LAU CHO KWAN, LEO AND ANOTHER v. LAU SIU FAN, ELAINE AND OTHERS

HCCW 262/2020

[2021] HKCFI 3718

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 262 OF 2020

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S U M M A R Y    A S S E S S M E N T

O F    C O S T S

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A.     Introduction

1.  Sometimes, it seems it is not only butter which is churned.

2.  This summary assessment of costs follows from my Judgment dated 18 October 2021 [2021] HKCFI 3067 and my Costs Ruling dated 18 November 2021 [2021] HKCFI 3448.  I shall continue to adopt the definitions and abbreviations used in my Judgment.

3.  By my Judgment and Costs Ruling, amongst other things:

(1)  I dismissed the Set Aside Summons, by which the Company applied to set aside the Carry On Order that appointed Betty to represent the estate of Leo to carry on these proceedings and the proceedings to be carried on as if she had been substituted for Leo;

(2)  I dismissed the Strike Out Summons, by which the Company sought to strike out the prayer for winding up relief in the original Petition and the relevant paragraphs and prayer for winding up relief in the draft Amended Petition, on the grounds that the winding up relief sought is plainly and obviously unsustainable and seeking such relief against the Company is frivolous, vexatious or otherwise constitutes an abuse of process; and

(3)  I allowed the Amendment Summons, by which Leo and Betty sought leave to amend the Petition;

(4)  as to the Set Aside Summons, I ordered the Company to pay 80% of Betty’s costs of the summons;

(5)  as to the Strike Out Summons, I ordered the Company to pay Leo and Betty’s costs of the summons;

(6)  as to the Amendment Summons, I ordered the Company to pay 80% of Leo and Betty’s costs of the summons; and

(7)  I directed all costs orders in favour of Leo and Betty to be with certificate for two Counsel, to be summarily assessed on the party and party basis and payable forthwith.

4.  Leo and Betty had filed separate Statements of Costs in respect of each of the three relevant summonses on 15 November 2021. The Company filed matching separate Lists of Objections on 2 December 2021.

B.     Approach

5.  As appropriate to a summary assessment, I assess the costs looking at the overall figure claimed and the individual components of that figure.  I specifically take into account matters such as proportionality and complexity, and the specific objections raised.

6.  The scope of argument and degree of complexity, and the extent of the materials reasonably necessary to determine the arguments, are all apparent from my Judgment.  In short, though obviously hard fought between disputatious litigants, this was far from the most complex of arguments, and two of the summonses dealt with essentially the same point.

7.  Most of the argument was not particularly fact sensitive, and there was little need for anyone to have made lengthy reference to any of the evidence filed.  Indeed, as I pointed out in the Judgment,with the benefit of prior written skeleton arguments, the oral submissions made at the hearing were crisp, and little or no reference was actually made by anyone to the majority of documents in the hearing bundle.

C.     Overview

8.  Having considered each of the Statements of Costs and the relevant List of Objections, there is great force in many of the objections raised.  This is particularly so where the total costs claimed seem to me to be obviously wholly disproportionate to the difficulty or complexity of the points being argued.  With the claimed significant involvement of both leading and junior Counsel, there is also force in the objection as to the clearly excessive time attributed to solicitors, and the apparent doubling up on fee earners’ time.

9.  The total costs claimed were in excess of HK$2.2 million and comprise:

(1)  $518,540 for the Set Aside Summons;

(2)  $1,183,199 for the Strike Out Summons; and

(3)  $515,750 for the Amendment Summons.

10.  I am afraid that I have to say I find those to be ‘silly’ numbers.

D.     The Set Aside Summons

11.  The Set Aside Summons essentially gave rise to a concise legal argument as to the proper effect of certain rules within RHC Order 15.  Though it was ultimately argued by leading Counsel (in the context of his conducting argument on the other matters), it is the kind of point routinely argued by junior Counsel before a Master.  Any relevant evidence was minimal.  I do not see how the Set Aside Summons could conceivably justify anything remotely like the claimed roughly 110 hours of solicitors’ time (equivalent to more than 13 full 8-hour billing days of solicitors’ time).

12.  The claimed costs suggest that four fee earners (one partner who is a solicitor advocate, one associate, and two trainee solicitors) spent between them, amongst other things:

(1)  12 hours attending on the client,

(2)  19 hours attending on Counsel,

(3)  42 hours preparing documents,

(4)  almost 10 hours perusing documents,

(5)  7 hours preparing for the hearing, and

(6)  a further 4 hours on ‘general care and conduct’.

13.  When it is remembered that these hours were claimed for dealing only with an application to set aside a procedural carry on order, the numbers only have to be read to be seen to be wholly indefensible.  Having instructed Counsel to argue the summons, it is difficult to imagine how it could conceivably be justified to spend and seek to charge for 19 hours discussing the matter – just this summons – with Counsel, and then a further 7 hours preparing for the hearing which would be argued by Counsel.  I confess I also find it difficult to imagine how it could conceivably have required 42 hours to prepare the relevant documents for responding to this summons, even if one types with only one finger.  Further, what was not already covered in the previous 100 or so hours, and so somehow might justify a further 4 hours of ‘general care and conduct’, utterly escapes me.

E.     The Strike Out Summons

14.  The Strike Out Summons focused on only one part of the prayer for relief in the Petition and the proposed Amended Petition, that relating to the alternative relief of a winding up order.  The summons was largely argued by reference to well settled legal principles.  Albeit some fairly limited evidence was relevant and helpful to the determination of this summons, the claimed costs are obviously wholly disproportionate.

15.  The claim is based upon a staggering, roughly 230 hours of solicitors’ time (equivalent to nearly 29 full 8-hour billing days), including amongst other things:

(1)  48 hours attending on the client;

(2)  34 hours attending on other parties;

(3)  49 hours attending on Counsel;

(4)  51 hours preparing documents;

(5)  26 hours perusing documents;

(6)  7 hours preparing for the hearing; and

(7)  4 hours on ‘general care and conduct’.

16.  The idea that the equivalent of 6 full 8-hour working days of lawyer time would be justified as time spent with the client to consider and discuss just the Strike Out Summons stretches credulity far beyond its limits.  I also fail to understand how it could require 34 hours of discussions with other parties, when the only parties taking any stance at all towards this summons were Leo and Betty and the Company.  Counsel having been instructed, I find it unfathomable why it would be necessary to spend 49 hours in discussion with Counsel, and then a further 7 hours preparing for the hearing which would be argued by Counsel.  The 51 hours claimed for preparation of documents at least does not leap out at me as justified by reference to the documents which were in fact prepared.  Again, after spending more than 200 hours, it is difficult to imagine what might possibly be left to be encompassed by a further 4 hours of ‘general care and conduct’.

F.     The Amendment Summons

17.  The only point at issue on the Amendment Summons was directly linked to the argument on the Strike Out Summons, being the proposed amendment relating to the claimed alternative relief of a winding up order.  No other part of that summons was in any way controversial.

18.  Nevertheless, the claim to costs on this summons is based upon another roughly 113 hours of solicitors’ time (equivalent to roughly another 14 full 8-hour billing days). Those hours comprise, amongst others:

(1)  20 hours attending on the client;

(2)  6 hours attending on the Company;

(3)  25 hours attending on Counsel;

(4)  22 hours preparing documents;

(5)  23 hours perusing documents;

(6)  7 hours preparing for the hearing;

(7)  4 hours on ‘general care and conduct’.

19.  In context, it is difficult to believe that these figures are put forward seriously.  Somehow, having already spent 60 hours of fee earner time attending on the client in relation to the previous two mentioned summonses, there is a claimed justification for spending a further 20 hours attending on the client in relation to the extremely limited issue on the proposed amendment.  In my view, there is no conceivable such justification.  Counsel having been instructed to argue the summons, and four fee earners having already spent a combined 49 hours discussing the overlapping Strike Out Summons with Counsel, I find it inconceivable to think that a further 25 hours of fee earner time with Counsel might be in any way justified – and then to spend a yet further 7 hours preparing for the hearing which Counsel was instructed to conduct.  I confess also to finding it difficult to accept that another 22 hours was required to produce documents relevant only to the narrow issue on the Amendment Summons, or to spend 23 hours perusing documents relevant only to that narrow issue.

G.     The Assessment

20.  In addition to the above comments, there is also some force in the objections raised about some aspects of Counsel’s fees.  But, on the relatively broad brush approach applicable to a summary assessment of costs, I do not think it necessary further to go into any detail.

21.  The key point is that the costs claimed for these summonses seem to me to be massively inflated, far above what was in any way proportionate or appropriate.  The solicitors’ time costs claimed were for a total of hours equivalent to a lawyer working for 56 days – that is, more than 11 weeks of 5-day working, billing 8 hours every single day.  All that, whilst also instructing leading and junior Counsel to conduct what were essentially non-fact-sensitive legal arguments on interlocutory summonses with at least significant overlap, dealt with in a roughly half-day hearing.

22.  Having carefully considered matters, and perhaps even erring on the side of being generous to the costs claimants, I summarily assess the costs payable as follows:

(1)  on the Setting Aside Application: $128,000 (being 80% of my summary assessment of the whole at $160,000);

(2)  on the Striking Out Summons: $380,000;

(3)  on the Amendment Summons: $80,000 (being 80% of my summary assessment of the whole at $100,000).

H.     Further Action

23.  It is unfortunate that the costs claimed leave the impression of such an exaggerated ‘try on’.  Even before applying the necessary deductions to reflect those orders where I apportioned costs, I have assessed costs at less than 29% of the amount claimed.  Not only do I think that the Company ought not to pay anything even approaching the amount of costs claimed, I wonder whether Leo and Betty should themselves be required to pay their solicitors fees in the range of figures put forward.

24.  I am therefore considering making, of my own motion, a wasted costs order against the solicitors under RHC Order 62 rules 8(2) and 8A(1), as would disallow the solicitors from charging their own clients more than a total of $800,000 for the three summonses combined (inclusive of all Counsel’s fees and disbursements).  The solicitors are invited to consider their position and, should they so wish, to make relevant submissions or representations to me within 14 days, for my further consideration under the various provisions in Order 62 rule 8(3)-(8).

HCCW 262/2020

[2021] HKCFI 3448

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP)  PROCEEDINGS NO. 262 OF 2020

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COSTS RULING

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A.  Introduction

1.  As in my previous Judgment and Ruling, I will continue to refer to the petitioners as Leo and Betty and the 8^th respondent as the Company, and to adopt the other definitions.

2.  Following a hearing on 11 October 2021, I gave Judgment dated 18 October 2021 [2021] HKCFI 3067, by which:

(1)  I dismissed a summons dated 6 September 2021 (“Set Aside Summons”), by which the Company applied to set aside the Carry On Order that appointed Betty to represent the estate of Leo to carry on these proceedings and the proceedings to be carried on as if she had been substituted for Leo;

(2)  I dismissed a summons dated 10 March 2021 (“Strike Out Summons”), by which the Company sought to strike out the prayer for winding up relief in the original Petition and the relevant paragraphs and prayer for winding up relief in the draft Amended Petition, on the grounds that the winding up relief sought is plainly and obviously unsustainable and seeking such relief against the Company is frivolous, vexatious or otherwise constitutes an abuse of process;

(3)  I allowed a summons dated 8 January 2021 (“Amendment Summons”), by which Leo and Betty sought leave to amend the Petition;

(4)  I dismissed a summons dated 12 April 2021 (“Injunction Summons”), by which Leo and Betty applied for an order restraining the Company expending its money or other assets, or otherwise incurring any further legal costs, in participating in the present proceedings (HCCW 262/2020), or any other legal proceedings;

(5)  I ordered that, without prejudice to any subsequent ruling as to its operation or effect whilst extant, §1 of the then extant Validation Order should immediately cease to be of effect (and, for the avoidance of doubt, the remaining paragraphs are to continue in effect);

(6)  I ordered that any future intended costs expenditure by the Company in these or any other proceedings are to be made the subject of an application for a validation order in these proceedings.

3.  I also reserved the question of costs of the summonses and, on the assumption that costs would not be agreed between the parties, I directed that any costs submissions should be mutually exchanged and filed in two rounds on 1 and 15 November 2021.

4.  Costs submissions have indeed been filed: (1) by Mr Victor Joffe and Mr Felix Ng, Counsel for Leo and Betty; and (2) by Mr Abraham Chan SC and Ms Natalie So, Counsel for the Company.

5.  This is my Costs Ruling.

B.  The Contest

6.  It is helpful first to identify the orders which the competing parties invite me to make as regards the four summonses.

7.  Mr Joffe’s submission in respect of the four summonses is as follows:

(1)  the Set Aside Summons: The costs of and occasioned by this summons should be paid by the Company to Betty, with certificate for two Counsel, to be summarily assessed and payable forthwith.

(2)  the Strike Out Summons: The costs of and occasioned by this summons should be paid by the Company to Leo and Betty, with certificate for two Counsel, to be summarily assessed and payable forthwith.

(3)  the Amendment Summons: The costs of the amendment should be payable to the Company, to be summarily assessed.  But the costs of and occasioned Company’s opposition to the amendments should be paid by the Company to Leo and Betty, with certificate for two Counsel, to be summarily assessed and payable forthwith.

(4)  the Injunction Summons: The costs of and occasioned by the summons should be paid by the Company to Leo and Betty, with certificate for two Counsel, to be summarily assessed and payable forthwith.

8.  I also note, but need not comment on, Mr Joffe’s statement that his submissions are made without prejudice to Leo and Betty’s stance that, in the event that the Court grants any costs order(s)  against the Company, Leo and Betty are entitled to seek recoupment of any costs paid by the Company from the appropriate parties, including Elaine and Rose.

9.  Mr Chan submits that the overall costs provision should simply be no order as to costs for all four summonses.  But, as an alternative, if the simple option of making no order as to the overall costs of all summonses is followed, Mr Chan submits that the proper order would be for costs to follow the event on each summons.

10.  Mr Chan also argues that any costs orders in favour of a party should fall to be taxed if not agreed, and be payable in any event.

C.  Applicable Principles

11.  The applicable principles are well-settled, and need little if any reference to authority.  Costs are in the discretion of the Court, that discretion to be exercised judicially.

12.  In the exercise of its discretion when making an order as to the costs of or incidental to any interlocutory proceedings, the Court may order the costs to follow the event or make such other order as it sees fit: see RHC Order 62 rule 3(2A).  That rule was introduced by the CJR, since which the Courts are more ready to deal with costs of interlocutory applications by making final orders, rather than putting them off to await the final outcome of proceedings.

13.  Reference can also be made to Order 62 rule 5, which identifies what the Court shall take into account, to such extent if any as may be appropriate in the circumstances.  Among the matters that the Court should take into account are the underlying objectives set out in Order 1A rule 1.  Those objectives include increasing the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the court, and promoting a sense of reasonable proportion and procedural economy in the conduct of proceedings, as well as ensuring fairness between the parties and facilitating settlement of disputes.  The court shall, to the extent appropriate, also take into account the conduct of the parties, including whether it was reasonable for a party to raise or pursue or contest a particular allegation or issue, and the manner in which the party has done so.

14.  In broad terms, the Court will be concerned to identify the ‘successful party’, as that may provide a sufficient answer to what was the event in respect of costs.  Further, the general starting point of the approach of costs following the event does not cease to apply simply because the successful party raises issues or makes allegations on which he fails.  But where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs.  A departure from a global costs order, so as to take an issue-based approach, should be approached with some circumspection, and is likely to be employed only when there are discrete issues which can be separated out one from another.  In effect, the unsuccessful party will bear the burden of showing why some different approach should be adopted on the facts of the particular case to warrant a departure from the ordinary starting point that cost should follow the event.

D.  The Set Aside Summons

15.  Betty is to be regarded as the successful party, because the Set Aside Summons was dismissed.  Further, it was dismissed on its merits, in part by rejecting the Company’s submissions that Betty could not bring herself within the ambit of RHC Order 15 rule 15.

16.  I acknowledge that neither of the provisions originally put forward for Betty – namely Order 15 rules 6A and 7 – were found by me to be applicable in this case, and it was only after consideration of the shift to Order 15 rule 15 that I upheld the Carry On Order.  Therefore, there is some force in Mr Chan’s submission that the ultimately successful resistance to the Set Aside Summons was entirely different from the original basis of the application for the Carry On Order.

17.  But, that the Company might have had a concern as to the proper “gateway” of the application does not seem to me to justify the Company’s taking the point, in circumstances where I doubted its real locus to do so, and where I held that no real prejudice could be suffered by the Company anyway.  First, my costs order does not deal with the costs of obtaining the Carry On Order in the first place.  Second, though it might be said that the Court was assisted by the submissions made by Mr Chan, those submissions were not offered as though from an amicus curiae, but from a party positively challenging and seeking to set aside an earlier order.  (As an aside, it might be pointed out that the aim of all submissions made to the Court should be to assist the Court.)

18.  Further, though argument was put forward on the other rules in written skeletons, at the oral hearing Mr Joffe mainly placed reliance on the applicability of Order 15 rule 15.  On the other hand, it is correct to say that my ruling made clear that the effect of rule 15 was to ensure that costs orders made in the action would properly bind Leo’s estate.

19.  I do not think I need otherwise to go into the various allegations and cross-allegations about conduct, though I have noted them.

20.  Overall, taking all matters into account in the exercise of my discretion, it seems to me they are properly reflected by an order that the Company pay 80% of Betty’s costs of the summons.

E.  The Strike Out Summons

21.  The Company failed in its attempt to strike out the relevant parts of the Petition and proposed Amended Petition.  It did so for the various reasons identified in my Judgment, as reminded by Mr Joffe in his submissions.

22.  I do not think that result is somehow “neutralized” (my word, not Mr Chan’s)  by seeking to point to a “net result” (Mr Chan’s words, not mine)  of the Company failing to manage to strike out the winding-up relief, whilst at the same time preventing the injunction sought by Leo and Betty.  In my view, as my Judgment makes clear, the question of striking out and amendment are properly considered together; but I disagree that the injunction point is either conceptually or practically linked to them.

23.  Nor do I think the fact, that there were various arguments and factors which might have pointed in different directions, leads to any appropriate departure in this case from the starting position that cost should follow the event that the Court refused the strike out.  More importantly, is the concession made by Mr Chan which I recorded in my Judgment at §43 that the company does not have an interest in whether it is or is not wound up (even if it were to assert a concern or interest as to what might happen as it potentially faces a winding up order, and until it finds out whether or not it will be wound up).

24.  Anyway, ultimately the Company failed in its strike out attempt, as it failed to satisfy the necessary test for any strike out. As Mr Joffe submits, that reason alone justifies a costs order against the Company.

25.  Overall, taking all matters into account in the exercise of my discretion, it seems to me that the Company pay Leo and Betty’s costs of the summons.

F.  The Amendment Summons

26.  I agree that the costs of and occasioned by an amendment fall into two parts, where there is an argument about the amendment. Hence, the costs of and occasioned by the amendments themselves costs to be borne by Leo and Betty.  However, I do not think those costs are readily summarily assessed, and they should be costs payable by them to the Company in any event.

27.  As to the separate costs of the argument, Leo and Betty won that argument.  Hence, the starting point seems to me to be that cost should follow that event and the Company should bear the costs.

28.  I have already rejected Mr Chan’s submission that the Amendment Summons should somehow be linked with the Injunction Summons.

29.  A better point made by Mr Chan is that in just five months, Leo and Betty “floated” no fewer than four different versions of the draft amended petition, and the last version was only put forward after the Strike Out Summons was issued.  As Mr Chan submits, it was only that last version which featured averments about the Company’s supposedly inability to purchase shares on a buy-out order.

30.  I also note what Mr Chan properly describes as a “measured” approach to the Amendment Summons, in that the Company reasonably indicated at an early stage that it had no objection to any amendments save those relating to winding-up.  This is appropriate conduct which I do take into account.

31.  Overall, taking all matters into account in the exercise of my discretion, it seems to me they are properly reflected by an order that the Company pay 80% of Leo and Betty’s costs of the summons.

G.  The Injunction Summons

32.  Whilst the summons was dismissed, I think it can properly be said that the result was ‘mixed’ or that there were roughly ‘honours even’ in light of the further order that I made in relation to the then extant §1 of the Validation Order, and the steps that would be required for any validation after the date of my Judgment.

33.  As is clear from my Judgment, my view is that the parties together in effect got themselves into this problematic position by jointly asking the Court (Linda Chan J)  to make a validation order in terms which in reality comprised little more than a statement as to the effect of section 182.  The form of order sought jointly by the parties was, in my view, always likely only to propagate disputes between them, rather than resolve them.  That is the importance of the fact that the order was made by consent.

34.  Therefore, whilst there is some force in Mr Joffe’s submission that the effect of removing §1 of the Validation Order is similar to granting some form of injunction, the particular problem faced which prompted the Injunction Summons was in part brought on by Leo’s and Betty’s own conduct.  As Mr Chan correctly identifies, my direction that §1 of the Validation Order cease to have effect reinstated the default position under section 182, and it seems to me that that process is the one which should govern the approach to any future costs expenditure which the Company might incur, rather than any form of injunctive relief, which might fall to be considered on different principles.

35.  Therefore, it seems to me that the appropriate costs order in relation to the summons is no order as to costs.

H.  The Result

36.  I make the costs orders indicated by reference to each of the four summonses above.

37.  Insofar as I have made costs orders in favour of Leo and Betty, they are all to be with certificate for two Counsel, to be summarily assessed and payable forthwith.

38.  Indeed, it seems to me that these are precisely the sort of circumstances where a summary assessment is appropriate, and where the payment of costs orders made should not have to await the ultimate outcome of the proceedings.  I do not think the fact that prior costs expenditure might yet be the subject of scrutiny within the petition itself changes that position.

39.  Leo and Betty have already provided their Statements of Costs for summary assessment.  The Company will have 14 days to provide any Objections (and, again, for the avoidance of any doubt I regard costs of so doing as being part of the costs of argument).  I will then make the summary assessment on the papers.

40.  Lastly, as neither side was wholly successful in obtaining the costs order sought, I make no order as to the costs of the costs submissions.

Oldham, Li & Nie, for the 1^st and 2^nd petitioners

Hugill & Lp, for the 8^th respondent

HCCW 262/2020

[2021] HKCFI 3352

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP)  PROCEEDINGS NO. 262 OF 2020

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R U L I N G

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A.  Introduction

1.  As in my previous Judgment [2021] HKCFI 3067 (“Judgment”), I will continue to refer to the petitioners as Leo and Betty and the 8^th respondent as the Company, and to adopt the other definitions.

2.  On 11 October 2021, I heard the following summonses:

(1)  a summons dated 6 September 2021 (“Set Aside Summons”), by which the Company applied to set aside the Carry On Order that appointed Betty to represent the estate of Leo to carry on these proceedings and the proceedings to be carried on as if she had been substituted for Leo;

(2)  a summons dated 8 January 2021 (“Amendment Summons”), by which Leo and Betty sought leave to amend the Petition;

(3)  a summons dated 10 March 2021 (“Strike Out Summons”), by which the Company sought to strike out the prayer for winding up relief in the original Petition and the relevant paragraphs and prayer for winding up relief in the draft Amended Petition, on the grounds that the winding up relief sought is plainly and obviously unsustainable and seeking such relief against the Company is frivolous, vexatious or otherwise constitutes an abuse of process;

(4)  a summons dated 12 April 2021 (“Injunction Summons”), by which Leo and Betty applied for an order that:

The [Company] be restrained until the final resolution of these proceedings or further order of the Court in the meantime from expending its money or other assets, or otherwise incurring any further legal costs, in participating in the present proceedings (HCCW 262/2020), or any other legal proceedings between the shareholders in which the [Company] is only named as (or stands in the capacity of)  a nominal party, save and except for complying with the Court’s orders/directions and to give discovery in the aforementioned proceedings.

3.  On 18 October 2021, I gave the Judgment, by which:

(1)  I dismissed the Set Aside Summons;

(2)  I dismissed the Strike Out Summons;

(3)  I allowed the Amendment Summons;

(4)  I dismissed the Injunction Summons;

(5)  I ordered that, without prejudice to any subsequent ruling as to its operation or effect whilst extant, §1 of the Validation Order should immediately cease to be of effect (and, for the avoidance of doubt, the remaining paragraphs are to continue in effect);

(6)  I ordered that any future intended costs expenditure by the Company in these or any other proceedings are to be made the subject of an application for a validation order in these proceedings; and

(7)  I also reserved the question of costs of the summonses.

4.  The detail of the reasoning leading to those Orders can, of course, be read in the Judgment.

5.  Each of the Orders made was interlocutory for the purposes of considering whether or not leave to appeal is required. Therefore, leave to appeal is required, and the time within which an application for leave to appeal against an interlocutory judgment or order is within 14 days from the date of the judgment or order.  In this case, that period expired on 1 November 2021.

6.  However, on 1 November 2021 – that is, on the last day for making an application for leave to appeal – the solicitors for Leo and Betty and the solicitors for the Company filed a Consent Summons, seeking an order by consent that the time for the Company to apply for leave to appeal against the Judgment be extended to 23 November 2021.

7.  No other materials were provided with the Consent Summons.  Therefore, by letter dated 3 November 2021, I asked the parties to explain the reasons said to justify why the Court should grant the extension of time.

8.  In response, the solicitors for the Company wrote a letter dated 3 November 2021, as follows:

We refer to the Court’s note dated 3 November 2021 regarding the Consent Summons dated 1 November 2021 seeking extension of time until 23 November 2021 to file the application for leave to appeal if so advised.

The Company intends to take advice from solicitors and/or Counsel in relation to possible merits of any appeal in relation to the Judgment of 18 October 2021.  In order to do so, the Company has sought Messrs. Oldham, Li & Nie’s (“OLN”)  clients as to consent to validate the Company’s legal expenses for this exercise.  The parties have not managed to reach agreement as to quantum, but OLN have indicated that 1) their clients will take a neutral stance on any such application made by the Company, and 2) for the purpose of saving costs, they agree to a time extension for applying for leave to appeal until 23 November 2021.

Copies of the relevant letters exchanged between ourselves and OLN are enclosed for the Court’s information.

The Company will apply by Summons imminently regarding the above validation.

As the Company wishes to have the benefit of further legal advice before making any application for leave to appeal (if so advised), it therefore seeks the Court’s indulgence for the time extension set out in the Consent Summons.

We shall be grateful if this letter is placed before His Lordship for consideration.

9.  As indicated, the correspondence exchanged between solicitors was enclosed with the letter.  Amongst the matters stated in the correspondence was the Company’s solicitors’ estimate that it would cost in the region of $180,000 to obtain advice from Counsel on potential appeal, and for “subsequent conduct of the action as may be necessary and/or appropriate up to and including the time when such advice is rendered”.

10.  Having considered the letter, and the correspondence exchanged between the parties, I refuse to grant the extension of time within which the Company can file an application for leave to appeal, as sought by the Consent Summons.

B.  Reasons for Refusal

11.  At the hearing on 11 October 2021, the Company was represented by leading Counsel, junior Counsel and solicitors.  Indeed, it was part of the Company’s argument as to why the Company should be permitted to expend funds on legal costs that its legal advisers, including leading Counsel, had advised that such expenditure was appropriate.

12.  For the reasons set out in the Judgment, I took the view that the Company should only be permitted to expend funds on legal costs if such funds are specifically identified and validated by the Court. More importantly, each of the Orders made in the Judgment was made by the application of generally well settled principles to the particular facts of the case, and in the exercise of discretion.

13.  It is trite that leave to appeal from an interlocutory judgment or order of the Court of First Instance in any civil cause or matter should not be granted unless the Court hearing the application for leave is satisfied that the appeal has a reasonable prospect of success. If the Company is to obtain leave to appeal from any of the Orders, the Company will need to demonstrate those reasonable prospects of success.

14.  Similarly, in considering whether or not to grant any extension of time within which an application for leave to appeal can be made, the Court will consider (amongst other things)  the merits of the proposed application for leave to appeal.  Unless sufficient merit is demonstrated, there is ordinarily no point in granting any extension of time.

15.  In the same vein, if the Company is to obtain validation for the expenditure on legal costs, it will need to identify that that expenditure is or will be properly incurred.  To do that in the current circumstances, the Company will need to identify at least some proper basis for thinking that there might be any viable ground of appeal from the Judgment which is worth exploring through the proposed costs expenditure.

16.  However, nowhere in the correspondence between solicitors, or in the letter to the Court, does the Company identify even the slightest reason why the Court might consider that any appeal from any part of the Judgment might have any reasonable prospect of success.

17.  This may not be a surprise:

(1)  The Carry On Order was always one unlikely to affect the Company as a nominal respondent to the Petition (except perhaps positively, in having matters relating to the Company dealt with in one go). Therefore, even leaving aside any technical argument on Order 15, I presently do not see likelihood in the grant of leave to the Company to appeal from the dismissal of the Set Aside Summons.

(2)  Striking out is for plain and obvious cases only.  Not least where the strike out was targeted at only an alternative prayer for winding up relief (where leading Counsel for the Company properly conceded that the Company itself has no interest in whether it is or is not wound up), I do not presently think that there is any reasonable prospect that an appellate court would interfere with the dismissal of the Strike Out Summons.

(3)  The Amendment Summons was decided in the exercise of my discretion on the application of well-settled principles.  To an extent it was also simply the ‘flip side’ of the target of the strike out. Again, I do not presently think there is any reasonable prospect that an appellate court would interfere with the allowing of the Amendment Summons.

(4)  It seems to me unlikely that the Company would want to appeal from my dismissal of the Injunction Summons, which is what the Company wanted to happen.  Further, the Company retains the ability to make applications for validation orders (and indeed has already done so in respect of other matters).

18.  Lest it be thought otherwise, this is not a ‘Catch-22’ situation.  I acknowledge that the Company might suggest that it cannot identify any particular grounds of intended appeal, nor speak to their merits, prior to taking advice, yet it is not able to take that advice without first obtaining validation for spending the money on obtaining the advice.  But I do not think such a suggestion would be right.

19.  First, the Company’s stance on the summonses dealt with at the 11 October 2021 hearing, leading to the Judgment, was expressly said to have been based on legal advice (including from leading Counsel).  The Judgment directly addressed the arguments flowing from that legal advice.  The Judgment was provided when that advice and those arguments must have been fresh in the mind of all participants, including the Company’s legal representatives.  If there is to be any merit at all in a challenge to the discretionary orders made in the Judgment, one might think that they would ‘leap off the page’ to those deeply involved in the case.  In those circumstances, I confess I find it difficult to imagine why $180,000 would need to be spent in forming a view as to whether there was any proper basis for seeking leave to appeal.

20.  Secondly, it might be said that the lack of a validation order in respect of the costs of seeking advice on appeal does not prevent those costs being spent at all.  Validation orders can be obtained retrospectively.  Therefore, the absence of prior validation merely means that unless those costs are subsequently validated, the disposition of the property of the company by that costs expenditure would be void.

21.  Thirdly, the lack of a validation order in respect of the costs of seeking advice on appeal does not prevent those costs being spent by someone else, such as any director of the Company – Elaine or Rose – who feels strongly about the matter (albeit in my view, obviously, erroneously).

22.  Anyway, quite simply there is no hint at what might be the subject of any appeal and why it might have any merit.  It is obviously insufficient merely to say “I want more time to think about whether or not to appeal”, and it is also insufficient merely to say “I want to spend some money to see whether or not anyone can come up with any viable ground of appeal”.

23.  In the circumstances, and in the exercise of my discretion, I do not think I have been shown any reason why an extension of time is justified and should be granted.

Oldham, Li & Nie, for the 1^st and 2^nd petitioners

Hugill & Lp, for the 8^th respondent

HCCW 262/2020

[2021] HKCFI 3067

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 262 OF 2020

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________________________

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J U D G M E N T

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A. Introduction

1.  The 8^th Respondent Cornwall Agency Company Limited (“Company”) is a family company, originally incorporated in 1968.  The Company’s only business was and remains property holding, and its only income is the rent generated by its only property asset, a three-storey building known as Cornwall Villa, at 12 Cornwall Street, Kowloon Tong, Hong Kong (“Property”).

2.  The 1^st and 2^nd Petitioners (“Leo” and “Betty” respectively), both shareholders in the Company, essentially complain of the conduct of the 1^st Respondent (“Elaine”) and, to a lesser extent, the 2^nd Respondent (“Rose”), though no specific relief is claimed against Rose (except costs). For approximately 19 years until 29 May 2020, Leo and Elaine were the only directors of the Company, but on that date Rose was appointed as an additional director.  No allegations are made against the remaining other shareholders joined as the 3^rd to 7^th Respondents in that capacity, and they seem to have remained neutral in the proceedings.  Therefore, the real dispute in these proceedings is between the two ‘camps’ (1) Leo and Betty, and (2) Elaine and Rose.

3.  When the Petition was first issued on 18 August 2020, the only relief sought was an order that the Company be wound up by the Court on the “just and equitable” ground.  The reason for seeking that relief was explained in §82 as follows:

82. The Petitioners are also unable to exit the Company by securing a buyout from the other shareholders in the Company.  In fact, such effort was sabotaged by the 1^st Respondent, by reason that a proper valuation of the Petitioners’ shares will inevitably involve exposing the real financial information concerning the Company.

4.  Unfortunately, these proceedings are not the only proceedings concerning the Company.  There have been other connected, and at times overlapping, proceedings.  A number of applications in the various proceedings came before Linda Chan J, leading to her Decision dated 2 November 2020, [2020] HKCFI 2779.  A useful summary of further factual background can be found in that Decision at §§13-20, but it need not be rehearsed here.

5.  Shortly before that Decision, Linda Chan J granted a validation order dated 29 September 2020 (“Validation Order”).  The Validation Order was made by consent in the terms of the joint application of Leo and Betty and the Company, made by a Consent Summons filed on 24 September 2020.

6.  Materially for present purposes, the Validation Order included the following provision, at §1:

Notwithstanding the presentation of the Petition dated 18 August 2020, unless otherwise ordered by the Court, any payment or other disposition of property made on or after 18 August 2020 to its own legal advisers for the payment of legal costs of the Company properly incurred in relation to the following legal proceedings shall not be void by virtue of section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (“CWUO”):

                       (a)   The present proceedings;

                       (b)   HCMP 564/2020;

                       (c)   HCA 617/2020;

                       (d)   HCA 1144/2020;

                       (e)   HCA 561/2019;

                       (f)   Any other legal proceedings that are commenced by or against the Company.

7.  By summons dated 8 January 2021 (“Amendment Summons”), Leo and Betty applied for leave to amend the Petition in the manner as highlighted in the draft Amended Petition attached to that summons (which draft was different from one previously sent in correspondence).  The Amendment Summons was itself amended on 20 April 2021 by replacing the attached draft with a different (third) version.  The Amendment Summons was later re-amended by my Order made at the hearing on 11 October 2021, by replacing the draft with a proposed (fourth) draft Amended Petition.  It is that version for which leave to amend is now sought.

8.  In the proposed Amended Petition, Leo and Betty seek as their primary relief a buyout order, namely an order that Elaine purchase their shareholding in the Company at fair value to be determined.  In the alternative, and on the basis that Elaine does not have sufficient financial resources to purchase Leo’s and Betty’s shares and if (contrary to Leo’s and Betty’s primary case) the Company has such resources, Leo and Betty seek a different buyout order, namely an order that the Company purchase their shares. The further alternative of a winding up order is maintained.

9.  By summons dated 10 March 2021 (“Strike Out Summons”), the Company had already applied to strike out the prayer for winding up relief in the original Petition and the prayer for winding up relief in the (then) draft Amended Petition, on the grounds that the winding up relief sought is plainly and obviously unsustainable and seeking such relief against the Company is frivolous, vexatious or otherwise constitutes an abuse of process.  The application is, of course, now directed at the existing prayer and §§50-55 and prayer §(2) of the current draft Amended Petition.

10.  One of the allegations pursued in the proposed Amended Petition is that Elaine and Rose have improperly procured expenditure of Company assets in these proceedings and other proceedings where the Company ought to remain neutral.  Further, by summons dated 12 April 2021 (“Injunction Summons”), Leo and Betty applied for an order that:

The [Company] be restrained until the final resolution of these proceedings or further order of the Court in the meantime from expending its money or other assets, or otherwise incurring any further legal costs, in participating in the present proceedings (HCCW 262/2020), or any other legal proceedings between the shareholders in which the [Company] is only named as (or stands in the capacity of) a nominal party, save and except for complying with the Court’s orders/directions and to give discovery in the aforementioned proceedings.

11.  Leo passed away on 13 May 2021.  Leo had two wills.  One was dated 21 October 2013 (“Australian Will”), by which his widow Betty was named executrix and beneficiary.  The other was dated 18 February 2020 (“Hong Kong Will”), which concerned only Leo’s Hong Kong assets, by which their three children were named as executors and beneficiaries of those assets in Hong Kong.  Obviously, Leo’s shares in the Company formed part of his Hong Kong assets.

12.  Notwithstanding that Betty is neither an executrix nor beneficiary under the Hong Kong Will, she applied ex parte to be appointed to represent Leo’s estate to carry on these proceedings.  The application was by summons dated 7 June 2021 which specifically referenced (only) RHC Order 15 rules 6A and 7, and was supported by her 3^rd affirmation.  By order dated 5 August 2021 (“Carry On Order”), Master Lai ordered that Betty be appointed to represent the estate of Leo to carry on these proceedings and the proceedings to be carried on as if she had been substituted for Leo.

13.  By summons dated 6 September 2021 (“Set Aside Summons”), the Company has applied for the Carry On Order to be set aside.  The application has not been supported by any other party.

14.  On 11 October 2021, I heard argument on:

(1)  the Injunction Summons;

(2)  the Amendment Summons;

(3)  the Strike Out Summons; and

(4)  the Set Aside Summons.

15.  It may be important to note at this point that the Amendment Summons and Strike Out Summons obviously can be dealt with together, where there is no opposition from any party to the majority of the proposed amendments, and the only opposition from the Company is to the proposed amendments relating to the claimed relief of a winding up order.  In other words, the Company is concerned only to strike out, and/or to prevent amendment of, the basis for and claim to that relief.

16.  It can also be noted that the various applications in any event overlap, or may impact one on another.  Nevertheless, without losing sight of that fact, it is convenient to deal with them broadly under the following separate headings, and in what seems to me to be the convenient order.

17.  At the hearing, the Petitioners were represented by Mr Victor Joffe leading Mr Felix Ng, and the Company was represented by Mr Abraham Chan SC leading Ms Natalie So.  As would be expected, and with the benefit of prior written skeleton arguments, Mr Joffe’s and Mr Chan’s oral submissions were crisp and clear, and little or no reference was made by them to the majority of documents in the hearing bundle. In this Judgment, I shall try to follow their lead.

B.      Set Aside Summons

18.  The Carry On Order was obtained on the ex parte summons with the margin reference to Order 15 rules 6A and 7.  But I agree with Mr Chan that rule 6A – dealing with actions purporting to have been commenced by a person who was dead at the time of its commencement – is simply inapplicable because Leo passed away only after the commencement of the proceedings.

19.  As to rule 7, the key provision is to be found in rule 7(2):

Where at any stage of the proceedings in any cause or matter the interest or liability of any party is assigned or transmitted to or devolves upon some other person, the Court may, if it thinks it necessary in order to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, order that other person to be made a party to the cause or matter and the proceedings to be carried on as if he had been substituted for the first mentioned party.

20.  I agree with Mr Chan that that provision cannot be used by Betty as she cannot bring herself within the definition of “that other person” because the interest in Leo’s shares (which are subject to the Hong Kong Will) have not been assigned or transmitted to or devolved upon her.

21.  Insofar as it is necessary to say so, I also agree with Mr Chan that the relevant interest the subject of rule 7(2) is the deceased’s interest in the thing assigned, transmitted or devolved, and does not permit a person simply interested in the outcome of proceedings to be substituted as the party in place of the deceased.

22.  The force of those points seemed to me to be acknowledged by Mr Joffe, because in his oral submissions he focused rather upon the provision found in Order 15 rule 15 and on the ‘inherent jurisdiction’.  Before dealing with the detail and effect of rule 15, I would state that I accept that it may be taken into account notwithstanding that it was not referenced in the margin to the original summons (though this may have some impact on costs).  However, I do not think a general plea to the exercise of the ‘inherent jurisdiction’, as was also invited by Mr Joffe, is appropriate where there is a detailed regime relating to adding and substitution of parties in Order 15.

23.  Order 15 rule 15(1) provides as follows:

Where in any proceedings it appears to the Court that a deceased person was interested in the matter in question in the proceedings and that he has no personal representative, the Court may, on the application of any party to the proceedings, proceed in the absence of a person representing the estate of the deceased person or may by order appoint a person to represent that estate for the purposes of the proceedings; and any such order, and any judgment or order subsequently given or made in the proceedings, shall bind the estate of the deceased person to the same extent as it would have been bound had a personal representative of that person been a party to the proceedings.

24.  To demonstrate that Betty could bring herself within that rule so as to retain the benefit of the Carry On Order, Mr Joffe refers me to the cases of Wingrove v Thompson (1879) 11 Ch D 419 and Lean v Allston [1947] KB 467, dealing with applications by reference to old provisions in terms very similar to our now Order 15 rule 15. In the Wingrove case, a sole plaintiff died insolvent and intestate, and the defendant applied for the appointment of a person to represent the plaintiff’s estate so that the defendant might have someone against whom to move for dismissal.  Fry J held that the provision – the then section 44 of the Chancery Procedure Act – enabled him to make the order, even though it would make the legal personal representative when appointed liable for the costs of the action.  In the Lean case, the English Court of Appeal rejected the submission that the relevant provision – the then RSC Order 16 rule 46 – only applied in a case where a person already a party to proceedings had died and there was no legal personal representative of such party.  Morton LJ saw no ground for confining the words to deceased persons who had been parties to the proceedings.  Hence, Mr Joffe submits, if the wording of the provision is not limited to deceased persons who were parties, it must at least include deceased persons who were parties (such as Leo).

25.  Mr Joffe also refers to the Hong Kong Civil Procedure 2022 at Note 15/15/7, where it identifies what would be the title of the proceedings following an order made under rule 15, namely “AB appointed by order dated [ ] to represent the estate of CD deceased”, where the words “since deceased” would be added of the name of the party whose estate is represented, if he was a party.

26.  In response, Mr Chan submits that rule 15 is to be construed in the context of the entirety of Order 15, where rule 7 deals expressly with the situation of a change of parties by reason of death.  Mr Chan submits that Leo was not merely someone “interested” in the action, but was a party to the action.  Mr Chan also relies on the fact that there was no equivalent to our rule 7 in force at the time of the decision in the Wingrove case (and a similar application as was made in that case would now fall to be made under our rule 9).  However, by reference to further materials provided to me after the hearing, it seems that at the time of the Lean decision in 1947 there was in force a provision similar to what is now our rule 7: see RSC (1883) Order XVII rule 4.

27.  Having carefully considered the provisions, and in particular rules 7 and 15, the proper interpretation seems to me to be as follows:

(1)  Rule 7 deals with the situation where a deceased party’s interest in the subject matter of the action has been assigned or transferred to or has devolved upon another person, and permits (but does not require) the Court to add that other person as the party to carry on the proceedings.

(2)  Rule 15 deals with the broader situation where a deceased person had an interest in the matter in question in the proceedings but has no personal representative, and permits (but does not require) the Court to hear the application of any party to the proceedings and to appoint a person to represent the estate for the purposes of the proceedings.

(3)  The essential purpose of the operation of rule 15 is to ensure that any judgment or order subsequently given or made in the proceedings will bind the estate of the deceased person just as it would have been bound had a personal representative been a party.

(4)  In other words, rule 15 is to ensure that, in an appropriate case, the estate of the deceased person would be bound notwithstanding that rule 7 might not have been triggered.

(5)  The phrase that a deceased person “was interested in the matter in question in the proceedings” includes, but is not limited to, the circumstances where his interest was shown by being a party.

28.  In this case, Leo was plainly interested in the matter in question in the proceedings, and indeed was a party pursuing that interest.  That interest was the bundle of rights and obligations involved in ownership of his parcel of shares in the Company.  Though it seems to me to be probably irrelevant why there is no personal representative of Leo in respect of those shares, falling within the Hong Kong assets subject to the Hong Kong Will, I note the parties have thrown darts at each other on the point.  Anyway, the fact is that there is no personal representative.  In the absence of a person representing Leo’s estate, rule 15 empowers the Court, if it thinks fit, to appoint another person to represent the estate for the purposes of the proceedings, so that the proceedings can carry on and the estate will be bound.  Whilst in many cases the other person which the Court might consider appointing would be someone who is likely to become a personal representative of or a beneficiary under the estate, there is no reason why the Court might not appoint some other person felt suitable.  In this case, Leo’s widow and co-petitioner does not seem to me to be a person obviously not suitable; au contraire.  Indeed, it is because she is a party to the proceedings that she may make the application under rule 15.  She is already giving instructions to the solicitors who act. Those persons to whom the benefit of the shares may eventually pass, namely the children, have all consented to Betty being appointed.  If prior to resolution of the Amended Petition circumstances change such as would trigger the ability to make an application under rule 7, that change can be addressed.  In the meantime, rule 15 permits the proceedings to continue, or (to use the wording in the order made) to be carried on.

29.  In passing, it might also be noted that rule 15 permits an application by “any party”.  For example, a confident primary respondent whose conduct is the target of an unfair prejudice petition might wish to apply for someone to represent the estate to ensure that the predicted dismissal of the complaints binds all those who commenced the proceedings and their successors.

30.  That seems to me to resolve the Set Aside Summons, which therefore falls to be dismissed.  However, I will also briefly address the further points raised in the context of the Set Aside Summons.

31.  There seems to me to be some force in Mr Joffe’s submission that there must be at least doubt as to the Company’s locus to make the application, where none of the shareholders have supported it.  Further, any concern expressed on behalf of the Company that it might face an inability to recover costs from Betty representing Leo’s estate in these proceedings seems misplaced.  The effect of the application of rule 15 is to bind the estate, and Article 48 of the Company’s articles of association permits a lien on shares to be exercised in respect of any debt owed by a shareholder to the Company.  Of course, this point is also linked to the point as to whether the Company will be or should be incurring any significant costs as a party to these proceedings. So there is no great weight to Mr Chan’s submission that his suggested invalidity in the Carry On Order is no mere technicality.  Lastly, I do not think the failure of Betty to have kept the Court up to date with the state of probate in Australia was any material failure as might lead to setting aside the Carry On Order.

C.      Strike Out Summons and Amendment Summons

32.  As already stated, these two matters can usefully be dealt with together.

33.  The legal principles relevant to the striking out as sought by the Company are well-established, and can be found for example in Re Sun Light Elastic Limited [2013] 3 HKLRD 1 at §§3-4, and 9:

(1)  If a petitioner has made out a case of unfair prejudice, the court will not order a winding up if alternative relief is available.

(2)  This principle, and the fact that companies that are carrying on business do not wish the inconvenience and stigma of a winding up petition hanging over them, may lead to an application to strike out alternative relief for a winding up order, on the ground that there is no prospect of such relief being granted.

(3)  In assessing such applications, the particulars and allegations in the petition and supporting affidavits of the petitioner are assumed to be established.

(4)  The application should be approached with the greatest circumspection, and it is only in a plain and obvious case that the court should exercise its discretion to strike out the petition for winding up all the parts complained of.

(5)  The burden is on the applicant to show that it is plain and obvious that the petition for winding up would fail on the ground that there is an alternative remedy available to the petitioner and that the petitioner is acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.

(6)  Where proposed amendments are put forward in an application to strike out, the court should have regard also to the matters in the proposed amendments.

(7)  Winding up orders are granted only if there is good reason to do so.  It is no answer to an application to strike out for the petitioner simply to say that one never knows what will transpire.  The petitioner must be able to point to particular matters he is concerned might make a winding up order the appropriate or only practical relief.

34.  The legal principles applicable to amendment applications are also well-established.  In short, all such amendments should be allowed as will enable the real questions in controversy between the parties to be determined.

35.  The starting point of the analysis in this case is to note that the Petitioners’ primary targeted relief is an order that Elaine buy out their shareholdings in the Company.  Their first alternate relief is, should Elaine lack the financial means to buy them out but the Company have those means, an order that the Company should be the purchaser under a buyout order.

36.  Therefore, Mr Chan submits that here there is an available alternative remedy in the form of a buyout order, be it by Elaine or by the Company.  He says that there is no evidence before the Court as to Elaine’s financial position, so that it cannot be said that a buyout by Elaine is impracticable.  Further, the Company clearly holds the valuable Property and has income, and is indisputably solvent with money in the bank.  Even taking the Petitioners’ case at its highest, valuing the Company at HK$749 million, their combined shareholding of 16.7% would pro-rate to around HK$125 million. Mr Chan submits that the Company could obtain those funds from directors’ or shareholders’ loans, or by loans from banks, or by selling the Property (or even a part of it).

37.  But I agree with Mr Joffe that it is settled that in considering the appropriate relief to be granted (namely, winding up or buyout) consideration of the purchasing party’s financial ability to buy out is highly relevant to the exercise of the discretion.  Here, the absence of evidence as to Elaine’s financial position means that the Company has not demonstrated that a buyout by her is practicable (and I have in mind that Elaine is one of the two directors passing resolutions as to giving instructions to the Company’s solicitors).  Further, the solvency of the Company does not seem to me to be determinative, and the sums at bank may in part reflect the failure to have paid out dividends to the shareholders, which is one of the complaints.  There is also no evidence on how the Company might obtain funding from directors or shareholders loans.  The evidence as to a potential loan from banks is limited; indeed, the only document seems to suggest that the bank so far approached would not proceed on a valuation even as high as the ‘existing use value’, and a loan of 25% of that figure may be highly insufficient by reference to a ‘redevelopment value’.  Without the totality of materials, it is also impossible to see whether even some combination of loans might be in substance feasible.  Further, selling merely part of the Property might significantly affect the redevelopment value of the whole of the Property, and might even be the subject of objections from other shareholders.  I have in mind that even if shareholders are apparently currently neutral to the dispute, they may yet take a more active role, not least in relation to remedies.  Further, where there is no big majority shareholder, and the shareholdings are widely split, it is rather questionable whether the Court might ever think an order requiring the Company to buy out the Petitioners’ shares is the appropriate remedy.

38.  I have taken into account the apparent shift in stance between the third and fourth drafts of the proposed Amended Petition – moving from the statement that the Company has the valuable Property which can be deployed to raise funds for purchasing the shares, to the averment that the Company does not have, and is unable to raise, sufficient funds to buy out the Petitioners.  But that does not seem to me to change the analysis.  Ultimately, whether it does or does not have sufficient funds is at least partially fact sensitive.

39.  But in any event, and acknowledging the force in Mr Chan’s submission that the potential differences in valuation of the Property are irrelevant because the percentage shareholdings do not change against the total value whatever it is, it does not seem to be impossible that the redevelopment vaue is the appropriate valuation to take into the valuation process.  If so, the practical reality is that the Company could only raise sufficient funds by selling the Property, which would be tantamount to liquidation in any event.

40.  Indeed, in those circumstances, and bearing in mind that the contentious exchanges in these proceedings (and other related proceedings) tends to point to the breakdown of the previous basis of relationship underpinning the existence of the Company, I do not think it can be said that there is no prospect of a winding up order being made.

41.  I also note that it would be open to the Court to order the winding up of the Company, even if it is not part of the requested relief or the preferred relief in the Amended Petition.  During the hearing of the summonses, I myself mused out loud whether the obvious thing to do in the context of the present proceedings would be simply to adjourn the matter at short notice into open court so as to pronounce a winding up order.  Of course, from the Petitioners’ point of view, where they simply seek to exit from the Company at the appropriate value for so doing, they are probably indifferent as to whether that value is obtained through a buyout order or through winding up.  I also wonder whether the other, neutral shareholders – whose connection to the original founders of the Company will become ever looser – would particularly mind if the Company were to be wound up.  After all, they can individually or in combination invest back into the Hong Kong property market if that were to be their choice.

42.  I have taken into account the arguments about whether a winding up order is necessary to permit any thorough investigation of alleged wrongdoing by liquidator.  I see some force in Mr Chan’s point that relevant investigation might be performed in these proceedings, and in any valuation process.  But I do not think this point is determinative, and I say no more on it.

43.  I also take into account Mr Chan’s proper concession to me that the Company does not have an interest in whether it is or is not wound up (though it might perhaps have a concern or interest as to what might happen as it potentially faces a winding up order, and until it finds out whether or not it will be wound up).

44.  In the overall circumstances, I do not think the Company can satisfy the necessary test to strike out the prayer for relief in the original Petition.  Nor do I think the proposed amendments in this regard are bound to fail so that leave to amend should be refused.  Hence, the Strike Out Summons stands to be dismissed, and the Amendment Summons stands to be allowed.

D.      The Injunction Summons

45.  The application for the Injunction is made with the benefit of the strong tailwind provided by the long line of authority which states that a company is a necessary but nominal party to just and equitable and unfair prejudice proceedings, which are disputes between shareholders. Therefore, except for costs properly incurred on obtaining a validation order, in giving discovery or in expenditure of costs which are expedient and necessary in the interests of the company as a whole, the company’s money or assets should not be expended on disputes between shareholders.

46.  Where the directors of a company cause the company’s money to be spent beyond those items, the Court can and ordinarily will prevent such expenditure.  Indeed, the improper use of a company’s resources on disputes between shareholders may constitute misfeasance on the part of the directors itself amounting to unfair prejudicial conduct.

47.  Further, whilst it is trite that a company is a separate and distinct entity from its shareholders, that does not amount to the same thing as saying that the company has a separate and distinct position to present on issues of the kind raised between shareholders in just and equitable or unfair prejudice proceedings.

48.  If authority is needed for such settled principles, reference can be made to Re Hydrosan Limited [1991] BCLC 418 at 420; Re CG & L Investment Limited [1992] 1 HKC 78 at 81-83; Arrow Trading & Investments v Edwardian Group Limited [2004] BCC 955 at §§17-19; and the helpful and compendious traversing of the principles by Barma J (as he then was) in Core Pacific-Yamaichi International (HK) Limited (unreported, HCCW 804/2003, 17 October 2003) at §§41-48, 54-55.

49.  Naturally, Mr Chan has focused his submissions on the narrow path open to a company to avoid the ordinary application of the principles.  In my summary of his argument, Mr Chan emphasises that: (1) the essence of the principle is to prevent participation by the company in a ‘partisan’ way; (2) even the standard neutral stance does not necessarily apply in respect of interlocutory applications that may directly affect or concern the interest of the company; (3) the test of whether participation and expenditure is proper is whether it is necessary or expedient in the interests of the company as a whole; (4) what will be necessary for a company to discharge the initial scepticism and rebuttable distaste for participation and expenditure will vary greatly from case to case; and (5) in particular as regards proceedings other than just and equitable or unfair prejudice petitions, it will be necessary to consider closely the substantive position faced by a company named as a defendant or respondent in other proceedings in assessing what is necessary or expedient in the interests of the company as a whole.

50.  Though the proposed terms of the Injunction sought extend wider, the focus of the argument around its possible justification was by reference to the Company’s steps already taken in or proposed to be taken in these proceedings and in HCA 561/2019.

51.  As to the latter, the Re-Amended Statement of Claim (“561 RASOC”) shows that the action has been commenced by Lau Chung (“Anthony”), a grandson of the founder of the Company, to claim against his mother (“Hui”) as to ownership of Hui’s 833 shares in the Company.  Hui is the 1^st Defendant to HCA 561/2019, but she is also the 4^th Respondent in these proceedings.  Anthony alleges that Hui’s shares are in fact held on trust for him and his brother.  Whilst the claim focuses on Hui’s alleged breaches of trust, Anthony also pursues claims against the Company as the 2^nd Defendant to the action.

52.  The Company was first added as a defendant by the red amendments to the claim.  No real allegations were made against the Company, and the only relief sought against the Company was simply an order that the Company take all necessary steps to register Anthony as a shareholder, and pay him accrued and future dividends by reference to that proportion of the shares found to be held on trust for his benefit or ordered to be transferred to him.  I suppose the Company might simply have indicated to Anthony and Hui and the Court that it would take no active role and abide by the decision of the Court, but it chose to file a Defence.  Nevertheless, other than admitting a few averred facts which are within its direct knowledge, the Company’s Defence understandably consisted mainly of non-admissions, and no positive case of any sort was raised.

53.  In the very wordy 561 RASOC, Anthony has raised further allegations in particular in §§24L-24T and 29B, which lead to the claim in the prayer §3A (raised as an alternative to his primary case) for a declaration that the Company “do hold on trust for [Anthony], and that [Anthony] is entitled to, the benefit of 50% of 833/5000 (or such share or proportion as the Court deems fit) of the Company’s assets and properties, and/or the net income and/or profits acquired, obtained and/or held by the Company”.  In its Amended Defence dated 14 December 2020, the Company’s position still consists mainly of non-admissions.  In particular, the bulk of §§24L-24T and the whole of §29B and the prayer is not admitted.  Still no positive case of any sort is raised.

54.  Apparently, consequential directions have been given for discovery and exchange of witness statements.  I also see from the materials that a case management conference was due to have taken place on 9 June 2021, though I have not been told what happened at that hearing (if it in fact occurred).  The Company has apparently indicated an estimated costs expenditure of HK$1.2 million.  Nevertheless, even though Mr Chan emphasises it is but an estimate, I find it difficult to imagine how the Company could possibly spend that kind of money where the Company has raised no positive case in the proceedings.  Indeed, where it has not pleaded any positive factual case, I doubt the Court should permit the filing of any, let alone the proposed extensive, factual witness statements.

55.  Though the Company has merely not admitted, and has not gone so far as to deny, Anthony’s assertion that the Company’s assets do not belong to the Company but are somehow held on trust for its shareholders, Mr Joffe and Mr Chan seem (to my mind, understandably) to share the view that the assertion is misconceived.  Therefore, even if it is technically still a ‘live’ issue, it ought not to be expensive to point out the suggested misconception.

56.  As to these particular proceedings HCCW 262/2020, and the costs incurred by the Company within them, my view as to whether the costs were “properly incurred” is at least to a significant extent reflected in my view of the merits of the Company’s applications dealt with in this Judgment.  I also think there is at least some force in Mr Joffe’s submission that by seeking to strike out the winding up remedy, the Company is necessarily ‘taking sides’.

57.  As to the further three points relied upon by Mr Chan in his skeleton submissions, I do not think they really assist the Company.  First, the threat of winding up is said to loom over the Company like the Sword of Damocles.  But that might be said of every company subject to a winding up petition and was the kind of argument expressly rejected in the Core Pacific case at §54, on reasoning with which I respectfully agree. Secondly, that the threatened winding up has already required the Company, in practical terms, to apply for validation for its expenses and dispositions and to comply with onerous reporting obligations about its expenditure is simply the statutorily directed steps which follow the presentation of the petition. The legislature has already balanced the potentially competing interests, and the Court is there to supervise the validation and reporting process.  Thirdly, the suggestion that the Company has been prejudiced because banks are reluctant to lend money is neither supported by proper evidence, nor is it explained why the Company might need to borrow money from a bank when its only operation essentially comprises owning the Property and collecting the rent.  Further, even if causally connected to the presentation of the Petition (about which there must be at least some doubt), the stated hampering or inability to declare and distribute dividends does not seem to me to amount to prejudice to the Company (as opposed to the shareholders).

58.  Nor do the additional points made by Mr Chan orally assist.  First, that there are no other actively participating shareholders is at best a neutral factor.  Secondly, that the relief sought in the Amended Petition expressly includes the alternative of a buyout order against the Company might perhaps justify participation at the relief stage, but no earlier.  Thirdly, that the Company is only seeking limited participation is offset by Mr Chan’s concession (noted above) that the Company does not itself have an interest in whether it is or is not wound up.

59.  Mr Joffe submits that it is clear that the Company has already acted in breach of the Validation Order, because it has been engaged in participation and expenditure of costs which were not “properly incurred”.  Indeed, as I have already noted, at least part of that criticism is now encompassed in the proposed Amended Petition. However, I think it neither necessary nor appropriate to determine that particular point, which would likely fall for proper determination only at the hearing of the Amended Petition.

60.  But what the point identifies is that the originally agreed mechanism for dealing with potential costs expenditure by the Company in these and other proceedings, as set out in §1 of the Validation Order, has not had the intended effect.  Rather than making clear to all relevant persons what specific costs expenditure is to be regarded as validated, and therefore not void, under section 182, the chosen wording has simply created the scope for yet further argument between the parties.

61.  Incidentally, I reject Mr Chan’s submission that the making of the Validation Order shows that the Petitioners in effect agreed to the Company’s participation in the proceedings, not least when it was the Petitioners who appear to have insisted on the words “properly incurred” during the drafting of what became the Validation Order.  Nor do I accept the submission that steps taken by the Company upon legal advice (including advice from leading Counsel) necessarily means that the costs of those steps were “properly incurred”.

62.  Stepping back, the wording of the Validation Order which the parties jointly asked the Court to make essentially says no more than to state the proposition of principle that only properly incurred costs would be valid, and it almost necessarily leaves over to another occasion an argument about what costs were properly incurred when none are specifically identified and validated.  Not least in already contentious proceedings, that is unhelpful.

63.  I recognise that there may be cases in which some form of injunctive relief can sit in parallel with a validation order. But I do not think this is necessary or appropriate in this case.  Nor do I think the reference to ‘until … further order’ near the beginning of the proposed Injunction or the ‘proviso’ at its end do much more than identify that there may be a proper basis for costs expenditure by the Company which the Court might recognise by its future orders or directions.

64.  Nor is there really any need to consider whether the Injunction if granted (a) would be in effect final, or (b) would deprive the Company of the opportunity of access to the Court so as to put forward its own position, for which loss of opportunity damages would not be an adequate remedy.  Further, the operation of a precisely drafted validation order would seem to me to deal with any question of the relevant balance of conveniences.  Indeed, the whole point of the ability to apply for and obtain a validation order is to enable the Company, where appropriate, to make approved and appropriate payments and to avoid unnecessary hampering of its ongoing business activities.

65.  Therefore, it seems to me that the appropriate course is to dismiss the application made by the Injunction Summons, and simply to remove the terms of the current §1 of the Validation Order from biting on any future costs expenditure.  That can be done without prejudice to the position as regards costs incurred or expended during the period that §1 of the Validation Order was extant.  That will preserve the parties’ position as to the properness or otherwise of past costs expenditure, which is more appropriately to be dealt with (if necessary) in the hearing of the Amended Petition.  It will also preserve the parties’ position as to potential future costs expenditure, as it will require the Company to obtain from the Court a specific validation of proposed costs expenditure in these or other proceedings, and to do so on a specific and detailed application for that purpose.

66.  In that way, at least for future costs expenditure, the question of validity or voidness will be determined once and for all, and not be left as a growing tumour in the proceedings.  Indeed, it might be thought that (a) the directors of the Company would prefer to know in advance whether they may have to bear personally any particular legal expenditure, and that (b) the Company’s lawyers who will charge and receive the relevant legal fees would prefer to know in advance whether that could be validly done or would be void.

E.      Result

67.  In light of the analysis and decisions above:

(1)  I dismiss the Set Aside Summons;

(2)  I dismiss the Strike Out Summons;

(3)  I allow the Amendment Summons;

(4)  I dismiss the Injunction Summons;

(5)  without prejudice to any subsequent ruling as to its operation or effect whilst extant, §1 of the Validation Order shall immediately cease to be of effect (and, for the avoidance of doubt, the remaining paragraphs are to continue in effect); and

(6)  any future intended costs expenditure by the Company in these or any other proceedings are to be made the subject of an application for a validation order in these proceedings.

F.      Costs

68.  The parties will likely wish to consider the above rulings before they address the question of costs.  They, like me, will no doubt have in mind the possible impact of costs orders on both (a) one area of complaint made in the Amended Petition and (b) the potential argument as to whether there has been a breach of the terms of the Validation Order whilst extant.

69.  In the circumstances, and in the (it would seem likely) event that agreement on costs orders cannot be reached, I will deal with the question of costs on paper.  Any costs submissions should be mutually exchanged and filed in two rounds on 1 and 15 November 2021.  (The Company may file its costs submissions, if any, on the basis that the costs involved in producing them will be taken as a necessary part of the applications dealt with in this Judgment.)

HCMP 564/2020

[2020] HKCFI 2779

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 564 OF 2020

________________________

________________________

________________________

AND

HCCW 262/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 262 OF 2020

________________________

________________________

________________________

AND

HCA 1144/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1144 OF 2020

________________________

________________________
(Heard Together)

________________________

D E C I S I O N

________________________

1.  There are before the Court 3 proceedings commenced by the plaintiffs, Mr Lau Cho Kwan Leo (“P1”) and Mrs Lau Betty Barbara (“P2”) (together “Ps”), in respect of Cornwall Agency Company Limited (“Company”) within 3 months in 2020. The proceedings are:

(1)  HCMP 564/2020, an originating summons dated 12 May 2020 issued by P1 qua director to compel one of its directors, Ms Lau Siu Fan Elaine (“Elaine”), and the Company to provide 18 categories of documents for his inspection pursuant to sections 374, 375 and 740 of the Companies Ordinance (Cap 622) (“Ordinance”) (“Inspection Proceedings”).   

(2)  HCA 1144/2020 commenced on 9 July 2020.  This is a common law derivative action brought by Ps (on behalf of all shareholders except Elaine) against (i) Elaine for damages, equitable compensation and account of profits in causing the Company to enter into various transactions allegedly in breach of her fiduciary duties owed to the Company; and (ii) against Cornwall Investments Limited (a 99% subsidiary of the Company) (“CIL”) and Cornwall Management Limited (“CML”) for damages, knowing receipt and knowing assistance for their participation in such transactions (“Derivative Action”).

(3)  HCCW 262/2020, being a “just and equitable” winding-up petition presented by Ps on 18 August 2020 in respect of the Company (“WU Petition”).  The only substantive relief sought is a winding-up order against the Company.

2.  In addition, there is another action, HCA 617/2020, commenced by Ps on 12 May 2020 against Elaine and the Company to compel the Company to issue replacement share certificates to them (“Certificates Action”). 

A.  Procedural History

3.  At the hearing on 3 September 2020 in HCCW 262/2020, the Company sought a validation order in respect of ordinary business expenses and legal costs incurred and to be incurred in the WU Petition and 4 other sets of proceedings[1] in which the Company was named as a defendant (“Validation Summons”).  The application which concerned ordinary business expenses was disposed of at the hearing.  The remaining part of the application and the question of the costs were adjourned for arguments.

4.  It appears from the WU Petition that Ps, who are both of advanced age and have long emigrated to Australia, are desirous of extricating their interests in the Company.  However, instead of focussing their resources in pursuing the WU Petition, Ps’ legal advisers have caused multiple proceedings to have been commenced.  It is a matter of concern that in commencing these proceedings, Ps’ legal advisers did not have any proper regard to the underlying objectives of the Rules of the High Court in particular, the need to increase cost effectiveness and to promote reasonable proportion and procedural economy in the conduct of proceedings.  This is reinforced by the fact that some of the defendants have already issued summonses to strike out or dismiss the Derivative Action and the Inspection Proceedings.  Consequently, this Court reminded Ps’ legal advisers their duty to assist the Court to further the underlying objective of the Rules by focussing on those proceedings which would resolve the dispute between the parties once and for all. 

5.  To avoid wasting the Court’s time and the parties’ costs, I directed the following applications to be heard at the hearing on 29 September 2020:

(1)  the remaining part of the Validation Summons;

(2)  the summons dated 23 July 2020 issued by Elaine for dismissal of the Inspection Proceedings, and the summons dated 27 July 2020 issued by the Company for dismissal of the Inspection Proceedings (together “Dismissal Summonses”); and

(3)  the summons dated 23 July 2020 issued by Elaine and CML to strike out the Derivative Action (“Strike Out Summons”), and the summons dated 21 August 2020 issued by Ps in the Derivative Action for discovery of documents against third parties (former auditors of the Company).

6.  As regards the Certificates Action, upon this Court’s enquiry, counsel confirmed that the main issue is whether Ps should be required to provide an indemnity to the Company.  The parties were directed not to take further step in the action, and to report to the Court by 10 September 2020 whether the action could be disposed of by consent and, if not, they should lodge written submissions and the action would be disposed of on paper. In the Decision handed down on 21 October 2020, an order was made that upon Ps providing duly executed deeds of indemnity to the Company, the Company shall issue share certificates to Ps.  Ps were ordered to pay 60% of the costs of the action to the Company, given that Ps had not pleaded any reasonable cause of action or viable relief in the statement of claim and had raised issues and made allegations against the Company improperly and unnecessarily. 

7.  Prior to the hearing, Ps have taken the following steps with a view to saving costs and the Court’s time:

(1)  In respect of the Derivative Action, Ps filed a notice of discontinuance on 16 September 2020.  Ps intend to introduce the alleged wrongdoings pleaded in the Derivative Action in the WU Petition.

(2)  As for the Validation Summons, by letter dated 16 September 2020 Messrs Oldham Li & Nie (“OLN”) informed the Company that save for the addition of the words “properly incurred” to qualify the legal costs incurred by the Company, Ps would not oppose the application and costs should be paid out of the Company’s assets or in the cause.  The Company incorporated Ps’ proposed amendment and prepared a consent summons with a view to dispose of the application.

8.  However, after Ps had filed the notice of discontinuance in respect of the Derivative Action, on 21 September 2020, Elaine and CML filed a summons to seek costs against Ps on an indemnity or common fund basis (“Indemnity Costs Summons”). 

9.  Mr Anson Wong SC[2] submits that it is questionable whether the Court has jurisdiction to order costs on a higher scale, where the rules expressly provide an automatic consequence upon a plaintiff serving a notice of discontinuance.  In any event, this is not a case where the Court should order costs on a higher scale, given that (1) Ps will pursue the complaints by making appropriate amendments in the WU Petition; (2) Ps decided to discontinue the Derivative Action with a view  to saving the Court’s time and the parties’ costs; and (3) Ps accepted that the essential elements to found a derivative action are not pleaded in the statement of claim, and they did not fight the Strike Out Summons till the bitter end. 

10.  Mr Maurellet SC[3] accepts that he is not aware of any authority in support of his contention that after a plaintiff filed a notice to discontinue the action pursuant to Order 21 rule 2(1), the Court may still order the costs of the action against the plaintiff on a higher scale in favour of the relevant defendants. 

11.  In my view, the Indemnity Costs Summons is misconceived.  Order 21 rule 2(1) provides that the plaintiff may, without leave of the Court, discontinue the action as against any or all of the defendants at any time no later than 14 days after service of the defence on him.  The right to discontinue the action is unqualified save where interim payment has been ordered[4]. Once a notice is filed pursuant to Order 21 rule 2(1), the action will be discontinued automatically against the relevant defendants who will get their costs in the usual way[5]. There is nothing under Order 21 rule 2 which preserves the Court’s jurisdiction to deal with the question of costs or otherwise keeps the action alive for any purpose.   

12.  In any event, I do not think that Ps’ conduct warrants the Court awarding costs of the Derivative Action in favour of the defendants on a higher scale.  Indeed, Ps should be commended for their act in seeking to discontinue the Derivative Action at an early stage.  I therefore dismissed the Indemnity Costs Summons with costs payable by Elaine and CML to Ps.

B.  Background

13.  The Company was incorporated on 22 October 1968. It was founded by the late Mr Lau Ting Wei (“Father”) and his wife, the late Madam Lucy Cheng, who were its subscribers and first directors.  They had 6 children, who are P1, Lau Big Ying Rose (“Rose”), Lau Cho Yee (“Cho Yee”), Lau Cho Yan, Lau Cho Bun (“Cho Bun”) and Lau Cho Dick (“Cho Dick”).

14.  Father died in 1977 and according to his will, the 1,000 shares then registered in his name should be distributed to his 6 children and his wife as to 1/7 each.  There is a dispute as to whether the shares previously held by Father were distributed in accordance with his will, and whether the number of shares currently held by the shareholders is correct.

15.  The Company has 5,000 issued shares of HK$100 each, all of which have been held by members of the Lau family.  According to the Company’s register of members, there are 10 shareholders and their shareholdings are as follows:

Name	No. shares	Shareholding
P1	583	11.66%
P2	250	5%
Father	2	0.04%
Elaine	833	16.66%
Rose	714	14.28%
Cho Yee	833	16.66%
Hui Keng Yee (“Hui”)	833	16.66%
Lau Fun	118	2.36%
Liu Yi	417	8.34%
Liu Jie	417	8.34%
Total	5,000	100%

16.  Except Father and Ps, all shareholders are named as respondents to the WU Petition.  The shares held by Hui (wife of Cho Dick) are the subject matters of HCA 561/2019, which is an action commenced by Lau Chung against his mother (Hui) and the Company (“Share Dispute Action”).     

17.  The Company has always been managed by members of the Lau family.  From 1978 to 1996, Cho Bun was a director and secretary.  From December 1988 to 2001, Cho Dick was a director.  In 1988, Elaine was appointed as a director.  In December 1999, P1 became a director.  For over 19 years, from 2001 to 29 May 2020 (when Rose was appointed as an additional director), P1 and Elaine were the only directors of the Company. 

18.  As P1 has been residing in Australia, the day-to-day affairs of the Company have been managed by Elaine, who is the Managing Director of the Company. 

19.  The Company’s only business is property holding and its only income is the rent generated by a 3-storey building known as Villa Cornwall at 12 Cornwall Street, Kowloon Tong, Hong Kong  (“Property”). In 2017, the Property had a market value of $717 million - $749 million.  The rental income generated by the Property from 2013 to 2019 are as follows:

Year	Amount
2013	$3,325,000
2014	$3,400,000
2015	$3,512,634
2016	$3,676,801
2017	$3,753,551
2018	$3,728,305
2019	$3,433,000

20.  The following 2 Hong Kong companies are said to be under the control of Elaine and feature prominently in Ps’ complaints:

(1)  CIL was incorporated on 6 July 2010.  Its sole director was Elaine or her husband.  On 14 July 2010, the only issued share was transferred from the subscriber to Elaine.  On 9 December 2010, 999 shares were allotted to the Company and since then, the Company has been holding 99.9% shareholding in CIL. 

(2)  CML has 2 directors and equal shareholders, who are Elaine and her sister, Ms Lau Hoi Wai. 

C.  Inspection Proceedings

21.  As stated in §1(1) above, the originating summons was issued under sections 374, 375 and 740 of the Ordinance (“OS”). Apart from seeking an order to allow P1 (and his agents) to inspect and make copies of all the 18 categories of documents listed in the Schedule, P1 also seeks an order, at §§2-3 of the OS, in the following terms:

“2.  Where any of those records and documents listed in the Schedule annexed hereto be non-existent or otherwise could not be made available to [P1], [Elaine] do serve a statutory declaration to that effect within 7 days from the date of the Order to be made;

3.  [Elaine] do serve a statutory declaration to the effect that besides those records and documents provided to [P1] on 3 April 2020 and to be provided pursuant to the Order to be made, there are no other documents of the Company which could, may or might substantiate the claim that [Elaine] has been in a breach of fiduciary duty against [the Company]”

22.  At the callover hearing of the originating summons before DHCJ Douglas Lam SC on 11 June 2020, the Court was informed by counsel[6] that:

(1)  amongst the 18 categories of documents sought by P1, only Categories 3, 11 and 16 (collectively “Disputed Documents”) would be disputed;

(2)  as regards the remaining 15 categories (“Undisputed Documents”), the only question dividing the parties was the manner of inspection or in the words of Mr Tom Ng (counsel for Elaine), “the nitty-gritties about non-disclosure agreement, photocopiers, number of agent”;

(3)  in relation to manner of inspection, the Company offered to provide 47 bundles of documents within the next 7 working days for inspection by the 4 agents appointed by P1 subject to availability of the designated business centre;

(4)  P1 accepted that he would be under an obligation to keep the documents provided by the Company confidential and to use such documents for proper purposes.  On this basis, Elaine and the Company did not insist on P1 signing a confidentiality agreement in respect of the documents;

(5)  the Court should make an order by consent in terms of what was agreed by the parties at the hearing subject only to the question of costs, which would be reserved for arguments; and

(6)  §§2-3 of the OS would be adjourned for argument. 

23.  On 26 June 2020, the Company’s solicitors provided OLN with an USB containing electronic copies of 47 bundles of documents (“47 Bundles”).  In Rose’s affirmation filed on 27 July 2020, she said the delivery of 47 Bundles to Ps was pursuant to the Order of DHCJ Lam SC dated 11 June 2020.

C1.    Interlocutory Skirmishes

24.  Despite the large measure of agreement reached between the parties and the delivery of the 47 Bundles to P1, the parties saw fit to complicate and prolong the proceedings by taking the following steps:

(1)  P1 filed his affirmation on 30 June 2020 (“P1’s Aff”) which runs to 31 pages (with single line spacing) and contains 113 paragraphs.  It sets out the history of the Company, the various disputes between the shareholders inter se, the alleged wrongdoings alleged to have been committed by Elaine against the Company, the minute details of all the correspondence exchanged between the parties’ solicitors in respect of P1’s request for inspection of the Company’s documents, the attack against Elaine’s character and details of the correspondence between P1 and the auditors.  It is clear that P1’s legal advisers failed to pay heed to what had been agreed between the parties at the callover hearing, and drafted an affirmation raising many matters and allegations which are not only irrelevant to the application but also fall outside the scope of the evidence directed to be filed by the parties. 

(2)  Elaine and the Company issued the Dismissal Summonses.

(3)  In response, P1’s legal advisers caused a summons to be issued on 30 July 2020 for, inter alia, an order to dismiss the Dismissal Summonses on the grounds that any allegations made by Elaine and the Company “in the pleadings” are “unmeritorious and/or incorrectly or insufficiently pleaded to substantiate the allegation(s) and/or that the Dismissal Summonses are scandalous, frivolous or vexatious” or constitute an abuse of process (“July Summons”).

(4)  On 10 August 2020, P1’s legal advisers issued yet another summons, under Order 45 rule 8, to compel Elaine and the Company to comply with the order made by DHCJ Lam SC on 11 June 2020 (“August Summons”).

25.  At the hearing on 24 August 2020, DHCJ Lam SC dismissed the July Summons and the August Summons and ordered the costs of the former Summons against P1 on an indemnity basis.  The learned Judge observed that the July Summons was “abusive”, and considered the possibility of ordering costs against P1’s legal advisers on the basis that it was wholly misconceived.

C2.    Applicable Principles

26.  The principles governing an application made by a director for inspection of the company’s documents have been sufficiently stated by Kwan J (as she then was) in Ng Yee Wah v Lam Chun Wah [2012] 4 HKLRD 40, §29, as follows:

“(1)  The right of a company director to inspect the company’s documents is well established at common law (Burn v London and South Wales Coal Company and Risca Investment Company (1890-91) 7 TLR 118 at 118-119; Edman v Ross (1922) 22 SR (NSW) 351, at 360-361; Conway v Petronius Clothing Company Ltd [1978] 1 WLR 72, at 89-90; Berlei Hestia (NZ) Limited v Fernyhough [1980] 2 NZLR 150 at 163-164; Molomby v Whitehead & Australian Broadcasting Corp (1985) 7 FCR 541, at 550-552; Wuu Khek Chiang George v ECRC Land Pte Limited [1999] 3 SLR 65, paras 25, 27, 31-34; Law Wai Duen v Boldwin Construction Limited [2001] 3 HKLRD 403, 435-437).

(2)  The right of inspection flows from the director’s duties to the company and a director does not have to explain why the inspection is sought or demonstrate any particular ground or ‘need to know’ as a basis (Law Wai Duen, supra at 405 and 409; Molomby, supra at 550; Wuu Khek Chiang George, supra at paragraph 27). Thus, the inaction on the part of the director after grounds for suspicion concerning the company’s affairs have arisen is irrelevant; likewise, the intention of the director to discover misfeasance with the view to seeking relief, or that the desire to find evidence is motivated by vindictiveness (Law Wai Duen, supra at 409).

(3)  It is only where it can be proved that the director intends to abuse the confidence in relation to the company’s affairs and to injure the company in a material way that the director’s right of inspection can be interfered with, and such interference can only be effected in circumstances where a restriction on a director’s right can be imposed because of misuse of confidential information leading to damage (Law Wai Duen, supra at 408).

(4)  In view of the proposition in (3), the exercise of a director’s right of inspection is, ‘generally speaking, not a matter of discretion with the Court’ (Edman v Ross, supra at 361; Berlei, supra at 163; Wuu Khek Chiang George, supra at paragraphs 32 and 33; Law Wai Duen, supra at 408).

(5)  The onus of establishing that the right of inspection will be exercised for improper purpose lies on the person who asserts it and ‘clear proof’ is required to satisfy the Court ‘affirmatively’ that the grant of the right of inspection would be detrimental to the interests of the company (Wuu Khek Chiang George, supra at paragraph 34).

(6)  The scope of inspection can potentially be very wide, covering any ‘documents belonging to the company’ (Burn v London and South Wales Coal Company, supra at 118; Edman v Ross, supra at 360), ‘corporate material’ (Molomby, supra at 550), ‘corporate records and accounts’ or ‘corporate information’ (Berlei, supra at 163), ‘accounting and other records of the company’ (Wuu Khek Chiang George, supra at paragraph 25).

(7)  It is perfectly proper for a director to engage an accountant to conduct the inspection in exercise of his right. A director may certainly exercise his right through his agent (Edman v Ross, supra at 361; Law Wai Duen, supra at 409). A director is also entitled to take copies of the documents during inspection (Burn v London and South Wales Coal Company, supra at 118; Edman v Ross, supra at 361).

(8)   Whilst there may be some dispute in the authorities if the statutory provision (our statutory provision is section 121(3) of Cap. 32) adds a statutory right of inspection to an existing common law right, it is abundantly clear that the statutory provision is consistent with and does not detract from the common law right (Conway v Petronius, supra at 85 and 89; Berlei, supra at 163; Wuu Khek Chiang George, supra at paragraphs 25 and 31).”

C3.  Merit of OS and Dismissal Summonses

27.  The reasons for commencing the Inspection Proceedings, as stated in P1’s Aff[7], are as follows.

28.  First, Elaine has caused the Company to enter into various allegedly “abnormal transactions”, and P1 is duty bound to find out what happened to the Company.  Examples of such transactions are:

(1)  Elaine has allegedly “siphoned off funds belonging to the Company to CIL and/or CML and to procure CIL to make investment in a taxi licence”.

(2)  Elaine has not “disclosed” the financial statements of CIL and CML to the Company’s auditors for the years ended 31 March 2012 to 2015.  Although the financial statements of CIL and CML were supplied to the auditors from the financial year ended 31 March 2016, they were not disclosed to Ps.

(3)  Elaine obtained interest-free loans from the Company from 2012 to 2015.

(4)  The Company advanced loans to CIL and CML in 2013.

(5)  Elaine used her personal bank account to receive the rental income belonging to the Company.

(6)  Elaine allegedly “refused and obstructed the Company to pay dividends to the shareholders”, despite the Company had “consistently acknowledged its liability to do so, if required by shareholders resolution”.  The last interim dividend was paid on 25 August 2017.

29.  Second, Ps want to exit the Company.  They had previously offered to sell their shares in the Company but was obstructed by Elaine on the basis that their offer was invalid. There is a need to ascertain the true financial position of the Company so that they can “come up with a true and fair value of [their] shares”. 

30.  Third, Elaine has allegedly treated the Company as her own and used its assets at her will.  The Company has been making investments unknown to shareholders and in particular, how the Company’s assets were utilised through CIL and CML “remains a mystery to [Ps]”.  There is at least a prima facie case to commence a derivative action to recover the losses suffered by the Company from the  wrongdoers.

31.  In his skeleton argument, Mr Tom Ng, counsel for Elaine, submits that the OS should be dismissed on the grounds that (1) the application was made for improper purposes; (2) P1 has acted in breach of confidence; and (3) §§2-3 of the OS are misconceived. 

32.  Mr Ng argues that improper purposes can be inferred from the following facts and matters:

(1)  Ps have been trying to persuade Elaine and other shareholders to buy out their shares but to no avail, which cumulated in the presentation of the WU Petition;

(2)  Ps have commenced 4 proceedings against Elaine.  The proceedings including the July Summons and August Summons are “abusive and vexatious”, evidenced by the fact they have either been discontinued or dismissed with costs in favour of Elaine;

(3)    the alleged need to investigate the affairs of the Company had already been fulfilled, given that Ps were able to commence the Derivative Action and the WU Petition without the Disputed Documents;

(4)  the alleged need to ascertain the value of Ps’ shares is not a good reason for inspection, as it is not necessary for a shareholder to go beyond the audited financial statements for such purpose (Re LehmanBrownLtd [2011] 5 HKLRD 668, §§38-39, per Chu JA, a case on inspection qua shareholder under s.740 of the Ordinance; Leung Chung Pun v Masterwise International Ltd [2014] 1 HKLRD 1129 §§61-62);

(5)  P1 is not seeking inspection for the purpose of discharging his duties as director, but to obtain an early discovery of documents relating to his proceedings against the other shareholders, which is an improper use of inspection proceedings (Re Raffles Family Office Ltd [2018] 5 HKLRD 816, §26, a case on inspection qua director.  See also Re LehmanBrownLtd, §§39, 41);

(6)  at the extraordinary general meeting of the Company held on 24 June 2020, it was resolved by a majority of shareholders not to commence action against Elaine;

(7)  the documents sought are very wide and not directed at the transactions said to require investigation; and

(8)  Elaine (on behalf of the Company) had already made available the 47 Bundles[8] for inspection by P1’s agent on 3 April 2020, and she offered 17 April 2020 as the next date for inspection. 

33.  As for breach of confidence, Mr Ng relies on the fact that P1 has on 15 April 2020 circulated the legal advice obtained by the Company from Messrs Hogan Lovells in respect of the Share Dispute Action (“HL Advice”) to all shareholders including Hui which, it is said, has injured the Company in a material way.   

34.  Lastly, §§2-3 of the OS is misconceived, given that the Court does not have jurisdiction under sections 374, 375 or 740 to order a defendant to make a statutory declaration.  It is in any event impossible for Elaine to determine whether a document “could, may or might substantiate the claim that [she] has been in breach of fiduciary duty against the [Company]”.  A party cannot seek discovery of documents by reference to their relevance to a particular issue (Li Tak Yee Samuel v Societe Generale Bank and Trust [2013] HKEC 542, §§38-39, 41; PT Tugu v Citibank[2018] HKCFI 1398, §§9, 12).

35.  Mr Jason Yu[9] makes similar points set out in §§31-34 above.  Further, he submits that:

(1)  P1 does not need the documents for valuation purpose.  Ps do not seek a buy-out order in the WU Petition and P1 (qua director) has approved the financial statements of the Company from 2012 to 2019;

(2)  P1 does not need the documents for investigation purpose as he already had enough information to commence the WU Petition and the Derivative Action;

(3)  the true purpose of the application is to exert improper pressure on Elaine and the Company;

(4)  P1 has already filed 3 lengthy affirmations with exhibits of over 1,000 pages.  If the OS is not dismissed, the proceedings will likely be turned into “an unwieldly and expensive piece of satellite litigation” in which the parties and the Court will have to grapple with “repetitive affirmations and exhibits that are in disarray”; and  

(5)  the Company has been cooperative and provided 47 Bundles to P1.  He should go through the documents and identify whether there is any need for seeking further documents through the discovery process in the WU Petition. 

36.  On the other hand, Mr Wong SC contends that the arguments advanced by Elaine and the Company should be rejected for the following reasons:

(1)  no inference of improper purpose can be drawn against P1, given that the bringing of the WU Petition and the Derivative Action are to put an end of the “wrongs” done to, or seek recovery for the benefit of, the Company;

(2)  although proceedings have already been commenced, inspection may unearth further wrongs committed against the Company;

(3)  a director’s right to inspect documents cannot be conflated with a litigant’s right to seek discovery and, in any event, should not be curtailed simply because he has brought proceedings in respect of certain specific complaints.  The cases cited by Elaine and the Company do not assist them, as they concerned with applications made by shareholder under section 152FA of the former Companies Ordinance (since replaced by section 740 of the Ordinance), which is much more restrictive than a director’s right to inspect documents;

(4)  the fact that Elaine feel “pressurized” is irrelevant.  A director does not have to explain why the inspection is sought or demonstrate any particular ground or “need to know” as a basis of the application; and

(5)  the scope of inspection can be very wide to cover any documents belonging to the Company, as the power is given to a director to enable him to discharge his duties to the Company. 

37.  In my view, the Dismissal Summonses are “satellite” litigations which achieve no benefit to the parties and do not decide any real issue between them.  They are inconsistent with the summary nature of the proceedings and the practice of the Court in dealing with such proceedings. All the arguments advanced on behalf of Elaine and the Company in respect of the Dismissal Summonses are arguments which can be, and should be, raised at the substantive hearing of the OS.  When this Court enquired with counsel as to the justifications for issuing the Dismissal Summonses, Mr Maurellet SC (for Elaine) gives 2 reasons: (1) §3 of the OS is demurrable and should be struck out; and (2) the stance taken by P1[10] is that the OS will remain ongoing for some time, as DHCJ Lam SC has at the hearing on 24 August 2020 given directions for P1 to review the 47 Bundles and file further evidence in respect of the application.  I do not think that these are valid grounds for issuing the Dismissal Summonses, particularly when the suggestion to review the 47 Bundles and file further evidence came from the Company and Elaine themselves.   

38.  As all counsel make their submissions on the merit of the OS and Mr Wong SC acknowledges that there is no point for the OS to proceed further, I will determine the merit of the OS on the basis of the arguments advanced by all counsel together with the question of costs.   

39.  In my view, P1 is entitled to inspect the Undisputed Documents, all of which are documents of the Company and are not voluminous. I should say that in the ordinary course, a director in particular one who has been holding the office for a long time and has actively participated in the management of the company, should not seek a wholesale inspection of all the documents of the company without any temporal limit.  This is because during his directorship, he should have some knowledge of, if not familiar with, the affairs of the company.  In that scenario, I would expect the director to seek inspection of documents relevant to the purposes identified or the areas of which he has some basis to be concerned with. 

40.  I do not think the matters relied on by Elaine or the Company are sufficient for the Court to draw an inference that the application is made by P1 for the alleged or any improper purposes. 

41.  First, as the authorities show, P1 does not have to explain why he needs to see the documents for which inspection is sought.  Nor is there any requirement for a director to identify the documents he wishes to inspect beyond describing the categories of documents and the time period covered.  The latter requirement is to enable the Court to assess the reasonableness of the application and the corresponding burden on the company to comply with the request.  This is consistent with section 375 of the Ordinance, which makes it clear that a director’s right to obtain copies of the company’s accounting records is not subject to any restriction or condition.  If a director abuses his power qua director and uses the records obtained for a collateral or improper purpose, the remedy lies in the company seeking an injunction or compensation against him/her. 

42.  Second, as a director of the Company, P1 is under a duty to act in the best interests of the Company.  Such duty requires him to scrutinise the transactions and affairs of the Company to satisfy himself that they have been properly conducted and that no wrong has been done to the Company.  As submitted by Mr Wong SC, the case of Re Raffles Family Office Ltd is distinguishable in that by the time the director issued the application for inspection of the company’s documents, there had been in existence a proposed resolution to remove him as director.  In the present case, there is no suggestion that P1 will be removed as director.  The fact that Ps have commenced the WU Petition and the Derivative Action, far from showing that P1 pursued the application for improper purposes, is consistent with the discharge of P1’s duties as director. 

43.  Third, the fact that Ps will at a later stage be able to obtain documents relevant to the questions in issue in the WU Petition is neither here nor there.  A director’s right to inspect the company’s documents cannot be circumscribed or defined by the issues raised by the parties in ongoing proceedings, given that the scope of discovery is much more narrow than a director’s right to inspect company’s document.  

44.  Fourth, the multiple proceedings and the misconceived nature of the July Summons and August Summons are the result of the misguided approach taken by Ps’ legal advisers.  In any event, the July Summons, the August Summons, the Certificates Action and the Derivative Action have already come to an end, with costs to be paid by Ps to Elaine and/or the Company. 

45.  Fifth, the fact that a resolution was passed by the majority of shareholders not to commence action against Elaine is irrelevant and at any rate, is not a matter which could defeat P1’s right to scrutinise the affairs of the Company.  If anything, it supports P1’s contention that there is a need to bring proceedings so as to redress the alleged “wrongs” done to the Company. 

46.  Sixth, the fact that the 47 Bundles were provided to P1 for his inspection on one day in April 2020 does not show that the OS was issued for improper purpose.  It is clear from the correspondence that the Company had imposed various conditions to limit the exercise of the right of P1 (and his agents) to inspect the documents as a result of which they were not able to review most of the 47 Bundles or obtain copies of such documents. 

47.  Seventh, while it is correct that P1 does not seek a buy-out order in the WU Petition, there are regulations in the articles of association which provide a mechanism for a shareholder to sell his/her shares in the Company.  There is no reason why Ps should be deprived of the right to sell their shares in the Company by following the requisite procedure.  To the contrary, if Ps are provided with unrestricted access to the documents relevant to the financial position of the Company, there will be greater transparency which, in turn, will enhance the prospect of the parties being able to come to an agreement for Ps to exit the Company.  For the purpose of assessing the value of Ps’ shares, the audited financial statements of the Company are not the only relevant documents.  This is because if, as P1 contends, there were "wrongs” done to the Company and the Company suffered pecuniary loss as a result, the valuation should take into account such “wrongs” and any amount which may be recovered by the Company from the alleged wrongdoers.

48.  As regards the concern about P1’s breach of confidence, insofar as the Undisputed Documents are concerned, it has been adequately addressed by the undertaking given by P1 to the Court on 11 June 2020 (see §22(4) above). 

49.  As for §2 of the OS, Mr Wong SC submits that the Company has not made an affirmation to confirm that the 47 Bundles are all the documents within the scope of the Undisputed Documents and it is not uncommon for the Court to direct the defendant to file an affirmation to confirm the existence or non-existence of the documents sought (Ng Yee Wah, §38(1); Chieng Tsai Wan Judy v Kwok Kam Fung & anor[2018] HKCFI 603, §23).  Mr Yu confirms that the 47 Bundles are all the documents which the Company has in its possession and custody which fall within the scope of the Undisputed Documents, and the Company will make an affirmation to confirm this fact. 

50.  Mr Wong SC (rightly) abandons §3 of the OS, which is wholly without basis and is demurrable.   

51.  I turn to the Disputed Documents.  The position of the Company is as follows:

(1)  Category 3 documents relating to the Share Dispute Action: the Company may have to substantively defend certain claims made against it.  In light of P1’s act in disclosing the HL Advice to Hui, the Company is concerned that P1 may supply further privileged documents to third parties, including Hui and Lau Chung. 

(2)  Category 11 all loan agreements and records: other than the documents already supplied to P1, the Company does not have any further document in its possession, power or custody, as confirmed in Rose’s 2^nd Aff, §7. 

(3)  Category 16 accounting records of CIL and CML: the Company has never supplied these documents to the auditors.  These documents never formed part of the Company’s books, accounts or records.  Nor does the Company has in its possession, custody or power any of such documents, as confirmed in Rose 2^nd Aff, §8.

52.  In relation to Category 3, Mr Wong SC submits that the Share Dispute Action is a dispute between Hui and her son in relation to the shares held by Hui in the Company, and the Company should not take an active role in the Action.  P1 was concerned about why the Company had incurred costs in engaging Hogan Lovells to advise on the Action and the HL Advice was provided to all the shareholders in that context.  In any event, P1 is willing to give an undertaking to the Court that he “would not disclose the contents of this category of documents, save for the purpose of seeking legal advice and conducting legal proceedings”. 

53.  In response, Mr Yu contends that substantive relief including a declaration that the Company holds assets on trust for Lau Chung is sought.  It was therefore necessary for the Company to seek legal advice.  The undertaking proposed to be given by P1 is ambiguous and would not stop P1 from providing the legal advice obtained by the Company to Hui whose interest is not aligned with that of the Company. 

54.  To address the concern raised by Mr Yu, Mr Wong SC confirms that P1 is prepared to give an undertaking to the Court not to disclose any documents covered by legal professional privilege in any way save for the purpose of taking legal advice  (“Revised Undertaking”).  Mr Yu accepts that the Revised Undertaking is sufficient to address the Company’s concern in respect of Category 3.

55.  As for Category 11 and Category 16, in light of the confirmations given in Rose’s 2^nd Aff (on behalf of the Company), Mr Wong SC accepts that P1 cannot take the matter any further.   

56.  For the above reasons, this Court accepts the Revised Undertaking given by P1 in respect of documents under Category 3.  Elaine and Rose, being the 2 directors in charge of the day-to-day management of the Company, is directed to file an affirmation to confirm that the 47 Bundles are all the documents within the possession or custody of the Company which falls within the scope of the Undisputed Documents.   

C4.   Costs

57.  As for costs, I make the following order nisi that:

(1)  The costs of and occasioned by the OS up to and including the hearing on 11 June 2020 be paid by Elaine and the Company to P1, to be taxed if not agreed.  This reflects the fact that until the hearing on 11 June 2020, P1 has not been able to obtain unrestricted access to the 47 Bundles to which he is entitled to see.

(2)  Elaine and the Company do pay (i) 30% of the costs of P1’s Aff and (ii) 80% of the costs of and occasioned by the Dismissal Summonses (but not the costs of P1’s 3^rd Aff) including the costs of the hearing on 29 September 2020 and all costs reserved, to be taxed if not agreed, with certificate for 2 counsel. 

(3)  The 70% deduction under §(2)(i) reflects the fact that P1’s Aff contains matters which are wholly irrelevant to the OS and go beyond the scope of the direction given by DHCJ Lam SC at the callover hearing.  As for the 20% deduction under §(2)(ii), it reflects the fact that (a) P1 fails in his application under §3 of the OS, (b) the Revised Undertaking is only offered at the hearing, and (c) P1 has not accepted the confirmation given in Rose’s 2^nd Aff in respect of Categories 11 and 16 until the hearing.    

58.  I do not consider that P1 is entitled to recover 70% of the costs of P1’s Aff and all the costs of his 3^rd Aff for the following reasons:

(1)  In respect of P1’s Aff, I repeat what I said in §24(1) above.

(2)  As for P1’s 3^rd Aff filed in opposition to the Dismissal Summonses, I do not think it is fair to require Elaine and the Company to bear the costs of such Affirmation.  In this 9-page Affirmation (with single line spacing), P1 makes a series of accusations against Elaine’s character, recounting the various proceedings he commenced against Elaine and setting out the arguments why the Dismissal Summonses constitute an “abuse of process”.  It must be clear to P1’s legal advisers that such Affirmation is of no probative value and falls foul of the requirement of Order 41 rule 1.  This is reinforced by the fact that in his written and oral submissions, Mr Wong SC has not referred to any part of P1’s 3^rd Aff. 

59.  I consider that 70% of the costs incurred in preparing P1’s Aff and all the costs incurred in preparing P1’s 3^rd Aff to have been incurred improperly and unreasonably. It seems to me that there is a prima facie case to make a wasted costs order under Order 62 rule 8 against P1’s legal advisers, OLN and counsel Felix Ng, so that they cannot recover such costs from P1.  For this purpose, I direct OLN and counsel Felix Ng to show cause as to why a wasted costs order should not be made against them within 21 days of this Decision by lodging written submissions with the Court.   

C5.   Further Conduct of Proceedings

60.  As all parties agreed to proceed with the OS on the basis that P1 would go through the Undisputed Documents and identify any missing documents for which inspection is sought and the Company has confirmed that all documents within its possession and custody falling within the scope of the Undisputed Documents are contained in the 47 Bundles, directions are given for the parties to file affirmations on any missing items which are within the power of the Company but which the directors are unable to agree to procure the third parties to produce to the Company.  Both Mr Maurellet SC and Mr Yu submit that the right to inspect documents under sections 374, 375 and 740 of the Ordinance does not extend to documents within the power of the Company.  Mr Wong SC acknowledges the point and say that P1 will consider the affirmations to be filed by the Company and decide whether it is necessary to pursue the matter.   

61.  I direct the OS to be heard on 13 November 2020 if and to the extent that P1 still wishes to pursue any missing items after having considered this Decision.  To save costs and time, the Court will also hear Ps’ application for leave to amend the WU Petition, should this become controversial. 

D.  Costs of Validation Summons

62.  At the hearing, the parties submitted a consent summons which covers the remaining part of the Validation Summons.  The only remaining issue is costs.

63.  Mr Yu asks for costs of the Validation Summons on a party and party basis on the ground that it was only until 16 September 2020 that OLN agreed with what had been proposed by the Company subject to the addition of the words “properly incurred” and dropped their proposed undertaking requiring the Company to show all expenses to Ps before the same are allowed. 

64.  Mr Wong SC submits that Ps was only given a few days to consider the proposed order before the Validation Summons was issued on 28 August 2020.  On the same day, OLN indicated that they did not oppose the application as a matter of principle.  Ps had valid basis to be concerned about legal expenses as they had seen documents showing that the Company had been using its funds to pay for probate matters which ought not to have been paid by the Company.  In the circumstances, a fair order should be that costs of the Validation Summons be in the cause. 

65.  As Mr Yu rightly points out, although OLN stated that Ps were agreeable to the proposed order sought as a matter of principle, the fact remains that Ps did not give their consent to any part of the proposed order sought by the Company.  Given the urgent need to operate the Company’s bank accounts to pay the ongoing operating expenses, it was necessary for the Company to prepare the supporting affirmation and issue the Validation Summons on 28 August 2020. 

66.  In the circumstances, it is fair to order Ps to pay 50% of the costs of and occasioned by the Validation Summons up to 16 September 2020 in any event, and the remaining costs be in the cause save that the costs of the affirmation of Jonathan Gray filed on 23 September 2020 are disallowed in full.  This is a 18-page affirmation in which the Company’s solicitors sought to justify the legal expenses incurred by the Company in the Inspection Proceedings, the Share Dispute Action, the Certificates Action and the Derivative Action and was filed one week after Ps had already indicated their agreement to the terms set out in the consent summons.  I am unable to see why it was necessary for the Company to prepare this affirmation, given that the parties had already agreed on the terms of the order.  

Mr Anson Wong SC leading Mr Felix Ng, instructed by Oldham, Li & Nie, for the plaintiff in HCMP 564/2020, the 1^st – 2^nd plaintiffs in HCA 1144/2020, 1^st – 2^nd petitioners in HCCW 262/2020

Mr Jose Maurellet SC leading Mr Tom Ng, instructed by Wilkinson & Grist, for the 1^st defendant in HCMP 564/2020, the 2^nd and 4^th defendants in HCA 1144/2020

Mr Jason Yu and Ms Jasmine Cheung, instructed by Hugill & Ip, for the 2^nd defendant in HCMP 564/2020 and the 8^th Respondent in HCCW 262/2020

Mr Patrick Siu, instructed by Boase, Cohen & Collins, for the 3^rd defendant in HCA 1144/2020