CHIM PUI CHUNG v. LAM SIU YUE PHILIP

HCA 2312/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2312 OF 2001

____________

____________

___________________________________

REASONS FOR DECISION

___________________________________

1. This is an application by the defendant Mr Lam Siu Yue Philip ("the Receiver") to strike out the Statement of Claim in the action brought by Mr Chim Pui Chung ("Mr Chim") on the grounds that it discloses no reasonable cause of action and that it is scandalous, frivolous or vexatious or an abuse of the process of the court. I granted the application at the conclusion of the hearing and these are the reasons for my decision.

2. The Receiver was appointed by an order of Burrell J on 5 May 2000 ("the Appointment Order") in HCCT No. 71 of 1997. That action related to a property previously known as Dotcom House No. 128 Wellington Street, Hong Kong ("the Property"). The matters giving rise to that action, the making of the Appointment Order and Mr Chim's claim against the Receiver are not in dispute and may be set out as follows.

3. On 13 December 1993, Grand Million Development Limited ("Grand Million") entered into an agreement for sale and purchase to purchase the Property for HK$256 million. On 8 April 1994, Grand Million sold the Property to Global Time Investments Limited ("Global Time") for HK$405 million. Global Time in turn sold the Property to Super Keen Investments Limited ("Super Keen") on 11 April 1994 for HK$600 million. The sale and purchase agreement entered into by Grand Million provided that the construction of the Property was to be completed with an occupation permit issued on or before 30 June 1995. However, the occupation permit was issued only on 12 April 1996, by which time the value of the Property had dropped substantially. Both Super Keen and Global Time rescinded their respective agreements for sale and purchase. This led to HCCT No. 71 of 1997, in which Super Keen was the plaintiff, Global Time was the defendant and Grand Million was the third party. The major issue in that action was whether an extension of time granted by the architect for the completion of the Property was valid. Judgment was given by Findlay J on 16 October 1998. He held that there was no relevant "usual architect's extension" granted in this matter and that Global Time and Super Keen were entitled to rescind their respective agreements. He ordered that Global Time was entitled to the refund of the deposit of HK$100 million by Grand Million and that Super Keen was entitled to receive repayment of the deposit from Global Time in the sum of HK$101,612,000.00. He also held that Global Time was entitled to a lien over the Property in respect of the unpaid deposit, interest and costs.

4. Findlay J's judgment was upheld by the Court of Appeal on 14 January 2000 and by the Court of Final Appeal on 21 December 2000.

5. It was under the above circumstances that Burrell J made the Appointment Order appointing the Receiver pending sale of the Property on the application of Global Time. It is pertinent to note the terms of that order which I set out below:

"IT IS ORDERED that:

1. Philip Lam Siu Yue of Vigers Hong Kong Limited be appointed as receiver to manage [the Property] and to receive the rents and profits thereof pending the sale of the Property pursuant to Paragraph 2 hereinbelow;

2. the Property be sold by public auction and that conduct [of] the said sale be committed to Vigers Hong Kong Limited;

3. the net proceeds of sale and the monies received by the receiver appointed under Paragraph 1 above, after deduction of proper expenses and remuneration, be paid into court subject to further direction for distribution of the same by the court; and

4. costs of this application be paid by [Grand Million] to [Global Time].

AND IT IS FURTHER ORDERED THAT [Super Keen] shall, pursuant to Paragraph 3 above, have the opportunity to come back to the Court for further hearing for further direction for distribution of the proceeds of sale."

6. It is important to note that under the Appointment Order, the Receiver was given no discretion whether to sell the Property, as Paragraph 2 of the order required and directed that the Property was to be sold by public auction and that the conduct of the sale was to be committed to Vigers Hong Kong Limited. Further, the Receiver has no power or discretion as regards the distribution of the net proceeds of sale and the monies received as rents and profits pending sale, as Paragraph 3 of the order required and directed that the monies were to be paid into court subject to further direction for distribution of the same by the court. It was also provided that Super Keen was to have the opportunity to come back to the court for further direction regarding distribution of the proceeds of sale.

7. By a letter dated 19 October 2000, the solicitors acting for the Receiver wrote to the parties in HCCT No. 71 of 1997 informing them that the auction sale of the Property was to take place on 28 November 2000. On 13 November 2000, Mr Chim wrote to the Receiver enclosing a writ he had issued against Grand Million on 4 November 2000 in HCA No. 9816 of 2000 in which he claimed a declaration that Grand Million was liable to him as constructive trustee in respect of 156/256 shares of the Property. In his letter, Mr Chim asserted that he was the beneficial and true owner in respect of 61% of the Property, that the Receiver was legally responsible for any consequence in relation to the disposal of the Property, that he would actively take legal action to rectify any incorrect and unfair disposal by anyone in relation to the Property, and he suggested that the Receiver should seek the direction of the court and notify him to attend such a hearing.

8. A further letter dated 21 November 2000 was sent by Mr Chim to the Receiver stating that he had not received a reply to his earlier letter and if no response should be forthcoming within 5 days, Mr Chim would assume that the Receiver had acknowledged his 61% share in the Property and that he would apply to court for any appropriate action.

9. On 23 November 2000, the Receiver replied by a letter of his solicitors and stated that he was not in a position to confirm what Mr Chim had alleged in his letter. The Receiver suggested that Mr Chim should liaise with the parties in HCCT No. 71 of 1997 and all other parties who might be affected by his intended action.

10. The Property was sold by public auction on 28 November 2000 as scheduled and completion was to take place on 5 February 2001. Pursuant to the Appointment Order, the Receiver paid the entire net proceeds of sale into court in two tranches on 5 February 2001 and 16 February 2001.

11. On 20 January 2001, Super Keen issued a summons returnable before Burrell J on 6 March 2001 for an order that the net proceeds of the sale be paid out forthwith to Super Keen's solicitors in partial settlement of the judgment sum payable by Grand Million to Global Time and of the judgment sum payable by Global Time to Super Keen under the judgment of Findlay J. By two consent summonses filed on 16 and 21 February 2001, Global Time applied and Super Keen consented to the application for an order that the sums paid into court by the Receiver with interest thereon be paid out forthwith to Super Keen's solicitors in partial settlement of the judgment sum and that the hearing of Super Keen's summons returnable on 6 March 2001 was to be vacated. Burrell J made an order in terms of the two consent summonses on 16 and 21 February 2001. Super Keen's summons dated 20 January 2001 and the two consent summonses were not served on the Receiver, who had no knowledge that Burrell J had ordered the payment of the net proceeds of sale to Super Keen's solicitors.

12. On 22 February 2001, Mr Chim obtained a default judgment against Grand Million in HCA No. 9816 of 2000 and an order was made by Dep J Woolley declaring that Grand Million is liable to Mr Chim as constructive trustee in respect of 156/256 shares of the proceeds of sale of the Property and it was ordered that Grand Million was to transfer to Mr Chim 61% of HK$100,500,000.00 which was the price for which the Property was sold on 5 February 2001. This declaration and order, made in the proceedings between Mr Chim and Grand Million, operates as an order in personam and does not alter the existing or vested rights of anyone else.

13. On 14 March 2001, Mr Chim served a copy of Dep J Woolley's order on the Receiver and gave notice to the Receiver that he was "under a duty to account to [Mr Chim's] share of beneficial interest in the income from the Property". He reminded the Receiver that he was taking further legal proceedings to recover his share of beneficial interest in the Property and any proceeds derived from it and alleged that the Receiver "will be personally liable to take any prejudicial action against [Mr Chim]'s rights." The Receiver replied by a letter of his solicitors dated 21 March 2001 and stated that the proceeds of sale had been paid into court and if Mr Chim should wish to make any claim on a share of the proceeds, he should seek legal advice and make a proper application in HCCT No. 71 of 1997.

14. On 23 March 2001, Mr Chim took out an "ex parte summons" in HCCT No. 71 of 1997 seeking leave to be added as a party to the action. It was stated in his supporting affirmation that the Receiver still had in his custody the proceeds of sale. This is factually incorrect as Mr Chim had been informed by the aforesaid letter of the Receiver's solicitors dated 21 March 2001 that the proceeds had been paid into court. Mr Chim did not refer to this letter when he made his supporting affirmation on 24 March 2001.

15. Mr Chim's application for joinder was heard by Burrell J on 16 May 2001. Super Keen and Global Time had also appeared at that hearing by counsel and solicitors. Grand Million was absent. Burrell J dismissed Mr Chim's application for joinder. As the Receiver was not served with Mr Chim's ex parte summons or notified of the hearing date, he had not attended that hearing.

16. The writ herein was issued by Mr Chim against the Receiver shortly after Mr Chim's application for joinder was dismissed. Before I turn to the allegations in the Statement of Claim, it is necessary to mention one other matter which is of relevance and is also not in dispute, and that is the relationship between Mr Chim and Grand Million at all material times. It is asserted in Paragraph 10 of the Statement of Claim that Mr Chim was an investor and the beneficial owner of 156/256 shares of the Property with Grand Million as his trustee since the Property was acquired in 1993. Mr Chim was appointed as a director of Grand Million with effect from 12 April 1996 and he resigned on 18 January 2000. From the annual return of Grand Million for 1998 to 2000, it would appear that the only shareholders of Grand Million during that time were Mr Chim and a company called CPC Properties Limited ("CPCP"). The records of the Companies Registry revealed that Mr Chim has been a director and shareholder of CPCP since its incorporation in 1992 up to present. Lastly, the registered office of Grand Million since 16 December 1996 is the same as the registered office of CPCP from October 1998 and this has also been Mr Chim's office as appeared from the letterhead of his letter to the Receiver dated 13 November 2000. In summary, at all material times, Grand Million is a company controlled by Mr Chim and his family.

17. In his Statement of Claim, Mr Chim alleged that the Receiver has a duty "to exercise all due professional care, skill and diligence to preserve and protect the interest of all interested parties in relation to the Property" and that "it was also a duty specified in [the Appointment Order] that [the Receiver] had to seek direction from the Court regarding distribution of the sale proceeds and income." It is further alleged that the interest of Grand Million in the Property is "in priority to the lien of Global Time under HCCT No. 71 of 1997." The essence of Mr Chim's complaint against the Receiver is that the Receiver had failed to seek directions from the court regarding the alleged interest of Mr Chim in the Property notwithstanding Mr Chim's letters to the Receiver dated 13 and 21 November 2000, with the result that the court had ordered payment out of the proceeds of sale without considering Mr Chim's alleged interest.

18. In his submissions before me, Mr Chim added two other complaints against the Receiver that have not been pleaded in the Statement of Claim. Firstly, he alleged that the Receiver would have a duty to inform the court of Mr Chim's alleged interest in the Property or in the proceeds apart from the duty to seek directions from the court regarding such alleged interest. Secondly, he alleged that the Receiver would have a duty to inform potential bidders at the public auction of Mr Chim's alleged interest in the Property.

19. Mr Anderson Chow, who appeared for the Receiver, submitted that Mr Chim's claim against the Receiver for breach of duty is obviously untenable in view of the limited duty and power of the Receiver under the Appointment Order. I was referred by Mr Chow to the decision of the Privy Council in Downsview Nominees Ltd v. First City Corporation Ltd [1993] AC 295 at 312E to 317F and the decision of the English Court of Appeal in Medforth v. Blake [1999] 3 WLR 922 at 936F to 937E. Although these cases are concerned with receivers appointed under a debenture or mortgage, the principles of law would apply similarly to the situation of a receiver appointed by a court order. I accept the submission of Mr Chow on the propositions of law to be derived from the authorities cited to me and they may be set out as follows:

(1) A receiver appointed by the court is not an agent for any of the parties, but is an officer of the court, so that the court "in effect assumes the management into its own hands." (Snell's Equity, 13th ed, para. 46-07).

(2) The duties of a receiver lies in equity rather than in tort. He has no general duty of care in negligence (see Downsview Nominees, supra. at 315D-G, 316E-F and 317F).

(3) Insofar as the duties are imposed in equity, the primary duty of a receiver is to see to it that the secured debt is repaid. In the course of that, he has to act in good faith. The duties imposed by equity are not inflexible and whatever duty may be imposed on a receiver in addition to the duty to act in good faith would depend on the facts and circumstances of a particular case. For instance, if the receiver should carry on a business notwithstanding that he has no obligation to do so, a duty would be imposed on him to exercise due diligence and take reasonable steps to try to carry on the business profitably (see Medforth, supra. at 936F-G and 937C-E).

20. Applying the above propositions to the present case, my first observation is that insofar as Mr Chim's claim against the Receiver is founded in negligence, his action is bounded to fail. Next, I go on to consider what would be the duties imposed by equity in the particular circumstances of this case. The starting point is the Appointment Order. As I have pointed out earlier, the Receiver's powers and duties under that order are very limited indeed. He has the duty to manage the Property pending sale. As to this, there is no complaint from Mr Chim on the Receiver's management of the Property. Then the Receiver has the duty to pay into court the net proceeds of sale and the monies received as rents and profits pending sale after deduction of proper expenses and remuneration. He has no power of distribution of the proceeds, no power to investigate or determine issues of entitlement or priority in the proceeds. I fail to see how equity could have imposed a duty on the Receiver to seek directions from the court regarding Mr Chim's alleged interest when it is clear from the terms of the Appointment Order that the Receiver has no power or duty to investigate or determine questions of entitlement or priority or to distribute the proceeds of sale. Furthermore, in the particular circumstances of the case, having regard to the fact that Grand Million is a company controlled by Mr Chim and his family at all material times, that Mr Chim was fully aware of and had control over the proceedings on behalf of Grand Million in HCCT No. 71 of 1997 (see, for instance, paragraphs 11 and 12 of Mr Chim's Reply in these proceedings filed on 1 September 2001), that he could have taken appropriate legal action to protect his alleged interest in the Property or in the proceeds when judgment was given by Findlay J in October 1998 or when the Appointment Order made by Burrell J in May 2000, it is quite inconceivable to me that equity would have imposed a duty on the Receiver to seek the court's directions on Mr Chim's interest as alleged.

21. I am mindful of the principle in a striking out application that the court should not order a pleading to be struck out unless it is a clear and obvious case. I am satisfied that the Receiver has established that the duty alleged by Mr Chim to seek direction from the Court regarding his alleged interest is plainly unsustainable at law. Mr Chim's submission that the Receiver would have a duty to inform the Court of his alleged interest in the Property or in proceeds does not take his case any further, quite apart from the fact that this has not been pleaded in the Statement of Claim. I can see no basis for equity to impose such a duty on the Receiver for the same reasons that I have given in rejecting the submission that there was any such duty imposed in equity for the Receiver to seek directions.

22. Further, as submitted by Mr Chow for the Receiver, if Mr Chim had any legitimate claim against the Property or the proceeds, it was incumbent on him to make the necessary application to the court in good time. Mr Chim had only taken action against Grand Million belatedly on 4 November 2000 and applied to join as a party in HCCT No. 71 of 1997 in March 2001 after he had obtained default judgment against Grand Million. His application for joinder was dismissed by Burrell J. Even if the Receiver had sought directions from the court or had informed the court of Mr Chim's alleged interest upon receiving his letters in November 2000, the outcome of his application for joinder would have been the same. Mr Chim would have suffered no loss and damage even if the Receiver were in breach of any duty as alleged.

23. The other additional complaint of Mr Chim against the Receiver, which is also not pleaded whether in the Statement of Claim or in the Reply, is that the Receiver would have the duty to inform potential bidders of Mr Chim's alleged interest. This allegation was made for the first time in the skeleton submission of Mr Chim dated 22 October 2001. Strictly speaking, there is no need for me to consider this in the striking out application. I would add that even if Mr Chim is allowed to rely on this additional complaint, it would not assist his case. This additional complaint is made on the premise that Mr Chim's alleged interest has been the only subsisting beneficial interest in the Property, that the beneficial interest of Global Time in the Property had been terminated when the sale and purchase agreement with Grand Million was rescinded successfully by Global Time, and that the purchaser of the Property at the public auction would not have been entitled to take free of Mr Chim's alleged beneficial interest if the Receiver had given notice to potential bidders of Mr Chim's interest. This submission of Mr Chim is wholly misconceived. It completely ignores the fact that by the judgment of Findlay J, it was held that Global Time was entitled to a lien over the Property in respect of unpaid deposit, interest and costs. This lien was effective and subsisting at all times and it was enforced by the order for sale of the Property in the Appointment Order. The lien of the purchaser is the same in effect as if the vendor had executed a mortgage of the property in the purchaser's favour for the amount covered by the lien (Rose v. Watson (1864) 10 HL Cas 672 at 683).

24. I am wholly unable to see the basis in which Mr Chim would have been entitled to 61% of the proceeds of sale when there was a lien imposed in favour of Global Time enforceable by an order for sale in respect of unpaid deposit, interest and costs in HCCT No. 71 of 1997.

25. For the above reasons, I order that the Statement of Claim be struck out on the grounds that it discloses no reasonable cause of action against the Receiver, that it is frivolous or vexatious or an abuse of the process of the court and that the action of Mr Chim against the Receiver herein is dismissed. I further order that the costs of this application and of the action are to be paid by Mr Chim to the Receiver, to be taxed if not agreed.