RODERICK JOHN SUTTON AND ANOTHER v. WEALTH MEGA LTD

HCMP1349/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1349 OF 2006

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BETWEEN

RODERICK JOHN SUTTON and
DESMOND CHUNG SENG CHIONG
Plaintiff
(Joint and Several Liquidators of Peace City Investment Limited (In Creditors’ Voluntary Liquidation))
and
WEALTH MEGA LIMITED Defendant

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Coram : Hon Barma J in Chambers (Open to Public)

Date of Hearing : 28 July 2006

Date of Decision : 28 July 2006

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D E C I S I O N

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1. This is an application by the Liquidators of Peace City Investment Limited which is in creditors’ voluntary liquidation, havingbeen put into liquidation by resolution of its shareholders on 25 July 2005, seeking a stay of proceedings that had been broughtagainst it by Wealth Mega Limited.

2. The background to the proceedings appears to be as follows. On about 19 April 2005, Peace City and Wealth Mega entered into a provisionalsale and purchase agreement in respect of various properties owned by Peace City, which is a company within the Mu Lan I-Care(?)group of companies which is itself in liquidation, the holding company and various other companies in that group having been putinto compulsory liquidation and other subsidiaries put into voluntary liquidation by the Liquidators of the holding and other companies. Peace City appears to have been the company that owned various properties, which were occupied by itself and other members of itsgroup of companies, out of which they operated their businesses. As I say, on 19 April 2005, a provisional sale and purchase agreementappears to have been entered into between Peace City and Wealth Mega by which Peace City agreed to sell the properties in questionto Wealth Mega for a sum of HK$43 million. Although there was some initial doubt on the part of the Liquidators as to whether thatsum had been paid, it is now clear and accepted that the consideration of $43 million has in fact been paid by Wealth Mega to PeaceCity.

3. On 17 May 2005, the sale and purchase was completed by assignments of the relevant properties to Wealth Mega. At the same timeand apparently on the same date, Wealth Mega and Peace City entered into leases in respect of the properties under which Wealth Megaleased back the properties to Peace City which, together with the other entities within the Mu Lan I-Care group, continued to occupythe premises.

4. Following the commencement of the liquidation of Peace City, there came a time when Peace City ceased to pay the rent that was dueto Wealth Mega under the tenancy agreement. However, it continued to occupy the premises. After some correspondence, Wealth Megatook out proceedings seeking to recover possession of the properties and seeking arrears of rent and mesne profits and also variousother charges in respect of management fees, rates, and some utilities. Those proceedings are the subject of this application fora stay.

5. The Liquidators eventually gave up possession of the properties in question and have provided, in their affirmation in support ofthis application, an explanation of the reasons for the delay in doing so. The position therefore is that it is no longer necessaryfor Wealth Mega to recover vacant possession of the properties; however, Wealth Mega does pursue its claim for rent and/or mesneprofits and the other expenses up to the time that vacant possession was delivered.

6. Mr Maurellet, who appears for the Applicant, has submitted that the question of the company’s liability for rent and mesne profitsas such cannot seriously be disputed and that the matter is essentially one of quantification as to the precise amount that is due. He submits that this is a matter that could conveniently and more cost-efficiently be done in the course of the liquidation by WealthMega submitting proof of debt in the liquidation which the Liquidators could consider and deal with, with the benefit of supportingdocumentation put forward by Wealth Mega in support of its claims.

7. Mr Wong, who appears for Wealth Mega, did not really dispute that that would be the case if that were all that needed to be done. However, he submits that, in the light of the fact that the Liquidators have indicated, both in their affirmation in support ofthis application and in their affirmation in opposition to a summary judgment application that has been made by Wealth Mega in theHigh Court action, that there had been raised an issue by the Liquidators which is not suitable for determination in the liquidationbut which would require determination by the courts in any event.

8. That issue is this. It is suggested by the Liquidators, apparently on the basis of information provided to them by a member ofthe company’s staff, that there was in fact an oral agreement, or some other arrangement, between Peace City and Wealth Mega bywhich Peace City would be entitled to repurchase the properties at a fixed price of, it is said, $44 million, if it wished to doso. The Liquidators say that if that agreement exists, it would appear that Wealth Mega are in breach of it and that, in the circumstances,Peace City may have a claim against Wealth Mega for a substantial amount of money arising out of the breach of the alleged buy-backagreement.

9. The Liquidators do not appear, at present, to be entirely certain as to whether this claim is one that they will be able to pursue. However, they have raised it both in the context of this application and the ground for being given leave to defend in the actionitself. Mr Maurellet has suggested that a possible cost-effective course would be for the Court to simply stay the proceedings,at least on a temporary basis, leaving it with giving Wealth Mega liberty to apply so as to resurrect the proceedings if no decisionis made by the Liquidators, within a reasonable time, as to whether or not to pursue their perceived claims in relation to the allegedagreement.

10. Mr Wong suggests that that is not a satisfactory approach and that if the Liquidators were to pursue their arguments in relationto the alleged buy-back agreement, that would clearly be a matter that would, if it were to amount to a defence, or potential defence,to Wealth Mega’s claim, be a matter that would have to be tried out in due course with oral evidence and cross-examination.

11. It seems to me that the question of whether or not the oral buy-back agreement is a matter that should be pursued is a matter thatis purely within the Liquidators’ hands. It is something that they are in a position to come to a view on and decide whether ornot they wish to pursue it by way of defence to these proceedings. In the course of argument, I suggested to Mr Maurellet that itmight be possible for the Liquidators to indicate that they would not pursue the oral agreement defence in the course of these proceedingsbut might, if they thought it appropriate to pursue that claim, pursue it by separate proceedings. Mr Maurellet, I think, acceptedthat this might be so and indeed went so far as to indicate that if the Liquidators were to pursue any claim based on the allegedoral agreement, they could and would do so by separate proceedings to be commenced by the Liquidators.

12. In these circumstances, it seems to me that as long as the Liquidators are not prepared to give up any claim based on the oral buy-backagreement, there remains in the proceedings a potential argument that will be one that cannot be conveniently dealt with simply byway of proof of debt in the liquidation. In these circumstances, it seems to me that, in the absence of a withdrawal or clear retractionof those proceedings for present purposes, perhaps leaving it open for the Liquidators to pursue them by separate proceedings inthe future, it seems to me that the more convenient course would be for the Court to determine, in the context of the summary judgmentapplication, whether the facts relied on by the Liquidators in relation to the alleged oral buy-back agreement give rise to a defenceto the claims of Wealth Mega for rent, mesne profits and other expenses so as to amount to a defence by way of set-off. If theydo, then clearly that is a matter that will have to be dealt with by a trial in the ordinary way. If they do not, then no doubtWealth Mega will get summary judgment and will be able to lodge a proof of debt in the amount of the summary judgment which it isgiven, as to which there will be little scope for further argument.

13. In the circumstances, it seems to me that, given the existence of the potential defence by way of set-off or claim by the Liquidators,which the Liquidators at this stage are, perhaps for good reasons, unwilling to put on one side, it seems to me that, on balance,the more appropriate course to adopt in this case would be to allow Wealth Mega to pursue its claims in its action. For those reasons,I decline to grant the application of the Liquidators for a stay of the proceedings.

14. Mr Maurellet, I do not think you can resist the costs but ,certainly, as far as your own costs are concerned, I accept that thisapplication was not an unreasonable one and, in the circumstances, although the costs should be paid out of the assets of the companyand as far as the Liquidators are concerned, their own costs in making this application may also be recovered out of the assets ofthe company.

(Aarif Barma)
Judge of the Court of First Instance
High Court

Mr Jose Antonio Maurellet, instructed by Messrs Richards Butler, for the Plaintiff

Mr Jonathan Wong, instructed by Andrew Lam & Co., for the Defendant