WU YI CONSTRUCTION CO LTD v. BIG ISLAND ASIA LTD

HCA2134/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2134 OF 2005

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DECISION

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Introduction

1.  This is the defendant’s application to strike out the plaintiff’s re-amended statement of claim and two sets of further and better particulars respectively dated 29 January and 9 March 2009.

2.  The present action was commenced in October 2005.  The statement of claim was re-amended on 12 January 2009.  The plaintiff’s claim is pleaded in this way:

“1. On 26^th February 1991 Wu Yi Engineering Company Limited (‘Wu Yi Engineering’) and Lee, Ping Ben (‘Lee’) formed a joint venture company in Hong Kong known as FBC Construction Company Limited (‘the Company’) for the purpose of engaging in the business of building construction, decoration, interest earning and investment holding.  At the time when the Company was formed, Wu Yi Engineering and Lee each held 50% share capital in the Company.  The Plaintiff and the Defendant (formerly known as Big Island Holdings Co. Ltd.) have since respectively 15^th June 1998 and 11^th May 1996 been and are the shareholders of the Company with the respective shareholding of 60% and 40% of and in the Company.

1A.    …

1B.    However, in or around 2000, the Company did not have enough income to fund its operational expenses and it became necessary for the shareholders to make contributions to the Company.

2.   The Defendant should have made contribution to the Company proportional to its shareholding in the Company.  However, from 15^th December 2000 to 31^st August 2005 the Defendant has failed to make any contribution to the Company.

3.   As a result, the Plaintiff from 15^th December 2000 to 31^st August 2005 made substantial contributions to the Company.  The Plaintiff’s claim against the Defendant is for HK$2,056,466.33 being the loans advanced by the Plaintiff to the Defendant for the Defendant’s 40% contribution to the Company during the period from 15^th December 2000 to 31^st August 2005, particulars whereof are as follows:-

…”

3.  In the 1^st set of further and better particulars, the plaintiff pleaded that the shareholders of the Company have legal obligations to make contributions to the Company and that the defendant has a legal obligation to make contribution to the Company proportional to its shareholding in the Company.  But the plaintiff went on to state that such obligations do not arise from any agreement.  On the particulars of the alleged loans, the plaintiff said they are not applicable.

4.  In the 2^nd set of further and better particulars, the plaintiff pleaded for the first time since the commencement of these proceedings that the shareholders’ obligations to make contributions to the Company in proportion to their shareholding arose out of the express terms of a Chinese agreement entitled “組建香港福島建設有限公司合同” made between Wu Yi Engineering Company Limited and Ben P. Lee dated 18 January 1991 (“Start-Up Agreement”).

5.  Not surprisingly, the self-contradictions in the pleadings prompted the defendant to take out the present application in March 2009.

Discussion

6.  As the pleadings now stand, the cause of action is based on loans advanced to the defendant for its 40% contribution to the Company.  But the undisputed evidence is the payments were all paid to the Company’s account and not to the defendant.

7.  The plaintiff’s case, as now clarified by Mr Ng, counsel for the plaintiff, is in fact this.  The parties are legally obliged to make contributions to the Company in proportion to their shareholding.  But the defendant failed to make its 40% contributions.  The plaintiff therefore made the contributions for the defendant and now seeks recoupment.  Mr Ng made it clear that the obligations did not arise from any agreement.  Nor did he place any reliance on the memorandum or articles of association of the Company.  The obligations, according to counsel, arose from the mere fact that the parties are shareholders of the Company.

8.  If that is the plaintiff’s case, then the payments made by the plaintiff were not loans at all.  What the plaintiff is seeking is contribution or recoupment based on restitution.

9.  It is well established that a party may claim contribution from another party if both parties are liable to a common demand.  Here, the plea that the parties as shareholders are liable to make contributions in proportion to their shareholding is not supported by the evidence that the plaintiff seeks to rely on.  The 2^nd set of further and better particulars referred to the Start-Up Agreement.  But no explanation, either in pleadings or evidence, has been given why the parties as current shareholders are bound by it.  Contrary to the plaintiff’s plea, the Start-Up Agreement does not contain any express term that the shareholders are to make contributions in proportion to their shareholding.  Further, the mere fact that the parties are shareholders does not give rise to any obligation to make contributions as contended.  In any event, the demand to make contributions is separate because, even on the plaintiff’s own case, the parties are to make contributions according to their respective shareholding.  There was no demand that a shareholder had to make up the contribution that the other shareholder had failed to advance.  In other words, the demand for contributions is not a common demand.  So there can be no basis for a claim based on contribution.

10.  The principle of recoupment based on restitution can be briefly stated thus.  Where a party has been compelled by law to pay, or being compellable by law, has paid money which the other was ultimately liable to pay, so that the latter obtains the benefit of the payment by the discharge of his liability, he is indebted to the former in the amount.  See Goff & Jones, the Law of Restitution, 7^th edition, p. 423.

11.  On the materials before the court, the plaintiff has failed to show that the defendant is liable to make 40% contributions or that the plaintiff had been compelled or was compellable by law to make the payments in question for the defendant.  The plaintiff does not have any cause of action based on restitution.

12.  For the above reasons, the plaintiff’s case discloses no reasonable cause of action at all.  The pleadings are therefore liable to be struck out, and the claim, dismissed.

13.  In his written submissions, Mr Ng urged me not to strike out the plaintiff’s claims for the following reasons.

14.  First, the defendant was guilty of delay.  I disagree.  As noted, the summons was taken out in March 2009, right after the filing of the 2^nd set of further and better particulars.

15.  Second, the defendant was estopped by conduct from taking out the present application by repeatedly representing to the court that the present action would be tried together with other actions.  But what was said by the defendant previously must be understood in context.  The defendant was then referring to the position before the re-amendment which has introduced a completely new cause of action.  The litigation landscape has since been changed.  No estoppel as alleged could arise at all.

16.  Third, Mr Ng submitted that the court should secure the just resolution of disputes in accordance with the substantive rights of the parties.  And by parties, he meant the Wu Yi Parties and the Big Island Parties involved in all the other actions pending for trial in January 2010.  I disagree.  The other actions are wholly irrelevant to this striking out application.  If there is no cause of action whatsoever, the court in discharging its duty to do justice, should strike out and dismiss the claim forthwith.

17.  Finally, Mr Ng referred submitted that the payments made by the plaintiff in the present action are relevant to the issues in the other actions, in particular, the bona fides of the other claims of the Big Island Parties in other actions and the credibility of Mr Ben Lee.  Whether they are so relevant remains to be seen.  But even if they are relevant, they do not give rise to any cause of action.

Conclusion

18.  For the above reasons, I allow the application, strike out the re-amended statement of claim, the two sets of further and better particulars and dismiss the plaintiff’s claim.

[Submission on costs]

19.  Costs should follow the event.  The plaintiff shall pay the defendant costs of the action, including the costs of this application, to be taxed if not agreed.