UDL HOLDINGS LTD AND ANOTHER v. LEUNG YUET KEUNG AND ANOTHER

cacv 356/2008

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 356 of 2008

(on appeal from HCA NO. 4409 of 2002)

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J U D G M E N T

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Hon Rogers VP:

1.  This is an application for leave to appeal to the Court of Final Appeal from a judgment of this court, given on 14 September 2009.  The matter before this court was an appeal from a decision of Stone J whereby he had rejected the plaintiffs’ claims against the two defendants on the basis that they had breached their fiduciary duties.  The two defendants were directors of the first plaintiff.  The first defendant was what has been termed a de facto director of the second plaintiff but the second defendant was not a director of the second plaintiff.

2.  The facts of the case will of course be gleaned from both the judgment in the court below and this court’s judgment.  It suffices to say that the basis of the plaintiffs’ claims was encapsulated in the judgment of this court, in paragraph 8, where it was said that the bases of the plaintiffs’ claims were that the first defendant’s brother, Mr Leung Yat Tung, Y T Leung, who was then the chairman of the first plaintiff, had given the first defendant confidential information belonging to the first plaintiff, namely, that an Italian company, Dragomar S.p.A, was interested in purchasing the dredger for around US$5 million in a fully repaired state or, alternatively, for US$3.5 million without repair.  Furthermore, it was said that the first defendant in addition to or, alternatively, the second defendant, had acquired information from Y T Leung that there would be bids for the dredger up to US$1 million but not beyond.  It was alleged that Y T Leung had told the first defendant that the insurance recovery in respect of the unrepaired damage was expected to be between US$1.1 million and US$1.5 million.  On that basis, it was said the first and second defendants had been in breach of their duties and misused confidential information by purchasing the dredger and ultimately selling it on to Dragomar.  Those were the bases of the plaintiffs’ claims in the court below and in this court.

3.  Now in this court, the application is said to entail a matter of great or general public importance on the basis of this question, which is:

“Whether a director or de facto director of a mortgagor company who bids (whether by himself or some other entity) at the sale of the mortgaged property by the mortgagee (or on a judicial sale) is without more, under a strict liability, to account for any profits arising therefrom on the ground that in so doing he has placed himself in a position where his personal interests might conflict with the duties which he owes to the mortgagor company as a director.”

4.  Now, the first thing that must be said is that this court most certainly does not send hypothetical questions to the Court of Final Appeal and, for that reason, the words, “by the mortgagee, or” have to be deleted because this was not a sale by the mortgagee.  It was a judicial sale.  So the simple question is whether a director or a de facto director is debarred, on a judicial sale, from bidding for property.  I cannot possibly see that that could be so.  As Mr Sussex, SC, who appears on behalf of the defendants, has pointed out, on a judicial sale it is a contempt to interfere with the sale process at all.  There seems to me to be absolutely nothing to prevent a director or a de facto director from bidding on a judicial sale.

5.  Then the second point arises, as Mr Sussex has said, how does that affect the second defendant who was not even a director of or even a de facto director of the second plaintiff?  So why he has been dragged along to court, I am not sure.  In any event, I do not see that this could possibly be a question which this court should send to the Court of Final Appeal.

Hon Le Pichon JA:

6.  I agree.

Hon Sakhrani J:

7.  I also agree.