Re Wah Nam Group Ltd (in Compulsory Liquidation)

HCCW 166/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING‑UP) PROCEEDINGS NO 166 OF 2000

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AND

HCA 960/2015

ACTION NO 960 OF 2015

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AND

HCA 962/2015

ACTION NO 962 OF 2015

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(Heard Together)

Before: Deputy High Court Judge William Wong SC in Chambers

Date of Hearing: 29, 30 August 2017

Date of Decision: 5 September 2017

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DECISION

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1.There are three summonses before this court. First, there is the summons dated 11 October 2016 taken out by Roderick John Sutton and Desmond Chung Seng Choing, the former joint and several liquidators of Wah Nam Group Limited (In Liquidation) (“Former Liquidators”) for an order that the decision of the Joint and Several Liquidators of Wah Nam Group Limited (In Liquidation) (“Current Liquidators”) to commence High Court Action No 960 of 2015 against the Former Liquidators be reversed; and as a consequence thereof, the said action be struck out and/or dismissed.

2.Second, there is the summons dated 19 December 2016, also taken out by the Former Liquidators, pursuant to Order 18, rule 19 of the Rules of the High Court and the court’s inherent jurisdiction, to strike out the statement of claim dated 27 July 2016 and filed on 28 July 2016 in High Court Action No 960 of 2015 and to have the action dismissed on the grounds that:

(a) the matters pleaded therein have already been addressed and sanctioned by the Honourable Mr Justice Barma when he sanctioned the entry into and implementation of a settlement deed dated 12 August 2011 in the context of the winding up proceedings in HCCW 166/2000 (“the Sanction Issue”);

(b) the Former Liquidators had obtained a full release in their capacity as liquidators of the Plaintiff on 2 May 2012 in the winding up proceedings in HCCW 166/2000 (“the Release Issue”);

(c) no loss or damage was sustained as the settlement sum of RMB3.35 million paid under the settlement deed exceeded the value of the Xinhui Land (“the No Damage Issue”);

(d) the Plaintiff is not the proper party to pursue any alleged claims because, to the extent that any loss or damage was suffered, such loss and damage alleged is merely reflective in nature (“the Reflective Loss Issue”); and

(e) all and/or some of the alleged breaches pleaded and the alleged loss and damage occurred more than 6 years prior to the issue of the Writ in this action and thus the claim or claims are time-barred (“the Limitation Issue”).

3.Third, there is the summons also dated 19 December 2016, taken out by 2^nd to the 6^th Defendants in HCA No 962/2015, pursuant to Order 18, rule 19 of the Rules of the High Court to strike out the statement of claim and to dismiss the action on the grounds as set out in paragraph 2(a), (b), (c) and (e) above. 

BACKGROUND

4.Wah Nam Group Limited (“Wah Nam”) was a company whose shares were publicly traded in the Stock Exchange of Hong Kong.  The trading of its shares was suspended on 14 July 2000 following the presentation of a winding up petition against it.  A compulsory winding up order was made against it on 26 July 2000. 

5.At all material times, Wah Nam owned, amongst other things, Great Strategy Properties Limited (“Great Strategy”), also the 1^st Plaintiff in HCA 962/2015 and Crystal Services Limited (“Crystal Services”), also the 2^nd Plaintiff in HCA 962/2015.  Great Strategy and Crystal Services, in turn, owned all the shares in Summit Mass Limited (“Summit Mass”)

6.Summit Mass owned a parcel of land situated in Xinhui District, Jiangmen City, Guangdong Province, the People’s Republic of China (“the Land”).  On or about 6 January 2000, Great Strategy and Crystal Services acquired Summit Mass and Summit Mass became one of the indirectly held subsidiaries of Wah Nam.  The consideration paid for the acquisition was HK$45 million.  The Land, was thus, an important asset of the Wah Nam Group for the purpose of the liquidation. 

7.On 27 January 2001, Mr Desmond Chiong and Mr John Robert Lees were appointed as the joint and several liquidators of Wah Nam. 

8.On 15 April 2001, Mr Desmond Chiong and Mr John Robert Lees, through their control over Wah Nam, appointed their corporate vehicles, namely, Chater Secretaries Ltd (“Chater”) and Lansdowne Nominees Ltd (“Lansdowne”) as directors of Great Strategy.  They also obtained control over Crystal Services and Summit Mass. 

9.On 3 November 2003, Mr John Robert Lees was replaced by Mr Roderick John Sutton.  Since then, until their removal, the Former Liquidators became the joint and several liquidators of Wah Nam. 

10.On 3 June 2006, the shares in Summit Mass owned by Great Strategy and Crystal Services were misappropriated by one George Wong (the 1^st Defendant in HCA 962/2015), who was an employee of Ferrier Hodgson (the 6^th Defendant in HCA 962/2015) but said to be under the Former Liquidators’ control and supervision.  The shares of Summit Mass were first transferred to a Ms Shung Tung (“Ms Shung”).

11.On 7 December 2006, Ms Shung further transferred the shares in Summit Mass to a Mr Chen Shunqiang (“Mr Chen”).

12.Neither Wah Nam, Great Strategy nor Crystal Services received any consideration from Ms Shung or Mr Chen for the transfer of the shares.  The Former Liquidators were not aware of the misappropriation of the shares of Summit Mass until sometime in about November 2007. 

13.On 15 February 2008, the Former Liquidators commenced a legal action in Hong Kong in the name of Great Strategy against Mr Chen and later joined Jiangmen Ausccoto Chemical of Building Material Company Limited (“Ausccoto”), which was said to be the intended beneficiary of the Land, as another defendant to the action. 

14.On the same date, i.e., 15 February 2008, Mr Cosimo Borrelli (“Mr Borrelli”) and Miss Jacqueline Walsh were appointed as receivers and managers of Summit Mass by a court order. 

15.On 5 August 2011, a settlement agreement (“the Settlement Agreement”) was executed amongst Great Strategy, Crystal Services, Summit Mass, Mr Sutton (for the Former Liquidators), Mr Borrelli (as Receiver of Summit Mass), Mr Chen and Ausccoto for the purpose of settling the legal action commenced by the Former Liquidators on 15 February 2008.  The gist of the Settlement Agreement was that Great Strategy and Crystal Services gave up their shares in Summit Mass for RMB3.35 million, less than 10% of their acquisition cost.

16.The Settlement Agreement was subject to the approval of the committee of inspection of Wah Nam or of the court.  No approval from the committee of inspection of Wah Nam (“the COI”) had been forthcoming. 

17.On 8 August 2011, the Former Liquidators filed an application to the court for an order to sanction the Settlement Agreement. The application was heard by Mr Justice Barma on 12 August 2011.  Mr Justice Barma having considered the state of affairs presented to him at that stage, including the litigation risks involved, the delay involved and the risk of forfeiture of the Land, sanctioned the Settlement Agreement. 

18.On 2 May 2012, on the application of Mr Ho Pui Tin Terrence, one of the creditors of Wah Nam and a member of the COI, Mr Justice Harris made an order by consent that:

“ Mr Roderick John Sutton and Mr Desmond Chung Seng Chiong be removed and released as the joint and several liquidators of the Company pursuant to section 200(5) of the Companies Ordinance (Cap 32).”

19.Mr Osman Mohammed Arab and Mr Wong Tak Man Stephen were appointed as the joint and several liquidators of Wah Nam after the Former Liquidators were removed. 

HCA 960/2015

20.On 30 April 2015, the Current Liquidators, in the name of Wah Nam, issue a writ against the Former Liquidators.  The Statement of Claim was filed on 28 July 2016.

21.In the Statement of Claim, it is pleaded that the Former Liquidators:

(1) had been negligent in diligently taking steps to realize the Land since May 2003;

(2) had been negligent in failing to pay heed to, and address, the notices of the PRC authorities that the Land had been classified as idle land;

(3) had been negligent in taking steps to safeguard the assets of Wah Nam from misappropriation, including the statutory records of Summit Mass;

(4) had been negligent in exercising supervision and control over George Wong; and

(5) are vicariously liable for the misdeeds of their employee, George Wong.

22.It is Wah Nam’s pleaded case that as a result of the Former Liquidators negligence, Wah Nam suffered substantial loss and damage, represented by the fall in the value of Wah Nam’s interest in Summit Mass, effectively being the difference between the value of the Land which could have been realized had the Former Liquidators not been negligent and the settlement sum (i.e. RMB3.35 million).

23.The Current Liquidators have arranged RHL Appraisal Limited to prepare provisional valuation reports respectively as at 15 August 2011 (completion date of the Settlement Agreement), 21 July 2007 (after the Land has been classified as idle land) and 3 June 2006 (the date the shares in Summit Mass were misappropriated).  According to the provisional valuations reports, the Land could have been realized at least at RMB20,300,000, RMB14,100,000 and RMB14,100,000 respectively on 15 August 2011, 21 July 2007 and 3 June 2006 had the Land not been misappropriated.

HCA 962/2005

24.Also on 30 April 2015, Great Strategy and Crystal Services issue a writ against a total of 6 defendants, George Wong being the 1^st Defendant.  The Former Liquidators are the 4^th and 5^th Defendants.  Chater and Lansdowne are the 2^nd and 3^rd Defendants.  Finally, Ferrier Hodgson Limited, now known as FS Asia Advisory Limited, is the 6^th Defendant.  The Statement of Claim was filed also on 28 July 2016.

25.It is Great Strategy and Crystal Services’ pleaded case that:

(1) the 2^nd to 5^th Defendants breached their respective duties owed to Great Strategy and Crystal Services for their negligence in handling the Land and in failing to exercise any or any sufficient control over George Wong when he had been given custody of important corporate documents of Summit Mass;

(2) the 2^nd to 6^th Defendants are vicariously liable for the misappropriation committed by George Wong.

26.On 11 October 2016 and 19 December 2016, the Former Liquidators took out the three summonses above to have the Statements of Claim in HCA 960/2015 and HCA 962/2015 struck out and the said actions dismissed. 

APPLICABLE LEGAL PRINCIPLES

27.First, the Former Liquidators seek to rely on the court’s supervisory powers pursuant to section 200(5) of the Companies Ordinance, Cap 32 (“the Ordinance”).  I agree that the Former Liquidators are persons aggrieved by the decision of the Current Liquidators to commence and continue HCA 960/2015 and HCA 962/2015 and as such they have the relevant locus to invoke the court’s jurisdiction under section 200(5) and to ask the court consider whether it should reverse the Current Liquidators’ decision and to have HCA 960/2015 and HCA 962/2015 struck out. 

28.Secondly, the legal principles in relation to striking out applications under Order 18, rule 19, are well established:

(1) It is only in plain and obvious cases that the court should exercise its discretion to strike out a pleading or writ;

(2) The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out;

(3) There should be no trial on affidavit.  In general though not always, disputed facts are to be taken in favour of the party sought to be struck out;

(4) The mere fact that a case is weak and not likely to succeed is no ground for striking it out;

(5) The jurisdiction should not be exercised if it requires a minute and protracted examination of the documents and facts of the case in order to see whether the plaintiff really has a cause of action. 

(6) The court should not decide difficult points of law in striking out proceedings and the court is reluctant to strike out a claim which involves an area of law which is in the process of development;

(7) The burden rests on the party seeking to strike out a pleading or a writ to demonstrate that the case is a plain and obvious one in which the other party’s claim is bound to fail. 

(See Hong Kong Civil Procedure 2017, Vol 1 at §18/19/4)

29.Thirdly, Ms Lam, for the Applicants, also relied on the ground of abuse of process of the court.  It is submitted that it is an abuse of process for a party to seek to re-litigate an issue that has already been decided against him (res judicata) or which even if not inconsistent with the literal application of procedural rules, would nevertheless be manifestly unfair to a party to litigation, or would otherwise bring the administration of justice into disrepute.  This applies also to cases of collateral attack upon a final decision of a court of competent jurisdiction. (Re Thomas Christy Ltd (in liq) [1994] 2 BCLC 527 at 530h-536i; Kotonou v National Westminster Bank Plc [2017] 1 All ER (Comm) 350 at §§43 – 50 and 53; Hunter v CC of West Midlands [1982] AC 529 at 536 and 541).

30.As I understand it, the abuse of process argument is relevant to Ms Lam’s point that the matters pleaded to in both actions have already been addressed and sanctioned by Mr Justice Barma when he sanctioned the entry into and implementation of a settlement deed dated 12 August 2011 in the context of the winding up proceedings in HCCW 166/2000, namely, the Sanction Issue. 

31.The Applicants’ position is that the two actions are an abuse of the process of the court, have no prospect of success and the court should therefore strike them out. 

32.This court will analyze the five grounds, or five issues in turn by applying the legal principles as set out paragraph 28 above.  If a case or a claim is plainly or obviously bad, this court will have no hesitation to strike it out.  However, if this court cannot satisfy itself that a case or a claim is obviously unsustainable, this court will not strike it out. 

THE RELEASE ISSUE

33.Ms Lam, for the Applicants, submitted that the consent order dated 2 May 2012 (“the Consent Order”), has the legal effect of releasing the Former Liquidators from all liabilities, including the claims now being advanced in the two actions.  As such, both actions should be struck out. The Consent Order reads:

“ Mr Roderick John Sutton and Mr Desmond Chung Seng Chiong be removed and released as the joint and several liquidators of the Company pursuant to section 200(5) of the Companies Ordinance (Cap 32).” (Emphasis added.)

34.Ms Lam submitted that the Consent Order was made pursuant to a draft consent summons dated 27 April 2012 where as a matter of agreement, it is provided that:

“ Mr Roderick John Sutton and Mr Desmond Chung Seng Chiong be removed and released as the joint and several liquidators of the Company pursuant to section 205 of the Companies Ordinance (Cap 32).” (Emphasis added.)

35.Ms Lam, in her written submission, argued that the reference to section 200(5) might be a typographical error as the consent summons clearly referred to section 205 and the word “released” was used.  Section 205(3) of the Ordinance provides:

“ An order of the court releasing the liquidator shall discharge him from all liability in respect of any act done or default made by him in the administration of the affairs of the company, or otherwise in relation to his conduct as liquidator, but any such order may be revoked on proof that it was obtained by fraud or by suppression or concealment of any material fact.”

36.Given that there are no allegations of fraud or suppression or concealment of any material facts against the Former Liquidators, Ms Lam submitted that the Consent Order is a complete answer to the claims in the two actions.  The section is palpably clear.  If such an order is granted, then the liquidators are no longer liable for any act or default made.  (McPherson’s Law of Company’s Liquidation 3^rd Ed at §8-090)

37.The Applicants’ case is that there can be no dispute that the entirety of the two actions rests upon conduct which relates to the administration of the affairs of Wah Nam.  In the circumstances, the Consent Order is a complete defence to the two actions, and the actions have no prospect of success whatsoever. 

38.Ms Lam also submitted that another important point is that in the insolvency context, orders of this nature are binding on the creditors as a whole (Spencer Bower & Handley, Res Judicata 4^th Ed at §9.17).  Whilst the application for removal of the Former Liquidators was made by one creditor, Mr Ho, the Consent Order containing the release is binding on the whole body of creditors (including but not limited to Mr Ho).  Thus, it was submitted that it is somewhat disingenuous for the Current Liquidators to take the stance that there was no release in the first place. 

39.I do not agree that the Consent Order has the effect of releasing the Former Liquidators from all of their liabilities in respect of any act done or default made by them in the administration of the affairs of Wah Nam, or otherwise in relation to their conduct as liquidators for a number of reasons. 

40.First, the term of the Consent Order makes it clear that if there was any “release”, such “release” could only be made pursuant to section 200(5), not section 205 of the Ordinance.  Section 200(5) does not have the effects that Ms Lam contended for.  That should really be the end of this ground or issue. 

41.Ms Lam very fairly agreed that there could not be any typographical error in view of the discovery of the amendments to the draft consent order that the court had made.  In the Draft Order of Mr Justice Harris, it is recorded: 

“ 1. Mr Roderick John Sutton and Mr Chung Desmond Chung See Chiong be removed and released as the joint and several liquidators of the Company pursuant to section 205 200(5) of the Companies Ordinance (Cap 32).”

42.It seems that what happened was that when the draft consent order was presented to the court for approval, the court specifically deleted reference to section 205 of the Ordinance and replaced it with section 200(5) of the Ordinance.  Thus, the intention of the court is clear.  The consent order was made pursuant to section 200(5) of the Ordinance (Cap 32), nothing more nothing less.  The fact that the word “released” was used is neither here nor there.  It would not have the effect of releasing the Former Liquidators’ liabilities under section 205 of the Ordinance.

43.This is reinforced by paragraphs 1, 2 and 3 of Mr Justice Harris’ Decision dated 2 May 2012:

“ 1.I have before me a summons issued on 2 April 2012 by Mr Terrence Ho (“Applicant”) for an order that the present liquidators of the company be removed and replaced by two alternative liquidators from Ernst & Young.

2.The application is supported by an affirmation filed by Mr Ho in which he explains that at a meeting of creditors and contributories on 6 October 2011, the creditors and contributories voted by a margin of 74.4 per cent in favour of the removal and replacement of the existing liquidators.

3.At least so far as the parties who have appeared before me are concerned, the application has not been contentious.  I understand, although this is not explained in the supporting evidence, that Mr Ho wishes to replace the present liquidators in order that new liquidators can investigate one particular aspect of the liquidation, and that relates to the theft of some title documents relating to property of which the company was the ultimate beneficial owner.  The property is located in the mainland.” (Emphasis added.)

44.Although at paragraph 7 of the Decision, Mr Justice Harris said “In the circumstances, I will make an order for the removal and release of Mr Sutton and Mr Chung and their replacement from either RSM Nelson Wheeler or BDO Limited”, I am of the view that the use of the word “release” cannot be read to mean an order to release the Former Liquidators of all their liabilities pursuant to section 205 of the Ordinance.  The legal principles and considerations in relation to a section 205 release were not addressed and considered by the court.  That explains why the court struck out the reference to section 205 and replaced it with section 200(5). 

45.Even if the parties did intend to, by way of consent or private agreement, to release the Former Liquidators from all of their liabilities pursuant to section 205 of the Ordinance, the court would still have to consider the interest of all other creditors.  The court did not simply rubber stamp parties’ consent summons.  The amendment to reference to the correct section of the Ordinance made by the court is a clear example.

46.Secondly, Mr Maurellet also helpfully referred this court to Rule 189 of the Companies (Winding-Up) Rules which provides:

“ (1) A liquidator in a winding up by the court before making application to the court for his release, shall give notice of his intention so to do to all the creditors who have proved their debts and to all the contributories, and shall send with notice a summary of all receipts and payments in the winding up. (See Forms 98, 99 & 100)

(2) When the court has granted to a liquidator his release, a notice of the order granting the release shall be gazetted.  The liquidator shall provide the requisite payment for the Gazette, which he may charge against the company’s assets.”

47.Mr Maurellet SC submitted that the application before Mr Justice Harris was obviously not an application made pursuant to section 205 of the Ordinance because no notice of any intention to be released under section 205 was given to all the creditors and to all the contributories and there was also no notice of a summary of all receipts and payments in the winding up.  In any event, no release was ever gazetted.  These, Mr Maurellet SC, submitted are substantive matters and not formal defects or irregularities that can be cured by Rule 209 of the Companies (Winding-Up) Rules.  I agree. 

48.The court first look at the wordings of the Consent Order, although the word “released” was used, it was a removal and release pursuant to section 200(5) and not section 205 of the Ordinance.  Secondly, the court look at the substance of the application, it is clear to the court that the application was not an application under section 205 of the Ordinance at all. 

49.For all the above reasons, this court is of the view that the Consent Order or the Release Issue is not a ground for striking out the two actions.

50.Mr Maurellet SC further submitted that even if the Consent Order has the effect of releasing the Former Liquidators of all liabilities qua liquidators, that does not absolve them from their liabilities in their capacities as the shadow and/or de facto directors of Great Strategy and Crystal Services and the Former Liquidators’ corporate vehicles, namely, the 2^nd and 3^rd Defendants and Ferrier Hodgson, the 6^th Defendant in HCA 962/2015.  I am of the view that the position of the 2^nd, 3^rd and 6^th Defendants are clear, they could not have the benefit of any release under section 205.  The position of the Former Liquidators in their capacities as shadow and de facto directors is less clear, but even assuming that Ms Lam’s submissions on the Consent Order are right, it is certainly not plain and obvious that the Consent Order has the effect of absolving the Former Liquidators of all their liabilities qua shadow and/or de facto director of Great Strategy and Crystal Services.  Accordingly, I am of the view that HCA 962/2015, in any event, should not be struck out on this ground. 

THE SANCTION ISSUE

51.Ms Lam, for the Applicants, first submitted that the substance of many, if not all, of the complaints as set out in the pleadings of both actions, had already been considered and addressed by Mr Justice Barma in his decision sanctioning the Settlement Agreement dated 12 August 2011 (“the Sanction Decision”).  It was argued that as the Sanction Decision was a final judgment sanctioning the entering into of the Settlement Agreement, there is no prospect of the Plaintiffs in both actions establishing that the entry into the Settlement Agreement was negligent or otherwise a breach of the Former Liquidators’ duties.  (See Re Shun Kai Finance Company Limited, HCCW 1325/2002, unreported, 24 January 2014 at §§15 – 20 and confirmed by the Court of Appeal at [2015] 2 HKLRD 264)

52.Secondly, a liquidator who has exercised his powers in good faith after taking proper advice is not open to challenge (Burnells Pty Ltd (in liq) Ex p Brown and Burns, Re (1979) 4 ACLR 213; Leon v York-O-Music [1966] 1 WLR 1450 at 1455).  Given that the Former Liquidators had kept the court fully informed of the issues surrounding Summit Mass and the Land, and ultimately, obtained the court’s sanction, they must be afforded a considerable measure of protection (American Express International Banking Corporation v Michael J John, HCA 14594/1983, unreported, 28 May 1984 at p 12; Re Windsor Steam Coal (1901) Ltd [1929] 1 Ch 151 at 159)

53.Thirdly, it was submitted that it is plain that an issue estoppel arises.  Even if the court is otherwise persuaded, the circumstances are such that the two actions are an abuse of the process of the court in that they seek to re-litigate issues arising out of the same substratum of facts which has already been examined by Mr Justice Barma. 

54.I am of the view that the reliance on the Sanction Decision is misplaced.  First, the subject matter or the lis in the Sanction Decision is very different from the claims as pleaded in the two actions.  The subject matter or the lis before Mr Justice Barma was whether in all the circumstances then existed, it was right that the Settlement Agreement put forward by the Former Liquidators should be approved or sanctioned.  Mr Justice Barma was not engaged in determining the following issues, namely, whether the Former Liquidators:

(1) had been negligent in diligently taking steps to realize the Land since May 2003;

(2) had been negligent in failing to pay heed to, and address, the notices of the PRC authorities that the Land had been classified as idle land;

(3) had been negligent in taking steps to safeguard the assets of the Group from misappropriation, including the statutory records of Summit Mass;

(4) had been negligent in exercising supervision and control over George Wong; and

(5) are vicariously liable for the misdeeds of their employee, George Wong.

55.Mr Maurellet SC, rightly referred this court to the case of Re Shun Kai Finance Company Limited HCCW 1325/2002, unreported, 24 January 2014, where Harris J set out the principal considerations when the court sanctions a settlement agreement proposed by liquidators.  In §§17 – 20, Harris J said:

“ 17. The power of a liquidator to compromise a claim is designed to achieve the efficient winding-up of a company. Proper compromises should be facilitated rather than obstructed: see Elderslie Finance Corp Ltd v Newpage Pty Ltd (No 6)

18. The approach of the Court when dealing with an application by a liquidator for sanction to compromise a claim was considered by Chadwick LJ (Aldous and Potter LJJ agreeing) in Re Greenhaven Motors Ltd:

‘ In my view, the correct approach in cases under s.167(1)(a) of the Act was identified by Lightman J in Re Edennote Ltd (No 2) [1997] 2 BCLC 89 at p.92g-h. He said:

“ Where a liquidator seeks the sanction of the court and takes the view that a compromise is in the best interest of the creditors, in any ordinary case, where (as in this case) there is no suggestion of lack of good faith by the liquidator or that he is partisan the court will attach considerable weight to the liquidator’s views unless the evidence reveals substantial reasons why it should not do so, or that for some reason or other his view is flawed.”

In deciding whether or not to sanction a proposed compromise the court must consider whether the interests of those, whether creditors or contributories, who have a real interest in the assets of a company in liquidation, are likely to be best served (i) by permitting the company to enter into that compromise with all the terms that it contains; or (ii) by not permitting the company to enter into that compromise. It is not for the court to speculate whether the terms of the proposed compromise were the best that could have been obtained; or whether the proposed compromise would have been better if it did not contain all the terms that it does contain; or whether there could have been a better compromise unless it is satisfied that, if the company is not permitted to enter into the compromise on the terms which the liquidator has negotiated there will then be better terms or some other compromise on offer, the decision is between the proposed compromise and no compromise at all.

In reaching that decision, the court may have to weigh the different interests of creditors and contributories and, perhaps, the different interests of preferential and non-preferential creditors…[T]he court will give weight to the wishes of creditors and contributories whose interests it has to consider, for the reason that creditors and contributories, if uninfluenced by extraneous considerations, are likely to be good judges of where their own best interests lie. For the same reason the court will give weight to the views of the liquidator, who may, and normally will, be in the best position to take an informed and objective view. But, as said, at the end of the day it is for the court to decide whether or not to sanction compromise.

…In cases…for which [the Liquidator] has obtained sanction of the liquidation committee…[i]t is right that the court should not interfere in such a case unless the liquidator is acting mala fide or his decision is one which no reasonable liquidator could take.’

19. Similarly, in McPherson’s Law of Company Liquidation (3^rd Edition) (at 9.007) Professor Keay quotes from State Bank of New South Wales v Turner Corp Ltd that:

‘ The role of the court in relation to this power is:

“ not of course a rubber stamp for whatever is put forward by the liquidator but it is not the role of the court to independently appraise the commercial soundness of the proposal.  The court will not generally interfere unless there can be seen to be some lack of good faith, error in law or principle, or some real and substantive ground for doubting the prudence of the liquidator’s proposal.”

The reason for this is that a liquidator is best placed to assess a compromise proposal with regard to the interests of the creditors…’

20. Obvious considerations that are to be taken into account by a liquidator or the Court include the strengths of a claim, prospects of recovery and a company’s ability to finance either the prosecution or defence of legal proceedings.  By the very nature of the position of a company in insolvent liquidation, as the Company was at the material time, its ability to finance legal proceedings is commonly a very important consideration and the Court is frequently asked to sanction settlements on terms that reflect this and that are perhaps less favourable than a solvent and well resourced company might be prepared to agree.”

See also Re Shun Kai Finance Co Ltd [2015] 2 HKLRD 264 at 277 – 278, paragraphs 31 – 32, per Kwan JA

56.Hence, the nature of the Sanction Decision is clear and in no way it can be said that the Sanction Decision resolved the issues identified paragraph 54 above.  I agree with Mr Maurellet SC that the Sanction Decision cannot realistically be regarded as affording the Former Liquidators immunity from being sued for the liabilities arisen from the misappropriation of the shares of Summit Mass.  At best, the Sanction Decision was “probably the best solution that can be achieved at this point and is one that it is in the creditors’ interest to accept”, a view expressed by Mr Borrelli representing Summit Mass and accepted by Mr Justice Barma.  (See §§53 – 54 of the Sanction Decision)

57.Ms Lam, for the Applicants, has a better argument in relation to the plea of negligence in entering into the Settlement Agreement.  I can well see that it is not right that having gone to the court and obtained the sanction of the court to enter into a compromise, the liquidators can then subsequently be sued again for negligence in entering into the compromise.  Unless it is subsequently discovered by way of fresh evidence that the liquidators had acted negligently in reaching the compromise proposal, I agree that the liquidators should not be vexed again.  However, I also agree with Mr Maurellet SC that this is not a matter of striking out at this stage. 

58.Also, Ms Lam fairly accepted that this plea is not, strictly speaking, relevant for HCA 962/2015.  For reasons set out in the next section, HCA 962/2015 is all that matters after considering the Reflective Loss Issue. 

THE REFLECTIVE LOSS ISSUE

HCA 960/2015

59.Ms Lam very sensibly started her oral submissions with the Reflective Loss Issue as her first point for very good reasons.  In my view, this is the Applicants’ best point.  Summit Mass was Wah Nam’s indirect subsidiary.  A careful reading of the pleadings of both actions clearly shows that there is a high degree of overlap of the two statements of claim:

(1) Duties of Former Liquidators – Paragraphs 16 – 17 in HCA 960/2015 and Paragraphs 17 – 19 in HCA 962/2015;

(2) Breach of fiduciary and common law duties by Former Liquidators – Paragraph 39 in HCA 960/2015 and Paragraph 41 in HCA 962/2015;

(3) Vicarious liability — Paragraph 40 in HCA 960/2015 and Paragraph 42 in HCA 962/2015;

(4) Loss — Paragraph 42 in HCA 960/2015 and Paragraph 50 in HCA 962/2015

60.The principle of separate corporate personality is fundamental in company law.  It is a cardinal principle of company law that a shareholder may not normally recover for reflective loss.  In Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, the English Court of Appeal at p 222G – 223A said:

“ It is also correct that if directors convene a meeting on the basis of a fraudulent circular, a shareholder will have a right of action to recover any loss which he has been personally caused in consequence of the fraudulent circular, this might include the expense of attending the meeting. But what he cannot do is to recover damages merely because the company in which he is interested has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a “loss” is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only “loss” is through the company, in the diminution in the value of the net assets of the company, in which he has (say) a 3 per cent. shareholding.” (Emphasis added.)

61.In Johnson v Gore Wood & Co (No 1) [2002] 2 AC 1, Lord Millett at p 62E-G said:

“ The position is, however, different where the company suffers loss caused by the breach of a duty owed both to the company and to the shareholder. In such a case the shareholder’s loss, in so far as this is measured by the diminution in value of his shareholding or the loss of dividends, merely reflects the loss suffered by the company in respect of which the company has its own cause of action. If the shareholder is allowed to recover in respect of such loss, then either there will be double recovery at the expense of the defendant or the shareholder will recover at the expense of the company and its creditors and other shareholders. Neither course can be permitted. This is a matter of principle; there is no discretion involved. Justice to the defendant requires the exclusion of one claim or the other; protection of the interests of the company’s creditors requires that it is the company which is allowed to recover to the exclusion of the shareholder. These principles have been established in a number of cases, though they have not always been faithfully observed.” (Emphasis added.)

See also Waddington Ltd v Chan Chun Hoo (2008) 11 HKCFAR 370 at §§82 – 88 per Lord Millett NPJ

62.Wah Nam is claiming the same loss and damage as Great Strategy and Crystal Services are claiming in HCA 962/2015.  This is not allowed.  Mr Maurellet SC relied on the case of Topping Chance Development Ltd v CCIF CPA Ltd [2015] 3 HKC 71 where Deputy High Court Judge Leung at §74 said:

“ 74. Immediately apparent from the arguments of both sides is their respective references to different defendants. A cause of action for breach of duty must be defendant-specific. As I read it, when Lord Bingham and Lord Millett were referring to the cause(s) of action to recover loss that the company or the shareholder may possess, they were referring to those against the same party responsible for the loss. That was the context of those cases cited by the Law Lords in support. This also makes sense, when one considers Lord Millett’s explanation of the rationale behind excluding one claim or the other, namely, justice to the defendant permits no double recovery by the company and the shareholder.”

63.I do not see how the above case assists Wah Nam because in HCA 960/2015, it is suing the Former Liquidators and in HCA 962/2015, the Former Liquidators are facing exactly the same claims by Wah Nam’s subsidiaries namely, Great Strategy and Crystal Services, albeit in their capacity as shadow and/or de facto directors.  I agree with Ms Lam, there is no difference in defendants here. 

64.In Mega Yield International Holdings Ltd v Fonfair Company Limited CACV 61/2013, unreported, 18 September 2014, Kwan JA at §§47 – 48 said:

“ 47. This is a repetition of the defendant’s submission before the judge, which was summarised at §§88 to 91 of the Judgment. The question here is whether the plaintiff was entitled to recover the items of loss that had been paid by one of its subsidiaries, being the costs of removal of the Structure (paid for by Topfield in the sum of $1,250,000) and the operational overheads (the majority of which was paid by the plaintiff and the minority by ECL). At §94 of the Judgment, the judge quoted this statement from the judgment of Hobhouse LJ in Geber Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443 at 475 lines 9 to 14 (it was also quoted in the speech of Lord Cooke of Thorndon in Johnson v Gore Wood & Co [2002] 2 AC 1 at 46B) which encapsulated the correct approach:

‘ …provided that the plaintiff can establish a personal cause of action and can prove a personal loss caused by the defendant’s actionable wrong, then the fact that the loss is felt by the plaintiff in the form of the loss of the value of the plaintiff’s shares in a company is no answer to the plaintiff’s claim.’

48. In the present case, there is no question that the plaintiff had established a personal cause of action against the defendant. The only question is whether it had proved a personal loss caused by the defendant’s actionable wrong, the very question considered by the English Court of Appeal in Gerber.”

65.The key here is that Wah Nam does not have a personal claim against the Former Liquidators and Mr Maurellet SC very fairly acknowledged that there is a risk of double recovery.  In the circumstances, the right course is to strike out the pleadings in HCA 960/2015 and to dismiss the action. 

66.Mr Maurellet SC submitted that there is little or limited benefits to be gained by striking out HCA 960/2015.  It is more desirable, from a case management perspective, to consolidate the two actions as there may be some permutations which are not foreseeable at the present stage.  Further, as a matter of public policy, the Former Liquidators should be held accountable for their negligence in their capacity as liquidators. 

67.Despite Mr Maurellet SC’s submissions, I am of the view that this is a matter of principle and there is no discretion involved. The Current Liquidators may or may not have a different avenue under section 276 of the Ordinance to mount a misfeasance claim against the Former Liquidators.  This is something for the Current Liquidators to decide. 

68.For the above reasons, this court will strike out the pleadings in HCA960/2015 and also dismiss the action. 

HCA 962/2015

69.However, the same cannot be said for HCA 962/2015. I am of the view that HCA 962/2015 should not be struck out because of the Reflective Loss Issue.  HCA 962/2015 has no reflective loss issue at all.  Paragraph 26 of the Statement of Claim in HCA 962/2015 reads:

“ 26. On or about 3 June 2006, whilst under the direct and/or indirect control of the Defendants, Great Strategy and Crystal Services’ shareholding interest in Summit Mass was misappropriated as a result of the purported transfer of Great Strategy’s and Crystal Services’ shareholding interest in Summit Mass to a Ms.  Shung Tan (“Shung”)”

70.This plea is perfectly proper.  Great Strategy and Crystal Services are entitled to make this legitimate claim.  It does not offend against the rule against claiming reflective loss. 

71.Indeed, I notice that in the summons in relation to the striking out of HCA 962/2015, there is no reliance on the Reflective Loss Issue albeit that both parties made the same arguments both in their written and oral submissions. 

THE LIMITATION ISSUE

72.Ms Lam submitted that both actions have been commenced out of time and the Plaintiffs must rely on the extended secondary limitation period under section 31 of the Limitation Ordinance, Cap 347 in order to render the claims viable.  Ms Lam made two points.  First, section 31 is not engaged at all because the knowledge of the Former Liquidators would be attributed to Great Strategy and Crystal Services.  Secondly, even if section 31 is engaged, the section only applies to actions for negligence.  For reasons stated below, I agree with Ms Lam’s second point but not her first point. 

73.According to Great Strategy and Crystal Services’ pleaded case in HCA 962/2015, the acts or omissions by which they allegedly suffered damage occurred in 2006 – 2007.  This would be when the damage as a result of those pleaded negligent acts or omissions would have accrued.  HCA 962/2015 was only issued on 30 April 2015, long after any period of limitation would have expired in, at the very latest, 2013. 

74.Section 31(1) and (5) of the Limitation Ordinance, Cap 347 provide:

“ 31 Special time limit for negligence actions where facts relevant to cause of action are not known at the date of accrual

(1) This section applies to any action for damages for negligence, other than one to which section 27 applies, where the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both –

(a) The knowledge required for bringing an action for damages in respect of the relevant damage; and

(b) A right to bring such an action,

(referred to in this section as the “date of knowledge”) falls after the date on which the cause of action accrued.

(5) In subsection (1) “the knowledge required for bringing an action for damages in respect of the relevant damage means knowledge —

(a) of such facts about the damage in respect of which damages are claimed as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment;

(b) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence;

(c) of the identity of the defendant; and

(d) if it is alleged that the act or omission was that of a person other than the defendant, of the identity of that person and the additional facts supporting the bringing of an action against the defendant.”

75.First, I am of the view that Mr Maurellet SC has a strong argument that the secondary limitation period could not realistically start sometime after the Consent Order when the Former Liquidators were removed and replaced.  The Former Liquidators could not possibly have knowledge that they were liable for the damage which was “attributable in whole or in part to the act or omission which is alleged to constitute negligence”.  In fact, up to the present stage, the Former Liquidators’ case is that no negligent acts omissions had been committed by them.  Hence, it is impossible for them to possess any such knowledge of the availability of a cause of action based on their own acts of negligence prior to their removal.  In the absence of such knowledge, the issue of attribution of knowledge is not even engaged. 

76.Secondly, as a matter of law, I am of the view that the knowledge of the Former Liquidators should not be attributed to Great Strategy and Crystal Services for the purpose of barring a claim by these companies against the Former Liquidators qua shadow and/or de facto directors.  The law in relation to attribution of knowledge has recently been admirably discussed in Bilta (UK) Ltd (in liquidation) and others v Nazir and Others (No 2) [2016] AC 1 Lord Neuberger of Abbotsbury PSC at §§7 said:

“ 7. So far as attribution is concerned, it appears to me that what Lord Sumption JSC says in his paras 65-78 and 82-97 is effectively the same in its effect to what Lords Toulson and Hodge JJSC say in their paras 182-209. Both judgments reach the conclusion which may, I think be stated in the following proposition. Where a company has been the victim of wrongdoing by its directors, or of which its directors had notice, then the wrongdoing, or knowledge, of the directors cannot be attributed to the company as a defence to a claim brought against the directors by the company’s liquidator, in the name of the company and/or on behalf of its creditors, for the loss suffered by the company as a result of the wrongdoing, even where the directors were the only directors and shareholders of the company, and even though the wrongdoing or knowledge of the directors may be attributed to the company in many other types of proceedings.

8. It appears to me that this is the conclusion reached by Lord Sumption JSC and Lords Toulson and Hodge JJSC as a result of the illuminating discussions in their respective judgments – in paras. 65-78 and 82-95 and paras 182-209.

9. Particularly given the full discussion in those passages, I do not think that it would be sensible for me to say much more on the topic. However, I would suggest that the expression “the fraud exception” be abandoned, as it is certainly not limited to cases of fraud – see per Lord Sumption JSC at para.71 and Lords Toulson and Hodge JJSC at para 181. Indeed, it seems to me that it is not so much an exception to a general rule as part of a general rule. There are judicial observations which tend to support the notion that it is, as Lord Sumption JSC says in his para.86, an exception to the agency-based rules of attribution, which is based on public policy – or common sense, rationality and justice, according to the judicial observations quoted in paras 72, 73, 74, 78 and 85 of Lord Sumption JSC’s judgment. However, I agree with Lord Mance JSC’s analysis at paras 37-44 of his judgment, that the question is simply an open one: whether or not it is appropriate to attribute an action by, or a state of mind of, a company director or agent to the company or the agent’s principal in relation to a particular claim against the company or the principal must depend on the nature and factual context of the claim in question.” (Emphasis added.)

77.Lord Sumption JSC at §§71, 72, 86 and 89 said:

“ The exception: breach of the agent’s duty to the company

71 Bilta’s answer to this, which was accepted by both the judge and the Court of Appeal, is that the dishonesty of Mr Chopra and Mr Nazir is not to be attributed to Bilta, because in an action for breach of duty against the directors there cannot be attributed to the company a fraud which is being practised against it by its agent, even if it is being practised by a person whose acts and state of mind would be attributable to it in other contexts. It is common ground that there is such a principle. It is commonly referred to as the fraud exception, but it is not limited to fraud. It applies in certain circumstances to prevent the attribution to a principal of his agent’s knowledge of his own breach of duty even when the breach falls short of dishonesty. In the context of the illegality defence, which is mainly concerned with dishonest or criminal acts, this exception from normal rules of attribution will normally arise when it is sought to attribute to a principal knowledge of his agent’s fraud or crime but that is not inherent in the underlying principle. I shall call it the ‘breach of duty exception’.

72. The breach of duty exception is commonly referred to as the Hampshire Land principle, after the judgment of Vaughan Williams J in In re Hampshire Land Co [1896] 2 Ch 743.  This case did not involve any allegation of fraud…”

“ 86. The problem posed by the authorities is that until the Court of Appeal’s decision in this case, they have generally treated the imputation of dishonesty to a company as being governed by tests dependent primarily on the nature of the company’s relationship with the dishonest agent, the result of which is then applied universally. This was the point made by Lord Walker in Stone & Rolls at para 145, from which he resiled in Moulin. The fundamental point made by the Court of Appeal in this case and the Court of Final Appeal in Moulin is that, while the basic rules of attribution may apply regardless of the nature of the claim or the parties involved, the breach of duty exception does not. I agree with this. It reflects the fact that the rules of attribution are derived from the law of agency, whereas the fraud exception, like the illegality defence which it qualifies, is a rule of public policy. Viewed as a question of public policy, there is a fundamental difference between the case of an agent relying on his own dishonest performance of his agency to defeat a claim by his principal for his breach of duty; and that of a third party who is not privy to the fraud but is sued for negligently failing to prevent the principal from committing it.”

“ 89. A claim by a company against its directors, on the other hand, is the paradigm case for the application of the breach of duty exception. An agent owes fiduciary duties to his principal, which in the case of a director are statutory. It would be a remarkable paradox if the mere breach of those duties by doing an illegal act adverse to the company’s interest was enough to make the duty unenforceable at the suit of the company to whom it is owed. The reason why it is wrong is that the theory which identifies the state of mind of the company with that of its controlling directors cannot apply when the issue is whether those directors are liable to the company. The duty of which they are in breach exists for the protection of the company against the directors. The nature of the issue is therefore itself such as to prevent identification. In that situation it is in reality the dishonest directors who are relying on their own dishonesty to found a defence. The company’s culpability is wholly derived from them, which is the very matter of which complaint is made.”

78.Lord Toulson and Lord Hodge JJSC in §§204 and 206 said:

“ 204. It is helpful in the civil sphere, to consider the attribution of knowledge to a company in three different contexts, namely (i) when a third party is pursuing a claim against the company arising from the misconduct of a director, employee or agent, (ii) when the company is pursuing a claim against a director or an employee for breach of duty or breach of contract, and (iii) when the company is pursuing a claim against a third party.

206. In the second case, where the company pursues a claim against a director or employee for breach of duty, it would defeat the company’s claim and negate the director’s or employee’s duty to the company if the act or the state of mind of the latter were to be attributed to the company and the company were thereby to be estopped from founding on the wrong. It would also run counter to sections 171 to 177 of the 2006 Act, which sets out the director’s duties, for the act and state of mind of the defendant to be attributed to the company. This is so whether or not the company is insolvent. A company can be attributed with knowledge of a breach of duty when, acting within its powers and accordance with section 239 of the 2006 Act, its members pass a resolution to ratify the conduct of the director. But, as this court discussed in Prest v Prest [2013] 2 AC 415, para 41, shareholders of a solvent company do not have a free hand to treat a company’s assets as their own. Further, as we have discussed, actual or impending insolvency will require the directors to consider the interests of the company’s creditors when exercising their powers. This might prevent them from seeking such ratification. Similarly, where a company ratifies a breach of duty by an agent or employee, it must be attributed with the relevant knowledge. But otherwise, as the courts have recognised since at least Gluckstein v Barnes [1900] AC 240, it is absurd to attribute knowledge to the company and so defeat its claim.” (Emphasis added.)

79.In In re Hampshire Land Company [1896] 2 Ch. 743 at p.749-750, Vaughan Williams J said:

“whether [the director’s] conduct amounted to fraud or to breach of duty, I decline to hold that his knowledge of his own fraud or of his own breach of duty is, under the circumstances, the knowledge of the company.”

80.I am of the view that the Hampshire Land principle is not restricted to fraud or illegality cases.  The underlying rationale is to prevent officers or directors from invoking or attributing their own knowledge to a company so as to defeat legitimate claims by the company against them. 

81.Further, in HCA 962/2015, as no defence has been filed, it is not even certain whether the Former Liquidators would admit that they were, at the material times, shadow and/or de facto directors of Great Strategy and Crystal Services. 

82.Thirdly, Mr Maurellet SC relied on Kensland Realty Ltd v Tai, Tang & Chong (2008) 11 HKCFAR 237 at §§28 and 30 where Chan PJ said:

“ 28. The purpose of having limitation provisions is to ensure on the one hand, that a defendant is not unduly vexed by stale claims to his disadvantage particularly when the relevant evidence has been lost and the memory of the witnesses has failed; and on the other hand, that a plaintiff is not unfairly prejudiced by a lack of knowledge of the relevant facts required to bring a claim until after it is time barred. This is what s.31 is aimed at achieving in relation to actions based on non-personal injury negligence.

30. Whether a plaintiff can invoke s.31 is a question of mixed law and fact.  This involves an examination of a host of issues, such as, what was the defendant’s act or omission complained of, what is the cause of action relied on, when did the cause of action accrue, what was the damage caused to the plaintiff, how much did the plaintiff know about these facts or ought he reasonably to have known about these facts, would a reasonable person having such knowledge or imputed knowledge consider the damage sufficiently serious to justify instituting proceedings for damages, when did the plaintiff first have actual or imputed knowledge of such facts, did the plaintiff know or ought he reasonably to have known that the damage was attributable in whole or in part to the defendant’s act or omission, and if so, when did he first have actual or imputed knowledge of this.  Needless to say, all the circumstances of the case have to be considered.”

83.Ribeiro PJ at §141 said:

“ 141. I would finally add that where a plaintiff’s reliance on section 31 is sought to be challenged in advance of the trial, this should generally be by trial of a preliminary issue so that all relevant evidence can be adduced and tested. As it happens, the materials available to the court in the present case were sufficient to allow the claim to be struck out in the exercise of the court’s inherent jurisdiction….If the facts had been less unequivocal, adoption of the striking-out procedure would have involved a waste of time and costs since an arguable question of whether Kenland’s case was time-barred would have had to be examined afresh at the trial.”

84.For all the above reasons, I am of the view that HCA 962/2015 should not be struck out because of the Limitation Issue.

85.However, Ms Lam is right that section 31 of the Limitation Ordinance, Cap 347, only applies to actions for negligence.  Great Strategy and Crystal Services’ claims in relation breaches of fiduciary duties, the tort of conversion and the tort of unlawful interference are all time-barred.  Mr Maurellet SC also very sensibly agreed.  In the circumstances, this court will strike out paragraphs 17, 18, reference to paragraph 18 in paragraph 19, 46, 47 and the reference to paragraphs 46 – 47 in paragraph 48 of the Statement of Claim in HCA 962/2015.

NO DAMAGE ISSUE

86.As the No Damage Issue is parasitic on the Sanction Issue and this court has ruled that the Applicants cannot rely on the Sanction Issue to strike out both actions, this court also does not consider that the No Damage Issue is a ground for striking out. 

87.This court expresses no views on whether Great Strategy and Crystal Services can prove that they have suffered loss and damage on top of the settlement sum of RMB3.35 million.  This is a matter for trial.

ABUSE OF PROCESS

88.Again, as this court has ruled that the Applicants cannot rely on the Sanction Issue to strike out both actions, there is no abuse of process on the part of Great Strategy and Crystal Services to institute and continue HCA 962/2015.  It is not a collateral attack on the Sanction Decision.  Ms Lam also invited this court to take into consideration two additional factors.  First, the Current Liquidators’ decision not to pursue a misfeasance proceedings under section 276 of the Ordinance, but instead commenced HCA 962/2015.  It may well be that the Current Liquidators consider that a misfeasance proceedings may be more complicated or has a higher burden of proof, as Ms Lam submitted, but I am of the view that this is a matter for the Current Liquidators to decide after taking into consideration what is in the best interest of the general body of creditors.  HCA 962/2015 may be an easier route, this court expresses no view on that, but if it is, then the Current Liquidators are perfectly entitled to take an easier route at lesser legal costs to achieve the same result for the general body of creditors.  This, by itself, is not an abuse of process of the court. 

89.Secondly, it was submitted that the Current Liquidators had taken 3 years to commence HCA 962/2015 when the pleadings does not contain any new materials which was not available to the Current Liquidators in 2012.  Whether the Current Liquidators could and/or should have commenced HCA 962/2015 earlier will require more evidence.  For example, the Current Liquidators might not have the necessary funding.  However, I am of the view that this alone is not sufficient to constitute an abuse of process of the court.

VICARIOUS LIABILITY AND THE PLEAD IN PARAGRAPH 19 OF THE STATEMENT OF CLAIM IN HCA962/2015

90.Ms Lam submitted that in HCA 962/2015, Great Strategy and Crystal Services have not pleaded any basis upon which the 2^nd and 3^rd Defendants should be held vicariously liable for George Wong’s actions, hence the plea of vicariously liability should be struck out. 

91.I agree with Mr Maurellet SC that in HCA 962/2015, in paragraph 16 of the Statement of Claim in HCA 962/2015, it is pleaded that:

“ (1) The 1^st Defendant (“George Wong”) was an employee, servant and/or agent of the 2^nd to 6^th Defendants and was designated and authorised to handle the affairs of the Company and its subsidiaries, including the affairs of Summit Mass for the purpose of liquidation of the Company.

(2) The Former Liquidators also caused and/or allowed George Wong to have unrestricted access to, and possession of, (a) the statutory records, the company kit of Summit Mass, the title documents of the Land, and (b) the share certificates of Summit Mass issued to the Plaintiffs.”

92.I am of the view that the above plea is sufficient to withstand a striking out on the ground that there is no plea of the basis on which the 2^nd and 3^rd Defendants should be held vicariously liable for George Wong’s actions.  In any event, this is a matter capable of being cured by amendments. 

93.In relation to the complaint that in the plea regarding “duties” of the Statement of Claim, there is no mention of what duties, if any, the 2^nd, 3^rd and 6^th Defendants owed to Crystal Services, Mr Maurellet SC submitted that it is not the Plaintiffs’ (in HCA 862/2015) pleaded case that the 2^nd and 3^rd Defendants owed any duties to Crystal Services.  The plea at paragraph 41 of the Statement of Claim in HCA 962/2015 is qualified to that extent by stating “Each of the 2^nd to 5^th Defendants was in breach of their respective pleaded duties owed to the plaintiffs.”

94.In any event, Mr Maurellet SC agreed that the plea at paragraph 19 of the Statement of Claim in HCA 962/2015 could be amended by adding Crystal Services as a party to whom the Former Liquidators owed duties, mutatis mutandis.  I am of the view that this plea can also be cured by amendments and should not be struck out. 

95.Both Ms Lam and Mr Maurellet SC agreed that this court should only identify the problematic paragraphs and give leave for the Plaintiffs in HCA 962/2015 to take out an application for amendment of pleadings.  I agree with this approach. 

APPROVAL TO COMMENCE PROCEEDINGS FROM THE COI

96.Before the commencement of this hearing, the Applicants filed the Affirmation of Jamie John Stranger which gave evidence to the effect that the two actions were commenced without the approval of the COI pursuant to section 199(1) of the Ordinance. 

97.On the second day of the hearing, the Current Liquidators filed the 2^nd Affirmation of Osman Mohammed Arab which basically informed this court that the COI had in fact been reconstituted and the commencement of the two actions had been approved by the new COI. 

98.Ms Lam first submitted that as the newly constituted COI is basically dominated by Mr Ho and as Mr Ho has agreed to release the Former Liquidators from all liabilities, by reason of the Consent Summons, it is an abuse of process for him to cause the COI to commence the new actions against the Former Liquidators.  As this court does not agree with Ms Lam on the Sanction Issue for the reasons set out above, there is no abuse of process on the part of the Current Liquidators.  Mr Maurellet SC is also right in pointing out that whatever allegations are to be made by the Former Liquidators against Mr Ho, those allegations cannot render the commencement by the Current Liquidators of the two actions an abuse of the process of the court.

99.Ms Lam also submitted that the new COI’s approval to commence HCA 962/2015 does not cover claims against the Former Liquidators. That is correct, but HCA 962/2015 is commenced by Great Strategy and Crystal Services which are not in liquidation.  Great Strategy and Crystal Services can legitimately commence any proceedings without any approval from the COI. 

DISPOSITON

100.For all the reasons above, I make the following orders:

(1) the decision of the Joint and Several Liquidators of Wah Nam Group Limited (In Liquidation) to commence High Court Action No 960/2015 against the Former Liquidators be reversed; and the said action be dismissed;

(2) the Statement of Claim in HCA 960/2015 be struck out;

(3) paragraphs 17, 18, reference to paragraph 18 in paragraph 19, 46, 47 and the reference to paragraphs 46 – 47 in paragraph 48 of the Statement of Claim in HCA 962/2015 be struck out; and

(4) leave to the Plaintiffs in HCA 962/2015 to take out an application to amend their Statement of Claim within 14 days from the date of this Decision.

101.I also make the following costs order nisi:

(1) for the summons dated 11 October 2016 in HCCW 166/2000, the costs of and incidental to the application be to the Former Liquidators, to be paid out of the assets of the Company, on a party to party basis, to be taxed if not agreed. 

(2) For the summons dated 19 December 2015 in HCA 960/2015, the costs of and incidental to the application and the action be to the Defendants, to be paid by the Plaintiff, on a party to party basis, to be taxed if not agreed. 

(3) There be one set of costs for the summons dated 11 October 2016 in HCCW 166/2000 and the summons dated 19 December 2015 in HCA 960/2015;

(4) For the summons dated 19 December 2015 in HCA 962/2015, 80% of the costs of and incidental to the application and the action be to the Plaintiffs, to be paid by the 2^nd to the 6^th Defendants, on a party to party basis, with a certificate for one counsel, to be taxed if not agreed.  For the avoidance of doubt, the counsel certificate is to cover Mr Maurellet’s brief and related costs. 

The above costs order nisi will be made absolute within 14 days from the date of this Decision unless the parties take out an application to vary the costs order nisi within the 14-days period. 

102.Finally, it remains for this court to thank Ms Lam and Mr Maurellet SC (together with him Mr Adrian Lai) for their very helpful, succinct and sensible submissions which greatly assisted this court. 

Mr Jose Maurellet SC, leading Mr Adrian Lai, instructed by DS Cheung & Co, for the Plaintiffs in HCCW 166/2000, HCA 960/2015 and HCA 962/2015

Ms Rachel Lam, instructed by Stephenson Harwood, for the Defendant in HCCW 166/2000, for the 1^st and 2^nd Defendants in HCA 960/2015 and for the 2^nd – 6^th Defendants in HCA 962/2015

Official Receiver was absent