MIGHTYSILK LTD AND OTHERS v. CHINACHEM AGENCIES LTD

HCCL 73/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.73 OF 2002

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J U D G M E N T

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The application

1. There is before the Court a summons taken out by the defendant herein, Chinachem Agencies Limited ('CAL') dated 2 June 2003. This summons seeks an order that the proceedings in this action "be stayed pending the determination of the appeal in HCAP 8 of 1999".

The background

2. HCAP 8 of 1999 has gained a certain notoriety as the result, inter alia, of the considerable length of time required at first instance to hear this action, which had been commenced by Mr Wang Din Shin, father of Mr (Teddy) Wang Teh Huei, the late Chairman of that which commonly is referred to as the 'Chinachem Group'.

3. In this probate action, Mr Wang Din Shin, who on 22 September 1999 was granted leave to swear to his son's death, claimed that under a will dated 15 March 1968 that he had been named as sole beneficiary of his late son's estate. To the contrary, Mr Wang's widow, Mrs Nina Wang, contested this assertion, relying on a will said to have been made by her late husband on 12 March 1990 under which she had been named as sole beneficiary.

4. On 21 November 2002 Mr Justice Yam handed down judgment in this probate action. He found in favour of the contentions of Mr Wang Din Shin. He held that the will advanced by Mrs Wang was a forgery. He formally granted a decree of probate for the Will of Wang Teh Huei dated 15 March 1968.

5. This judgment is currently under appeal. This appeal is to be heard by the Court of Appeal commencing on 29 September 2003, eleven days being reserved.

The present action

6. The present action, for which a stay now is sought, is one brought by five 'Mighty' companies which are part of the Chinachem Group. They are companies of which the late Mr Teddy Wang appears to have been the sole beneficial owner. As such, therefore, they form part of his testamentary estate.

7. It is said that they have been under the de facto control of Mrs Nina Wang since the date of Mr Teddy Wang's kidnapping, on 10 April 1990, until 15 March 2000, which is the date of the appointment by the court, pursuant to section 40 of the Probate and Administration Ordinance, of the joint administrators pendente lite, who were charged with the task of getting in and preserving the assets of the Estate of the late Mr Wang pending the outcome of the Probate action. This appointment has been continued, by order of Madam Justice Chu, pending resolution of the appeal process.

8. The joint administrators, who are Mr Cheung Yat Ming, a partner of Pricewaterhouse Coopers, and Mr Tan Man Kou, a consultant in Deloitte Touche Tohmatsu, have been, and indeed continue to be, engaged in a number of pieces of litigation with Mrs Wang. This action is one such.

9. I am told that the joint administrators now are the registered shareholders of the entire issued share capital of the plaintiffs, and of the corporate directors of the plaintiffs. In about July 2002 the joint administrators took steps to cause the Mighty companies to make demand upon CAL for payment of sums reflected in the books of the five companies as being due and owing from CAL.

10. The writ in these proceedings was issued on 29 October 2002, and the Statement of Claim was served on 25 November 2002. It is asserted that the claims of the plaintiff companies derive from the receipt by CAL, over the years, of rents and sale proceeds in respect of properties owned by the Mighty companies, net of expenses paid by CAL on their behalf.

11. The claims in total amount to approximately HK$50 million, albeit the lion's share of these claims is made by the 1st plaintiff (for some HK$43.8 million), and by the 2nd plaintiff (for some HK$5.1 million). It is said that this inter-company indebtedness thus arising is due on demand, although by amendment to the Statement of Claim alternatively it is contended that the funds received by CAL or its predecessor, Chinachem Group Company Limited, are held on trust.

12. The defence to this claim revolves around the function, within the Chinachem Group, of the defendant herein, CAL. It is said that CAL has been the 'treasury company' within the Chinachem Group since 1987. It is pleaded that funds generated by the operation of companies within the group would variously be applied for the benefit of the group as a whole, and thus on that basis it cannot simply be assumed that the credits and debits recorded in the inter-company accounts are payable on demand from one company to the other. I have been told that it is intended shortly to amend the existing Defence to plead an implied term (to the effect that repayments will only be made if such is considered to be in the interests of the Chinachem group as a whole), and that a plea of estoppel also will be raised.

13. The present state of play in these proceedings (which apparently is one of a number of similar potential actions, and thus is regarded as something of a "test case"), is that the pleadings remain to be fully constituted, with a Reply due to be served upon filing of the amended Defence, for which amendments further time is to be requested. Although discovery has taken place, inspection having been completed by 26 May 2003, there remains the possibility of further discovery consequent upon the pleading amendments. I understand also that it is intended that interrogatories are to be served by the plaintiff whether these will be resisted I know not and obviously at this stage witness statements have not yet begun to be prepared.

14. The position, therefore, is that there remains some procedural way to go before this case is ready to be set down for trial. A Summons for Directions, which first was brought on before this court on 24 May 2003, presently stands adjourned, and further directions thereunder await the result of this application for a stay of proceedings, an application first canvassed in inter-solicitor correspondence by the defendant's solicitor's letter of 24 April, before seeing the light of day some five weeks later with the issuance of the present summons dated 2 June 2003.

Ambit of the present application

15. In moving this application Mr Reyes SC, for the defendant, suggested that should this court be amenable to the grant of a stay of these proceedings in principle, there were three eventualities that could be considered, the terms of the present summons notwithstanding. These were to order a stay of this action up to the time of any appeal in the probate action (if such were to become necessary) to the Court of Final Appeal, the "more circumspect" course of a stay until resolution of the current appeal in the probate action to the Court of Appeal which appeal, as earlier noted, is due to commence on 29 September 2003 and third, a stay of this action until resolution of the anticipated application by the defendant to remove the present joint administrators on the ground of bias, the possibility of this latter, and apparently imminent application, having been canvassed in the evidence by Mrs Nina Wang.

16. I rejected the first and third of these suggestions at the outset. As Mr Reyes clearly appreciated, real difficulties arise if this court were to make an order for a stay for an interim period which not only is not canvassed in the instant application, but in circumstances wherein such stay as mooted is grounded upon nothing more than hypothesis. The fact remains that there is as yet no 'removal application' in being, whatever the stated intention to mount such an application, nor is there as yet any need to consider the question of an appeal in the probate action to the Court of Final Appeal.

17. It follows, therefore, that consideration of the present application for an interim stay of these proceedings must be confined to the period from now until determination, by the Court of Appeal, of the probate appeal from the judgment handed down in HCAP 8 of 1999.

Applicable principle

18. The correct approach of the court towards an application of this nature is not in doubt, and in any event Mr Brock, appearing for the plaintiffs, was kind enough to ensure that my memory of the position was refreshed with reference to authority.

19. Each case must obviously be decided within its own factual matrix, and the circumstances thrown up by the case law are many and various. It is clear, however, that the exercise of the jurisdiction to grant a stay is discretionary and is exercisable wherein the court "thinks fit to do so", an inherent jurisdiction expressly preserved and recognized by section 16(3) of the High Court Ordinance, Cap.4.

20. By the same token, it must be firmly borne in mind that the grant of a stay of proceedings is not a step to be taken lightly, since by its very nature it constitutes interference with the right of a litigant to conduct his litigation to a trial on the merits. There is, I think, no dispute in this application that this represents the appropriate approach.

Basis for the application

21. A considerable amount of evidence has been filed, in particular on behalf of the defendant. In this connection Mrs Wang has filed two full affirmations, whilst for the plaintiffs the substantive opposition is in the form of an affirmation from one of the joint administrators, Mr Tan Man Kou.

22. At the outset it may be useful to clear away a certain amount of evidentiary undergrowth. Mrs Nina Wang and the joint administrators evidently regard each other with a high degree of mutual suspicion, and are not afraid to say so. For her part Mrs Wang appears to consider the administrators to be exceeding their legitimate brief, and to be acting in a biased and unjustified manner: hence the anticipated application to remove the joint administrators, which is flagged at the end of her affirmation in reply. She further says that she is "forced to conclude" that the joint administrators and their advisers are attempting to achieve a "tactical advantage" by pressing this case, and that any judgment will help them "to initiate or proceed with a series of other actions against CAL totalling in excess of HK$5.6 billion". In turn, the administrators submit that Mrs Wang demonstrably is lacking in probity; references have been made to a danger of dissipation of estate assets, hence the need for expedition of the current proceedings, and to the fact that the present application fits a discernible pattern and constitutes nothing more than a procedural ploy to delay what is perceived to be a well-founded case.

23. Within the confines of the present stay application, I decline to become enmeshed in what are liberal sprinklings of prejudicial comment emanating from both sides of the fence. It may be that in the fullness of time I shall be required to attend to, and to evaluate, some at least of these matters, but for present purposes I see no necessity to attempt to do so. This court in principle is resistant to prejudice, and is concerned solely with the analytical case.

24. Nor do I apprehend that the potential complexity of this case, a matter to which Mrs Wang also has alluded, provides any justification for the stay of proceedings as now sought. The fact that the "treasury company" system adopted within the Chinachem group over a considerable period of time, and as subsequently embodied in the activities of the defendant, CAL, may throw up complex issues of law, and perhaps even of fact, which require decision strikes me as nothing to the point in terms of whether an interim stay should, or should not, be granted. The Commercial Court rarely has the luxury of straightforward cases, and in this connection I note that those acting for the administrators sensibly have begun to resile from the posture initially adopted, when faced with claims by the defendant for more time to effect pleadings and discovery, to the effect that this case represents little more than a simple matter of inter-company accounting. Patently it does not, although for present purposes this is neither here nor there.

25. Mr Reyes SC, who has said all that could be said in support of this application, and has done so with moderation and great good sense, essentially put his case on the basis of good case management and a consequent saving of what may turn out to be the expenditure of significant unnecessary costs.

26. He submitted that clearly it was sensible to put a halt to this case at this stage, and to await the resolution of Mrs Wang's appeal in the probate action against the judgment of Mr Justice Yam. Should Mrs Wang be successful in her appeal, which was soon to be heard, then obviously the case as now brought would fall away. The operative will of the late Teddy Wang then would be the one propounded by Mrs Wang, that is, the will dated 12 March 1990, and the plaintiff companies, as part of the testamentary estate, would devolve not upon Mr Wang Snr, but upon Mrs Wang. Accordingly, the tables thus would be reversed, and the present litigation would become academic.

27. If, on the other hand, the present appeal were to be decided against Mrs Wang, Mr Reyes suggested that nevertheless there remained merit in an interim stay. In this eventuality there would then be a need for an "orderly disengagement", a process better suited to professional advisers working together, so that in any event there would be no necessity to continue with this litigation; moreover there was at least the possibility of Mrs Wang obtaining a share of the estate by virtue of the operation of that which Mrs Wang refers to in her affirmation as the "Family Protection Legislation", which I gather is an allusion to that which used to be the Deceased Family Maintenance legislation, as now replaced by the Inheritance (Provision for Family and Dependants) Ordinance, Cap 481.

28. I am unable to accept this latter submission. In light of the level of mutual hostility evinced in the present case, as apparently mirrored in other pieces of litigation in which the joint administrators and Mrs Wang currently are involved (for example, the 'Chime litigation', parts of which have been referred to during argument), even Mr Reyes' persuasive abilities are insufficient to convince me that, at the moment at least, there is even a remote possibility of any such "orderly disengagement" via expert co-operation, whilst in the prevailing circumstances it seems most unlikely, to say the least, that the legislation to which Mrs Wang has made reference, which was designed for the protection of impoverished family members for whom no testamentary provision has been made, will provide the succour she anticipates. So I do not consider that potential loss of the imminent probate appeal could possibly enure to Mrs Wang's advantage in terms of underpinning the present stay application.

29. As to the expenditure of further costs in the interim period between this application and the hearing of the probate appeal, in comparison to those costs which already have been incurred in this case these are likely to be relatively minimal, and in my view do not in themselves provide justification now to halt this action in its tracks. In light of the pending summer vacation, there are now no more than six to seven working weeks prior to the commencement of the appeal, and it is unlikely that a great deal more than complete constitution of the pleadings, together with any outstanding discovery, is likely to be achieved in that time, although possibly some work can be begun on witness statements.

30. The short point, therefore, is that such further costs to be expended between now and the hearing of the probate appeal cannot in my view be elevated to a level sufficient to get Mr Reyes home, and in this regard it strikes me as difficult for the defendant now to invoke costs as a concern when, as Mr Brock has pointed out, this application for a stay has come relatively late in the day. Whilst the 'delay' point, as Mr Brock has termed it, in itself does not provide the knockout blow that initially was suggested, it remains fair to say that the present application, launched only on 2 June 2003, comes at a stage when a considerable amount of work, with no doubt the incursion of commensurate costs, already has been expended in this case.

31. In the evidence of Mrs Wang, much play also has been made of the deleterious effect that these proceedings may have by reason of a "potentially very damaging unwind of the Chinachem Group [which] is likely to occur if the Joint Administrators persist with their intention of recovering all the current account balances". It is said that there would be a "very serious impact on the overall business and cashflows of the Chinachem Group", and that this factor "together with the ongoing cost of the Administration may well result in there being nothing left in the Estate at the end of the Administration", thereby leaving "the Joint Administrators, their respective accounting firms and solicitors" as the only persons to benefit.

32. Mr Reyes did not go out of his way to bang this particular drum because, as he obviously recognized, from a practical viewpoint the short period for which an interim stay now is sought will not impact upon these considerations, given that this case is unlikely to come on for trial for some months, and certainly not much before the early months of 2004. Moreover, if and in so far as the probate appeal is unsuccessful, the joint administrators have the responsibility to continue with these proceedings; as Mr Brock pointed out, in the circumstances as presently prevailing not to continue to prosecute these proceedings with due diligence would smack of negligence. Nor am I sympathetic to the proposition, as suggested in the defendant's evidence, that in effect the predominant motive for pursuit of the present action is the securing of professional fees. Doubtless this is a matter which will be revisited at the time of the application to remove the joint administrators, but for present purposes, and for the avoidance of doubt, I accord it no weight.

33. At the end of the day, therefore, stripped of the layers of prejudicial assertion within the evidence, it is fair to say that Mr Reyes did not have available to him a compelling analytical framework within which to secure the interim remedy that his client now seeks. He rightly accepted that the burden is upon him to satisfy the court that it is in the interests of justice to grant a stay of these proceedings, and it seems to me that the most promising argument from the defendant's viewpoint is the proposition to the effect that this case will become academic, and thus will fall away, should Mrs Wang be successful in her probate appeal, since in this eventuality she has indicated that she would take steps immediately to abandon these proceedings on the basis that a successful appeal, and thus validation of the will dated 12 March 1990, would render her beneficial owner of the plaintiff companies.

34. I accept this as a statement of intent, but on the issue of probable appellate success or otherwise I am in no position to judge. Mr Brock makes the point that in normal course the applicable test as to whether a stay pending appeal should be granted is if the applicant is able to demonstrate that it possesses very strong grounds of appeal, the court being put on notice that a stay is appropriate to ensure that the forthcoming appeal should not be rendered nugatory. The present situation, of course, is unusual in that no application for a stay was made in the probate action now under appeal, the stay application instead being mounted in proceedings whose continuation is dependent upon failure of that appeal, and thus confirmation of Yam J's Order granting probate for the will dated 15 March 1968.

35. The short and ineluctable point is that this court is in no position to evaluate the prospects of success on appeal, and in any event since a superior court presently is seized with the matter it would be inappropriate to embark upon this course. In this connection, however, Mr Brock points out that for her part Mrs Wang in her evidence pitches the chances of success as "reasonable", which, he says with some justification, serves to buttress his argument. I agree. In the context of the present application, it is difficult to see why, in effect, the defendant now should be in a better position to obtain a stay of these proceedings as a consequence of not having canvassed a stay in the probate action.

Decision

36. In my judgment the defendant has failed to discharge the burden upon it to satisfy the court that these proceedings should be stayed until resolution of the appeal in HCAP 8 of 1999. There already has been a de facto halt to these proceedings for a period of some six weeks to enable this application to be processed, and I am disinclined to permit this situation to continue.

37. Accordingly, in the exercise of my discretion I dismiss the application before me. I will hear counsel on the issue of costs, and as to any consequential directions as may arise.