Moulin Global Eyecare Holdings Ltd (in Liquidation) and Others v. Olivia Lee Sin Mei

HCA 167/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 167 OF 2008

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Before: Saunders J in Chambers

Date of Hearing: 15 July 2008

Date of Decision: 15 July 2008

Date of Reasons for Decision:  16 July 2008

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D E C I S I O N

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1.This is an appeal by the Plaintiff from a decision of the Master, given on 20 June 2008, extending the time for filing and service of a Defence, pending the determination of a summons by the Defendant to strike out the proceedings.

2.The Defendant, a solicitor, was formerly a director of the 1^st Plaintiff, a company incorporated in Bermuda.  She had been appointed a director in late 2000, and resigned the directorship in 2004.  Subsequently the company went into liquidation.  The 2nd and 3rd Plaintiffs are wholly-owned subsidiaries of the 1st Plaintiff.  The Defendant was not a director of those subsidiaries.

3.A generally endorsed writ was issued on 29 January 2008.  The statement of claim was served on 15 February 2008.  The statement of claim is 55 pages long, of single spaced typescript, comprises 202 paragraphs, with a further 9 pages of annexes.  The claim is a claim in negligence, which alleges breaches of duty by the Defendant in her capacity as a director of the 1st Plaintiff, and allegations equated with professional negligence.  The amount of the claim exceeds $270 million.  The matters raised by the statement of claim go back as far as the year 2000, and cover a wide range of factual circumstances involving the Plaintiff companies and the other parties.  On any terms it is a highly complex and substantial claim.

4.On 28 February 2008, the Liquidators agreed to a two-month extension for filing the Defence.  The defence was due to be filed on 15 April 2008.  On 14 April 2008, the Defendant sought, by Summons, a further extension of time to file the Defence, to 14 June 2008.  That application, I understand, was granted.

5.On 13 June 2008, by Summons, the Defendant sought an order pursuant to O 18 r 19, that the Statement of Claim and the Writ of Summons be struck out, and the action dismissed.  At the same time, application was made to extend the time for filing the Defence pending the determination of the strike out application.  The substantive part of that Summons, that is the strike out, is set down for hearing over two days commencing 3 November 2008.  It is against the order extending time to file the Defence that this appeal is directed.

6.In an affidavit filed on behalf of the Plaintiffs, assertions are made by a solicitor for the Plaintiffs that the application to extend the time; “does not bare the mark of a serious application” (sic), and; “smacks of picking whatever vague future event the defendant can think of to construct as much delay to these proceedings as possible”.  The assertion is made largely on the basis of the timing of steps taken by the Defendant and the extent of time sought. 

7.I have already set out the nature of the statement of claim, (see para 3 above).  The claim involves factual circumstances going back to the year 2000, and the Defendant, has, perfectly reasonably, requested documents from her former law firm relating to the claim.  It is not surprising that there was some difficulty in obtaining those, neither is it surprising that there are 89 boxes of files which need to be examined.  These were not available to the Defendant by 10 July.

8.The evidence from the Plaintiffs falls a long way short of substantiating an assertion that the application to strike out, or the application to extend time for the Defence are mere delaying tactics.  I reject that proposition entirely.  If there has been any delay it is arguably on the part of the Plaintiffs who appear to have waited nearly a whole year after bringing virtually identical proceedings against the auditors, before bringing proceedings against the Defendant.  In the course of that year they continued to seek “interviews” with her, without having told her that they were contemplating bringing proceedings against her.

9.It is especially clear that the steps taken by the Defendant are not a delaying tactic when regard is had to the grounds upon which the strike out summons is based.

10.Comprehensive grounds are set out in the strike out summons, but the primary ground upon which it appears the Defendant will rely is that contained in O 18 r 19(2) & (3), namely that the action is frivolous or vexatious, or is otherwise an abuse of process of the Court.  The factual basis for this assertion is an allegation that the commencement of the action is in breach of a covenant not to sue the Defendant, that covenant being contained in a Deed of Release and Indemnity made on 1 December 2000, between the 1^st Plaintiff and the Defendant, (the Deed).  It was a requirement by the Defendant that there be such an indemnity before she agreed to act as a director of the 1st Plaintiff.

11.On the face of it, the Deed would appear to be a complete answer to the Liquidators’ proceedings against the Defendant.  It is important to note that the provisions of s 165 Companies Ordinance, Cap 32, which renders void any provision, whether in Articles of Association, or any contract with the company, exempting, or indemnifying an officer of the company against liability to the company that would otherwise attach in respect of any negligence or breach of duty, do not appear to apply to the 1^st Plaintiff, as it is not a company formed in Hong Kong, but an overseas company, formed in Bermuda, and accordingly not a company “formed and registered” under the Hong Kong Companies Ordinance.

12.Mr Yeung said that it was relevant that the 1st Plaintiff was a “Part XI” company, that is, it was a company subject to the provisions of Part XI of the Companies Ordinance, which relates to companies incorporated outside Hong Kong.  But there appears to be nothing in Part XI which has the effect of applying s 165 to a company incorporated outside Hong Kong.  Certainly, other than describing the 1st Plaintiff as a “Part XI company”, Mr Yeung did not refer me to any provision within Part XI which would have the effect of applying s 165 to the 1st Plaintiff.

13.Further, it appears that, in the circumstances of a Bermudian company, the quite the opposite position applies.  By s 98 Companies Act 1981, Bermuda, a Bermudian company is permitted to indemnify its officers in respect of negligence or breach of duty.  The only exception is fraud or dishonesty, which is not alleged in this statement of claim.

14.This is a case where the Defendant has a very strong argument indeed to be able to say that she will succeed in stopping this action in limine, by the strike out application that she has filed.  The Defence that must be filed in an action such as this will necessarily be a careful and complex document.  To force the Defendant to file a Defence now will only be to produce a Defence containing simple admissions and denials, sufficient to “hold the fort” in the meantime.  That will only produce demands from the Plaintiffs for particulars, all of which will add to unnecessary expense.  This is plainly a case where, if it is to proceed, the Defence filed ought to properly identify the issues immediately, and not require repeated demands for particulars to narrow the issues down.  I have no reason to doubt that the Defence in the course of preparation does just that.

15.If the Defendant is successful in the strike out summons, there will be no need to file a Defence and all parties will be saved costs, including the Liquidators who will not be required to give the document any consideration.  If the Defendant is unsuccessful in the strike out summons she will be given but a short time to file the Defence, having regard to the time that has already passed.

16.In either event it is abundantly clear that the Master was quite right to extend the time as he did, and to make the costs order he did, that is, costs in the cause of summons, the application to extend time for the Defence being part of the strike out summons.

17.For these reasons I dismissed the Plaintiffs’ appeal against the Master’s decision, with costs on the appeal to the Defendant.

Mr Jack Yeung, instructed by Messrs Mayer-Brown JSM, for the Plaintiffs

Mr John Scott SC, instructed by Fred Kan & Co, for the Defendant