FRIENDSHIP INVESTMENTS LTD v. TO CHUN FAN AND OTHERS

HCCW 197/2018

[2020] HKCFI 1247

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 197 OF 2018

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D E C I S I O N

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1.  On 18 March 2020 I handed down my decision in respect of the 7^th Respondent’s application that the Amended Petition and Points of Claim be struck out under Order 18 rule 19 of the Rules of the High Court (“RHC”). I dismissed the application for the reasons explained in the decision.

2.  The 7^th Respondent was joined as a party, so the Petitioner argued, because it might be necessary for it to give discovery and for other reasons explained in Ms Chan Yuk Ying’s 6^th affirmation.  No final relief is sought against the 7^th Respondent.  The basis of the 7^th Respondent’s application was that the reasons advanced in Ms Chan’s affirmation were unsustainable and, in particular, discovery of any relevant document could be obtained from one of the other Respondents and that it was not necessary to make the 7^th Respondent a party. As I explain in paragraph 8, I approached the application on the basis that in order to succeed it was necessary for the 7^th Respondent to demonstrate, as it was a strike out application, that it was plain and obvious that there was no need to join the 7^th Respondent as a party. I was not so satisfied that the 7^th Respondent had demonstrated this.  The 7^th Respondent does not suggest that this is the wrong test.

3.  The 7^th Respondent has sought leave to appeal.  It is not in dispute that in order to obtain leave it is necessary for the 7^th Respondent to demonstrate that the appeal has a reasonable prospect of success [1].

4.  In order to obtain leave the 7^th Respondent needs to demonstrate that (1) it has a reasonable prospect of demonstrating that (2) it is plain and obvious discovery by the 7^th Respondent will not be necessary; and (3) I wrongly exercised my discretion in declining to strike-out the Amended Petition as against the 7^th Respondent.  In paragraph 7 of Mr Phang’s skeleton argument he seems mistakenly to elide these criteria says this: “GAHK submits that it is clearly arguable, if not plain and obvious, that it is unnecessary to join GAHK as a respondent for discovery since all the documents of GAHK are in the power of the 1^st to 6^th Respondents”.

5.  I am not satisfied that the 7^th Respondent has demonstrated that it has a reasonable prospect of demonstrating that it is plain and obvious that discovery will not be necessary and that I wrongly exercised the discretion given to the court under RHC O19 r19.  In my view, the decision was clearly one that it was open to me to reach; whether or not another judge might have reached a different conclusion is irrelevant.  The costs shall be paid by the 7^th Respondent to the Petitioner with a certificate for counsel, such costs to be taxed if not agreed and paid forthwith.

6.  The 7^th Respondent also seeks a variation of my costs order nisi that the 7^th Respondent pay the Petitioner’s costs with a certificate for counsel forthwith. 

7.  Costs normally follow the event [2].  Mr Phang, however, submitted that should either there should be no order as to costs or that the 7^th Respondent pay the Petitioner’s costs in any event.  The justification for the variations sought are as follows:

8.  First, Mr Phang submitted that it was not until the Petitioner filed Ms Chan Yuk Ying’s 6^th affirmation that it explained that one of the reasons for joining the 7^th Respondent was for discovery purposes.  If the Petitioner’s solicitors had replied to the 7^th Respondent’s letter of 31 August 2018 stating that the 7^th Respondent intended to apply to strike-out the claim against it as no final relief was sought, explaining that 7^th Respondent had been joined because of discovery, it might have sought to deal with the matter by directions for discovery at the case management conference on 29 November 2019 rather than proceed with its strike-out application.  Although, it would have been sensible for the Petitioner’s solicitors to reply explaining why the 7^th Respondent had been made a party, it is speculative to suggest it would have made any difference to the 7^th Respondent’s application.  It is also speculation, which I find unconvincing.  Ms Chan’s 6^th affirmation was filed on 22 March 2019 some six months before the hearing.  The reasons given for joining the 7^th Respondent were fairly conventional and I have difficulty seeing why it was thought worth spending fees trying to     strike-out the Amended Petition against the 7^th Respondent when it was clear that other than possibly having to make discovery it would have a nominal role in the proceedings.  It seems to me that, in the circumstances, costs should follow the event.

9.  The second challenge to the costs order is that it ordered that the costs are payable forthwith.  Mr Phang argued that the costs should not be recoverable until the end of the proceedings.  He gives two reasons.  First, that previous orders against the Petitioner made by DHCJ Stock were for costs to be payable in any event.  That seems to me to be largely irrelevant.  The 7^th Respondent’s application was discrete and final in respect of the matter to which it relates.  It is a common practice for costs of discrete applications to be payable forthwith.  The fact that DHCJ Stock dealt with other interlocutory applications differently is not a reason for me to alter what I consider to be the appropriate order.  The second reason is that in some loose sense it would be fairer to have the costs all dealt with together at the end of the proceedings when costs orders can be set-off against one another.  I tend to the opposite view.  There is much to be said for costs order that are immediately taxable as they are inclined to focus a party’s mind on the consequences of an unsuccessful application particularly ones of little value; as I view the 7^th Respondent’s application to have been.

10.  The costs order will be made final and the costs of the application to vary it also payable forthwith with a certificate for counsel, such costs to be taxed if not agreed.

Mr Alan Kwong and Mr Michael Ng, instructed by L & L Lawyers, for the petitioner

Mr Bernard Mak, instructed by Tony Au & Co, for the 1^st to 5^th respondents

Mr Roger Phang, instructed by Cheung & Choy, for the 7^th respondent

HCCW 197/2018

[2020] HKCFI 356

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 197 OF 2018

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D E C I S I O N

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1.  I have before me a summons issued by the 7^th Respondent, General Appliance (Hong Kong) Limited (“General Appliance”), for an order that the Amended Petition and Points of Claim be struck out under Order 18 rule 19 of the Rules of the High Court (“RHC”).

2.  The Petitioner holds 30% of the shares of the 6^th Respondent, General Appliance (Holdings) Limited (“Company”), which is the subject of the Petition. The Petitioner seeks an order that the Company be wound up on the just and equitable ground pursuant to s177(1)(f) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32; alternatively, an order pursuant to s724 of the Companies Ordinance, Cap 622, that the 1^st to 5^th Respondents do purchase the Petitioner’s shares in the Company.  The Company is a holding company.  It has one asset.  It owns the 7^th Respondent.

3.  In summary, the application is made because no relief is sought against the 7^th Respondent. The Petitioner suggests that the only reason that General Appliance was joined as a party to the Petition that was issued on 19 July 2018 was as a ploy to enable a submission to be made to Chung J in an application by the Company on 20 July 2018 for a mandatory injunction for delivery up by the Petitioner, Eliza Chan and Leung Siu Kuen (who had been removed as directors in April and May 2018) and a William Chan of title deeds to the Company’s properties, that the Petitioner had a defence, revealed in the Petition, to the action in which the injunction was sought.  Mr Phang on behalf of the 7^th Respondent submits that the Petition, which was not shown to Chung J and I assume not seen by the Company’s legal team at that time, did not contain any defence.

4.  This amounts to suggesting that Chung J was misled and not inadvertently.  This is a serious allegation and one, which Mr Phang is inviting the Court to infer because there is no direct evidence of it.

5.  The Court of Final Appeal has warned judges in two decisions of the need to adopt a disciplined approach to the drawing of inferences.  In Nina Kung v Wong Din Shin [1] Ribeiro PJ explains the correct approach:

“In HKSAR v Lee Ming Tee & Securities and Futures Commission (2003) 6 HKCFAR 336, Sir Anthony Mason NPJ acknowledged the need for such a disciplined approach to the drawing of inferences and in particular for inferences of fraud or serious misconduct to be drawn only where such inferences are compelling. Dealing with an allegation that senior SFC officers had deliberately and improperly terminated an investigation in order to avoid compromising the standing of the subject of the investigation who was acting as an expert witness in a criminal trial in which the SFC was interested, his Lordship stated:

...that conclusion was not to be reached by conjecture nor, as the respondent submitted, on a mere balance of probabilities. It was to be plainly established as a matter of inference from proved facts. (at §72).”

As Sir Anthony Mason explains (quoting Lord Nicholls in Re H [2]) in   Lee Ming Tee at [71]:

“When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability.”

6.  In my view I cannot properly draw the inference that Mr Phang is inviting me to draw.

7.  The Petitioner’s argument is straightforward.  The 7^th Respondent is the Company’s sole asset and it is the conduct of         the 7^th Respondent’s affairs that is a central feature of the dispute.  The affairs of a subsidiary can be regarded as the affairs of its parent for the purposes of an unfair prejudice petition [3]. It may be, argued Mr Kwong for the Petitioner, that discovery will be required from the 7^th Respondent and possibly relief granted that effects it.  There is nothing objectionable, submitted Mr Kwong, in a party against, whom no final relief is sought being made a respondent [4].

8.  The court generally only strikes out a petition if it is plain and obvious that no relief will be granted against a respondent [5]. This case is different to the extent that it is common ground that no final relief is sought against the 7^th Respondent and that is not of itself a fatal flaw if there are other reasons, which justify joining it.  That having been said, it seems to me that the guiding principle remains largely the same.  The court will strike out a petition against a party against, whom no final relief is sought if it is plain and obvious that there is no need for them      to have been joined as a party and RHC O15 r6(2) does not apply.  Rule O15 r6(2) provides:

“(b) order any of the following persons to be added as a party, namely—

(i)   any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii)  any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.”

9.  It seems to me that it may be that discovery by the 7^th Respondent is necessary.  This being the case it seems to me that r6(2)(b)(i) applies.  In my view it is certainly not clear and obvious that discovery by the 7^th Respondent is unnecessary. It is possible that I might take a different view in a case in which a subsidiary is able to demonstrate that having a winding up petition presented against it is having a serious negative impact on its ability to carry on business, for example by impacting negatively its banking facilities, to an extent that provided a significant counter weight to the advantage of having it as a party for the purposes of discovery rather than requiring the petitioner       to make a discrete application against the subsidiary for discovery. However, that has not been argued in the present case.

10.  I will dismiss the 7^th Respondent’s summons.  I will make a costs order nisi that the 7^th Respondent pays the Petitioner’s costs with a certificate for counsel forthwith.