HCMP430/2013

A A HCMP 430/2013 B B IN THE HIGH COURT OF THE C C HONG KONG SPECIAL ADMINISTRATIVE REGION D COURT OF FIRST INSTANCE D MISCELLANEOUS PROCEEDINGS NO 430 OF 2013 E E ______________________ F F IN THE MATTER of House B G together with the car parking G spaces and garden No. 28 Middle H Gap Road (“the Property”) H IN THE MATTER of the Deed of I I Charge dated 26 January 2011 and the Deed of Assignment dated 1 J March 2013 J K and K L IN THE MATTER of Order 88 of L the Rules of the High Court M M BETWEEN N N REVELRY GAINS LIMITED Plaintiff O O and P P JOY RICH DEVELOPMENT LIMITED Defendant Q Q CHEN MUHUA 1st Intended Intervener R R CHAN YUEN WA 2nd Intended S Intervener S ______________________ T T U U V V  - 2 - A A Before: Deputy High Court Judge Kent Yee in Chambers (Open to B B public) C Date of Hearing: 5 July 2016 C Date of Decision: 20 December 2016 D D ________________ E DECISION E _______________ F F 1. Revelry Gains Limited (“Revelry”) brought this mortgagee G action against Joy Rich Development Ltd (in liquidation) (“Joy Rich”) to G recover a debt (“the Debt”) secured by the Deed of Charge dated 26 H H January 2011 (“the Charge”) and to enforce the Charge. The liquidators of I Joy Rich (“the Liquidators”) having indicated that they do not contest this I J action, Madam Chen MuHua (“Madam Chen”) and Madam Chan Yuen J Wa (“Madam YW Chan”) (collectively “C& C”) by their summons dated K 18 September 2015 (“the Summons”) apply to intervene to conduct the K L defence on behalf of Joy Rich in this action. The Liquidators have indicated L that they would take a neurtral position in this application. M M N 2. On 11 September 2014, DHCJ Le Pichon handed down a N decision (“the Decision”) whereby the appeal out of time by Joy Rich from O O an order of Master De Sousa dated 24 September 2012 (“the EOT Order”) P was dismissed. By the EOT Order, The Building and Loan Agency (Asia) P Limited (“the BLAA”) was granted an extension of time of 28 days to Q Q register the Charge. R R 3. The background facts were fully set out in the Decision. I shall S S refer to the Decision for such background facts. I nevertheless shall outline T the following essential facts for an easy understanding of this application. I T U U V V  - 3 - A A shall also adopt the abbreviations used in the Decision in addition to those B B defined in this decision. C C 4. Madam Chen and Madam YW Chan are sisters. Madam YW D D Chan was the sole director from 3 March 2009 to about 1 September 2012 E and the sole shareholder of Joy Rich. She however said that Madam Chen E and Mr Lau instead of her handled the operations of Joy Rich and she had F F zero involvement. G G 5. The Debt was extended under the Loan Agreement between H H the BLAA as borrower and Greatstep as borrower and Joy Rich as I guarantor. The BLAA was a wholly-owned subsidiary of The Hong Kong I Building and Loan Agency Limited, a listed company in Hong Kong. The J J Charge is a floating charge over the entire assets of Joy Rich. The principal K asset covered by the Charge is the Property estimated to be worth HK$37 K million as at 18 August 2014. Mr Lau and Madam Chen once cohabited at L L the Property. M M 6. The Debt eventually amounted to HK$200,712.328.77. N N Greatstep having defaulted repayment, the Charge crystallised on 28 O December 2011 pursuant to the Loan Agreement. The BLAA registered a O certificate of crystallization on 24 February 2012 and registered the same at P P the Land Registry on 29 February 2012. Q Q 7. On 14 March 2012, The BLAA presented a winding up R R petition under HCCW 80/2012 and Joy Rich make no effort to contest the S same. Subsequently The BLAA decided not to proceed with the petition, S which was therefore dismissed on 9 July 2012. T T U U V V  - 4 - A A 8. On 24 September 2012, Master de Sousa made the EOT Order B B subject to the usual proviso. The Charge was duly registered on 19 October C 2012. A certificate of registration was issued. C D D 9. Revelry is a wholly owned subsidiary of the BLAA. The E BLAA assigned its legal and beneficial rights in the Loan Agreement and E the Charge to Revelry on 1 March 2013. A notice of assignment was duly F F sent to Greatstep and Joy Rich on 5 March 2013. G G 10. On 5 June 2013, Madam YW Chan presented a petition to H H wind up Joy Rich as a creditor for HK$1 million plus and it was not I opposed. As a result, a winding up order was made on 7 August 2013 on I the basis of its insolvency. Liquidators were appointed 6 December 2013. J J The present action was stayed by reason of the winding up order pursuant K to s.186 of the former Companies Ordinance, now renamed to be K Companies (Winding-up and Miscellaneous Provisions) Ordinance, Cap.32 L L (“the Ordinance”). M M 11. On 20 March 2014, the Liquidators appealed to DCHJ Le N N Pichon to set aside the Order of Master de Sousa and the appeal was O dismissed. O P P 12. On 6 July 2015, the Liquidators issued unfair preference Q proceedings against C & C. On 8 August 2015, the Liquidators issued Q misfeasance proceedings against C & C. R R S 13. Meanwhile, Revelry obtained leave to continue the S prosecution of the present action against Joy Rich pursuant to s.186 of the T T U U V V  - 5 - A A Ordinance. In mid August 2015, the Liquidators indicated that they do not B B intend to resist the claim of Revelry. C C The Application D D 14. Mr Bernard Man S.C., with Mr James Man, for C & C, E explains that this application is necessitated by the Liquidators’ indication E that they would not oppose the present action. He submits that C & C being F F creditors of Joy Rich as accepted by the Liquidators and Madam Chan G being its sole shareholder, are plainly entitled to intervene to challenge the G validity of the Charge so as to protect their financial interests. H H I 15. In his written submissions, Mr Man sets out the case of C & C I in the following terms: J J K a. Mr Lau was a shadow director of a web of companies K including but not limited to Revelry, HKBAA, Greatstep and Joy Rich. L L b. The Loan Agreement and the Charge were created in M breach of his fiduciary duties to Greatstep and Joy Rich and BLAA had M knowledge of the breach. N N c. The Charge is therefore voidable at the instance of Joy O Rich. O d. The series of transaction entered into between Joy Rich P P and BLAA were part of the fraudulent scheme in that Mr Lau siphoned off Q monies from BLAA (a subsidiary of a listed company) to his own pockets Q under the disguise of loan transactions with companies also controlled by R R himself (i.e. Greatstep and Joy Rich) S S 16. Mr Man urges upon this court to grant leave for C & C to T T intervene so long as their case appears to be arguable. He submits that the U U V V  - 6 - A A applicable threshold should be a serious question to be tried, relying on B B Aliprandi v Griffith Ventures (1991) 9 ACLC 1530 and Eros Cinema v C Michel Assad Nassar (1996) 14 ACLC 1374. Mr Man takes me through the C evidence in support of C & C’s allegations in some detail to convince me D D that there is a viable defence. E E 17. Ms Chan together with Mr Chen for Revelry opposes this F F application on five broad grounds. First, she submits that the Liquidators’ G decision not to defend the present action is binding on Joy Rich. Second, G she submits that the court has no jurisdiction under O.15 r.6 to grant leave H H to C & C to defend the present action on behalf of Joy Rich. Third, C & C I have yet to establish their claims and so they cannot be regarded as I creditors of Joy Rich having any interests in the liquidation of Joy Rich. J J Fourth, C & C’s allegations afford no defence to the present action and K lastly, the certificate of registration is conclusive. K L L 18. Ms Chan starts off his submission by invitation of attention to M the established and undisputed principles that once a winding up order is M made, a statutory scheme for dealing with the assets of the company that is N N ordered to be wound up is brought into operation and a liquidator is O exclusively charged with the statutory duty of dealing with the company’s O assets in accordance with the statutory scheme. All powers of dealing with P P the company’s assets are exercisable by the liquidator for the benefit of Q those persons who are entitled to share in the proceeds of realization of the Q assets under the statutory scheme: Lord Diplock in Ayerst v C & K R R (Construction) Ltd [1976] AC 167 at pp.176E-177D. S S 19. With these statutory duties and powers, the Liquidators have T T the authority to act on behalf of Joy Rich and their decisions made in the U U V V  - 7 - A A course of the present action should normally be binding on Joy Rich. B B However, their actions and decisions are under the supervision of the court C and open to challenge. C D D 20. S.200(5) of the Ordinance provides that if any person is E aggrieved by any act or decision of the liquidator, that person may apply to E the court, and the court may confirm, reverse, or modify the act or decision F F complained of, and make such order in the premises as it thinks just. G G 21. In such applications, the applicants will need to demonstrate, H H before the court will interfere with the liquidator’s decision or act that the I liquidator has either:- I J J (i) Not exercised his power in good faith or has acted in a K way in which no reasonable liquidator could have acted; K or L L (ii) Made a ruling or decision in the course of the M administration which directly affected a party’s right and M has not acted even-handedly as an impartial neutral: per N N Yuen JA in Re CA Pacific Securities Ltd [2002] 3 O HKLRD 586 at §24 and Fok J (as he then was) in Re O Wickson Holdings Ltd [2011] 2 HKLRD 373 at §19(d). P P Q 22. Ms Chan submits that C & C should make an application Q pursuant to s.200(5) of the Ordinance in the course of the winding-up R R proceedings and the application should be made known to all the creditors, S contributories and the Official Receiver since the outcome of such an S application would affect their financial interests: Companies (Winding-up) T T Rules rr.4-7 and 14-17. She is clearly right. U U V V  - 8 - A A 23. On the other hand, the court’s power to order that a creditor or B B contributory of a company in liquidation be authorised to use the C company’s name as a plaintiff is of respectable antiquity and is sanctioned C by high authority: Aliprandi, 1532. There McLelland J adopted the D D approach described by the Privy Council in Llyod-Owen v Bull (1936) 4 E DLR 273 in the following terms: E F F “A judge in winding up is the custodian of the interests of every class affected by the liquidation. It is his duty… to see to it that all G assets of the company are brought into the winding up. In G authorising proceedings, especially if they may or will involve some drain upon the assets, he must satisfy himself as to their H probable success; where … they involve no possible charge on H assets, he will nevertheless be careful to see that any action taken in I the company’s name under his authority is not vexatious or merely I oppressive.” (emphasis added) J J 24. In Cape Breton Company v Fenn (1881) 17 Ch.D. 198 (C.A.), K Jessel M.R. made it clear that what indemnity should be given when K granting leave to use the name of the company could only be decided upon L L an application in the winding-up considered in the proper way. M M 25. In McPherson’s Law of Company Liquidation (3rd edn, 2013) N N at §7-83, the learned author said this about O O P “If a liquidator either believes that an action is too risky to pursue or he P or she does not have sufficient funds, then despite the fact that the general principle is that when a company is in liquidation the person in Q Q whom the authority to bring proceedings on the part of the company is vested is the liquidator, a creditor or member who thinks that the action R has merit and should be prosecuted, may apply to the court and seeking R either permission to proceed on behalf of the company or an order directing the liquidator to proceed. The courts have power to accede to S the former type of application under their general powers, the use of such S power having a long lineage and being supported by high authority. If the T former application is made then the applicant must be ready to accept all T of the risks connected with the action. If this is the case then it is of no U U V V  - 9 - A A moment that the action would not be beneficial for the creditors and B members of the company. The only real barrier to proceedings is, as with B all actions, namely that the action must not be vexatious or oppressive.” C C 26. Indeed the court in the winding-up is tasked with the duty to D prevent the company in compulsory liquidation to have its assets wasted in D litigation. Hence, no action or proceedings shall be proceeded with or E E commenced against the company except by leave of the court subject to F conditions: s.186 of the Ordinance. F G G 27. It should also be noted that the intended opposite parties in the H relevant proceedings are not privy to such applications. It is not for them to H argue against the merit of the applicants’ claims/defence in such I I applications. J J 28. In the premises, even if I accept that Joy Rich has an arguable K K case to set aside the Charge, C & C should make a proper application in the L winding-up of Joy Rich either to impugn the decision of the Liquidators or L to apply for leave to defend the present action in the name of Joy Rich. M M This application is badly formulated and on this ground alone, it must be N dismissed. N O O 29. The next cogent ground put forth by Ms Chan is that O. 15 r.6 P does not give this court the power to allow C & C to defend the present P action on behalf of Joy Rich. This is not an ordinary joinder application. Q Q Here the defendant is in liquidation. The said provision does not cover this R particular situation where an intervening party wants to step into the shoes R of a company in liquidation in the proceedings to carry on the defence on S S its behalf when the liquidators decided not to do so. Indeed Mr Man has no T T U U V V  - 10 - A A answer to this challenge and he asks this court to exercise its inherent B B jurisdiction to allow C & C to intervene to defend the action. C C 30. Ms Chan further challenges the alleged status of C & C to D D defend the action in the name of Joy Rich. She casts doubt on their proofs E of debt in the respective amounts of HK$1,009,571 and HK$131,956,197. E Ms Chan further refers to a paragraph of the Decision where DHCJ Le F F Pichon had this to say about the alleged status of Madam Chan as a creditor G of Joy Rich: G H H “It is to be noted that the draft management accounts as at June 2011 list as one of the defendant’s assets “Director’s current account”, the amount I involved being just in excess of $83 million. At that point in time and I indeed since 3 March 2009, YW Chan was the defendant’s sole director and who, during her tenure as sole director, had shown zero interest in J the defendant and its operations. But by 5 June 2013, within a two-year J period, YW Chan was able to transmogrify her status from that of debtor K for $83 million to creditor for $1 million plus and present a petition to K wind up the defendant based on an unpaid debt of approximately $1 million, that being the basis of the winding up order.” L L 31. Mr Man points out that C & C do not accept the truthfulness in M M the draft management accounts at all. They say that they were mere N fabrication. He pertinently submits that C & C were not privy to the appeal N which DHCJ Le Pichon was called upon to determine and the deputy judge O O did not hear from them before making this observation. Lastly, he P highlights the Liquidators’ unequivocal statement that after considerable P investigation, both C & C have a valid proof of debt for a considerable sum Q Q though their full claims would not be admitted. R R 32. I accept Mr Man’s submission. As the matter now stands, the S S Liquidators’ statement must be given due weight and the fact they issued T misfeasance summonses against C & C does not alter the status of C & C. I T U U V V  - 11 - A A can accept that C & C are creditors of Joy Rich. However, this does not B B remove the intractable problems of this application. C C 33. Ms Chan further submits that Madam Chan cannot possibly D D have any standing to intervene qua shareholder by reason of the insolvency E of Joy Rich. She refers to the dictum of Harman J in Re Corbenstoke Ltd E (No.2) (1989) 5 BCC 767 for the proposition that when the company is F F insolvent, a contributory will by definition receive nothing and does not G have an interest in the outcome of the liquidation. Hence, the learned judge G held that the applicant had no locus standi as a contributory to make the H H application to remove the liquidator. I I 34. I do not doubt the soundness of the proposition. However, I J J note that in those authorities cited to me including Aliprandi, applications K were indeed made by contributories of companies in compulsory K liquidation and their locus were never in dispute. L L M 35. I do not think I need to resolve this issue as it is only an M academic question in light of my foregoing conclusions. N N O 36. Now I turn to the attack on the purported defence suggested by O C & C. As shown in established authority, the threshold to show merits is P P not a high one and Mr Man has made a persuasive submission on why the Q Charge is liable to be declared void. Nevertheless I do not intend to deal Q with the merit of the case of C & C at all here. As noted above, this R R exercise should be carried out in another application in the winding up of S Joy Rich. The companies court will examine the merit of the proposed S defence with full arguments advanced by the relevant parties. T T U U V V  - 12 - A A 37. By the same token, I express no view on the applicability of B B the doctrine of res judicata in the wider sense. I should not deal with this C debate on this occasion at all. C D D 38. Lastly, I should briefly deal with the certificate of registration E relating to the Charge. Ms Chan submits that it is conclusive evidence of E the validity of the Charge and in this connection, she relies on the holding F F of DHCJ Le Pichon in the Decision that the certificate of registration is G conclusive and beyond recall. Hence Ms Chan submits that the validity of G the Charge is above challenge once the certificate of registration was H H issued. I I 39. I have some difficulties in accepting this submission. J J K 40. It is imperative to find out the context of the conclusion of the K deputy judge. The deputy judge first set out the relevant provision, namely, L L s. 83(2) of the Ordinance (Now s.344(4) of Cap.622): M M “The Registrar shall issue a certificate with his signature or printed N signature, certifying the registration of any charge registered in N pursuance of this Part, and the certificate shall be conclusive evidence that all the requirements of this Part with respect to registration have O been compiled with.”1 O P P 41. The deputy judge then turned to decisions relating to similar Q provisions in other jurisdictions. First she referred to Exeter Trust Ltd v Q Screenways Ltd [1991] BCC 477 (C.A.). There, Nourse LJ dealt with a R R question on s. 401(2)(b) of the Companies Act 1985 which provides a S S 1 The current s.344(4) of Cap.622 has a slight variation: “A certificate of registration is conclusive evidence that the requirements of this Part as to registration have been T T satisfied.” U U V V  - 13 - A A certificate of the registration of a charge created by a company is B B “conclusive evidence that the requirements of this Chapter as to registration C have been satisfied.” By virtue of this provision, Nourse LJ held that it was C not possible to go behind the certificate which was conclusive proof not D D only that particulars had been delivered within the period limited by the E order extending time but also that the order itself had been obtained. E F F 42. The deputy judge then went on to refer to two other cases very G briefly and come to the conclusion that the certificate of registration is G conclusive and beyond recall. H H I 43. I do not think the deputy judge meant to say that the I conclusiveness of the certificate of registration can be extended to the J J validity of the Charge itself. It is clear from the wordings of the provisions K that the certificate of registration can be conclusive proof only insofar as K the matters relating to the registration are concerned. With the certificate of L L registration, the Charge is not invalidated as against the Liquidators and the M creditors of the company by reason of any matters relating to its M registration. N N O 44. I would add that a certificate of registration is issued by the O Registrar of Companies upon satisfaction of all the registration P P requirements. He knows little about the underlying transactions and Q surrounding circumstances of the creation of the charge. It cannot be Q reasonably expected from him to issue a certificate to be conclusive proof R R of the validity of the charge itself. S S T T U U V V  - 14 - A A B B Conclusion and Order C C 45. For the reasons stated above, I can conclude that the D D application of C & C is made on the wrong basis. This should never be a E joinder application under O.15 r.6. The application must be dismissed. E F F 45. Ms Chan asks for indemnity costs on the basis that this G application is a classic satellite litigation. It is a waste of time and costs and G serves to delay the action only. H H I 46. However forceful her submission is, I do not have such a I strong feeling against the application. I cannot say at this stage that the J J contentions of C & C are mere moonshine. The Liquidators takes a neutral K position in this application. However, it is clear to me that C & C should K attempt to challenge the validity of the Charge in a proper manner if they L L so wish and this joinder application should not have been made in this M action. Revelry is unnecessarily involved and should be entitled to recover M its costs from C & C on an indemnity basis. N N O 47. In the premises, I dismiss the Summons with a costs order nisi O that costs of and occasioned by the Summons be paid by C & C to Revelry P P on an indemnity basis to be taxed if not agreed by a taxing master with Q certificate for two counsel. Q R R S S T T U U V V  - 15 - A A B B 48. Lastly, I thank all senior counsel and counsel for their very C helpful assistance. C D D E (Kent Yee) E Deputy High Court Judge F F Ms Linda Chan, S.C. and Mr Vincent Chen, instructed by Leon Lai & Co. G for the Plaintiff G H Mr Bernard Man, S.C. and Mr James Man, instructed by K & L Gates for H 1st and 2nd Intended Interveners I I J J K K L L M M N N O O P P Q Q R R S S T T U U V V