RIGHT STAR INVESTMENT CO LTD v. GRAND PALACE LTD

cacv 356/2007

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 356 of 2007

(on appeal from HCCW NO. 908 of 2005)

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J U D G M E N T

Hon Rogers VP:

1.  This is an application by Dr Huang to vary a costs order nisi which was made by this court when giving judgment on 12 June in this matter.  I say it is an application by Dr Huang because the application, properly made, was made by the company, and not by Dr Huang.  What Dr Huang says is that a letter was then written by the same solicitors who acted for the company to the court some time after the summons was issued, saying that the summons had actually been issued by him.

2.  That is not a proper way of dealing with an application.  If an application is to be made to this court, it should be made properly and by a summons.  It should not be made by a letter to the Registrar.

3.  But be that as it may, we have heard the application and it has taken a great deal longer than it was said in the summons it would take, unnecessarily so, in my view.

4.  The point at issue is this: that when the appeal was heard, this court was told that the appeal had been funded by Dr Huang.  It was an appeal in respect of a winding-up order that had been made.  Mr Kwok, who has appeared today, did not appear on that occasion.  We are told that the instructions to the previous Counsel were wrong.  I am not sure how far that takes it, because the evidence which has now come in has come in from a lady and it is far from satisfactory.  It is not all-encompassing by any manner of means and it raises more questions than it answers.

5.  But the short answer to it is Dr Huang, for reasons which Mr Kwok has enunciated - in other words, that he might not be believed - has failed to file any evidence at all and that is simply not an answer.  If Dr Huang wants to say that he did not fund the appeal, it was up to him to prove it and to say so himself and that he has failed to do.

6.  The point which is made on behalf of Dr Huang is that it is said that there is no jurisdiction, because section 52A(2) of the High Court Ordinance Cap. 4 prevents a costs order being made against a person who is not a party.  But in my view, Dr Huang made himself a party de facto on this appeal.

7.  It is challenged by the Respondents to the appeal as to whether there was any board authorisation authorising this appeal.  Given the fact that the company was wound up, I doubt that that could have happened, but quite clearly, and even on Mr Kwok’s own submissions today, it was Dr Huang who was giving instructions on this appeal and, by that, he has taken over the conduct of the appeal and he has, de facto, made himself a party to these proceedings.  In that respect I would refer to what Mrs Justice Le Pichon said in Re Datacom [2001] HKLRD 526.  In very similar circumstances in that case, as Mrs Justice Le Pichon pointed out, a person who takes over the conduct of an appeal in winding-up proceedings clearly makes himself a party.  This concept is extremely important in winding-up proceedings because it is very important when a company has been wound up that the assets are not depleted by frivolous appeals, as this one was.  It is for that reason that when security for costs are ordered, the court makes it very clear that the funds have to be arranged to be provided and not to be provided by the company itself.

8.  In this case, that is what happened.  There was an application for security for costs and on that application it was made very clear that the company should arrange for security to be given, not that it should give it itself.

9.  In those circumstances, in my view, there are no grounds for altering the order nisi that was made that Dr Huang should bear the costs of this appeal.  He instigated it.  He clearly instructed the solicitors.  He was behind the appeal.  He caused the appeal.  He made himself a party to this appeal and whether or not some of the moneys came from Madam Liu matters not.  The evidence which she provided was wholly insufficient to prove that ultimately he did not provide the money.

Hon Le Pichon JA:

10.  I agree with the judgment of the Vice-President and have nothing to add.

Hon Cheung JA:

11.  As it turns out, the real issue in this application is not so much about the jurisdictional issue raised by section 52A(2) of the High Court Ordinance, but whether Dr Huang is a party.  I agree entirely with what the Vice-President has said.

cacv 356/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 356 OF 2007

(ON APPEAL FROM HCCW NO. 908 OF 2005)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  I agree with the reasons for judgment of Le Pichon JA.

Hon Le Pichon JA:

2.  This was an appeal by Grand Palace Ltd (“the company”) from the winding up order made against it by Barma J on 5 October 2007.  At the conclusion of the hearing, the appeal was dismissed with written reasons to be handed down which we now do.

Background

3.  Right Star Investment Company Ltd petitioned as creditor for a winding up order on the basis that the company was unable to pay its debts.  The petition was founded on debts amounting to $5,977,974.60 in respect of arrears of rental said to be due to Right Star under three tenancy agreements between itself and the company.

4.  As the judge observed, although the indebtedness is denied, the company’s case was ‘somewhat convoluted’.  In broad outline, it contended that the first two tenancy agreements were of no effect and having regard only to the third tenancy agreement, the company had in fact overpaid the petitioner in respect of rental due under that tenancy agreement.

5.  The main issue below was whether the company had established that the alleged debt was bona fide disputed on substantial grounds.  Both sides filed a number of affirmations.  There was no application made to the judge for the cross-examination of any of the witnesses.  After a three-day trial and further written submissions, the judge concluded that he was not satisfied that the company had come close to establishing the existence of a bona fide dispute of substance as to the debt asserted by Right Star.  The judge went further: in case he were wrong in reaching this conclusion, he went on to consider the company’s case having regard only to the third tenancy agreement.  After going into the evidence, the judge concluded that even on the basis put forward by the company, monies were due to Right Star under the third tenancy agreement and that a winding up order remained appropriate.

6.  The detailed facts are recorded in the judgment of Barma J to which reference should be made.  For present purposes, the following outline will suffice.  In the 1990s, Dr Huang and Mr Hui each owned 50% of Right Star.  After acquiring land in Yau Ma Tei, Right Star caused a commercial building to be built comprising a ground floor, three units on each of the first to third floors (totalling 9 units) and two units on each of the 19 floors above (totalling 38 units).  Only 18 of the units on the upper floors could be sold.  The remaining 20 were divided between Dr Huang and Mr Hui.  Dr Huang disposed of one of the 10 units allocated to him and Mr Hui four out of the 10 allocated to him.  That left 15 units which became the subject of one of the 1996 tenancy agreements and of the 1998 tenancy agreement.

7.  It was then decided that those units would be converted into hotel rooms with a view to operating a guest house and the company was incorporated for that purpose in 1995.  Initially there were three shareholders including Dr Wong and Mr Hui but by 1997 there were two other shareholders.  An application was submitted for conversion of the building into a guest house consequent upon which some work had to be undertaken before business could commence.

8.  Both of the 1996 tenancy agreements were signed by Mr Hui on behalf of Right Star and by Dr Huang on behalf of the company.  The first dated 1 October 1996 related to the ground to third floors of the building for a period of two years at a rent of $145,000 per month.  The second of the same date related to the 15 units mentioned above but for the same period at the same monthly rent.  As regards the first two tenancy agreements, initially there had been an issue as to whether the terms had been varied in April 1991 to reduce the rent payable under both agreements to $150,000 per month.  That was resolved when Right Star agreed to proceed on the basis that there was a rent reduction.  The third tenancy agreement recorded a lease of the ground floor and the 15 units for a term of just over 10 years from 16 May 1998 at a monthly rental of $80,000.

9.  The company sought to contend that the tenancy agreements of 1996 were not genuine tenancy agreements but did not dispute the fact that (1) they had been signed by Dr Huang on behalf of the company and (2) the audited accounts of the company included a balance sheet containing a reference to the debt owed by the company to Right Star in the amount which would have been outstanding on the basis that the 1996 agreements were genuine agreements.  In the court below, counsel who appeared for the company below relied on a number of documents said to provide support for the company’s case that the debt was substantially disputed.  It is apparent from the judgment that the judge gave consideration to those documents but, for the most part found it impossible to understand their significance.

This appeal

10.  Prior to the appeal hearing, this court received what was said to be a revised version of the submissions from counsel then appearing for the company on this appeal and who had appeared below.  I regret to say that notwithstanding several attempts, I was unable to fathom the points sought to be made.  The written submissions were simply not intelligible.  Then two days prior to the hearing itself, for reasons which it is unnecessary to go into at this stage, Mr Leung withdrew his representation and a new counsel was instructed to conduct the appeal before us.

11.  At the hearing itself, the court first dealt with the application of Ms Yang who appeared for the company to adduce new evidence.  This application was refused given that the Laddv Marshall conditions had not been satisfied.  No more needs be said about that or the new evidence sought to be adduced.

12.  The first point taken by Ms Yang was that the judge had overlooked certain evidence of waiver.  However, it is clear from the documents referred to by Ms Yang that the documents said to have been overlooked had in fact been considered in some detail by the judge in §§ 39 - 40 of the judgment.

13.  Next, exception was taken to § 42 of the judgment which reads:

“   The third document to which Mr Leung referred was a handwritten note, apparently signed (perhaps by way of acknowledgment only) by Mr Hui, which is dated 31 March 1998.  It was suggested that this indicated that the 1996 tenancy agreements were not signed in 1996, but later.  However, that does not appear to be in any way apparent from this document.”

14.  It was suggested that the court should infer from that document that the 1996 tenancy agreements had not been signed in 1996.  The problem with this is that the document which bears a date of 13 March 1998 is difficult to understand.  Without the benefit of oral evidence from the author of that document (namely Mr Hui), it is well-nigh impossible to discern either the purpose of the document or what it was meant to record.  Nor do I think it can be said that its natural meaning is that the 1996 tenancy agreements had not been signed as at the date of the document.  The company could have applied to the judge to cross-examine Mr Hui but it chose not to avail itself of that opportunity.  For my part, it has not been shown that the judge had misunderstood the evidence when he said what he did in § 42 of his judgment.

15.  Finally Ms Yang referred to a letter dated 7 September 1998 from a Mr Poon Nai Leung addressed to the company for the attention of Mr Huang.  That letter recorded that Mr Poon had agreed at the general meeting of the company held on 12 June 1997 to inject monies into the company on the basis that he would be made a director.  It was said that this letter demonstrated that there were no tenancy agreements for the period 1 January 1997 to March 1998.  Ms Yang referred to the following extract from the letter:

“ …Even worse, Mr Hui Kwok Wah requested [the company] to pay rent to the owners of 1/F to 3/F for the period 1/1/1997 to 3/1998 …”

16.  I am unable to see how that passage throws any light on the existence or otherwise of the 1996 tenancy agreements.  Ms Yang’s reliance on this document was misguided.  This letter was simply an exhibit to one of the affirmations filed by Mr Huang and there is no evidence from Mr Poon himself to explain what he meant.

Conclusion

17.  This appeal was simply hopeless from the start.  It should never have been brought.

18.  Right Star applied for costs on an indemnity basis.  The Official Receiver who did not attend the hearing had applied by letter for his costs on the same basis.  The court was advised that it was Mr Huang who had funded this appeal.

19.  The general practice is that the backer of an unsuccessful appeal against a winding up order would be ordered to pay costs on an indemnity basis.  Re SY Engineering Co Ltd, unreported, CACV 1896/2001, 20 February 2002.  It was therefore ordered nisi that Right Star and the Official Receiver do have their costs on an indemnity basis to be paid by Dr Huang, that the order be served on Dr Huang who has 14 days from the date of the service of the order on him to make such application as he sees fit.

Hon Cheung JA:

20.  I agree.

cacv 356/2007

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 356 of 2007

(on appeal from HCCW NO. 908 of 2005)

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Before: Hon Rogers VP in Chambers

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D E C I S I O N

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1.  This is an application for security for costs in respect of a company which has been wound-up.

2.  I will say two things about this application at the start.  In the first place, the court has been given a number of bundles on this application for security for costs which are totally unnecessary.  Included with them, is a 30-page submission from the Respondent.  I have not read that.  I do not intend to read 30-page written submissions.  I would make it clear, and I would make it clear for not the first time, that skeleton arguments and written submissions are quite different.  In this court, this court requires skeleton arguments, and skeleton arguments should be skeleton arguments and nothing else.  They should be headings.  They should direct the court’s attention to what is going to be argued.  They need not be more than a very few pages long.  They should not be written submissions.  Written submissions are just confusing for the court.  They are of no assistance whatsoever and they will not be read.

3.  In the second place, in a number of documents now filed in court the parties’ order in the heading has been reversed.  That should not be the case.  The Petitioner should appear first and the Respondent second.  I do not know why that has happened.  It must cease from now.

4.  As regards the petition, the petition was based on a failure to pay the sums which were due.  The matter was heard by the judge.  The Respondent says the judge failed to understand various documents which were in Chinese.  That is of very little assistance to me because I certainly could not begin to correct the judge on the implication of a document which is in Chinese.  Those arguments will have to be addressed to other people.

5.  As regards the other argument, that this was due to the wrongful act of the Petitioner, and Mr Hui in particular, again the judge has had that before him.  He has made up his mind.  In my view, what is proposed to be argued by the Respondents on this appeal is that the judge has made errors of fact.  Questions of fact are difficult in this court, to say the least, and in my view this is a case where security should be given.

6.  The respondent to this appeal, the Petitioner, has asked that the order should be made that the security be provided by persons or companies who are not the respondent to the petition.  In my view, having seen the authorities, that is the proper order.

7.  The order that I propose to make is that the Appellant do, on or before 14 April, arrange that security be given to answer costs in case any shall be awarded, to be paid to the Petitioner by making lodgment in court of the sum of $250,000 by cash or banker’s draft or by provision of a bank guarantee of the like amount which guarantee shall have been approved by the Registrar.  And until such lodgment be made and notice thereof be given to the Registrar and to the solicitors for the Petitioner, such notice to be given on the same day as the lodgment is made, all proceedings in the said appeal be stayed.

8.  In default of such lodgment as aforesaid within the time specified above or within such further time as the court may for special reasons allow, the said appeal do, upon the solicitors for the Petitioner certifying such default to the Registrar, stand dismissed out of this court without further order.

9.  In the event that the appeal is dismissed in the circumstances provided for above, the Petitioner be at liberty to apply to the court for an order in respect of the costs of this appeal.  The costs of this application be costs in the appeal.

Mr Jimmie Ho Chee-choi, instructed by Messrs C K Mok & Co., for the Petitioner/Respondent

Mr Kelvin Leung, instructed by Messrs M C A Lai & Co., for the Respondent/Appellant