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Miscellaneous Proceedings2017

ZPMC OFFSHORE SERVICE CO LTD (Formerly known as SHANGHAI ZHENHUA HEAVY INDUSTRIES SHIPPING CO LTD) v. PHILIP JEFFREY ADKINS AND OTHERS

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[2022] HKCFI 2903-EN-2022-09-28

ZPMC OFFSHORE SERVICE CO LTD (Formerly known as SHANGHAI ZHENHUA HEAVY INDUSTRIES SHIPPING CO LTD) v. PHILIP JEFFREY ADKINS RBF HK LTD AND OTHERS

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HCMP 426/2017

[2022] HKCFI 2903

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 426 OF 2017

________________

 

IN THE MATTER OF ZPMC-RED BOX ENERGY SERVICES LIMITED(振華海洋能源(香港)有限公司)

 

and

 

IN THE MATTER of Sections 728 and 729 of the Companies Ordinance (Cap 622) and Inherent Jurisdiction

________________

BETWEEN  
 ZPMC OFFSHORE SERVICE CO LTD
(Formerly known as SHANGHAI ZHENHUA HEAVY INDUSTRIES SHIPPING CO LTD)
Applicant

and

 PHILIP JEFFREY ADKINS1st Respondent
 RBF HK LTD2nd Respondent
 LIHUA LOGISTICS CO LTD3rd Respondent
 ZPMC-RED BOX ENERGY SERVICES LIMITED
(振華海洋能源(香港)有限公司)
4th Respondent

________________

Before:  Deputy High Court Judge Kenneth Wong in Chambers (Open to Public)

Date of Hearing: 4 July 2022

Date of Judgment:  28 September 2022

________________

D E C I S I O N

________________

A.  Introduction

1.  This hearing is an aftermath of the Order of Mr Justice Harris on 17 September 2021 striking out the Applicant’s Originating Summons filed on 24 February 2017.  The learned judge also made an order nisi that the Applicant pay the 1st Respondent’s costs of the summons for striking out with a certificate for two counsel, such costs to be taxed forthwith if not agreed (the “Strike-out Costs Order”).

2.  Neither parties applied to vary.  The Strike-out Costs Order became absolute.

3.  On 31 December 2021, the 1st and 2nd Respondents by summons (the “Discontinuance Summons”) applied for leave to discontinue their Counterclaim dated 25 May 2018 against the Applicant and asked the Applicant to pay their costs of the proceedings[1] (including the Counterclaim) and this application, such costs to be taxed forthwith if not agreed.

4.  The Applicant does not oppose the 1st and 2nd Respondents’ application for leave to discontinue their Counterclaim.  However, it strongly objects to the costs application, and asks the Court to dismiss it with costs.

B.  Procedural Background

5.  This is a boardroom dispute.  On 14 February 2017, the board of the 4th Respondent (the “Company”) passed in a meeting certain board resolutions, one of which was terminating the employment of Mr Philip Jeffrey Adkins, the 1st Respondent (“Mr Adkins”) as Chief Executive Officer of the Company with immediate effect (the “Disputed Resolutions”).

6.  On 24 February 2017, the Applicant (“ZPMC”) issued the Originating Summons in these proceedings seeking among other things declarations that the board meeting was a valid meeting and the Disputed Resolutions were valid and effective, and injunctions against Mr Adkins and 2nd Respondent (“RBF”) prohibiting them from holding Mr Adkins out as the Company’s Chief Executive Officer and restraining Mr Adkins from being involved in the day-to-day management of the Company and its subsidiaries.  On the same day (24 February 2017), ZPMC obtained interlocutory injunctions ex parte (the “Injunctions”) from Mr Justice Louis Chan, which were continued by Mr Justice Harris without opposition on 3 March 2017 and 11 April 2018.

7.  On 18 April 2018, Mr Justice Harris ordered that the proceedings continue as if commenced by writ.

8.  On 27 April 2018, ZPMC filed its Statement of Claim, in which the Applicant essentially claimed for the same reliefs in the Originating Summons.

9.  On 25 May 2018, Mr Adkins and RBF filed their Defence and Counterclaim.  In the Counterclaim, they repeated the Defence and seek, among other things, a declaration that the Disputed Resolutions were void and an injunction to restrain ZPMC from proceeding with or performing the Disputed Resolutions.

10.  On 19 June 2018, ZPMC filed its Reply and Defence to Counterclaim.  In the Defence to Counterclaim, ZPMC repeats its Statements of Claim and Defence.

11.  On 27 June 2018, ZPMC applied for summary judgment against Mr Adkins and RBF.  As can be seen from paragraph 6 of Mr Justice Harris’ O.14 Decision on this application (see the following paragraph), the main ground of the application is RBF, being a shareholder as no right qua shareholder to challenge a decision of the board of the Company.

12.  On 12 October 2018, Mr Justice Harris dismissed the summary judgment application.  In his Decision (“O.14 Decision”), His Lordship remarked as follows:

“7. It seems to me that there is a triable issue in respect of the majority directors' motives in passing the resolution and whether they acted in accordance with their fiduciary duty to act bona fide in the best interests of the Company. The material issue is whether or not this is relevant. Mr Zimmern argued that it is not principally because RBF could not as a shareholder challenge the controversial resolutions and obtain the declarations, which are the converse of those sought by the Plaintiff, pleaded in its Counterclaim. However, this overlooks the fact that RBF has not commenced proceedings against the Plaintiff seeking orders establishing that the controversial resolutions are invalid and joining the Company as a necessary party. RBF and Mr Adkin are defendants raising the alleged mala fides of the majority directors as a defence to a claim against them. It may be, but I do not have to decide this question, that RBF could not properly issue proceedings seeking the orders that it does in its Counterclaim for the reasons advanced by Mr Zimmern, but it does not follow that having been made defendants to proceedings the purpose of which is to establish whether the controversial resolutions are valid and enforceable that they are prohibited from advancing by way of defence the matters on which they seek to rely. A similar distinction was drawn by DHCJ Au (as he then was) in Hong Kong Century Property Development Ltd v Hui Nei Na. The Plaintiff’s argument amounts to suggesting that RBF has been joined simply so it is bound by the decision and that it is not able to dispute the validity of the controversial resolutions.

8.  It might be suggested, although it was not, that even if RBF and Mr Adkin are able to advance the defences to the Plaintiffs claims pleaded in the Defence they are not able to pursue a counterclaim. This seems to me a rather academic way of looking the matter. Essentially what is sought is the converse of the relief the Plaintiff seeks. Particularly as it was not argued that even if I was of the view that a triable issue had been shown in respect of the issues pleaded in the Defence, the Counterclaim should be struck out, I will not give judgment dismissing the Counterclaim. This is an issue that should be left to trial.”

13.  At that juncture, His Lordship found that there was a triable issue.  As such, and since essentially what was sought in the Counterclaim was the converse of the relief ZPMC sought in the Statement of Claim, his Lordship left the determination of the Counterclaim to trial.

14.  On 9 June 2020, RBF and Mr Adkins issued a Summons applying for discharge of the Injunctions (the “Discharge Summons”).

15.  On 24 August 2020, Mr Justice Harris granted leave for ZPMC to apply for an order of committal in respect of Mr Adkins' alleged breach of the Injunctions.  Contempt proceedings ensued under HCMP 1124/2020.

16.  On 4 September 2020, the Company started a new action (“HCA 1510/2020”) against Mr Adkins, RBF and another for, among others, breach of duties and knowing receipt.  According to the Amended Statement of Claim dated 28 April 2021 in HCA 1510/2020, the Company’s claim is based on certain alleged misconducts[2] of Mr Adkins, culminating in the Disputed Resolutions[3].  In his Defence dated 14 January 2022, Mr Adkins denied, among other things, that he had committed any misconduct, that his employment was properly or validly terminated, and pleaded that the Disputed Resolutions were invalid[4].  These issues seemingly overlap with the issues in the present proceedings as described above.

17.  On 4 February 2021, in the present proceedings, RBF and Mr Adkins took out a Summons for, among others, striking out of the Originating Summons and the Statement of Claim and setting aside the Injunctions (the “Strike-out Summons”).

18.  On 3 March 2021, in the contempt proceedings (HCMP 1124/2020), Mr Adkins took out a Summons for setting aside of Mr Justice Harris J's order giving ZPMC leave to commence the contempt proceedings (the “Leave for Contempt Summons”).

19.  On 25 August 2021, the Discharge Summons, the Strike-out Summons and the Leave for Contempt Summons, all issued by RBF and/or Mr Adkins, were heard together before Mr Justice Harris.

20.  His Lordship dealt with the Strike-out Summons first.  On 26 August 2021, after hearing the parties, His Lordship struck out the present proceedings (what he defined as “426” in paragraph 1 of the Decision) and discharged the Injunctions.  Having done so, the learned judge concluded that the leave to issue the contempt proceedings should be set aside and the Originating Summons in HCMP 1124/2020 dismissed.

21.  On 17 September 2021, His Lordship handed down the reasons for the orders he made on 26 August 2021 (the “Strike-out Decision”).

22.  In the Strike-out Decision, the present proceedings were struck out and the Injunctions discharged, primary for the reason that the lack of plea in the Statement of Claim by ZPMC to justify why it was necessary for ZPMC qua member of the Company to commence these proceedings in the place of the Company.  The wrongs of which ZPMC complained were clearly done to the Company.  ZPMC, who had the majority in the board and could convene a board meeting to pass the necessary resolution, could cause the Company to remedy those wrongs on the face of the matter[5].  ZPMC did not cause the Company to do so but commenced its own action.  ZPMC had to plead the alleged breaches that had affected ZPMC’s interests and how such breaches allegedly affected ZPMC’s interests.  These were matters which justified ZPMC seeking relief in the present proceedings under Division 3 of Part 14 of the Companies Ordinance, Cap 622, of which sections 728 and 729 form part.  ZPMC had failed to do so.  Hence the Statement of Claim is demurrable.[6]

23.  The Strike-out Decision was concluded with the following paragraph:

“22. Although Mr Adkins's failure to comply with the Order [i.e. the Injunctions] is unsatisfactory and I may have taken a different view if the Order had been obtained properly, in the circumstances I take the view that leave should be set aside and the contempt proceedings discontinued. I will make a costs order nisi in respect of the application to strike out 426 and discharge the Order, that ZPMC pay Mr Adkins’s costs with a certificate for two counsel, such costs to be taxed forthwith if not agreed. So far as the contempt proceedings are concerned I set aside the leave to commence the proceedings and dismiss the originating summons. I will make no order as to costs to reflect what I consider to be Mr Adkins’s failure to respect the Order.” (my emphasis in bold)

24.  It followed then the sealed Order dated 17 September 2021, paragraph 3 of which is the Strike-out Costs Order, as mentioned in paragraph 1 above.

25.  Paragraph 1 of the Discontinuance Summons issued on 31 December 2021 by RBF and Mr Adkins is not contested.  This Court needs to deal with paragraph 2 only, on costs.

C.  The Strike-out Costs Order

26.  Before I deal with the costs issue for the Discontinuance Summons, I should mention several matters concerning the Strike-out Costs Order.  They are relevant to the arguments raised by counsel for both parties.

27.  In the Strike-out Summons, RBF and Mr Adkins asked that “costs of the proceedings and this application be to the 1st and 2nd Respondent [i.e. RBF and Mr Adkins]”.

28.  In their Skeleton Submissions for the hearing for, among others, the Strike-Out Summons, on 25 August 2021 (see paragraph 19 above), counsel for RBF and Mr Adkins did not submit anything in substance in respect of costs.  The word “costs” appears only once at the last sentence of the Skeleton Submissions where they said, “For all the reasons above, Mr Adkins/RBF’s applications should be granted with costs”.

29.  Same for ZPMC, in their written Submission for the same hearing, counsel for ZPMC mentioned cost only at the last sentence, where they asked the Court to dismiss, among others, the Strike-out Summons “with costs”.

30.  In the Strike-out Decision, the Strike-out Costs Order was made also at the last paragraph, as set out in paragraph 23 above.  There is no other part of the Strike-out Decision which explain why the Strike-out Costs Order was made or made in such a way.

31.  I have not been informed by counsel for the parties appearing at this hearing that the question of costs was argued at any length during the hearing on 25 and 26 August 2021.

32.  Therefore, it appears that the costs order sought in the Strike-out Summons were not seriously argued before Mr Justice Harris.

33.  Nonetheless, the Strike-out Costs Order was made on nisi basis.  This means both parties were given reasonable opportunity to apply for variation, and as such any clarification could have been sought from the Court and arguments could have been raised before it.

34.  Particularly, RBF and Mr Adkins were entitled to apply to include the costs of the proceedings in the Strike-out Costs Order, in addition to costs of the Strike-out Summons.

35.  Had they done so, RBF and Mr Adkins, Mr Justice Harris would also have had the opportunity to consider and explain why the costs of the proceedings should or should not be given to RBF and Mr Adkins.

36.  Unfortunately, RBF and Mr Adkins did not take the opportunity to apply for variation.

37.  I reject the argument of Mr Victor Joffe SC (with Messrs Justin Ho and John Leung) for RBF and Mr Adkins that there was no costs order nisi in respect of the present proceedings which their client could have applied to vary.  As mentioned in paragraph 27 above, in the Strike-out Summons, in addition to costs of the Strike-out Summons, RBF and Mr Adkins expressly asked for costs of the proceedings.  They asked for such costs but Mr Justice Harris did not give them such costs.  His Lordship only gave them costs of the Strike-out Summons, on nisi basis.  Obviously, they were entitled to apply for variation – to ask His Lordship to add costs of the proceedings to the Strike-out Costs Order.  They have not done so.  The Strike-out Costs Order became absolute 14 days after the Decision according to Order 42, rule 5B(6) of the Rules of the High Court, Cap 4A.

38.  I should remark here that the task of the Court at this hearing is to deal with the costs order asked for by RBF and Mr Adkins in the Discontinuance Summons.  This hearing is not a hearing of appeal against the Strike-out Costs Order.

D.  The Discontinuance Summons – “Costs of the Proceedings (including the Counterclaim)

39.  Two sets of costs are asked for in paragraph 2 of the Discontinuance Summons: costs of “the proceedings (including the Counterclaim)” and costs of “this application”.  I should first deal with costs of “the proceedings (including the Counterclaim)”.

40.  The term costs of “the proceedings (including the Counterclaim)” seems to me to be a little awkward in the first place.  It begs the question whether “the proceedings” include or do not include “costs of the Counterclaim” in the first place.  Perhaps the use of this term is a reflection that the word “proceedings” had been used loosely and imprecisely in the present case.  Sometimes it was used to describe ZPMC’s claim or action only (hence not including the Counterclaim), such as striking out “the proceedings” or “426”[7].

41.  In the Strike-out Summons, “costs of the proceedings” were asked for.  I did not hear Mr Joffee draw any distinction between “costs of the proceedings” that his clients asked for in that summons and “costs of the proceedings (including the Counterclaim)” here.  But nor was it clear from his submission that he had equated the two.  One thing seems nevertheless clear is at this hearing his clients do ask for both costs of ZPMC’s claim and costs of RBF and Mr Adkins’ counterclaim.

42.  In my view, the word “proceedings” means what it means, i.e. both claim and counterclaim.  So, “costs of proceedings” mean “costs of both claim and counterclaim”.  If only costs of the claim are asked for, then one should simply ask for “costs of the claim”.  Or some qualification should be added, such as costs of the proceedings in relation to the claim, or costs of the proceedings in so far as they are related to the claim.  The same applies to “costs of the counterclaim”. 

43.  Therefore, it is apparent to me that it is an anomaly for RBF and Mr Adkins to ask for “costs of the proceedings” in the Strike-out Summons.  The substantive application in the Strike-out Summons is for striking out of the Originating Summons and the Statement of Claim.  The Counterclaim would not be affected by the result of the strike-out application one way or the other. There was simply no basis for RBF and Mr Adkins to apply for any costs order in relation to the ongoing Counterclaim in the Strike-out Summons.

44.  At the present hearing, in asking for “costs of the proceedings (including counterclaim)”, Mr Joffe submits that this is straightforward, because ZPMC’s action has been struck out by Mr Justice Harris in its entirety, the effect of which is the claim ought never have been bought by ZPMC; and accordingly, costs should follow event, and ZPMC should pay his clients’ costs of these proceedings.  Since the costs of ZPMC’s claim were never dealt with in the Strike-out Costs Order, he submits that this Court has jurisdiction to deal with it now, and it is not an abuse of process for RBF and Mr Adkins to invite the Court to do so.

45.  I do not agree with Mr Joffe’s submissions.

46.  As I explained in paragraph 37 above, notwithstanding that RBF and Mr Adkins expressly asked for costs of the proceedings in the Strike-out Summons, no such costs order was granted.  Particularly after the Strike-out Decision, where they have succeeded in the striking out of the claim in its entirety[8], they were perfectly entitled to apply to vary the Strike-out Costs Order nisi and seek costs of the claim.  Now the Order has become absolute.  This is the end of the matter, in so far as the claim and its costs are concerned.  I agree with Mr Richard Zimmern for ZPMC that this Court is functus.  I consider this to be the effect of Order 62, rule 3(1) of the Rules of the High Court.  I agree with the view expressed in the last sentence of paragraph 62/1/4 of the Hong Kong Civil Procedure 2022, Volume 1:

“Silence on the question of costs in a final judgment or order, or terms of compromise, is construed as meaning that each party will bear their own costs. On an interlocutory order which is silent as to costs, it has long been the practice to treat such an order as one enabling a successful party to recover them as costs in the cause, if that party succeeds in obtaining an order for his costs of the whole of the proceedings at the conclusion of such proceedings (Lyon v Mercer 57 ER 143; (1823) 1 Sim & St 356, Mentors Ltd v Evans [1912] 3 KB 174). However, this practice is contrary to O.62 r.3(1) which provides that no party to any proceedings shall be entitled to recover any of the costs of those proceedings from any other party to those proceedings except under an order of the court. It would seem therefore that an order silent as to costs would not entitle any party to recover those costs from an opponent as part of his costs of the whole proceedings unless the court so ordered at the conclusion of the proceedings.” (emphasis in bold)

Since the order to strike out the claim also marked the conclusion of the proceedings (in so far as the claim is concerned), the Strike-out Costs Order, which is silent as to costs of the proceedings (in so far as the claim is concerned) would not entitle RBF and Mr Adkins to recover those costs from ZPMC.  Mr Joffe said there is no authority cited in support of the view.  I agree with the learned author of Hong Kong Civil Procedure 2022 that this is the effect of Order 62, rule 3(1).

47.  As also already explained in paragraph 37 above, RBF and Mr Adkins were entitled to apply to vary the Strike-out Costs Order nisi to include the costs of the claim be borne by ZPMC and they did not do so.

48.  The Court of Final Appeal’s Judgment on Costs in Dragon House Investment Ltd v The Secretary for Transport, FACV 13/2004, 12 January 2006, unreported does not assist Mr Joffe’s clients.  In that Judgment, Mr Justice Bokhary PJ explained at paragraph 7 why the Court of Final Appeal were in that scenario not functus:

“Since the parties have not been heard on costs, the judgment's silence on costs cannot be taken to signify anything other than that costs remained to be dealt with by us after submissions from the parties. Since the orders were sealed without notice to the respondents, the sealed orders cannot shut out their right to be heard on costs. Accordingly we are not functus on the question of costs.”

49.  In my view, the key factor is whether the parties have been given a fair opportunity to make submissions on costs.  As is clear from Dragon House, in dismissing the appeals, the parties were not heard on costs and the Court of Final Appeal was silent on the question of costs (paragraph 2).  The Court of Final Appeal did not give any costs order nisi in the judgment.  Unlike the present case, as no costs order nisi was granted, there was no opportunity for either party to apply for variation.  Therefore, Dragon House is distinguishable.

50.  Furthermore, and even if I am held to be wrong above (that this Court is not functus in dealing with an application for costs of the claim), the substantive application in the Discontinuance Summons is to seek leave for RBF and Mr Adkins to discontinue the Counterclaim.  I do not see how this Court should base on the application for discontinuance of the Counterclaim to decide the costs of the claim which has already been struck out.  It is anomalous for this Court to deal with the costs of the claim when it is no longer in place.

51.  As to costs of the Counterclaim, since they were also apparently asked for, as part of the “costs of the proceedings” in the Strike-out Summons, I am inclined to hold that this Court is also functus in dealing with them again.  This holding is supported firstly by the inappropriateness on RBF and Mr Adkins’ part to include costs of the Counterclaim as part of the costs of the proceedings claimed in the Strike-out Summons, creating the anomaly mentioned in paragraph 43 above; and secondly by the failure on RBF and Mr Adkins’ part to apply for variation of the Strike-out Costs Order nisi to include the costs of the proceedings, or indeed more appropriately to seek clarification from the Court to only include the costs of the claim in the Strike-out Costs Order.

52.  If I am also held to be wrong that this Court should deal with the costs of the Counterclaim, or the costs of the proceedings in so far as the Counterclaim is concerned, I would still hold that there should be no order as to costs of the Counterclaim upon its discontinuance.

53.  It has not been decided whether RBF and Mr Adkins would succeed in the Counterclaim against ZPMC.

54.  A counterclaim is treated as a separate action, see Order 15 rule 2(2) of the Rules of the High Court.  In the present case, although the Originating Summons and the Statement of Claim have been struck out, the Counterclaim may be proceeded, see Order 15, rule 2(3).

55.  Whilst RBF and Mr Adkins must file a Defence in response to ZPMC’s Statement of Claim, it is not a must for them to file a Counterclaim. Whether to lodge a counterclaim is a voluntary decision of the defendant/respondent[9]. Therefore, costs of the counterclaim do not necessarily tie in with the costs of the claim or its result.

56.  While it was said there are many issues in common between HCA 1510/2020 and the Counterclaim, Mr Joffe did not suggest that RBF and Mr Adkins are doomed to succeed in their defence there.

57.  As mentioned in paragraph 12 above, as identified in O.14 Decision, whether RBF, being a shareholder, has the right qua shareholder to challenge a decision of the board of the Company is the difficulty which RBF has to overcome if there is going to be a trial of the Counterclaim.  Substantively, at such trial of the Counterclaim, the Court will also need to examine the majority directors' motives in passing the Disputed Resolutions and those majority directors passing the Disputed Resolutions acted in accordance with their fiduciary duty to act bona fide in the best interests of the Company.  Whilst those issues will now be dealt with in HCA 1510/2020, it is no logic to say that consequently RBF and Mr Adkins should then get the costs of the Counterclaim.

58.  The parties have also, rightly, not asked me to consider or express any view on the merits of those issues.

59.  Equally, it is a non sequitur that as the ZPMC’s claim has been struck out, the costs of the counterclaim should necessarily go to RBF and Mr Adkins.  As explained just then, it is a voluntary decision, rather necessarily a response to ZPMC’s claim, for RBF and Mr Adkins to lodge the Counterclaim.

60.  I would therefore hold that the appropriate costs order (if this Court is not functus) is to make no order of the costs of the Counterclaim.

E.  The Discontinuance Summons – Costs of the Application

61.  I accept Mr Joffe’s submission that good reasons have been shown that their clients should have leave to discontinue the Counterclaim, given most (if not all) issues have been covered by HCA 1510/2020 and ZPMC’s claim has been struck out.  Having battled through years of technical contentions, the parties should really get on with resolution of the real issues in dispute.

62.  Therefore, I accept that the starting point that the party seeking leave to withdraw should bear the costs of the other party has been displaced in this application.

63.  But I do not agree with Mr Joffe that costs of the application for discontinuance should be paid by ZPMC.  In my view, the two points that he advanced for departure of the normal rule (firstly, that RBF and Mr Adkins' Counterclaim in 426 has been rendered academic and redundant; and secondly, that discontinuance of the Counterclaim is by no means an acknowledgement of defeat by RBF and Mr Adkins) can by no means be reasons in support of ordering costs of this application to RBF and Mr Adkins.

64.  In my view, the reasons for holding no order as to the costs of the Counterclaim in paragraphs 51 to 57 above are equally applicable to the costs of the application.

65.  Therefore, there should be no order as to costs of this application.

F.  Disposal

66.  Having considered all the relevant circumstances, for the above reasons, I make the following order:

(1)  Leave be granted to the 1st and 2nd Respondents to discontinue their Counterclaim dated 25 May 2018 against the Applicant.

(2)  There be no order as to costs of this application.

67.  I thank counsel for their assistance.

 ( Kenneth Wong )
 Deputy High Court Judge

Mr Richard ZIMMERN, instructed by Messrs Lau, Horton & Wise LLP for the Applicant

Mr Victor JOFFE SC, Mr Justin HO and Mr John LEUNG, instructed by Messrs Shearman & Sterling for the 1st & 2nd Respondents


[1] See the observation below in Section D on the imprecise use of the term “proceedings”. 

[2] paragraph 11 of the Amended Statement of Claim in HCA 1510/2020

[3] paragraphs 2, 4(3) & 12-19 of the Amended Statement of Claim in HCA 1510/2020

[4] paragraph 3 and section D of the Defence in HCA 1510/2020

[5] paragraph 4 of the Strike-out Decision

[6] paragraph 11 of the Decision

[7] Obviously, what was being struck out was ZPMC’s claim only and not the entire proceedings.  There is no dispute that the Counterclaim remains intact. 

[8] In other words, the proceedings, in so far as the claim is concerned, has been finally disposed of by the Strike-out Decision.

[9] It is noted that RBF and Mr Adkins did not lodge a counterclaim in HCA 1510/2020.

[2021] HKCFI 2660-EN-2021-09-17

ZPMC OFFSHORE SERVICE CO LTD (Formerly known as SHANGHAI ZHENHUA HEAVY INDUSTRIES SHIPPING CO LTD) v. PHILIP JEFFREY ADKINS AND OTHERS

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HCMP 426/2017 & HCMP 1124/2020

(HEARD TOGETHER)

[2021] HKCFI 2660

HCMP 426/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 426 OF 2017

________________________

 IN THE MATTER of ZPMC-Red Box Energy Services Limited (振華海洋能源(香港)有限公司)
 and
 IN THE MATTER of sections 728 and 729 of the Companies Ordinance (Cap 622)  and Inherent Jurisdiction

________________________

BETWEEN

 ZPMC OFFSHORE SERVICE CO LTD
(Formerly known as SHANGHAI ZHENHUA
HEAVY INDUSTRIES SHIPPING CO LTD)
Applicant

and

 PHILIP JEFFREY ADKINS1st Respondent
 RBF HK LTD2nd Respondent
 LIHUA LOGISTICS CO LTD3rd Respondent
 ZPMC-RED BOX ENERGY SERVICES LIMITED
(振華海洋能源(香港)有限公司)
4th Respondent

________________________

AND

HCMP 1124/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1124 OF 2020

________________________

 IN THE MATTER of an application of the Plaintiff ZPMC OFFSHORE SERVICE CO LTD (formerly known as SHANGHAI ZHENHUA HEAVY INDUSTRIES SHIPPING CO LTD)  against the Defendant PHILIP JEFFREY ADKINS for an Order for Committal for Contempt of Court
 and
 IN THE MATTER of Order 52 rules 1, 2 and 3 of The Rules of the High Court (Cap 4A)  and Inherent Jurisdiction of the Court

________________________

BETWEEN

 ZPMC OFFSHORE SERVICE CO LTD
(Formerly known as SHANGHAI ZHENHUA
HEAVY INDUSTRIES SHIPPING CO LTD)
Plaintiff

and

 PHILIP JEFFREY ADKINSDefendant

________________________

(HEARD TOGETHER)

Before:  Hon Harris J in Court

Dates of Hearings:  25 – 26 August 2021

Date of Decision:  17 September 2021

________________________

D E C I S I O N

________________________


1.  On 24 February 2017 the Applicant, ZPMC Offshore Service Co Ltd (“ZPMC”)  issued an originating summons seeking declarations that a board meeting of the 4th Respondent (“Company”)  that took place on 14 February 2017 and resolutions purportedly passed at it, amongst other things, removing the 1st Respondent, Philip Jeffrey Adkins (“Adkins”)  as the chief executive officer (“CEO”)  of the Company were valid and seeking orders that, amongst other things, Mr Adkins not hold himself out as the CEO. I will refer to these proceedings as “426”.

2.  Also on 24 February 2017 ZPMC applied ex parte on notice to Louis Chan J for an order prohibiting, amongst other things, Mr Adkins holding himself out as the CEO of the Company. Chan J granted the order (“Order”).  It was continued by me without opposition on 3 March 2017 and 11 April 2018.  It would appear that Mr Adkins was aware of the Order and subsequently breached it on more than one occasion.  On 24 August 2020 I granted leave for ZPMC to apply for an order of committal and an originating summons was issued on 31 July 2020 seeking an order for committal (“contempt proceedings”).  This was subsequently met with three applications issued by Mr Adkins:

(1)  A summons in 426 to strike out 426 issued on 3 March 2021.

(2)  A summons in 426 dated 9 June 2020 to discharge the Order.

(3)  A summons in the contempt proceedings seeking to set aside the leave and have the originating summons dismissed on the grounds that its prosecution would be oppressive and disproportionate in the circumstances and that there had been material non-disclosure on the leave application.

3.  On 25 August 2021 the contempt proceedings and Mr Adkins’s three summonses came on before me.  I dealt with the summons to strike out 426 first.  After hearing the summons, on 26 August 2021 I struck out 426 and discharged the Order.  Having done so I concluded that the leave to issue the contempt proceedings should be set aside and the originating summons dismissed.  It was not practical to deliver ex tempore reasons.  My reasons are set out below.

4.  The originating summons contained applications for relief pursuant to sections 728 and 729 of the Companies Ordinance, Cap 622 (“Ordinance”).  These sections along with section 730 provide, and I quote from the heading to Division 3 of Part 14, “Remedies for others’ conduct in relation to companies”. Section 729(1)  provides that a member “whose interests have been, are or would be affected by...” conduct falling within section 728(1)(a)  can seek a final injunction or a declaration.  Section 728(1)(a)(iii)  includes “a breach specified in subsection (4)”.  Subsection (4)  includes breach of a person’s fiduciary duties owed to the company in question both as a director and in any other capacity.

5.  To the extent that these sections allow a member to commence proceedings seeking relief section 729(1)  provides that the relief can include an injunction, declaring a contract to be void or voidable or damages.  The Division, therefore, is a statutory exception to the well-known Rule in Foss v Harbottle[1], which provides that the proper plaintiff in proceedings to remedy a wrong to a company is the company itself, because it is in the company that the cause of action is vested[2]. Therefore, if a director breaches his or her fiduciary duties owed to a company it is for the company to take action to remedy the breach.  Without Division 3 a member of a company incorporated in Hong Kong would not be able to take action in their own name to remedy a breach done to the company.  It would be necessary for them to bring either a common law or statutory derivative action if they could satisfy the requirements for doing so.  In the case of a statutory derivative action those requirements are set out in Division 4.  This is different to a member’s personal right to enforce a company’s constitution by, for example, taking action to prevent a breach of the articles of association.  Similarly, a member may have personal rights under a shareholder agreement against other members or the company, which can be enforced by action.  There is no suggestion that the rights ZPMC seek to exercise in 426 are in this sense personal.  The only rights relied on are those provided for in Division 3.

6.  Division 3 has to be read and understood against this background.  It would, for example, be surprising if section 729 allowed a member to commence an action for a breach of fiduciary duty by a director, which a company is quite capable of commencing.  It will be recalled that there are exceptions to the Rule in Foss v Harbottle.  The one with which practitioners are most familiar is what is commonly referred to as a “fraud on the minority”.  Put broadly the expression describes a situation in which a wrong is done to a company, which the company will not take action to remedy because the wrongdoers are in control of the company[3].  In these circumstances the common law permitted a minority to commence an action on behalf of the company to remedy the wrong done to it.  It seems to me that section 729 is intended to permit and facilitate a member to remedy a wrong, which a company cannot or will not take steps to remedy itself.  Otherwise it would be possible for both the company and a member to commence proceedings to seek, for example, to remedy a breach of fiduciary duty by a director.

7.  Section 729 avoids this possible conflict and duplication by limiting a member’s right to commence an action to situations in which his “interests have been, are or would be affected”.  This must mean interests qua member.  If a company refuses to take action to remedy damage done to a company, which impacts on the value of member’s economic interest in a company, section 729 is likely to be engaged.  If the company itself is willing and able to take the necessary action it seems to me that a member’s interests will not be impacted in a relevant way.  The principal considerations in determining whether a member’s interests are affected in a relevant way will commonly be whether: (1)  the member is likely to be worse off if the matter of which he complains is not remedied; (2)  the matter is something the company has a right to remedy; and (3)  if it is something the company has a right to remedy, the shareholder cannot cause the company to take remedial action.  In formulating a claim under Division 3 it is necessary to be alive to these distinctions and address them.  Unfortunately as I will demonstrate ZPMC was not.  It is to that subject that I now turn.

8.  The Company has three shareholders: ZPMC, which holds 51% of the Company, the 2nd Respondent RBF HK Ltd (“RBF”), which holds 32.5% and the 3rd Respondent Lihua Logistics Company Limited (“ZHLG”), which holds the remaining 16.5%.  The Articles provide for the Company to have seven directors of which four are appointed by ZPMC.  There were four in February 2017.  It is clear from Articles 117 to 119 and Clauses 6.13 and 6.14 of the Shareholders Agreement that it was possible for ZPMC to convene a board meeting to pass any resolution it likes other than in relation to reserved matters, albeit it may, because of the way which the Articles operate, initially have required the initial meeting of the Board to have been adjourned because the quorum requirements required a director representing each member to be present.  However, if the initial meeting was inquorate it could, as is commonly provided in articles, be adjourned for 10 days at which if any four directors were present the board meeting would become quorate. Therefore, as the wrongs of which ZPMC complain were clearly done to the Company and ZPMC could cause the Company to take action to remedy them on the face of the matter it was unnecessary for ZPMC qua member to take action.

9.  Mr Li’s two affirmations filed in support of the originating summons and the injunction application contain no explanation of why it was that ZPMC believed it was necessary to commence proceedings as a member of the Company pursuant to sections 728 and 729 rather than for the Board to cause an action in the Company’s own name to be commenced. The skeleton argument filed for the application makes no reference to this issue and is framed in a way, which suggests that counsel had overlooked it. In [23] of ZPMC’s skeleton addressing the present discharge application counsel state that it was “unreal for Adkins/RBF to suggest that ZPMC should have ‘anticipated’ such arguments at the ex parte application”.  The arguments referred to are the ones I have explained.  I quote this paragraph because it demonstrates that this point had not been recognised and had not been raised before the judge.  I disagree that it was unrealistic to expect the point to have been taken.  It was an obvious point to consider.  If the reason was that the Company could not afford to wait 10 days I would have expected this to have been explained.  The fact that it was not mentioned suggests the point was overlooked.  I note in passing that it is doubtful if this delay would have been a reason to have proceeded under Division 3 as ZPMC could have caused preparation for an application to be commenced and immediately after a meeting at which a resolution was passed authorising commencement of proceedings and ratifying the instructions to lawyers to prepare papers, the Company could have come to court.

10.  Another indication that insufficient thought had been given to how, if at all, Division 3 applied is the failure to refer to section 730.  Section 730(1)  provides:

“The Court may grant an interim injunction or interim damages, or both, on the terms and conditions that it thinks fit pending the determination of an application under section 729(1)  or (2).”

Clearly the application should have been made under this section, but it was not.  Mr Joffe submitted that this of itself meant that the Court did not have jurisdiction to make the Order.  I disagree.  The fact that the relevant section was not mentioned does not mean of itself that the Court did not have jurisdiction, but it does illustrate that the application had not been thought through properly.  I intend no disrespect to Louis Chan J, but perhaps a judge with greater familiarity with company law would have spotted the point.  For myself, I doubt if I would have granted such an order unless it could have been explained why the Company had not commenced the action, which on the basis of the evidence I doubt if counsel would have been able to do so satisfactorily.

11.  It is uncontroversial that I should only strike out 426 if I am satisfied that it is plain and obvious that the originating summons and statement of claim do not disclose a reasonable cause of action.  The originating summons simply recites the relief that is sought.  The statement of claim that is dated 27 April 2018 in my view is clearly demurrable. It was necessary for it to plead (1)  the breaches that it was alleged had affected ZPMC’s interests; and (2)  how the breaches affected ZPMC’s interests. The statement of claim mentions neither.  The focus of the statement of claim is on demonstrating that valid resolutions were passed removing Mr Adkins as CEO.  There are references in various paragraphs to events following the meeting, which occurred between 14 February 2017 and 23 February 2017, which demonstrate that Mr Adkins did not accept the validity of the resolutions passed on 14 February 2021. There is, however, no reference to what fiduciary duties it is alleged Mr Adkins breached or, as I have said, how this affected ZPMC’s interest in a way, which justified it seeking relief under Division 3.  It seems to me that the statement of claim did not disclose a cause of action and further that it would appear from the evidence before me filed by ZPMC that it could not demonstrate that its interests had been affected in a relevant way.

12.  After he had commenced his oral submissions Mr Wong produced a draft amended statement of claim.  The suggested amendments do not address the “interest” point at all.  So far as the breaches of duty are concerned it is alleged that Mr Adkins broke his fiduciary duty as both director and CEO by refusing to accept the resolution of 14 February 2021. It is difficult to see what fiduciary duties Mr Adkins owed as an employee, whose employment had been terminated.  The Company may well have been entitled to enjoin him from holding himself as CEO after his employment had been terminated, but this does not involve fiduciary duties.  It may be open to argument that as a director Mr Adkins was under a fiduciary duty not to act in a way, which was inconsistent with a lawful resolution of the Board, although no authority has been cited to me in support of this proposition, but the cause of action vests with the Company.  Unless it can be shown that the Company would not act to remedy the adverse consequences of the alleged breach it follows in my view that the relevant interest cannot be demonstrated and in any event even in the draft amendment it is not pleaded how ZPMC’s interests are affected.

13.  I will, therefore, strike out HCMP 426 of 2017. It follows that the Order is also discharged.

14.  This takes me to the applications made by Mr Adkins in the contempt proceedings.  On 3 March 2021 he issued a summons for the leave that I had granted on 24 August 2020 to be set aside on the following grounds:

(1)  Prosecution of the contempt proceedings would be disproportionate and excessive given that the Order was a legal nullity and/or liable to set aside; and

(2)  material non-disclosure in the leave application concerning the failure to bring to the Court’s attention the defence to the claim that I have addressed when dealing with the strike out application.

15.  The fact that I have struck out the underlying proceedings calls into question whether or not I should allow the contempt proceedings to go ahead.  On the one hand it is argued by ZPMC that Mr Adkins clearly and knowingly breached the Order, this is fundamentally objectionable and the Court should allow the contempt proceedings to proceed because it is desirable that the Court determines the proceedings with a view to protecting the integrity of the Court’s process and respect for the law.  On the other hand Mr Joffe argued further prosecution would be disproportionate for the following reasons and leave should be set aside bringing the contempt proceedings to an end:

(1)  If 426 is struck out, the breach is technical and allowing the contempt proceedings to continue would be disproportionate and oppressive.

(2)  The contempt proceedings were brought to harass Mr Adkins rather than protect ZPMC’s interests.

(3)  As a consequence of RBF activating the buyout provisions in the Shareholders Agreement, RBF will inevitably cease to have an interest in the affairs of the Company.  This goes to utility and proportionality.

(4)  ZPMC’s delay in enforcing the injunction and progressing 426.

16.  Mr Wong is, of course, correct that orders of the court must be complied with.  This is emphasised in the judgment of Sir Gerard Brennan NPJJ in Kao, Lee & Yip v Koo Hoi Yan[4], in a passage in which he quotes from the decision of Romer LJ in Hadkinson v Hadkinson[5]:

“26. … As Romer LJ said in Hadkinson v Hadkinson [1952] P 285, 288 in a passage approved by the Privy Council in Isaacs v Robertson [1985] AC 97, 101-102:

‘It is the plain and unqualified obligation of every person against, or in respect of whom, an order is made by a court of competent jurisdiction, to obey it unless and until that order is discharged.’”

17.  It does not, however, follow from this that all cases of failure to comply justify contempt proceedings being pursued.  This is explained in two authorities.  The first is the decision of Lord Briggs sitting at first instance in Re Sectorguard Plc v Dienne Plc[6]. He says this in [44]–[47]:

“44. It is now well established, in the light of the new culture introduced by the CPR, and in particular with the requirements of proportionality referred to in CPR 1.1(2)  as part of the overriding objective, that it is an abuse of process to pursue litigation where the value to the litigant of a successful outcome is so small as to make the exercise pointless, viewed against the expenditure of court time and the parties’ time and money engaged by the undertaking: see Jameel v. Dow Jones & Co [2005] QB 946 per Lord Phillips at paragraphs 54, 69 and 70 (conveniently extracted in note 3.4.3.4 on page 73 of the 2009 White Book).

45. The concept that the disproportionate pursuit of pointless litigation is an abuse takes on added force in connection with committal applications. Such proceedings are a typical form of satellite litigation, and not infrequently give rise to a risk of the application of the parties’ and the court’s time and resources otherwise than for the purpose of the fair, expeditious and economic determination of the underlying dispute, and therefore contrary to the overriding objective as set out in CPR 1.1. The court’s case management powers are to be exercised so as to give effect to the overriding objective and, by CPR 1.4(2)(h)  the court is required to consider whether the likely benefit of taking a particular step justifies the cost of taking it. Furthermore, paragraph 5 of the Contempt Practice Direction makes express reference to the court’s case management powers in the context of applications to strike out committal proceedings.

46. It has long been recognised that the pursuit of committal proceedings which leads merely to the establishment of a purely technical contempt, rather than something of sufficient gravity to justify the imposition of a serious penalty, may lead to the applicant having to pay the respondent’s costs: see Adam Phones v. Goldschmidt (supra)  per Jacob J at 495 to 6, applying Bhimji v. Chatwani [1991] 1 All ER 705. Jacob J concluded, by reference to that case:

‘Since that judgment the Civil Procedure Rules have come into force. Their emphasis on proportionality and on looking at the overall conduct of the parties emphasises the point that applications for committal should not be seen as a way of causing costs when the defendant has honestly tried to obey the court’s order.’

47.  Committal proceedings are an appropriate way, albeit as a last resort, of seeking to obtain the compliance by a party with the court’s order (including undertakings contained in orders), and they are also an appropriate means of bringing to the court’s attention serious rather than technical, still less involuntary, breaches of them.  In my judgment the court should, in the exercise of its case management powers be astute to detect cases in which contempt proceedings are not being pursued for those legitimate ends.  Indications that contempt proceedings are not so being pursued include applications relating to purely technical contempt, applications not directed at the obtaining of compliance with the order in question, and applications which, on the face of the documentary evidence, have no real prospect of success.  Committal proceedings of that type are properly to be regarded as an abuse of process, and the court should lose no time in putting an end to them, so that the parties may concentrate their time and resources on the resolution of the underlying dispute between them.”

18.  Baker J refers to Sectorguard in Navigator Equities Limited, Vladimir Anatolevich Chernukhin v Oleg Vladimirovich Deripaska[7]. The relevant paragraphs are as follows:

“138. A contempt application may be struck out if brought for an improper purpose. Indeed, as it was put by Briggs J, as he was then, in Sectorguard plc v Dienne plc [2009] EWHC 2693 (Ch)  at [53], contempt proceedings in relation to alleged breaches of an injunction or undertaking may be struck out as abusive if brought ‘otherwise than for the legitimate motive of seeking enforcement [of the injunction or undertaking], or bringing to the court’s attention a serious rather than purely technical contempt’. Thus, for example;

(i)  ‘The court should be astute to detect when contempt proceedings are not being pursued for legitimate aims’, per Hamblen J, as he was then, in PJSC Vseukrainskyi Aktsionernyi Bank v Maksimov [2014] EWHC 4370 (Comm)  at [22].

(ii)  ‘There is an obvious need to guard carefully against the risk of allowing vindictive litigants to use such proceedings to harass persons against whom they have a grievance, whether justified or not …’, per Moore-Bick LJ in KJM Superbikes Ltd v Hinton [2009] 1 WLR 2406 at [17].

(iii)  Most simply, ‘an application must not be brought for an illegitimate purpose’, per Sir Michael Burton in Super Max v Malhotra [2019] EWHC 2711 (Comm)  at [10].

In my judgment, contrary to a submission by Mr Mill QC to which he was perhaps driven by his client’s decision not to provide any evidence, the cases have in mind the claimant/applicant’s actual (subjective)  motive or purpose, not (or not only)  a purely objective question whether there might be said to be some proper purpose for the pursuit of a contempt charge.

139. By ‘purely technical contempt’, Briggs J appears to have had in mind simply the question of seriousness (by reference to the nature of the obligation broken or the consequences of the particular breach): see Sectorguard at [46]-[47], and the phrase ‘contempt … of a technical nature’ as used by Hamblen J in his main judgment in Maksimov [2014] EWHC 3771 (Comm)  at [129], the judgment cited in (ii)  above being the costs judgment that followed. In Absolute Living Developments Ltd (in liquidation)  v DS7 Ltd et al. [2018] EWHC 1717 (Ch)  at [36(3)(a)], Marcus Smith J read rather more into Briggs J’s terminology than that. Mr Mill QC argued that this was an unjustified gloss and, with respect, that it was wrong and should not be followed. It is not necessary to take a view on that in this judgment.

…

143. A further consequence is that the claimant/applicant pursues a contempt charge as much as quasi-prosecutor serving the public interest as it does as private litigant pursuing its own interests in the underlying dispute. The claimant/applicant needs to understand that; and if it is legally represented, as here, the legal representatives need to understand that their role as officers of the court is acutely pertinent, even if (to repeat)  the process is not to be equated with a private prosecution in a criminal court. Thus, it appears to have struck Teare J as obvious in the long-running Ablyazov litigation that the quasi-prosecutorial role of the claimant/applicant in pursuing a contempt charge means its proper function is to act generally dispassionately, to present the facts fairly and with balance, and then let those facts speak for themselves, assisting the court to make a fair quasi-criminal judgment: JSC BTA Bank v Ablyazov [2012] EWHC 237 (Comm)  at [15].

144. I agree that should be the approach, at all events in a case like the present (which is all that matters for this judgment)  where any private litigation interest the claimants may have had in the enforcement of Mr Deripaska’s Undertaking was spent before they launched their contempt application in November 2019. Indeed, I infer from the chronology, reinforced by Mr Chernukhin’s failure to give evidence to explain his thinking, that the claimants deliberately chose to wait until the Navio buyout had been completed and paid for by Mr Deripaska before launching the attempt to have him committed for contempt.

145.  The only proper purpose that might be served by issuing and prosecuting the contempt application, in those circumstances, was so as to invite the court in the public interest to identify, pronounce and punish, if appropriate, an historic contempt.  The contempt application ought to have been pursued dispassionately by the claimants as parties with no interest in the outcome.  It was instead pursued in aggressive, partisan fashion, as if it were just the latest round in this long-running, ‘no-holds barred’, commercial litigation wrestling match.  That was especially inappropriate where, without doubt, Mr Deripaska had been very much on the wrong end of the dispute to date, with adverse findings, including as to his honesty in certain respects in relation to the dispute and the proceedings arising out of it, both from the arbitrators and also in the Section 67 Proceedings.  His was therefore a paradigm example of a case where an alleged contemnor needed the protection of a scrupulously careful and even-handed prosecution of the charge against him.”

19.  What these decisions demonstrate is that in the present litigation culture the decision whether or not to allow contempt proceedings to be prosecuted for failure to comply with a civil court order involves a balancing of various considerations.  This includes the utility of the contempt proceedings.  If an order is still relevant and a party requires compliance with it to protect their interests, commonly contempt proceedings will be justified in order to enforce compliance and secure respect for the order and the court.  Ulterior motive and attempts to use the contempt process to exert pressure is another consideration and where it can be demonstrated to be present will militate against granting leave.  The seriousness of the contempt will always be a very important consideration.  Maintaining respect for the court and its process is essential if the system of justice is to operate effectively.  Breaches of orders are not to be treated lightly.  That having been said the seriousness needs to be assessed in the context of the other considerations.  If the court is of the view, for example, that ultimately it is unlikely that it would impose a serious penalty and the order is not necessary in order to protect the applicant’s rights the court is more likely to refuse leave even if the court recognises that there appears to have been a knowing breach of an order.

20.  In the present case I have struck out 426 and I am of the view that the Order should not have been granted.  There is no reason to think that the Order is of any current relevance or necessity.  It is more than four years since the Order was granted and 15 months since the last incidence of alleged breach by Mr Adkins.  So far as the alleged breaches of the Order are concerned they relate to reference to him as CEO in the audited financial statements for 2017 and 2018, which are relatively technical breaches as the Company is private.  The other breaches referred to in [28] of the statement in support of the leave application relate to Mr Adkins holding himself out as CEO of a subsidiary of the Company on a number of occasions between September 2018 and November 2019.  In addition in an exchange of emails in May 2020 with Mr Li of ZPMC Mr Adkins insisted that he is still the CEO of the Company.

21.  ZPMC have taken little action to progress 426.  On 21 January 2020 its inactivity required it to serve notice of intention to proceed.  The parties are currently in a process, which will probably result in ZPMC selling its shares to RBF and possibly ZHLG.  ZPMC’s interest in pursuing the contempt proceedings is unclear.  Mr Adkins suggests that it is part of a strategy intended to improve its commercial position.  Be that as it may, after this length of time there seems little to be achieved by allowing the contempt proceedings to go ahead particularly as the alleged breaches occurred sometime ago.

22.  Although Mr Adkins’s failure to comply with the Order is unsatisfactory and I may have taken a different view if the Order had been obtained properly, in the circumstances I take the view that leave should be set aside and the contempt proceedings discontinued.  I will make a costs order nisi in respect of the application to strike out 426 and discharge the Order, that ZPMC pay Mr Adkins’s costs with a certificate for two counsel, such costs to be taxed forthwith if not agreed.  So far as the contempt proceedings are concerned I set aside the leave to commence the proceedings and dismiss the originating summons.  I will make no order as to costs to reflect what I consider to be Mr Adkins’s failure to respect the Order.

 (Jonathan Harris)
 Judge of the Court of First Instance
High Court

Mr Anson Wong SC and Mr Richard Zimmern, instructed by Lau, Horton & Wise LLP, for the applicant (in HCMP 426/2017)  and the plaintiff (in HCMP 1124/2020)

Mr Victor Joffe, Mr Justin Ho and Mr John Leung, instructed by Jones Day, for the 1st and 2nd respondents (in HCMP 426/2017)  and the defendant (in HCMP 1124/2020)



[1]  (1843)  2 Hare 461.

[2]  See Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, 210.

[3]  Company Law: Powers and Accountability, 2nd ed., §3.2.

[4]  (2009)  12 HKCFAR 830.

[5]  [1952] P 285.

[6]  [2009] EWHC 2693 (Ch).

[7]  [2020] EWHC 1798 (Comm).

[2018] HKCFI 2291-EN-2018-10-12

ZPMC OFFSHORE SERVICE CO LTD (Formerly known as SHANGHAI ZHENHUA HEAVY INDUSTRIES SHIPPING CO LTD) v. PHILIP JEFFREY ADKINS AND OTHERS

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HCMP 426/2017

[2018] HKCFI 2291

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 426 OF 2017

________________

 IN THE MATTER of ZPMC – Red Box Energy Services Limited (振華海洋能源(香港)有限公司 )
 and
 IN THE MATTER of sections 728 and 729 of the Companies Ordinance (Cap 622) and inherent jurisdiction

________________

BETWEEN  
 ZPMC OFFSHORE SERVICE CO LTD (Formerly known as SHANGHAI ZHENHUA HEAVY INDUSTRIES SHIPPING CO LTD) Applicant
 AND 
 PHILIP JEFFREY ADKINS1st Respondent
 RBF HK LTD2nd Respondent
 LIHUA LOGISTICS CO LTD3rd Respondent
 ZPMC – RED BOX ENERGY SERVICES LIMITED
(振華海洋能源(香港)有限公司)
4th Respondent

________________

Before:  Hon Harris J in Chambers

Date of Hearing:  4 October 2018

Date of Decision:  12 October 2018

______________

D E C I S I O N

______________

1.  On 24 February 2017 the Plaintiff issued an originating summons seeking declarations to establish that a board resolution of the 4th Respondent (“Company”) passed at a meeting on 14 February 2017 and the ratification by the board of the resolution on 25 April 2017, removing the chief executive officer (“CEO”) of the Company were valid (“contentious resolutions”). The CEO was Phillip Adkins. Mr Adkins was a director at the time. He was not removed as a director. Mr Adkins is the beneficial owner of the majority interest in one of the three shareholders in the Company, RBF Hong Kong Limited (“RBF”). RBF owns 32.5% of the Company. The remaining shares are owned by the Plaintiff as to 51% and by Lihua Logistics Company Limited (“Lihua”) as to the 26.5%. The board consisted of seven directors. Four were nominated by the Plaintiff (“majority directors”), RBF nominated two and Lihua nominated one. The contentious resolutions were passed at the majority directors’ behest.

2.  On 18 April 2018 I ordered that the proceedings continue as if commenced by writ.  On 27 June 2018 the Plaintiff issued a summons pursuant to O 14, r 1 seeking summary judgment against the Respondents in the following terms:

“1. Final declaratory judgment be entered against the Respondents that:-

1) The Board Meeting of the 4th Respondent held on 14 February 2017 was a valid meeting of the directors of the 4th Respondent;

2) The resolutions passed at the Board Meeting and/or April Board Meeting are valid and effective decisions of the 4th Respondent, in particular declarations that:-

a. The 1st Respondent is and was as of 14th February 2017 no longer the Chief Executive Officer of the 4th Respondent; and

b. Mr Chen Bin is and has since 14th February 2017 been the interim Manager of the 4th Respondent;

c. The only signatories to the bank accounts of the 4th Respondent or any of its subsidiaries shall be the Financial Controller, the Chief Operating Officer and the Chief Financial Officer, Mr Li Chun Kai.

2. Final injunctive relief be ordered against the 1st and/or 2nd Respondent that:-

1) They or each of them shall not hold Mr Philip Adkins out to be the Chief Executive Officer of the 4th Respondent or any of its subsidiaries; and/or

2) Mr Philip Adkins be restrained (whether by himself, servants or agents) from being involved in the day to day management of the 4th Respondent or any of its subsidiaries; and

3) The 1st and/or 2nd Respondent shall do all things necessary and incidental to give effect to the resolutions passed at the Board Meeting;

…”

3.  The principles by reference to which the court assesses applications for summary judgment are not contentious.  To the extent relevant to this application they can be summarised as follows:

(1)  Once a plaintiff has established a prima facie case the burden passes to the defendant to establish a triable issue, failing which summary judgment will be entered.[1]

(2)  If there is a legal issue, which needs to be determined it should be a crisp one and not one that requires mature and detailed consideration.[2]

(3)  If summary judgment is declined the court should not produce reasons that express a view on the merits of the evidence and the various arguments that have been advanced.

4.  In my view RBF and Mr Adkin have demonstrated triable issues.  I will explain briefly why I have reached this conclusion.

5.  As can be seen from the relief that is sought the Plaintiff seeks declarations that bind the shareholders of the Company and Mr Adkin.  RBF and Mr Adkin contest the Plaintiff’s right to the declarations on the grounds pleaded in para 30 of their Defence and Counterclaim:

“In purporting to pass the Purported CEO Resolution at the 14/2 Board Meeting and in subsequently issuing a purported notice of termination of Mr. Adkins’ employment dated 16 February 2017 (‘Termination Notice’), it is averred that (a) the ZPMC‑nominated directors exercised their powers as directors in bad faith, primarily, predominantly or substantially for the improper purpose of entrenching or enhancing the control of ZPMC to the prejudice to RBF, with a view to disrupting and ignoring the pre-agreed Constitutional Division (‘ZPMC Improper Purpose’), and/or (b) the ZPMC‑nominated directors were not acting bona fide in the best interests of the Company, and/or (c) they were otherwise acting in breach [of] their duties owed to the Company as averred at paragraph 27 above. The best particulars which the 1st and 2nd Respondents are presently able to provide are as follows, and the 1st and 2nd Respondents reserve the right to plead further, pending discovery, interrogatories, inspection and exchange of witness statements:

…”

It is not necessary to set out the particulars.

6.  The Plaintiff argues that:

(1)  The board of a company is entitled to remove the CEO if the majority sees fit.

(2)  The removal was in accordance with articles 104 and 108.  This was initially controversial, but I understand that as a consequence of the ratifying resolution it is not now argued that the controversial resolutions were procedurally defective.

(3)  The shareholders agreement entered on 23 April 2014 expressly gives the board the right to dismiss the CEO: clause 9.5 of the shareholders agreement and appendix 4 to the agreement subsequently signed on 26 July 2015 between the shareholders and the Company.

(4)  The decision to remove the CEO was, therefore, a power given to the board and it was exercised for a proper purpose.

(5)  The decision to remove the CEO was a matter of the internal management of the Company and it is well established that the court will not interfere in matters of internal management: see, for example, Kwok Ping Sheung Walter v Sun Hung Kai Properties Ltd.[3]

(6)  RBF is a shareholder.  It has no right qua shareholder to challenge a decision of the board.

(7)  Even if the majority directors were motivated in causing the resolution to be passed by bad faith in the sense that they sought to advance the Plaintiff’s interest rather than those of the Company to which they owed fiduciary duties, it is immaterial because even assuming, which as I have noted is disputed, that RBF qua shareholder can challenge a decision of the board what is relevant is whether the majority directors’ decision is unjust.[4] The Plaintiff argues that there was nothing unjust in the majority of directors, who represented its interests, removing the CEO, because the Plaintiff does not dispute that under the shareholders agreement RBF is entitled to nominate a replacement and, consequently, RBF’s interests have not been adversely effected in a relevant way.

7.  It seems to me that there is a triable issue in respect of the majority directors’ motives in passing the resolution and whether they acted in accordance with their fiduciary duty to act bona fide in the best interests of the Company.  The material issue is whether or not this is relevant.  Mr Zimmern argued that it is not principally because RBF could not as a shareholder challenge the controversial resolutions and obtain the declarations, which are the converse of those sought by the Plaintiff, pleaded in its Counterclaim.  However, this overlooks the fact that RBF has not commenced proceedings against the Plaintiff seeking orders establishing that the controversial resolutions are invalid and joining the Company as a necessary party.  RBF and Mr Adkin are defendants raising the alleged mala fides of the majority directors as a defence to a claim against them.  It may be, but I do not have to decide this question, that RBF could not properly issue proceedings seeking the orders that it does in its Counterclaim for the reasons advanced by Mr Zimmern, but it does not follow that having been made defendants to proceedings the purpose of which is to establish whether the controversial resolutions are valid and enforceable that they are prohibited from advancing by way of defence the matters on which they seek to rely.  A similar distinction was drawn by DHCJ Au (as he then was) in Hong Kong Century Property Development Ltd v Hui Nei Na.[5]  The Plaintiff’s argument amounts to suggesting that RBF has been joined simply so it is bound by the decision and that it is not able to dispute the validity of the controversial resolutions.

8.  It might be suggested, although it was not, that even if RBF and Mr Adkin are able to advance the defences to the Plaintiff’s claims pleaded in the Defence they are not able to pursue a counterclaim.  This seems to me a rather academic way of looking the matter.  Essentially what is sought is the converse of the relief the Plaintiff seeks.  Particularly as it was not argued that even if I was of the view that a triable issue had been shown in respect of the issues pleaded in the Defence, the Counterclaim should be struck out, I will not give judgment dismissing the Counterclaim.  This is an issue that should be left to trial.

9.  I dismiss the Plaintiff’s summons and make a costs order nisi that the costs are in the cause with a certificate for two counsel.


 (Jonathan Harris)
 Judge of the Court of First Instance
 High Court

Mr Richard Zimmern and Ms Tiffany Chan, instructed by Lau, Horton & Wise LLP, for the plaintiff

Mr Simon Westbrook SC and Mr Michael Lok, instructed by Baker & McKenzie, for the 1st and 2nd respondents

The 3rd respondent was not represented and did not appear

The 4th respondent was not represented and did not appear



[1] Hong Kong Civil Procedure2018 §§14/4/1, 14/4/9.

[2] Ibid §14/4/9 and authorities referred to in it and Shenzhen Baoming Ceramics Co Ltd v Companion‑China Ltd [2000] 2 HKLRD 288.

[3] [2008] 3 HKC 465: see Kwan J at First Instance [30]–[31]; Rogers VP at Court of Appeal [19]–[20].

[4] Eclairs Group v JKX Oil & Gas [2015] UKSC 71, Lord Sumption at [17].

[5] Unreported, HCA 2284/2008, 20 July 2009 at [12], [26], [28], [29]–[30], [32(2)], [33]–[37].