HONG KONG WAH SANG INDUSTRIAL CO LTD AND ANOTHER v. THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD AND ANOTHER

HCMP 2219/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2219 OF 2007

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R U L I N G

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Introduction

1.  This Ruling needs to be read in conjunction with my Ruling of 15 May as a result of which I allowed Mr Lam Pak Cheung (“LPC”) to be joined as 2^nd Respondent to the 2^nd Applicant’s Norwich Pharmacal application directed to the 1^st Respondent bank.  In my earlier Ruling I have set out the necessary background for an understanding of how this application has come about and so I do not propose to repeat any of that here.

2.  What I am now being asked to do by the 2^nd Applicant  is to make the Norwich Pharmacal order directing the 1^st Respondent to disclose to it the 1^st Applicant’s bank statements and cheques and other documents referred to in the now re-amended Originating Summons.  Mr Kwok Siu Hay, on behalf of the 2^nd Respondent, has asked me to adjourn the summons to enable his client to obtain an expert legal opinion from  PRC lawyers as to the legal effect of the resolution of 20 July 2006 by the Board of Directors of the 2^nd Applicant removing Guy Lam from the Board and from his position as its Legal Representative.  He also wishes to know from such an expert whether a Legal Representative of a PRC company (the 2^nd Applicant in this instance) even if validly appointed and in post is able to bring a derivative action outside the PRC (in Hong Kong) on behalf of the 1^st Applicant which is 99% owned by the 2^nd Applicant.

3.  Mr Rimsky Yuen SC resists the application for the adjournment on the basis that such evidence is not necessary given the existing PRC legal opinions available to me.  He also submits that the 2^nd Respondent, had he wished to, could have marshalled this evidence in good time for this hearing and that he should not be indulged with an adjournment.

Chronology

4.  Mr Kwok submits that there has not been time to obtain the evidence that he wishes to have available to him.  Firstly, he says that up till the morning of 15 May he did not know whether he would have to face a Norwich Pharmacal application because the application to amend the originating summons to include such an application had not been issued until 9 May returnable on the day of the originally listed hearing on 15 May, in consequence of which LPC issued his summons on 14 May, also returnable on 15 May, to be joined as 2^nd Respondent to the Norwich Pharmacal application.

5.  Until then LPC, although well involved in the originally constituted dispute by virtue of being made a third party by the 1^st Respondent bank to the application by the 1^st Applicant, had only been contesting issues raised by the 1^st Applicant, a different company in which it was being submitted by Mr Yuen in his skeleton argument that the two third parties, one of whom is LPC, should have a very limited say in that application by virtue of only being third parties and not Respondents.  It should be observed that LPC’s application to become a Respondent to the originating summons in its original form had been refused by the Master.  I am told that the Master’s view had been that in its original form, the real dispute on the summons was not between the 1^st Applicant and the Respondent bank but between LPC and the 1^st Applicant notwithstanding which, he changed his mind and refused a joinder on the basis that this would be unnecessary.

6.  The result of all this has been that at the start of the hearing before me on 15 May the Norwich Pharmacal application was not formally before the court until I gave leave for that to happen and LPC’s application to be joined in that proceeding was being objected to, added to which it was being said that as a third party in the originally brought originating summons, now not being pursued, LPC’s real voice was in the third party proceedings with the Respondent bank and that what LPC could say in the Norwich Pharmacal proceedings should be substantially restricted.

7.  Given this state of affairs, it is unsurprising that the 2^nd Respondent (as LPC now is) applies for an adjournment to call what he says may be vital expert evidence on PRC law.  He faces a late application, only allowed on the day of the hearing, in which his successful application to be joined as Respondent was being objected to.

Is the Adjournment Necessary

8.  Mr Yuen says that in making this Norwich Pharmacal application all he needs to show is that the 2^nd Applicant has a good prima facie case for the order including on the issue of whether Guy Lam has the authority to act on behalf of the 2^nd Applicant as its validly constituted Legal Representative.  In this regard, he submits that whilst there may be in place a resolution [20July 2006 ibid] removing him from his directorship and as Legal Representative, there are compelling reasons for doubting the validity of his removal.  Firstly, it would appear that the 2^nd Applicant’s board has yet to enforce its resolution.  How that is done is not entirely clear, and there is also the notice from the Shenzhen Industrial and Commercial Administrative Bureau, which post-dates the resolution by a little over two months, which shows that Guy Lam is still the 2^nd Applicant’s Legal Representative.

9.  Therefore, Mr Yuen also submits that the presently available legal opinion from the PRC is sufficient to make out a prima facie case that Guy Lam has the authority to make this application on behalf of the 2^nd Applicant.

10.  For my part I would have thought that where a foreign company such as the 2^nd Applicant is concerned, it is essential for the court to proceed with care in ensuring that the individual making the application on its behalf has the standing and authority to do so under the law of the place where the company is registered.  To proceed on what is undoubtedly incomplete information on such an important aspect of the application would be wrong.  If it subsequently turns out that under PRC law Guy Lam had no authority to act for the 2^nd Applicant this I believe would offend against comity as between two distinct jurisdictions and that is something which should be avoided.

Conclusion

11.  I have decided therefore to adjourn the application in order to allow the parties time to call such PRC legal opinion as they consider will assist the court in deciding whether Guy Lam has the authority to make this application on behalf of the 2^nd Applicant.  This will include whether he has been validly removed from his positions as director and Legal Representative.  If he has not, whether as director or Legal Representative, he has the right to bring such an application in an overseas jurisdiction of his own motion or whether he needs to be sanctioned to do so by , for instance, a majority of the Board, a court of competent jurisdiction in the PRC or, some other commercial or trade organisation or bureau such as the Shenzhen Industrial and Commercial Administrative Bureau.  These must be questions to which there must be a certain answer and in these circumstances I require that information in order to exercise my jurisdiction in a correct manner.

12.  Whilst I appreciate that this will inevitably cause further delay this is now unavoidable.  I am of the view that apart from the absence of such highly relevant information on PRC company law there is also much force in the submission that this Norwich Pharmacal application brought on behalf of a quite different applicant, has been made very late.  The issues concerning Guy Lam’s authority to act for this applicant differ from those of his authority to act on behalf of the 1^st Applicant which is a Hong Kong company.  I believe common fairness requires me to allow LPC time to properly marshal his evidence on what is after all a fundamental issue on the application.  It is regrettable that this application has been brought so close to the hearing date, no doubt following advice given by Mr Yuen who has told me that he was only instructed to lead in this case a week before the hearing.

13.  I will therefore adjourn this to a date to be fixed in consultation with counsel’s diaries with a 3-hour time estimate, which should be sufficient.  The 2^nd Respondent will have leave to file and serve expert legal opinion on the matters to which I have referred and on any other aspect relevant to this application, within 14 days of this ruling and the 2^nd Applicant will have leave to file its expert’s report in reply no later than 14 days thereafter.  I have not provided much time but I can see from what has already been filed in evidence that the parties appear to be able to obtain legal opinions from their PRC experts more quickly than is usually the case in this jurisdiction and I am also anxious to have the matter restored for hearing as soon as can reasonably be arranged.  Given the bank’s more peripheral involvement in this, I hope that Mr Abraham Chan does not mind if his convenience on a new date is not canvassed.  I am sure other suitable counsel can be retained at fairly short notice if Mr Chan is not available.

14.  Whilst this adjournment will delay both applicants, I have not lost sight of the fact that the information asked for in the application is in the safe custody of the bank and this therefore becomes a question of mere delay only, which given a time estimate of three hours need not be for more than a few weeks hence.  As to the costs of and occasioned by the adjournment I will hear argument on this at the adjourned hearing.

15.  Before I leave this, may I add my voice to the proposal that had been discussed before me, by which LPC would be willing to submit the 1^st Applicant’s accounts to a forensic accounting investigation which will, of course, include submitting to the accountants who carry out such an investigation the back statements, cheques and other information that is being asked for in the application.  I would have thought that provided all the terms of reference of such an investigation, including how the costs are to be borne, that this would in fact be a more satisfactory way of resolving this part of what I know, given the other litigation which is currently before this court, is a substantial and wide-ranging dispute.

16.  My order on the adjournment will also include giving the parties liberty to apply as to the terms and implementation of the order.  At this stage, I propose to say that there should be no further affirmations without leave of the court.