Yip Lai Fong and Another v. Sin Tung Hing and Others

HCMP002423B/2002

HCMP 2423/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2423 OF 2002

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Coram: Deputy High Court Judge Barma, S. C. in Chambers

Dates of Hearing: 10 & 11 March 2003

Date of Ruling: 11 March 2003

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R U L I N G

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1.When this matter came on before me yesterday morning, there were before me some 12 summonses, and the trial of a number of issues which had been ordered to be tried as preliminary issues pursuant to the Order of Deputy Judge To dated 23 January 2003.

2.Four of the summonses sought various forms of injunctive relief. These had been issued relatively early in these proceedings, between June and August 2002.

3.A further eight summonses were issued by various parties during the course of last week. These included an application by one Xiu Wai Ping ("Xiu") to be joined as a party; an application by the 1st Respondent to have the question of whether Xiu had a one-third beneficial interest in the 2nd Respondent tried as an additional preliminary issue; applications by the 1st and 3rd to 5th Respondents to strike out the petition and be released from undertakings which they had given pending the resolution of the summonses seeking injunctive relief; applications by those Respondents to set aside or defer the trial of preliminary issues ordered by Deputy Judge To; an application by the Petitioners for leave to amend their Re-Amended Petition; and an application by the Petitioners for the appointment of a Receiver.

4.By these proceedings, the Petitioners have brought a petition under section 168A of the Companies Ordinance in respect of the 2nd Respondent, a company called Full Billion Shipping Ltd ("Full Bullion"), by which they seek an order requiring the 1st Respondent to sell his shares in Full Billion to them. It appears from the evidence that the 1st Petitioner and the 1st Respondent are the only two registered shareholders of Full Billion, each holding 50% of its issued shares. They are also the only 2 directors of Full Billion. The 2nd Petitioner is the ex-husband of the 1st Petitioner. Although he is not a shareholder in Full Billion, it was said in the Petition that the 1st Petitioner holds her shares on trust for herself and the 2nd Petitioner, and that although appointed a director, she was the nominee of the 2nd Petitioner, and did not herself take any part in the management and running of Full Billion's business. According to the 1st Respondent and Xiu, while the registered shareholding are as stated, the shares are in fact beneficially owned in equal one-third shares by the 2nd Petitioner, the 1st Respondent and Xiu.

5.Full Billion's principal asset is an 80% shareholding in the 3rd Respondent, Hung Kong (Fresh Fruit) Trading Ltd ("Hung Kong"), the other 20% of which is owned by an apparently unrelated company called Sun Rising Development (HK) Ltd. Hung Kong in turn owns 90% of the shares in a Chinese company called Nanhai Lishui Fresh Fruit and Food Wholesale Market Co. Ltd ("Lishui"), the remaining 10% being owned by two Chinese companies. It appears to be common ground that Lishui operates one of the largest, if not the largest, fresh fruit distribution centres in China, which is said to comprise the land on which there is a wholesale fruit distribution centre, a market, office buildings, shops, restaurants, a hotel, refrigeration plant and facilities and parking for container trucks. It is said to generate revenue from various sources related to the operation of these facilities, in the range of RMB 3-5 million per month.

6.The dispute between the parties arises out of an apparent sale of Full Billion's major asset, its shares in Hung Kong. It is not necessary at this stage to go fully into the details of this transaction or the circumstances surrounding it. In brief, however, the Petitioners' case is that the 1st Respondent said that he wished to realise his investment and withdraw from Full Billion, and that the 2nd Petitioner had agreed in principle to a sale of the whole company. There is then a dispute as to whether or not the Petitioners in fact agreed to a sale of the company or its assets to the 4th Respondent. The 1st Respondent said that this was agreed, the Petitioners said that it was not. It appears from the document which I have been shown that the 1st Respondent has signed a contract, apparently on behalf of Full Billion, selling its shareholding in Hung Kong to the 4th Respondent.

7.The Petitioners say that the purported sale is invalid and of no effect, since it was never authorised by the board of Full Billion. This alleged invalidity is not accepted by Respondents, and is a matter which is to be determined as one of the preliminary issues which have been ordered to be tried.

8.It appears that in about June or July 2002, the 4th Respondent took steps to take over the operation of the Lishui fruit market. These were, it seems, resisted by the 2nd Petitioner, both through the various applications by the Petitioners for injunctive relief in these proceedings, and by steps taken in Mainland China. However, in August 2002, the 2nd Petitioner was detained in China, and remains in detention there. Although not entirely clear, it appears that a possible basis for his detention is that he was involved in a public disturbance arising from his attempts to retain control of the fruit market. One of the objectives of the preliminary issues was therefore to obtain a ruling from this court as to the validity of the sale to the 4th Respondent, the premise being that if the sale to the 4th Respondent was invalid, this might enable the 2nd Petitioner's release from custody to be obtained, since there would have been nothing improper in his attempts to retain control of the market.

9.By an order dated 28 February 2003, Deputy Judge To directed that the preliminary issues be heard before me, commencing yesterday. However, it appears that at the beginning of last week, it was discovered by those acting for the Respondents that the 2nd Petitioner was apparently an undischarged bankrupt in Hong Kong. This discovery led to the issue of those of the summonses taken out last week by the Respondents seeking to strike out the Petitioner's claims and to adjourn or stay the hearing of the preliminary issues.

10.As the 2nd Petitioner was apparently an undischarged bankrupt, the Official Receiver became involved in the proceedings, and sought an adjournment of the preliminary issues so far as the 2nd Petitioner was concerned, in order to enable the Official Receiver to have time to investigate and consider the matter. Mr Tong, appearing for the Petitioners, did not oppose the Official Receiver being given some time, but sought to proceed with the hearing of the preliminary issues on behalf of the 1st Petitioner. This was opposed by Mr Chan and Mr Liu, and I ruled that it would not be appropriate for the action to proceed by way of the trial of the preliminary issues without the 2nd Petitioner being a party to the proceedings, so that he would be bound by them, for the reasons which I gave in my oral ruling yesterday. At Mr Tong's request, I stood the matter over until this morning, to enable further discussions to take place with the Official Receiver.

11.This morning, I was informed by Mr Tong (and by a letter from the Official Receiver) that it was likely that the Official Receiver would consent to the annulment of the receiving and adjudication orders against the 2nd Petitioner, and that the Official Receiver had no objection to the 1st Petitioner proceeding with the action. The position so far as the 2nd Petitioner was concerned, however, remained unclear.

12.In the event, Mr Tong did not seek to proceed with the trial of the preliminary issues this morning. He informed me that the 1st Petitioner wished instead to proceed with her application for the appointment of a receiver, made by the Petitioners' summons of 7 March. As I understood his submissions, the primary basis of this application was concern as to the security of the business of the Lishui fruit market and its proceeds. These matters were deposed to in the 10th Affirmation of Mr Lung Siu Wing, the solicitor for the Petitioners, dated 7 March 2003. In that Affirmation, Mr Lung referred to the nature of Lishui's business in substantially the same terms as in the Petition, but adding that it is a cash business, and one which had some 20 million RMB in its bank account as at July 2002. Reliance was also placed on alleged wrongful acts evincing a disregard of various injunctions by Chung J in July/August 2002, and an alleged withdrawal of some 10 million RMB from Lishui's account in July 2002. During his submissions, Mr Tong also referred to certain information concerning the availability of funds to honour cheques which had been provided in settlement of the purchase price for the shares in Hung Kong, but it is clear from paragraph 33 of Mr Lung's 3rd Affirmation in August 2002 that this, too, was a matter that was known to the Petitioners in August 2002.

13.Mr Tong also relied on the recent flurry of summonses arising out of the discovery of the 2nd Petitioner's bankruptcy, which was apparently a result of information obtained from the 1st Respondent, as being indicative of an attempt on the Respondents to delay these proceedings.

14.For his part, Mr Chan, appearing for the 1st Respondent, (whose submissions were adopted by Mr Liu for the 3rd to 5th Respondents) refuted the suggestion that his client was guilty of delaying tactics, pointing out that they had in fact consented to the trial of preliminary issues, and, what is more, to their trial on a speedy basis. He explained that the information as to the 2nd Petitioner's bankruptcy had only emerged, so far as his client is concerned, in the course of taking instructions in preparation for the trial of the preliminary issues.

15.For my part, I would be hesitant to conclude that there has been a deliberate attempt to delay by holding this information up the Respondents' sleeves until the last minute. It seems to me that if the Respondents' legal advisers had known of the bankruptcy of the 2nd Petitioner at an earlier stage, this is a matter which would probably have been raised at that earlier stage.

16.Mr Chan went on to complain that insufficient notice had been given of the application for the appointment of receivers, and that, in any event, no real urgency had been demonstrated that justified such an appointment. Today, he urged me not to grant the application, but to give directions so that it could be properly dealt with, on the basis of properly prepared evidence and submissions, and suggested that some two weeks is likely to be required for this to be done.

17.In my view, Mr Chan was correct to say that the application had not been made on the two clear days' notice as required by the Rules of the High Court. However, it seems to me that if this were a case of urgency, it would still be open to me to grant appropriate relief in order to preserve the position pending the final resolution of the application for appointment of a receiver.

18.As matters stand, however, I am not satisfied that the matter is so urgent that it requires an immediate appointment of a receiver today. I bear in mind that the matters relied upon by the Petitioners, while they might, if unanswered, provide a sufficient basis for such an appointment, are all matters which would appear to have been within their knowledge since last summer, and that such an application could presumaby have been made some while earlier. If the application can be heard within a reasonably short time, it seems to me that, given the time that has elapsed since these matters came to light, a further short delay is unlikely to cause additional prejudice to the Petitioners that would be so great as to outweigh the unfairness that might be caused to the Respondents by the appointment of receivers without affording them the opportunity to answer the evidence filed by the Petitioners in support of their application. It may be that, afforded a reasonable time, the Respondents may be able to provide evidence either explaining some of the matters relied upon by the Petitioners, or to show that there is in fact no jeopardy to the assets, in that the operation and proceeds of the market are capable of being, and are being, properly maintained and accounted for.

19.It appears that time could be made available for the hearing of this application before another judge of this Court towards the end of next week. It seems to me that this would enable the Respondents to have a reasonable time, although less than the time proposed by Mr Chan, within which they could obtain such evidence as they may wish to place before the court and to do such research and preparation as they may think necessary to enable them to resist the application for the appointment of a receiver. Subject, therefore, to any further observations that counsel may have as to this, as I am conscious that neither counsel would have been aware during the hearing before me this morning that time might be able from the Court in the course of next week, I would be inclined to adjourn the further consideration of the application for the appointment of a Receiver to a date to be fixed towards the end of next week, and to give appropriate directions for the filing of evidence by the Respondents in opposition to the application for the appointment of a receiver, say in the early part of next week, with an opportunity, if required by the Petitioners, for the Petitioners to file further evidence in response thereto very shortly thereafter.

20It will then remain to deal with the remaining summonses which are before me, and I shall hear counsel as to how these should, for present purposes, be disposed of.

Representation:

Mr Ronny Wong, SC leading Ms Doris To & Mr Peter Wong, instructed by Messrs So, Lung & Associates, for the Petitioners

Mr Warren Chan, SC & M C Law, instructed by Messrs Paul W Tse, for the 1st Respondent

2nd Respondent: Full Bullion Shipping Limited (Absent)

Mr Liu Man Kin, instructed by Messrs C Y Chan & Co. for the 3rd to 5th Respondents

Mr Paul Shieh instructed by Messrs K Y Leung & Co. for the Applicant