BEST & BEST INTERNATIONAL INVESTMENT LTD. v. RICHARD TAI & CO., SOLICITORS (A FIRM)

HCMP 5268/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 5268 OF 2000

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REASONS FOR DECISION

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1. This is an application by the Defendant, Messrs Richard Tai & Co., a firm of solicitors, for interpleader relief under Order 17 rule 3 of the Rules of the High Court by a summons taken out in the action on 17 November 2000. The Defendant seeks an order that it be allowed to pay into court the sum of HK$379,648.82 held by the Defendant as stakeholder, that all further proceedings herein by the Plaintiff against the Defendant be stayed, and that an issue is to be stated and tried as between the Plaintiff, Best & Best International Investment Limited, and the Claimant, Mr Chan Tak.

2. At the conclusion of the hearing, I have granted interpleader relief to the Defendant and these are the full reasons for my decision.

3. This action is commenced by an originating summons issued by the Plaintiff on 13 October 2000 seeking an order that the money being held by the Defendant as stakeholder on behalf of Mr Lam Wai Hong in the sum of HK$379,648.82 be released to the Plaintiff. The background matters which gave rise to the Plaintiff's originating summons and the Defendant's interpleader summons may be given as follows.

4. On 8 December 1999, the Plaintiff's board of directors held a meeting which was attended by Mr Lam Sai Fat, Mr Chin Luen Cheong and Mr Chan Tak in which it was resolved, inter alia, that the Plaintiff would make a loan in the total sum of HK$1,518,595.29 to its shareholders in equal portions of HK$379,648.82 each. It was further resolved that as Mr Lam Wai Hong's status as a shareholder could not be verified at the time, the portion of the loan to be made to Mr Lam Wai Hong would be placed with the Defendant for safe custody until Mr Lam's status had been verified subject to a limit of 3 months from the date of the resolution. The validity of this board resolution is not challenged by the Claimant. Pursuant thereto, the money in question was deposited with the Defendant as stakeholder.

5. On 15 September 2000, the Claimant filed a petition in HCCW No. 850 of 2000 seeking minority shareholder's relief under Section 168A of the Companies Ordinance, Cap. 32 against the Plaintiff, Mr Lam Sai Fat, Mr Chin and Mr Lam Wai Hong. The petition was served on the Plaintiff and the three individuals on the same day. In the petition, it was alleged by the Claimant that the Plaintiff only has three shareholders and directors, being himself, Mr Chin and Mr Lam Sai Fat. The Claimant alleged that Mr Chin, Mr Lam Sai Fat, with Mr Lam Wai Hong, had acted in concert to obtain between them and/or their nominees a larger part than they are entitled of the Plaintiff's assets and accumulated profit upon the cessation of the Plaintiff's business, which would be effective from 23 October 1999 as agreed. According to the Claimant, Mr Chin and Mr Lam Sai Fat had wrongfully alleged that Mr Lam Wai Hong, who is Mr Lam Sai Fat's nephew, was a shareholder and director of the Plaintiff, and that was the reason why it was resolved by the Plaintiff at the board meeting on 8 December 1999 that the loan to be made by the Plaintiff to Mr Lam Wai Hong on the basis that he was a shareholder was to be held by the Defendant as stakeholder pending the verification of Mr Lam's status. A meeting of the directors was subsequently held on 26 January 2000 and an extraordinary general meeting on 21 February 2000. The Claimant was absent from both meetings and he challenged the validity of the resolutions in those meetings to the effect that one share in the Plaintiff was to be allotted to Mr Lam Wai Hong, that the allotment would be back-dated to the date of incorporation of the Plaintiff, and that Mr Lam was to be appointed an additional director with effect from 21 February 2000. The Claimant also claimed that in July 2000 he was wrongfully removed as a signatory to the Plaintiff's bank account and that sums of money had been withdrawn from the Plaintiff's bank account subsequently without his knowledge or consent. Of the reliefs sought by the Claimant in his petition are a declaration that the purported allotment of one share in the Plaintiff to Mr Lam is null and void and an injunction restraining the Plaintiff and the individual directors from acting on the purported allotment of one share of the Plaintiff to Mr Lam. The other reliefs sought by the Claimant in his petition are not directly relevant for present purpose.

6. On the same day the petition was filed, a meeting of the board of directors of the Plaintiff was convened. This was attended by the Claimant and the other three individuals, including Mr Lam Wai Hong, whose status was challenged by the Claimant. It would appear from the minutes of that meeting that the Claimant was out-voted and it was resolved that the money held by the Defendant on behalf of Mr Lam in the sum of HK$379,648.82 was to be released to the Plaintiff forthwith. The Claimant has challenged the validity of this resolution.

7. Armed with the resolution of 15 September 2000, the Plaintiff's solicitors wrote to the Defendant on the same day asking the Defendant to release the money in question to the Plaintiff. The letter was received by the Defendant on 16 September 2000.

8. On 18 September 2000, the Defendant received a letter from the Claimant's solicitors enclosing a copy of the petition and requesting the Defendant not to release the money held by the Defendant as stakeholder to anyone without a court order in view of the petition.

9. On 20 September 2000, the Defendant wrote to the Plaintiff's solicitors advising them of the letter from the Claimant's solicitors and stating that the Defendant would not release the money held as stakeholder unless and until the Plaintiff had obtained an order from the court for that purpose. The Plaintiff's solicitors wrote to the Defendant on the next day and stated that if the money was not received from the Defendant within three days, the Plaintiff would institute proceedings against the Defendant without further notice. The Defendant passed a copy of the letter of the Plaintiff's solicitors to the Claimant's solicitors for the latter's comments before replying.

10. On 22 September 2000, the Claimant's solicitors wrote to the Defendant and enclosed a copy of their letter to the Plaintiff's solicitors of the same date. In their letter to the Plaintiff's solicitors, the Claimant's solicitors stated that according to the board resolution of the Plaintiff dated 8 December 1999, it was agreed that the money in question should be held by the Defendant as stakeholder pending the resolution of the dispute whether Mr Lam Wai Hong was a shareholder of the Company and as that dispute would be determined by the court under the winding-up proceedings brought by the Claimant, the money in question should remain with the Defendant until the conclusion of the winding-up proceedings.

11. It is not clear whether the Plaintiff's solicitors had replied to the letter of the Claimant's solicitors. On 10 October 2000, the Plaintiff's solicitors wrote to the Defendant in which they gave a "final notice" requiring the Defendant to release to them within two days the money held by the Defendant as stakeholder, failing which proceedings would be brought against the Defendant without further notice. The Defendant again supplied a copy of this letter to the Claimant's solicitors for the latter's comments. On 12 October 2000, the Defendant replied to the letter of the Plaintiff's solicitors and stated that the dispute among the three directors and shareholders had not been resolved and that the money could not be released to the Plaintiff in such circumstances. As a solution, the Defendant suggested that the money be released to either the Official Receiver's office for their proper handling or to an account jointly held by the Plaintiff's solicitors and the Claimant's solicitors pending the outcome of the winding-up proceedings. Again, I am not aware of any reply to this letter by the Plaintiff's solicitors.

12. As stated earlier, on 13 October 2000, the Plaintiff issued the originating summons against the Defendant and on 21 November 2000, the Defendant issued a summons for interpleader relief in this action.

13. On 21 November 2000, the Plaintiff's originating summons and the Defendant's summons came before Sakhrani J and directions were given to the Plaintiff and the Claimant to file evidence in answer to the Defendant's affirmation filed in support of the interpleader summons. The Defendant's summons was adjourned for argument. Up to the time of the hearing before me, no evidence has been filed by the Plaintiff or the Claimant pursuant to that order.

14. The Claimant's petition was first heard by a master on 12 December 2000. It was adjourned to the Companies Judge on 27 December 2000. On 23 December 2000, the Claimant filed a notice to act in person in the winding-up proceedings and in the present proceedings. At the hearing before me, the Claimant has appeared in person. He told the court he could not afford legal fees. He had made enquiries with the Legal Aid Department and was told that his chances of obtaining legal aid to pursue his claim in a shareholder's dispute were slim.

15. On 27 December 2000, the Claimant's petition came before Chung J and the judge adjourned the petition to 2 January 2001. On 2 January 2001, the Claimant did not appear at the adjourned hearing of the petition. An order was made that day by Chung J that the petition be dismissed for want of prosecution. The Claimant gave me an explanation that although he was present in court on 27 December 2000, he had not heard the order pronounced by the court which was to adjourn the petition to 2 January 2001 and he did not receive any letter from the court subsequently informing him of the new hearing date. As a result, he had missed the hearing on 2 January 2001.

16. When I pressed the Claimant as to what his intentions are regarding the winding-up proceedings and his application for minority shareholder's relief after explaining to him what the possible alternatives are subsequent to the order made by Chung J on 2 January 2001, the Claimant informed me that he has no wish to pursue such proceedings against the Plaintiff and the three named individuals for the time being because of a lack of funds and his inability to get the assistance of a lawyer. The Claimant submitted to the court a document in which he set out his grounds for challenging Mr Lam Wai Hong's status as a shareholder and his objection that the money held by the Defendant should be released to Mr Lam pursuant to the board resolution in December 1999.

17. After I have explained to the Claimant the interpleader procedure and given him time to consider his position, the Claimant informed the court that he wished to maintain his stance of opposition and he would not agree to the release of the money held by the Defendant to the Plaintiff. I have also ascertained from Mr K. W. Luk, who appeared on behalf of the Plaintiff at this hearing, that the Company would not undertake not to release the money in question as a shareholder's loan to Mr Lam Wai Hong as the directors had resolved to do in December 1999. Thus, as things now stand, there are adverse claims made by the Plaintiff and the Claimant to the money held by the Defendant as stakeholder. I am unable to accept Mr Luk's submission that with the dismissal of the petition for want of prosecution, there are no longer adverse claims to the money held by the Defendant.

18. As I see it, the issue in dispute between the Plaintiff and the Claimant is whether Mr Lam Wai Hong was and is a shareholder of the Plaintiff and whether the money in question should be released to Mr Lam as a shareholder's loan pursuant to the resolution of the board of directors in December 1999. This issue should be tried as between the Plaintiff and the Claimant and interpleader relief should be given to the Defendant. Mr Luk has proposed that pleadings should be filed by the Plaintiff and the Claimant regarding the issue to be tried and I have accepted this and the directions he invited the court to make for the further conduct of the issue to be tried.

19. The order I have made at the conclusion of the hearing is as follows:

1. All further proceedings in this action by the Plaintiff against the Defendant be stayed and that no action be brought by the Plaintiff or by the Claimant against the Defendant to recover the money held by the Defendant in the sum of HK$379,648.82 for which this action is brought, or any damages for or in respect of the same.

2. The Defendant is to pay into court within 14 days hereof to the credit of this action the said sum of HK$379,648.82 after deducting therefrom the Defendant's costs of this action and of this application assessed at HK$50,000.00 on a gross sum basis.

3. The Plaintiff and the Claimant do proceed to the trial of an issue to enquire whether Mr Lam Wai Hong was and is a shareholder of the Plaintiff, so that the said sum for which this action is brought is to be released to Mr Lam Wai Hong as a loan by the Plaintiff to each of its shareholders pursuant to the resolution of the Plaintiff's directors on 8 December 1999.

4. The Plaintiff shall be the plaintiff and the Claimant shall be the defendant in the said issue.

5. The following directions for the further conduct of the issue are given:

(i) the Plaintiff is to serve and file a statement of claim within 21 days hereof;

(ii) the Claimant is to serve and file a defence within 21 days of receipt of the statement of claim;

(iii) the Plaintiff is to serve and file a reply, if any, within 14 days of receipt of the defence;

(iv) there be discovery of documents within 14 days after the close of pleadings;

(v) inspection of documents is to take place 7 days after discovery.

6. The question of which of the parties will ultimately bear the Defendant's costs which are ordered to be deducted pursuant to paragraph 2 hereof be dealt with by the judge before whom the issue is to be tried.

7. There be liberty to apply.