Mightysilk Ltd v. Yau Fook Hong Co Ltd and Another

HCA003581/2003

HCA 3580/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3580 OF 2003

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3581 OF 2003

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Coram: Deputy High Court Judge Saunders in Chambers

Date of Hearing: 31 May 2004

Date of Judgment: 21 June 2004

(Cases heard together)

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J U D G M E N T

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1.In these two sets of proceedings, heard together, the Plaintiffs seek summary judgment under Order 86.

2.The proceedings relate to a total of 15 agreements to purchase properties by the Plaintiffs from the Defendants. It is common ground that each of the 15 agreements are identical and in a standard form containing usual provisions. The Plaintiff companies were under the control of the late Mr T H Wang, and are now controlled by the Joint Administrators pendente lite in the estate of Mr Wang, who disappeared in April 1990. The Defendant companies were, and are, controlled by his widow, Mrs Nina Wang.

3.The agreements provide in each case that the relevant Plaintiff was to pay the purchase price on the signing of the agreement. The agreement itself, in each case, contains a receipt for the purchase price. The purchase was to be completed within 7 days upon written notice being served by the purchaser to the vendor. On completion, the vendor, as beneficial owner, was to execute a proper assignment of the premises to the Plaintiff. The premises were to be at the Plaintiff's risk from the signing of the agreement, and it was responsible for arranging insurance. Between sale and completion, the Plaintiff was to be entitled to sub-sell of the premises, and the title deed of the premises was to be delivered to the Plaintiff.

4.It is not disputed that on 23 June 2003, the Joint Administrators, acting on behalf of the various plaintiffs, gave notice in writing, pursuant to clause 3 of the agreements, requiring the completion of the purchases. There were no completion, and on 25 September 2003 the writs were issued. A defence was filed in each writ in November 2003 and in January 2004, the Plaintiffs made application for summary judgment. On the face of the agreements alone, there appears to be no reason to refuse the summary judgment.

5.It must be remembered that:

"when the judge is satisfied that there is no defence but no fairly arguable point to be argued on the part of the defendant it is (the judge's) duty to give judgement for the plaintiff"

see Anglo-Italian Bank v Wells (1878) 38 LT 197 at 201, CA.

6.It is helpful also to remember the bases upon which summary judgment may be resisted. I adopt the following passage from the judgment of Mortimer JA in Manciple Limited v Char On Man [1995] 3 HKC 459 at 446:

"O. 14 proceedings for summary judgment when there is no defence to a claim are an important feature of the legal process. It enables plaintiffs in the cases where there is no defence to obtain expeditious summary judgment and to avoid unnecessary delay. When applied for it is for the defendant to show that there is a triable issue or an arguable defence if he is to be allowed his day in court. To deny him his day in court, if he shows a triable issue or an arguable defence, it indeed a fearful injustice. On the other hand, if he has no defence and he obtains leave to defend, equally, there is injustice to the Plaintiff.

There is a difficulty because the court cannot resolve issues of fact on affidavit. However there are some cases in which the Defendant's own case, although apparently it raises issues which, if found in his favour, which provided them with the defence, are so incredible or sole contradicted by contemporaneous documents or circumstances that it becomes clear that his defence is a sham."

7.I add only that Order 86 summary judgment proceedings are dealt with in precisely the same way. The only relevant differences are in the procedure. It also is appropriate to include here the well known words of Godfrey JA in Man Earn Limited v Wing Ting Fong 1996 1 HKC 225 at 228:

"Unless it is obvious that the defence put forward by the defendant is "frivolous and practically moonshine", O. 14 ought not to be applied". See Codd v Delap (1905) 92 LT 540, per Lord Lindley at 551."

These are the principles I apply in dealing with this application.

8.The Plaintiff companies first entered into the sale and purchase agreements in relation to the relevant properties with the Defendant companies, for the properties in HCA 3580/2003, in December 1984, and as for the properties in HCA 3581/2003, in December 1986. Between those dates and late 1989 a number of the properties covered by the agreements were sold by the Defendant companies to other entities, at arms length from the Plaintiffs and the Defendants, and the transfer was completed with the relevant Plaintiff as a confirmor. In late 1989, (on 6 December 1999 for the properties in HCA 3581/2003, and 20 November 1989 for the properties in HCA 3580/2003), new agreements were entered into, after cancelling the previous agreements, in respect of those properties still remaining from the previous agreements. By the time Mr Wang disappeared in April 1990, no steps had been taken to complete any of the agreements.

9.As is well known, Mr Wang was subsequently declared dead, having been missing for 7 years. Subsequently probate litigation was commenced in the Court of First Instance in which a will, propounded by the late Mr Wang's father, was admitted to probate. An alternative document, propounded by Mrs Nina Wang, under which she would have been the sole beneficiary in the estate, was found "to be probably a forgery". That judgment is presently under appeal and the decision is awaited.

10.The Plaintiff companies are now in the control of the Joint Administrators. The Defendant Companies remain in the control of Mrs. Nina Wang. CAL, the company which allegedly controls the treasury company system, is in the control of, and wholly beneficially owned by, Mrs. Nina Wang.

11.The defence raised is that at the material time both the Plaintiff and the Defendant companies were within what the Defendants' contend was commonly known as the "Chinachem Group of Companies", beneficially owned and controlled by the late Mr T H Wang and Mrs Nina Wang. The Plaintiff and the Defendant companies were, it is said, utilised within the group to carry on the business of property development and investment holding.

12.The contention further is that at the material time companies within the Chinachem Group operated, (and continued to operate), under a "treasury company system". The essence of this is that one particular company, Chinachem Agency Limited, (CAL), operated, in effect, as a banker for all other companies in the Chinachem Group and that where profits and surplus funds had been generated from the operations or investments carried out by companies within the group, those profits and surplus funds were made available, via the treasury company, for the use of other companies within the group, generally for investment business and other operations, as determined by Mr and Mrs Wang.

13.There is a sufficient factual basis in the material before me that it may be argued that in a trial those facts may well be found.

14.It is then contended that in implementing the treasury company system there was a practice, (called in the pleadings "the Chinachem Group Practice"), in respect of properties purchased by companies within the group from other companies within the group, that, notwithstanding the provisions of any contract, the nominated purchasers were not entitled to require the properties to be assigned into their names or sold to third parties until such time as Mr Wang and/or Mrs Wang, or the treasury company, considered that it would be in the best interests of the Chinachem Group as a whole to do so.

15.Applying these general assertions to the present facts, it is the Defendant's case that the funds, (acknowledged as having been received), for the purchase of the properties in question under the 1984 agreements or the 1989 agreements were not provided by the Plaintiff companies themselves at all, but through mere book entries, in accordance with the treasury company system and the Chinachem Group Practice. It is then said that the Plaintiff companies are bound by the restrictions imposed by participating in the system and the practice, and are consequently not entitled to require the properties to be assigned into their own names.

16.The Joint Administrators deny that such an arrangement ever existed. They seek to have the property transferred into the Plaintiff's names and frankly acknowledge that they wish to sell the properties to generate cash, as there is an income deficiency making it difficult for them to properly administer the estate of the late Mr Wang. Mrs Wang for her part says that should she win the probate action she would be entitled to transfer of the shares in the Plaintiff companies from the Joint Administrators to herself and that their will as to the disposition of the properties ought not now to be imposed upon her. At the very least it is argued that the matter or to be held in abeyance, until the resolution of the probate action, which will effectively resolve these proceedings.

17.The primary point made by Mr Jamison is that the concepts relied upon by the Defendants, of the "Chinachem Group", "the Chinachem Group practice", and the "treasury company" system, while arguably being matters that occurred during the joint lifetime of Mr Wang and Mrs Wang, do not have sufficient legal force to constitute a basis to defend the actions. It is correct that there is no evidence of a formal group structure in the sense that the expression "group of companies" is used in s 2 of the Companies Ordinance. Further, if the existence of the "treasury company" system is to continue beyond lifetime of Mr Wang, the fact that Mrs Wang is the beneficial owner of CAL may mean that the assets of the estate can be applied for the benefit of companies within the "group" that are wholly owned or at least claimed by Mrs Wang. It is right too that a "practice" will not by itself constitute an enforceable contract.

18.Mr Ng puts the matter to me on the basis the fact taken together the way in which the companies were run, and the use of CAL as a banker in the transactions demonstrates a course of dealings between parties that may give rise to legal obligations by way of an estoppel. The argument is that just as Mr Wang, by virtue of his dealings and his acceptance of the systems would be estopped in his lifetime, so must his personal representatives.

19.Mr Jamison's response to the suggestion that it was open to the Defendants to contend for an estoppel was to say that there is simply no evidence of detriment, and that accordingly argument based on estoppel could not stand.

20.Having regard to the factual scenario it is not difficult to imagine a number of areas in which the Defendants may say they have suffered detriment by general adherence to the manner in which the parties ran their respective companies in relation to each other. The most obvious is that the Defendants have, on the evidence before me, allowed the purchase price to be paid by way of mere book entry in the accounts of CAL, and have allowed that debit to be cleared progressively over a long period of time, without interest, by the payment of rentals from the letting of the properties. That is, in effect, an interest free mortgage, and considerably to the disadvantage of the Defendants. Had the Defendants not followed the treasury company system, they would have been entitled to demand actual cash, in full, on the signing of the agreements.

21.Mr. Ng was obliged to concede that the matter of estoppel is not yet formally pleaded. However it is clear that under both O. 14 r. 1 and O.86 r.4 the defendant may show cause by affidavit or otherwise. In my view the affidavits filed establish a sufficient basis for an arguable defence based upon estoppel which cannot be characterised as "moonshine".

22.I am satisfied that I cannot dismiss the argument for an estoppel out of hand and that accordingly leave to defend must be given. That has the sensible consequence that so long as the litigation over the wills remains alive, neither party will be able to impose its will in relation to the properties on the other. It will be necessary for the Defendants to put the pleadings in order promptly. Costs will be in the cause.

Representation:

Mr Jim Jamison of Messrs Clifford Chance for the Plaintiff in both actions

Mr Peter Ng, SC instructed by Messrs White Case for the Defendants in both actions