百州年投資管理集團有限公司 v. 銀泰百貨(集團)有限公司 AND ANOTHER

HCA 507/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 507 OF 2013

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D E C I S I O N

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1.  This is the 1^st defendant’s application to strike out the plaintiff’s claim against it. Although it would appear that the 1^st defendant is invoking all the grounds under Order 18, rule 19, Mr Paul Lam, SC, counsel for the 1^st defendant, informed me at the hearing that he would rely only on grounds (b) to (d) of rule 19(1).

2.  The plaintiff has not filed any evidence to oppose the application.  The plaintiff is absent at the hearing and is not legally represented. 

The plaintiff’s claim against the 1^st defendant

3.  In this Action, the plaintiff is claiming substantial damages against both defendants for misrepresentation, as well as for trespass and conversion of personal properties.

4.  The 1^st defendant is a company incorporated in the Cayman Islands and is registered as a non‑Hong Kong company under Part 11 of the former Companies Ordinance. 

5.  The 2^nd defendant, Shen Guo Jun (沈國軍) (“Shen”), founded the Yintai Group of companies (銀泰集團) in 1998. The Group has substantial retail business in the Mainland, as well as business in various other areas including logistics, finance and investment in the real estate market in the PRC.  The Group also carries on business across a number of the major cities in the country including Beijing, Hangzhou, Xian, Linbo etc.  The headquarters is in Beijing. 

6.  The Yintai Group comprises various corporate entities.  Among them is one called Beijing Yintai Property Co Ltd (北京銀泰置業有限公司) (“Beijing Yintai”).  Shen is the legal representative (法定代表人) of Beijing Yintai. 

7.  The 1^st defendant is a member of the Yintai Group.  Shen is the 1^st defendant’s Chairman and one of its directors.

8.  Shen, therefore, has the dual capacity as the legal representative of Beijing Yintai, as well as being the chairman and director of the 1^st defendant.

9.  It is the plaintiff’s pleaded case that in 2005, Shen claimed to have developed a landmark property belonging to the Yintai Group at the heart of the business district in Beijing, known as the Yintai Centre (銀泰中心). 

10.  The plaintiff alleged that in September 2009, Shen had made a number of misrepresentations in order to induce the plaintiff into investing RMB 30 million to set up a Japanese restaurant at the Yintai Centre.  In reliance on the misrepresentations, the plaintiff had entered into a 10‑year tenancy agreement in April 2010 to rent units 314 – 315 on the 3^rd floor of the Yintai Centre, and had in March 2011 further entered into a joint venture with Beijing Yintai to operate the Japanese restaurant. 

11.  Importantly for the present purpose, it is the plaintiff’s case that the alleged misrepresentations were made by Shen as a representative acting on behalf of the 1^st defendant.

12.  Allegedly, in late 2011, the plaintiff learned from a number of press reports that there were serious questions concerning Yintai Group’s claim to the title of the land on which the Yintai Centre was built.  The plaintiff further learned subsequently that the parts rented to the plaintiff for the Japanese restaurant were in fact illegal constructions.  The plaintiff had thus discovered the falsity of Shen’s representations, and this forms the basis of the plaintiff’s misrepresentation claim. 

13.  In addition to its misrepresentation claim, the plaintiff also pleaded that on an occasion in March 2013, a group of about 50 people were sent by the Yintai Group to repossess the rented premises by force.  They had removed the safe containing cash of RMB 2 million; taken away expensive wine and spirits; and caused extensive damage to the fittings in the premises. 

The 1^st defendant’s defence

14.  The thrust of the 1^st defendant’s Defence is that it was never involved in the development of the Yintai Centre nor was it involved in persuading the plaintiff to undertake the investment.  It has no knowledge about the representations allegedly made by Shen, and it has never authorized Shen or anyone else to make the alleged representations at all.

15.  Materially, as is evident from the tenancy agreement, the parties to the tenancy in question were Beijing Yintai on the one hand and the plaintiff on the other. The 1^st defendant was not actually a party thereto. 

16.  The same applies to the two subsequent supplemental agreements relating to the rented premises. 

17.  The 1^st defendant also denies the plaintiff’s claim in trespass and conversion.

Further and better particulars of the plaintiff’s case

18.  The plaintiff was asked to provide particulars of its plea that the alleged misrepresentations by Shen were made in his capacity as the 1^st defendant’s representative. 

19.  In the particulars provided, the plaintiff went into some detail as to what Shen had allegedly said either by himself or through his assistants on various occasions.  However, despite details of the various conversations, it is plain that the plaintiff is really only relying on Shen’s position as chairman and executive director to support its attribution of the alleged misrepresentations to the 1^st defendant.  Insofar as reliance is also placed on the Annual Report of the 1^st defendant, the Annual Report apparently adds nothing evidentially apart from confirming Shen’s position as the 1^st defendant’s Chairman.

20.  As Mr Lam has submitted on behalf of the 1^st defendant, when stripped of the details, the plaintiff’s pleaded case is simply that the 1^st defendant should be made liable because Shen was its chairman and executive director.

Discussion

21.  As noted earlier, it is the plaintiff’s case that the tenancy agreement and the joint venture for operating the Japanese restaurant were both made with Beijing Yintai.  It was this investment which had eventually resulted in substantial loss to the plaintiff.

22.  Furthermore, there is evidence from the 1^st defendant, which is not disputed, that it was the staff of Beijing Yintai who had all along been involved in the negotiations and communications with the plaintiff in respect of the restaurant venture, and that Beijing Yintai was the entity responsible for that transaction.

23.  In the circumstances, in particular in view of Shen’s dual capacity, insofar as the plaintiff is mounting a case that Shen’s representations were made on behalf of the 1^st defendant (rather than as representative of Beijing Yintai), it is incumbent on the plaintiff to plead clearly the factual basis upon which his authority so to act is alleged to have arisen. 

24.  As it appears in the further and better particulars, the plaintiff is in essence pleading a case of apparent authority by reason of Shen’s positions in the 1^st defendant.

25.  While Mr Lam accepts that a person in the position as chairman and executive director of a company would generally be taken to have wide authority to manage the ordinary business of the company, he submits however that such a person possesses the authority only in relation to the business of the company in which he or she holds such position, but not that of any other company. 

26.  In the present case, the plaintiff is obviously trying to mount a case by conflating the identities of the two separate entities, namely, Beijing Yintai and the 1^st defendant. The matters in controversy relating to the restaurant venture concerned the plaintiff’s dealings with Beijing Yintai.  The fact that Shen was also the chairman and executive director of the 1^st defendant does not, without more, support the contention that the 1^st defendant has conferred any apparent authority on Shen to manage the affairs of a different company, namely, Beijing Yintai.  In this connection, Mr Lam has referred me to the Court of Appeal’s judgment in Re Yung Kee Holdings Ltd [2014] 2 HKLRD 313, at para 55:

“It is pertinent to bear in mind the fundamental principle that each company in a group of companies is a separate legal entity and it is expected that the court would apply the principle of Salomon v Salomon & Co Ltd [1897] AC 22 in the ordinary way (Adams v Cape Industries Plc [1990] Ch 433 at 532D and 544F). The English Court of Appeal in Adams v Cape Industries Plc analysed a number of cases …. and rejected the argument that the members of a group of companies constituted a single commercial unit ….”

27.  In the present case, there is nothing in the pleadings and the particulars to support a contention that the 1^st defendant has done anything to hold out Shen as having the authority to manage the affairs of Beijing Yantai on behalf of the 1^st defendant. 

28.  Mr Lam submits that the same analysis also applies to the plaintiff’s claim based on the tortious acts allegedly committed on 18 March 2013.

29.  I agree with Mr Lam’s submissions set out in the preceding paragraphs.

30.  For the foregoing reasons, I am satisfied that the plaintiff’s claim against the 1^st defendant is frivolous and vexatious and doomed to fail.  I would accordingly order that the plaintiff’s claim against the 1^st defendant be struck out and its Action against the 1^st defendant dismissed.

31.  I would also award costs of the Action to the 1^st defendant to be taxed on a party‑and‑party basis.