TAI FUNG INVESTMENT CO., KAM WING LAM v. GAINMEN DEVELOPMENT LTD.

HCA 8669/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8669 OF 1998

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J U D G M E N T

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1. This is an appeal by the Plaintiff against an order made by Master H C Wong on 21 February 2002, dismissing an application by the Plaintiff for leave to proceed with the present action against the Defendant company, now in liquidation, under section 186 of the Companies Ordinance (Cap. 32).

2. In the action, the Plaintiff (Tai Fung Investment Company is a sole proprietorship of Mr Kam Wing Lam) claims that by an agreement dated 18 August 1993, the Plaintiff agreed to transfer a 25% shareholding in a hotel under construction in the Mainland to the Defendant for HK$675,000.00. Despite the transfer pursuant to the agreement and repeated requests and demands, the Defendant has refused or failed to pay the agreed consideration or any part thereof to the Plaintiff. Thus according to the Statement of Claim, the Plaintiff claims the unpaid consideration, interest, and damages for consequential loss, as well as costs. It should be noted that in the Statement of Claim, there is no claim for any unpaid vendor's lien on the shares, or any other proprietary interest in the shares.

3. The action was commenced in 1999, and the trial of the action was fixed to commence on 29 October 2001. However, the Defendant company was ordered to be wound up by the Court on 2 August 2001, shortly before the trial was due to commence.

4. As mentioned above, the Plaintiff's application for leave to proceed with the present action against the company under section 186 of the Ordinance, taken out under the present High Court Action, was refused by the Master below, and this gave rise to the present appeal.

5. Procedurally speaking, I agree with Ms McKenna appearing for the Official Receiver that the present application under section 186 of the Ordinance ought to have been taken out under the winding up proceedings before the Companies Court. For this reason alone, the decision of the Master should not be disturbed.

6. In any event, turning to the merits of the application, according to the Official Receiver, the Defendant company simply has no money. It only has cash of about HK$20,000.00. It is therefore, so Ms McKenna argues, totally meaningless to allow the Plaintiff to proceed with the present action. I agree.

7. Moreover, the Plaintiff has already filed a proof of debt in relation to his claim for the outstanding proceeds of transfer of the shares in question. The Plaintiff says that his proof of debt is only in relation to the principal sum, but not in relation to interest. But Ms McKenna rightly says that there is really nothing to stop the Plaintiff from putting in a proof of debt in relation to the interest as well, although the position of interest is governed by the provisions in r. 88 of the Companies (Winding-up) Rules (Cap. 32). Again I agree.

8. Furthermore, the proof of the Plaintiff will be adjudicated on by the Official Receiver. If the result of adjudication is against the Plaintiff, the Plaintiff may, if he thinks fit, apply to the Companies Court to reverse or vary the decision of the Official Receiver, in accordance with the provisions in r. 95 of the Companies (Winding-up) Rules. There is really no need for the Plaintiff to proceed with the present action in order to establish his claim.

9. Ms McKenna also very practically points out to the Court that such an adjudication, however, would not be made by the Official Receiver unless there is money available to declare a dividend in favour of the creditors. This is perfectly in accordance with r. 103 which gives the Official Receiver as liquidator not later than 14 days from the latest date specified in the notice of his intention to declare a dividend as the time within which such proofs of debt must be lodged to either admit or reject wholly, or in part, every proof so lodged with him, or require further evidence in support of it. It makes good sense as well: if there is no money to be distributed, there is really no point in the Official Receiver's expending time and costs in adjudicating upon the proofs of debt that have been lodged with him.

10. But all this has nothing to do with whether the Plaintiff needs to proceed with the present action in order to establish his claim, or whether he requires the continuation of the present action in order to recover any money.

11. As I noted above, the Statement of Claim only claims a monetary sum together with damages, interest and costs. There is no claim for any unpaid vendor's lien on the shares, nor is there any claim for any other proprietary interest in the shares that have been transferred pursuant to the agreement in question in favour of the Defendant company. In other words, the Plaintiff is a mere unsecured creditor. The continuation of the present proceedings would not assist his monetary claim.

12. The Plaintiff complains that all this is unfair. The Defendant has delayed for many years in making payment of the agreed consideration for the transfer. After commencement of action, the Defendant again stalled the proceedings, resulting in his loss of use of the money for many years. And when a trial date was eventually given, the company was ordered to be wound up.

13. Whilst I have much sympathy for the Plaintiff, I am of the view that all this really has nothing to do with whether leave should be granted under section 186. The unfairness was brought about by the alleged delaying tactics employed by the Defendant as well as the insolvency of the Defendant which resulted in the winding-up order. Allowing the action to be continued would not redress the unfairness. Obtaining an empty judgment would afford no comfort to the Plaintiff, but rather cause a further waste of time and costs on the part of everybody.

14. The Plaintiff also says that the Defendant's former directors have not disclosed the whereabouts of the shares that have been transferred to the company pursuant to the agreement made with the Plaintiff. Moreover, assets of the company are concealed. This may or may not be true. It is up to the Official Receiver to investigate. This has nothing to do with whether the present action should be allowed to be proceeded with pursuant to section 186. What, if any, action that the Official Receiver can and may wish to take would of course depend on a number of factors, including the question of funding, regarding which the Plaintiff is not prepared to undertake anything. Again all this has nothing to do with section 186.

15. In the circumstances, although the Plaintiff has put in a lot of written material and raised various contentions in support of his present application/appeal, including those that I have specifically mentioned above, I can really discern no basis for the Court's exercise of its discretion under section 186 of the Ordinance. Likewise, the Official Receiver has put in two reports containing much information and material pertaining to the application as well as the recovery of assets. But for the purpose of dealing with the substantive application comprised in this appeal that is before me, I need not go into the reports. Ms McKenna, appearing for the Official Receiver at the adjourned hearing has, I must register, very helpfully assisted the Court in focusing on the real and indeed narrow issue involved in this appeal, which has been somewhat clouded by the many documents that have been filed. To Ms McKenna's assistance I am grateful.

16. For the above reasons, the appeal is dismissed. Ms McKenna, again very properly and fairly, has indicated to me that the Official Receiver would not be seeking costs against the Plaintiff in the event that his appeal is not successful. I therefore make no order as to costs.

17. As I have indicated at the conclusion of the adjourned hearing, I direct that this judgment be interpreted orally to the Plaintiff by the court interpreter when it is handed down, but if the time is inconvenient to the Plaintiff, he should contact the Court Registry to make another appointment for the interpretation of the judgment to him.