Ricco (International) Co Ltd v. Uni-harvest International Ltd
Read the full judgment text of HCCW 229/2018 on BabelCite. This High Court CFI judgment was delivered on 22 January 2020.
1. These applications emerge from a somewhat tangled web of personal, corporate, and litigious relationships, but the primary lines are clear.
Cited by 4 cases · Cites 9 cases
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HCCW 229/2018 [2020] HKCFI 201 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES WINDING-UP PROCEEDINGS NO 229 OF 2018 ____________
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_____________ D E C I S I O N _____________ A. THE APPLICATIONS 1.These applications emerge from a somewhat tangled web of personal, corporate, and litigious relationships, but the primary lines are clear. 2.By its Summons dated 29 October 2018, Uni-Harvest International Ltd (“the Company”) seeks to either strike-out or stay the creditor’s winding-up petition presented by the Petitioner (“Ricco”) on 21 August 2018 (“the Petition”). 3.As detailed in the Petition[1], the petitioning debt (“the Debt”) is essentially what is due to Ricco under a costs order (“Costs Order”) made against the Company in April 2017 in HCMP 1808/2016 (“the HCMP Proceedings”). 4.The Company has not appealed against the Costs Order or the underlying judgment for Ricco. Nor has it sought to vary or stay the Costs Order, which was granted at a time when separate proceedings (HCA 1856/2016 and HCA 1858/2016, together “the HCA Proceedings”) variously involving Ricco, the Company and related parties were underway. 5.While not denying the unpaid Debt, the Company seeks to strike-out the Petition on abuse of process grounds. It contends that:
6.The Company alternatively seeks a case management stay of the Petition pending the resolution of issues on Ricco’s constitution in the HCA Proceedings. B. THE BACKGROUND B1. The parties and the HCMP Proceedings 7.Ricco is a Hong Kong company in the jewelry trade. Since its 2002 incorporation, Lui Fung Yee (“Madam Lui”) has been a director and a registered holder of 1,500,000 shares. 8.Madam Lui was in a longtime intimate relationship with Chan Kwok Hung (“Jimmy”) until his death from cancer in April 2015. In that time, Madam Lui apparently believed – incorrectly – that Jimmy had earlier divorced his wife, Liu Siu Foon (“Ms Liu”). 9.The Company is an unregistered BVI company. Before Jimmy died, it served as his corporate vehicle. It was used, inter alia, to hold shares in Ricco on trust for Madam Lui during Jimmy’s lifetime. 10.Between 2002 and July 2007, Madam Lui’s registered shares constituted 50% of the total shareholding in Ricco. The other 50% (1,500,000 shares) were owned by her Malaysian business partner. 11.Around July 2007, Madam Lui financed the Company’s acquisition of those 50% shares from her business partner in order for Jimmy, whose bankruptcy was just discharged, to take part in Ricco’s business. 12.Around August 2007, the Company was further allotted 7,000,000 shares in Ricco (“the Allotment”). This was financed by a HK$7million loan from Ricco itself, contrary to section 47A of the then Companies Ordinance (Cap 32). The Allotment was recorded as fully paid up, but Ricco never actually received any payment for the shares. 13.In 2016, Ricco brought the HCMP Proceedings against the Company to set aside the Allotment. On 26 April 2017, Anthony Chan J handed down Judgment declaring the Allotment null and void and made the Costs Order in favour of Ricco. 14.As earlier noted, by the time of the Costs Order, the HCA Proceedings were also underway. I will address the nature and significance of those proceedings further below, where I assess the Company’s claim that Ricco is pursuing some improper purpose in those proceedings by bringing the Petition. B2. Service of Demand and Petition 15.The Allocatur confirming the amount of Ricco’s taxed costs in the HCMP Proceedings was handed down on 8 June 2018. 16.On 30 July 2018, Ricco’s BVI lawyers sought to personally serve on the Company the Demand[2] for repayment of the sum of HK$350,103.17 by attending its registered office in the BVI. 17.On 31 July 2018, Ricco through its Hong Kong solicitors further wrote to Gary Tam & Co, the Company’s solicitors in the HCMP Proceedings, notifying them that the Demand and other documents had been served at the Company’s registered BVI office, and enclosing the documents served in the BVI. 18.Ricco filed the Petition on 21 August 2018. The Demand was then (as it now remains) wholly unpaid. The Petition refers to the deeming provision as to inability to pay debts under s.327(4)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap. 32 (“the Ordinance”). However, the Petition does not solely rest on the deeming ground. It relies also on the underlying factual position as to the actual non-payment of the Demand. As will be seen, this affects the Company’s challenge to the validity of the Petition. 19.On 23 August 2018, Ricco further applied for leave to serve the Petition out of jurisdiction in the BVI at the Company’s registered office. Leave was granted on 16 October 2018 and the order was sealed on 22 October 2018. 20.However, on 24 October 2018, when Ricco was still arranging for service in the BVI, Gary Tam & Co filed a Notice to Act and a Notice of Intention to appear on Petition for the Company. C. ABUSE OF PROCESS? C1. Two Aspects of Alleged Abuse 21.The Company’s inter partes summons to strike-out (or alternatively stay) the Petition was filed on 29 October 2018. The main ground is abuse of process by Ricco. 22.As elaborated in the Company’s affirmation evidence and in the submissions of Mr Dan Leung for the Company, there are two distinct aspects to the abuse claim. 23.The first aspect is narrow. It is also – as Mr Leung candidly accepted at the hearing – entirely technical. The Company’s case here is simply that:
24.At the hearing, Mr Leung resiled from suggesting that these alleged failures were deliberate attempts to disadvantage the Company. That was sensible. On the facts before me, I do not see how such defects, even if found, could prejudice the Company or benefit Ricco. 25.The second aspect of the Company’s case on abuse does however involve stark accusations of “misuse” by the Petitioner of the statutory winding-up scheme “to obtain some collateral advantage in the related proceedings”.[3] 26.The Company’s essential case here is that, although it “does not presently have a direct crystallised claim against the Petitioner”,[4] there is a bona fide dispute as to Ricco’s ownership. The Company essentially points to this dispute, and the ongoing litigation involving inter alia Ricco in the HCA Proceedings, to contend that Ricco is seeking to gain some kind of “collateral advantage” in the instant proceedings.[5] C2. General Principles on Striking-Out 27.The following general principles on striking-out apply here:
C3. The Section 327(4)(a) Ground The Company’s stance 28.The Company claims that “there has never been good service of the statutory demand, and in any case the petition was issued before the expiry of 21 days after the purported or deemed service of the statutory demand”.[6] 29.The Company notes that the Petition was issued on the basis that it is insolvent within the meaning of s.327(4)(a) of the Ordinance. 30.Section 327(4)(a) materially provides that:
31.The Company’s stance is that the requirements of s.327(4)(a) have not been met and that it is an abuse of process for the Petition to proceed in these circumstances. Position on s.327(4)(a) Not Dispositive 32.In my judgment, any non-compliance by the Petitioner with s.327(4)(a) of the Ordinance, even if made out, is insufficient to strike-out the Petition. 33.Section 327(4)(a) operates as a deeming provision. Where the service requirements of s.327(4)(a)(i) are satisfied, the unregistered company is deemed unable to pay its debts upon expiry of the 3-week post‑service period under s.327(4)(a)(ii). 34.However, as Ms Jacqueline Law for the Petitioner points out, the s.327(4) mechanism is just one way of proving insolvency for the purposes of s.327(1) and (3)(b) of the Ordinance, which provide for the winding-up under the Ordinance of an unregistered company on the ground that it is “unable to pay its debts”. 35.As Rogers J (as he then was) explained in Bozell Asia (Holding) Ltd v Cal International Ltd [1997] HKLRD 1 at 7B-C in relation to the deeming mechanism under s.178 of the Ordinance:
36.Presently, even without the s.327(4) deeming mechanism, Ricco may still ask the court to infer that the Company is insolvent on the basis that the Debt remains unpaid and there is no bona fide substantial dispute against it: Re Hawkins Development Ltd,HCCW 215/2007, unreported, 21 August 2009, at §§3-4, Kwan J; Re Simpson Devp Investment (HK) Co Ltd [1999] 1 HKLRD 202 at 204G-J (Le Pichon J as she then was). 37.While referring in part to s.327(4)(a) of the Ordinance, the Petition in its present form is in my view sufficiently broad to support this alternative line as to the Company’s insolvency, and can anyway be readily amended to put the position beyond doubt (c.f. Hong Kong Civil Procedure 2020 §18/19/4).[7] 38.Accordingly, the question of whether the Petitioner has complied with s.327(4)(a) is moot: any non-compliance is of itself insufficient to strike-out the Petition as an abuse of process. The winding‑up process is properly engaged on the footing that the Debt remains unpaid and the Company has not disputed its repayment obligation. Valid Service of the Demand under s.178(1)(a) 39.While strictly unnecessary in light of the above, I shall for completeness set out my view on whether there has been valid service of the Demand and presentation of the Petition. 40.As noted, the Demand was personally served at the Company’s registered BVI office on 30 July 2018. Ricco accepts that service at a company’s registered address is not among the options listed at s.327(4)(a)(i)(A)-(C) of the Ordinance. However, Ricco relies on s.178(1)(a) of the Ordinance as an available means of service. 41.Section 178(1)(a) materially provides that:
42.Given that s.327(4)(a) refers specifically to an “unregistered company”, the question is whether this provision is meant (as the Company contends) to limit the means of serving statutory demands on unregistered companies to the ones it lists. 43.In my judgment, the answer is no. Properly construed, s.327(4)(a) provides for additional – not exclusive – means of service on unregistered companies for winding-up proceedings under the Ordinance. To start with:
44.By these lights, an example of an “exception” mentioned within s.327 is s.327(2), which specifically prohibits the voluntary winding-up of an unregistered company. 45.In contrast, s.327(4) should in my view be read as providing within the meaning of s.327(1) (and s.331) “additions” to earlier provisions in the Ordinance as to service of statutory demands:
46.The judgment of Kwan J in Re KTH Recovery Fund II Ltd [2007] 2 HKLRD 288 further supports this conclusion:
47.At the hearing, the Company sensibly did not dispute that, if relevant in law, the requirements of s.178(1)(a)(i) have been met on the facts of this case. In my view, they plainly have been. Timing of the Petition 48.The Company’s timing challenge remains. The Company’s case here is that, even assuming valid service of the Demand, the Petition was prematurely presented on 21 August 2018. 49.The Company’s position is that s.327(4)(a)(ii) (and similarly s.178(1)(a)(ii)) requires the company served with a demand to be given 3 weeks to pay the sum before it can be deemed insolvent, and in calculating the 3-week period, “fractions of a day should be ignored”: In re Lympne Investments Ltd [1972] 1 WLR 523 at 525F-H (Megarry J as he then was, referring to s.223 of the Companies Act 1948). 50.Applying these principles, the Company contends that 21 days did not pass between service of the Demand and presentation of the Petition. In particular:
51.In my judgment, the Company’s argument is unsound:
52.It follows that, contrary to the Company’s case, the Demand and the Petition have been properly served and presented. C4. The Collateral Purpose Ground 53.The second aspect of the Company’s case on abuse of process is its claim that the Petition is being “misused by the Petitioner to obtain some collateral advantage in [the HCA Proceedings]”.[9] The HCA Proceedings 54.Ricco commenced HCA 1856/2016 the same day as the HCMP Proceedings, claiming against Jimmy’s estate as 1st defendant and the Company as 2nd defendant for debts due and owing to Ricco. 55.Ricco’s case is that the debts essentially consist of (1) interest-free loans of over HK$3m made by Ricco (then controlled by Madam Lui and Jimmy) for Jimmy’s medical expenses following his cancer diagnosis in 2012; and (2) another loan account maintained with Ricco in favour of the Company when it was owned by Jimmy totalling about HK$7.1m. Of the latter amount, HK$7m represented the loan for the Allotment, for which Ricco gave credit after the Allotment was set aside in the HCMP Proceedings. 56.While both Jimmy’s estate and the Company deny their indebtedness, neither have brought any counterclaim in the action. 57.HCA 1858/2016 is a third-party action instituted on 15 July 2016 by Madam Lui personally (not Ricco) against Jimmy’s estate as 1st defendant and the Company as 2nd defendant. 58.Madam Lui’s essential case is that:
59.Madam Lui claims against Jimmy’s estate for the repayment of the HK$1.5m loan and against the Company for declarations that the Company’s shares in Ricco and First Top are held on trust for her absolutely. 60.Jimmy’s estate denies the claimed indebtedness to Madam Lui and her beneficial ownership of the relevant First Top shares. By counterclaim it alleges that Jimmy (now his estate) and Madam Lui should beneficially own 85% and 15% of the issued share capital of Ricco such that, after the Allotment was cancelled in the HCMP Proceedings, 85% of the 1,500,000 shares in Ricco registered in Madam Lui’s name is held on trust for Jimmy’s estate.[10] 61.In October 2018, Madam Lui filed a security for costs application against the Company in HCA 1858/2016 on the basis that the Company was counterclaiming against her in respect of her shares in Ricco. In response, the Company claimed in correspondence that it was not making any counterclaim in the proceedings. The Defence and Counterclaim was then further amended to drop the counterclaim against Madam Lui. Leave was later granted to Madam Lui to withdraw her security for costs application. Absence of abuse 62.On the facts and evidence before me, I find no bad faith or improper purposes amounting to abuse of process by Ricco. 63.In particular, I do not accept the claim that Ricco has brought the Petition to gain some improper advantage in the HCA Proceedings:
64.The Company contends that the HCA Proceedings are related to and determinative of Ricco’s composition. However, as Ms Law for Ricco points out, irrespective of who the ultimate beneficial owners of Ricco are, and regardless of the proportion of any such ownership, the debt due and owing to Ricco under the Costs Order remains indisputable. 65.In the circumstances, there is no proper basis for striking-out or staying the Petition on abuse of process grounds. D. CASE MANAGEMENT STAY? D1. Principles 66.The Court has the inherent jurisdiction to regulate its own procedure, including a wide discretion to stay or adjourn proceedings: High Court Ordinance (Cap. 4), s.16(3); Rules of the High Court, O.1B, r.1(2)(e). 67.In discharging its case management function, the Court will have regard to the underlying objectives set out at O.1A, r.1 of the Rules of the High Court, which include cost-effectiveness of procedure, reasonable proportion and procedural economy in the conduct of proceedings, and fairness between the parties. 68.In Linfield Ltd v Taoho Design Architects Ltd[2002] 2 HKC 204 at §§12-14, Ma J (as he then was) noted that where a stay is sought in view of concurrent proceedings involving the same or a similar subject matter and identical parties, the key principles approximate those in lis alibi pendens situations. In particular:
69.Ma J (as he then was) further noted at §16 of Linfield that for multiple proceedings involving the same or similar issues, but different parties, it is neither desirable nor possible to stay any proceeding pending resolution of others. That is so despite the risk of inconsistent findings because the determination of issues in proceedings between different parties would not bind other parties in separate proceedings. D2. Stay unjustified 70.At the hearing, the Company’s case for a general case management stay was only faintly pressed. 71.In my assessment, staying the Petition on such grounds is plainly unjustified, particularly given:
72.For its part, Ricco emphasises that:
73.I think there is force in Ricco’s points. Taking these together with the other highlighted aspects of this case, I dismiss the Company’s application for a case management stay. E. CONCLUSION AND DIRECTIONS 74.The Company’s Summons is dismissed with costs payable forthwith (before the substantive hearing of the Petition) with certificate for counsel. 75.Moving forward, as proposed by Ms Law for Ricco and uncontested by Mr Leung for the Company, I direct that:
76.I thank Mr Leung and Ms Law for their able assistance.
Ms Jacqueline Law, instructed by T C Foo & Co, for the petitioner Mr Dan Leung, instructed by Gary K W Tam & Co, for the respondent Official Receiver was not represented and absent from the hearing [1] Subsequently amended on 2 January 2019. References to the Petition in the remainder of this judgment are to the Amended Petition. [2] Dated 26 July 2018. [3] The Company’s Skeleton Submissions §25. [4] The Company’s Skeleton Submissions §26. [5] Ibid. [6] The Company’s Skeleton Submissions §5(1). [7] P.504 under “(2) Striking out or amendment”. [8] The Company’s Skeleton Submissions §17. [9] The Company’s Skeleton Submissions §25. [10] Or the Company, as originally pleaded before re-amendment of the Defence and Counterclaim. [11] The Company’s Skeleton Submissions §26. |
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