HONDON DEVELOPMENT LTD AND ANOTHER v. POWERISE INVESTMENTS LTD AND ANOTHER

CACV 296/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 296 OF 2003

(ON APPEAL FROM HCA No. 1208/1998)

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REASONS FOR DECISION

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1. On 9 December 2003, there was scheduled to be heard before me a summons issued by the 1st Defendant for a stay of execution pending its appeal from a judgment of Deputy Judge To. The 1st Defendant appeared by Mr Louis Tse Yat Ming, a director of a company Portiford Investments Ltd, which was itself a director of the 1st Defendant.

2. On 9 October 2003, the 1st Defendant had issued an ex parte summons before the Practice Master seeking leave for Portiford to represent the 1st Defendant "to begin and carry on appeal proceedings in the Court of Appeal in person" from the judgment of Deputy Judge To. The summons was supported by an affirmation of Mr Tse deposing that the 1st Defendant was in "stringent financial condition" and that it lacked "liquidity to engage a lawyer to represent themselves in the appeal proceedings herein at the moment". The master gave leave.

3. When the papers for the application for a stay of execution were placed before me, I gave notice to the parties on 5 December 2003 that I wish to be addressed on the issue whether leave should be revoked.

4. On 9 December 2003, after hearing submissions on this issue, I revoked leave (insofar as the master had jurisdiction to grant leave, a matter which will be discussed below). I stood down the summons for stay of execution for 7 days on the basis that should the 1st Defendant instruct solicitors to apply to restore the hearing within that period, the summons will be restored, but if that is not done, the summons will be dismissed with costs to the Plaintiffs and the Third Parties. In view of time constraints, I indicated that I would hand down written reasons for my decision. I do so now.

Background

5. The background of this matter is briefly as follows. In 1997, the 1st Defendant sold a property to the Plaintiffs. The 2nd Defendant acted as solicitors for the Plaintiffs in the transaction. The Third Parties were the estate agents. The Plaintiffs paid $14.5m to the 1st Defendant. The Plaintiffs later discovered that the property was smaller than represented and sued for rescission, damages for breach of contract and for misrepresentation.

Judgment

6. After a 13-day trial, Deputy Judge To gave judgment in favour of the Plaintiffs against the 1st Defendant for an order that the sale of the property be rescinded, that the 1st Defendant repay to the Plaintiffs the sum of $14.5m. and pay them damages in the sum of $525,645 together with interest and costs. The judge also dismissed the 1st Defendant's Third Party Notice and awarded costs of the Third Party proceedings to the Third Parties.

Post-judgment events

7. The 1st Defendant wishes to appeal this judgment. In the meantime, the Plaintiffs have issued winding-up proceedings against the 1st Defendant.

8. It was against this background that the 1st Defendant applied for leave to be represented by its corporate director to "begin and carry on" an appeal. The application was made to the Practice Master.

Did the master have jurisdiction to grant leave in an appeal?

9. The application was made under Order 5 rule 6(2) RHC. Order 5 rule 6 provides:

"	(1)	Subject to paragraph (2) ..., any person ... may begin and carry on proceedings in the High Court by a solicitor or in person.
	(2)	A body corporate may not begin or carry on any such proceedings in the Court otherwise than by a solicitor except -
		(a)	as expressly provided by or under any enactment; or
		(b)	where leave is given under paragraph (3) for it to be represented by one of its directors.
	(3)	(a)	An application by a body corporate for leave to be represented by one of its directors shall be made ex parte to a Registrar and supported by an affidavit, made by the director and filed with the application, stating and verifying the reasons why leave should be given for the body corporate to be represented by the director.
		(b)	The relevant resolution of the board of the body corporate authorizing the director to appear on its behalf if leave is granted shall be exhibited to the affidavit.
	(4)	No appeal shall lie from an order of the Registrar under paragraph (3) giving or refusing leave.
	(5)	Leave given by a Registrar under paragraph (3) may be revoked by the Court at any time.
	(6)	No appeal shall lie from an order of the Court revoking leave given by a Registrar".

10. The first issue is whether a master has jurisdiction under Order 5 rule 6 to grant leave to a representative of a company to begin or carry on an appeal, as distinct from proceedings in the Court of First Instance.

11. Order 5 rule 6(1) refers to "the High Court". Section 3(1) of the High Court Ordinance provides that the High Court consists of the Court of First Instance and the Court of Appeal.

12. Order 5 rule 6(2) refers to "the Court", and Order 1 rule 4(2) provides that unless the context otherwise requires, "the Court" means the Court of First Instance only. Therefore, that expression does not include the Court of Appeal.

13. However, since rule 6(2) follows rule 6(1), it may well be that as a matter of construction, the expression "the Court" in rule 6(2) should be read consistently with "the High Court" in rule 6(1).

14. But even if that were so, I have serious doubts whether Order 5 rule 6 gives a master jurisdiction to grant leave in appeal proceedings. Order 5 governs "Mode of beginning civil proceedings in the Court of First Instance" only. Appeals to the Court of Appeal are governed by Order 59. The rubric of Order 5 rule 6 is "Right to sue in person". An appellant does not "sue" in an appeal, as appeals have to be brought by motion.

15. Accordingly, I am of the view that Order 5 rule 6 probably does not apply to appeals, with the result that the master probably did not have jurisdiction to grant leave. The words "the High Court" in Order 5 rule 6(1) may simply have been left over from the days when the expression "the High Court" meant the court of first instance, and "the Supreme Court" comprised the High Court and the Court of Appeal.

16. However, as I have not had the benefit of legal submissions from the 1st Defendant on this construction of Order 5 rule 6, I would refrain from expressing a firm view on this issue.

Leave revoked

17. The second issue was, even assuming for present purposes that the master did have jurisdiction to grant leave, whether leave should have been granted and since it has been granted, whether leave should be revoked.

18. The only ground relied upon by the 1st Defendant in seeking leave was that its "stringent financial condition" prevented it from instructing lawyers to pursue its appeal. Since the amendment of Order 5 rule 6(3)(a) in 2002 (by L.N. 108 of 2002), a company's lack of resources is no longer per se a "good reason" for the grant of leave. To permit a company with limited liability to pursue proceedings without legal representation, at no financial risk to itself, its shareholders or directors, is inherently unfair to the other parties to the litigation.

19. In Radford v Freeway Classics Ltd [1994] 1 BCLC 445, Sir Thomas Bingham MR held that the normal principle was that a company had to pursue litigation through lawyers. Although there were exceptions to the normal rule, it was not enough for a company to show that it lacked resources, or to plead that it had a good cause of action. At 448g, he held:

"A limited company, by virtue of the limitation of liabilities of those who own it, is in a very privileged position because those who are owed money by it, or obtain orders against it, must go empty away if the corporate cupboard is bare. The assets of the directors and shareholders are not at risk. That is an enormous benefit to a limited company but it is a benefit bought at a price. Part of the price is that in certain circumstances security for costs can be obtained against a limited company in cases where it could not be obtained against an individual, and another part of the price is the rule ... that a corporation cannot act without legal advisors. The sense of these rules plainly is that limited companies, which may not be able to compensate parties who litigate with them, should be subject to certain constraints in the interests of their potential creditors".

20. The rationale that the courts should protect a limited company's "potential creditors" is even stronger when the limited company has had judgment given against it.

21. I can see no reason to depart from the normal rule in the present case, where the 1st Defendant is a one-property company. Its audited Financial Statements and latest Management Account show that it has advanced $12.2m to a corporate director, which advance was unsecured, interest-free and with no fixed repayment terms. Nothing is known of the financial viability of that corporate director. Although the 1st Defendant will have the property back upon rescission, the property is now worth less than $4m.

22. In these circumstances, I considered that leave should not have been granted to the 1st Defendant and accordingly I revoked leave (insofar as the master had jurisdiction to grant leave).

23. In line with the order I made, it is now up to the 1st Defendant whether to instruct solicitors to restore the summons for stay of execution. If that is not done, the summons will be dismissed. If that is done, then the summons will be restored to be heard by a judge of the Court of First Instance, in accordance with Order 59 rule 14(4).