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Liu Chun Kau Andy v Hung Lee Construction Engineering Ltd

Judgment Cited authorities 7 Cited in 2 Precedent Map Related
Vincent
Judgment Date14 May 2019
Neutral Citation[2019] HKCFI 1269
Year2019
Judgement NumberHCMP527/2019
Subject MatterMiscellaneous Proceedings
CourtCourt of First Instance (Hong Kong)
HCMP527/2019 LIU CHUN KAU ANDY v. HUNG LEE CONSTRUCTION ENGINEERING LTD

HCMP 527/2019

[2019] HKCFI 1269

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 527 OF 2019

________________________

IN THE MATTER of section 732 of the Companies Ordinance (Cap 622)
and
IN THE MATTER of HUNG LEE CONSTRUCTION ENGINEERING LIMITED

________________________

BETWEEN
LIU CHUN KAU ANDY Plaintiff
and
HUNG LEE CONSTRUCTION ENGINEERING LIMITED Defendant

________________________

Before: Madam Recorder Linda Chan SC in Chambers

Date of Hearing: 14 May 2019

Date of Decision: 14 May 2019

___________________

D E C I S I O N

___________________

1. This is an application made by the plaintiff, Liu Chun Kau Andy, under section 732 of the Companies Ordinance (Cap 622) for leave to bring a statutory derivative action in the name of Hung Lee Construction Engineering Limited (“Company”) against Chan Hop Loi Nelson (“Chan”).

2. The Originating Summons and the affirmation in support of the application were served on the Company and sent to Chan. Messrs Wong & Lawyers (“WL”) purported to file an acknowledgement of service on behalf of the Company on 24 April 2019. This is surprising given that the plaintiff and Chan are the only directors and shareholders of the Company such that there has been a complete deadlock at the board and shareholders’meeting level.

3. In his submissions, Mr Justin Ho, counsel for the plaintiff, takesissue with the authority of WL to act for the Company. In their letter to the court dated 9 May 2019, WL accept (rightly) that they have no authority to actfor the Company and have applied for leave to cease to act for the Company. The Company is thus unrepresented at the hearing. Mr Paul Lee appears on behalf of Chan to make submissions on the question of costs.

Background

4. The Company carries on business in construction work which includes building, civil engineering and drainage works. The Company hasnever declared or paid any dividend to the shareholders. The only paymentsreceived by the plaintiff and Chan were the monthly directors’ remunerationwhich was initially at HK$20,000 and subsequently increased to HK$40,000.

5. According to the plaintiff, since the incorporation of the Company, Chan has been responsible for handling all administrative and accounting affairs while the plaintiff has been in charge of supervising the construction projects undertaken by the Company. In late March 2017, the plaintiff began to enquire into the financial position of the Company. Upon further investigation, it appears from the Company’s statements of bank accounts and ledgers that Chan had, without the knowledge and consent of the plaintiff:

(1) transferred or withdrawn an aggregate amount of HK$16,541,000 from the Company’s bank accounts to himself during the period from July 2010 to September 2017; and

(2) used an aggregate sum of HK$131,349 for his personal purposes including making payments to his son, the elderly home of his mother and discharging his liability to pay tax during the period from 13 April 2015 to 22 September 2016.

6. The plaintiff claims that of the aforesaid amounts withdrawn or used by Chan, a total sum of HK$7,099,087.50 appears to have been applied for the purpose of the Company and, therefore, the net amount misappropriated or misused by the plaintiff is HK$9,573,261.50 (“Subject Sum”). Despite the plaintiff’s demands, Chan failed to provide any proper explanation to justify his use of the Subject Sum.

7. The plaintiff says that of the Subject Sum, Chan admitted to have withdrawn HK$2,000,000 from the Company’s bank account in order to “stakehold the same for the Company” which, according to Chan, was in response to an unauthorised withdrawal of HK$80,000 from the Company’saccount. The plaintiff on the other hand says that this withdrawal was for his remuneration for two months. There is no dispute that this HK$2,000,000 belongs to the Company and is currently held in the client’s account of WL.

8. The plaintiff also claims that in September 2017, Chan set up a competing business in the name of Hung Wei Construction Engineering Limited (“Hung Wei”) to engage in the same construction engineering business. Chan was (and still is) the sole shareholder and director of Hung Wei and used the same registered office and company secretary as those of the Company. Hung Wei employed 5 – 6 of the former employees of the Company and has solicited work from the former clients of the Company.

Applicable principles

9. The principles governing application under section 732 of the Companies Ordinance are well established and have been conveniently summarised in Re Primlaks (HK) Ltd [2016] 2 HKLRD 31 at §§7 – 9 per Ng J and Lam Kin Chung v Soka Gakkai International of Hong Kong Ltd (No 2) [2018] 2 HKLRD 769 at §5 per Harris J. In short, the plaintiff has to satisfy the court that:

(1) it appears to be in the company’s interests that leave be granted to the member. In this regard, if a serious issue to be tried is shown, it will normally be in the interest of the company to pursue the proceedings as the fruit of any judgment to be obtained will be paid to the company;

(2) there is a serious question to be tried. This is a low threshold. In considering the prospect of the company’s success, the court will consider the allegations set out in the draft statement of claim. It is only if the defendant can demonstrate fairly readilythat there is a serious flaw in the claim or that the claim has noreal substance such that the company cannot be said to have anyexpectation of success that the court will find against the plaintiff;

(3) the company has not itself brought the proceedings; and

(4) a written notice has been served on the company in accordancewith section 733(3) and the notice...

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2 cases
  • Great Genius Industrial Ltd v Lg Corporation Ltd And Others
    • Hong Kong
    • Court of First Instance (Hong Kong)
    • 18 Noviembre 2020
    ...in, for example, Chu Kong v Up Profit Ltd (HCMP 305/2016, 23 December 2016) or Liu Chu Kau Andy v Hung Lee Construction Engineering Ltd [2019] HKCFI 1269; HCMP 527/2019, cited by Mr Au Lui Chi for the ...
  • Excel Jumbo International Ltd v Cybernaut Greentech Investment Holding (Hk) Ltd And Others
    • Hong Kong
    • 25 Noviembre 2022
    ...notice has been served on the company in accordance with CO s.733(3)-(4): Liu Chun Kau Andy v Hung Lee Construction Engineering Limited [2019] HKCFI 1269 at (2) As to the requirement for a serious question to be tried, the threshold is relatively low. The prospects of success on the claim a......

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