AOTEAROA SEAFOODS (HK) LTD and Others v. YU KWAN YEE and Another

IN THE COURT OF APPEAL

1996, No. 2
(Civil)

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J U D G M E N T

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Ching, J.A. :

1. The 1st Plaintiff is a company incorporated in Hong Kong. Its issued shares are registered as to 30% in the name of the 3rd Plaintiff, 40% in the name of the 4th Plaintiff and the remaining 30% in the name of the 1st Defendant. The 2nd Plaintiff is not the registered holder of any of the shares but at the material time he and the 1st Defendant were the only two directors of the 1st Plaintiff. There is a dispute as to the identity of the present directors. The 1st Defendant is the sole proprietor of the 2nd Defendant.

2. The 2nd Plaintiff is generally not in Hong Kong and the affairs of the company were managed by the 1st Defendant. The day-to-day running was dealt with by the 3rd Plaintiff who also held a letter of authority from the 2nd Plaintiff authorising her to act on his behalf. In 1995 disputes arose. It is alleged by the Plaintiffs that the 1st Defendant abused his position as a director and was in breach of his fiduciary duties. It is said that he has been using the assets of the 1st Plaintiff for his own benefit, that he has tried to run down the business of the 1st Plaintiff and that he has tried to divert that business to the 2nd Defendant. These allegations are denied by the 1st Defendant who has advanced explanations for the acts of which complaint is made.

3. On 18th October, 1995, the four Plaintiffs together obtained an ex parte injunction against the Defendants. It was in very broad terms and was essentially in two parts. The first was a series of orders restraining the 1st Defendant from acting in the management of the 1st Plaintiff and from diverting its assets and business. The second was in the form of a Mareva injunction by which the Defendants were restrained from dealing with their assets in Hong Kong except insofar as they exceeded $1,656,055.92 together with an order for disclosure of all assets whether in or outside Hong Kong. There was peculiarly an order against defamation of the Plaintiffs by the 1st Defendant. On 23rd November, 1995, an inter partes summons for the same relief came before Rogers, J., who discharged all of the orders. At the same time the 1st Defendant undertook that within 48 hours he would pass to his solicitors for onward transmission to the Plaintiffs all cheques payable to the 1st Plaintiff in his possession. The Plaintiffs now appeal against the discharge of the order although in argument before us Counsel for the appellants says that he restricts his appeal to an order as set out in paragraphs 2 and 3 of the prayers in the Statement of Claim.

4. So far as the form of action is concerned the claim is for damage sustained by the 1st Plaintiff. At the time when the ex parte injunction was obtained and when the Writ was issued the 1st Plaintiff had not resolved to bring proceedings. No resolution of that nature was possible because a quorum for a meeting of directors was two and the only directors were the 2nd Plaintiff and the 1st Defendant. Clearly, the 1st Defendant would not have consented to being sued even if a quorum of directors had been present in Hong Kong. While the 2nd Plaintiff is not registered as a shareholder of the 1st Plaintiff he appears to be a major shareholder and to be in control of the 4th Plaintiff. The 3rd Plaintiff was the company secretary of the 1st Plaintiff. In these circumstances it is to be expected, factually, that the 2nd, 3rd and 4th Plaintiffs would have known that the 1st Plaintiff had not and could not have passed the necessary resolution. It was they or one or more of them who must have given the instructions to the solicitors to act on behalf of the 1st Plaintiff.

5. Rogers, J., records in his judgment that the inter partes summons first came before the Court on 27th October, 1995, when the point was taken that the solicitors had no authority to act for the 1st Plaintiff. The matter was then adjourned for further evidence to be filed. In fact, although further evidence was then filed before the matter came before Rogers, J., it did not deal with the point. In these circumstances, Rogers, J., held that the point was very material. He said that there had been no authorisation by the 1st Plaintiff to commence the proceedings, it was no means certain that such a resolution could have been passed and that the matter was not drawn to the attention of the ex parte Judge. He therefore felt that he had no alternative but to discharge the injunction. Two complaints are made as to the Judge's reasons. The first is that the ex parte Judge was in fact told the position. The second is that Rogers, J., did not consider the position of the 2nd, 3rd and 4th Plaintiffs separately from that of the 1st Plaintiff.

6. The evidence that the ex parte Judge was told of the position is to be found in an affidavit of the senior partner of the firm of solicitors acting for the Plaintiffs dated 12th December, 1995, which was filed in response to a question as to whether or not that firm should bear the costs. He says that the question was raised before the ex parte Judge and that there was then a discussion as to whether or not the action should have been in the derivative form. There was no evidence before Rogers, J., as to what had occurred before the ex parte Judge. It may be that if Rogers, J., had had that evidence he would not have taken the view that he did. It may be that if Rogers, J., had been told that the proceedings had been ratified by a properly constituted board of directors he may have decided to grant a further injunction. That Rogers, J., dealt with the matter with regard to the 1st Plaintiff as he did appears to be the fault of the Plaintiffs or their advisers. The Judge was faced with an action by the 1st Plaintiff which was patently and ostensibly bad and there was no evidence before him to show how or if the defect had been cured or that the defect had been brought to the attention of the ex parte Judge.

7. It is true that the 2nd, 3rd and 4th Plaintiffs were capable of instructing solicitors on their own behalves. However, if there had been non-disclosure as to the lack of authority on the part of the 1st Plaintiff, in the circumstances the 2nd, 3rd and 4th Plaintiffs must have been tainted with it. There is another more basic defect in their position. As pleaded, the 2nd Plaintiff shows no cause of action against the 1st Defendant at all. He is not a registered shareholder and could not even have instituted a derivative action. The 3rd and 4th Plaintiffs were registered shareholders but the action was not and still is not derivative in form and as pleaded they also show no cause of action against the 1st Defendant. If the appointment of further directors and the ratification of the proceedings is valid there can be no question now of a derivative action. Finally, it was quite wrong to name and to enjoin the 2nd Defendant. The 2nd Defendant is not a separate legal entity but is merely a name under which the 1st Defendant is or will be trading.

8. Whatever Rogers, J., could or may have ordered it is necessary to consider whether or not the Plaintiffs should now have orders in the terms of paragraphs 2 and 3 of the claim in the Statement of Claim. It is quite clear that they should not. The 2nd Defendant was wrongly joined. So far as the 2nd, 3rd and 4th Plaintiffs are concerned they have pleaded no cause of action against the 1st Defendant. So far as all the Plaintiffs are concerned, the evidence consists mainly of very serious but equally broad allegations against the 1st Defendant but none of them is adequately particularised. Often hearsay evidence is given without identifying the source or without anything to indicate how that source came by the information. More importantly, if the 1st Defendant is now no longer a director he will have no basis for interfering with the management of the 1st Plaintiff.

9. Paragraph 3 of the prayer in the Statement of Claim reads as follows:

"Against the 1st Defendant :-

a. an account of all monies and or benefits wrongfully acquired and or appropriated from the 1st, 2nd, 3rd and 4th Plaintiffs and or from any of them;

b. an order for all necessary and proper inquiries and directions of taking such account;

c. an order for payment by the 1st Defendant to the 1st Plaintiff of all monies and or benefits due to him and owing to the 1st Plaintiff for the taking of such account together with interest thereat;"

It suffices to say that interlocutory proceedings are not proceedings in which such an order should ever be sought or given.

10. Paragraph 2 of the prayer in the Statement of Claim reads as follows :

"An Injunction restraining the 1st Defendant whether by himself or by his servants, or agents or any of them or otherwise howsoever from contacting, dealing and interfering with the suppliers, customers and or bank(s) of the 1st Plaintiff;"

Why the 1st Defendant should not contact or deal with those suppliers, customers or banks is not apparent. Quite simply, no grounds are shown for the making of any such order.

11. In the circumstances the appeal is dismissed.

Liu, J.A.:

12. I agree. I merely wish to say this: The 2nd, 3rd and the 4th plaintiffs have no locus of their own and insofar as they may be said to be allied with the various causes of action of the 1st plaintiff, they would likewise be affected by the same material non-disclosure.

Litton, V.-P.:

13. I also agree and would simply add this. The plaintiffs now come before this court and on the face of the notice of appeal they seek an order from this court to restore the ex parte orders made by Patrick Chan J on 18 October 1995. That seems to me an extraordinary course to take. The justification for the ex parte order - perhaps the only justification - was that unless the judge exercised his jurisdiction ex parte behind the defendant's back the injury sought to be prevented by the orders would occur: so much so that the defendant should have no notice of the proceedings before the ex parte order was served. The defendants have of course since then been made aware of the proceedings and since 23 November 1995 have been free to do what the ex parte order sought to prevent. In other words this court's power is being invoked in vain by the appeal. That alone seems to me sufficient ground for dismissing the appeal.

14. In fact Mr Kenneth Ho, counsel for the plaintiffs, now tells us that he is not seeking the restoration of the ex parte order at all. What he seeks is relief from this court in terms of paragraphs 2 and 3 of the prayers to the statement of claim, the text of which Ching JA has already given. Whether the plaintiffs might be entitled to such relief after trial is not for consideration now. But as interim orders they are quite extraordinary and they do not come within the ambit of the appeal now before us.

15. For all we know the plaintiffs, or some of them, have good reasons to feel aggrieved over the acts of the 1st defendant. If that be so, the sooner the action proceeds to trial the better. As an interlocutory matter it seems to me that this appeal is quite hopeless.

16. The result is that the appeal is dismissed and we will now hear counsel on the question of costs.