JULIAN TECHNOLOGY PTY LTD v. MANWAY TRADING LTD AND ANOTHER

DCCJ 6201/2024

[2025] HKDC 908

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6201 OF 2024

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BETWEEN

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REASONS FOR DECISION

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I. INTRODUCTION

1.  There are two summonses before me.

2.  The first summons was taken out by the plaintiff (“P”) on 15 January 2025, for a Mareva injunction against the 2^nd defendant (“D2”) up to the limit of the claim sum of HK$486,433.20, and specifically the two landed properties wholly-owned by D2 or their net sale proceeds (the “Mareva Application”). D2 opposed to it. The first hearing of the Mareva Application went before HHJ Gary CC Lam on 24 January 2025 (“the First Hearing”) where he refused to grant an interim-interim injunction, see decision in [2025] HKDC 163 (the “Decision”).

3.  At the First Hearing, P was granted leave to amend the Statement of Claim filed on 21 October 2024 (the “SOC”), and the Amended Statement of Claim was filed on 27 January 2025 (the “ASOC”) where P added a new cause of action against D2, i.e. tort of causing loss by unlawful means. Now before me is another summons seeking leave to re-amend the ASOC, which is essentially an amendment to the claim sum which was revised to HK$486,433.20 from HK$560,358.50 (the “Amendment Application”).

4.  I gave my judgement after the hearing and dismissed the Mareva Application and granted leave to P to re-amend the ASOC. I now give my reasons for the said decision.

II. PLAINTIFF’S CLAIM AGAINST THE 2^ND DEFENDANT

5.  D2 is the 1^st defendant’s sole director and a shareholder. The P claims against the 1^st defendant (D1) based on unjust enrichment.

6.  As HHJ Gary CC Lam put it in paragraph 3 of his Decision, ‘the plaintiff’s claim against the 2^nd defendant is parasitic upon its claim against the 1^st defendant’. It pleads:-

“F. The Plaintiff’s Claim against the 2^nd Defendant: tort of causing loss by unlawful means

30A. By reason of matters pleaded at paragraphs 19 to 22 and 28 above, Chu [that is, the 2^nd defendant], being the sole director of and in control of MTL [that is, the 1^st defendant], has refused and still refuses to cause MTL to repay the said HK$560,358.50 to JTPL. In the knowledge that JTPL is entitled to be repaid of the same sum, Chu intended to cause financial loss to JTPL by such refusal in the sum of HK$560,358.50.

30B. Chu has caused JTPL’s loss of HK$560,358.50 by unlawful means.

PARTICULARS OF UNLAWFUL MEANS

(1) In his capacity as sole director of MTL, Chu owed and owes common law and/or fiduciary duties to MTL…

(2) By the said refusal to repay JTPL and/or refusal to respond to the JTPL’s demands for repayment, whether substantively or at all, Chu was in breach of his common law and/or fiduciary duties owed to MTL as pleaded above:-

(a) By knowingly refusing, or at least negligently failing, to acknowledge JTPL’s entitlement to be repaid the said HK$560,358.50 and/or to cause MTL to repay JTPL, Chu exposed MTL (a company with minority shareholder) to the unwanted risk and adverse consequence of being sued by JTPL in these proceedings and/or of having a judgment entered against MTL and liable for a judgment debt beyond such amount; and/or

(b) The said refusals were made without any proper or good commercial purpose, without informed consent of the shareholders of MTL… and in breach of the no conflict rule;

(3) Since Chu is the sole director of and in control of MTL, the said breach of duties being unlawful means had caused and/or interfered with the freedom of MTL to repay HK$560,358.50 or any part thereof to JTPL.

31. As a result of Chu’s unlawful means, JTPL suffered loss and damage as particularised below…”

III. SAID V BUTT RULE

7.  At the First Hearing, the Court rejected to grant an interim-interim injunction based on the Said v Butt principle that “a director would ordinarily be immune from tortious liability for authorising or procuring his company’s breach of contract in his capacity as a director, unless his decision is made in breach of any of his personal legal duties to the company”: see Hon Fung v Frank Dominick[2023] HKCFI 245 at §28 per Ng J. The Court opined such principle should not only be confined to procuring of breach of contract but other causes of action such as unjust enrichment, and thus to uphold the common law doctrine of separate legal entity.

8.  In this current application, Mr. Tam, counsel for P, relied on a recent judgment by the Supreme Court of the UK: Lifestyle Equities CV & Anor v Ahmed & Anor [2024] UKSC 17, paragraph 48-63 where Lord Leggatt found the Said v Butt rule is limited only to an agent procuring breach of contract by the principal and does not apply to civil wrongs which do not depend on any contract or voluntary arrangement between the parties. Mr. Tam contended that the operation of Said v Butt rule has been unreservedly restricted to situations where the primary wrong is a breach of contract but no other civil wrongs. Thus, should a director be found to be ‘procuring’ unjust enrichment, he or she will not be immune from personal liability.

9.  P therefore contended that since P’s claim against D2 is parasitic upon its claim against D1, which is likely to succeed, D2, in causing D1 to defend and not to pay P, is in breach of his duties to D1 and thus causing loss to P.

10.  With respect, I disagree with P’s contention based on the distinctive differences between Lifestyle and the current proceedings. In Lifestyle, the claimant brought proceedings against 16 defendants, amongst which was Hornby Street Limited for infringement of registered trademarks and passing off. Hornby Street Limited was found liable for infringing Lifestyle’s trademarks and also for passing off. Subsequent to such finding, Lifestyle brought another action against the directors of Hornby Street Limited claiming that they were jointly and severally liable as accessories to Hornby Street Limited’s infringement.

11.  I am mindful that Lifestyle was a case concerned a situation where the underlying primary liability of the company was strict and the action against the directors was made after the company was found liable. Where the company’s liability is strict, there is no requirement to establish knowledge or fault on the part of the company. In contrast to the current proceedings, the averred tortious conduct of D1 is unjust enrichment and the tortious claim against D2 was causing P loss by unlawful means. While P’s claim against D1 and D2 based on the same factual matters, the elements in constituting ‘unjust enrichment’ and ‘unlawful means for causing loss to third party’ are different.

12.  In Lifestyle where the company’s liability is strict, the directors were held liable as an accessory because the court held that the directors must have known the essential facts which made the company’s conduct unlawful and intended to procure that conduct in a common design to that end. However in this instance proceedings, in order to succeed a claim against D2, P will require to prove D2’s mental element for acting mala fide, i.e. by causing D1 to defend in this action and not to pay P, D2 is violating his duties as a director to act in the best interest of D1.

13.  As explained in paragraphs 6-8 of the Decision, in discharging D2’s duties as a director owing to his company, his sole objective does not fall only on his assessment of D1 winning or losing a litigation but a wholesome of other commercial matters in managing D1 as a running business. In essence, it requires D2 to make sensible business judgment and decisions as a director which he considers to be in the best interest of D1 as well as other shareholders and creditors. In such premise, it is trite that the court should slow to interfere with a business decision of directors as stated in Securities and Futures Commission v Zhou Ling and Others[2024] HKCFI 2484 at paragraph 72(3) per Linda Chan J.

14.  As such, I do not consider P has raised a serious issue to be tried against D2 even on the assumption that P’s claim against D1 is likely to succeed.

15.  Ironically, the latest application of P to re-amend the ASOC by reducing the claimed amount has indeed demonstrated D2 been exercising his powers as the director of D1 with good and proper commercial purpose in defending an unjustifiable claim and preserving liquidity of D1. Should D2 ‘procure’ D1 in admitting P’s claim, it would put D2 at risk of breaching his fiduciary duties against his shareholders and/or creditors in repaying P’s claimed amount without exercising care and due diligence.

IV. NO REAL RISK OF DISSIPATION

16.  In respect of risk of dissipation, P urged the Court to draw an inference that D2’s ‘sudden attempt’ in selling his properties was to evade potential judgment liability. I read and agreed to the thorough considerations given in paragraphs 9-12 of the Decision. I bear in mind that the purpose of a Mareva injunction is to restrain a defendant from evading justice by disposing of, or concealing assets other than in the normal course of business in a way which will have the effect of making it judgment proof. It is not intended to constrain any individual defendant from conducting his personal affairs in any legitimate way. It is fundamental to uphold the doctrine of separate legal entity and it will be a dangerous exercise to draw casual inference of a director’s private and legitimate affairs and his or her propensity in dissipating assets.

17.  By reasons of the aforesaid, I refused to grant a Mareva injunction against D2 and the Mareva Application be dismissed. On a nisi basis, costs of the Mareva Application shall be borne by P.

18.  I also allowed P to re-amend the ASOC and file its Re-Amended Statement of Claim with costs be in the cause.

Mr Tasman Tam, instructed by Messrs Ravenscroft & Schmierer, for the plaintiff

The 2^nd defendant, Sole Director, represented the 1^st defendant, appeared in person

The 2^nd defendant appeared in person

DCCJ 6201/2024

[2025] HKDC 163

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6201 OF 2024

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BETWEEN

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DECISION

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I. INTRODUCTION

1.  Before me is the plaintiff’s inter partes application for a Mareva injunction against the 2^nd defendant in respect of a property under the 2^nd defendant’s name. The 2^nd defendant is opposed to it. The only matter I have to decide today is whether to grant an interim interim injunction and what consequential directions to make.

II. PLAINTIFF’S CLAIM AGAINST THE 2^ND DEFENDANT

2.  The 2^nd defendant is the 1^st defendant’s sole director and a shareholder. The plaintiff claims against the 1^st defendant based on unjust enrichment.

3.  The plaintiff’s claim against the 2^nd defendant is parasitic upon its claim against the 1^st defendant. It pleads:-

“F. The Plaintiff’s Claim against the 2^nd Defendant: tort of causing loss by unlawful means

30A. By reason of matters pleaded at paragraphs 19 to 22 and 28 above, Chu [that is, the 2^nd defendant], being the sole director of and in control of MTL [that is, the 1^st defendant], has refused and still refuses to cause MTL to repay the said HK$560,358.50 to JTPL. In the knowledge that JTPL is entitled to be repaid of the same sum, Chu intended to cause financial loss to JTPL by such refusal in the sum of HK$560,358.50.

30B. Chu has caused JTPL’s loss of HK$560,358.50 by unlawful means.

PARTICULARS OF UNLAWFUL MEANS

(1) In his capacity as sole director of MTL, Chu owed and owes common law and/or fiduciary duties to MTL…

(2) By the said refusal to repay JTPL and/or refusal to respond to the JTPL’s demands for repayment, whether substantively or at all, Chu was in breach of his common law and/or fiduciary duties owed to MTL as pleaded above:-

(a) By knowingly refusing, or at least negligently failing, to acknowledge JTPL’s entitlement to be repaid the said HK$560,358.50 and/or to cause MTL to repay JTPL, Chu exposed MTL (a company with minority shareholder) to the unwanted risk and adverse consequence of being sued by JTPL in these proceedings and/or of having a judgment entered against MTL and liable for a judgment debt beyond such amount; and/or

(b) The said refusals were made without any proper or good commercial purpose, without informed consent of the shareholders of MTL… and in breach of the no conflict rule;

(3) Since Chu is the sole director of and in control of MTL, the said breach of duties being unlawful means had caused and/or interfered with the freedom of MTL to repay HK$560,358.50 or any part thereof to JTPL.

31. As a result of Chu’s unlawful means, JTPL suffered loss and damage as particularised below…”

III. SAID V BUTT RULE

4.  The pleader seems to have Said v Butt principle in mind in the above pleas. By this principle, “a director would ordinarily be immune from tortious liability for authorising or procuring his company’s breach of contract in his capacity as a director, unless his decision is made in breach of any of his personal legal duties to the company”: see Hon Fung v Frank Dominick[2023] HKCFI 245 at §28 per Ng J. I do not see any reason why this principle should be confined to procuring of breach of contract but not other causes of action such as unjust enrichment, given that the rationale underlying this rule, as I understand it, is the common law doctrine of separate legal entity.

5.  In any event, the plaintiff pleads that such breaches of duties constitute unlawful means for the purpose of the cause of action of causing loss to third party by unlawful means.

IV. NOT EVEN SERIOUS ISSUE TO BE TRIED

6.  The plaintiff here in essence says that (1) the plaintiff has a claim against the 1^st defendant; (2) the plaintiff’s claim will succeed; (3) the 1^st defendant should pay the plaintiff now; and (4) the 2^nd defendant, in causing the 1^st defendant to defend and not to pay the plaintiff, is in breach of his duties to the 1^st defendant and at the same time causing loss to the plaintiff. In my view, even assuming that the plaintiff’s claim would succeed against the 1^st defendant at the end of the trial, there is less than a serious issue raised on the pleading that the 2^nd defendant had been in breach of his duties to the 1^st defendant as pleaded. This is because in discharging his director’s duties owed to his company, a director does not only consider the chances of winning or losing a litigation. He has to consider the probabilities, together with various matters like costs, effect of yielding to or opposing the claim on its reputation, the evidence and so on. This is in essence a business decision for the director considering all the relevant factors not just the chances of winning or losing a case. The Court is always slow to interfere with business judgment and business decisions of directors: see SFC v Zhou Ling and Others[2024] HKCFI 2484 at §72(3) per Linda Chan J.

7.  The plaintiff’s counsel, Mr Tasman Tam, also submits that the minority shareholders of the 1^st defendant were, without their knowledge, exposed by the 2^nd defendant’s breach of duties to the risk that the 1^st defendant would suffer loss.  Mr Tam also seems to suggest that the minority shareholders were somehow prevented from taking steps to protect the 1^st defendant and their own shareholders rights and interests. I do not understand how these submissions would assist the plaintiff. First, there is no plea about the minority shareholders’ knowledge. Second, it is a matter of internal management of the 1^st defendant, and the rights and interests of the minority shareholders are nothing to do with the plaintiff. Third, the minority shareholders would have their rights under the articles of association and statutes such as the Companies Ordinance and it is for them to decide how to exercise such rights.

8.  I should add that if these facts and/or submissions would suffice to sustain a serious issue for the plaintiff’s claim against the 2^nd defendant, the doctrine of separate legal entity would effectively be emasculated to nil. Thus, the Court should scrutinise such cause of action closely to ensure that the plaintiff would not take this means to evade the doctrine.

V. NO REAL RISK OF DISSIPATION

9.  In respect of real risk of dissipation, the bases for the plaintiff to say that there is such a real are:-

(1) On 21 October 2024, the writ of summons was issued. On 2 December 2024, the 2^nd defendant entered into a provisional sale and purchase in respect of the property in question, and the formal sale and purchase agreement was executed on 13 December 2024 but was only lodged for registration on 6 January 2025, almost a month after the execution of the agreement. Meanwhile, the 2^nd defendant filed his defence on 6 December 2024.

(2) The 2^nd defendant sold the property at undervalue. The plaintiff relies on the Hang Seng Bank’s property valuation tool, which showed that the value of the property should be HK$6,180,000, but the 2^nd defendant sold the property at HK$5,580,000. The undervalue was roughly 9%.

10.  In respect of (1) above:-

(a) I notice that as early as 24 September 2024, the plaintiff issued a pre-action letter to the 1^st and 2^nd defendants. If the 2^nd defendant would like to dissipate his assets, he would have done so earlier.

(b) There is no evidence as to when the 2^nd defendant started to put the property on market for sale.

(c) With regard to the timing of the registration of the sale and purchase agreement with the Land Registry, the statutory period given for registration of an instrument is one month: see section 5 of the Land Registration Ordinance (Cap 128). I cannot see how the 2^nd defendant, simply availing himself of the one month statutory period, can be said to be dissipating his asset. I also notice that there was a Christmas and New Year Holidays in December 2024 and January 2025.

11.  In respect of (2) above:-

(a) I can take judicial notice that the property market has not been bearish. The 9% difference based on a bank valuation tool is, while a factor I should consider, not significant to me.

(b) There is no evidence as to when the 2^nd defendant started to put the property on market for sale. For example, if he has put it on market for a long time, there would be nothing untoward that he sold the property at such value as he now has done.

12.  For the sake of completeness, insofar as the plaintiff would like to rely on the sale and purchase together with the allegations of the 2^nd defendant’s breaches of duties, I also fail to see how this would prove any real risk of dissipation, especially given my assessment of the merits of the plaintiff’s allegations of the 2^nd defendant’s breaches. In any event, breaches of duties themselves do not necessarily point to real risk of dissipation.

VI. BALANCE OF CONVENIENCE

13.  The strongest point Mr Tam has in terms of balance of convenience is that the injunction would not prevent the sale of the property but would simply require the 2^nd defendant to put the requisite amount of the sale proceeds into the Court or not to deal with such sale proceeds. This, I accept, is a point lying in favour of a grant.

VII. CONCLUSION

14.  However, having considered the lack of serious issues to be tried and the tenuous evidence in support of the plaintiff’s allegation of real risk of dissipation, despite Mr Tam’s submissions that an interim interim injunction would be necessary to hold the ring pending substantive argument and would not cause much prejudice to the 2^nd defendant, I think the practical justice lies against a grant, also bearing in mind that I can make directions for filing and hearing before the complete date of the sale and purchase set to be on 3 March 2025. Thus, I refuse to grant any interim interim injunction.

Mr Tasman Tam, instructed by Messrs Ravenscroft & Schmierer, for the plaintiff

Mr Caspar Ng, instructed by Messrs Eric Cheung & Lau, for the 2^nd defendant