PERENNIAL INVESTMENTS (H.K.) LTD. v. UNION BRIDGE INVESTMENT LTD. AND OTHERS

HCA010119B/1999

HCA 10119/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10119 OF 1999

____________

BETWEEN
	PERENNIAL INVESTMENTS (H.K.) LIMITED	Plaintiff
	AND
	UNION BRIDGE INVESTMENT LIMITED	1st Defendant
	POPBRIDGE INDUSTRIAL LIMITED	2nd Defendant
	CHENG PUI PING	3rd Defendant
	LO KA TONG	4th Defendant
	HO WING KAN	5th Defendant

____________

Coram: Hon Chung J in Chambers

Date of Hearing: 27 July 2000

Date of Decision: 27 July 2000

 

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D E C I S I O N

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Introduction

1. This is the Plaintiff's appeal against the order of Master C B Chan of 5 June 2000 whereby she ordered the Plaintiff to give security for costs of this action. The sum ordered by the learned Master was already paid into court on 3 July 2000 (time for doing so having been extended). However, the Plaintiff contends that the order ought not have been made and therefore took out this appeal on 13 June 2000.

2. D2 made the application to the learned Master for security for costs alleging that the Plaintiff would be unable to pay D2's costs of this action if the Plaintiff is unsuccessful in this litigation. The Plaintiff disputes that on the following grounds:-

(a) there is no "credible testimony" that the Plaintiff will (not merely may) be unable to pay D2's costs. Hence, the burden of establishing the jurisdiction to order security has not been satisfied by D2;

(b) even if D2 has been able to establish jurisdiction, the court's discretion ought to be exercised in the Plaintiff's favour because:-

(1) there is no suggestion that the Plaintiff's claim is not bona fide;

(2) there is no suggestion that the Plaintiff has defaulted in honouring its payment obligations. On the contrary, D2 admits the Plaintiff has duly paid $4.5 million pursuant to the share subscription agreement dated 18 January 1999;

(3) D2 is only a nominal party;

(4) the Plaintiff has since February 2000 become the 100% owner of D2's shares and it is doubtful if D2 has properly been authorised to defend this action.

3. I shall deal with these arguments in turn. But before doing so, I should mention that the Plaintiff's claim is based on alleged breaches of a number of agreements made between the parties. These allegations were denied by the Defendants and they allege that the Plaintiff has breached the agreement. The parties correctly do not ask me to go into the details of the merits of the Plaintiff's claim or the defence of D2 in deciding this appeal.

Jurisdication

4. Mr Yuen for the Plaintiff argues that despite the evidence filed by D2 up to now, D2 has failed to provide "credible testimony" as to the Plaintiff's inability to pay the costs of this action.

5. He agrees that the usual approach the court should adopt regarding this issue is to examine if the Applicant (that is D2) has adduced:-

(a) direct evidence of the Plaintiff's inability to pay costs;

(b) in the absence of direct evidence, circumstantial evidence sufficient to enable a reasonable inference to be drawn as to the Plaintiff's inability to pay costs.

6. It is common ground that there is no (undisputed) direct evidence of the Plaintiff's inability to pay. What divides the Plaintiff and D2 in this appeal is whether the circumstances relied upon by D2 meet the threshold onus required by s.357 of the Companies Ordinance, Cap. 32.

7. These circumstances are:

(a) the Plaintiff is a company with a relatively small amount of issued capital, that is $10,000;

(b) there is no evidence that the Plaintiff owns any asset in Hong Kong. Indeed, Mr Yuen accepts that the Plaintiff does not own any real property here;

(c) the nature of the Plaintiff's business is unknown. It is described as an "investment holding" company;

(d) the only disclosed asset is said to be an investment in the mainland in the sum of RMB500,000. However, this is outside Hong Kong and the investment is described as having been made "through agents". The source of the amount is also unknown;

(e) according to in a credit report compiled by D2's private investigators, the Plaintiff does not have a separate telephone or fax line, or a separate office or workforce. In short, the Plaintiff does not appear to have an independent existence in reality. It can be inferred from the above is that the Plaintiff is making use of the telephone and fax lines, office premises and workforce of its parent company (assuming that there is a need to do so).

8. Having considered the above matters (collectively) and the Plaintiff's response to them, I am satisfied that D2 has established by "credible testimony" that the Plaintiff will be unable to pay its costs if unsuccessful in this action.

9. Mr Yuen has also relied on the financial strength of the Plaintiff's parent company. However, it is trite law that companies are separate legal entities. There is no undertaking from the parent company regarding the Plaintiff's potential liability to costs. In these circumstances, I do not find this matter should affect my conclusion regarding this point.

Discretion

10. Mr Yuen argues that even if D2 can establish the jurisdiction for granting an order, the court should refuse to do so as a matter of discretion. The matters relied on by him in this regard are:-

(a) the Plaintiff's claim is bona fide;

(b) the Plaintiff has a record of meeting its payment obligations;

(c) D2 is only a nominal defendant;

(d) D2's authority to appear and defend this action is disputed.

11. As regards (a) above, as stated earlier, I do not find this matter to be of weight considering that this is not an appropriate case to examine the merits of the parties' respective allegations against the other.

12. As regards (b) above, 2 payments are in question. The first was the payment of $4.5 million which was related to one of the agreements in issue in this action. This was made by way of cheques from other sources. In any event, from the evidence adduced herein, it is apparent that the Plaintiff's funds must have come from an outside source, most probably from its parent company. This is because the Plaintiff does not have its own business and is described as an "investment holding" company. The other payment was the $600,000 ordered by the learned Master. I do not consider that this payment is of such weight as to affect the exercise of my discretion in D2's favour.

13. I do not agree with Mr Yuen's points (c) or (d) above. The Plaintiff has alleged D2 to be one of the parties in breach of the agreements. This was denied by D2 in its defence. Counsel have confirmed at the hearing that these are real issues and this is not a "hypothetical" action. In these circumstances, I do not agree D2 is a "nominal" Defendant. As regards point (d) above, the authority of D2 is disputed and this is not a matter which can be decided one way or the other in this appeal.

Conclusion

14. For the above reasons, I do not find that there is any error in the Master's order. In fact, I agree with it. No issue is raised as regards the quantum of the security ordered and it therefore does not need to be dealt with.

15. The appeal is dismissed.

 

 

 

Representation:

Mr Rimsky Yuen, instructed by Messrs Liu, Chan & Lam, for the Plaintiff

Mr P H Wong, instructed by Messrs Victor Chu & Co., for the 2nd Defendant

 

HCA010119A/1999

HCA 10119/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10119 OF 1999

____________

BETWEEN
	PERENNIAL INVESTMENTS (H.K.) LIMITED	Plaintiff
	AND
	UNION BRIDGE INVESTMENT LIMITED	1st Defendant
	POPBRIDGE INDUSTRIAL LIMITED	2nd Defendant
	CHENG PUI PING	3rd Defendant
	LO KA TONG	4th Defendant
	HO WING KAN	5th Defendant

____________

Coram: Li, DJ in Chambers

Date of Hearing: 3 February 2000

Date of Reasons for Decision: 14 February 2000

 

___________________________________

REASONS FOR DECISION

___________________________________

 

The 2nd Defendant is the focus of this action. Apparently it has potential to be a successful business undertaking and has the backing of a leading local bank ("the bank"). However, it is in financial difficulties and is beset by in-fighting. The promoters of the 2nd Defendant have split into two antagonistic camps, one being the Plaintiff and the other being the 1st Defendant with the other individual Defendants. The real issue in the action herein is which camp may obtain majority shareholding in (and thus control of) the 2nd Defendant. Each camp contends that it is entitled under a Shareholders' Agreement to acquire controlling shares in the 2nd Defendant and there are cross allegations of breach of the shareholders' agreement.

2. The parties first came before me on 8th December 1999 on a different summons because two of the directors nominated by the Plaintiff to sit on the board of the 2nd Defendant and a financial controller appointed by the Plaintiff for the 2nd Defendant were removed from their office allegedly contrary to the said Shareholder's Agreement. On that occasion, I was given the impression that the bank believed that the 2nd Defendant would not be able to trade effectively with much bickering between the two camps at the board level. I was informed that the bank would continue to support the 2nd Defendant only if the 2nd Defendant would not be further hampered by internal conflict. On the other hand, the Plaintiff contended that it was entitled to safeguard the interests of its investment in the 2nd Defendant. In the premises, I made an order which was a kind of compromise and at the same time preserve as far as practicable the status quo until trial of the action. The order was in these terms:-

"1. The 1st, 2nd, 3rd and 4th Defendants do take all such steps as may be necessary to appoint up to 2 nominees of the Plaintiff who are practising Certified Public Accountants as directors of the 2nd Defendant provided that such nominees shall not have been objected to by The Hongkong and Shanghai Banking Corporation Limited within 7 days of the nomination. The Plaintiff undertakes to procure the resignation or concur in the removal of such directors or any one of them, if subsequent to their appointment, The Hongkong and Shanghai Banking Corporation Limited requires his or their resignation or removal. In such event, the 1st, 2nd, 3rd and 4th Defendants shall take all such steps as may be necessary to appoint a replacement director or directors, as the case may be, provided such replacement should not have been objected to by the Hongkong and Shanghai Banking Corporation Limited within 7 days of nomination. The Plaintiff undertakes to procure the resignation or concur in the removal of such replacement director or directors if The Hongkong and Shanghai Banking Corporation Limited requires his or their removal or resignation.

2. The 2nd Defendant do supply to the directors so appointed or failing them the Plaintiff a list of all payment in excess of HK$10,000.00 together with their supporting vouchers within 48 hours of their payment by the 2nd Defendant.

3. The Plaintiff undertakes that they shall keep any information supplied to or obtained by them or as a result of paragraphs 1 or 2 above confidential and, without the leave of the Court, not to use them save for the purpose of these proceedings.

4. The 1st, 2nd, 3rd and 4th Defendants be restrained from selling or in anyway of disposing the shares now purportedly held by them as a result of the purported compulsory purchase of the Plaintiff's shares.

5. The 2nd Defendant be restrained from paying, undertaking or incurring any of the costs of any of the other Defendants in this action.

6. The 2nd Defendant undertakes to give to the Plaintiff at least 5 days notice before the 2nd Defendant issues or agrees to issue any of its share or registered capital or grants any option over or right to acquire any of its share or registered capital.

7. The 2nd Defendant undertakes to give to the Plaintiff at least 5 days notice before the 2nd Defendant permits or suffers Popbridge Manufacturing Limited and Dongguan Popbridge Electronic Company Limited to issue any of its shares or registered capital or grant any option over or right to acquire any of its share or registered capital.

8. There be general liberty to apply on 48 hours notice."

3. Thereafter, some time in January 2000, two board meetings of the 2nd Defendant were held in which, allegedly, the board decided to make a general offer of convertible bonds to all existing shareholders pro rata their respective percentage of shareholdings. This prompted the Plaintiff to come back to me with an urgent summons ("the urgent summons") for an order in the following terms:-

"(1) An order that the 1st, 3rd and 4th Defendants their agents or servants or whosoever otherwise be restrained from issuing or causing the 2nd Defendant to issue an additional 8,000,000 shares at $1.00 each provided in the Convertible Bonds Agreement entered into between the 1st and 2nd Defendants ("the Convertible Bonds Agreement") or any shares of the 1st Defendant in any other quantity or denomination or to allot the same to the 1st Defendant;

(2) An order that the 1st Defendant its agent or servants or whosoever otherwise be restrained from submitting or applying to the 2nd Defendant subscribing for 8,000,000 convertible bonds at $1.00 each provided in the Convertible Bonds Agreement or any other convertible bonds of the 2nd Defendant in any other quantity or denomination;

(3) An order that the 1st Defendant its agents or servant or whosoever otherwise be restrained from demanding, charging or receiving payment of any interests in respect of the loan of $8,000,000.00 lent or advanced or to be lent or advanced to the 2nd Defendant save and except reasonable commercial lending interest as the Hongkong and Shanghai Banking Corporation or other banks in Hong Kong; and

(4) An order that the 1st Defendant its agents or servant or whosoever otherwise be restrained from giving any notice to the 2nd Defendant or to any other party action on its behalf to convert any of the aforesaid convertible or other bonds of the 2nd Defendant into ordinary or other shares of the 2nd Defendant;

until the hearing of the Action herein or until further order."

4. True to form, before I could start to hear arguments on the merits of the urgent summons, the parties began to fight over another issue. Mr Wong, counsel for the 2nd Defendant, complained that the Plaintiff had not served the 2nd Defendant with papers relating to the urgent summons. The Plaintiff contended that, because the terms of the order being sought are not directed at the 2nd Defendant and because moreover the question of which camp ought to have control of the 2nd Defendant had not been determined by the court yet, the 2nd Defendant could not engage legal representation which is an unjustified expenditure.

5. It is trite law that before the court makes any injunctive order that may affect a party, that party ought to be given the opportunity to make representations. Here the order being sought would have the effect of preventing the 2nd Defendant from raising money by one means. Clearly the 2nd Defendant was entitled to be heard if it wished. Accordingly, I ruled that the 2nd Defendant could present its case in respect of the urgent summons and all parties were warned to desist from conducting themselves in this action with any tint of bigotry.

6. As to the merits of the urgent summons, Mr Ho for the Plaintiff suggested, and it is conceded by Mr Wong for the 2nd Defendant, that the 2nd Defendant could not issue the convertible bonds without a resolution of the general meeting of the 2nd Defendant.

7. Mr Wong for the 2nd Defendant confirmed that the proposal to issue convertible bonds had not yet been put before a general meeting and no bond had yet been issued. Issuing of convertible bonds was just one of several means the 2nd Defendant had been considering to raise trading capital. In any event, Mr Wong argued, the issue of convertible bonds to shareholders pro rata their respective percentage of shareholdings was a fair measure. The Plaintiff, for instance, could decide to take up or reject the offer as it wished.

8. In my view, offering convertible bonds at this stage, even though pro rata respective percentage of shareholdings, could not be appropriate because the percentage of shareholding the parties herein are entitled to is the very bone of contention in the action. If some of the shareholders, including the parties herein, are prepared to inject trading capital into the 2nd Defendant, they may be issued debentures rather than bonds convertible to shares. The proposal to issue convertible bonds would give the impression that it may be designed to upset the status quo and even pre-empt the result of trial. As I have indicated during the earlier hearing on 8th December 1999, the court should preserve the status quo as far as practicable.

9. On the other hand, the Plaintiff's urgent summons for injunction to restrain issue of convertible bonds was premature. All that the Plaintiff had was information that the board of directors of the 2nd Defendant decided to issue convertible bonds. There is not yet board minutes to confirm what was the decision, if any. Even if the board had decided, a general meeting had yet to be convened to authorize the issue of convertible bonds. If, as the Plaintiff feared, the 2nd Defendant were to issue convertible bonds without requisite resolution of general meeting, the issue would be invalid anyway and may be set aside at any time.

10. In the premises, I made no order on the urgent summons. The hearing was adjourned sine die so that it may be revived in case the Defendants proceed to arrange the issue of convertible bonds. Since after all the urgent summons was premature, I ordered the Plaintiff to bear the Defendants' costs of the hearing before me on 3rd February 2000.

 

 

 

Representation:

Mr B K Ho, Esq., instructed by Messrs Liu, Chan & Lam, for the Plaintiff

Mr K Chan, of Messrs Foo & Li, for the 1st & 3rd-5th Defendants

Mr Wong Po Hoi, instructed by Messrs Victor Chu & Co., for the 2nd Defendant

 

HCA010119/1999

HCA 10119/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10119 OF 1999

______________

BETWEEN
	PERENNIAL INVESTMENTS (H.K.) LIMITED	Plaintiff
	AND
	UNION BRIDGE INVESTMENT LIMITED	1st Defendant
	POPBRIDGE INDUSTRIAL LIMITED	2nd Defendant
	CHENG PUI PING	3rd Defendant
	LO KA TONG	4th Defendant
	HO WING KAN	5th Defendant

______________

Coram : Deputy Judge W. Wong in Chambers

Date of Hearing : 30 July 1999

Date of Ruling : 30 July 1999

____________

R U L I N G

____________

 

1. This is an inter parte summons taken out by the Plaintiff asking for certain mandatory order and injunction in respect of the affairs of the 2nd Defendant.

2. The 41 pages of affidavit in support consisting of 96 paragraphs and its exhibits together with the file was passed on to me at 3:30 p.m. the day before the hearing.

3. The affidavit sets out circumstances leading to the resignation of two of the 2nd Defendant's directors who had controlling interest in order to have two corporate directors in their place and then the 3rd, 4th and 5th Defendants alleged certain irregularities in their appointments and removed them. Hence the 3rd, 4th and 5th Defendants are in virtue control of the 2nd Defendant. There is also allegation of irregular practices by the 3rd, 4th and 5th Defendants in the affairs of the 2nd Defendant.

4. The parties had agreed to the following directions: -

1) 21 days for the Defendants to file affidavit in opposition of the summons.

2) 21 days for the Plaintiff to reply (if any) to the Defendants affidavits.

3) Summons adjourned to a date to be fixed in consultation with counsels' diary.

4) Liberty to apply within 48 hours notice.

5) Estimated time 2 days.

6) Costs in the cause.

5. Since the whole proceedings concerned the affairs of the 2nd Defendant, it would not be appropriate for the 2nd Defendant to be represented to participate in the proceedings. Hence I amended the order to exclude the 2nd Defendant from filing any affidavit and ordered that the 2nd Defendant should not take an active part in the proceedings.

6. Mr P H Wong of counsel for the 2nd Defendant objected. He started by saying that if it was not the intention of the Plaintiff that 2nd Defendant should take part then the Plaintiff should not have been named as a party. With greatest respect if the result of the litigation imposes an order affecting the 2nd Defendant, how possibly can the order be enforced upon an entity which is not a party to the proceeding. He then went on to say it should not be named as the 2nd Defendant. I am at a loss as to what difference does it make whether it be the 1st, 2nd or the last Defendant.

7. I then asked Mr Wong as to whether there are any issues which needed the active participation of the 2nd Defendant. His reply was simply that there may be some and said that he was not prepared as this matter was not raised by the Plaintiff.

8. I deprecate counsel coming to court without knowing what the case is about. He is not doing justice to his client. Not only that he was not able to assist the court, he had been obstinate in saying that there may be issues but he could not tell what are the issues, obviously because he has not even read the affidavit which has been filed.

9. He has asked me to make a ruling so that he can appeal. I have already made the ruling and this my reason for the ruling.

	(Wesley Wong)
	Deputy Judge of the High Court

Representation:

Miss O Wong of Szeto & Yeung for the Plaintiff.

Union Bridge Investment Ltd., in person. The 1st Defendant represented by Miss Cheng Pui Ping.

Mr Wong P H instructed by Victor Chu & Co. for the 2nd Defendant.

The 3rd Defendant Cheng Pui Ping, in person.

The 4th Defendant Lo Ka Tong, in person.

The 5th Defendant Ho Wing Kan, in person.