WONG KAN KIU v. CHEUNG WING HONG,SHANNON AND OTHERS

HCA 464/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 464 OF 2011

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REASONS FOR DECISION

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The applications

1. The plaintiff has 2 summonses before this court today:   

a.  Summons dated 16 May 2012 for leave to join Cheung Au Yuen Ling Rosaline (Mrs. Cheung) and Cheung Wing Hong Shannon (Shannon Cheung) as the intended 2nd defendants and Exester Properties Co.  Ltd.  (the company) as the intended 3rd defendant and for leave to re-amend the Amended Statement of claim;

b.  Summons dated 4 September 2012 for the above summons to be amended as per the draft Re-amended Statement of claim attached to replace the one attached to the above summons.

2. Counsel S.  Law acts for the plaintiff and Counsel W.  Sham acts for Mr. Shannon Cheung only.  Mrs. Cheung and the company are not represented and they have not appeared in court today.  I have verified that due notice has been given to the absentees.  The proceedings should therefore proceed accordingly.

3. The defendant has no objection to the summons dated 4 September 2012, which is to rectify the previous summons and the Re-amended Statement of claim attached to it.  I now make an order in terms of the summons with costs to the defendant, to be assessed at the end of this hearing.

4. In respect of the summons dated 16 May 2012, the defendant does not object to the joining of the intended 2nd defendants, but only opposes to the joining of the company.[1]

The facts

5. The real dispute between the plaintiff and the defendant is over the right and beneficial interest in the company, which was formed as a corporate vehicle to hold a shop No. 19B on Level 1, Shatin New Town, Nos. 1-15 Wang Pok Street, Shatin, New Territories (the property) for investment.  The property is now on lease.

6. The plaintiff claims against the defendant and the intended defendants for declaratory and injunctive reliefs:

a.   A declaration that the plaintiff and her late husband, whose estate she is the administratrix, are each the owner and holder of one of the four issued shares of the company;

b.   A declaration that the plaintiff remains a director of the company;

c.   A declaration that Shannon Cheung, the 1^st defendant has never been a shareholder or a director of the company;

d.   An injunction to restrain the defendants from disposing of or dealing with the property;

e.   An injunction to restrain the defendants from denying the shareholding or directorship of the plaintiff;

f.    An injunction to restrain the defendants to change the records at the Companies Registry to deny the shareholding or directorship of the plaintiff.[2]

7. Briefly stated, the facts of this matter are that the company had issued four shares and until January 2003, those shares were respectively held by the plaintiff and her late husband; Mrs. Cheung and her late husband each holding one share.  The company’s directors were at that time, Mrs. Cheung’s late husband, the plaintiff and her late husband, who was also the secretary.

8. In January 2003, the plaintiff discovered that the company’s records at the Companies Registry had, without the plaintiff’s consent, been altered in such a way that she and her late husband had been removed as directors of the company.  

9. In October 2008, the company’s records at the Companies Registry had, without the plaintiff’s consent, been altered to the effect that the only shareholders of the company were Mrs. Cheung’s husband and Shannon Cheung, Mrs. Cheung’s son, each holding two shares of the company, which means a denial of the shareholding of the plaintiff and her late husband.

10. The plaintiff had attempted to rectify the records by filing new records with the Companies Registry.  But the records were superseded by new records filed by the defendants and the Annual Return of the company showed that as at 19 September 2010, Mrs. Cheung’ late husband and Shannon Cheung were holding two shares each of the company and Shannon Cheung was the sole director.

11. Mr. Cheung had passed away in February 2010[3].  Mrs. Cheung and Shannon Cheung are the executors of his estate.

12. The plaintiff took out this Action against the defendants in order to protect her interest in the company.

The original action

13. The original action was between the plaintiff and Shannon Cheung as the 1st defendant and the company as the 2nd defendant.

14. At certain stage of the original action, the plaintiff and Shannon Cheung intended to resolve their disputes by mediation.  They applied to the court, by consent, for a 4-week stay of the proceedings.  The Court had raised the question as to the position of the company, which had not given the consent.  The plaintiff then decided to discontinue her claim against the company.  On that basis, the Court granted the stay and the plaintiff and Shannon Cheung attempted mediation, which had failed.

The defendant’s grounds of opposition

15. Now the plaintiff applies to restore the company as the third defendant, which the defendant opposes on the following grounds:

a.  The joining of the company is not necessary as there is no allegation against it.  It is purely a dispute between the shareholders;

b.  The plaintiff had conceded previously that the joining of the company as the 2nd defendant might not be necessary;

c.  The plaintiff had ulterior motive in joining the company as it will place the company in a very difficult position.  It is unlikely to be represented in that if the plaintiff were successful in her claims, she would not agree to give consent to the solicitors to act for the company.  The solicitors acting for the company will be exposed to the risk of acting without authority of the company.  They may have personal liability for the costs.  The plaintiff had attempted to apply for default judgment against the company in the original action.

d.  A company’s money should not be expended on disputes between the shareholders.  Re CG & L Investment Ltd.  and Wyatt Estate Ltd.  [1992] 1 HKC78.

Discussion

16. Mr. Lam argues that the company is a necessary party for this action because the plaintiff has sought declaration on who the directors and shareholders of the company are.  The company is an entity directly affected by the outcome of the court and it is therefore necessary to have the company as a party so that it is bound by the order of the court.[4]  He agrees that the wording of the injunctive reliefs may be a bit wide, as commented by Mr. Sham.  But this issue will be dealt with by the trial judge.  I agree with Mr. Lam.  I have raised this issue with Mr. Sham by taking an example that if the company were not bound by the order of the court, the company might refuse to register the plaintiff as the shareholder and the director despite the Court Order.  Mr. Sham agrees that if such a scenario happened, it would be necessary for the plaintiff to take out an action against the company in order to enforce the Order against it.  I consider that this may not be an impossible or a rare possibility.  If this happens, the court may have to deal with the facts or issues which may overlap with those to be tried in the Action.  For this reason alone, I agree with Mr. Lam that it will be prudent to have the company to be heard in this Action.  Of course, I have to consider Mr. Sham’s other views as well.

17. The order for discontinuance of the action against the company was made by an order of  Master Levy dated 23 November 2011[5] on the application of the plaintiff where Shannon Cheung, the 1st defendant was absent.  The application was made pursuant to rule 3 of Order 21 RHC.  Rule 4 of Order 21 provides that the fact of discontinuance cannot be taken as a defence in a subsequent action for the same.  Except on the costs of the application, the court had not imposed other terms such as that the plaintiff is not allowed to reinstate the company without leave of the court.

3. Discontinuance of action, etc. , with leave (O. 21, r. 3)

(1) Except as provided by rule 2, a party may not discontinue an action (whether begun by writ or otherwise) or counter-claim, or withdraw any particular claim made by him therein, without the leave of the Court, and the Court hearing an application for the grant of such leave may order the action or counterclaim to be discontinued, or any particular claim made therein to be struck out, as against any or all of the parties against whom it is brought or made on such terms as to costs, the bringing of a subsequent action or otherwise as it thinks just.

(2) … …

4. Effect of discontinuance (O. 21, r. 4)

Subject to any terms imposed by the Court in granting leave under rule 3, the fact that a party has discontinued an action or counterclaim or withdrawn a particular claim made by him therein shall not be a defence to a subsequent action for the same, or substantially the same, cause of action.

18. The allegation of ulterior motive of the plaintiff in joining the company is not supported by evidence, except for the fact that the plaintiff had, in the original action, attempted to obtain default judgment against the company.  Mr. Lam explains that it was because the plaintiff was under a mistaken belief that it was represented by Shannon Cheung’s solicitors too.  The plaintiff did not pursue the application after she came to know that the company was not represented.  Mr. Lam undertakes that for this Action, the plaintiff will not apply for default judgment against the company because it is purely a dispute between the shareholders.  It is apparent that the company is joined as a nominal party, similar to a company in the derivative action taken out by the minority shareholders, so that the company will be bound by any order of the court.  As the company takes a neutral stance, its legal representation is a matter of form rather than substance.  Usually, the legal representatives of the other defendants will act for the company as well.  Even if the company is separately represented, the authority can come from the board of directors of the company as it stands for the time being.  Any order that the court may make should not invalidate the appointment made before the court order was granted.  For the legitimate reasons above, the company’s expense for its representation is a necessity for the administration of justice, saving costs and time too.  The amount involved will not be significant and is justifiable.  

19. On the reasons above, I allow the company to be joined as a party to the Action.  The defendant does not dispute other proposals in the plaintiff’s summons dated 16 May 2012.  I make an order in terms of this summons.

Costs

20. On the question of costs, Mr. Lam agrees that the costs of and occasioned by the plaintiff’s re-amendments to the Amended Statement of Claim should be given to the 1st defendant in any event.  He asks for the costs of this hearing against the defendant, with a certificate for counsel.  Mr. Sham argues that in the plaintiff’s reply to the defendant’s letter dated 26 September 2011[6], the plaintiff did not agree that the company was a nominal party.  Today, the plaintiff has taken the stance that it is.  I accept Mr. Lam’s observation that the dispute at that time was over whether a default judgment should be granted to the plaintiff against the company.  Throughout Mr. Sham’s written submission for today’s hearing, there is no indication that the defendant has no objection if the company is only joined as a nominal defendant.  Today, the argument seems not on whether the company is or has to be a nominal party.  I consider the defendant has to pay the plaintiff’s costs for today’s hearing, with a certificate for counsel.  The costs are to be summarily assessed at $68,000.00. But because of the plaintiff having to take time (about 30 minutes) to prepare the schedule of costs, which should be prepared by the plaintiff’s solicitors to be submitted together with the skeleton as provided in the Practice Direction 14.3 at paragraph 8, which the plaintiff has failed to do, I shall now deduct $3,000.00 from the assessed amount, amounting to a net sum of $65,000.00.

Order

21. I now make the order in terms of following:

a.  An order in terms of paragraphs 1-3 of the summons dated 4 September 2012;

b.  The costs of the summons are to the defendant, to be assessed at $1,000.00;

c.  An order in terms of the paragraphs 1-3  and 7 of the Amended summons annexed to the summons dated 4 September 2012;

d.  The time for paragraphs 4 and 5 of the Amended summons be extended to 28 days respectively from the date of this order;

e.  The costs of this hearing today be assessed at $68,000.00, the net sum after deduction of $3,000.00 and $1,000.00 for the plaintiff’s summons is $64,000.00 which is to be paid by the defendant to the plaintiff within 14 days from the date of this order.