WADHURAM KEWALRAMANI v. PARMANAND KEWALRAMANI

HCA 1480/2023

[2024] HKCFI 2225

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1480 OF 2023

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REASONS FOR DECISION

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1.  This Plaintiff (“P”) by summons dated 1 December 2023 (“the Summons”) applies pursuant to O19 r7 for default judgment against the Defendant (“D”) seeking specific performance of an oral agreement.

2.  The Summons was first heard on 11 January 2024 before Deputy High Court Judge Norman Nip SC, and on that occasion it was adjourned sine die with liberty to restore.

3.  On 15 March 2024, the Statement of Claim which was endorsed to the Writ was substantially amended.  The Amended Writ together with the Amended Statement of Claim have been duly served on D on 25 March 2024.  D so far has not filed his Acknowledgment of Service with an Intention to Defend nor has he filed his Defence to the Amended Statement of Claim in time or at all.

4.  The Summons was then restored before me on 7 May 2024.  I raised a number of queries with P.  P applied for, and I made, the directions that P would lodge and serve supplemental written submissions to address my queries and the Summons be adjourned to be heard on 23 August 2024.

5.  At the conclusion of this hearing, I refused to grant the default judgment and dismissed the Summons with no order as to costs.  Here are my reasons.

6.  It is trite that upon such an application for default judgment the Court shall give judgment as the plaintiff appears entitled to on his statement of claim without admitting any evidence, and that the Court retains its discretionary power whether to give judgment.

7.  At the hearing, I was informed by Mr Leung, counsel for P, that KK passed away in India, where he was domiciled, in May 2021. 

8.  In his Amended Statement of Claim, P pleaded his case as summarized in §§9 to 17 below.

9.  P, Kanhiyalal Kewalramani (“KK”) and D were brothers (together “the 3 Brothers”).  They together own and control 2 companies which has been running and operating the family business of fabric trading.  The 2 companies are Crown Import & Export Limited (“CIE”) and Crown Import & Export (HK) Limited (“CIEHK”)(together “the 2 Companies”).

10.  CIE and CIE HK are both limited companies incorporated in Hong Kong, respectively in 1995 and 2007.  The 3 Brothers each owns one-third of the issued shares in each of the 2 Companies.

11.  P and D were directors of CIE, while D and his son are directors of CIEHK.  P and KK were mainly responsible for the sales and marketing of the family business and they conducted business on behalf of the 2 Companies with wholesalers in Middle East.  D has lived in Hong Kong since 2001 and has been mainly responsible for the business operation and financial aspects in Hong Kong and for liaising with factories in Mainland China.

12.  CIE holds 3 real properties in Hong Kong, 2 of them being residential flats and one office premises (“the CIE Properties in HK”).  It is pleaded that “CIE also holds whether directly or indirectly, through an Indonesian company named PT Mideast Mercantile, in which CIE holds an 80% shareholding” (§1(10)) 2 real properties in Central Jakarta, Indonesia (“the CIE Indonesia Properties”).  The plea seems to be saying that the CIE Indonesian Properties are held by PT Mideast Mercantile in which CIE holds an 80% shareholding.   It is not pleaded who owns the remaining 20% of PT Mideast Mercantile.

13.  Since June 2014, the 3 Brothers had begun discussing the proposed splitting of the family business which included other companies in Middle East apart from the 2 Companies in Hong Kong

14.  In around March 2015, the 3 Brothers reached an arrangement concerning the splitting of the family business in India.

15.  In around early 2018, the 3 Brothers reached an oral agreement regarding the separation of their participation in the 2 Companies by several stages (“the Oral Agreement”) with the following terms (and I am paraphrasing):

(a)  As a precondition to the performance of the remaining terms, D would first settle, or caused to be settled, the “outstanding and unpaid undivided profits in CIE and CIEHK … pursuant to the amount as stated on each company’s balance sheet of 31 March 2018” (§9(1)).

(b)“A valuation of the CIE Properties in HK and the CIE Indonesia Properties as of 31 March 2018 by property agents/valuers would be arranged” (§9(2)), thereafter, these properties would be sold on the open market and the 3 Brothers shall receive the sale proceeds equally.

(c)  If any of these real properties could not be sold within a few months, they shall remain the assets of CIE and have the value as per the valuation obtained as of 31 March 2018.

(d)  The “total value of CIE would be that as stated in the Audited Financial Statements of CIE for the year ended 31 March 2018” (§9(6)) subject to the value of the unsold real properties being replaced with the value as per the valuation obtained as of 31 March 2018.

(e)  “The valuation of CIEHK would also be that as stated in the Audited Financial Statements of CIEHK for the Year Ended 31 March 2018” (§9(7)).

(f)  D would provide, or cause to be provided, financial and other information about CIE and CIEHK (from 2006 to 2018) and the information relating to said real properties to P and KK to enable their accurate valuation.

(g)  The 3 Brothers would execute Sale and Purchase Agreement(s) within a few months for the sale by P and KK to D their respective one-third shares in CIE and CIEHK at the considerations being one-third of the said respective value of CIE and CIEHK.

(h)  “After the Parties had executed Sale and Purchase Agreements as described above, with effect from 31 March 2018 onwards” (§9(9)), P and KK would no longer be involved with the affairs nor entitled to the profits of CIE and CIEHK, and D would no longer be involved in the affairs nor entitled to the profits of any of the family companies in Middle East.

16.  Pursuant to the Oral Agreement, P and KK no longer took part in the management and affairs of CIE and CIEHK since 1 April 2018.

17.  However, wrongfully and in breach, D has not performed any of the terms in the Oral Agreement by failing to settle P’s and KK’s shares of “unpaid undivided profits”, to provide information of CIE and CIEHK to P and KK, to arrange for the valuation of the CIE real properties and to sell them, to execute sale and purchase agreement(s) or to acquire P’s and KK’s respective shares in the 2 Companies in the manner as agreed.  P also says that D further breached by decreasing the amount of undivided profits in the 2 Companies.

18.  In the Summons, P asks that default judgment be entered with the following orders :

(a)  D do pay P P’s undivided profits in CIE in the sum of HK$4,043,549.84;

(b)  D do pay P P’s undivided profits in CIEHK in the sum of HK$931,925;

(c)  D do complete the purchase of P’s shares in CIE and CIEHK “at a fair and reasonable price as of 31 March 2018 and execute a sale and purchase agreement to this effect”;

(d)  D do sell the CIE Properties in Hong Kong and the CIE Indonesian Properties “at a price to be assessed and distribute one third of the net proceeds to P”;

(e)  Alternatively, damages in lieu of specific performance; and

(f)  Interest and costs.

19.  As can be seen from P’s pleaded case, the Oral Agreement was made by P and KK on the one part with D on the other, and materially, regarding the terms said to have been breached and now sought to be enforced, with D as the promisor and P and KK as the promisees.  Moreover, the main terms to be enforced, as part of the scheme to split the family business between D on the one part and P and KK on the other, entail dealing with the assets of the 2 Companies, namely, selling the 5 real properties held by CIE and paying the proceeds to all the shareholders equally and paying part of the “undivided profits” of CIE and CIEHK directly (not through the declaration of dividends) to 2 of their shareholders.

20.  It therefore seems to me that (a) KK was inextricably tie to the performance of the whole scheme of splitting the family business as embodied in the Oral Agreement, (b) KK (or his estate) is jointly entitled, as one of the promisees together with P, to the reliefs now sought by P, and (c) this Court cannot order D to deal with properties belonging to the 2 Companies without all the shareholders being present as parties to this action.

21.  O15 r4(2) provides that:

“ Where the plaintiff in any action claims any relief to which any other person is entitled jointly with him, all persons so entitled must, subject to the provisions of any written law and unless the Court gives leave to the contrary, be parties to the action and any of them who does not consent to being joined as a plaintiff must, subject to any order made by the Court on an application for leave under this paragraph, be made a defendant” (my emphasis)

22.  As I emphasize by bolding the word “must”, joining such a person as a party to the action is mandatory under O15 r4(2).

23.  Moreover, O15 r6(2)(b)(i) provides:

“ (2) Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of his own motion or on application -

(a) …

(b) order any of the following persons to be added as a party, namely –

(i)      any person who ought to have been joined as a party or whose presence before the court is necessary to ensure that all matters in dispute in the course of matter may be effectually and completely determined and adjudicated upon, …”

24.  For the reasons explained above, I am of the clear view that KK (or his estate) is a party whose joinder is mandatory and also necessary to ensure that all matters in dispute may be effectually and completely determined within the meaning of O15 r6(2)(b)(i).

25.  However, KK (or his estate) has not been made a party to this action.  At the last hearing in May 2024, this Court raised the non-joinder of KK as its first and principal query.

26.  In his supplemental submissions, P only submitted that KK does not need to be made a party to the Summons.  This Court reiterated its query by letter dated 21 August 2024.  At the hearing, Mr Leung has said all he could for P, but nevertheless was unable to make any substantive response to the effect that KK need not be joined as a party or that the default judgment can properly be granted though KK has not been joined as a party.

27.  In the premises, I take the view that this action is not property constituted as KK has not been joined, and I cannot, and also as a matter of discretion should not, grant the default judgment.  Having reached that conclusion, I do not propose to deal with my other queries which touch on other aspects of P’s pleaded case or relief sought.

28.  I thus dismissed the Summons.

29.  This Court has also discussed with Mr Leung as to the further conduct of this action in light of my conclusion that this action presently is not properly constituted.  Mr Leung informed me that the matters relating to the probate of KK’s estate were still in the process of being sorted out and there was no definite proposal from P regarding further conduct.  I therefore did not see fit to make any direction for the further conduct of this action and would have to trust that appropriate action would be taken by P in due course.

30.  I thank Mr Leung for his assistance.