WIN SOURCE INTERNATIONAL LTD v. WILLIAM ALVIN HUI AND OTHERS t/a HUI & LAM, SOLICITORS

HCA2464/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2464 OF 2003

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J U D G M E N T

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The defendants’ striking out summons

1. This is the adjourned hearing of the defendants’ application to strike out the plaintiff’s action.  The original summons was dated 29 January 2007 and it simply said that :

“The action should be dismissed or stayed on the ground that the plaintiff being a limited company has not duly authorized its solicitors, Messrs Kitty So and Tong, to commence or to maintain the action.”

and with costs of the action to the defendants including costs of this application.

2. There was an application to amend this summons by a summons dated 18 April 2007 and in paragraph 1 thereof they applied to amend by adding a new paragraph 2 which said :

“in the alternative pursuant to Order 18, rule 19(1) of the Rules of the High Court and the court inherent jurisdiction the statement of claim be struck out and the action dismissed as an abuse of process and therefore the defendant asked for indemnity costs for the application.”

3. The matter appeared before Mr Registrar C. Chan on 26 April 2007.  By then, solicitor appearing for the defendant applied for leave to withdraw paragraph 1 of the summons and leave was granted to them to withdraw the amendment.  They further obtained a direction from Mr Registrar Chan that their striking out application would be heard by a judge on a date to be fixed in consultation with counsel’s diaries.  The plaintiff’s costs for this summons were summarily assessed at $800. 

4. In other words the original summons was maintained and the matter came before me on 23 October 2007.  At that time, Mr Kenneth K.L. Chan and Mr Victor Chiu were instructed by Messrs Kitty So & Tong to appear for the plaintiff and the defendants had the same set of solicitors and counsel before me now.

5. It was Mrs Campbell-Moffat’s submission for the defendants that the defendants said that the purported resolution dated 21 March 2003 passed by the plaintiff’s directors in the directors meeting authorizing Kitty So & Tong to act for the company to take legal action against the present firm of solicitors of the defendant was a bogus document.  They do not believe that it came into existence on or about 21 March 2003.  It was just disclosed shortly before Suffiad J when his Lordship heard the case on 16 October 2007.  That was actually filed and exhibited in an affirmation on 14 September 2007.  I was persuaded on 23 October 2007 to allow cross-examination of deponents on their affirmations and the hearing was adjourned to a date to be fixed with five days reserved as assessed by counsel. 

6. However, in between time there was a total change of the team of lawyers representing the plaintiff’s company.  Further, the plaintiff filed an affirmation on 3 June 2008 exhibiting the written resolutions of the company in general meeting on 27 May 2008 signed by all four shareholders, Ho Siu Ping, Ho Siu Kuen, Liu Yuk Kiu and Liu Kwai Man and a board resolution also dated 27 May 2008 signed by the two directors.  There are only two directors of the company and they are Ho Siu Ping and Ho Siu Kuen.  The two resolutions were passed to the effect that the company ratified the authority of Kitty So & Tong to commence this action for and on behalf of the company and to carry on and continue the said action as they did up to the present until the present solicitors, Messrs Chan & Tsu, should file a notice to act in the High Court, in this action to take over to act for the company in place of Kitty So & Tong and to carry on and continue the said action.  Mr Chan Siu Hung SC, who appeared with Ms Christine Tam for the plaintiff now told me that the two resolutions were passed was (a) by way of ex abundante cautela, and (b) without prejudice to the previous resolution of the company dated 21 March 2003.

7. Thus, Chan & Tsu, the present solicitor for the plaintiff thereafter filed a notice to act and continue with the carrying of the present action and they appeared before me and instructed two other counsel as aforesaid.

8. Mr Chan Chi Hung, SC submitted that even if, which is denied, there was anything improper in the previous resolution, the whole situation is now ratified and he cited page 355 of the Hong Kong Civil Procedure whereby a liquidator can ratify and validate the proceedings begun by a solicitor without authority and the case of Danish Mercantile Co. v. Beaumont [1951] 1 All ER 925 and also Kammy Town Limited v. Super Glory Corporation Limited (unreported),HCA3524/2003.  The latter judgment was delivered by A. Cheung J on 14 January 2005 and in paragraph 9 thereof A. Cheung J cited Airways Limited v. Bowen [1985] BCLC 355 C.A.in which it was said at 361 that :

“Furthermore, as counsel for the solicitors reminded us, if an action is started without authority, that position may nevertheless be cured by subsequent ratification.  The authority is Danish Mercantile Co. Ltd v. Beaumont [1951] 1 All ER 925, [1951] 1 Ch 680, where an action improperly instituted by a company, which was subsequently wound up, was retrospectively and effectively ratified by the liquidator who was thereafter appointed. …”

9. To that, Mrs Campbell-Moffat who appeared with Mr Edward Ng for the defendants, submitted that the present case is an exception.  It is an exceptional case in that from day one, the plaintiff company, as alleged by the defendants, was used as a vehicle to commit fraud and there was conspiracy among a number of persons.  Originally it was designed to defeat one C.W. Lam’s wife’s divorce proceedings and to put certain assets out of the reach of the divorcing wife.  I do not want to go into the detail of the alleged scheme in respect of the sale of four named properties which was alleged to be arranged in such a way that the properties would be sold to the plaintiff.  The defendants’ firm of solicitors were instructed to act for the plaintiff company.  The allegation was that one Mr Ringo Ho Kwan Chuen, who was a solicitor of Ho & Partners, was the main architect behind the whole fraudulent scheme.  The further allegation was Kitty So & Tong knew from the outset that plaintiff was part of the fraudulent scheme and therefore their submission is that Kitty So & Tong could not have the proper authority.  That was coupled with the allegation that Messrs Kitty So & Tong knew from the outset that the alleged purported resolution of 21 March 2003 was a forged document in the sense that it did not come into existence there and then; it was just made thereafter to defend the application of the defendants to strike out the action for lack of authority.  

10. Be that as it may, it must be remembered that the original application (which is also the present striking out application today) was made under Order 32, rule 1, simply on the only ground that the plaintiff has not duly authorized its solicitor Messrs Kitty So & Tong.  The undue authorization as alleged by the defendants was because this resolution was just a bogus resolution.  It did not come into existence there and then, it was just made up subsequently before the hearing, as I have said before, in September 2007 shortly before the hearing before Suffiad J on 16 October 2007.  But now the whole matter has been ratified and Mr Chan’s submission is that the whole matter is now an academic exercise because even if there was an action begun by a firm of solicitors without authority, it can be ratified by a proper resolution.  There are two resolutions : one is the shareholders’ general meeting resolution and the other directors’ resolution.  There is no question of lack of authority of Kitty So & Tong and obviously no question of lack of authority of the present solicitors acting for the plaintiff. 

11. In other words, the whole application of the defendants now is boiled down to this : the allegation of conspiracy to defraud and the whole conspiracy scheme according to the defendants’ allegation, was designed by Mr Ringo Ho and this is also the main defence to the whole action.  The defendants were and still are applying to strike out the plaintiff’s action on the same premises of facts as alleged by them.  If I allow the cross-examination of the deponents in order to establish Kitty So & Tong’s lack of authority as part of the conspiracy scheme involving Messrs Kitty So & Tong, this is part and parcel and in fact the main issue to be tried in the main action.  At the moment, there is no lack of authority of the present solicitors; and even if Messrs Kitty So & Tong was not duly authorized, the situation has now been ratified by the two said resolutions. 

12. The next question of course is : should I allow cross-examination to be conducted at this stage, in order to establish that from day one, it was a fraudulent scheme and Kitty So & Tong, as alleged by the defendants, knew from the very beginning that Win Source was a vehicle used by all the co-conspirators to defraud certain person or persons? 

13. I accept Mr Chan’s submission that I should not allow this issue to be tried as a preliminary issue because to allow the same to be done would depart from the original application.  On the face of it, Kitty So & Tong at least have now been duly authorized by the ratification resolutions.  More importantly, this is the main issue to be tried at the trial.  The authorities in support of disallowing certain preliminary issues to be tried is quite clear.  I start with the case of Mai Gou and Mak Chik Lun [2001] 3 HKLRD 248 in which Le Pichon JA at page 251 said :

“Preliminary issues — applicable principles

The annotation in The Supreme Court Practice 1999 is a useful starting point.  At para.33/4/10 it is stated that :

An order for the separate trial of separate issues is a departure from the beneficial object of the law that all disputes should be tried together, and therefore, generally speaking, such an order should only be made in exceptional circumstances or on special grounds (per Jessel MR in Piercy v. Young (1880) LR 15 Ch D 475 at p.479 and p.480; per Scrutton LJ in Bottomley v. Hurst and Blackett Ltd and Houston (1927-28) 44 TLR p.451 at p.452).

This approach was echoed by Lord Wilberforce in his speech in Tilling v. Whiteman [1980] AC 1 at pp.17H-18A :

I, with others of your lordships, have often protested against the practice of allowing preliminary points to be taken, since this course frequently adds to the difficulties of courts of appeal and tends to increase the cost and time of legal proceedings.  If this practice cannot be confined to cases where the facts are complicated and the legal issue short and easily decided, cases outside this guiding principle should at least be exceptional.

Indeed, as Lord Roskill observed in his speech in Allen v. Gulf Oil Refining Ltd [1981] AC 1001 at p.1022A :

The preliminary point procedure can in certain classes of case be invoked to achieve the desirable aim both of economy and simplicity.  But cases in which such invocation is desirable are few.  Sometimes a single issue of law can be isolated from the other issues in a particular case whether of fact or of law, and its decision may be finally determinative of the case as a whole.  Sometimes facts can be agreed and the sole issue is one of law.

Lord Roskill went on to urge those whose task it is to decide whether or not the trial of preliminary points should be ordered to be ‘extremely cautions’ before acceding to pleas for the making of such orders as a result of attractively advanced submissions founded upon pleas of supposed economy.”

14. Since this case was decided, Hong Kong Civil Procedure 2008 was amended with the addition of the authority of Mai Gou as follows :

“  An order for the separate trial of separate issues is a departure from the general rule that all disputes should be tried together, and therefore, generally speaking, such an order should only be made in exceptional circumstances or on special grounds (per Jessel M.R. in Piercy v. Young (No. 2) (1880) 15 Ch.D. 475 at 479 and 480; per Scrutton L.J. in Bottomley v. Hurst and Blackett (1927-28) 44 T.L.R. 451 at 452 and cited with approval in Mai Gou v. Mak Chik Lun [2001] 3 H.K.L.R.D. 248 and Re Tai Ping Yeung Motors Ltd [2001] 2 H.K.C. 61)).  Such an order will not be made on the application of the defendant to have the issues raised by his counterclaim tried before the plaintiff’s issues in the action (Piercy v. Young, above) nor will such an order be made to try the liability of sureties before the other issues in the action (Tasmanian Main Line Ry Co. v. Clark (1879) 27 W.R. 677). …”

15. For the aforesaid reason, I rule in favour of Mr Chan for the plaintiff and therefore dismiss paragraph 1 of the summons dated 29 January 2007.  That is I dismiss the defendants’ application to dismiss or stay the plaintiff’s action on the ground that the plaintiff has not duly authorized its solicitors Kitty So & Tong to commence or to maintain the action.

16. This application was made under the court’s inherent jurisdiction to strike out on the facts of this case.  To my mind, the facts will have to be established at the trial.  Unless it is a plain and obvious case that the statement of claim should be struck out on Order 18, rule 19(1); the application to amend was coined in such a way that the court should strike out the statement of claim under its inherent jurisdiction and Order 18, rule 19(1).  But then this application to amend was withdrawn and in both hearings, Mrs Campbell-Moffat had fairly pointed out that she could not succeed on the plain and obvious ground of striking out the case.  Today she submitted that even in not a plain and obvious case, she should be allowed to succeed under the inherent jurisdiction of the court to strike out on the ground that there are special circumstances in this case.  More specifically she submitted that after cross-examination, the finding of facts by me would be in the defendants’ favour in that the case of fraud would have been established. 

17. This to my mind is a circular argument.  This amounted to the submission that I should try this issue on a preliminary basis.  I have said that according to decided authority, this should be refused and for the similar reason, the application under inherent jurisdiction to dismiss or stay the plaintiff’s action is not accepted.  I have been repeating myself many times that the pure and single application was only on the ground that the plaintiff has not duly authorized its solicitors Messrs Kitty So & Tong to commence or to maintain the action.  Under this apparently very simple application, which apparently is only the tip of an iceberg, the defendants say underneath this iceberg, there was a serious allegation that Kitty So was not duly authorized because they were part of the fraudulent scheme.  That has to be established through finding of facts and, I have already said many times, it is not a case where I should try this point as a preliminary issue because this is the main issue to be tried at the trial.

A further issue

18. There was also an objection at the beginning of the hearing that the affirmation exhibiting the two resolutions came quite late and according to the previous direction, it was filed and served without leave.  However I would in this case exercise my discretion and grant leave to the plaintiff to file and serve the affirmation and I therefore relied on the two resolutions.

Costs

19. In respect of costs, originally I find the alternative in paragraph 18 of Mr Chan’s submissions more inviting and that is : “the issue of costs, and cross-examination, if any, should be reserved and adjourned to the trial, to be dealt with by the trial judge”. 

20. But then Mr Chan for the plaintiff referred me to a Calderbank letter.  It was written without prejudice save as to costs.  It was dated 5 June 2008 and was received by the defendants’ solicitors on Friday 6 June.  The latter were given a deadline by 12 noon Friday, 13 June, to accept this offer failing which the offer would be withdrawn.  On 12 June 2008, solicitors for the defendants wrote back and said :

“ You are mistaken to assume our clients’ application is ‘now unarguable’.  The circumstances of, and reasons for, the purported ratification are themselves most relevant to the question of the bona fides of the Plaintiff’s action.  After all, you cannot at law ratify an act done to advance an illegal or improper purpose.

   It follows that our clients do not accept your proposal.”

21. I must say that this is exactly on this point that the defendants have lost the argument.  According to my decision, I do not think there is anything before me which should compel me to take it as an exceptional case in respect of costs when the Calderbank letter was given, albeit it was only received by the solicitors for the defendants on 6 June.  They have amble of time to consider it and they rejected it after due consideration on those grounds which I have decided against them.  That was 12 June.  Their rejection should have the usual consequence of a Calderbank letter.  Therefore, even if the defendants succeed at the trial to establish their defence or defences, it is to my mind unarguable that the ratification is a proper ratification of Kitty So & Tong’s purported lack of authority and also a proper authorization of present solicitors to act for the plaintiff.  Whether Kitty So & Tong was part of the conspiracy is an issue to be tried. 

22. Further, I want to say this at the end : if I were the defendants, I would give notice to the firm of solicitors when allegations were made against them in the defence.  It is a matter for the solicitors acting for the defendants to take the proper course. 

23. Perhaps I will furthermore say this : I am so amazed that the defendants who is a firm of solicitors, is represented by another firm of solicitors and two counsel, and they all as lawyers took the view that these allegations against a firm of solicitors which is the main defence of the defendants’ case, could be an issue to be tried on a preliminary basis.  Anyway, I do not think I should say anything more. 

24. It is my decision that in respect of costs, in view of the Calderbank letter, I shall make the following order of costs : costs of the summons of the application of the defendants’ application by their summons dated 29 January 2007 be reserved to the trial judge except that the costs of the hearing fixed before me from 16 to 20 June 2008 be to the plaintiff in any event with certificate for two counsel.