NG YAT CHI v. MAX SHARE LTD.

HCA2039/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. HCA2039 OF 2002

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J U D G M E N T

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1. I have before me a summons in two parts taken out by the defendants whereby they apply for an order striking out the statement of claim under the three limbs appearing in Order 18, Rule 19, of the Rules of the High Court and the court's inherent jurisdiction and, if that succeeds, for a Grepe v Loam order to prohibit the plaintiff from commencing any further new proceedings in respect of the same claim or subject matter as in HCCW 321 of 1996 or in this action without first obtaining the leave of the court.

2. It is necessary for me to recite the background to this matter in order to obtain a proper understanding of the issues involved in the summons.

3. The starting point is an 11 day action before Yuen J, as she then was, tried in September 1999, HCCW 321 of 1996. In that action, the plaintiff inter alia sought the winding-up of the 1st respondent (the 1st defendant in this action) on the just and equitable ground contained in section 177(1)(f) of the Companies Ordinance, Cap. 32. I will need to say a little more about this in a moment.

4. Yuen J delivered a 68 page judgment in May 2000 to the effect that the 1st respondent should be wound up. There was an appeal against her order to the Court of Appeal who set aside the winding-up order. The petitioner, the plaintiff in this matter, then asked for leave to appeal to the Court of Final Appeal which the Court of Appeal refused and he then took the matter to the Court of Final Appeal and asked it for leave so that the order of Yuen J might be restored. His application for leave was, in the usual way, heard by the appellate committee, who determined that he should not have leave.

5. The respondents then sought to have their costs paid by the petitioner, they having obtained orders for costs in their favour from the Court of Appeal and from the appellate committee. When payment was not forthcoming, they made a statutory demand of the petitioner which, if he did not comply with, would of course set in train bankruptcy proceedings . He applied to Woolley DJ to set the demand aside. That application was dismissed by the deputy judge and there is now an appeal to the Court of Appeal against that dismissal. I am told that the respondents intend to apply to the Court of Appeal to strike out the notice of appeal very much on the same grounds as this application to strike out the statement of claim.

6. This in its bare essentials is the framework of the litigation between the parties. I now need to turn to the substance of the matter which I will set out as briefly as I can.

7. The essence of this action is that it seeks to restore Yuen J's winding-up order. The route which the plaintiff seeks to take is to say that the Court of Appeal and the appellate committee have "fraudulently robbed him" of the fruits of Yuen J's order. They have done so by "inventing facts" which they then relied on to conclude that Yuen J had fallen into error so as to justify the setting aside of her order. It is difficult to imagine a more grave allegation against any judge or court.

8. Whilst I have related, in its barest outline, the nature and course of the winding-up application, it is necessary to demonstrate the evidential and legal basis by which the petitioner had sought that order. I gratefully adopt the summary set out in the appellate committee's determination delivered by Ribeiro PJ which is at page 138 of the court's bundle.

"2. The company which is the subject of these proceedings was formed in 1986. Its capital was $200,000 divided into shares of $1 each. At the outset, the petitioner held 49% of the shares. The remaining 51% were allotted to certain individuals who held them as nominees for a company called Strong Progress Limited. Strong Progress was in turn a 100% subsidiary of a state-owned corporation, namely, China Resources (Holdings) Ltd, the 2nd Respondent.

3. The Judge found that the petitioner, with connivance of one of the nominee shareholders, committed a series of defalcations against the company by causing it to enter into transactions with entities which they owned or controlled, thereby siphoning off company funds for their own benefit.

4. At the end of November 1990, the petitioner entered into an agreement to sell his shares in the company to Strong Progress. This required a valuation to be conducted. The factual basis of the valuation was not called into question by the Judge. It showed that the company was in dire financial condition. As Rogers VP points out, the report revealed (i) an adjusted capital deficiency in excess of $202m, (ii) negative goodwill amounting to more than $272m, (iii) long-term external debts producing a negative gearing ratio calculated as -8.74:1, and (iv) the company's inability to meet its interest payment obligations without an injection of additional capital or further loans. The company's debts included one in excess of $174m owed to Strong Progress which could not possibly be repaid in the near future.

5. The report therefore concluded that the value of the petitioner's shares was nil and recommended that the shares should be transferred at a nominal value of HK$1. Furthermore, since the transferee of the shares was to take over the company's financial burdens proportional to the shares transferred, it recommended that the transferee ought to be compensated for the capital deficiency and for the negative goodwill.

6. The agreement for transfer of the shares by the petitioner to Strong Progress was never completed.

7. On 1 May 1992, the 2nd Respondent caused the company's share capital to be increased by 50 million shares ranking pari passu with the existing 200,000 shares.

8. Meanwhile, in separate litigation between the petitioner and a Mr Bing Choy, Mr Choy obtained a charging order on the petitioner's shares, followed by an order for their sale and Mr Choy's acquisition of such shares in August 1992. The company has however refused to register Mr Choy as owner. Previously, by June 1991, the petitioner had left the company and, by January 1992, he had left Hong Kong.

9. The petitioner evidently considers himself aggrieved by what had transpired and commenced proceedings to wind up the company on the just and equitable ground. Proceedings started by him in May 1992 proved abortive for procedural reasons. The present petition was issued in June 1996. It seeks in the alternative a just and equitable winding-up order or relief under section 168A of the Companies Ordinance. After further interim challenges and appeals, it came to trial before Yuen J in September 1999.

10. Numerous grounds were relied on by the petitioner but only one succeeded before the Judge. She found that the purpose of increasing the company's share capital in May 1992 had been to dilute Mr Ng's shareholding "at a time when he should have been unable to subscribe for more shares and to render the shares unattractive and worthless to Mr Choy". Her Ladyship considered this to be unfairly prejudicial to the interests of the petitioner as a minority shareholder. She decided that the appropriate remedy was an order winding-up the company on the just and equitable basis.

11. That decision was reversed by the Court of Appeal on two major grounds."

9. Mr Kenneth Ng, who appears for the defendants, submits that where the matter had been canvassed all the way to the appellate committee, the plaintiff is simply not entitled to re-open this matter again by this separate action. The issues are res judicata. To do so would amount to an abuse of the court's process.

10. Of course, one only needs to read the statement of claim and compare it to the winding-up application to immediately understand that the issues are identical. The plaintiff, who is unrepresented today, and who I have allowed to be assisted by his friend and colleague, Mr Choy, a fellow engineer, I think accepts that the issues raised are identical but what he says is that where fraud has been raised, that would be sufficient justification to allow the matter to proceed to trial.

11. Usually fraud in such cases is alleged against the opposing party. On this occasion, this most grave allegation is directed at the Court of Appeal and the appellate committee with the acquiescence or connivance of the opposing party.

12. I have been careful to understand the precise nature of the plaintiff's complaint against the two highest courts in Hong Kong. Sometimes labels can be misleading, particularly where they are grossly misused. In this case, the plaintiff, who, although represented before Yuen J and the Court of Appeal but was unrepresented before the appellate committee, feels very aggrieved to have lost the fruits of his success at first instance and has written complaining to the President at Beijing, the British Prime Minister and Lord Chancellor, as well as the highest officials in Hong Kong, about the errors of these two courts. Whilst he used expressions such as "fraud" and "being robbed" by the courts, I think the true analysis of his argument is that the Court of Appeal and the appellate committee had misunderstood the effect of Yuen J's judgment. His particular target for criticism of the Court of Appeal's judgment is at pages 20P to 21C (pages 124 and 125 of the court bundle) which is as follows:

"In reaching her conclusion that the shares would have been rendered unattractive and worthless to Mr Choy, the judge did not embark upon any analysis which showed that the underlying asset value per share would have been any different after the increase in the number of shares and the consequent injection of capital than it was before. When the point was put to Mr Yip who appeared on behalf of the petitioner, he was not able to point to anything, whether it be in the accounts or anywhere else, which would have shown that the value of the shares as quantified on an asset valuation basis, or any other basis, had been affected by the increase in capital."

13. He contrasts that with what Yuen J said at page 20Q to 21F (pages 52 and 53 of the bundle).

"As to the latter scenario, whether Mr Ng was in breach or not would depend on whether the valuation was correct which was arguable in the light of the evidence that China Resources (Holdings) had on 1 June 1991, after hearing Mr Ng's objection to the valuation, promised to continue negotiations and the evidence of the subsequent reduction in the capital deficiency as shown in the draft agreement sent in June/July 1991. However, what is important is that I find that the subsequent conduct of both parties showed clearly that both regarded the agreement for the transfer of shares as having been aborted."

14. It is submitted on the plaintiff's behalf that the judge at first instance had come to the view that the correctness of the share valuation was arguable and that the Court of Appeal have at best "twisted" this so that it now bears no relation to what Yuen J said. He then criticises the appellate committee; parts of paragraph 4 of its determination which deals with this issue and which is as follows (see page 138):

"At the end of November 1990, the petitioner entered into an agreement to sell his shares in the company to Strong Progress. This required a valuation to be conducted. The factual basis of the valuation was not called into question by the Judge. It showed that the company was in a dire financial condition."

15. The plaintiff says that this was not Yuen J's finding on the valuation of the shares. I am not going to presume to say one way or the other how these passages represent what the judge has said about the valuation of the shares. The plaintiff has complained that this amounts to a fraudulent invention of the facts by the two appellate courts. There is simply nothing before me to suggest fraud of the type advanced by the plaintiff. There are no particulars pleaded which one would have expected and, moreover, if what is in fact advanced is a misunderstanding of the evidence by the appellate courts, then that is not a matter which would entitle him to a second go by bringing this kind of action. The Court of Appeal and the appellate committee has reviewed the decision at first instance and these judgments are now final.

16. Stripped of its invective by the plaintiff, this is a straightforward case of res judicata. The plaintiff had applied for a winding-up of the 1st respondent. He succeeded at first instance, lost on appeal and the Court of Final Appeal has refused to take it further. This must be the end of the matter. These identical proceedings, for this is what they are, must be struck out as an abuse of the process of the court.

17. It has also been submitted that the appellate committee was acting outside its jurisdiction to refuse leave in the way that it did because it purported to "endorse the Court of Appeal's decision..." Mr Choy has suggested that this type of decision is one that can only be made by the full court of five judges, including an overseas judge. Mr Choy has misunderstood the matter. For his and the plaintiff's benefit, all that was being said by the committee was that there were no grounds for suggesting that the Court of Appeal had fallen into error and that for the reasons appearing in its determination, the plaintiff had no grounds for being given leave to appeal. Accordingly, the statement of claim, having been struck out, the action must also stand dismissed.

Grepe v Loam

18. The nature of this jurisdiction is described by Kwan J in Chan v Chan & Others HCMP 2921 of 2001 as follows:

"The effect of this type of order is to prohibit a litigant from initiating proceedings likely to constitute an abuse of the process of the court. The order is made under the inherent jurisdiction of the court and is narrower than an order made in respect of a vexatious litigant on the application of the Secretary for Justice under section 27 of the High Court Ordinance. A section 27 order applies to any legal proceedings brought by the vexatious litigant in that no proceedings may be brought or continued without the leave of the court. A Grepe v Loam type of order is made in respect of existing proceedings or in relation to anticipated but unidentified proceedings of the same claim or subject matter."

19. Mr Kenneth Ng submits that given the plaintiff's attitude to his reversal of fortune in the Court of Appeal and the Court of Final Appeal, which has resulted in the correspondence contained in the papers and the nature of the case that he has sought to make out in the statement of claim which I have just struck out, that there is every reason to suspect that he will bring more of these unmeritorious actions against the defendants, actions which they should not be troubled to defend unless the plaintiff can first demonstrate to the court that such an action has merit.

20. I was concerned that where this is the first of such actions by him, it might be going too far to suggest that there might be more to come. I had wondered whether it might be premature to make the strong order asked for by the defendants. But given the nature of the correspondence and the allegations to the effect that the highest courts of Hong Kong and their judges have conducted themselves fraudulently and have played fast and loose with the legal system since 1 July 1997, which it seems to me are allegations made without any pause for reasoned reflection by the plaintiff, that there is every prospect that he will seek to revisit again the issues raised in this action and in the action tried by Yuen J. Some restraint should be applied now so that at least he has to show merit before the defendants are required to expend time and costs to defend and the wider public interest should also be addressed in the sense that the court's time and lists should not be burdened with thoroughly unmeritorious claims.

21. I will therefore also make the order asked for in paragraph 3 of the summons.

Remarks: