YIP LAI FONG AND ANOTHER v. SIN TUNG HNG AND OTHERS

HCMP2423/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.2423 OF 2002

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D E C I S I O N

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1. This is an application by Sun Rising Development (HK) Limited ("the Intervener") to be joined as a respondent to these proceedings for the purpose of opposing the 1st petitioner's application for appointment of interim receivers to Full Billion Shipping Limited ("the Company"), the 2nd respondent herein.

Background

2. The 1st petitioner and the 1st respondent are the registered shareholders and directors of the Company. In these proceedings, the 1st petitioner is seeking relief under section 168A Companies Ordinance in connection with, inter alia, the sale of the 8,000 shares held by the Company in Hung Kong (Fresh Fruit) Trading Limited, the 3rd respondent ("the 8,000 Shares") to the 4th respondent under a Chinese agreement no.NHXG20020501 ("the Company's Sale Agreement"). It is the 1st petitioner's case that this sale of the 8,000 Shares to the 4th respondent is void and of no effect.

3. The other 2,000 shares in the 3rd respondent ("the Intervener's Shares") used to be held by the Intervener. By a Chinese agreement no.NHXG20020502 ("the Intervener's Sale Agreement"), the Intervener also sold its shares to the 4th respondent. By an agreement dated 11 June 2002 ("the Supplemental Agreement "), the Intervener agreed to lend the purchase price of its shares to the 4th respondent by way of a two-year term loan that carries interest at 10% p.a.

4. By a summons dated 7 March 2003, the 1st petitioner applied for interim receivers be appointed over the assets and undertaking of the Company and also over the 8,000 Shares. By a summons filed on 17 March 2003, the Intervener applies to be joined as the 7th respondent and to oppose the receivership application.

Applicable principle

5. It is common ground that the court has jurisdiction under Order 15 rule 6(2)(b)(ii) Rules of High Court to make an order for joinder of parties . The provision reads :

"Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application -

(b) order any of the following persons to be added as a party, namely -

(i) ...

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter."

6. In Wong Chun Loong Tony v. Ada Ltd [1991] 1 HKC 86, the Court of Appeal, applying the English case of Sanders Lead Co. Inc. v. Entores Metal Brokers [1984] 1 WLR 452, held that Order 15 rule 6(2)(b)(ii) requires the would-be-intervener to possess some interest which is in some way directly related to the subject matter of the action, and that a mere commercial interest in its outcome, divorced from the subject matter of the action, is not enough. The Court of Appeal further held that there must exist between the would-be-intervener and any party to the cause or matter a question or issue arising out of, or relating to, or connected with any relief or remedy claimed in the cause or matter, which the court considers it just and convenient to determine as between the would-be-intervener and that party, as well as between the parties to the cause or matter.

The joinder application

7. In the present case, the Intervener contends that it has an interest which is directly related to the subject matter of the action. The basic issue in these proceedings is the validity of the Company's Sale Agreement. Clause 9 of the Intervener's Sale Agreement, reads, inter alia :

「本合同經甲乙雙方簽署後生效，自NHXG20020501號合同書生效後開始履行。」

Relying on this provision, the Intervener contends that the validity of the Intervener's Sale Agreement will be affected by the validity of the Company's Sale Agreement. On a practical level, the Intervener argues that the appointment of interim receivers to the Company with powers that include appointing director to the 3rd respondent will cause the 4th respondent to lose control over the 3rd respondent. It is said that the 4th respondent, being obviously interested in acquiring 100% interest in the 3rd respondent, may rescind the agreements it had with the Intervener, and the Intervener therefore becomes exposed to unnecessary risks and faces adverse consequences, including losing the purchase price and interest under the Supplemental Agreement.

Reasons for decision

8. I am unable to agree that the determination of the validity of the Company's Sale Agreement will have an effect on the validity of the Intervener's Sale Agreement. It is plain from clause 9 of the Intervener's Sale Agreement that it becomes valid or effective upon being signed by the contracting parties. What is dependent on the Company's Sale Agreement is the operative date or the performance of the Intervener's Sale Agreement. Even then, under clause 9 of the Company's Sale Agreement, the agreement becomes effective upon being signed by the Company and the 4th respondent. On the face of it, the Company's Sale Agreement had been signed by the Company and the 4th respondent, although there is dispute between the parties herein as to the authority of the 1st respondent to sign for the Company.

9. In addition, the Intervener's Shares had already been transferred to the 4th respondent. It is also plain from the recital in the Supplemental Agreement that the purchase price under the Intervener's Sale Agreement had deemed to be paid through the creation of the term loan. It follows that Intervener's Sale Agreement had been performed, not only partially but in full.

10. It also follows that the only interest that the Intervener has is its contractual rights under the Supplemental Agreement. The first of such rights is the repayment of the term loan. This is an interest no different from the commercial interest that a general creditor of the 4th respondent has. It is insufficient for the purpose of Order 15 rule 6(2)(b)(ii) Rules of High Court. In any event, it is only when the 4th respondent defaults under the Supplemental Agreement that there will be an issue or question between the Intervener and a party to this action that brings the Intervener within Order 15 rule 6(2)(b)(ii). The fear or concern of the Intervener, whether fanciful or genuine, is insufficient to constitute an interest under the Rule.

11. Another right that the Intervener has under the Supplemental Agreement that may be relevant to the present joinder application, is the right under clause 3.1, which reads :

「甲方出借款項後、乙方足額歸還借款本息前此一期間，甲方有權隨時决定將已發生的借款本金、利息轉化為在乙方的投資款並取得乙方股東地位。」

12. To the extent that the Intervener has an option to convert the capital and interest of the term loan into capital investment of the 3rd respondent and to be constituted a shareholder thereof in lieu of the 4th respondent, it may be said that the Intervener has some interest in the 3rd respondent and in turn the 1st petitioner's application to appoint interim receivers. But that interest is only contingent upon the Intervener exercising its option. Further, until the option is exercised, there will be no issue between the Intervener and any party herein that arises out of, or relates to, or connects with the relief claimed in these proceedings.

Conclusion

13. For the reasons aforesaid, the Intervener's application is dismissed with costs to the 1st petitioner against the Intervener.