Harvest Industrial (HK) Co Ltd v. Ng Ng Yeung and Another
Read the full judgment text of DCCJ 175/2010 on BabelCite. This District Court judgment was delivered on 15 November 2010.
1. These are my reasons for decision.
Cites 1 case
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DCCJ 175/2010 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 175 OF 2010 ________________________
Coram: Temporary Registrar Clement Lee in Chambers Date of Hearing: 15 November 2010 Date of Reasons for Decision: 15 November 2010 ________________________ Reasons for Decision ________________________ 1.These are my reasons for decision. Application 2.This is the 1st Defendant’s application to strike out the statement of claim on three limbs: no reasonable cause of action; frivolous and vexatious; and abuse of process. 3.If I may begin with the first limb, no reasonable cause of action. The 1st Defendant submitted that if the 1st Defendant is to be held liable by lifting the corporate veil of the 2nd Defendant, there must be evidence that the 1st Defendant benefited from the wrongful acts. However, Counsel for the 1st Defendant failed to provide any legal authorities to suggest the said legal proposition, especially there must be someone benefit from the wrongful acts. However, I am of the view that one must not ignore the concept of alter ego. Alter ego is a concept within the branch of the law of lifting the corporate veil, so if I may briefly cover this point. The law on lifting the corporate veil 4.Paragraph 9C of Gore-Browne on Companies which states as follows:
5.In Jones v Lipman [1962] 1 WLR 832, it is expounded that the company is to be used as the alter ego of the defendant when in that case the company was described as “a device and a sham, a mask which he holds before his face in an attempt to avoid recognition by the eyes of equity.” 6.Some other decisions also discussed on lifting the corporate veil:
7.One common thread which has run through all the cases in which the courts have seen fit to lift or pierce the corporate veil is that there must be some impropriety, wrongdoing, concealment, sham or fraud involved. 8.This can readily be seen in the words of Hobhouse LJ in the case of Ord v Belhaven Pubs when he said at page 615:
9.Indeed, it was due to the lack of impropriety in Salomon v A. Salomon and Co. Ltd, Ord v Belhaven Pubs and Adams v Cape Industries plc that the courts in those cases declined to lift or pierce the corporate veil, thereby distinguishing those decisions from the present case. 10.It must be noted on what has been pleaded by the Plaintiff in this case. There are five factors and it seems that the 1st Defendant failed to traverse by its defence. The first factor is that 1st Defendant is the sole director and shareholder of the 2nd Defendant; the 1st Defendant is the directing will and mind of the 2nd Defendant; thirdly, the 1st Defendant is the sole authorized signatory of the 2nd Defendant’s relevant account; and the 2nd Defendant seems to be insolvent at the material time; and the 1st Defendant signed as sole signatory of the 2nd Defendant’s six cheques purported to pay for the goods of more than $600,000 and these six cheques were subsequently dishonoured. 11.If the above factual matrix are established, inference may be drawn as to whether the 1st Defendant was making use the 2nd Defendant as a vehicle to obtain goods, knowingly the 2nd Defendant was at the brink of being wound up. That is the likelihood of impropriety. 12.I do not eliminate the possibility that the Plaintiff may or may not be able to advance sufficient evidence to infer such impropriety. But insofar as the test of striking out on the first limb is concerned, I am of the view that the 1st Defendant failed to establish that the claim is obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed: Hong Kong Civil Procedure 2011 edition paragraph 18/19/4. 13.I now come to the second limb and the third limb, frivolous, vexatious and abuse of process. Regarding these two limbs, affidavit evidence can be looked into, of course, including the pleadings as well. 14.Likewise, I do not see how the 1st Defendant said that the 2nd Defendant was not insolvent at the material time. Although the bank statements show that the 2nd Defendant had 3 million overdraft facilities, the accounts show a consistent debit from 1.7 million to 2.4 million. Further, some bank statements were not produced such as December 2008 and January 2009. Those are the periods when the cheques were bounced upon presentation. Although Counsel for the 1st Defendant, Ms Mak, made a point that the relevant time is the time of issuance of the cheque, my view is that it is also relevant to see the financial condition of the 2nd Defendant at the time the cheque were presented for payment. Because the cheques were post dated cheques and the 1st Defendant should have known the financial status of the 2nd Defendant both at the time of issuance of the cheques and at the time the cheques were presented for payment. The full picture including subsequent months’ bank statements, the balance sheet and account are yardstick to measure or rebut the Plaintiff’s allegations of the 2nd Defendant’s insolvency but the 1st Defendant failed to produce them. 15.As a result, there seems to be a live question as to whether there is sufficient evidence to show that the 2nd Defendant was solvent or insolvent at the material time. This must be a question for trial. 16.I am of the view that the 1st Defendant is also having a pleadings’ hurdle. Simply put, under the new rule, Order 18 rule 13. New provisions were introduced since the implementation of CJR that a defendant who wishes to deny an allegation must state the reasons for the denial and his own version. It seems that a pleading can no longer contain a bare denial, there should be a positive averment as to the reason why one denies the allegation. 17.And at the end of the day if the defence remains as it now stands, the trial judge may not allow the defendant to put forward a contrary version. It seems to me that this is the purpose of the new provision. 18.Having said that, whether there is sufficient evidence to infer improper purpose is a matter for trial. Therefore, I do not see how, having bound by the pleading and in light of the question of sufficiency of evidence, this claim can be said to be frivolous, vexatious or abuse of process. Therefore, the 1st Defendant’s summons must be dismissed with costs to the Plaintiff, assessed summarily in the sum of $12,600, payable by the 1st Defendant forthwith. 19.I also make consequential directions as follows. Parties are directed to take out any and all interlocutory applications on or before 23 November 2010, including applications for amendment of pleadings and/or specific discovery. 20.The Case Management Summons hearing fixed on 23 November 2010 remains unchanged. 21.Parties do file and serve the timetabling questionnaire on or before 16 November 2010. 22.The Plaintiff do draw up, file and serve this order. 23.If any of the parties is in breach or unable to comply with my directions, the party shall report to me as soon as practicable with detailed reasons.
Mr R. Chung, of Messrs. Chung, Fong & Co., for the Plaintiff Ms Angel Mak, instructed by Messrs. S H Chan & Co., for the 1st Defendant | |||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under DCCJ 175/2010