XCHRX GOLDEN SAND MARBLE FACTORY LTD. v. EASY SUCCESS ENTERPRISES LTD. and Another

1997, No. MP3772

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

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D E C I S I O N

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1. Pentad Constructions Co. Ltd. ("Pentad") is in liquidation. A winding-up order was made in August 1996.

2. On 7 November 1997, the Plaintiff ("Golden Sand") took out an Originating Summons against Easy Success Enterprises Ltd. ("Easy Success") and Pentad. No leave under section 186 of the Companies Ordinance was obtained prior to the commencement of the action. On 5 December 1997, Golden Sand took out a summons ("the first summons") for leave to be given retrospectively to commence the action against Pentad. Pentad's stance was that the action was a nullity because leave under section 186 had not first been obtained and that the court does not have jurisdiction to grant retrospective leave.

3. On 12 January 1998, Golden Sand issued a second summons which seeks leave :

(1) to amend its Originating Summons in order to dis-join Pentad;

(2) to amend its first summons so as to seek leave to join Pentad as the 2nd Defendant to the Originating Summons; and

(3) to re-amend the Originating Summons so as to re-join Pentad as the 2nd Defendant.

4. The only summons before me at the hearing was therefore the second summons. Golden Sand abandoned the retrospective leave point that had been raised in the first summons so as to avoid lengthy legal argument. The second summons was nonetheless opposed by Pentad. After hearing the parties, I granted the relief sought in the second summons. Brief reasons are set out below.

Background Facts

5. Golden Sand claims to be entitled to the sum of $381,364.55 ("the Sum") of which $175,000 is currently held in a solicitor's account on trust. Golden Sand was a subcontractor in relation to marble and granite work under a subcontract that it had entered into with Pentad, who was the main contractor, in a construction project in Lockhart Road, Wanchai. Easy Success is the employer under the Main Contract. The Sum claimed is as certified by the Architect.

6. The Plaintiff seeks a declaration that Easy Success pay the Plaintiff the Sum pursuant to the Main Contract, the provisions of the Nominated Subcontract and the Architect's certificate. Alternatively, it seeks a declaration based on an agreement reached between Golden Sand, Easy Success and Pentad in or around March 1995 that all future payments for Golden Sand's works be paid to Golden Sand directly and not through Pentad and/or by a convention adopted by the parties that payment be made direct to Golden Sand. If Golden Sand makes good its claim to direct payment, it will recover the Sum in full. If it has to rely on a proof of debt in Pentad's liquidation, it is likely to recover only a part of the Sum.

7. So far as Easy Success is concerned, as employer, it accepts that it is under an obligation to pay the Sum. The question is to whom? Pentad claims that it is entitled to be paid the Sum and that Golden Sand must put in its proof in Pentad's liquidation in respect of its claim under the subcontract. As noted above, Golden Sand, on the other hand, relies on provisions in the Main Contract as well as the Nominated Subcontract and, in the alternative, on the agreement reached between the parties and/or the convention adopted for direct payment in support of its claim to the Sum. Easy Success' position is that there should be but one proceeding before one court with one result that is going to be binding on both Golden Sand and Pentad.

Should leave be granted?

8. The test to be adopted by the court in exercising its discretion in whether leave should be granted is to decide what is right and fair in the circumstances. See per Jones J. in Re King's Dyeing and Weaving Factory Limited (No.2) [1986] HKC 621 at 623e, citing Re Aro Company Limited [1980] Ch. 196.

9. It is clear what the liquidators' position is. This is set out in their letter of 30 October 1996 to Easy Success threatening legal action to recover the Sum from Easy Success on the basis that any contractual provision permitting direct payment of subcontractors or suppliers is contrary to public policy. Whilst no legal action has yet been commenced against Easy Success by the liquidators, Golden Sand has commenced the present proceedings to which Easy Success is a defendant to establish their entitlement to the Sum. In these circumstances, Easy Success made an interpleader relief proposal to both Golden Sand and Pentad. This proposal appears in a letter dated 22 November 1997. This was accepted by Golden Sand but not by Pentad for reasons which are not readily apparent. Easy Success' proposal was that it should pay the balance of the Sum into court and thereafter drop out of the litigation between Golden Sand and Pentad as to who is entitled to the Sum. This proposal was construed by Pentad as a "payment into court" pursuant to Order 22 of the Rules of the Supreme Court which it was not.

10. Pentad opposes the application for leave on the ground that the law is clear that the Sum is not due to Golden Sand and that it is a matter that should be dealt with in the liquidation. It approached the application for leave under section 186 as if it were a summons issued by Pentad for striking out the claim. Reference was made to passages in the transcript dated 7 December 1995 in B. Mullan & Sons (Contractors) Ltd. v. Ross and London. Its relevance is unclear since it is not apparent whether the court in that case was dealing with contractual provisions that are exactly identical to those contained in the Main Contract and Nominated Subcontract. If indeed Golden Sand's claim is doomed to fail because the law is so clear and settled as Pentad would have it, that could be made the subject of a striking out application. But there is no cross-summons before me. Suffice to say that both Counsel for Golden Sand and Easy Success do not accept that the legal position is as stated by Pentad. It would appear that it is an area of law of some complexity.

11. As to whether the matter can be resolved in the liquidation, the answer must be no since the proceedings now pending against Easy Success has nothing to do with the liquidation and Easy Success has no claim against Pentad. There is the threat of legal action by the liquidators if Easy Success were to pay the Sum to Golden Sand but quite when such an action will be commenced, if at all, is unclear. If it were not to take place until after the determination of the current proceedings and assuming Golden Sand were to be successful, after payment by Easy Success pursuant to any declaration obtained by Golden Sand, Easy Success will be faced with a second claim to which Golden Sand will not be a party unless and until it is made a third party by Easy Success.

12. There is no good reason why the competing claims of Golden Sand and Easy Success should not be resolved once and for all. In these circumstances, it is plainly expedient that the underlying dispute which, in reality, is one between Golden Sand and Pentad only, be resolved by granting the leave sought.

Costs

13. At the hearing, costs were reserved. Golden Sand and Easy Success seek costs against Pentad and alternatively that costs be in the cause. As regards Easy Success' cost, Pentad submitted that Easy Success is a volunteer and had no business appearing at the hearing of the second summons. This overlooks the fact that it is a party to the Originating Summons. Moreover, it is embroiled in the dispute between Golden Sand and Pentad much against its will. This has been brought about by Pentad's stance.

14. Pentad has not been able to put forward plausible reasons for opposing what, in the circumstances, is the only reasonable solution to resolve the competing claims. It is a case where my discretion on the question of costs should be exercised in favour of Golden Sand and Easy Success and, accordingly, I order that the costs of this application be borne by Pentad.

(Doreen Le Pichon)

Judge of the Court of First Instance
High Court