KWOK HIN CHEUNG AND ANOTHER v. KWOK HIN TAK AND OTHERS

HCMP 448/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 448 OF 2006

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D E C I S I O N

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1.  There are two applications before me.

2.  The summons first in time is that issued by the 1^st to 3^rd respondents on 30 March 2006, to strike out the originating summons in HCMP No. 448 of 2006 issued on 8 March 2006, under Order 18 rule 19 of the Rules of the High Court and the inherent jurisdiction of the court, on the grounds that the originating summons discloses no reasonable cause of action, it is otherwise an abuse of process of the court, it is frivolous or vexatious, and/or it tends to prejudice and delay the fair trial of the action.

3.  It is provided in Order 18 rule 19(3) that the rule in Order 18 rule 19 shall apply, so far as applicable, to an originating summons as if it were a pleading.

4.  The other summons is a summons issued by the applicants in the originating summons.  That application was taken out only on 6 November 2006, two days before the hearing.  The summons was issued under Order 21 rule 3, Order 15 rule 4, and Order 28 rule 9.  The applicants seek three main reliefs:

(1)   leave to the applicants to discontinue HCMP No. 3156 of 2004 with no order as to costs in those proceedings;

(2)   leave to add the company concerned, Ken Tak Investment Company Limited (“the Company”), as the 4^th respondent; and

(3)   the proceedings be continued as if begun by writ, and that the applicants are to file and serve a statement of claim within 21 days from today.

5.  Insofar as the first relief sought in the summons is concerned, it is procedurally incorrect to issue a summons in HCMP No.448 of 2006 for leave to discontinue proceedings in HCMP No. 3156 of 2004.  The summons for discontinuance should be issued in HCMP No. 3156 of 2004.

6.  I leave aside that matter for the time being, and consider the application to strike out.

7.  The two applicants and the 1^st and 2^nd respondents are the shareholders of the Company.  70% of the shares was held by the applicants, 30% by the 1^st and 2^nd respondents.  The 1^st applicant, and the 1^st to 3^rd respondent are the directors.  The Company holds 70% of the shares of a company incorporated in China called Quanzhou Ken Tak Real Estate Development Company Limited.  The 1^st applicant was the legal representative of this company in China.

8.  The originating summons was issued to challenge two resolutions passed in two directors’ meetings held on 10 November 2004.  By the first resolution, 16,800,000 additional shares were issued and allotted to the 1^st respondent, increasing his shareholding in the Company from 20% to 91.4%.  By the second resolution, the 1^st respondent was appointed the legal representative of the business and investments of the Company in China, he was to have sole authority and discretion to enter into investments, to manage the business, to appoint and remove directors, to allocate profits and approve the transfer of shares.

9.  The applicants claimed they had not received notice of any board meeting or general meeting to be held on 10 November 2004.  There was no ordinary resolution in any general meeting to authorize the directors to allot shares in the Company.

10.  The summons to strike out was issued by the respondents on two broad bases: the first is a lack of merits of the case, the other is an abuse of process.

11.  It was contended by the respondents that the applicants cannot successfully challenge the validity of the resolutions for two reasons.

12.  Firstly, it was asserted that proper procedure for convening an extraordinary general meeting on 10 November 2004 was followed, notices of the meeting dated 3 November 2004 were sent to the last known business addresses of the applicants and the resolutions were properly passed at the directors’ meetings held on the same day.

13.  Secondly, it was argued that according to the notices of the extraordinary general meeting, the additional shares were offered on a pro rata basis, or not on a non pro rata basis, so section 57B of the Companies Ordinance, Cap. 32 could be relied on and prior approval at a general meeting of the Company would not be necessary.  Section 57B(1) provides as follows:

“Notwithstanding anything in a company's memorandum or articles, the directors shall not without the prior approval of the company in general meeting exercise any power of the company to allot shares:

Provided that no such prior approval shall be required in relation to the allotment of shares in the company under an offer made pro rata by the company to the members of the company …”

14.  It does not appear to me plain and obvious that the originating summons is bound to fail for the reasons contended by the respondents.  Although the applicants would appear to have accepted that the addresses stated in the notices for the extraordinary general meeting were their proper addresses for service, there is factual dispute if the notices were in fact received by them.  This dispute cannot be resolved on the affirmations.  Miss Lau for the respondents relied on article 132 of Table A, deeming service of notice where the notice was sent by post.  Article 132 of Table A was not adopted in the articles of association of the Company, see article 1 of the articles of association.  Besides, this is just a deeming provision.  The respondents may adduce evidence to establish that they did not in fact receive the notices allegedly sent to their common address.  I also have reservations if section 57B(1) could be relied on, where no mention was made in the offer appearing in the notice of the meeting of any basis for the allotment of shares.

15.  Miss Lau raised other matters which she said are relevant to the consideration if the court should exercise its discretion to strike out.  It was asserted by the respondents in the affirmations filed that all the moneys invested in the Company and the business in China had come from the 1^st respondent and not the 1^st applicant, that the 2^nd applicant had resigned and did not have locus to sue, and that the 1^st applicant had forged documents to appoint himself the legal representative of the business in China and this was a finding made by a court in China.

16.  I cannot see how these matters would help in the strike out application.  In any event, they are matters disputed by the 1^st applicant in the evidence filed.

17.  I turn to the other broad basis for striking out.  The respondents’ complaint is that the applicants have issued three originating summonses against them seeking identical reliefs.  This is an abuse of process, so HCMP No. 448 of 2006 should be struck out as it was the latest originating summons issued.

18.  The relevant events in chronological order may be stated as follows.

19.  On 6 December 2004, the applicants issued the originating summons in HCMP No. 3156 of 2004 but did not serve this on the respondents.

20.  On 22 December 2004, the solicitors for the respondents wrote to the solicitors for the applicants stating that they have instructions to act for the respondents in HCMP No. 3156 of 2004 and seeking clarification if the originating process had been served, as according to their instructions the respondents had not been served with any documents in the proceedings.  The respondents’ solicitors requested the applicants’ solicitors not to take any action in the proceedings pending their reply.

21.  The solicitors for the respondents wrote to the applicants’ solicitors on 24 December 2004, 4 January 2005, 13 January 2005 and 2 February 2005, chasing for a reply.

22.  On 4 February 2005, the solicitors for the respondents again wrote to the solicitors for the applicants stating for the record that up to 3 February 2005, the respondents had not been served with the originating summons and repeating that they have instructions to accept service.

23.  On 7 March 2005, the solicitors for the respondents wrote to the applicants’ solicitors seeking a reply to their letter of 4 February 2005.

24.  On 21 November 2005, a notice of change of solicitors was filed for the applicants in HCMP No. 3156 of 2004.  The new solicitors for the applicants notified the respondents’ solicitors of this change by letter dated 2 December 2005 and requested confirmation if the respondents’ solicitors still have instructions to accept service.

25.  On 5 December 2005, the validity period of the originating summons in HCMP No. 3156 of 2004 expired, being 12 months beginning with the date of its issue, see Order 7 rule 6 applying Order 6 rule 8 to an originating summons.  Prior to the expiry of the validity period, the applicants had not applied to extend the validity of the originating summons.

26.  On 22 December 2005, the respondents’ solicitors filed a notice to act in HCMP No. 3156 of 2004.

27.  On 8 February 2006, the applicants’ solicitors served the originating summons in HCMP No. 3156 of 2004 on the respondents’ solicitors.

28.  On 9 February 2006, the applicants’ solicitors wrote to the respondents’ solicitors referring to the service of the originating summons the day before and informing them that the service was irregular due to the expiry of the validity period.  The applicants’ solicitors stated that the originating summons should be renewed before service could be effected and asked the respondents’ solicitors not to take any further action in the proceedings.  The applicants’ solicitors also requested the return to them of the sealed copy of the originating summons.

29.  On 10 February 2006, the respondents’ solicitors wrote in reply stating that they had already advised the respondents, prior to receipt of the letter of the applicants’ solicitors, that service of the originating summons was irregular and that they had “taken steps to proceed to apply to the Court for an order setting aside such service and/or declaring that the said originating summons has not been duly served”.  They stated that all costs and expenses in connection therewith should be borne by the applicants.  They also reserved their right to oppose any application for renewal of the originating summons.  It does not appear from the papers that any application has in fact been taken out by the respondents’ solicitors to set aside the irregular service.

30.  On 14 February 2006, the applicants issued the second originating summons seeking identical reliefs.  This is HCMP No. 291 of 2006.  I understand from the submissions of the applicants’ counsel that a notice for discontinuance of this originating summons was filed on 17 March 2006, after the third originating summons for identical reliefs was issued and served.

31.  On 8 March 2006, the applicants issued their third originating summons.  This is HCMP No. 448 of 2006.  The originating summons was served on the respondents on 9 March 2006.

32.  On 22 March 2006, the applicants filed a notice of appointment to hear the originating summons in HCMP No. 448 of 2006.

33.  On 30 March 2006, the respondents filed two acknowledgement of service, one in HCMP No. 3156 of 2004, the other in HCMP No. 448 of 2006, to contest the proceedings.

34.  On the same day, the respondents issued a summons to strike out the originating summons in HCMP No. 448 of 2006.

35.  On 18 April 2006, the 1^st respondent filed his affirmation in support of the strike out application stating that the respondents could “waive the irregularity” regarding the service of the originating summons in HCMP No. 3156 of 2004.

36.  On 2 May 2006, the applicants’ solicitors wrote to the respondents’ solicitors stating that they have instructions to stay the originating summons in HCMP No. 3156 of 2004 and to apply to court for an order to continue the originating summons in HCMP No. 448 of 2006 as if begun by writ.  On that basis the applicants invited the respondents to withdraw their application to strike out the originating summons in HCMP No. 448 of 2006.

37.  On 6 November 2006, a summons was issued by the applicants in HCMP No. 448 of 2006 for leave to discontinue the proceedings in HCMP No. 3156 of 2004.

38.  It is not necessary to enter into the questions if it is proper for the respondents to acknowledge service of the first originating summons on 30 March 2006, if the expiry of the validity of the first originating summons could be waived, if the respondents have waived any irregularity in service, or the alternative action that the respondents could have taken.

39.  So long as only one originating summons is pursued, I do not think the court should dictate to the applicants which originating summons should be withdrawn or discontinued.

40.  The applicants have now made clear their wish to discontinue the first originating summons and pursue the third originating summons.  This is in order.  There is no reason to strike out HCMP No. 448 of 2006 and compel the applicants to pursue the originating summons issued first in time.

41.  I have indicated to counsel for the applicants that I would accept his undertaking to issue a proper summons seeking leave to discontinue proceedings in HCMP No. 3156 of 2004 within 3 days hereof.

42.  This new application should be fixed before me, as I have read the papers in both proceedings.  I anticipate there would be argument relating to costs of the proceedings when leave is granted to discontinue the proceedings.

43.  I dismiss the application to strike out for the above reasons.  I see no reason why costs should not follow the event.  I order the respondents to pay the costs of the applicants in the strike out application in any event, to be taxed if not agreed.

44.  I turn to the applicants’ summons.  As indicated earlier, paragraph 1 of that summons is not in order and I accept an undertaking from the applicants’ counsel to issue a proper summons for discontinuance in the proper proceedings.  I give leave to add the Company as the 4^th respondent.

45.  I direct that the proceedings are to continue as if begun by writ and that the applicants are to file and serve a statement of claim within 21 days hereof.  For the costs of this summons, I order that the costs should be in the cause of the proceedings.