Jade Plan Assets Ltd and Others v. Lau Kim Hung Jack and Others
Read the full judgment text of HCA 910/2007 on BabelCite. This High Court CFI judgment was delivered on 9 January 2008.
1. This is an application (filed on 16 August 2007) by the 1st Defendant for security for costs against the 2nd Plaintiff under Order 23 rule 1(1)(a) of the High Court Rules.
Cited by 1 case · Cites 2 cases
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HCA 910/2007 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 910 OF 2007 ______________________ BETWEEN
______________________ Coram : Before Master M. Yuen in Chambers Date of Hearing : 4 December 2007 Date of Decision : 9 January 2008 ______________________ D E C I S I O N ______________________ 1.This is an application (filed on 16 August 2007) by the 1st Defendant for security for costs against the 2nd Plaintiff under Order 23 rule 1(1)(a) of the High Court Rules. 2.The plaintiffs are investors in land development projects. 3.The 1st Defendant is the director of the 2nd Defendant. The 2nd Defendant is a company which runs the operation of pooling financial resources to fund the building of village houses in the New Territories utilizing the rights of the indigenous villagers. 4.The legality of the scheme of utilizing the indigenous villagers’ right for a commercial purpose is not the subject matter of debate between the parties in the present proceeding. 5.Back in March 1994 the 1st Defendant on behalf of the 2nd Defendant solicited a number of investors, including the plaintiffs in the present action, to invest in a syndicated loan. The syndicated loan was to be used to finance a land development project in Shatin known as “Tai Che”. It was the intention of the parties that a joint venture agreement would be entered into between a BVI company owned by the 2nd Defendant and the developers for this “Tai Che” project. 6.The 3rd Defendant is the BVI company (wholly owned by the 2nd Defendant) which was acquired for the specific purpose of entering into the joint venture agreement with the developers for the “Tai Che” project. 7.On 30 March 1994 the 3rd Defendant entered into a joint venture agreement with the developers (Ocean Rich Development Limited, Target Full Enterprises Limited and Full Hope Development Limited) to form a company for the purpose of carrying out the joint venture property development. 8.On 14 April 1994 a trust agreement was signed between the 2nd Plaintiff, the 2nd Defendant and the 3rd Defendant. In this trust agreement the 2nd Defendant declared itself to be a trustee holding on trust for the 2nd Plaintiff two investment units of its beneficial interest in the issued share capital of the 3rd Defendant in consideration of the 2nd Plaintiff paying HK$10 million to the 2nd Defendant. In this agreement the 2nd Defendant undertakes to procure dividends to be declared by the 3rd Defendant in respect of the 3rd Defendant’s receipts from the joint venture agreement. 9.A mirror-imaged trust agreement was also executed between the 3rd Plaintiff, the 2nd Defendant and the 3rd Defendant. As the present interlocutory proceeding does not concern the 3rd Plaintiff, it is unnecessary to refer to the trust agreement between the 3rd Plaintiff, the 2nd Defendant and the 3rd Defendant in detail. 10.In April 1994 pursuant to the trust agreements signed by the plaintiffs, the 1st Plaintiff, the 2nd Plaintiff and the 3rd Plaintiff made payments of HK$15 million, HK$10 million and HK$5 million to the 2nd Defendant towards the development of the “Tai Che” project. The syndicated loan was of a total of HK$112 million. The money was paid into an account held by a firm of solicitors Baker & McKenzie. 11.About 13 months after the signing of the joint venture agreement, on 30 April 1995, the 3rd Defendant and the developers signed a supplemental agreement for the repayment of HK$112 million loan coupled with the sharing of 20% profits of the sold units of the project. 12.On 11 May 1995 the 1st Defendant acting on behalf of the 2nd Defendant wrote and informed the 2nd Plaintiff and the 3rd Plaintiff their investment have been converted into a term loan with fixed interest rate and a guaranteed bonus. 13.The 2nd Defendant paid the following sums of money to the 2nd Plaintiff on the following dates: -
14.Correspondence and minutes of meetings were exhibited. They showed the parties were in negotiations on the difficulties the parties faced in commencing the Shatin project. The last document exhibited by the parties through their affirmation was a fax message dated 9 May 2002 from Mr. Edward Ham to the 1st Defendant and the 2nd Defendant requesting a recalculation of the projected distribution schedule. 15.With the evidence disclosed at the current stage of exchange, it is unclear as to what happened between the plaintiffs, the developers and the defendants between 2002 and 2007 which subsequently led to the initiation of the present proceeding by the plaintiffs. 16.On 5 May 2007 the plaintiffs took out the present action to sue the 1st Defendant, the 2nd Defendant and the 3rd Defendant for:-
17.For reasons not disclosed in this interlocutory application, the 1st Plaintiff discontinued its claim against the defendants not long after the commencement of this action. Defence Case 18.The defendants averred in their defence that the “Tai Che” development turned out to be a failure. Parties have difficulty in completing the construction of the “Tai Che” project. Investors held meetings to resolve to take action against the developers. 19.The action against the developers were not proceeded with when the investors failed to pool in sufficient funding for the intended legal proceeding. Attempts have been made to sell the rights of the investors in the “Tai Che” project but the attempts were not successful. 20.According to the defendants the plaintiffs were fully aware of the intention of the involved investors to bring legal proceeding against the developers. The plaintiffs took part in the meetings convened after the developers defaulted in their contractual obligations under the joint venture agreement. The plaintiffs have been given full opportunity to inspect of the books of the 3rd Defendant. 21.In the defence filed by the defendants, the 1st Defendant accepts he is the director of the 2nd Defendant. He actively engaged in the negotiations, discussions and meetings with the 2nd Plaintiff and the 3rd Plaintiff on behalf of the 2nd Defendant. 22.The 1st Defendant, however, denied the plaintiff has any cause of action against him as a private individual since the 1st Defendant acted in the capacity of the director of the 2nd Defendant when dealing with the 2nd Plaintiff and the 3rd Plaintiff. 23.The 1st Defendant also denied being a party to the respective trust agreement signed between the plaintiffs, the 2nd Defendant and the 3rd Defendant. The 2nd Plaintiff’s Case 24.It was the 2ndPlaintiff’s contention that the 1st Defendant, the 2nd Defendant and the 3rd Defendant were acting as agents on behalf of the developers when obtaining financial loans from its investors for the “Tai Che” development. The loans were advanced by the 2nd Plaintiff and the 3rd Plaintiff specifically for investing in the Tai Che project. 25.In counsel’s submission a quistclose trust was created. Since the 1st Defendant, the 2nd Defendantand the 3rd Defendant were acting as the agents of the developers in obtaining the financial loan, the 1st Defendant, the 2nd Defendantand the 3rd Defendant should all be held liable to account to the plaintiffs for the amount of money received but not spent on the “Tai Che” development. 26.The defendants all owe a duty to the plaintiff to account to the plaintiff in respect of the plaintiff’s investment sums and repayment of the amount not spent on the “Tai Che” project. The present security for costs application 27.In a security for costs application, the issues to consider are:-
28.It is the obligation of the applicant, i.e. The 1st Defendant in the present application, to prove to court on balance that the 2nd Plaintiff is a company resident out of Hong Kong. 29.It is obvious that the 2nd Plaintiff is a BVI company. The 2nd Plaintiff is not registered in Hong Kong under Part XI of Cap 32. There is no known asset of the 2nd Plaintiff within the territory. In the affidavit of Mr. Ham, a director of the 2nd Plaintiff, Mr. Ham deposed to the fact that the 2nd Plaintiff is a shelf company used by him and a Mr. Peter Fung to participate in the Tai Che project. There was no other trading activity of the 2nd Plaintiff. 30.It is not in dispute that the ordinary residence of a company is to be construed with reference to the location of its central management and control. 31.Counsel on behalf of the 2nd Plaintiff argued that the 2nd Plaintiff is resident in Hong Kong since the business of the 2nd Plaintiff was transacted informally between Mr. Ham and Mr. Fung informally in Hong Kong. 32.Mr. Justice Keith in Charter View [1998] 1 HKLRD 469 set out a few indicia when considering the place of residence of a company. 33.The 2nd Plaintiff is registered in the British Virgin Islands. It has no asset within Hong Kong. Mr. Ham acknowledged it to be a shelf company solely for the purpose of making investments with the 2nd Defendant and the 3rd Defendant for this “Tai Che” development project. The actual monetary payment was not made by the 2nd Plaintiff. There is no information to suggest the secretarial work or the books of account of the 2nd Plaintiff were kept in Hong Kong. The only association with Hong Kong was the declaration by its director Mr. Edward Ham that the business of the 2nd Plaintiff was carried out through the informal meetings between Ham and Mr. Peter Fung. No minute of meeting was exhibited to show the holding of any meeting between Fung and Ham. I accept on balance, on account of the available evidence, the 2nd Plaintiff is a company resident out of Hong Kong. 34.Needless to say in an interlocutory application one ought not embark on a detailed analysis of the causes of action and give an extensive consideration of the likely chance of success of the plaintiff’s claim against the defendants and vice versa. 35.I note there is no contention of collateral contract against the 1st Defendant in respect of the trust agreement of 14 April 1994 nor was there any suggestion of breach of director’s duty in failing to act in the best interest of the shareholders of the 3rd Defendant. One of the possible inference was the 1st Defendant was not a director of the 3rd Defendant and the plaintiffs must have accepted that there was no collateral contract between the 1st Defendant and the various plaintiff investors. 36.In amending their statement of claim, counsel on behalf of the 2nd Plaintiff accepted the 2nd Plaintiff is not suing the 1st Defendant on the trust agreement signed on 14 April 1994. It was her contention that a quisteclose trust existed in respect of the investment loans made by the 2nd Plaintiff to the developers, the 1st Defendant acted as an agent in negotiating the loans for the developers, the 1st Defendant should therefore also be held liable to the plaintiffs under a quisteclose trust of the unused loan amount. 37.A number of fallacies existed in such a proposition. Firstly there is no evidence from Baker & McKenize (the stakeholder of the syndicate loan sum) that unused money has been left in the syndicate loan account. Secondly even if the 1st Defendant were acting as an agent of the developers, the 1st Defendant would be acting as an agent for a disclosed principal. When an agent acted for a disclosed principal, the liability obviously rests with the principal as opposed to its agent. Thirdly it is difficult to envisage how the 1st Defendant (who on the available evidence is only a director of the 2nd Defendant) could have acted as an agent on behalf for the developers when it was the agreement between the developers and the 3rd Defendant that the 3rd Defendant would provide the loan to finance the land development. Court’s Decision 38.Falling short of future amendments to the pleadings, the claim of the plaintiffs against the 1st Defendant is not optimistic as the pleading now stands. Nevertheless it is obvious that the 2nd Plaintiff and the 3rd Plaintiff are suing the defendants in this action as co-plaintiffs. Counsel on behalf of the 1st Defendant argued that the 2nd Plaintiff and the 3rd Plaintiff each entered into separate trust agreements with the 2nd Defendant and the 3rd Defendant. There exists a possibility for the 2nd Plaintiff and the 3rd Plaintiff to be held separately liable to the 1st Defendant for costs in the event that they fail in their claims against the 1st Defendant. 39.From the facts disclosed it is clear that both the 2nd Plaintiff and the 3rd Plaintiff engage in the syndicated loan arrangement with the 2nd Defendant and the 3rd Defendant in the same capacity, under the same factual circumstances with the same developers and for the same land development. I do not envisage a situation where the 2nd Plaintiff and the 3rd Plaintiff would be held liable in different capacities. Their respective trust agreements only delineated the extent of their respective financial commitments. 40.Should the 2nd Plaintiff and the 3rd Plaintiff succeed in their claims against the 2nd Defendant and the 3rd Defendant, the 2nd Plaintiff would be put in sufficient funding to pay the costs order the 1st Defendant might have against the 2nd Plaintiff. 41.Besides the 2nd Plaintiff is suing the 1st Defendant with a co-plaintiff (the 3rd Plaintiff) who is resident in Hong Kong and who has a financial capability to pay off the costs order the 1st Defendant may have against the 2nd Plaintiff and the 3rd Plaintiff in the event that the 2nd Plaintiff and the 3rd Plaintiff are non-suited against the 1st Defendant. 42.In the exercise of my discretion, I refuse the 1st Defendant’s application for security for costs against the 2nd Plaintiff. Costs order nisi is granted in favour of the 2nd Plaintiff in respect of the present application.
Mr. Lee Tung Ming instructed by Messrs. Ko Keung Yip & Sin for the 1st Defendant. Ms. Fong Yvonne instructed by Messrs. Wilson Yeung & Co. for the 2nd and 3rd Plaintiffs. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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