SCE CONSTRUCTION MATERIAL LTD v. CHOI CHUNG BUN VINCENT AND ANOTHER

HCA 1806/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1806 OF 2009

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BETWEEN

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D E C I S I O N

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Introduction

1.  This is the plaintiff’s application for summary judgment against both defendants.  In this action, the plaintiff claims that the defendants misappropriated about $1.647 million being dividend wrongfully received by the 2^nd defendant (“Choi’s SCE”).  The dividend was paid by the trustees in bankruptcy of the estate of one Mr Tan Kin George (the plaintiff’s judgment debtor).

2.  It is part of the plaintiff’s case that the 1^st defendant (“Choi”) misled the trustees in bankruptcy into doing so.  One means by which Choi achieved this was to incorporate Choi’s SCE, which bears a company name identical to the plaintiff’s.

3.  The defendants deny the claim, alleging that they were entitled to receive the said sum.  Choi asserts that he was entitled to director’s remuneration (at $15,000 per month) for the period from 1 April 2001 to 31 August 2009 (8 years 5 months) totaling $1.515 million ($15,000 x 101 months) (“the allegedly outstanding remuneration”).  He asserts he was also authorized by the plaintiff to hold on to the remainder of the said sum pending further instructions from the plaintiff.

4.  As a result of the defendants’ earlier application regarding the plaintiff’s authority to sue, a judgment was handed down 8 February 2011.  Some of the findings made by the court therein are relied on in this application.  They include:-

(a)  the director’s remuneration of Choi (at $15,000 per month) payable up to the end of March 2001 had been fully settled by the plaintiff;

(b)  as at 4 April 2001, the plaintiff’s only shareholder was a Total Linus Solutions Ltd, which was beneficially owned by one Mr Fu (“Fu”);

(c)  as at that date, the plaintiff’s only director was Choi;

(d)  as at that date, the plaintiff was not indebted to Choi in respect of director’s remuneration (whether $1.039 million odd or any amount);

(e)  the purported board resolution of 4 April 2001 to allot 4,000 shares in the plaintiff to a company owned by Choi was wrongful and improper and not binding on the plaintiff;

(f)  Choi’s said company and Choi’s SCE were not shareholders of the plaintiff.

5.  The defendants’ appeal against the said judgment to the court of appeal was unsuccessful.  Among other things, the court of appeal observed that the share allotment was voidable and must be taken to have been avoided.

Director’s remuneration

6.  Choi’s claim for the allegedly outstanding remuneration rests on 2 bases:-

(1)  the plaintiff’s own witness who testified in the earlier application said that Choi was fully paid his director’s remuneration up to March 2001 (at $15,000 per month since 1999);

(2)  a shareholders’ resolution dated 30 December 2008 and a board resolution dated 2 January 2009.

7.  The said shareholders’ resolution states:-

“IT WAS FURTHER RESOLVED THAT … the outstanding Director Remuneration of HK$ 15,000 per month due to executive director, [Choi], for the period from 1 April, 2001 to 31 Dec, 2008 … be paid out of the dividend payments received from the said Trustee … ”.

The said board resolution states:-

“… Pursuant to the [said shareholders’ resolution], [the resolution quoted above was then set out] … ”.

8.  In relation to basis (1) above, the plaintiff argues that Choi’s claim cannot be properly advanced.  This is because the plaintiff was owned by Fu since 27 March 2001 and Choi has not alleged that he had reached an agreement with Fu for remuneration.  A mere reliance on the continuation of a previous arrangement is insufficient.

9.  The plaintiff also put forth other grounds for challenging Choi’s claim such as the plaintiff has been dormant for a lengthy period and Choi failed to ensure the plaintiff was not struck off the BVI register.

10.  In relation to basis (2) above, the plaintiff contends that the shareholders’ resolution cannot be valid because the court has found that neither of Choi’s two companies were the plaintiff’s shareholders (see para 4(f) above).  It is also contended that the board resolution is also invalid because it “rode” on the shareholders’ resolution (the phrase “Pursuant to the [said shareholders’ resolution” therein is relied on in support of the contention).

11.  Despite the plaintiff’s above criticisms, the fact remains the testimony of its own witness (see para 6(1) above) and the finding in the judgment (see para 4(a) above) must imply that Choi has at least at some stage been entitled to a remuneration of $15,000 per month.  The question of whether the validity of the board resolution should depend on the validity of the shareholders’ resolution is also unsuitable to be determined summarily.

12.  For this reason, I find this issue ought to be left to trial.

Authorization to hold the sum

13.  The said shareholders’ resolution and board resolution are also relied on by the defendants for establishing their defence of having been authorized by the plaintiff.

14.  The relevant part of both of those resolutions is:-

“the outstanding Director Remuneration … be paid out of the dividend payments received from the said Trustee. And … be authorized to effect the payments … and to retain the balance for and on behalf of the Company until further resolution”.

15.  For reasons similar to those set out in the previous heading, this issue ought also be left to trial.

Conclusion

16.  This is a case where the plaintiff should know that the defendants are relying on contentions which would entitle them to unconditional leave to defend.

17.  Accordingly, this application should fall within the ambit of RHC Ord 14 r 7(1).

18.  This application is therefore dismissed.

Other matters

19.  At the beginning of the hearing of this application, the plaintiff applied to delete all references to “dishonestly”, “fraudulently” and/or words of similar import in its statement of claim.

20.  The defendants oppose the application to delete on the ground that they prepared their opposition to this application based on the case advanced in the existing pleading.

21.  The defendants also oppose this application on the ground that the plaintiff’s pleaded case involves a claim “based on an allegation of fraud” which renders this application to fall outside Ord 14 (see Ord 14 r 1(2)(b)).

22.  Because I have been able to determine this application on other grounds, it is strictly unnecessary to consider this aspect.  If it were necessary to do so, I would have been inclined to agree with the defendants in this regard.

23.  Consequently, this application should have been dismissed for this reason as well.

Costs order

24.  By reason of the above matters, the costs of this application should be paid by the plaintiff to the defendants.

25.  I consider summary assessment of costs to be appropriate.  The above costs shall thus be so assessed.  For this purpose:-

(a)  the receiving parties be at liberty to lodge with court and serve a statement of costs within 7 days from today;

(b)  the paying party be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.