NG PIK HAK AND OTHERS v. HO CHIU

HCA2359/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2359 OF 2008

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J U D G M E N T

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1.       The Defendant applied by way of a summons filed on 12 December 2008 to strike out the Plaintiffs’ statement of claim under Order 18, Rule 19 of the Rules of High Court and pursuant to the inherent jurisdiction of the court, on the ground that it disclosed no reasonable cause of action and/or frivolous or vexatious or otherwise amounting to an abuse of this court.

2.        The summons was first heard by Master Lung on 19 December 2008, whereby directions were given for the Plaintiff to file and serve the affirmation in opposition within 28 days and the Defendant’s affirmation in reply within 28 days thereafter.  It was expressly provided that no further affidavit to be filed without leave, which must be applied for at least 14 days before the date of the hearing.

3.        No affirmation was filed by the Plaintiff in compliance with such directions and order by the middle of January 2009.  Instead, the Plaintiff filed such affirmation in opposition only on 9 May 2009, which is last Saturday, without making any application for leave to file such affirmation out of time beforehand in ample time.  No such application was even made before today until I raised the point at the outset of today’s hearing.

4.        The Plaintiffs’ counsel then, upon taking instructions, applied to adjourn the matter so that they can take out a properly constituted application for leave to file such affirmation out of time and indicated to bear the costs of today’s hearing.  Such application for adjournment was opposed by the Defendant’s counsel, who wished to deal with the striking out application without further delay.

5.        The Court is not supposed to receive evidence filed in breach of orders and directions given by the court beforehand.  Unless with leave of the Court, such evidence should not be admissible as evidence for the purpose of any interlocutory application either.  The order of Master Lung was made back in December 2008.  If the Plaintiff seriously considered the necessity to file evidence out of time, they should make such application shortly after the expiry of the deadline or even before the expiry of the deadline, and give grounds to justify the extension of time.

6.        After the implementation of the Civil Justice Reform, parties should not expect the Court to exercise discretion or indulgence too  readily without giving good and reasonable grounds to justify an extension of time.

7.        Of course, as a matter of fairness and justice, the Court should receive all relevant evidence for the purpose of an interlocutory application if there was justification for delay.  Not a single word was put before this Court to explain the delay by the Plaintiff.  So I can see no good reason why in this case the Court should exercise discretion in favour of the Plaintiff.

8.        I must also issue a warning and reminder to the parties that they are not supposed to file affirmations in support of or in opposition to the application knowing that they were filed in breach of the order given previously, knowing that they were late, and without first making an application to the court for leave to do so.  Such act was clearly in breach of the order when it was intended that any application for leave to file and serve late affirmation should be made at least 14 days before the date of the hearing.  That was provided in the order, and should not be misunderstood by any party that they could sneak in late affirmation without first seeking leave from this Court.

9.        In this case, I would consider appropriate making an order to expunge such late affirmation of the Plaintiff from the record of the court since it was filed without leave at all and for reasons that would be apparent from the later part of this Judgment.

10.    In any event, while the adjournment was opposed by the Defendant’s counsel, it would be better for this Court to frame and identify issues and to dispose of those issues promptly, and to decide what issues would require full investigation and trial and to dispose of other issues summarily.  These are my case management powers given to the Court under the new Order 1A of the Rules of High Court.

11.    I see fit in this case that I should exercise such proactive case management power today instead of delaying the matter, dragging it on, and letting parties waste costs themselves and waste resources of the Court in dealing with a hopeless case.

12.    Why I say this is a hopeless case could be reflected from my observations made known to the parties during the course of submission by the Plaintiffs’ counsel.  During the framing issues exercise, it was not in dispute that the two batches of money in question - that is, the “Withdrawal Money” and the “Securities Profit”[1] - belonged at the material time to Sino Link Group Limited (“the Company”).  Under the Statement of Claim filed at the present moment, both batches of money should be received by the Company, but, according to the Plaintiffs, they were misappropriated by the Defendant.

13.    At the present moment, I do not need to decide one way or the other whether those allegations were correct or not, since, for the purpose of a striking out, I assume that these assertions are correct for the time being.

14.    I then raise the query how the Plaintiffs, being shareholders of the Company, could maintain a personal claim against the Defendant.  It seems that any claim for those moneys in question should be brought by the Company itself.

15.    The Plaintiffs’ counsel tried to rely upon the exceptions under Foss v Harbottle[2] and those principles as established under the English House of Lords case of Johnson v Gore Wood & Co.[3]Nevertheless, those principles are distinguished from the present case, whereby the Company in this case was dissolved already.  No binding authority was shown by the Plaintiffs’ counsel that the Foss v Harbottle exceptions would be applicable to a dissolved company.  All these established principles would apply only when the company still existed, but for one way or the other and for some reasons, the company was not able or lost right to sue the defaulting directors. In such circumstances, the court would give a remedy to the shareholders, in particular minority shareholders, to bring a derivative action against the defaulting directors.

16.    In this case, the Company was dissolved.  The Plaintiffs became ex-shareholders, and the Defendant was no longer a director of the Company since 1999.  So this is a cause of action accrued to the Company (if so existed at the time when the writ was commenced) against an alleged mere wrongdoer.  This may be an action on fraud.  This may be an action on tort of conversion.  But these possible causes of action (if any) would be accrued to the Company only. 

17.    I cannot see from the Statement of Claim, the Plaintiffs could maintain a personal claim against the Defendant at all.

18.    Furthermore, while the moneys in question belong to the Company, how a shareholder could recover the moneys in question from a third party?  Being a shareholder, they could only obtain returns of capital investment on shares upon a declaration of dividend.  So far, no admissible evidence was presented before this Court that there was such a declaration of dividend made.

19.    The Plaintiffs’ counsel, upon taking instructions, informed the Court that there was such a declaration, but no particulars could be given as to when such declaration of dividend was made.  Even if I assume for the time being that there was such a declaration of dividend, the Plaintiffs, being shareholders of the Company, could only obtain payment of such dividend from the Company, not from a third party.  In my view, there was no recognisable cause of action for shareholders to obtain payment of dividend from a third party instead of from the Company.

20.    So again, this demonstrates that the Plaintiffs could not have a viable cause of action, a personal cause of action and claim, directly against the Defendant.

21.    That is not the end of the matter.  One fatal point that the Plaintiffs’ counsel could find no submission to be made to argue the otherwise: that was the application of Section 292 of the Companies Ordinance[4] to the present case.  Again, it is not in dispute that pursuant to Section 291(6) of the Companies Ordinance, the Company was struck off from the register on 3 June 2005, and as a result, the Company was dissolved from the said date as provided under the law.

22.    Section 292(1) of the Companies Ordinance provides the consequences of such dissolution.  It states:

“When a company is dissolved, all property and rights whatsoever vested in or held on trust for the company immediately before its dissolution, (including leasehold property but not including property held by the company on trust for any other person) shall be deemed to be bona vacantia and shall accordingly belong to the Government, and shall vest and may be dealt with in the same manner as other bona vacantia accruing to the Government.”

23.    Thus, by virtue of the said provision of the Companies Ordinance, even if there was any right accrued to the Company to bring a claim against the Defendant for misappropriation of the Company’s funds, that right, if so existed before the dissolution of the Company, would, as a result of the dissolution, vest in the Government, and it no longer belongs to the Company.

24.    Before the Company could be restored to the register and before an order could be given by the court for such restoration, and hearing the Government’s submissions on those properties and rights held by them under the bona vacantia principle, the Company lost that right at the present moment.

25.    In such case, as at the date when the writ was commenced back in November last year, such right was not vested and accrued to the Company.  I see no viable cause of action at all for the Plaintiffs, being ex-shareholders of the Company, to bring such an action against the Defendant for money, which at one time, according to the Plaintiffs, belonged to the Company.

26.    In the premises, the Plaintiffs’ Statement of Claim is plainly and clearly bad, as the Plaintiffs had no right to sue the Defendant at all for those claims set out in the Statement of Claim when the writ was issued.

27.    The Plaintiffs’ counsel raised the point that if that is the case, whether the Defendant, if their allegation was correct, would go unclaimed by the Plaintiffs or the Company, and whether the Plaintiffs and the Company would have no remedy at all.  Firstly, I should not suspect at the present moment whether the Company could be restored to the register. 

28.    In any event, before the Company was dissolved back in June 2005 and after the Plaintiffs discovered the alleged misappropriation back in 2004, the Company and the Plaintiffs, who were the majority shareholders at the material time, could take appropriate action against the Defendant. Knowing this particular problem, the Plaintiffs and the directors of the Company should not allow the Company to go for dissolution despite the fact that they received proper notice from the Companies Registry of the intended action to strike out the company under the relevant section of the Companies Ordinance.

29.    So I must say that the Plaintiffs themselves were not in good and clean hands themselves when trying to seek equitable relief from this Court, and there is a maxim that the court would not assist persons who come before this Court without clean hands.

30.    Whether they would still have any remedy against the wrongdoer, I could not say at the present moment. In any event, I can say that the present action brought by the Plaintiffs against the Defendant lacked any viable cause of action at the time when it was issued, and clearly, if there were any rights accrued to the shareholders for a derivative action against the Defendant, relying upon the principles established under the English House of Lords case of Johnson v Gore Wood, such rights could not be exercised now.  The present action is clearly premature.

31.    As a result of these observations, the Court should exercise active case management power to terminate the action brought by the Plaintiffs against the Defendant today instead of allowing it to drag on, wasting the parties’ costs and wasting the court’s resources.  In this connection, I am also in mind that those applications taken out by the Defendant against the Plaintiffs during the interim requesting for further and better particulars of the Statement of Claim.

32.    While it is correct for the Defendant’s counsel to say that such kind of application is not mutually exclusive, but definitely that is not an effective way to deal with the matter expeditiously and fairly.  If the Defendant focused his mind on the main issues that I brought up today for the purpose of framing the issues, these steps and applications could be avoided and costs could be saved.

33.    I note in this case at least there were two to three substantive hearings for arguments before: firstly, the request for further and better particulars; secondly, the joinder of the Company as the Plaintiff; and lately, the enforcement of the unless order for further and better particulars.  These substantive hearings could be avoided if parties are willing to identify issues at an early stage.  That is the reason why the Court nowadays takes the view that early identification of issues is imperative, so that parties will not be misguided to other peripheral issues that could not dispose of the matter fairly and justly. Arguing such peripheral matters would do no good at all to have an effective and fair resolution of the disputes between the parties.

34.    In the circumstances, for this case, I would exercise my case management power and discretion to strike out the Plaintiffs’ Statement of Claim, as it shows no reasonable cause of action. The Plaintiffs’ action against the Defendant be dismissed.

35.    I make the following orders.  The Plaintiffs’ Statement of Claim be struck out for disclosing no reasonable cause of action at the time of the issue of the writ, and the action herein against the Defendant be dismissed.

(Submission on costs)

36.    I am prepared in this case to exercise my power under paragraph 30 of the Practice Directions 5.4 for the consequences of non-compliance of directions.  The fact that this is the second time after the implementation of CJR that I need to consider exercising such power. Paragraph 30 states:

“Those not observing or complying with these directions may be called upon to explain such failure and in the absence of a satisfactory explanation may be penalised in costs irrespective of whether or not they are parties who succeed in the application.  Parties are warned that to ensure observance of and compliance with these directions, a party who has breached any of such directions may, despite their success in the application or appeal, still be deprived of all or part of his costs of the application or appeal as penalty.  Further, such costs penalty may be imposed irrespective of whether or not the breach had resulted in any adjournment of hearing or any other form of waste of time and costs.” 

(Submission on breach of directions)

37.    I think in this case, costs should follow events.  Plaintiffs’ counsel made no other submission than the usual costs order, save I will say that both parties are at blame for incurring unnecessary costs in this particular matter.

38.    When the Court considers granting costs order and eventually to assess quantum, conduct of the parties would be called into question. In this case, both Plaintiffs and Defendant failed to comply with Practice Direction 5.4.  The Plaintiffs’ counsel explained that their clients may be demanding on what they would say at the hearing.  Be there it may be, that provides no excuse for non-compliance.  If, for one reason or another, the clients may be demanding, bearing in mind the time lines and the deadline for filing written submissions, preparation should be started earlier so that the written submissions could be filed and served in good time in compliance with the Practice Direction.

39.    I have already explained why the Court expects due compliance of such Practice Direction.  Without the full co-operation and the assistance of parties and their legal representatives, the Court will not be in a position to read all the papers in good time, to understand them and to digest the arguments on the issues in question so that appropriate case management power could be exercised during the hearing.

40.    In this case, it demonstrates quite clearly that if the Court did not exercise such case management power to identify issues today, the matter may have to drag on for another month, not to say another year, before it could go for trial or to have the matter resolved.

41.    I hope in future both parties and their legal representatives should adhere to the deadline and the time line imposed by the Rules and the Practice Directions.  Non-compliance of the same will expect no leniency from the Court without good and reasonable explanation.  I must say the Court will be more ready to impose court sanctions for breach of Practice Directions and Rules.

42.    In this case, while the Defendant will obtain costs, such costs will be assessed gross sum.  I will to some extent adjust and disallow some of the costs incurred during the course of the action and for preparation for this hearing.

43.    Unfortunately, both counsel did not take up the main issue that would be determinative for this application in their written submissions, and rather to labour on other peripheral issues. I think that would be something that I would reflect in the costs order also.

44.    Costs of this action, including costs of this application, be to the Defendant with certificate for counsel, such costs to be assessed gross sum unless the same can be agreed between parties within 14 days from today.  Failing an agreement, parties do restore a hearing before me within 21 days from today with half-hour reserved, and the Defendant’s solicitors do lodge and serve a costs statement 7 days before the adjourned hearing.

45.    I will make a note and remark here both the solicitors’ costs of the action and the counsel’s brief for today’s hearing will be adjusted in light of my ruling today.

46.    Affirmations of the 1st Plaintiff filed without leave of the court on 9 May 2009 be expunged from the record of the court.