Golden Easy Investments Ltd v. Global Way Engineering Ltd
Read the full judgment text of LDPE 1416/2024 on BabelCite. This LDPE judgment was delivered on 25 October 2024.
1. By a Notice of Application (Form 22) filed to the Lands Tribunal (“the Tribunal”) on 3 September 2024, the Applicant sought recovery of possession of Room 1713, 17/F, Wellborne Commercial Centre, 8 Java Road, North Point, Hong Kong (“the Property”) on the ground that a tenancy of the Property granted to the Respondent had expired on 31 August 2024 (“the 2022 Tenancy”) and that in addition, the Respondent had failed to pay the rent reserved in the 2022 Tenancy for the period since 1 May 2024.
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LDPE 1416/2024 [2024] HKLdT 88 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION APPLICATION NO. LDPE 1416 OF 2024 ________________ BETWEEN
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___________________ JUDGMENT ___________________ Background 1.By a Notice of Application (Form 22) filed to the Lands Tribunal (“the Tribunal”) on 3 September 2024, the Applicant sought recovery of possession of Room 1713, 17/F, Wellborne Commercial Centre, 8 Java Road, North Point, Hong Kong (“the Property”) on the ground that a tenancy of the Property granted to the Respondent had expired on 31 August 2024 (“the 2022 Tenancy”) and that in addition, the Respondent had failed to pay the rent reserved in the 2022 Tenancy for the period since 1 May 2024. 2.The 2022 Tenancy referred to was attached to the Notice of Application. It was in Chinese and dated 11 August 2022 whereby the Applicant let the Property to the Respondent for a term of two years commencing from 1 September 2022 to 31 August 2024 at a monthly rent of $11,000 inclusive Government rent, rates and management fees. Also, according to clause 2 of the tenancy, when the tenancy was due to expire, if the tenant wished to continue, terminate or renew the tenancy, it should serve one month’s prior notice; otherwise, the tenant should compensate the landlord by one month’s rental.[1] 3.Attached to the Notice of Application are further grounds in support of the Application:
4.On 10 September 2024, the Respondent filed a Notice of Opposition. In gist, it stated that the 2022 Tenancy was superseded or renewed by the 2024 Tenancy entered on 14 June 2024 for the renewal term from 1 July 2024 to 30 June 2026 at a monthly rent of $8,000, with a rental deposit in the sum of $16,000. As a result, the rental deposit under the 2022 Tenancy in the sum of $22,000 was transferred to the 2024 Tenancy, with the remaining balance of $6,000 applied towards the rent for May and June 2024 (ie $3,000 each month). “Therefore, the Respondent was only required to pay the balance rent of $8,000 per month (ie $11,000 - $3,000) for May and June 2024.” 5.The Respondent averred that Auntie Daisy, being a director of the Applicant, had actual, apparent or ostensible authority to enter into the 2024 Tenancy for and on behalf of the Applicant:
Structure of the Applicant 6.When the hearing began on 3 October 2024, Mr Chu, Dennis Hon Wing (hereinafter referred to as “Mr Chu Junior”), on behalf of the Applicant, tried to explain the internal structure of the Applicant in the following. 7.The Applicant was incorporated on 27 May 1993 primarily to own/hold the Property which was purchased on 21 January 1994. The purchase money came from the inheritance Mr Chu Junior’s father (“Mr Chu Senior”) received from his parents. In late 1990s, Mr Chu Senior transferred the whole 4 shares of the Applicant to Mr Chu Junior, his sister (“Adeline”) and Auntie Daisy who was Mr Chu Senior’s second wife:
8.The Property has been the only asset of the Applicant and had been rented out since 1994 when Mr Chu’s Senior took all the rental income after the company business expenses were paid. 9.During that period, Mr Chu Junior admitted that he and Adeline did not get involved in the management of the Applicant or the renting out of the Property because they treated the latter as Mr Chu Senior’s property. Mr Chu Junior alleged that Mr Chu’s Senior was the key decision maker. 10.Mr Chu Junior also suggested that the rental income from the Property formed a significant part of the total income for Mr Chu’s Senior and Auntie Daisy to support their daily expenses. Death of Mr Chu’s Senior 11.However, Mr Chu’s Senior had a fall in July 2023 and owing to complications subsequent thereto, Mr Chu’s Senior was admitted to hospital and eventually passed away on 9 April 2024. Mr Chu Junior alleged that he himself, Adeline, Auntie Daisy, Mr Wong and other family members attended Mr Chu’s Senior funeral on 3 May 2024. 12.According to Mr Chu Junior, Adeline contacted Raymond Tong (“Raymond”), the Applicant’s company secretary, in April 2024 suggesting a meeting on 3 May 2024 at which Mr Chu Junior and Adeline asked Raymond to find a solicitor in Hong Kong to assist in the sale of the Property and the winding up of the Applicant so as to simplify the ongoing arrangements (because Mr Chu Junior and Adeline have been residing overseas). Whereas Mr Chu Junior found it difficult to get hold of Auntie Daisy as she rarely picked up calls, Raymond agreed to assist in communicating with Auntie Daisy in relation to the above especially when they can communicate in Cantonese[3]. Mr Chu Junior and Adeline suggested also to Raymond that prospective buyers of the Property prefer buying properties that are vacant as the prospective buyers are more likely to be purchasing for their own use rather than as an investment. Vacant premises also allows the real estate agents easier access to show it to prospective buyers. 13.As informed by Raymond, Auntie Daisy met Raymond on 11 June 2024 and was given notice that:
14.According to Mr Chu Junior, the following were discussed in the meeting:
Submission of Mr Chu Junior 15.Mr Chu Junior agreed that, as stated by the Respondent in the Notice of Opposition, it had been a tenant of the Property since 2017. Mr Wong of the Respondent is the son of Auntie Daisy and rented the Property because of the mother and son relationship between them. Mr Chu Junior submitted therefore the Respondent is not an independent third party in renting the Property from the Applicant. It is particularly dubious that Auntie Daisy and Mr Wong entered into the 2024 Tenancy three days after Auntie Daisy’s meeting with Raymond. 16.Mr Chu Junior submitted further that Mr Chu Senior had always been the key decision maker. According to him, Mr Wong knows quite well that Auntie Daisy did not in the past make decisions on rent and tenancy unilaterally. As the rental income from the Property bears a significant portion of Mr Chu Senior’s and Auntie Daisy’s income, Mr Chu Senior would not have agreed to a rent at below market rent. Mr Chu Junior submitted that this is evidenced by the fact that the 2022 Tenancy was at $11,000 which should be the prevailing market rent as well.[8] The rental income is the only income of the Applicant. 17.Mr Chu Junior also submitted that the timing of Auntie Daisy signing the 2024 Tenancy on behalf of the Applicant three days after being told not to do so is dubious:
18.Mr Chu Junior alleged further irregularity arising from the rental arrangement in May and June 2024. He submitted that the rent for May and June 2024 were due on the 1st day of the month whilst the 2024 Tenancy was signed on 14 June 2024. There was no legal or contractual basis for the tenant to pay $8,000 per month (instead of $11,000 as reserved in the 2022 Tenancy). Additionally, there are no terms in the 2024 Tenancy that state the Respondent was allowed to pay $8,000 for May and June, and to use $6,000 from the deposit to pay the rental for May and June 2024. There is no evidence that this was agreed at all. 19.Mr Chu Junior summarized his position as follows that Mr Wong has actual and apparent knowledge that Auntie Daisy had no authority to sign the 2024 Tenancy:
Respondent’s Submission 20.Mr Tang Tim Sik (“Mr Ng”) of Messrs Ng & Co, Solicitors acted on behalf of the Respondent. He repeated that in the captioned case, the thrust of the dispute is whether the Respondent can rely on any actual, apparent or ostensible authority of Auntie Daisy to enter into the 2024 Tenancy for and on behalf of the Applicant. Whereas the Respondent had been the tenant of the Property since 2017, all the previous tenancy agreements were signed by Auntie Daisy on behalf of the Applicant. He emphasized that Mr Wong was a third party outsider of the Applicant so that notwithstanding Mr Chu Junior mentioned all the internal affairs of the Applicant, Mr Wong had nothing to do with it save that he is the son of Auntie Daisy. Mr Wong is not a shareholder or director of the Applicant. 21.Mr Ng submitted that from Mr Wong’s prospective, when the Applicant offered the Property for him to rent, Mr Wong entered into the 2024 Tenancy just as a normal course of business. One cannot imputed any knowledge of the internal affairs of the Applicant to Mr Wong. Particularly, Auntie Daisy was and is still a director of the Applicant. Mr Wong would not be in a position to know whether any necessary resolution, if required, has been passed, or properly passed. Discussion 22.As submitted by Mr Ng, there are a lot of allegation or hearsay evidence in Mr Chu Junior’s submission. However, after taking instruction from the Respondent, Mr Ng was prepared not to cross-examine Mr Chu Junior or call any witness to rebut Mr Chu Junior’s submission or allegations. Thus, by virtue of section 10(6) of the Lands Tribunal Ordinance, Cap 17, the Tribunal may admit in evidence any statement, document, information or matter, whether or not it would otherwise be admissible in evidence and attach such weight to it as may be appropriate in the circumstances. 23.I consider the application of this section most apposite when Mr Chu Junior’s allegation or hearsay evidence is believable in view of his ability to refer to the exact timing or sequence of events. Certainly, Mr Chu Junior was prepared to produce those supporting evidence to vindicate his “allegations” but in any event, Mr Ng, after taking instructions from the Respondent, was not prepared to challenge them. 24.Deriving from Royal British Bank v Turquand (1856) 6 El & Bl 327, the Turquand’s rule is now also referred to as the 'indoor management rule':
25.This formulation of the rule in the 2nd edition of Halsbury's Law of England was cited with approval by Lord Simonds in Morris v Kanssen [1946] AC 459 at 474. Lord Simonds went on to explain (at 475) that it is a rule designed for the protection of those who are entitled to assume, just because they cannot know, that the person with whom they deal has the authority which he claims. In other words, they are not affected by what is called the "indoor management" of companies and are entitled to assume that the internal procedures of a company have been regularly conducted in the absence of actual notice to the contrary. 26.In Turquand, the question was whether the company was liable on a bond signed by two of its directors under the seal of the company. Under its deed of settlement, the directors were authorized to borrow on bonds such sums as should, from time to time, by a general resolution of the company, be authorized to be borrowed. The Court of Exchequer Chamber affirming the judgment of the Court of Queen's Bench held that the company was bound notwithstanding that no resolution authorized the making of the bond had been passed. Jervis CJ held (at 332):
27.In Trade Development Ltd v Bonance International Ltd [2001] 2 HKLRD 759, the judge below concluded that a document of a company is duly executed if it is affixed with the company's seal unless other matters are required by the articles of association. So far as the deeming provision was concerned, he observed that they were intended for the benefit of a company as well as those dealing with it. The judge went on to hold that there was no reason to conclude that the articles provided for a "reverse deeming", that is to say, that a document is deemed not to be properly executed when it had not been signed in the manner provided for. In any event, it would appear that the judge found that the deeming provision did not have the effect of imposing any other requirements such as signatures and the mere affixing of the seal was sufficient. He further concluded that the affixing of the seal alone was sufficient to trigger the presumption of due execution contained in section 23 of the Conveyancing and Property Ordinance, Cap. 219. 28.Apart from the Turquand’s rule, the Court of Appeal also referred to Northside Developments Pty Ltd v Registrar General [1990] 170 CLR 146; [1993] ALR 385 by the Supreme Court of New South Wales where Article 56 of the articles of association provided that:
29.In this Australian case, a mortgage was executed under seal of the company by RS, a director. The mortgage instrument also showed the signature of RS's son, GS, who purportedly signed as "company secretary". Whilst RS was indeed a director of Northside, GS was not the secretary of the company. The appointed secretary had resigned his office in November 1979. He had sent the company seal to the solicitors then acting for RS. They in turn had obtained the certificate of title to the land which represented the sole significant asset of Northside. Neither of the other directors knew of or was involved in the appointment of GS as "secretary" of the company. A statutory notice of the change of company secretary was filed by RS. It was common ground that the appointment of GS as secretary was invalid under the articles of Northside. The mortgage was given to secure a loan which was for the benefit of a company controlled by RS. The loan had nothing to do with Northside and was not authorized by it. 30.Then the issue in this Australian case was the extent to which the mortgagee was obliged to go behind the seal and signatures of the apparent officers of the company. On the face of the instrument, the document was perfectly regular. The issue posed was whether the validity of the mortgage instrument was fatally flawed because, as a matter of law or fact, the mortgagee was not entitled to rely upon the seal and the signatures appearing on it. It therefore raised the question of the scope and operation of the indoor management rule. After an exhaustive review of the Turquand's rule, McHugh JA held (at 564):
31.The transaction in question was one which Northside might have entered into by the affixing of its seal together with the signature of a director and the company secretary or a person authorized by the directors to sign. RS was a director and therefore a person who might have been authorized to affix the seal of Northside and sign the mortgage. Had GS been appointed secretary, he too was a person who might have been authorized to sign. Accordingly, he ruled that that indoor management rule applied. 32.In spite of the above, the Court of Appeal in Trade Development came to an opposite view. While on the face of the instrument in the Australian case, the document was perfectly regular. This is not so in Trade Development. The signature here was that of a director but that itself was not sufficient to trigger the deeming provision. If the person appending the signature had been described as a person "duly authorized by the board", Turquand's rule would have applied. But that was not the case. Any person, whether or not a director, could have been authorized by the board but (as per Le Pichon JA as she then was at p 775J): “there is no presumption that if the signatory is a director, he must have been duly authorized by the board. What the position would have been had there simply been a signature without the description "director" is a question that does not arise for decision.” 33.In the meantime, the limitation on the scope of the indoor management rule described by Dawson J in the Australian case above in the following passage of his judgment was cited with approval by Lord Neuberger of Abbotsbury NPJ in the Court of Final Appeal of Hong Kong in Akai Holdings Ltd v Kasikornbank Public Co Ltd [2010] HKCFA 64; [2011] 1 HKC 357, para 59:
34.The Trade Development decision was followed in Liu Jun v China Well Properties Limited, DCCJ 2759/2011 (unreported, dated 23 October 2015) where a preliminary agreement for sale and purchase was signed by one of the two directors but not the other. At §49, Deputy District Judge Mak (as he then was) was of the view that: “To establish the intention of the company, a board resolution of the directors is essential, without which, the signature of the director on the agreement was signed in escrow only.” He, referring also to Yip Lai Fong v Sin Tung Hng [2004] 3 HKC 153 at p160I, remarked that the mere signature of one of the directors, without more, would still be insufficient to trigger the Turquand's rule. 35.Lately in 祥雲大廈業主立案法團 訴 港健康復院有限公司及另一人， LDBM 190/2021 (unreported, 20 September 2024), it appears that the Tribunal had come to the same view when the retiring Chairlady of the Incorporated Owners, without authorization of the management committee, signed a no-objection letter on behalf of the Incorporated Owners: “法律上，本席認為，雖然何在換屆前是法團的主席，在沒有第12屆管委會的有效授權下，她是完全沒有實在或表面權限簽發該不反對通知書。儘管該不反對通知書是寫在法團信紙上，及蓋上法團的印章，都是無關宏旨的。”[10] 36.In the present case, on the basis of Mr Chu Junior’s submission or evidence which is not rebutted or challenged, Auntie Daisy had been told specifically in the meeting on 11 June 2024 not to negotiate a new tenancy agreement with her son to avoid a conflict of interest. Any authority that Auntie Daisy that may have to sign new tenancy agreement had been revoked. And in view of the intimate mother and son relationship between Auntie Daisy and Mr Wong, it is hard to believe that Mr Wong had no idea of what had happened in the meeting on 11 June 2024. On the balance of probabilities, I find Auntie Daisy and Mr Wong not “persons contracting with a company and dealing in good faith”. Neither was Mr Wong “an outsider, in the absence of anything putting him upon inquiry”. In this regard, I am further persuaded by Mr Chu Junior’ submission that it was a dubious coincidence that the 2024 Tenancy was signed on 14 June 2024, that is three days after the meeting between Raymond and Auntie Daisy, and much well ahead of the expiry of the 2022 Tenancy on 31 August 2022. I agree with Mr Chu Junior that there are no terms in the 2024 Tenancy that state the Respondent was allowed to pay $8,000 for May and June, and to use $6,000 from the deposit to pay the rental for May and June 2024. As well, as pointed out by Mr Chu Junior, the reduction in monthly rental from $11,000 to $8,000, ie up to 27% appears excessive and suggests certain irregularity. Corporate Veil 37.As regards Mr Ng’s submission that the Respondent has a separate legal entity separated from that of Mr Wong, this is based upon the fundamental principle in Salomon v Salomon [1897] AC 22 as explained by Lord Sumption in the UK Supreme Court in Prest v Petrodel Resources Ltd [2013] 2 AC 415. 38.In spite of this, there is a well-established principle that the court is justified in piercing the corporate veil if there is an abuse of the separate corporate legal personality. In Prest, Lord Sumption said this at §27:
39.In the following paragraphs, §§28 – 34 Lord Sumption reviews the authorities and comes to this conclusion in §35:
40.In the present case, the Respondent is merely the alter ego of Mr Wong. A corporate, could not act by itself, but had to act through a natural person. I am not suggesting that the signing the 2024 Tenancy was illegitimate per se but this is a good prima facie case for piercing the corporate veil when this case resembles some classic features of a fraudulent breach of trust in obtaining property. For instance, in Trustor AB v Smallbone & Others [2001] 1 WLR 1177, a company, Introcom (International) Ltd, was simply a vehicle the managing director of Trustor used for receiving money from Trustor and that the payments to Introcom "were unauthorised and involved an inexcusable breach of his duty as managing director of Trustor”. The defendant pleaded that Introcom had been formed in connection with an earlier scheme, having no connection with Trustor, and that it was a genuine company having its own separate existence. But it cut no ice with Sir Andrew Morritt VC, who nonetheless held that the corporate veil could be pierced. At §23, the Vice Chancellor said :
41.This was followed by Ben Hashem v Ali Shayif [2008] EWHC 2380 (Family), Munby J (as he then was) stated at §164:
42.Equity treats as done what should have been done. 43.Notwithstanding the above, the so-called illegitimate element may not even be necessary. In Smith, Stone & Knight Ltd v Birmingham Corporation [1939] 4 All ER 116, it was held that a subsidiary company without a lease operated as the servant of a parent company owning the premises. In DHN Food Distributors Ltd v Tower Hamlets Borough Council [1976] 1 WLR 852, three companies, having no real separate identity, were treated by the English Court of Appeal as one and were able to claim compensation accordingly. At p. 860, Lord Denning speaking of the wholly-owned subsidiaries in that case and of the parent company said: “These subsidiaries are bound hand and foot to the parent company and must do just what the parent company says”. Goff LJ, at p 861, referred to the fact in that case that: “the two subsidiaries were both wholly owned, further they had no separate business operations whatsoever”. 44.In the decision of the House of Lords in Woolfson v. Strathclyde Regional Council [1978] UKHL 5, [1978] 2 EGLR 19, Lord Keith of Kinkel delivered the only reasoned speech, with which Lord Wilberforce, Lord Fraser of Tullybelton and Lord Russell of Killowen agreed. In reference to the decision of the Court of Appeal in DHN Food Distributors, Lord Keith said, at 161:
45.Despite the above, the English Court of Appeal in VTB Capital Plc v Nutritek International Corp & Others [2012] EWCA Civ 808 was, at §49, of the view that that statement recognised, therefore, that there is one (and apparently only one) special case justifying a court in looking behind a company's corporate façade. The English Court of Appeal also found that Lord Keith in Woolfson went on to distinguish DHN Food Distributors on its facts, so his observation about it may be obiter.[11] However, Lord Keith’s statement was quoted and relied on, and the existence of that special case was expressly recognised, in the English Court of Appeal's judgment in Adams and Others v. Cape Industries Plc and Another [1990] Ch 433, at 539D to E, although in that case the court declined to pierce the veil. The English Court of Appeal in VTB Capital did not therefore consider that it was open to it to question the existence of the "veil piercing" principle. DHN Food Distributors is not overruled. Conclusion 46.In conclusion, I consider the 2024 Tenancy invalid and not binding on the Applicant. Thus whereas the 2022 Tenancy has already expired on 31 August 2024, I make the following order:
The applicant, not legally represented, represented by Mr Chu, Dennis Hon Wing appearing in person The respondent, represented by Mr Tang Tim Sik of Messrs Ng & Co, Solicitors [1] The Chinese original reads as: 「…… 租約期滿， 住客如繼續租賃或退租， 須於壹個月之前以書面通知 （續租則另訂新租約方生效力）， 否則租客須補償一個月租金給業主。……」 [2] $3,000 x 4 months since May 2024 = $12,000. [3] Mr Chu Junior only spoke English during the hearing on 3 October 2024. [4] Mr Chu suggested that this email could be produced if necessary. [5] Neither Mr Chu Junior nor Raymond knew the particulars of the 2022 Tenancy which in reality commenced rather on 1 September 2022 and expired on 31 August 2024. [6] Ditto. [7] That is Mr Chu Junior. [8] Assuming the Property is a grade B office unit, the rental index as published by the Rating and Valuation Department as at August 2022 was 233.3 and that as at June 2024 was 225.5, ie a drop of 3.3%. [9] “Robert” was the English name of Mr Chu Senior. [10] See §150 of the Judgment. [11] In Woolfson v Strathclyde Regional Council [1978] UKHL 5, [1978] 2 EGLR 19, the House of Lords distinguished the DHN case narrowly upon its own special facts. In DHN, the company that owned the land was the wholly owned subsidiary of the company that carried on the business. The latter was in complete control of the situation as respects anything which might affect its business, and there was no one but itself having any kind of interest or right as respects the assets of the subsidiary. In Woolfson, on the other hand, the company that carried on the business, Campbell, has no sort of control whatever over the owners of the land, Solfred and Woolfson. Woolfson holds two-thirds only of the shares in Solfred and Solfred has no interest in Campbell. Woolfson cannot be treated as beneficially entitled to the whole share-holding in Campbell, since it is not found that the one share in Campbell held by his wife is held as his nominee. In my opinion there is no basis consonant with principle upon which on the facts of this case the corporate veil can be pierced to the effect of holding Woolfson to be the true owner of Campbell's business or of the assets of Solfred. |
Cases cited in this judgment