LI NANFENG v. WONG CHUN HONG

HCA 3447/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3447 OF 2016

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DECISION

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Introduction

1.  This is an application of Wong Chun Hong (“Wong”) by summons dated 24 May 2017 (“the Summons”) for interpleader relief pursuant to Order 17, rules 1(1)(a), 3(1) and 7 of the Rules of High Court, Cap.4A (“RHC”).

2.  The substantive relief now being applied for by Wong for is an order that Wong be allowed to interplead by paying a sum of RMB88,265,737 (“the Amount”) (either in full, or in full less Wong’s agreed, taxed or assessed costs of this application) into court. The Amount consists of a sum of RMB61,500,000 (“the Sum”) which is claimed by Li Nanfeng (“Li”) as the worth of his 4.1% shareholding in a PRC company named (“SZITIC Property”) and another sum of RMB26,740,000 (“the Shanghai Feng Dan Proceeds”) which is claimed by Li as his share of the sale proceeds of the 15.7% shareholdings of SZITIC Property in Shanghai Feng Dan Li She Property Development Co Ltd (“Shanghai Feng Dan”).

3.  Wong also applies for a stay of further proceedings in this action pending the final determination of the Summons including the filing of his defence.

4.  Li brought this action to claim against Wong the Amount and interest thereon. The Amount for present purposes can be said to represent the agreed consideration for the transfer of the 4.1% shareholding in SZITIC Property (“the Agreed Transfer”).

5.  The Agreed Transfer was completed by way of a transfer of 2,000 ordinary shares in Fullshine Group Limited (“Fullshine”) by one Mr Chen Zhitao (“Chen”) to Top Spring International Holdings Limited (“Top Spring”) and another transfer of the same amount of shares in Fullshine to Top Spring by one Mr Mr Yu Lejun (“Yu”). These two transfers are evidenced by two Bought and Sold notes both dated 4 January 2008.

6.  The ownership of the 4.1% of shareholding in SZITIC Property (“the 4.1% Shareholding”) was maintained in a complicated manner involving different legal entities and for present purposes there is no need to give a full account here. Suffice it to say, the parties agree that Agreed Transfer was completed by the said two transfers by Chen and Yu and Wong is obliged to pay the Amount for the Agreed Transfer. The issue is to whom Wong should pay the Amount.

7.  The pleaded case of Li is that his indirect interest in the 4.1% Shareholding was equally held by Chen and Yu for him. Therefore, Wong should pay him the Amount after the completion of the Agreed Transfer pursuant to an agreement between Wong and him. This is essentially a contractual claim.

8.  In his supporting affirmation, Wong accepts readily that he is accountable to Chen and Yu the Amount without stating the legal basis. He, however, claims that it is plain and obvious that he may be faced with adverse claims against him by Chen and/or Yu. This is the reason why he finds it is necessary to make this application for interpleader relief.

9.  Both Chen and Yu reside in the Mainland. Wong has obtained leave to serve the Summons on them out of jurisdiction. Such service has to be undertaken by the judicial authorities of the Mainland China and it is unknown whether such service has been effected. Neither Chen nor Yu was present at the hearing of the Summons and their position on the Summons is unknown.

10.  According to Wong, he has paid the Amount to his solicitors Messrs Michael Cheuk Wong & Kee (“MCWK”). The Amount is being stakeheld by MCWK.

11.  Mr Pow SC (leading Mr Lee), for Wong, takes the primary position that given the uncertainty about the service of the Summons on Chen and Yu and their absence, this court cannot make an order under O.17 r.5(3) of the RHC declaring them for ever barred from prosecuting their claim against Wong the Amount. He, thus, suggests an adjournment.

12.  Mr Man SC (leading Mr Yung), for Li, argues that the Amount should be paid to him forthwith on the basis that Wong is not entitled to any interpleader relief. Alternatively, he submits that Wong should be allowed to interplead by paying the Amount into court and in the event that Chen and Yu do not give any written notice of any claim to the Sum (or any part thereof) within a specified time after the effective service of the order on them requiring them to do so, the Amount should be released to Li. In either event, Mr Man suggests that Wong do file his Defence in respect of the remainder of the claim of Li including the claim for the interest and costs of this action. In passing, I note that the interest on the Amount accrued can be substantial given the long lapse of time after the completion of the Agreed Transfer.

13.  I should determine whether Wong has the right to interplead in the first place. If so, I should proceed to consider how to determine the adverse claims to the Amount. I should also consider the suggestion of Mr Man of ordering Wong to pay the Amount to Li forthwith.

Relevant legal principles

14.  There is no dispute about the established principles relating to interpleader applications. Mr Man helpfully draws to my attention several local authorities in which such principles were elaborated. I need only refer to two decisions of the Court of Appeal.

15.  First, in Chan King Sheen v KC Tsang & Co & Ors [2002] 3 HKC 209 (C.A.), Le Pichon JA examined the prerequisites of interpleader relief. One of the prerequisites is that there must be expectation on the part of the applicant to be sued by two or more persons. The judge (at §§25-26) pointed out that it is axiomatic that there must be a real foundation for the applicant’s expectation to be sued by two or more rival claimants. Further, more importantly, there can be no real foundation for any expectation to be so unless a prima facie case exists. The judge eventually upheld the dismissal of the interpleader summons for want of such an expectation and a prima facie case.

16.  Next is another Court of Appeal’s decision in Unionix Development Ltd v Roe Investment Ltd & Anor [1999] 1 HKC 593. In the leading judgment of Liu JA, to which Mortimer VP and Nazareth VP agreed, the conclusion (at p.601G) was that the applicant had no competing claims to meet and the plaintiff was the only claimant. It was one of the grounds to dismiss the application for interpleader relief. Nazareth VP further had this to say in agreement with Liu JA,

“As to whether Roe’s interpleader summons met the requirements of O17, for the reasons given by Liu JA, I am satisfied that Roe did have the substantial interest in the transfer of the shareholding in Team Base and its loan to Team Base that has been described by Liu JA, and that this disentitled it from reliance upon O17 upon the basis set out in the judgment of Liu JA. Moreover, a misconceived and thus unfounded fear or expectation that one might be sued cannot meet the relevant criterion in O17 r(1)(a) so as to give rise to an entitlement in that respect to apply under that rule for interpleader relief.” (emphasis added)

17.  I note that the decision was actually overturned by the Court of Final Appeal in FACV 13 and 14 of 1999[1] on an altogether different ground concerning the effect of a consent order. The conclusion of the Court of Appeal that the applicant could not bring itself within Order 17 was nevertheless emphatically affirmed. In the leading judgment of Litton PJ, he noted that Liu JA was plainly right in his conclusion that the interpleader proceedings were bad. Bokhary PJ also expressly endorsed such a conclusion.

18.  On the other hand, Order 17 r.1 expressly sets out the requirements for entitlement to relief by way of interpleader.  A person may make such an application when he is under a liability in respect of a debt or in respect of any money, goods or chattels and he is, or expects to be, sued for in respect of that debt or money or those goods or chattels by two or more persons making adverse claims thereto.

19.  Guided by these instructive authorities, I turn to examine the supporting evidencing of Wong to see whether there is a prima facie case on the part of Chen and Yu against Wong to provide a real foundation for Wong’s expectation to be sued by Chen and Yu.

Analysis of evidence

20.  Mr Pow, in his written submissions, accepts that the pleaded case of Li is that Chen and Yu held the 4.1% Shareholding for Li as his trustees though the word “trust”, “trustee” or “beneficiary” is nowhere to be found in the pleading.

21.  In his first affirmation, Wong avers that he has no knowledge whether Chen and Yu held the 4.1% Shareholding for or on behalf of Li and neither of them told him that they did so.

22.  Wong claims that he readily accepts that he is accountable to Chen and Yu in respect of the proceeds of sale of the 4.1% Shareholding. He, however, goes on to assert that he expects to be sued by Chen and Yu on the same subject matter of these proceedings. He gives no elaboration of his expectation and the foundation therefor though.

23.  Wong also invites my attention to another High Court action under HCA 2611/2015 (“the 2015 Action”) commenced by the wife of Li (“Madam Li”) against him in respect of certain shareholdings in SZITIC Property allegedly held by Wong on trust for her. Wong filed his defence (“the 2015 Defence”). After the close of pleadings, the 2015 has gone to sleep. Wong exhibited the 2015 Defence to his first affirmation and confirmed that all the facts pleaded therein are true and he intended to rely on its contents for the purpose of this application.

24.  In the 2015 Defence, the following averments are of particular relevance:

(1) In or about early 2006, Li enquired with Wong as to whether Wong was interested in acquiring the shareholdings of SZITIC Property. Li further told Wong that Chen and Yu, the two shareholders of SZITIC Property, were in fact his nominees holding part of their shares in SZITIC Property (equivalent to the 4.1% Shareholding) on his behalf and in the circumstances, Li was in fact indirectly and beneficially entitled to the 4.1% Shareholding. Wong expressed his interest in such an acquisition. (§§36-37)

(2) Subsequently, Li told Wong that he no longer wanted Chen and Yu to hold the 4.1% Shareholding for him as his nominees and he did not want to hold the same in his own name, either. He would like to sell the same to Wong and Wong agreed. (§40)

(3) In or about January 2008, Wong completed his acquisition of the 4.1% Shareholding. (§47)

(4) Li told Wong that the payment of RMB61,525,737.00 being the purchase price of the 4.1% Shareholding (“the Purchase Price”) could be dealt with at a later stage. (§48)

(5) In or about mid-2012, Madam Li went up to the office of Wong and requested for HK$1 million in cash as partial payment of the Purchase Price. Wong accommodated her and handed over to her SGD180,000 in cash, which was slightly more than the amount that she had requested for. (§§50-51)

25.  For completeness, in her Reply, Madam Li accepts that the 4.1% Shareholding was held by Chen and Yu on behalf of Li. She further denies that the sum of SGD180,000 was received by her as the partial payment in relation to the 4.1% Shareholding.

26.  Wong’s second affirmation was filed for his application for leave to serve the Summons out of jurisdiction on Chen and Yu. There is no additional evidence relating to any adverse claim mounted by Chen and Yu or Wong’s expectation of such a claim.

27.  Nor can such evidence be found in his last affirmation filed in reply to the opposing affirmation filed on behalf of Li. It is interesting to note that in his last affirmation, Wong avers that the payment of SGD180,000 to Madam Li was made without first having sought legal advice.

28.  On this evidence, I cannot accept that Wong can interplead by bringing himself with Order 17. There is no real foundation for his alleged expectation to be sued by Chen and Yu.

29.  According to his pleaded case in 2015 Defence, he acquired the 4.1% Shareholding by reason of an agreement reached between Li and him and Chen and Yu were his nominees holding the subject matter of their agreement.

30.  Indeed, Chen and Yu completed the Agreed Transfer. Wong accepts in the 2015 Defence that he had to pay Li the Purchase Price and he had indeed made partial payment to Madam Li.  Wong alleges no other agreement made between he himself and Chen and Yu resulting in the Agreed Transfer. The inescapable conclusion is that Chen and Yu did so pursuant to the agreement between Li and Wong.

31.  Up till the date of the 2015 Defence, i.e. 18 January 2016, Wong raised no issue as to the allegation that Chen and Yu were merely the nominees of Li in respect of the 4.1% Shareholding.

32.  There has never been any suggestion, let alone evidence, that Chen and Yu have ever raised any issue with Wong in respect of the Agreed Transfer, orally or otherwise. They have never claimed any beneficial ownership in the 4.1% Shareholding. Nor have they ever demanded for any payment or the return of the 4.1% Shareholding throughout almost a decade after completion. It goes without saying that they have never threatened to sue Wong.

33.  I do not understand why Wong has, out of the blue, started to have concern as to whether Chen and Yu were indeed the nominees of Li in respect of the 4.1% Shareholding since he filed the 2015 Defence. I am unable to understand on what basis that Wong now thinks he is accountable to Chen and Yu for the Amount. There is no evidence that Wong has ever attempted to pay Chen and Yu the Amount and there is no explanation as to why Wong, Chen and Yu have allowed such a payment to remain outstanding for so long and none of them finds it to do anything about the payment.

34.  I also agree with Mr Man that there is no substance in the assertion that Chen and Yu may be colluding with Li. This assertion is entirely without evidential basis.

35.  Mr Pow, with the paucity of relevant evidence, can hardly identify the legal basis of any possible adverse claim that Chen and Yu can reasonably make against Wong.

36.  I should add that I have taken into account the allegedly distasteful conduct of Li in both the 2015 Action and the present action. Wong made a long list of allegations against Li in his affirmations. I do not attempt to deal with those allegations here and I do not think that they have any bearing on this application. The onus is on Wong and not Li to fulfil the prerequisites of interpleader relief.

37.  In the premises, it is plain to me that Wong does not have a reasonable expectation of being sued in respect of the Amount or the 4.1% Shareholding by either Chen or Yu at the time when he issued the Summons. I conclude that Wong fails to bring himself with O.17 and is not entitled to invoke O.17 jurisdiction without having waited for the successful service of the Summons on Chen and Yu.

Payment of the Amount to Li forthwith

38.  Having reached the conclusion, I believe that the normal course is to dismiss the Summons. Mr Man submits that given the position of Wong that he is prepared to return the Amount to either Li or Chen and Yu, this court should order that the Wong do pay the Amount forthwith if it is concluded that Chen and Yu have no adverse claim to the Amount at all.

39.  Mr Man, in reply to this court’s enquiry as to the relevant jurisdiction to make such an order, submits that this court can invoke the jurisdiction under O.17 rr.5(2) and 8.

40.  O.17 r.5(2) provides as follows,

“Where—

(a) the applicant on a summons under this Order is a bailiff, or

(b) all the claimants consent or any of them so requests, or

(c) the question at issue between the claimants is a question of law and the facts are not in dispute,
the Court may summarily determine the question at issue between the claimants and make an order accordingly on such terms as may be just.”

41.  Mr Man submits that r.5(2)(b) is applicable and this court should make a summary determination. I cannot agree with him though I accept that he is correct in his submission that, unlike r.5(1), it does not require the appearance of all the persons making adverse claims to the Amount.

42.  O.17 r.5 provides the interpleader reliefs to which an applicant may be entitled. The applicant must satisfy the requirements in O.17 r.1, namely that he expects to be sued by two or more persons, to start with. If a person is not entitled to interplead, the entire O.17 is not applicable to him and there is no claimant at all within the meaning of O.17. The court cannot summarily determine the question at issue between the claimants. It follows that no relief can be granted under O.17 r.5. This seems to me to be a logical conclusion.

43.  Therefore, in light of the conclusion that Wong cannot interplead by bringing himself with O.17, there is no reason why this court can still invoke the jurisdiction under O.17 r.5 to make an order that Wong do pay Li the Amount forthwith.

44.  I further refer to the commentary concerning O.17 r.5(2) in Hong Kong Civil Procedure 2018 Vol.1 at §17/5/4 at p.419. In particular, this court refers to the following three authorities cited in that paragraph:

(1) Re Tarn [11893] 2 Ch.280;

(2) P.B.J. Davis Manufacturing Co Ltd v Fahn, Fahn (Claimant) [1967] 1 W.L.R. 1059

(3) Fredericks and Pelhams Timer Buildings v Wilkins, Read (Claimant) [1971] 1 W.L.R. 1197

45.  All these three cases concerned the sheriff applications and there was no issue as to whether those sheriffs were entitled to interpleader relief at all, unlike the present application. It can be seen in these cases that the summary determination could be made instead of having the issue stated and tried by way of a trial as in O.17 r.5(1)(b).

46.  Mr Man further relies on Nanyang Commercial Bank Ltd v Personal Representative of Vannee Nativivat [2013] 2 HKLRD 749. There, To J was satisfied that it was appropriate for the plaintiff bank to take out the interpleader summons in view of the prima facie claims of the 1^st defendant and 2^nd defendant against it. Then the judge proceeded to consider whether their adverse claims were capable of summary determination. Eventually, the judge concluded that in view of the many factual dispute and the legal questions raised, summary determination was inappropriate and therefore he upheld the decision of the master to make directions for the further conduct of the interpleader summons to determine the issues between the parties in accordance with O.17 r.5(1)(b).

47.  What Mr Man relies on is actually the following observations made by To J (at §20):

“The outstanding issue is whether the Bank can show that each of the Defendants has a prima facie case against the Bank in respect of their claims. If none of the Defendants can show a prima facie claim, then the Bank should be free to dispose of the Monies in accordance with the terms of its agreement with the account holders. If only one of the Defendants can show a prima facie claim, then the Bank should act according to the instruction of that party given in accordance with the terms of its agreement with the account holders. In either case, it should not have taken out the interpleader summons and the interpleader summons taken out has to be dismissed, preferably with a summary determination. If both Defendants can show a prima facie claim, it is an appropriate case for interpleader proceeding.” (emphasis added)

48.  First of all, after reading the full judgement, this court agrees with Mr Man that there was no summary judgement application for the determination of To J despite the reference to O.14 as one of the catchphrases in the headnote of the report. The judge referred to O.14 merely to explain that the legal principles relating to O.14 are equally applicable to a summary determination under O.17 r.5(2).

49.  I, however, do not really think the judge meant that even if an application for O.17 relief is wrongly made, the court should preferably make a summary determination of any claim to the property in question under O.17 r.5(2) in addition to ordering a dismissal of the interpleader summons. I believe what To J meant is that whether each of the parties has a prima facie case against the applicant should be summarily determined so that the dismissal of an interpleader summons for want of adverse claims can be ordered without a full trial.

50.  In any event, this was not the ratio of his decision at all. As stated, the judge did conclude that the plaintiff bank was entitled to invoke the O.17 jurisdiction and only on that basis the judge continued to consider the feasibility of a summary determination of the adverse claims.

51.  I do not think O.17 r.8 is available to Li for the same reasons. It is still with the confines of O.17.

52.  Mr Pow highlights to me that there is no application for summary judgement or judgement on admission before this court. He must be right. Mr Man argues that there is no reason why this court has to insist on formalities when it is clear that Wong accepts that he has no beneficial interest in the Amount and there is no adverse claim to the Amount.

53.  I cannot agree with Mr Man. There are strict legal requirements to be complied with by a plaintiff for an application for summary judgement. I cannot lightly dispense with such requirements and allow Wong to be caught off guard.

54.  Further, the fact that the Agreed Transfer took place in 2008 and the present action was only brought in 2016 may cause some concern in the context of a summary judgement application. Wong may take a different position in an O.14 application. It is not fair to disallow Wong a chance to deal with a summary judgement application properly.

Conclusion and Orders

55.  For the reasons given, I conclude that Wong is not entitled to invoke O.17 and the Summons must be dismissed. I cannot accede to Mr Man’s suggestion to order that Wong pay Li the Amount or any part thereof upon the dismissal of the Summons.

56.  There is no reason why costs should not follow the event. I make an order nisi that Wong do pay Li his costs of and occasioned by the Summons including all costs previously reserved with certificate for two counsel, to be taxed if not agreed.          

57.  It remains for me to thank Mr Pow, Mr Lee, Mr Man and Mr Yung for their assistance in this matter.