PAN SHI LIANG v. HARSEN INDUSTRIES LTD

HCMP 1917/2017

[2021] HKCFI 1682

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1917 OF 2017

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D E C I S I O N

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1.  In January 2018, I granted leave as sought in the originating summons of Mr Pan Shi Liang for a statutory derivative action to be brought in the name of the company, Harsen Industries Ltd, against Mr Wong Yee Chuk, a director, without any person appearing to oppose the application. At that time I also made an order that the costs of the derivative action up to the exchange of the parties’ lists of documents be indemnified by the company out of its assets.

2.  Mr Pan has now restored the application for an order that the further costs of the derivative action up to the conclusion of the trial be indemnified by the company out of its assets.  Mr Wong and his wife Madam Cheng have appeared, by counsel Mr Albert Yau, in opposition this morning.  Originally Mr Yau said he also represented the company but upon inquiry it became apparent that his solicitors had no instructions from the Board of Directors and Mr Yau now accepted that he had no instructions to act for the company.

3.  I do not think the materials before me justify making a further order at this stage.  The trademarks in question were transferred back to the plaintiff company in January 2017.  There is no material put forward to assess what loss the company might have suffered during the period when the trademarks were registered in the name of some other entities.  As to the allegation that Mr Wong had engaged in competing businesses, he has said in defence that Harsen Industries (China) Company Limited had had no operation and had never carried on business; that F.E.L. Company Limited had carried on the business of selling red wine and not electrical products; and that Harsen Mechanics which replaced Foshan Nanhai Harsen Electric Co., Ltd as sales agent in relation to Caterpillar and Asia Power Systems (Tianjin) Ltd had at all times accounted to the plaintiff for all receipts. Again, despite the completion of discovery, there is no evidence put forward before me in relation to these matters and the extent of any recovery the company could realistically hope to make in the action.  Nor have I been supplied with any information as to how much has been incurred by the company in pursuing the action thus far, what further costs are estimated as necessary for the purpose of bringing the action to the next stages, or as to the latest financial position of the company.  These are matters that any prudent businessman would closely scrutinise if he were hazarding his own money for litigation: Chung Sau Ling & another v Asia Women’s League Ltd & others [2001] 3 HKC 410, 415, 419.

4.  Also there is no detail supplied concerning the three unfair prejudice petitions brought by Mr Wong against, among others, Mr Pan, which have been ordered to be tried before the same judge as the derivative action.  I am therefore not in a position to see the overall landscape of the litigation. Specifically, I am unclear whether the allegations in the derivative action and matters raised in defence are also issues in the petitions so that they are going to be raised and resolved there in any event, and the extent of overlap, if any.  This is relevant because arguably the company should not expend substantial money if the same issues are raised as between the shareholders in their dispute.

5.  In the circumstances I shall adjourn paragraph 3 of the originating summons generally with liberty to restore. There is something to be said for having the matter dealt with by the trial judge after one has been assigned for the proceedings, though I make no firm direction in that regard.  The parties can be expected to agree upon any directions for evidence if and when the application is restored.

HCMP 1917/2017

[2018] HKCFI 211

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1917 OF 2017

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J U D G M E N T

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1.  I have before me an application under ss 732 to 733 of the Companies Ordinance, Cap 622, for leave to bring a statutory derivative action on behalf of Harsen Industries Limited against one of its directors, Mr Wong Yee Chuk.

2.  The shares of the Company are held as to 10% by the applicant, Mr Pan, as to 40% by Mr Harry Lo, as to another 40% by Mr Wong, and as to the remaining 10% by Mr Wong’s wife.  There are two directors, namely Mr Lo and Mr Wong.  Mr Lo supports the present application, which means there are essentially two camps in the Company, split 50/50, at both the board and the shareholders’ levels. 

3.  Broadly speaking, the application seeks leave for a derivative action to be brought against Mr Wong for alleged breaches of duties as a director of the Company in relation to: (1) the transfer of eight of the Company’s registered trademarks in the mainland to a company controlled by Mr Wong; (2) the registration of five trademarks bearing similarities with the Company’s trademarks, by a company controlled by Mr Wong; and (3) the engagement by Mr Wong in businesses competing with the Company. 

4.  The application came before me in November last years.  Although both the Company and Mr Wong had been given notice, no one appeared at that hearing in opposition.  As a result of the questions I raised, however, the hearing was adjourned to today.  Those questions have since been addressed, to my satisfaction, in the 3^rd affirmation of Mr Pan and in the supplemental skeleton of Mr Leung who has appeared for Mr Pan.  Neither the Company nor Mr Wong has appeared today to oppose the application. 

5.  Since the matter is going forward and no opposing argument has been advanced, I will not go into the substantive claims in detail, except to say that I accept Mr Leung’s submission, for the reasons he has given, that there are serious issues to be tried, which is not a very high threshold, and that it appears prima facie to be in the interests of the Company that leave be granted given the remedies claimed are primarily damages and account for profits which, if granted, would enure to the benefit of the Company.  I therefore grant leave for a statutory derivative action to be brought and make an order in terms of paragraph 1 of the originating summons.

6.  As for costs, I think the applicant should have the costs of the application, but I am minded to order that he be indemnified as to 75% of the costs of the application by the Company because of certain duplication and wastage of costs having regard to the need for two hearings, which cannot all be laid at the door of the Company.  So far as the costs of the derivative action are concerned, I will order that they be paid by the Company out of its assets up to the exchange of lists of documents by way of discovery.  So far as any further costs of the derivative action are concerned, paragraph 3 of the originating summons is adjourned sine die with liberty to restore.