MENFOND ELECTRONIC ART & COMPUTER DESIGN CO LTD v. WONG WANG TAT VICTOR AND ANOTHER

CACV 18/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 18 OF 2013

(ON APPEAL FROM HCA NO. 293 OF 2011)

________________________

BETWEEN

MENFOND ELECTRONIC ART & COMPUTER DESIGN CO., LTD (萬寛電腦藝術設計有限公司) Plaintiff
and
WONG WANG TAT VICTOR (黃宏達) 1st Defendant
MENFOND DIGITAL PICTURES LIMITED (萬寛數碼影畫(國際)有限公司) 2nd Defendant

________________________

Before: Hon Kwan JA in Chambers

Date of Hearing: 29 April 2014
Date of Decision: 29 April 2014

________________________

D E C I S I O N

________________________

1. This is an application of the defendants to adjourn sine die the hearing of an appeal which is to be heard on 7 May 2014.

2. The application arose in this way.

3. The plaintiff’s business was set up by two brothers, Victor and Eddy Wong with the backing of their parents, Wong Senior and MadamAu. In 2009, there was serious disagreement between the brothers. The shareholders were divided into two camps, with Victor andhis parents in one camp and Eddy and the shareholders outside the Wong family in the other camp. Eddy and the outside shareholdersheld 52% of the shares and controlled the plaintiff.

4. In 2011, the plaintiff brought HCA 293/2011 against Victor and Menfond Digital Pictures Ltd (“the defendants”), claiming breachof fiduciary duty as a director and breach of contractual duties under a service agreement against Victor and passing off againstthe defendants. The plaintiff applied for summary judgment in respect of those parts of its claim founded in passing off.

5. On 3 January 2013, Deputy Judge Lisa Wong, SC gave summary judgment in favour of the plaintiff.

6. The defendants filed a Notice of Appeal against the judgment on 30 January 2013. A Notice of Hearing was issued on 31 May 2013 thatthis appeal is to be heard on 7 May 2014.

7. On 7 September 2012, L Chan J gave judgment in HCMP 272/2011 and made a declaration that part of the shares in the plaintiff registeredin Eddy’s name were held on a resulting trust for Madam Au. His judgment was upheld on appeal in CACV 234/2012 on 17 September2013. The outcome of this is that the aggregate shareholding of Eddy and the independent shareholders is reduced from 52% to 49.7%and Victor’s camp is in the majority.

8. Pursuant to that judgment, Eddy has executed an instrument of transfer in respect of the shares in question and that instrument hasbeen stamped on 10 April 2014.

9. On 19 March 2014, Madam Au issued a notice to the plaintiff’s board of directors requesting them to convene a general meeting todeal with the business contained in a schedule and the proposed resolutions to appoint herself, Wong Senior and Victor’s wife asdirectors with immediate effect. This meeting is to be convened in the course of today. It is envisaged that after this meeting,there would be a change of management of the plaintiff, even though it is not proposed to remove Eddy as a director for the time.

10. The defendants issued the present summons on 9 April 2014 to adjourn the appeal sine die.

11. The plaintiff has filed an affirmation by Eddy stating that it takes a neutral stance in respect of the application for adjournment.

12. An application to adjourn an appeal will not be granted as a matter of course, even if it is made by consent or if the other partyshould take a neutral stance. Good and sufficient reason must be shown for an adjournment to be granted (Hong Kong Civil Procedure 2014, Vol 1, §59/1/5).

13. A number of reasons for the adjournment were given in Victor’s two affirmations and the submissions of counsel on his behalf. But before going into the reasons, I wish to say at the outset I do not propose to go into the allegations and counter-allegationsmade by Victor and Eddy against each other that the financial decline of the plaintiff since the dispute arose was due to the misconductof the other. It does not appear to me these allegations are relevant for present purpose.

14. The reason for seeking an adjournment is to enable the new management of the plaintiff to obtain “full discovery” of the evidencerelating to the plaintiff’s claim of passing off. It is hoped that by gaining control of the plaintiff, the new management wouldhave access to the plaintiff’s documents to understand “the strength” of the plaintiff’s claim against Victor and to reviewthe position of the plaintiff so that a “sensible decision” would be made by the plaintiff having regard to its poor financialcondition. One of the grounds to be argued by the defendants in the appeal is that there was lack of actual evidence of confusionand damage to support a claim of passing off. So it was submitted that actual evidence of no confusion or no damage or insignificantevidence of the same would have “great impact on the outcome of the appeal”.

15. It is entirely speculative if any documents could be found by the new management during the adjournment that would have the desiredeffect of undermining the plaintiff’s case to the benefit of the defendants. It is doubtful, to say the least, whether furtherdocuments would have much impact on the outcome of the appeal, having regard to the manner the judge dealt with the submissions madeby both parties on the risk of confusion and the probability of damage. I do not think the above reason is a good reason to adjournthe appeal.

16. Next, it was said that an adjournment would allow the new management to carry out a review of any potential claim against the directorsin control of the plaintiff after Victor was removed as a director in 2010. It is envisaged that there may be claims and cross claimsamong the directors of the plaintiff, so Victor deposed it will only benefit the plaintiff if an out-of-court settlement can be achievedhaving regard to the plaintiff’s interest.

17. Any potential claim of the plaintiff against Eddy is quite irrelevant as to the plaintiff’s claim against the defendants, for whichsummary judgment has been given. That is not a sufficient reason to adjourn the appeal.

18. Lastly, attention was drawn to the fact that the plaintiff is in a poor financial condition. A creditor has presented a winding-uppetition for a debt of $356,000 and this petition is to be heard on 18 June 2014. It was contended that the appeal should be adjournedso that the new management can focus the company’s resources to deal with the winding-up petition and try to turn the businessof the plaintiff around. It was further submitted that if the defendants should win the appeal, they would not be able to recovercosts from the plaintiff, but if the appeal was dismissed, the plaintiff would recover costs from the defendants and that would be“extremely unfair” for the defendants.

19. The poor financial position of the plaintiff is not a relevant consideration. Eddy has deposed that the plaintiff has instructedlegal representatives to prepare for the appeal, so legal costs have already been incurred. There is nothing unfair that the defendantsshould pay the plaintiff’s costs if the appeal is unsuccessful. If the defendants do not wish to continue with their appeal, theproper course should be a request of dismissal of the appeal by consent, with costs to the plaintiff.

20. I note that notwithstanding judgment was given against the defendants in January 2013, and there has been no stay of execution pendingthe appeal, the defendants have not rendered an account of profits to the plaintiff or paid any part of the costs of the applicationfor the summary judgment claimed by the plaintiff at $700,000.

21. I reject all of the reasons advanced for an adjournment. The summons for adjournment is dismissed with costs to the plaintiff.

(Susan Kwan)
Justice of Appeal

Miss Winnie Chan, instructed by Or & Lau, for the 1st & 2nd Defendants (1st & 2nd Appellants)

Miss Miranda Li, instructed by S.Y. Wong & Co., for the Plaintiff (Respondent)