Bold Shine Investment Ltd v. Zheng Deli Aka Cheang Lei and Cheang Tak Lei

CAMP 100/2024 and CAMP 101/2024

(Heard together)  [2024] HKCA 767

On an intended appeal from [2024] HKCFI 1470

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO.100 OF 2024

(ON AN INTENDED APPEAL FROM HCAL NO. 1676 OF 2011)

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BETWEEN

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO.101 OF 2024

(ON AN INTENDED APPEAL FROM HCAL NO. 1867 OF 1999)

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BETWEEN

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(Heard together)

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J U D G M E N T

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Hon Chu VP (giving the Judgment of the Court):

Introduction

1.There are before the court two renewed applications for leave to appeal issued by the plaintiff in HCA 1867/1999 and HCA 1676/2011 (collectively “the Actions”), which had been ordered to be tried together.  We will deal with the two applications together as the issues and arguments involved in the two applications are identical.

2.By the two applications, the plaintiff seeks to appeal the decision of Deputy High Court Judge Tsui (as Tsui J then was, “the Judge”)  made on 21 May 2024[1], refusing the plaintiff’s application that the defendants in the Actions be disallowed from challenging the plaintiff’s authority to sue in the trial of the Actions.  Leave to appeal was refused by the Judge on 22 May 2024.  The trial of the Actions has since commenced.  The evidence had concluded and the parties are due to return to the Judge for closing submissions on 29 August 2024.

3.Having considered the papers filed in the applications and the parties’ written submissions, we consider it is appropriate to determine the applications on paper without an oral hearing pursuant to Order 59 rule 2A(5)(a)  of the Rules of the High Court, Cap. 4A.

HCA 1867/1999 and HCA 1676/2011

4.The defendant in HCA 1676/2011 (“Zheng”)  and the defendant in HCA 1867/1999 (“Tsui”)  are husband and wife. 

5.The dispute in the Actions concerns the ultimate ownership of certain property held by the plaintiff.  In a nutshell, the plaintiff’s case is that the plaintiff (which was used to acquire the property in question)  was beneficially owned by certain state-owned entities.  Zheng and Tsui, on the other hand, contend that the plaintiff and also the property belong beneficially to the shareholders of the plaintiff, which include Zheng, who was also a director at all material times.  It seems to us that it is common ground that the primary issue in the Actions is whether the shares in the plaintiff, and in turn the property in question, is beneficially owned by Zheng or held by him on trust[2]. We shall in this judgment refer to this issue as the “Trust Issue”.

6.It does not appear to be in dispute that Zheng and a Mr Luo Ping Kwan (“Luo”)  became the shareholders of the plaintiff in 1992 and Zheng was until 18 April 2002 a director of the plaintiff.  The record in the Company Registry shows that Zheng ceased to be a director as from 18 April 2002.  Zheng and Tsui contend that the removal of Zheng was invalid.  They have pleaded in their respective Amended Defence and Counterclaim that there was an unlawful allotment of new shares in 1998, an invalid appointment of a new director in 2000 and that Zheng was invalidly removed as a director in 2002[3].  Their case is that Zheng and Luo are the only two directors of the plaintiff.

7.As part of their defence[4], Zheng and Tsui have also raised a challenge that the plaintiff has no authority to commence the Actions against them in the absence of any approval or resolution by the board of directors, which comprised only Zheng and Luo.  In this judgment we shall refer to this pleaded challenge as the “Authority Issue”.  

8.At a case management hearing on 25 April 2022, Au-Yeung J directed that (1)  Zheng and Tsui should within 28 days take out an appropriate application to resolve the Authority Issue; and (2)  the plaintiff should identify the relevant paragraphs in the pleadings pertaining to the Authority Issue (“Au-Yeung J’s Directions”).

9.Subsequently on 16 May 2022, the solicitors acting for Zheng and Tsui wrote to Au Yeung J requesting that new or varied directions be made such that “the issue of authority to sue be left for decision by the trial judge at the trial”, on the ground that the Authority Issue depended entirely on the question of beneficial ownership of the plaintiff (i.e. the Trust Issue)  which could only be resolved after trial.

10.On 25 May 2022, Au-Yeung J directed that unless the plaintiff had other submissions to make by noon of 2 June 2022, it might be appropriate to revoke her previous directions, noting that one of the objectives of case management was to avoid satellite litigation.

11.By letter dated 1 June 2022, the plaintiff’s solicitors responded by pointing out that a challenge to authority to sue should be made before the trial and could not be, or was not a matter of defence to be, dealt with at trial.  The letter went on to say that, to avoid unnecessary argument, the plaintiff was prepared to appoint a shareholder to make an application to join in the proceedings under section 733 of the Companies Ordinance Cap. 622.  The plaintiff asked for 28 days to make the application and suggested that pending the application the time for the defendants to take out an appropriate application as previously ordered be extended so as to preserve the parties’ position until the issue was sorted out.  The plaintiff’s request and suggestion were approved by Au Yeung J on 13 June 2022.

12.However, neither the plaintiff nor the defendants took any step or made any application to address the Authority Issue. 

13.At the pre-trial review (“PTR”)  on 9 April 2024, the Judge raised with the parties the outstanding Authority Issue.  After hearing counsel’s submissions, the Judge ordered that Au-Yeung J’s Directions shall cease to have effect, accepting the defendant’s submission that the Authority Issue essentially “rise and fall” with the substantive claim and there was thus no need for the defendants to take out a separate application to resolve the Authority Issue before the trial.  Instead, the defendants could simply raise the Authority Issue at the trial should they wish to pursue it. Further, the Judge was under the impression that the plaintiff’s counsel agreed to this position[5].

14.The trial went before the Judge on 21 May 2024. At the outset, leading counsel for the plaintiff, Mr Chain (who did not appear at the PTR), sought a ruling from the Judge that the defendants be disallowed from challenging the plaintiff’s authority to sue in the trial.  He referred to various authorities[6] and argued that, as a matter of law, a challenge to authority to sue must be made and determined before trial and could not be raised as a defence at the trial.  It was pointed out that if the plaintiff did not have authority to sue, the Actions would come to an end and there would be no trial and no decision on the substantive merits.  If the challenge to authority was allowed to be an issue to be determined together with the substantive issues in the trial, and if the Judge were to find against the plaintiff on the substantive issues and in turn the Authority Issue, the findings on the substantive issues would not bind the plaintiff as the court did not have the proper plaintiff before it, and the trial of the claim would amount to a waste of time and resources.

15.Mr Chain also sought to argue that the plaintiff’s counsel at the PTR did not in fact agree or intend to agree to the Authority Issue being determined together with the substantial issues in the trial, and that even if he had made a concession in this regard, it was a concession wrong in law.

16.Counsel for Zheng and Tsui, Mr Wong (who also attended he PTR), on the other hand, argued that whether the Judge should allow the Authority Issue to be raised and determined at the trial was simply a rule of practice and not a rule of law.  It was said that there was no absolute bar to the Judge exercising her discretion to allow the issue to be dealt with in the trial so as to save time and costs[7] given the overlap of disputes between the Authority Issue and the substantial issues.  

17.The Judge refused the plaintiff’s application and ordered the plaintiff to bear the costs of the first day of the trial.  In gist, the Judge considered that the challenge to authority to sue is primarily premised on case management considerations.  The Judge had regard to the procedural history of the case, the agreement of counsel at the PTR, and the overlapping factual disputes between the Authority Issue and the Trust Issue, and concluded that she was entitled to exercise her discretion to allow the challenge to the plaintiff’s authority to sue to be raised and determined in the trial of the Actions.

18.The plaintiff applied for leave to appeal against the Judge’s decision on the second day of the trial (i.e. 22 May 2024). The Judge refused leave with costs against the plaintiff[8], reiterating (at [7])  that the authorities did not establish a strict and immutable law which had the effect of depriving the court of its case management power.

19.As noted above, the trial of the Actions has proceeded.  Evidence had closed and parties will be making closing submissions on 29 August 2024.

The present applications

20.By two summonses filed on 5 June 2024, the plaintiff commenced these proceedings to renew its applications for leave to appeal against the Judge’s decision.  The intended grounds of appeal in the draft notice of appeal (“DNOA”)  for both applications are identical.  In broad terms, the plaintiff argues that:

(1)  The Judge was wrong as a matter of law to hold that it was within the court’s case management power to allow the defendants to challenge the plaintiff’s authority to sue in the trial when, as the Judge accepted, the issue cannot be raised as a defence (paragraph 1 of the DNOA).

(2)  The Judge was wrong to rely on the concession made by the plaintiff’s counsel at the PTR (paragraph 2 of the DNOA).

(3)  In revoking Au Yeung J’s Directions, the Judge’s order made at the PTR had only removed the time limit imposed by Au Yeung J such that the defendants could still have made an application to raise the challenge to the plaintiff’s authority to sue (paragraph 3 of the DNOA).  

(4)  Even if the Judge did have a discretion, she erred in the exercise of the discretion in that she failed to consider that in the circumstances of the present case, (a)  allowing the defendants to raise the authority challenge in the trial and having the Authority Issue and the Trust Issue heard together would serve no useful purpose; (b)  a ruling that the plaintiff had no authority to sue would result in the plaintiff not properly before the court and not bound by the findings on the merits of the claims; and (c)  not allowing the authority challenge to be made in the trial would not cause any prejudice to the defendants (paragraphs 4 to 7 of the DNOA).  

Principles on challenging a party’s authority to sue   

21.At the heart of the plaintiff’s intended appeal and the submissions in support is the legal principles underlying a challenge to a party’s authority to sue and the proper procedure and approach to it.  The law in this regard is not controversial and is well-established.

22.Whether a plaintiff has authority to sue is an important question of practice and procedure based on settled legal principles: Richmond v Brandon & Sons [1914] 1 Ch 969 at 973.  The manner in which a challenge to authority to sue is to be made and the court’s approach to it is an aspect of procedural law.  

23.The leading authority on the topic is Russian Commercial and Industrial Bank v Comptoir d’Escompte de Mulhouse [1925] AC 112.  In that case, the defendants by their defence disputed the authority of a London branch manager to bring the action in the name of the plaintiff, a Russian bank which had been taken over by the Soviet Government. The House of Lords held that the defendants failed to prove that the plaintiff had ceased to exist.  The House of Lords further rejected the argument that even assuming the plaintiff still had a corporate existence, the manager’s authority must have been deemed to be revoked, holding that the defendants could not raise by way of defence the authority of the branch manager to commence the action in the name of the bank.  Viscount Cave held (at p. 130)  that:

“My Lords, I do not think that it is open to the defendants to raise this question by way of defence to the action. If the defendants desired to dispute the authority of Mr. Jones to commence these proceedings in the name of the plaintiff company, their proper course was to move at an early stage of the action to have the name of the company struck out as plaintiff and so to bring the proceedings to an end.”

24.The above dicta of Viscount Cave has been widely applied.  In Airways Ltd v Bowen [1985] BCLC 355, the defendants who were the plaintiff’s directors disputed the plaintiff’s authority to sue on the ground that there was no board resolution authorising the bringing of the proceedings in the company’s name.  In upholding the defendants’ appeal against the refusal of their striking out application, Kerr LJ who gave the judgment of the court held (at 359a to e)  that an objection that an action in the name of the company was not properly constituted for want of authority could not be raised by way of defence but must be raised at the outset by an application to have the name of the company struck out as plaintiff, and if not raised at the outset, such an objection might also be raised if it came to the attention of the court or the defendant in the course of the proceedings and, where appropriate, the action might be adjourned so that the issue might be tried as to the authorisation of the action:

“The important point made in that citation which the judge must have overlooked is that a contention that an action is not properly constituted, due to lack of authority from the named plaintiffs to bring it, is one which cannot be raised by way of defence. It must be raised at the outset, and it must therefore be dealt with at the outset. The only qualification is that even if it is not raised at the outset, but if it then comes to the notice of the court or of the defendants in the course of the proceedings, then it can still be raised as an issue at that stage, but not by way of defence to the action. In the present case it was properly raised at the outset. The judge should therefore have borne in mind that this issue had to be decided at the outset, subject only to the possibility of adjourning the application. Once the issue has been raised, it is, with respect, plainly wrong to decline to decide the issue on the ground that the rights and wrongs as to the control of the company and the propriety of the proceedings may be in doubt, and then to allow the action to go on by dismissing the application without having decided it on the merits. … If the application is dismissed, when it is either clear that the action has in fact been brought without authority or that it is at any rate doubtful whether it was brought with authority, and if the action is thereupon allowed to proceed, which is what the judge decided, then that must be a plainly erroneous conclusion. The reason is that the defendants will then never have any further opportunity of raising this issue, however well-founded their application may be.”

25.Kerr LJ went on (at 360c to 361e)  to highlight that once the action was found to have been improperly constituted due to want of authority, the action could not be allowed to proceed and must be brought to an end, and the judge fell into the error in thinking that he should not strike out the case unless it is plain and obvious:

“Once it is clear, as it was by these concessions, that the action was improperly constituted, this action could not be allowed to proceed. Whatever the form of the order made in that regard, whether the action is dismissed, struck out or stayed, the effect must be, in the words of Viscount Cave, that the proceedings must be brought to an end.”

“What [RSC Ord 18, r 19(1)(d)] deals with is striking out allegations in pleadings, whether by way of claim or by way of defence. In that regard it is of course a settled principle, which the judge applied in this case, but which was not relevant in the present context, that allegations in pleadings will only be struck out in plain and clear cases. The reason is that matters should not be struck out in limine if the factual or legal position is not clear, and where it is therefore right that the party wishing to rely on the pleaded allegation should have an opportunity of doing so at the trial of the action. Ex hypothesi, however, that cannot apply to an allegation that an action has been brought without authority, since it is settled law that this issue can never be raised again by way of defence in the action. … The judge therefore fell into the error of thinking that the decision which he had to make was in some way governed by the discretion which falls to be exercised when considering whether or not an allegation in a pleading should be struck out in limine under this rule, or whether it must be allowed to go to trial.”

“There could not be a clearer case than the present, once it had been conceded that the action was and remained improperly constituted and brought without authority. In those circumstances the judge should have granted this application at once, with the effect that the action would necessarily have come to an end. Nothing else was open to him on the facts of this case.”

“The only qualification, as I mentioned earlier, is that it is of course open to the court in appropriate cases to adjourn an application of this kind in order that an issue may be tried as to whether or not the proceedings were in fact brought with due authority. That might involve adjourning the action until after a shareholders' meeting had been held, or proceedings as to the right to call such a meeting had been determined, for the purpose of deciding whether the register, albeit presumed to be correct, in fact represents the true state of affairs concerning the identity of the directors and/or of the controlling shareholders.”

26.In circumstances where the issue of authority to sue involves disputes of facts that cannot properly be resolved on affidavit evidence, the proper course for the court hearing the application is to adjourn the hearing and give appropriate directions.  In Kammy Town Limited v Super Glory Corporation Limited (unreported)  HCA 3524/2003, 14 January 2005, the plaintiff was a private company beneficially owned by two brothers, CKW and HC, who had fallen out with each other.  The plaintiff sued the defendant for outstanding trading debts.  HC was a shareholder and director of the defendant.  The plaintiff claimed that HC in his capacity as the plaintiff’s director had previously consented to the proceedings against the defendant.  This was disputed by the defendant and its application to strike out the claim for want of authority succeeded before a Master.  On appeal, A Cheung J (as Chief Justice Cheung then was)  took the view that the defendant’s authority challenge was essentially a dispute of fact that could not be determined solely on the affidavit evidence.  He held that the challenge ought to be determined at a proper hearing with cross-examination of the deponents of the affidavits and after limited discovery of the relevant documents.  He therefore set aside the Master’s order and adjourned the defendant’s striking out application for trial with a stay of the proceedings in the action that were not pertinent to the determination of the striking out application.

27.The following passages in the Kammy Town (at [11], [14], [18] to [21])  are of particular relevance to the present applications:

“11. In short, a point on lack of authority must be taken by a defendant at the earliest opportunity. It should not be raised as a point of defence, for it is not a defence, and for that reason the matter should not be left for determination at trial. Furthermore, given the nature of the point, the matter should not be left to be determined at trial together with the substantive issues between the parties, the determination of which issues at trial would become a total waste of time and resources if the point on lack of authority should be upheld at the end of the day.”

“13. However, unlike an ordinary application to strike out a pleading, the present type of striking out applications inevitably requires a definitive determination by the court seised of the application on the point. In other words, either the action was authorised by the company or it was not. There is no halfway house. The point has to be decided according to the burden and standard of proof – the burden lies with those suing in the name of the plaintiff to prove authorization. Subject to any subsequent ratification (where necessary)  of the action by the company, the action will stand or fall depending on the court’s determination of the question of authority.

14. For those reasons, it is not appropriate for a court, seised of the application, to simply say on the affidavit evidence before it that it is not a “plain and obvious” case of a lack of authority, and therefore the application should be dismissed and the action allowed to proceed to trial. Rather, at the substantive hearing, the court has to see whether the objection raised by the defendant can be summarily disposed of on the affidavit evidence that has been placed before the court for the purpose, and if not, how the objection can be determined and give directions accordingly.”

“18. However, where the court is unable to decide the question of authority – which is in essence a question of fact (or maybe a mixed question of fact and law), the court should not dismiss the application (as would have been the case in an ordinary application to strike out a pleading), nor should it try to attempt the impossible by making a finding of fact on affidavit evidence without cross-examination. Instead it should adjourn the hearing and give appropriate directions for the determination of the objection at an adjourned hearing, such as the cross-examination of the deponents of the affidavits/affirmations that have been filed by the parties in relation to the objection.

19. As has been pointed out by Kerr LJ in Airways Ltd, one of the possible purposes of an adjournment of the hearing by the court seised of the application would be to allow a meeting of the company to be held to see if the commencement of the action would be confirmed or ratified by either the board or the shareholders (p. 361d to e). However, I do not agree that there Kerr LJ was setting out the only situation where the court, seised of the application, could properly adjourn the hearing. In fact, Kerr LJ expressly referred to the adjournment of the application “in order that an issue may be tried as to whether or not the proceedings were in fact brought with due authority” (p. 361d). In my view, if the court cannot decide the dispute of fact on paper, the proper course to take is to adjourn the hearing, with appropriate directions, to another date when oral evidence will be heard and tested.

20. In some cases, adjourning the hearing with a direction that a meeting of the shareholders be held to see if the company supports the litigation will be the wise course to take (Palmer’s at para. 8.803). But in other cases where there is a deadlock amongst the shareholders and it is alleged that there has been passed a resolution to sue prior to the deadlock, which has never been revoked since (particularly because of the deadlock), adjourning the hearing for the purpose of holding a shareholders’ meeting will not resolve the crucial question of whether there has indeed been made such an alleged resolution (that has never been revoked since).

21. In the authorities (and submission of counsel), there was some mention of the requirement for a “clear consent” (Daimler at p. 327)  and that the action should not be allowed to proceed if the authority to commence it is “doubtful” (Airways Ltd at p. 359 d/e). As regards the latter word, in my view, when properly understood, it simply means that if there is any real doubt about the authority to sue, the question must be resolved first, before the case should be allowed to proceed any further; in the determination of the question, the burden is on those suing in the name of the company to establish consent to the commencement of the action, on a balance of probabilities – if the standard of proof is not achieved, then there is no consent and the name of the company must be struck out and the action dismissed. Put another way, either there was authorization or there was not. Any adjective like “doubtful” merely places emphasis on the burden and standard of proof.”

28.Kammy Town demonstrates that even where the challenge to authority to sue involves substantial dispute of fact, the issue must still be determined first and before the case should be allowed to proceed further, even if this should necessitate an adjournment of the proceeding before the court.

29.The principles in Russian Commercial and Industrial Bank, Airways Ltd and Kammy Town were considered by this court[9] in Liquidation Committee of Foshan Hongda Development Ltd v East Legend Investment Ltd [2009] 1 HKLRD 169.  In that case, the defendant sought to strike out an action commenced by a Mainland state-owned enterprise for lack of standing to sue.  The plaintiff, who was the Liquidation Committee of the enterprise, applied to substitute itself as the plaintiff, whereupon the defendant withdrew the striking out application.  At the trial however, the defendant revived the challenge to the plaintiff’s standing to sue. The trial judge allowed the challenge to be made, but held that the plaintiff had the necessary standing and entered judgment against the defendant.   This court dismissed the appeal, holding that it was an abuse by the defendant to raise the issue of standing at the trial when as a matter of law it could not have been raised by way of defence and that the trial judge should not have allowed the issue to be reopened.

30.In giving the judgment of the court, Cheung JA summarised the relevant principles on the challenge on the lack of standing to sue after considering the decision in Russian Commercial and Industrial Bank as applied in Airways Ltd and Kammy Town as follows (at [18]):

(1)  The challenge cannot be raised by way of defence.

(2)  It must be raised at the outset or when it comes to the attention of the court or of the defendant in the course of the proceedings.

(3)  Once the issue has been raised it must be decided.

(4)  It would be wrong to allow the action to go on without deciding the issue of standing as the defendant will not have a further change to challenge the issue.

31.At [21] of the judgment, the underlying rationale and the importance of observing the above principles were explained:

“The crux of the principles on the challenge of the plaintiff’s standing to sue is the requirement of an early determination of the issue. This makes perfect sense because otherwise the plaintiff would be incurring substantial costs in the preparation of the case for trial which may be totally wasted if the issue was decided against him. If, as in this case, the contest is to be decided only at the beginning of the trial the rationale behind these principles would be defeated. In my view, the importance of the rationale had not been properly recognized in the present case when the Judge decided to deal with the issue at the trial.”

32.As Lam J (as Lam PJ then was)  observed in Chu Wai Chun Jackie v Lam Siu Kei (unreported)  HCAP 3/2009, 9 June 2010 at [14], although Foshan Hongda concerns a challenge on lack of standing to sue, on true analysis it is a case on the authority to pursue a claim of the company.  The term “standing to sue” used in the judgment should therefore be understood in that light.  It should also be noted that the principles summarised in the case stem from authorities dealing with authority to sue and are thus relevant and applicable to the present discussions.   

33.The procedure and the approach for a challenge on authority to sue is as much a question of practice and procedure as an aspect of procedural law founded on well-established legal principles. The legal principles discussed in the preceding paragraphs should guide the court when exercising any case management power.  Parties should also pay due observance to these principles and any agreement on how to deal with an authority challenge should not deviate from them.  

Our decision on the applications

34.In light of the legal principles discussed above, we can readily see the force of the plaintiff’s submissions in support of the present applications.  Having raised the authority challenge in their respective defence, Zheng and Tsui should have acted promptly to have the Authority Issue resolved and in any event before the Actions went to trial. The fact that the Authority Issue involves factual disputes and issues that overlap with the Trust Issue is no justification for not resolving the issue at an early stage of the proceedings and certainly affords no basis for leaving the challenge to be determined in the trial. 

35.In the first place, it is trite as a matter of law that challenge to a plaintiff’s authority to sue is not a defence.  It has no place in the trial to determine the merits of the substantive dispute. Secondly, authority to sue goes to the fundamental question of whether an action is properly constituted.  The challenge must therefore be made at the outset so that there can be an early determination of the issue to avoid further time and costs being incurred in futility. 

36.Thirdly, whether to mount a challenge to the plaintiff’s authority to sue is a matter for the defendant.  Hence, if, as in the case here, the issues involved in an authority challenge overlap with those involved in the substantive dispute, the defendant will have to decide and elect whether to make the authority challenge.  If he decides to make the challenge, he should do so before the action goes to trial.  If he does not make a challenge and allows the action to proceed to trial, he cannot raise the challenge and ask for it to be determined in the trial.  

37.Fourthly, there are a number of ways to make and resolve a challenge to authority to sue.  A defendant may apply to strike out the claim for want of authority, which can be determined on affidavit evidence or by way of a trial where there are factual disputes that cannot be resolved on affidavits.  A dispute over the plaintiff’s authority to sue may also be determined by way of a trial of preliminary issue.  If the dispute is determined against the plaintiff, the action will proceed no further as the proper plaintiff is not before the court.  Such a course will be appropriate where there are overlapping issues between the challenge to authority and the substantive dispute.

38.In the present case, the Authority Issue should not have been allowed to remain at large.  Zheng and Tsui should have been asked to elect whether to make the authority challenge.  They would be deemed to have given up the authority challenge if they did not make an appropriate application.  If they were to make the challenge, they could have applied for the Authority Issue to be tried as a preliminary issue.  The application could have been made as late as the PTR when the Judge enquired about the matter or even on the first day of the trial when the plaintiff objected to the Authority Issue being included in the trial.  If the late application was entertained, the scheduled trial dates could be utilised for the determination of the authority challenge. If the challenge succeeded, the Actions would come to an end.  If the challenge failed, the Actions would proceed to trial with the Trust Issue being determined in the light of the findings made in the preliminary trial on the Authority Issue, which would be binding on the parties.   

39.The defendant’s submission refers to [13] of the plaintiff’s submission where the plaintiff “accepts whether to allow a late authority challenge to be made, even one as late as the eve of trial, is a matter of case management and discretion”.  In our view, this part of the plaintiff’s submission when read together with the paragraphs preceding it simply means that whether to allow the defendant to raise the authority challenge at a late stage falls within the case management and discretionary power of the court.  It does not mean that if the challenge is raised, the court has a discretion of not deciding it immediately and leaving it to be dealt with in the trial as part of the issues of the action, specifically as a defence to the claim.  This is because such an approach is contrary to the authorities which have consistently emphasised that a challenge to authority to sue cannot be raised as a matter of defence to the action.  Just as it is not a matter of discretion for the court to decline to address the challenge on the ground that it is not plain and obvious, it is also not a matter of discretion or within the case management power of the court to defer dealing with the issue forthwith and to treat the lack of authority to sue as part of the defence to the action.

40.We would also add that we disagree with the view expressed in 釋照月v Secretary for Justice [2023] HKCFI 1392 that Kammy Town concerns only a rule of practice and not a rule of law.  A challenge to authority to sue of course arises in the context of the practice and procedure of court proceedings, but it is settled law that the issue can never be raised again by way of defence in the action.   

41.While we recognise the force of the plaintiff’s submissions on the applicable law, we cannot lose sight of the fact that the present applications were brought at a time when the trial had commenced and is currently underway.  An appellate court should not interfere, or be seen to be interfering, with the conduct of an ongoing trial.  The court has always been reluctant to entertain appeals brought against rulings and directions made in the course of a trial that has yet to conclude.   

42.But for the unusual situation here that the evidence had been adduced and concluded, we would have granted leave to appeal.  We expect due regard would be given to the legal principles set out above when the proceedings resumed later.  If the authority challenge continues to be pursued, submissions on this issue would have to be heard first and a determination be made on the challenge.  Depending on the outcome of that determination, the rest of the proceedings may or may not proceed further.   

43.For the above reasons, we refuse the plaintiff’s applications for leave to appeal.

44.As to costs, we would make no order on the costs of the two applications.  Principally, the arguments before the Judge, and in turn the present applications, would not have been necessary if Zheng and Tsui had at the outset made a proper application for the determination of the Authority Issue.  While the inactivity of the plaintiff after being given time by Au Yeung J to make an application under section 733 of the Companies Ordinance is unsatisfactory, this does not relieve the need for Zheng and Tsui to make an appropriate application to have the Authority Issue resolved before the trial. Further, they are plainly in error to insist on having the Authority Issue determined in the trial. 

Disposition

45.Accordingly, we make the following orders:

(1)  The plaintiff’s summonses are dismissed.

(2)  There is no order as to the costs of the plaintiff’s summonses.

(3)  No party may under Order 59 rule 2A(7)  of the Rules of the High Court  request the determination to be reconsidered at an oral hearing inter partes. 

Mr Benjamin Chain and Mr Tony H Chow, instructed by C L Chow & Mackison Chan, for the plaintiff in both actions.

Mr Damian Wong and Ms Jenny Lok, instructed by Chan, Lau & Wai, for the defendant in both actions.