XCHRX Re Tan & Sons Co. Ltd. (in Provisional Liquidation)

HCCW 63/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 63 OF 1997

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D E C I S I O N

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1. This is an application by Provisional Liquidators under section 200(3) of the Companies Ordinance for directions in relation to a number of matters arising in the Seventh Report of the Provisional Liquidators. Before I deal with the various directions which have been sought, it may be helpful to explain why in 2001 the Company is still in provisional liquidation.

2. The petition was presented in 1997 but in May 1997 Rogers J (as he then was) made an Order by Consent appointing Provisional Liquidators on terms that the functions and powers of the Provisional Liquidators shall be restricted and limited to the matters set out in a schedule. Of the matters set out in the schedule, there was included an item that all the net assets of the Company, after discharging all liabilities, costs and expenses, be distributed to the contributories by 31 October 1997 or such later date as the Court may allow. The assets of the Company apparently comprised (or comprised mainly) of 5 properties which, it had been agreed, would be sold as soon as practical for an aggregate price of not less than $420 million.

3. In the schedule to the Consent Order, it was further provided that the Provisional Liquidators shall be vested with all the powers of liquidators in a winding up of a company including, without limitation, those conferred by section 199 of the Companies Ordinance save for the powers conferred under sub-section 199(1)(d) to (f) which shall be subject to the sanction of the Court.

4. It was intended in the Consent Order that upon distribution of the net assets of the Company, which at that time was hoped to be by 31 October 1997, the petition would be dismissed and there would be a transfer of shares to certain contributories. It has transpired that the hope that all the net assets of the Company would be distributed by 31 October 1997 was not quite realistic.

5. Before me today, a total of eight directions have been sought by the Provisional Liquidators. The summons has been served on the solicitors for the Petitioners (such Petitioners having appeared today by counsel) and the summons has also been served on the other shareholders of the Company, some of whom have died but who have had personal representatives appointed. None of the shareholders (other than the Petitioners) have appeared today.

6. In relation to the first direction sought, it is whether to comply with the request of the majority of the shareholders to pay Mr Chew Bin Kwan HK$1 million for purported services rendered to the Company in relation to the sale of certain properties.

7. It would appear that Mr Chew had been asked by at least some directors and some shareholders of the Company to come to Hong Kong to monitor the property market and to advise the Company in relation to the intended sale of the properties. It would appear that the person in question did in fact come to Hong Kong and did render some services for which he has not been paid. He has issued a writ in 1999 (in HCA 17707/99) in which he claims payment. His attempt to get summary judgment has been thwarted in that unconditional leave has been granted by the Court, basically on three grounds:- the first being that it is possible that there was a lack of authority on the part of some of the directors when they commissioned him to undertake the services; secondly, that in light of a document which Mr Chew has relied upon, that it may be argued that there was past consideration for the sum that he claims of HK$1 million; and thirdly, that the sum would only be paid upon completion of the sale of the properties.

8. In relation to the first ground, Mr Chew is not a member or director of the Company, and therefore it would appear that the internal management rule (previously better known as the rule in Turquand's case) may well apply so as to dispose of that argument on behalf of the Company.

9. As to past consideration, it would appear that in December 1996, a document was signed by some of the shareholders of the Company. This document stated that:

"We, the undersigned being the shareholders of Tan & Sons Company Limited, hereby agree to pay Mr Chew Bin Kwan a sum of HK$1 million only for his services rendered to the Company in respect of the disposal of all landed properties of the Company and the said sum is to be fully paid upon the completion of the sale of the said landed properties."

This document was signed by 3 of the 4 directors at the time, the only absentee being Ms Tan Poh Swan who was not herself a shareholder. In relation to the shareholders of the Company at the time, it was signed by all, except in relation to Mr Tan Kim Hai's shares, Mr Tan Kim Hai having then died (it is not known whether at the time his personal representatives had been appointed).

10. In relation to the argument whether there was past consideration, there may be an argument that there had been an earlier oral agreement and the fee was actually expressed in this document which therefore accounted for the use of the past tense "rendered" in the document itself. The fact that Mr Chew had rendered services of some sort is supported by statements made by seven of the shareholders (being the only seven living shareholders) and also by a statement of a Hong Kong estate agent. Therefore, it would certainly appear to be the case that Mr Chew has some case which he is pressing forward with.

11. In relation to the third possible defence, the document says that "the said sum is to be fully paid upon the completion of the sale of the said landed properties". That is entirely consistent with the timing of the payment of HK$1 million, and does not mean necessarily that that said sum is to be paid upon the completion of the sale of the landed properties being effected by Mr Chew only.

12. Therefore, I would agree with the submissions of Mr Barma, for the Provisional Liquidators that in view of the fact that the Company would be liable at least to pay a quantum meruit and in the absence of any evidence to the effect that these services had not been rendered or to substantiate the defence of past consideration, I should direct that in the absence of Mr Chew agreeing to accept anything less than the $1 million for his services, the Provisional Liquidators be at liberty to compromise HCA 17707/99 by the payment to Mr Chew of the said sum of $1 million which apparently he is insistent upon claiming.

13. As far as interest is concerned, naturally if it is a substantiated claim, Mr Chew would be entitled to interest and costs, costs being minimal because Mr Chew has been acting in person. I would further direct that the liqudiators use their best endeavours to negotiate with Mr Chew to ask him to reduce his claim on interest, but failing that, it would appear to me that the costs of further litigating this matter may well be disproportionate, so that it would be sensible, in my view, given that the Company does not have a strong case against Mr Chew, to pay interest as claimed.

14. The second direction sought is whether to join the Inland Revenue Department to the proceedings at the next hearing date to be fixed by the Court to deal with the issue of potential additional tax liabilities prior to the conclusion of the provisional liquidation and to serve the relevant Court documents on the IRD for this purpose.

15. In this regard, I take the view that the Court cannot make the Revenue a party to any application for sanction. It seems to me that the Revenue may well stand on its right under the legislation and to take the entire period provided for in the ordinance before giving up its claims for additional tax. All that the Court can do, in my view, is to simply accept that the Revenue may be given notice of any sanction application, with the consequence that it would be up to the Revenue whether to attend and to indicate its stance. If it chooses not to do so, I see no procedure which would enable the Court to make the Revenue a party in the light of the legislation which not only gives the Revenue a right to take the entire period of time but also imposes an obligation on the Revenue to make such demands as it ought to in the discharge of its statutory duties.

16. The third direction sought is whether to return the rental deposits held by the Company to the tenants of various properties which tenancies have not been subject to novation but the terms of which have expired. This is in relation to three tenanted properties, the tenants being A. S. Watson, Hutchison Paging Limited and Mr Ho Yuk Ming. I have looked at the matters set out in the Seventh Report and I see no reason why the relevant deposits should not be returned to these tenants whose terms have expired.

17. The fourth direction is whether to set-off the amount outstanding in respect of the expired tenancy agreement with Harony Assets and to forgo the balance. It would appear from the Seventh Report that the tenant Harony Assets Limited had paid a deposit of about $100,000.00 but it is liable for certain sums which it has not paid. It would appear, in view of the relatively small amount of the sums involved and in view of the fact that efforts to locate the tenant have been unsuccessful, that it would only be commercially sensible to set-off the rental deposit against the amount outstanding and to forgo the balance.

18. The fifth direction sought is whether to sell the roof top of Portion B of the Main Roof of Serene Court, 41 Tin Hau Temple Road, Hong Kong on the best terms available, or transfer the title at nominal value or otherwise to deal with the roof top in the most efficient and cost-effective manner available without further sanction from the Court. It would appear to be the case that the Liquidators were unaware of the Company's ownership of this roof top, and despite efforts made by the liquidators since, they have not been able to elicit any interest from purchasers for this roof top (including the owner of the top floor of the same portion of the building and the building owners association). Since it would appear that it would be unlikely for anyone to be interested in the roof top only, I see no option but to give the Liquidators leave to sell the said roof top on whatever terms they can get, basically to rid the Company of what may in effect be a liability. As I have indicated in the course of submissions, if it turns out that the Liquidators are unable to sell the roof top or even to transfer the title at nominal value, it may be that they may have to come back to court for a disclaimer.

19. The sixth direction is whether to forgo the amount owed by a company called Leco Trading Limited in relation to apportioned outgoings resulting from the sale of one of the properties. It would appear that an amount of slightly over $15,000.00 had not been settled by Leco, being the purchaser of certain properties owned by the Company. The solicitors acting for Leco have indicated that they have lost contact with their client, and they have also informed the Liquidators that the properties had since been on-sold by Leco to a third party. In view of the small sum involved, it would appear sensible to forgo this amount so that the Liquidators can proceed to the finalisation of the provisional liquidation and to stop any further costs being incurred in this respect.

20. The seventh direction sought is whether to make payment to C Y Leung & Company Limited for valuation services. It would appear from the Report that the services had been provided prior to the commencement of the provisional liquidation although the invoice had been presented after. Since it would appear that the work had been done and there is no dispute as to the propriety of the amount sought, the Liquidators ought to make payment to C Y Leung & Company Limited for those services.

21. The last direction sought is whether to deduct the storage charges incurred by the Provisional Liquidators from the distribution payable in respect of 371 shares in the Company belonging to the estate of Tan Cheong Leong (deceased) at the conclusion of court proceedings in Malaysia if it is found that the estate of Tan Cheong Leong is beneficially entitled to the shares. It would appear that the history of this is that Tan Cheong Leong had been the occupant of one of the properties belonging to the Company, and had left certain personal effects there. Tan Cheong Leong died in 1995 and the property was sold in 1997. After the sale of the property, the personal effects were left in storage incurring storage charges of about $110,000.00.

22. There is a dispute between Tan Cheong Leong's estate and certain other shareholders as to the beneficial ownership of the 371 shares. It is not clear at the moment what is the result of the proceedings in the High Court of Malaysia, although the Court was informed that a judgment in the Malay language has been delivered. It seems that the best way to deal with the matter is for the Provisional Liquidators to await a judgment from the High Court of Malaysia conclusively determining the beneficial ownership of those 371 shares, and if it is found that the estate of Tan Cheong Leong is beneficially entitled to those shares, then the storage charges should be deducted from the distribution payable, but if it is found that his estate is not beneficially so entitled, then storage charges should be claimed against his estate.