WONG PO KONG ERIC v. WORLD LEXUS PACIFIC LTD AND OTHERS

HCA468/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

ACTION NO. 468 OF 2005

D E C I S I O N

1.  This is an appeal by the plaintiff against an order of Master Au-Yeung made on 8 September 2005 which allowed the interveners to be joined as the 2nd, 3rd and 4th defendants in this action.  The 3rd defendant, 北京明華軒投資諮詢有限公司 (“Minghuaxin”) is not represented in this appeal.  The reason for this need not be gone into.

2.  The 1st defendant, World Lexus Pacific Limited (“World Lexus”), is a Hong Kong company.  It holds shares in北京太平洋城房地產開發有限公司 (Pacific Town).  Pacific Town is a Hong Kong and Mainland joint venture company incorporated in the Mainland.  It is a vehicle for developing a real estate project in the fashionable Chaoyang district of Beijing.  The shares of World Lexus used to be held equally between one Mr Tsoi Yuk-ming (“Tsoi”) and the 2nd defendant, Mandecly Limited (“Mandecly”).  Mandecly is a Hong Kong company, and under the control of the 4th defendant, Chan Tat-man (“Chan”).  The 3rd defendant, Minghuaxin, is a Mainland company and beneficially owned by Tsoi and Chan.

3.  In 2001 to 2002 the plaintiff and the 1st defendant, World Lexus, entered into several agreements by which the plaintiff agreed to introduce investors or investment funds to World Lexus in return for consultancy fees or commissions.  The plaintiff did introduce the ING Group to purchase from Tsoi and Mandecly 80 per cent of the shares of World Lexus.  This sale and purchase of shares was effected by an agreement dated 15 August 2002.  Tsoi and Mandecly then held the remaining 20 per cent of the shares of the World Lexus.  World Lexus then became liable to pay commission at RMB¥15 million to the plaintiff.  RMB¥9.66 million had been paid so far. 

4.  On about 16 October 2002, the plaintiff gave a written undertaking to the 4th defendant, Chan.  Chan says that on the terms of the undertaking, if, at the instigation of the ING Group, or by force majeure, the co-operation in the project between the ING Group on the one hand and Tsoi and Chan on the other should come to an end, and the ING Group should make certain refund of money to Tsoi and Chan, then the plaintiff would have to refund the commissions received.

5.  Certain disputes arose between the ING Group and Tsoi and Chan.  I need not go into them.  The upshot of the event was that Tsoi and Chan (through Mandecly) agreed to sell their remaining 20 per cent shares in World Lexus to the ING Group, thus terminating their co-operation in the project.  The agreement for the sale of this 20 per cent share was made on 9 August 2004 and it also provided for the refund of money as referred to in the undertaking abovementioned.

6.  In this agreement Tsoi and Mandecly were the vendors.  Minghuaxin was made a party to receive the proceeds of sale.  Chan was also made a party to the agreement and he gave various warranties to the ING Group.  The ING Group was represented by one China Property Development (Holdings) Limited (“China Property Development”) as the purchaser in the agreement.  With the making of the agreement for selling the 20 per cent shares, Tsoi and Chan (or Mandecly) no longer had any interest or control in World Lexus and World Lexus came under the sole control of the ING Group. 

7.  In this action the plaintiff claims against World Lexus pursuant to the agreements made in 2001 and 2002 for payment of the balance of commission at RMB¥5.34 million.  Chan says that by reason of the undertaking and the 20 per cent share agreement, no more commission was payable under the agreements made in 2001 and 2002.  He further says that the plaintiff should, pursuant to the undertaking, refund the commissions paid. 

8.  World Lexus had sought assistance from Chan to defend this action.  Chan instead offered to handle the defence for World Lexus, which World Lexus declined.  Nevertheless, if World Lexus should lose this action, China Property Development can, under the 20 per cent share agreement, deduct from the proceeds payable to Minghuaxin all that World Lexus had to pay under the judgment and all costs incurred and paid.  Mandecly, Minghuaxin and Chan thus applied to be joined as the 2nd, 3rd and 4th defendants in this action and their applications were allowed by Master Au-Yeung.  The plaintiff appealed.  As I have said, the 3rd defendant, Minghuaxin, was not represented in this hearing. 

9.  Mr Mok, counsel for the plaintiff, after the mid-morning break did not choose to argue for the setting aside of the order of joinder.  He, instead, raised three matters of concern.  First, whoever is allowed to be joined as a defendant, that party can only be allowed to take part in the action on the basis of the undertaking given by the plaintiff to Chan.  I understand that to mean that the defendant as may be joined, can only defend and/or counterclaim on the basis of the undertaking only.

10.  Second, only one of the three interveners should be joined as it would not require more than one party to run this line of defence and/or counterclaim.

11.  Third, joinder should be without prejudice to the plaintiff’s subsequent application to strike out the defence and/or counterclaim as may be filed by the defendant as joined. 

12.  Mr Pow and Mr Lee for the 2nd defendant, Mandecly, and the 4th defendant, Chan, had no problem with the first and third points, but they argue that Mandecly and Chan should both remain as defendants.  The reason for Chan to be joined is obvious as he was the person who negotiated and obtained the undertaking from the plaintiff.  For Mandecly, counsel argued that although it was not entitled to be paid any proceeds for the sale of the 20 per cent shares (which would be paid to Minghuaxin), it had however given certain warranties to the ING Group in the 20 per cent share agreement.  In the event of an adverse judgment in this action, its position would be adversely affected.  I do not share this argument. 

13.  The defence and counterclaim of this action can be well taken care of by Chan.  Regarding Mandecly, the ING Group through China Property Development has already deducted a substantial sum from the proceeds payable to Minghuaxin to cater for an adverse judgment and the consequential costs order in this action.  I, therefore, do not see the need for Mandecly to be made a party in this action.  I do not see how it will be affected in reality by an adverse judgment and consequential costs order.  Though the joinder of Mandecly would not incur more costs or time as it would be represented by the same lawyers who act for Chan, but joinder should only be made out of necessity, not lack of inconvenience. 

14.  Regarding Minghuaxin, the situation is different.  It is a recipient of the proceeds under the 20% share agreement.  If Chan should successfully defend this action, it would stand to gain, because China Property Development would have to release to it the part of the proceeds that are now withheld.  Now that Minghuaxin may be represented by a different team of lawyers instructed by different people, it is all the more important that its position in this action should be preserved.  If Minghuaxin should subsequently desire to withdraw from this action, it would be a matter for it. 

15.  I therefore allow part of this appeal by striking out the 2nd defendant, Mandecly, from this action.  I also add two orders to the order of Master Au-Yeung, namely:

(1)   the 3rd defendant, Minghuaxin, and 4th defendant, Chan Tat-man, are only allowed to defend and/or counterclaim in this action on the basis of the said undertaking; and

(2)   this joinder of the 3rd defendant and 4th defendant is without prejudice to the plaintiff’s subsequent application to strike out the defence and/or counterclaim as may be filed by them at a later stage.