CHEUNG HING v. WONG CHOR CHEUNG AND ANOTHER

HCA336/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 336 OF 2008

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BETWEEN

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DECISION

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1.  There are several applications from each of the three parties appearing before me today. The most important application is the one by the defendant in this action, seeking leave to appeal against my decision on 11 February 2011. The defendants are represented by Mr K.W. Ng, a solicitor. There is another application for further direction and order made by the plaintiff herein which I shall deal with later.

2.  My decision of 11 February was a result of an overall CMC of all the cases involving basically between Mr “Wong” Chor Cheung, the 1^st defendant, and Mr “Cheung” Hing, the plaintiff, and other parties in respect of the same subject matter, and that is a Property in the Peak owned in the name of the 2^nd defendant, Wah Fung Forest Resources Ltd (“the Company”).  It is common ground between Cheung and Wong that they were and still are 50% shareholders.

3.  The recent annual return, dated 19 February 2010, submitted to the Company Registry shows that Wong is not a director any more, whereas his wife is.  Cheung is still a director but there are other directors :

(1) Hopewell Investments Inc., a company resident in the Republic of Mauritius;

(2) Success Consultants Limited, in BVI;

(3) one individual called Chan Siu Fung; and

(4) another individual, also in Hong Kong, by the name of Chen Shulong.

Cheung Hing’s case

4.  Cheung alleged that these directors were not appointed with his knowledge and there was no board resolution to that effect.  Mr Ng said that in the past, the Company acted informally and even Cheung’s brother had been the company secretary at one stage and he was also appointed informally.  But one thing is certain and that is, from Wong’s instructions, there were no board resolution to appoint these directors.  Cheung’s case is that he has no knowledge of, and ex hypothesis, no consent to appointing these directors at all (though he had consented to appointing his brother as the company secretary).  His case is that the Property and the Company was all the time handled by Wong.  He has no knowledge as to its income, expenditure or anything.  That is why he asked for an income and expenditure account of the Property.  I have made an Order to the effect that Wong should furnish such an account to Cheung sometime ago, but for a long time thereafter, Wong has not complied with such an Order.

5.  The present dispute stems from a Consent Order at the trial which is in Chinese, because at that time both of them were unrepresented and they told me at the trial that both of them would agree to have the Property sold.  The first paragraph reads :

「經有關訴訟方同意，現頒令如下：

一．原告人與第一被告人同意第二被告人需即時出售該些物業，所得收益在扣除出售該些物業所涉及的所有開支後，需即時繳存於法院，為使上述物業得以出售，本訴訟的待決案件如已撤銷。

二．第二被告人所持有的該些物業需如製備賬目，另外原告人和第一被告人需於本命令日期起計六十天之內向法庭提交及向有關訴訟方送交賬目，列舉截止賬目註明日期或截止這些物業出售當日的所有收入和開支。訴訟各方均可向法庭提出申請及訴訟費事宜。

……

四．訟費事宜不作命令。」

6.  In the first place the 1^st defendant has not complied with paragraph 2 of this Order.  But more importantly it is quite clear, from paragraph 1, that both Cheung and Wong agreed that the Company should sell the said Property, in that, the Company, in selling the Property, would not be at the sole idea, initiation and/or intention of Wong.  In other words, the Order did not say that Wong could, on his own, sell the Property without relating the matter to Cheung, the other 50% shareholder.  Cheung and Wong together should sell the Property in the name of the Company.

7.  Now, what happened thereafter was, from the horse’s mouth in Wong’s 2^nd supplemental affirmation, filed under HCA336/2008 and HCA925/2010, in paragraph 27 thereof, he said :

“(b) I used my best endeavour to find some potential purchasers with a view to selling the property at a higher price to the best interests of myself, the Plaintiff and W F Forest. As I know the investors of Mainland China are used to invest into the property market with the luxury property in Hong Kong, I believe that it would be the main source of looking for potential purchasers. Hence, I have contacted Midland Realty Limited, Shenzhen, in or around late April 2010. Apart from it [there is no explanation why he has to contact Midland Realty Limited, in Shenzhen instead of the same company’s headquarters in Hong Kong but be that as it may he went on to say] I had also conducted searches of the current market price of the property at the Internet through the websites of Centaline Property Agency Limited and Midland Realty Limited. It was my impression that the property was worth about HK$30 million at that time.

…

(e)   W F Forest has successfully secured Best Century Holdings Limited as a purchaser and the parties reach an agreement on the terms of the sale for the property and the second purported PSP was signed eventually.”

8.  Best Century is actually owned, I think implicitly wholly owned by a Mr “Ko” Cheong Hung Gary. Best Century is one of the defendants in HCA925/2010.  Ko is represented by Miss Charmaine Lo of counsel today.  Ko applied to intervene in these proceedings.  In fact, Best Century was represented by Mr Wilson Hui, of counsel, at the last CMC when I made the orders and directions.

9.  Ko put in an affirmation and described how he came to buy this Property at HK$15 million.  He, because of his network in the Mainland, knew a lawyer in Shenzhen, Futian District, called Mr Yang Guangze.  Mr Yang mentioned to him about this Property with an existing tenancy agreement and the owner was asking for a price around HK$20 million.  This is located at the Peak with a size of around 2,000 sq.ft.  There was no mention of the garage.  But I take judicial notice that that price in May 2010 is too good to be true.  A flat of the same size even in mid-levels must be worth more than $20 million.  Be that as it may, I am fully conscious that now is not the trial of these actions.  However I must assess the strength of each party’s case in this application for urgent interim measure, as the bank is threatening to foreclose the mortgage, in which event it will not benefit anyone of the three parties.

10.  Yang then introduced Wong to him and Wong said he was trying to sell the Property quickly as the Company was behind its mortgage payments.  Wong also mentioned that there was a possibility of a redevelopment project on the Property and the value thereof would be much higher than the current value.  They then signed a provisional sale and purchase agreement (“the PSP”) on 28 May 2010 for $15 million with an option given to the Company to buy back 30% of the equity interest of the Property at the original price within six months from the expiry of the existing tenancy agreement.  This was actually signed in Shenzhen.

11.  This provisional sale and purchase agreement was registered in the Land Registry on 3 June 2010, which will of course date back to the date of the agreement on 28 May 2010 as it was registered within one month thereafter.

12.  This will bring me to Mr C.Y. Li’s (for Cheung) first point, which he described as an open-and-shut point.  The Best Century PSP was registered after the lis pendens of this action had been registered.  In fact, the registration of the PSP was also after the registration of the Consent Order of 24 March 2010 in the Land Office.  So Best Century’s interest, if any, will take after Cheung’s interest.

13.  The same point was made when parties last time appeared before me on 11 February 2011 and that is : Best Century knew about the Consent Order when it made the PSP and thus the validity of the purported sale to Best Century is subject to the sale order in the 24 March Consent Order.  Best Century knew or should have known that Cheung did not know or consent to the sale and hence the purported sale to it was not authorised.  Indeed, nothing from Mr Ko, for Best Century, nor from Wong that at the time of the PSP, they have made inquiry as to the following matters :

(1)   whether the Company has passed a proper board resolution approving the sale to Best Century; and

(2)   whether the one who signed the PSP, which was described as Success Consultants Limited, being a BVI Company was a properly constituted director, with the knowledge and/or consent of Cheung or whether there was any board resolution, appointing Success Consultants Limited to sign the PSP.

14.  Of course, Wong’s case, as submitted through Mr Ng, is that all directors, including Success Consultants Limited, were informally appointed with the knowledge of Cheung.  Be that as it may, assuming that was the case, it still begs the question why Wong could effect a sale and cause the PSP to be signed by Success Consultants Limited without reference to Cheung and he said that was, in his solicitors’ language, by the Consent Order and eventually pursuant to the Consent Order.  In my view, it is anything but pursuant to the Consent Order.  For the aforesaid reason, the defendants have no reasonable chance of success in the appeal.  The order for sale has been made long time ago, but it did not empower Wong to sell the Property himself without obtaining Cheung’s approval.  It only empowered the Company to sell the Property.  Thus it must have been painfully clear to Wong that he was not to go behind Cheung’s back and sell the Property himself.

15.  This is tell-tale of the behaviour of Wong, as alleged by Cheung, all along since the purchase of the Property.  “Mr Wong never referred to me.  He just acted on his own without giving account of the profits he made, without repaying the money he owed me, without telling me what happened to the property at all until I sue him in this action”, so said Cheung.

16.  In applying for leave to appeal and also in resisting Mr Li’s application for further direction and order, Mr Ng submitted that there is no urgency in selling the Property.  Cheung’s position is safely secured.  Best Century is under an injunction restraining it to resell the Property.  I am afraid that is beside the point.  The fact that Best Century cannot sell on the Property is no comfort to Cheung.  The property market is very volatile.  It fluctuates every minute.  Nobody knows what will happen in the world in the next minute.  No one in the past would know that, say, Japan would be facing a big disaster which would affect the world economy one way or the other.

17.  In fact, on the other hand, Best Century’s position is well secured, if it proves to be right.  The proceeds of any sale in future are directed to be paid into court.  It is, at least, opened to Best Century to claim damages against Wong for breach of warranty of authority if Ko and Cheung both proved to be right.

18.  That leads me to the last question to be decided and that is the submission of Miss Lo.  According to Ko, Best Century is going to make a huge profit on re-development and, if there is a sale, then they will have lost the chance of redeveloping the Property for much more profit.  Mr Li pointed to the evidence and said there is not one single piece of evidence that there will be a redevelopment project coming.  The suggestion of the last one did not bear fruit at all. 

19.  Further, according to Cheung, because of the mortgage created with advancement in favour of Wong, the Company is now heavily indebted to the bank under the mortgage.  The bank has all along, and more pressingly recently, threatened for a forced sale if no money is coming to repay the mortgage.  That is the urgency of the sale under my Order of 24 March 2010.

20.  In balancing the interest of the Company and Cheung on one side, and Ko and Best Century on the other side, and as an interim measure, the only solution to it is the sale of the Property, taking the opportunity of the recent market condition and repaying the bank.  Hopefully, there will be a substantial balance to be shared between the two parties.

21.  There is no action so far by Best Century or Mr Ko against Wong for breach of warranty of authority and no one has explained why that is so.  Even if there is such an action, Best Century can look to the balance of the proceeds in court against Wong’s share in the proceeds.

22.  Taking all these matters into consideration, the best way forward is to maintain the sale of the Property with a direction, as I have made in the past, that the proceeds shall be paid into court. 

23.  For the aforesaid reasons :

(1)   D1 and D2’s application for leave to appeal against my decision on 11 February 2011 is refused; and

(2)   the application for a stay of execution of the said Order is also refused.

24.  I now come to Mr Li’s application by way of liberty to apply in respect of the time table of the Order for sale of the Property.  Mr Ng objected to the application of Mr Li today for further direction by taking a technical point that it is not made by way of a summons.  I agree with Mr Li that the application was made under liberty to apply and the other side has ample notice of what they are applying for.  When the defendants’ application for leave to appeal and stay of execution is dismissed, there should be certain consequential directions from that since the timetable would have to be readjusted. 

25.  So I order in terms of the first application, and that is in paragraph 3.1(a)(i) of Mr Li’s skeleton argument.  My order at page 165 of the bundle, paragraph 1, the last part will change to : “Within 28 days from the date of this court has appointed the surveyor.”  Sub-paragraph (ii) in the last part shall be changed to “Within 42 days from the date this court has appointed the estate agent and the sale be completed within four months from the date of aforesaid appointment.”

26.  In this respect, a further order is made that, since the parties cannot agree on the surveyor and the estate agents, and I accept the plaintiff’s submissions, as follows :

(1) that the plaintiff be authorised to nominate Centaline Surveyors Limited to determine the current market value of the Property;

(2) the plaintiff be authorised to nominate Centaline Property Agency Limited and Midland Realty Limited as the estate agents for the sale of the Property by private treaty and at the market value to be determined by Centaline Surveyors Limited; and

(3) should other estate agents, having potential buyers for the Property, the plaintiff be authorised to retain such estate agent or agents for the sale of the Property at the aforesaid market value.

27.  As suggested by the solicitors for the defendants, with no objection from the plaintiff, Messrs P.C. Woo, Solicitors, shall undertake all legal works pertaining to the sale of the Property including redemption of the existing mortgage of the Property.

28.  There is a further direction sought by Mr Li for the plaintiff, for the avoidance of doubt, since the intended sale will have to overcome the registration of Best Century PSP, namely :

“The purported sale of the property to Best Century Holdings Limited by the purported provisional agreement for sale and purchase of the Property (‘PSP’), dated 28 May 2010 was not made pursuant to the Consent Order dated 24 March 2010 and as such, the sale pursuant to the Consent Order shall take free of any interest of Best Century Holdings Limited which may subsist in the Property by reason of the PSP, but the aforesaid Order is made without prejudice to Best Century’s claim in the proceeds of the aforesaid sale in High Court Action 925 of 2010.”

29.  Of course, before the Order is sealed, Mr Li may come up with a better draft for my approval to represent the intention of this Order.  The intention is clearly that I am not declaring, as suggesting by Miss Lo, that Best Century has no interest but Best Century’s registration should not affect the proposed sale.  For that reason, if there is a sale in the future, Best Century’s registration should be vacated.  That is the intention.

30.  Lastly, I entirely agree also with Mr Li that we have a case that Wong is trying to avoid service.  Even Mr Ng cannot tell me why Wong did not instruct his own solicitors to accept service.  To suggest Wong will now arrange a time to receive service, personal service, is too late.  So pursuant to Order 65, rule 4, I make an order that Cheung shall be entitled to effect service of orders made on 11 February 2011 and 18 March 2011 and other documents in this case, on Wong with penal notices endorsed thereon, by serving the same on Messrs W.K. To & Co., by post or by hand and the same shall be deemed to be good and effective and sufficient service as personal service on Wong, and can be relied on in any contempt proceedings which may be instituted against Wong.

[Submissions on costs]

31.  It is Wong’s application which has failed and it is also Wong’s opposition to the plaintiff’s application which has failed.  Thus, costs of the aforesaid applications of the plaintiff and the 1^st defendant, be paid by the 1^st defendant, Wong, to the plaintiff, Cheung, in any event to be taxed by summary assessment on papers.

32.  Lastly, Best Century applied as an intervener, for leave to intervene and be heard in these proceedings.

[Submissions re Best Century’s application]

33.  There is no need to include Best Century as an intervener in this Action HCA336/2008.  The more convenient way is to consider consolidating the two Actions, HCA336/2008 and HCA925/2010, in which Best Century is the 2^nd defendant, upon its application.  Accordingly the application by summons of Best Century Holdings Limited, dated 16 March 2011, is dismissed with costs to be paid by it to the plaintiff in any event to be taxed by summary assessment on papers.  It is further directed that any application from any party herein, which may affect Best Century Holdings Limited, the applicant shall duly notify the solicitors for Best Century.