twisted to fit the facts. On 11 June 2024, Auntie Daisy could not say the 2024 Tenancy was starting in July 2024 as they had not signed the 2024 Tenancy at that time, but Mr Wong for the Respondent had been paying $8,000 since May 2024, so they needed to find a reason. But deducting $6,000 from the deposit paid under the 2022 Tenancy breached that agreement’s expressed term.

(d) Mr Chu Junior and Raymond had asked Mr Wong about the renewal of tenancy on 12 July 2024 but he did not receive a response until 14 August 2024 (which was over 1 month thereafter).

(e) Mr Chu Junior and Raymond had asked Auntie Daisy for the 2022 Tenancy since 11 June 2024 but they did not receive a copy of the tenancy until 2 August 2024 (which was 2 months later).

(f) The lacking and delay in response from the son and mother showed that they knew the 2024 Tenancy was not approved by the board and Auntie Daisy had acted unilaterally without any approval.

Respondent’s Submission

20.  Mr Tang Tim Sik (“Mr Ng”) of Messrs Ng & Co, Solicitors acted on behalf of the Respondent. He repeated that in the captioned case, the thrust of the dispute is whether the Respondent can rely on any actual, apparent or ostensible authority of Auntie Daisy to enter into the 2024 Tenancy for and on behalf of the Applicant. Whereas the Respondent had been the tenant of the Property since 2017, all the previous tenancy agreements were signed by Auntie Daisy on behalf of the Applicant. He emphasized that Mr Wong was a third party outsider of the Applicant so that notwithstanding Mr Chu Junior mentioned all the internal affairs of the Applicant, Mr Wong had nothing to do with it save that he is the son of Auntie Daisy. Mr Wong is not a shareholder or director of the Applicant.

21.  Mr Ng submitted that from Mr Wong’s prospective, when the Applicant offered the Property for him to rent, Mr Wong entered into the 2024 Tenancy just as a normal course of business. One cannot imputed any knowledge of the internal affairs of the Applicant to Mr Wong. Particularly, Auntie Daisy was and is still a director of the Applicant. Mr Wong would not be in a position to know whether any necessary resolution, if required, has been passed, or properly passed.

Discussion

22.  As submitted by Mr Ng, there are a lot of allegation or hearsay evidence in Mr Chu Junior’s submission. However, after taking instruction from the Respondent, Mr Ng was prepared not to cross-examine Mr Chu Junior or call any witness to rebut Mr Chu Junior’s submission or allegations. Thus, by virtue of section 10(6) of the Lands Tribunal Ordinance, Cap 17, the Tribunal may admit in evidence any statement, document, information or matter, whether or not it would otherwise be admissible in evidence and attach such weight to it as may be appropriate in the circumstances.

23.  I consider the application of this section most apposite when Mr Chu Junior’s allegation or hearsay evidence is believable in view of his ability to refer to the exact timing or sequence of events. Certainly, Mr Chu Junior was prepared to produce those supporting evidence to vindicate his “allegations” but in any event, Mr Ng, after taking instructions from the Respondent, was not prepared to challenge them.

The Turquand’s rule

24.  Deriving from Royal British Bank v Turquand (1856) 6 El & Bl 327, the Turquand’s rule is now also referred to as the 'indoor management rule':

"Persons contracting with a company and dealing in good faith have always been entitled to assume that acts within its constitution and powers have been properly and duly performed, and were never bound to enquire whether acts of internal management have been regular."

25.  This formulation of the rule in the 2nd edition of Halsbury's Law of England was cited with approval by Lord Simonds in Morris v Kanssen [1946] AC 459 at 474. Lord Simonds went on to explain (at 475) that it is a rule designed for the protection of those who are entitled to assume, just because they cannot know, that the person with whom they deal has the authority which he claims. In other words, they are not affected by what is called the "indoor management" of companies and are entitled to assume that the internal procedures of a company have been regularly conducted in the absence of actual notice to the contrary.

26.  In Turquand, the question was whether the company was liable on a bond signed by two of its directors under the seal of the company. Under its deed of settlement, the directors were authorized to borrow on bonds such sums as should, from time to time, by a general resolution of the company, be authorized to be borrowed. The Court of Exchequer Chamber affirming the judgment of the Court of Queen's Bench held that the company was bound notwithstanding that no resolution authorized the making of the bond had been passed. Jervis CJ held (at 332):

"And the party here, on reading the deed of settlement, would find, not a prohibition from borrowing, but a permission to do so on certain conditions. Finding that the authority might be made complete by a resolution, he would have a right to infer the fact of a resolution authorizing that which on the face of the document appeared to be legitimately done."

27.  In Trade Development Ltd v Bonance International Ltd [2001] 2 HKLRD 759, the judge below concluded that a document of a company is duly executed if it is affixed with the company's seal unless other matters are required by the articles of association. So far as the deeming provision was concerned, he observed that they were intended for the benefit of a company as well as those dealing with it. The judge went on to hold that there was no reason to conclude that the articles provided for a "reverse deeming", that is to say, that a document is deemed not to be properly executed when it had not been signed in the manner provided for. In any event, it would appear that the judge found that the deeming provision did not have the effect of imposing any other requirements such as signatures and the mere affixing of the seal was sufficient. He further concluded that the affixing of the seal alone was sufficient to trigger the presumption of due execution contained in section 23 of the Conveyancing and Property Ordinance, Cap. 219.

28.  Apart from the Turquand’s rule, the Court of Appeal also referred to Northside Developments Pty Ltd v Registrar General [1990] 170 CLR 146; [1993] ALR 385 by the Supreme Court of New South Wales where Article 56 of the articles of association provided that:

"... [T]he directors shall provide for the safe custody of the seal and the seal shall never be used except by authority of the directors and in the presence of one director at the least who shall sign every instrument to which the seal is affixed and every such instrument shall be countersigned by the secretary or by a second director or by some other person appointed by the directors for the purpose."

29.  In this Australian case, a mortgage was executed under seal of the company by RS, a director. The mortgage instrument also showed the signature of RS's son, GS, who purportedly signed as "company secretary". Whilst RS was indeed a director of Northside, GS was not the secretary of the company. The appointed secretary had resigned his office in November 1979. He had sent the company seal to the solicitors then acting for RS. They in turn had obtained the certificate of title to the land which represented the sole significant asset of Northside. Neither of the other directors knew of or was involved in the appointment of GS as "secretary" of the company. A statutory notice of the change of company secretary was filed by RS. It was common ground that the appointment of GS as secretary was invalid under the articles of Northside. The mortgage was given to secure a loan which was for the benefit of a company controlled by RS. The loan had nothing to do with Northside and was not authorized by it.

30.  Then the issue in this Australian case was the extent to which the mortgagee was obliged to go behind the seal and signatures of the apparent officers of the company. On the face of the instrument, the document was perfectly regular. The issue posed was whether the validity of the mortgage instrument was fatally flawed because, as a matter of law or fact, the mortgagee was not entitled to rely upon the seal and the signatures appearing on it. It therefore raised the question of the scope and operation of the indoor management rule. After an exhaustive review of the Turquand's rule, McHugh JA held (at 564):

"A company is bound by the affixing of its seal to a document if the company under its memorandum or articles might have had power to enter into the transaction and if, where required, the seal is affixed in the presence of and countersigned by persons who either by virtue of their offices or positions or the company permitting them to act in those offices or positions might have had authority to be present and countersign the document."

31.  The transaction in question was one which Northside might have entered into by the affixing of its seal together with the signature of a director and the company secretary or a person authorized by the directors to sign. RS was a director and therefore a person who might have been authorized to affix the seal of Northside and sign the mortgage. Had GS been appointed secretary, he too was a person who might have been authorized to sign. Accordingly, he ruled that that indoor management rule applied.

32.  In spite of the above, the Court of Appeal in Trade Development came to an opposite view. While on the face of the instrument in the Australian case, the document was perfectly regular. This is not so in Trade Development. The signature here was that of a director but that itself was not sufficient to trigger the deeming provision. If the person appending the signature had been described as a person "duly authorized by the board", Turquand's rule would have applied. But that was not the case. Any person, whether or not a director, could have been authorized by the board but (as per Le Pichon JA as she then was at p 775J): “there is no presumption that if the signatory is a director, he must have been duly authorized by the board. What the position would have been had there simply been a signature without the description "director" is a question that does not arise for decision.”

33.  In the meantime, the limitation on the scope of the indoor management rule described by Dawson J in the Australian case above in the following passage of his judgment was cited with approval by Lord Neuberger of Abbotsbury NPJ in the Court of Final Appeal of Hong Kong in Akai Holdings Ltd v Kasikornbank Public Co Ltd [2010] HKCFA 64; [2011] 1 HKC 357, para 59:

“The correct view is that the indoor management rule cannot be used to create authority where none otherwise exists; it merely entitles an outsider, in the absence of anything putting him upon inquiry, to presume regularity in the internal affairs of a company when confronted by a person apparently acting with the authority of the company. The existence of an article under which authority might be conferred, if it is known to the outsider, is a circumstance to be taken into account in determining whether that person is being held out as possessing that authority. … In other words, the indoor management rule only has scope for operation if it can be established independently that the person purporting to represent the company had actual or ostensible authority to enter into the transaction. The rule is thus dependent upon the operation of normal agency principles; it operates only where on ordinary principles the person purporting to act on behalf of the company is acting within the scope of his actual or ostensible authority.”

34.  The Trade Development decision was followed in Liu Jun v China Well Properties Limited, DCCJ 2759/2011 (unreported, dated 23 October 2015) where a preliminary agreement for sale and purchase was signed by one of the two directors but not the other. At §49, Deputy District Judge Mak (as he then was) was of the view that: “To establish the intention of the company, a board resolution of the directors is essential, without which, the signature of the director on the agreement was signed in escrow only.” He, referring also to Yip Lai Fong v Sin Tung Hng [2004] 3 HKC 153 at p160I, remarked that the mere signature of one of the directors, without more, would still be insufficient to trigger the Turquand's rule.

35.  Lately in 祥雲大廈業主立案法團 訴 港健康復院有限公司及另一人， LDBM 190/2021 (unreported, 20 September 2024), it appears that the Tribunal had come to the same view when the retiring Chairlady of the Incorporated Owners, without authorization of the management committee, signed a no-objection letter on behalf of the Incorporated Owners: “法律上，本席認為，雖然何在換屆前是法團的主席，在沒有第12屆管委會的有效授權下，她是完全沒有實在或表面權限簽發該不反對通知書。儘管該不反對通知書是寫在法團信紙上，及蓋上法團的印章，都是無關宏旨的。”[10]

36.  In the present case, on the basis of Mr Chu Junior’s submission or evidence which is not rebutted or challenged, Auntie Daisy had been told specifically in the meeting on 11 June 2024 not to negotiate a new tenancy agreement with her son to avoid a conflict of interest. Any authority that Auntie Daisy that may have to sign new tenancy agreement had been revoked. And in view of the intimate mother and son relationship between Auntie Daisy and Mr Wong, it is hard to believe that Mr Wong had no idea of what had happened in the meeting on 11 June 2024. On the balance of probabilities, I find Auntie Daisy and Mr Wong not “persons contracting with a company and dealing in good faith”. Neither was Mr Wong “an outsider, in the absence of anything putting him upon inquiry”. In this regard, I am further persuaded by Mr Chu Junior’ submission that it was a dubious coincidence that the 2024 Tenancy was signed on 14 June 2024, that is three days after the meeting between Raymond and Auntie Daisy, and much well ahead of the expiry of the 2022 Tenancy on 31 August 2022. I agree with Mr Chu Junior that there are no terms in the 2024 Tenancy that state the Respondent was allowed to pay $8,000 for May and June, and to use $6,000 from the deposit to pay the rental for May and June 2024. As well, as pointed out by Mr Chu Junior, the reduction in monthly rental from $11,000 to $8,000, ie up to 27% appears excessive and suggests certain irregularity.

Corporate Veil

37.  As regards Mr Ng’s submission that the Respondent has a separate legal entity separated from that of Mr Wong, this is based upon the fundamental principle in Salomon v Salomon [1897] AC 22 as explained by Lord Sumption in the UK Supreme Court in Prest v Petrodel Resources Ltd [2013] 2 AC 415.

38.  In spite of this, there is a well-established principle that the court is justified in piercing the corporate veil if there is an abuse of the separate corporate legal personality. In Prest, Lord Sumption said this at §27:

“In my view, the principle that the court may be justified in piercing the corporate veil if a company’s separate legal personality is being abused for the purpose of some relevant wrongdoing is well established on the authorities. It is true that most of the statements of principle in the authorities are obiter, because the corporate veil was not pierced. It is also true that most cases in which the corporate veil was pierced could have been decided on other grounds. But the consensus that there are circumstances in which the court may pierce the corporate veil is impressive. I would not for my part be willing to explain that consensus out of existence. This is because I think that the recognition of a limited power to pierce the corporate veil in carefully defined circumstances is necessary if the law is not to be disarmed in the face of abuse.”

39.  In the following paragraphs, §§28 – 34 Lord Sumption reviews the authorities and comes to this conclusion in §35:

“I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality.”

40.  In the present case, the Respondent is merely the alter ego of Mr Wong. A corporate, could not act by itself, but had to act through a natural person. I am not suggesting that the signing the 2024 Tenancy was illegitimate per se but this is a good prima facie case for piercing the corporate veil when this case resembles some classic features of a fraudulent breach of trust in obtaining property. For instance, in Trustor AB v Smallbone & Others [2001] 1 WLR 1177, a company, Introcom (International) Ltd, was simply a vehicle the managing director of Trustor used for receiving money from Trustor and that the payments to Introcom "were unauthorised and involved an inexcusable breach of his duty as managing director of Trustor”. The defendant pleaded that Introcom had been formed in connection with an earlier scheme, having no connection with Trustor, and that it was a genuine company having its own separate existence. But it cut no ice with Sir Andrew Morritt VC, who nonetheless held that the corporate veil could be pierced. At §23, the Vice Chancellor said :

“In my judgment the court is entitled to "pierce the corporate veil" and recognise the receipt of the company as that of the individual(s) in control of it if the company was used as a device or facade to conceal the true facts thereby avoiding or concealing any liability of those individual(s).”

41.  This was followed by Ben Hashem v Ali Shayif [2008] EWHC 2380 (Family), Munby J (as he then was) stated at §164:

“a company can be a façade even though it was not originally incorporated with any deceptive intent. The question is whether it is being used as a façade at the time of the relevant transaction(s). And the court will pierce the veil only so far as is necessary to provide a remedy for the particular wrong which those controlling the company have done. In other words, the fact that the court pierces the veil for one purpose does not mean that it will necessarily be pierced for all purposes.”

42.  Equity treats as done what should have been done.

43.  Notwithstanding the above, the so-called illegitimate element may not even be necessary. In Smith, Stone & Knight Ltd v Birmingham Corporation [1939] 4 All ER 116, it was held that a subsidiary company without a lease operated as the servant of a parent company owning the premises. In DHN Food Distributors Ltd v Tower Hamlets Borough Council [1976] 1 WLR 852, three companies, having no real separate identity, were treated by the English Court of Appeal as one and were able to claim compensation accordingly. At p. 860, Lord Denning speaking of the wholly-owned subsidiaries in that case and of the parent company said: “These subsidiaries are bound hand and foot to the parent company and must do just what the parent company says”. Goff LJ, at p 861, referred to the fact in that case that: “the two subsidiaries were both wholly owned, further they had no separate business operations whatsoever”.

44.  In the decision of the House of Lords in Woolfson v. Strathclyde Regional Council [1978] UKHL 5, [1978] 2 EGLR 19, Lord Keith of Kinkel delivered the only reasoned speech, with which Lord Wilberforce, Lord Fraser of Tullybelton and Lord Russell of Killowen agreed. In reference to the decision of the Court of Appeal in DHN Food Distributors, Lord Keith said, at 161:

"I have some doubts whether in this respect the Court of Appeal properly applied the principle that it is appropriate to pierce the corporate veil only where special circumstances exist indicating that it is a mere façade concealing the true facts."

45.  Despite the above, the English Court of Appeal in VTB Capital Plc v Nutritek International Corp & Others [2012] EWCA Civ 808 was, at §49, of the view that that statement recognised, therefore, that there is one (and apparently only one) special case justifying a court in looking behind a company's corporate façade. The English Court of Appeal also found that Lord Keith in Woolfson went on to distinguish DHN Food Distributors on its facts, so his observation about it may be obiter.[11] However, Lord Keith’s statement was quoted and relied on, and the existence of that special case was expressly recognised, in the English Court of Appeal's judgment in Adams and Others v. Cape Industries Plc and Another [1990] Ch 433, at 539D to E, although in that case the court declined to pierce the veil. The English Court of Appeal in VTB Capital did not therefore consider that it was open to it to question the existence of the "veil piercing" principle. DHN Food Distributors is not overruled.

Conclusion

46.  In conclusion, I consider the 2024 Tenancy invalid and not binding on the Applicant. Thus whereas the 2022 Tenancy has already expired on 31 August 2024, I make the following order:

(1) The respondent do deliver vacant possession of the Property to the applicant;

(2) The respondent do pay the applicant arrears of rent/mesne profits as follows:

(a) Balance of arrears of rent from 1 May 2024 to 31 August 2024 in the sum of $12,000;

(b) Arrears of mesne profits at the rate of $11,000 per month from 1 September 2024 until delivery up of vacant possession;

(3) The respondent do pay the applicant the costs of this application, which is summarily assessed at $2,000.