ALL OVERSEAS LTD AND ANOTHER v. WYLIE INDUSTRIAL LTD AND OTHERS

HCA405/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 405 OF 2003

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BETWEEN

ALL OVERSEAS LIMITED 1st Plaintiff
BILLION TOP GARMENT LIMITED 2nd Plaintiff
and
WYLIE INDUSTRIAL LIMITED 1st Defendant
LAU KING FAI 2nd Defendant
FORTUNE WINNER CORPORATION LIMITED 3rd Defendant

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Before : Hon Burrell J in Chambers

Date of Hearing : 16 April 2008

Date of Decision : 25 April 2008

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D E C I S I O N

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1. This is an appeal by the 2nd plaintiff (“Billion Top”) in its Order 14 application. Before Master Yuen Billion Top succeeded in getting the orders it soughtsave in two respects. In this appeal, Billion Top submits the Master should have gone further than she did and should have grantedthe orders sought in full.

2. Factually, the matter has become very complex. This action (HCA405/2003) is one of a number of connected actions. At an earlierhearing of this matter, Stone J sensibly suggested that there should be consolidation of the different actions (in particular HCA4515/2002and HCA742/2006). Since then, consolidation has not occurred purely for procedural reasons namely that HCA4515/2002 has been finallyadjudicated upon by the Court of Appeal and HCA742/2006 has been stayed following a winding-up order against the defendant in thatcase, “Chelton”. Therefore, this action still stands alone.

3. The complex facts of this action and the overlapping parties in the other causes of action have been helpfully and fully set outin the Master’s written decision dated 27 January 2008, in paragraphs 3-20 inclusive therein. No purpose would be served in repeatingthem herein.

4. In a nutshell, Billion Top took out loan with a firm called Chelton in January 2002. Billion Top shares were pledged to secure theloan. There were various changes of directorships in Billion Top during 2002. In September 2002, the 2nd defendant (“Lau”) gave notice that he was a director. On 19 November 2002, Lau purported to sell a Billion Top property (“theworkshop”) to the 1st defendant (“Wylie”). Later in November, Billion Top sought to settle a loan to Chelton which had been secured by way of a mortgageover the workshop. The validity of the sale of the workshop has been at the heart of these proceedings.

5. At the appeal of HCA4515/2002, the Court of Appeal ruled, inter alia, that Lau was not and never had been a director of Billion Top. Consequently, it is said, Lau’s purported sale of the workshopon behalf of Billion Top was null and void. All further avenues of appeal have now been extinguished.

6. In this action, in the Order 14 application, Billion Top sought the following orders (in outline) :

(1) a final declaration that the sale of the workshop was null and void and that Wylie was never the owner;

(2) final judgment for possession against Wylie; and

(3) further consequential orders as a result of the restoration of Billion Top as the owner.

7. Following a reasoned written decision, the Master granted the declarations sought against the 1st and 3rd defendants (the latter having no relevance to the issues in this appeal and was absent from the hearing below). However, no orderwas made against “Lau” and no order for possession of the property against Wylie was ordered.

8. Mr Benjamin Chain, counsel for Billion Top, submits that having made her decisions in Billion Top’s favour that the sale by Lauwas null and void, there were no good reasons not to (a) include Lau in the order, and (b) grant possession to the former owner,Billion Top, against Wylie.

9. The Master’s decision was carefully considered and in every respect where she granted orders, correct. Neither Wylie nor Lau hasappealed against it. I agree with Mr Chain however, that having made the correct decision which she did, the orders granted shouldhave included those orders which Billion Top now seeks on appeal.

10. In refusing to grant possession against Wylie, the Master said :

“ Whether Chelton Finance has a beneficial interest to compel the directors of Billion Top to assign all shareholdings of BillionTop to Chelton Finance or its nominee and whether Wylie has any beneficial interest over the Workshop would be the issues to be adjudicatedin HCA-742/2006. To grant the plaintiff an outright order for possession and to declare the 1st defendant never has any beneficial interest over the Workshop would have deprived the 1st defendant and Chelton Finance a claim of right over the share mortgage agreement and the sequential land sale transaction.”

11. Wylie’s claim to have a beneficial interest in the property stems from its discharge of a mortgage for (approximately) $2.1 millionto the Overseas Trust Bank (“OTB”) on the property when it was purchased. In fact the Master did not say that it was the OTBmortgage which created Wylie’s possible beneficial interest. Mr Chain, however, correctly submits that the existence of this mortgageand the fact that Wylie discharged it has to be confronted by Billion Top but that it is an independent issue from the fact thatonce it was declared that Lau was not a director and that the sale and purchase was void (which have both now been declared) Wyliecan have no interest in the property.

12. The issue of the old mortgage has, throughout, been properly confronted by Billion Top in acknowledging that credit must be givento Wylie. In its amended notice of appeal, it seeks the following order :

“a Declaration that the 2nd Plaintiff is entitled at its election to either :-

(a) interlocutory judgment against the 1st Defendant for damages for trespass to be assessed, or

(b) an account of all incomes received by the 1st Defendant from the Property,

in either event credit be given to the 1st Defendant for the sum of HK$2,138,546.93.”

13. Billion Top further submits that its claim for loss of rents and/or mesne profits for the (approximately) five years that it hasbeen out of possession will extinguish Wylie’s entitlement to the repayment of the mortgage sum. It has offered to pay, if necessary,an appropriate sum into court to protect Wylie’s possible claim to this sum. In my discretion, I find there to be no necessityto do so. Billion Top acknowledges its liability to repay subject to its own claim to set off loss of rental income. That is sufficient.

14. Wylie’s second submission is that, it was a bona fide purchase for value and therefore depriving it of all beneficial interest in the property is premature. I do not agree.

15. The Master came to the same conclusion when she said :

“I accept the concept of bona fide purchase has no application here as the shield is only applicable when a valid legal interest had been transferred to Wylie in theland transactions in 2002.”

16. The transaction was invalid thus Wylie was never a purchaser of the legal estate. Being a bona fide purchase for value does not affect the validity of a transaction. If a purchaser is able to prove he was a bona fide purchaser, it will only support his rights with regards to priorities and incumbrances. If the sale is invalid ab initio the argument has no application.

17. Even if it did, the burden would be on Wylie to prove his bona fides. I find it unnecessary to determine whether or not Wylie has discharged that burden. Suffice it to say that the factors reliedon by Mr Chain in opposition are compelling. However, both the Master and this court accept his primary submission that the considerationof the issue does not arise.

2nd defendant

18. Mr Alexander Wong, counsel for Lau, submits solely that the Master was right to exclude him from any of the orders sought becausehe had no interest, legal or otherwise, in the property or its possession. Billion Top was fully protected by the orders againstWylie and the 3rd defendant. Lau should never have been made a party.

19. On the appeal of HCA4512/2002, it was declared that Lau was not and never had been a director of Billion Top. It is plainly implicitthat he was rightly joined as a party in those proceedings. In these proceedings he was the person who, when not a director, signedthe sale and purchase agreement and assignment of Billion Top’s property.

20. In the circumstances, it is difficult to see why Lau is not a proper and necessary party.

21. Lau has had plenty of opportunity to apply to the court for misjoinder. He has not done so. Since the declaration made in HCA4515/2002became a final judgment he has had the opportunity to concede that he has no defence to Billion Top’s claims. He has not doneso.

22. His submission that he is neutral or non-interested party flies in the face of his response to the proceedings thus far; namely,that he has vigorously opposed matters at all stages. He opposed the lifting of the stay, he appealed the lifting of the stay, hehas filed affirmations in opposition, he opposed the Order 14 proceedings.

23. All that Billion Top is claiming is that the declaratory relief is binding on Lau. I agree.

Order

24. I make an order in terms of paragraphs 1, 2 and 4 of the Notice of Appeal dated 30 January 2008. I also make an order in terms ofparagraph 3 which is amended to read as follows :

3. Order in terms of paragraphs (3) (as amended) to (7) of the Order 14 summons. (Paragraph (3) having been amended in terms ofparagraph 12 of this judgment.)

(M.P. Burrell)
Judge of the Court of First Instance
High Court

Mr Benjamin Chain, instructed by Messrs So, Lung & Associates, for the Plaintiffs

Mr Leung Yiu Kwong, instructed by Messrs Fong Yin Cheung & Co., for the 1st Defendant

Mr Alexander Wong, instructed by Messrs Leung & Lien, for the 2nd Defendant