Shanghai Land Holdings Ltd (in Receivership) v. Chau Ching Ngai and Another

HCA002704A/2003

HCA 2704/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2704 OF 2003

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Coram: Hon Sakhrani J in Chambers

Dates of Hearing: 12 July 2004

Date of Judgment: 22 July 2004

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J U D G M E N T

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1.This is an application by Sun Hung Kai Investment Services Limited ("SHKIS") for an order that it be added as a defendant to these proceedings. SHKIS also applies for an order that copies of the documents as set out at para 3 of its summons dated 8 April 2004 be provided to its solicitors.

2.The background facts are that on 7 June 2003, on the application of the board of directors of Shanghai Land Holdings Limited ("SLH") Messrs Stephen Liu Yiu Keung and Kenneth Yeo Boon Ann, both of Ernst & Young were appointed receivers of SLH until further order with the powers set out in my order of 7 June 2003 ("the 1st order").

3.This action was commenced by the said receivers against the 1st defendant, Mr Chau Ching Ngai ("Mr Chau") and the 2nd defendant, Ms Mo Yuk Ping ("Ms Mo") on 23 July 2003 for the sum of US$34,200,000.00 which it was alleged Mr Chau and/or Ms Mo, acting for herself and/or the agent of Mr Chau, wrongfully and in breach of their fiduciary duties to SLH had misappropriated for their own use and purpose or transferred such sum from the bank accounts of SLH to some third parties through the bank accounts of SLH's subsidiaries without the authority or approval of SLH. Mr Chau and Ms Mo are husband and wife.

4.On 21 August 2003 the plaintiff obtained a default judgment in the sum of US$34,200,000.00 with interest and costs ("the default judgment") against Mr Chau. The action was discontinued against Ms Mo on 23 August 2003.

5.On 28 August 2003 on the application of the plaintiff for the appointment of Messrs Stephen Liu Yiu Keung and Kenneth Yeo Boon Ann as receivers by way of equitable execution of the assets of Mr Chau, I made an order appointing the said persons the receivers by way of equitable execution of the assets of Mr Chau as more particularly set forth in the schedule of assets annexed to the order to take into their control with powers to manage the same in order to preserve their value and to apply the same in satisfaction of the judgment for the sum of US$34,200,000.00 together with interest thereon and fixed costs in the sum HK$1,550.00 and on the terms as set out in the order ("the 2nd order"). Although Mr McCoy SC, for SHKIS, submitted that the 2nd order affected all of the assets of Mr Chau I am of the view that as a matter of construction of the order it only affects the assets of Mr Chau as more particularly set out in the schedule annexed to the order as was submitted by Mr Fung SC, for the plaintiff. I accept Mr Fung's submission.

6.The 2nd order also set out the powers of the said receivers.

7.In June 2003 SHKIS also commenced an action being HCA 2085 of 2003 against, inter alia, Mr Chau in respect of sums owing to it under a loan and guarantee. A default judgment dated 27 August 2003 was entered in favour of SHKIS against Mr Chau and SHKIS became a judgment creditor of Mr Chau in the amount of HK$35,736,438.32 plus fixed costs of HK$1,615.00 and interest on the principal sum of HK$35,000,000.00 at judgment rate. As SHKIS had received a payment of HK$11,500,000.00 in reduction of the amount outstanding, the principal amount of debt outstanding and due to SHKIS by Mr Chau was approximately HK$24,300,000.00 as at 27 August 2003.

8.The affirmation of Mr Hulme sets out the grounds in support of SHKIS's application at paras 8 to 10 as follows:

" 8. The Applicant as a substantial judgment creditor of Mr Chau has a direct interest in the assets over which Mr Chau's Receivers have taken control, and in the costs and expenses of the receivership which have been or will be paid out of these assets. I am advised by the Applicant's legal advisers and verily believe that Mr Chau's Receivers, as officers of the Court, are appointed for the benefit of all interested parties and in the premises it is appropriate that the Applicant now be joined as a party to these proceedings.

9. At the time of making this Affirmation, the Applicant does not have any detailed information as to the conduct of the receivership, in particular as to what assets of Mr Chau have been collected and realised by Mr Chau's Receivers and what costs and expenses have been incurred by them. The Applicant has also expressed its concerns to Mr Chau's Receivers as to an apparent conflict of interest in acting as receivers of both SLH and Mr Chau. These are matters that will directly impact on the Applicant's ability to recover the outstanding balance of its judgment debt. Now produced and shown to me marked "TH-4" is a true copy of the letter sent by the Applicant's solicitors to the Receiver's solicitors expressing these concerns.

10. For these reasons the Applicant seeks to be joined as a party to these proceedings and to be provided with copies of the documents, affidavits and accounts referred to in the Summons filed by the Applicant herein."

9.At para 1 of the written skeleton submissions for SHKIS it was made plain that the jurisdiction of the Court under O.15 r.6(2) was invoked as the basis for the application for joinder. However, in his oral submissions Mr McCoy did not dispute Mr Fung's submission that the Court had no jurisdiction to add SHKIS as a defendant under O.15, r.6(2) and instead relied on the rules set out in the marginal note to the summons namely, O.30 and O.51 RHC and the inherent jurisdiction.

10.O.15, r.6(2) RHC provides that:

"Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the Court may on such application-

(a)........................................................................................................

(b) order any of the following persons to be added as a party, namely-

(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjucated upon, or

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter."

11.Mr Fung submitted that SHKIS cannot bring itself within the provisions of either r.6 (b) (i) or (ii). As to (i), it seems to me that it is not necessary to have SHKIS before the Court to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjucated upon. The plaintiff's claim was for a specific sum of US$34,000,000.00 which the 1st and 2nd defendants wrongfully and in breach of their fiduciary duties misappropriated from SLH. There were no other matters in dispute in the cause or matter.

12.As to (ii), the relief or remedy claimed in the cause or matter is the sum of US$34,200,000.00, alternatively damages including damages for breach of fiduciary duties, interest and costs. It cannot be said that there exists a "question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter" either between SHKIS and the plaintiff or between SHKIS and the defendants or one of them. Hence it was submitted that the Court had no jurisdiction to add SHKIS in these proceedings.

13.In the case of In re IG Farbenindustrie A.G. Agreement [1944] 1 Ch 41 it was held that the Court has no jurisdiction to add a party to proceedings a person who only has a commercial interest in those proceedings, even though his interest may be affected by the result of the proceedings.

14.In Sanders Lead Co. Inc. v Entores Metal Brokers Ltd [1984] 1 W.L.R. 452 the English Court of Appeal also came to the view that under the provisions of O.15 r.6 2(b) (ii) the Court had no jurisdiction to join the applicant. Kerr L J said at page 460:

"In my view the rule requires some interest in the would-be intervener which is in some way directly related to the subject matter of the action. A mere commercial interest in its outcome, divorced from the subject matter of the action, is not enough. It may well be impossible, and would in any event be undesirable, to attempt to categorise the situations in which the interests of would-be interveners are sufficient to satisfy the requirements of the rule. The authorities show that the existence of a cause of action between the intervener and one of the parties is not a necessary prerequisite for this purpose. But they also go no further than to show that there must be some direct interest in the subject matter, such as an alleged infringement of a patent, trademark or copyright with which the intervener is concerned (see Tetra Moletric Ltd. v. Japan Imports Ltd [1976] R.P.C. 547 and Rexnord Inc v. Rollerchain Distributors [1979]F.S.R. 119) though even in such cases the interest of the intervener must raise an existing issue and not merely a contingent one: see Spelling Goldberg Productions Inc. v. B.P.C. Publishing Ltd [1981] R.P.C. 280. Another illustration is provided by cases where the intervener can show that he will in some way be compelled to "foot the bill," depending on the outcome of the action: see Gurner v. Circuit [1968] 2 Q.B. 587,595, though I bear in mind that the wording of R.S.C., Ord. 15,r. (6) (2) was then much narrower than it is now. However, as Mr Hirst rightly conceded, no case has gone so far as to allow intervention by someone who is only a creditor, or alleged creditor, with no more than a creditor's commercial interest in the outcome of the action, and in my view it makes no difference whatever that the creditor in question is one who has obtained a Mareva injunction whose fate may in some way depend on the outcome."

15.It is plain that the Court has no jurisdiction under O.15, r. 6 (2) to add SHKIS as a party to this action. I accept Mr Fung's submissions.

16.Mr McCoy did not seek to argue to the contrary. However, he relied in his oral submissions on the other references in the marginal note to the summons namely, O.30 and O.51 RHC and the inherent jurisdiction of the Court.

17.There are no specific provisions for joinder of a party under the provisions of O.30 and O.51.

18.I turn to the inherent jurisdiction of the Court. In Deloitte & Touche A.G. v. Johnson and another [1999] 1 W.L.R. 1605 in respect of liquidators of a company Lord Millet said at page 1612:

"2. The inherent jurisdiction of the court over its own officers.
As liquidators of the company the liquidators are officers of the court. The court's inherent jurisdiction to control the conduct of its own officers is beyond dispute. But it does not follow that the plaintiff is a proper person to invoke that jurisdiction. It says that the liquidators are behaving unconscionably by reason of their conflict of interest. But it cannot say that the liquidators are acting unconscionably to it."

19.The same receivers who have been appointed by the 1st order and the 2nd order are undoubtedly officers of the Court. They are subject to the supervision of the Court. That being so, the Court has an inherent jurisdiction over its own officers. However, SHKIS must establish that it is a proper person to invoke the Court's inherent jurisdiction.

20.As Lord Millet said in Deloitte & Touche A.G. at page 1611:

"Where the court is asked to exercise a statutory power or its inherent jurisdiction, it will act only on the application of a party with a sufficient interest to make it. This is not a matter of jurisdiction. It is a matter of judicial restraint. Orders made by the court are coercive. Every order of the court affects the freedom of action of the party against whom it is made and sometimes (as in the present case) of other parties as well. It is, therefore, incumbent on the court to consider not only whether it has jurisdiction to make the order but whether the applicant is a proper person to invoke the jurisdiction."

21.It was submitted by Mr McCoy that the receivers were appointed for the benefit of all interested parties. He submitted that the receivers owe duties to SHKIS under the 1st order. By O.51 r.3 it is provided that r.2 to 6 of O.30 applies to the appointment of receivers by way of equitable execution under O.51. However, r.7 of O.30, which deals with default by the receiver and the Court's powers in relation thereto, does not apply to the appointment of receivers by way of equitable execution under O.51. Hence it was submitted that SHKIS could invoke the inherent jurisdiction of the Court which the Court should exercise in its favour as the receivers have an interest under the 2nd order which conflict with a duty they owe to SHKIS.

22.Mr McCoy also referred to Re Nickel Mines Ltd (1978) 3 ACLR 686 where it was held that it was undesirable that the same person be appointed provisional liquidator of two companies who were engaged in litigation against one another.

23.As set out in Mr Hulme's affirmation, SHKIS has expressed its concerns to the receivers as to an apparent conflict of interest in acting as the receivers of both SLH and Mr Chau. As to conflict of interest, it is useful to bear in mind what Lord Millet said in Deloitte & Touche A.G. at page 1612:

"The plaintiff's case is not advanced by alleging that the liquidators have a conflict of interest. This is not the same as impropriety or want of probity. Their Lordships observe that the expression "conflict of interest" is an abbreviation for "conflict of interest and duty". The rule is that a fiduciary may not without the informed consent of his principal place himself in a position where his interest may conflict with his duty to the principal. The danger is that his interest may affect him in the discharge of his duty to the prejudice of his principal. The only person with a legitimate interest in complaining of a breach of the rule are the persons to whom the duty is owed; and they may have waived the breach. The plaintiff does not allege that the liquidators have an interest which conflicts with any duty owed to it. It does not plead any such duty. It alleges that the liquidators have an interest which conflicts with their duty to the company and its creditors. If such a conflict exists, it is for the creditors alone to decide what if anything to do about it."

24.I am unable to accept the submission that the receivers under the 1st order owe any duties to SHKIS. The case of Viola v. Anglo-American Cold Storage Company [1912] 2 Ch. 305 provides no assistance to SHKIS. The situation was quite different there and the case is distinguishable on the facts. There the receiver was appointed in a debenture-holder's action. The object was to protect and realize the assets of the company. This was for the benefit of all concerned. That case provides no assistance to SHKIS.

25.I accept Mr Fung's submission that the receivers under the 1st order owe no duties to SHKIS. The receivers under the 1st order were appointed on the application of the directors of SLH as receivers of SLH with the powers as set out in the order. It seems to me that the receivers of SLH owe no duties to SHKIS which is a judgment creditor of Mr Chau.

26.The receivers under the 2nd order were appointed as receivers by way of equitable execution to enable them to take into their control Mr Chau's assets as more particularly set out in the schedule to the order with powers to manage the same in order to preserve the value thereof and to apply the same in satisfaction of the judgment entered in favour of the plaintiff for the sum of US$34,200,000.00 with interest and fixed costs. The receivers were appointed for that specific purpose. They owe no duties to SHKIS. They were appointed primarily for the benefit of the plaintiff as judgment creditor subject to safeguards in the 2nd order in respect of the interests of Mr Chau.

27.I would observe that that although SHKIS's application has been served on Mr Chau's solicitors, Messrs Morrison & Foerster ("M & F"), they have not appeared on this application and have not taken part in the application. By a letter dated 9 July 2004 written to the solicitors for the plaintiff and SHKIS and copied to the Court, M & F indicated that Mr Chau adopted a neutral position towards this application and that he neither supported nor opposed it without prejudice to his right to do so in respect of any future application by SHKIS.

28.Mr Chau has applied to set aside the default judgment obtained by the plaintiff on 21 August 2003 and as a consequence of setting aside the judgment Mr Chau also seeks an order that the 2nd order be set aside. The plaintiff has also issued a summons to set aside the notice to act entered by M & F on the basis that they do not have authority from Mr Chau to act for him. Those matters are outstanding and have yet to be determined.

29.Mr McCoy also relied on Searle v. Choat (1884) 25 Ch. 723. In my view that case does not provide any assistance to SHKIS. The relevant facts were that an order was made in another action, namely, the action of Choat v. Davies by way of equitable execution of a judgment obtained by Choat against Davies that a receiver should be appointed to receive the rents and profits, inter alia, of certain premises in which Davies was interested. The appointment was to be without prejudice to the rights of any prior incumbrancers on the premises who might think proper to take possession of the same, or if any prior incumbrancer was in possession, then without prejudice to such possession. At that time the premises were mortgaged to Searle by Davies. The receiver served a notice to the tenants of the premises to pay rent to him after the tenants had been served with Searle's notice to pay rent to him. It was held that the receiver was wrong to have taken possession as against Searle in violation of his rights as the receiver was appointed without prejudice to the rights of prior incumbrancers. It was also held that Searle should have applied for relief in the action appointing the receiver rather than bringing a separate action for the same. That case provides no assistance to SHKIS.

30.In my judgment it is plain that SHKIS merely has a commercial interest in this action in the sense that if the plaintiff successfully enforces its judgment against Mr Chau it would mean that Mr Chau's assets will be diminished or reduced to the same extent. That being so, there would be less assets of Mr Chau available for the satisfaction of SHKIS's judgment against Mr Chau when SHKIS seeks to enforce it against Mr Chau. The inescapable conclusion is that SHKIS has only a commercial interest in these proceedings.

31.As to the allegation of apparent conflict of interest on the part of the receivers in acting as the receivers of both SLH and Mr Chau, it seems to me that SHKIS is not a proper person to complain of the same. The only person with a legitimate interest in complaining of this are the persons to whom the duty is owed. No duty is owed to SHKIS by the receivers.

32.In my judgment SHKIS is not a proper person to invoke the Court's inherent jurisdiction to add it as a defendant to this action. It seems to me that, whether as a matter of jurisdiction or the exercise of discretion, the application of SHKIS ought to be dismissed.

33.I dismiss the application. I also make an order nisi for costs of the application to be costs to the plaintiff to be borne by SHKIS.

Representation:

Mr Patrick Fung SC, instructed by Messrs Simmons & Simmons, for the plaintiff

Mr Gerard McCoy SC and Mr Steven Kwan, instructed by Messrs Denton Wilde Sapte, for Sun Hung Kai Investment Services Limited