HONG LEONG INVESTMENT CO. LTD. v. THE TAI PING INSURANCE CO. LTD. AND OTHERS

CACV000027/1991

IN THE COURT OF APPEAL

1991, No. 27

(Civil)

BETWEEN

HONG LEONG INVESTMENT COMPANY LIMITED Plaintiff
(Respondent)
AND
THE TAI PING INSURANCE COMPANY LIMITED Appellant
(Defendant)
and
LISA CHAN 1st Third Party
LI KAM POR 2nd Third Party

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Coram: Hon Sir Derek Cons, V-P, Kempster and Clough, JJA

Date of Hearing: 20 June 1991

Date of Judgment: 20 June 1991

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J U D G M E N T

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Kempster, JA:

1. This is an appeal from the reserved judgment and order of Mayo J given and made on 5 February 1991 setting aside an order which hadbeen made by Master Yam on 19 October 1990 for the addition of the trustee of the property of Soong Kim Sing, a bankrupt, as a defendantin this action in which Hong Leong Investment Co Ltd sue the Tai Ping Insurance Co Ltd for HK$1,710,800 pursuant to the terms ofa bond under seal dated 29 January 1986. By that bond the defendants (“the surety”) and the bankrupt, then carrying on business underthe style “Sam Yu Construction Company” (“the contractor”), were held firmly bound to Hong Leong Investment Co Ltd (“the employer”)and the Kwantung Provincial Bank (“the mortgagee”) in the sum just mentioned for the payment of which sum the contractor and suretybound themselves, their successors and assigns jointly and severally. The terms of the bond went on to read: –

“Whereas by contract (“the said contract”) dated 30 January 1986 and made between the employer of the one part and the contractorof the other part, the contractor has agreed to proposed Hong Leong Industrial Complex on … Kowloon Bay Reclamation … for thesum of HK$34,216,000. Now the condition of the above written bond is such that if the contractor shall duly perform and observe allthe terms, provisions, conditions and stipulations of the said contract on the contractor’s part to be performed and observed, accordingto the true purport and intending meaning thereof, or if on default by the contractor the surety shall satisfy and discharge thedamages sustained by the employer or by the mortgagee thereby up to the amount of the above written bond when this obligation shallbe null and void but otherwise shall be and remain in full force and effect.”

2. The plaintiffs allege in their Re-Amended Statement of Claim that the bankrupt failed to complete the works in question as providedby the contract, that the defendants have failed to make good the damage suffered by the plaintiffs in consequence and that the defendantsare, therefore, liable to them in the amount stated in the bond.

3. Questions as to the appropriate parties to this litigation immediately arise. Under the terms of the bond the defendants and thebankrupt were jointly and severally liable to the plaintiffs and to the Kwantung Provincial Bank but their covenants were expressedto be made to the plaintiffs and to the bank jointly. RSC Order 15 rule 4(2) reads: –

“Where the plaintiff in any action claims any relief to which any other person is entitled jointly with him, all persons so entitledmust, subject to the provisions of any written law and unless the Court gives leave to the contrary, be parties to the action andany of them who does not consent to being joined as a plaintiff must, subject to an order made by the Court on an application forleave under this paragraph, be made a defendant.”

In like circumstances to those now appearing proceedings may be stayed. Roche v Sherrington [1982] 1 WLR 599 at p 612. Perhaps I can leave the matter open, however, as no decision on the point is required for the purposes of this appeal.I might add that even if the liability of the defendants and of the bankrupt had been joint the plaintiffs and the bank would havebeen entitled to sue the defendants alone by reason of section 108 of the Bankruptcy Ordinance (Cap 6).

4. The principal matter of dispute in this interlocutory appeal arises from the fact that the defendants were not parties to the agreementof 30 January 1986 and, as is pleaded in paragraph 3(2) of the Reply, cannot themselves rely upon two critical clauses which it comprises:-

“15(1) When in the opinion of the Architect the Works are practically completed, he shall forthwith issue a certificate to thateffect and Practicable Completion of the Works shall be deemed for all purposes of this Contract to have taken place on the datenamed in such certificate. …

31 … when the Certificate of Practical Completion, as clause 15 of these Conditions, shall have been issued, the … InsuranceCompany … shall be released from the Bond.”

By “the bond” is meant the instrument dated 29 January 1986.

5. The defendants wish to allege that a certificate was issued by the architect on 18 March 1987 naming 26 January of that year as thedate of practical completion.

6. On 17 April 1990 the Official Receiver, in his capacity as trustee of the bankrupt’s property, issued a summons for leave to be addedas a defendant for the express purpose of counterclaiming a declaration that the defendants have been discharged from any obligationunder the bond and for an order dismissing or staying the plaintiffs’ claims against them. In granting leave Master Yam must haveaccepted some undertaking as to time under Order 15 rule 8(2) to (4) inclusive since his order made no provision for service of the amended writ on the trustee or for acknowledgment of such serviceprior to the filing of his Defence and Counterclaim on the following day; presumably effected before the writ had been amended.

7. The trustee’s application was made under Order 15 rule 6(1) and (2) which it may be helpful to set out. Paragraph (1) closely follows the terms of section 16(2) of the Supreme Court Ordinance(Cap 4): –

“6(1) No cause or matter shall be defeated by reason of the misjoinder of any party; and the Court may in any cause or matterdetermine the issues or questions in dispute so far as they affect the rights and interests of the persons who are parties to thecause or matter.

(2) Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the Court may on such termsas it thinks just –

……

(b) order any of the following persons to be added as a party, namely –

(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all mattersin dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relatingto or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenientto determine as between him and that party as well as between the parties to the cause or matter.”

The powers thereby given are wide but before Mayo J it was contended, successfully, that they did not warrant the order made by theMaster as such order involved a breach of the terms of section 12(1) of the Bankruptcy Ordinance. By section 2 “Court” means “the High Court sitting in its bankruptcy jurisdiction”. Section 12(1) reads: –

“On the making of a receiving order the Official Receiver shall be thereby constituted receiver of the property of the debtor, andthereafter, except as directed by this Ordinance, no creditor to whom the debtor is indebted in respect of any debt provable in bankruptcyshall have any remedy against the property or person of the debtor in respect of the debt, or shall commence any action or otherlegal proceedings, unless with the leave of the court and on such terms as the court may impose.”

In my opinion the Master’s order involved no breach of those provisions. It did not purport to grant the plaintiffs any remedy againstthe bankrupt’s person or property or to authorise them to commence an action or other proceedings claiming such relief. Only thecourt sitting in bankruptcy could, on one view of the matter, make such an order. As Order 15 rule 4(2), already quoted, makes explicit a party may be named as a defendant albeit no claim is made against him; a reluctant assignor ortrustee for example. That consideration apart, as the judge appears to have accepted, the propriety of the order joining the trusteeis supported by such authorities as Montgomery v Foy [1895] 2 QB 321; Shelling v John G. Shelling Ltd [1973] 1 QB 87 and Union Bank of the Middle East v Clapham “The Times” 20 July 1981. On the facts I do not read Norris v Beazley [1877] 2 CPD 80 as authority for a contrary view.

8. It would be unfortunate if the trustee, who is liable to be sued for contribution or indemnity by the defendants should they be heldliable to the plaintiffs, were constrained to issue separate proceedings followed, perhaps, by an application for consolidation ratherthan have all matters in dispute determined in these proceedings in accordance with the policy of the Supreme Court Ordinance andof the rules. Since the trustee is satisfied as to the terms and of the indemnity offered by the defendants and despite Mr Swaine’sarguments in a difficult case as far as the plaintiffs are concerned, I think it appropriate to exercise this court’s discretionboth to allow the appeal and, subject to any submission that may be made as to particular terms, restore the order made by the Masteron 19 October 1990 requiring the addition of the trustee as a defendant to the writ and allowing him to serve a Defence and Counterclaim.The argument based on delay cannot, in my view, prevail in the face of the timetable prepared for us.

Sir Derek Cons, V-P:

9. I agree with my Lord that the appeal should be allowed. In my judgment there was no infringement of section 12 of the Bankruptcy Ordinance as the judge below concluded. The reality of the situation is that it is the trustee who is commencing the proceedings and I seeno derogation from that situation in the mere fact that now for tecnnical reasons the plaintiff will be compelled to amend and servehis writ upon the trustee. In the exercise of my own discretion, I have no hesitation in agreeing with my Lord that the trustee shouldbe joined. I appreciate that there may be some delay and inconvenience but these are certainly not outweighed by the desirabilityof avoiding further action by the trustee which I am not satisfied must necessarily fail. With all respect to Mr Swaine’s submissionI do not think the trustee is acting in any way improperly in asking to be joined in these proceedings. If in due course any conflictof interest should arise no doubt it will be dealt with as it should.

Clough, JA:

10. I agree with all that has been said by my Lords and there is nothing I can usefully add.

Representation:

J. Swaine, Jr (M/s John Ho & Tsui) for Plaintiff/Respondent

Mohan Bharwaney (M/s Tsang, Chan & Wong) for Appellant