WONG SAI CHUNG AND OTHERS v. THE JOINT AND SEVERAL LIQUIDATORS OF CHINA PROPERTIES GROUP LTD (IN LIQUIDATION)

HCMP 1015/2023

[2025] HKCFI 2094

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1015 OF 2023

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BETWEEN

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DECISION ON COSTS

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1.  The Liquidators, by a summons dated 3 April 2024 (the “Variation Summons”), seeks to vary the costs order nisi made by this Court on 29 February 2024 (“the Decision”).

2.  This Court have given directions for this matter to be dealt with by way of paper disposal.

3.  By the Costs Order Nisi, this Court ordered that the Relevant Plaintiffs to pay the Liquidators the costs of and occasioned by the Liquidator’ Summons dated 6 October 2023 (the “Liquidators’ Summons”), to be taxed on a party to party basis if not agreed.

4.  By the Variation Summons (which was taken out after the expiry of the 14-day deadline), the Liquidators seek to vary the Costs Order Nisi, such that the Relevant Plaintiffs do pay to the Liquidators the costs or and occasioned by the Liquidators’ Summons on an indemnity basis. The Liquidators’ submissions on the Variation Summons are set out in their letter via YTL LLP dated 14 March 2024 (the “Letter”). The Liquidators have also filed a written reply submissions and a further written reply submissions on 7 August 2024 and 29 August 2024 respectively.

APPLICABLE PRINCIPLES

5.  The legal legal principles in this area of the law are well settled. In Hsu Ching Fang v. Ng Chor Kuen and Ors[2023] HKCFI 1470, at §13, this Court said:-

5.1. “Costs are generallyawardedon a party to party basis. To justify costs on an indemnity basis, the receiving party must show that the case has some special or unusual feature” (at §13(1); citing Commissioner of Island Revenue v. Poon Cho Ming John (No 2) (2020) 23 HKCFAR 74, at §4, per Bokhary NPJ);

5.2. “In this regard, the threshold is high. The losing party’s conduct must be “unreasonable to a high degree”, and not merely wrong in hindsight” (at §13(2));

5.3. “Insofar as the merits of the case are concerned, even where “severely adverse findings” are made against a party, this does not ipso facto justify an indemnity costs order” (at §13(3); citing Libertarian Investments Limited v. Thomas Alexej Hall FACV 14/2012 (11 March 2014), at §6, per Ribeiro PJ);

5.4. “Advancing a case which is difficult, unlikely to succeed or which in fact fails, or without any foundation in law or fact, or devoid of merits, is not necessarily in itself a sufficient reason for an award of indemnity costs […] The Court’s finding that the claim or the ground of defence is plainly and obviously incredible on the fact, or that the evidence has been deliberately untruthful will not necessarily in itself warrant an order for indemnity costs” (at §13(3)(a); citing KJ v. KMLM HCMC 4/2010 (21 May 2014), at §22);

5.5. “The conduct of the losing party must be of a more venal kind and the conduct of the litigation has in some sense been wicked” (at §13(3)(a); citing KJ v. KMLM at §22; Choy Yee Chun v. Bond Star Development Ltd [1997] HKLRD 1327 (CA), at 1336B, per Stock J (as he then was).

5.6. This Court observed that in the context of striking out or summary judgment, it “sometimes involves the Court making a finding that that the claim or the ground of defence is plainly and obviously incredible on the facts. Yet, we do not see the Court order indemnity costs in every such case. Indeed, in every case where there is a material dispute of fact, the Court is bound to prefer one party’s account. Such a finding, without more, is not a special or unusual feature making indemnity costs appropriate” (at §13(3)(b); citing Kao, Lee & Yip (A Firm) v. Midland Realty International Ltd HCA 2153/2007 (31 March 2010) at §18).

5.7. The high threshold above applies even to situations where serious allegations are made against a party (at §13(4)):-

(1) Even in contempt cases, “there is no general rule that indemnity costs should be awarded against the contemptor, the appropriateness of such order depending on all the circumstances of the case”: (at §13(4)(a); citing Libertarian, at §6, per Ribeiro PJ);

(2) “This is equally so in the context of striking out for an abuse of process, which does not ipso facto constitute a “special or unusual feature” for the purposes of an indemnity costs award” (at §13(4)(b)).

(3) The above applies a fortiori to the mere hostile conduct of litigation — “[n]ormal litigious hostility would not suffice” (at §13(4)(c); citing KJ v. KMLM at §21).

5.8. Further, the threshold required is high for seeking indemnity costs on the alleged basis of an “ulterior motive”. “[I]f the Court finds there could well be “other less sinister reason[s]” for commencing proceedings, this is insufficient”. Even in a case where there has from the start been “very hostile litigation”, and that the application “inevitably raises the strongest suspicion of an ulterior motive”, this was insufficient to support the finding of an ulterior motive and for the award of indemnity costs (at §13(5)).

6.  Moreover, for an award of indemnity costs to be made, “[t]he proceedings must be instituted or prosecuted in circumstances as to constitute an affront to the court. Usually there must be something disgraceful in the conduct of the losing party or his legal representatives such as to cause the court to feel a proper sense of indignation. Normal litigious hostility would not suffice”: KJ v. KMLM at §21; citing Man Fong Hang v. Man Ping Nam and Others HCA 7935/1998 (26 March 2004), §11, per Johnson Lam J (as he then was).

ANALYSIS AND DETERMINATION

7.  I fully appreciate that the Liquidators took the view that the Relevant Plaintiffs’ opposition to the Liquidators’ Summons is unmeritorious. However, the above legal principles apply equally to applications made by the Liquidators.

8.  Mr Kok for the Relevant Plaintiffs is correct, in fact, the Relevant Plaintiffs were partially successful in resisting the Liquidators’ Summons. Mr Kok pointed out that the Relevant Plaintiffs were successful in resisting the Liquidators’ application to dismiss the Relevant Plaintiffs’ Originating Summons in HCMP 1015/2023 (the “HCMP Action”): see Decision, §§78 to 83.

9.  Secondly, Mr Kok pointed out that the Court accepted the Relevant Plaintiffs’ submissions that the orders sought by the Liquidators for the books and records were too wide, in that they encompass even documents which belonged to other entities outside of the Group.

10.  This Court ruled that the Liquidators were “not entitled to the books and records of, say the 38^th Plaintiff, Frank Union, which is a co-tenant of the Premises” (at §66 of the Decision), and that the Liquidators must “return the other properties to other owners” outside the Group (at §67 of the Decision).

11.  This Court also accepted the Plaintiffs’ submissions and confined the orders sought by the Liquidators in §§3, 5, 6, and 8 of the draft Order, namely to the books, records, and documents of the Group (at §85(2), (4), (5), (8) of the Decision).

12.  I agree that the Relevant Plaintiffs were able to successfully limit and confine the orders sought by the Liquidators, the Relevant Plaintiffs’ opposition cannot be said to be “unreasonable to a high degree”: Hsu Ching Fang (supra) at §13(2).

13.  Importantly, I also ruled that section197 of the Companies Ordinance, Cap. 32 was “not a proper avenue for the Liquidators to obtain their relief” (at §63 of Decision) and it was “not appropriate for the Liquidators to advance this application on the basis that it is in substance an application under section 286B of the Companies Ordinance, Cap.32” (at §64 of Decision). The Liquidators had heavily relied upon sections 197 and 286B at the forefront of their submissions, and it was fair for the Relevant Plaintiffs to have opposed the Liquidators’ applications which were made on improper and inappropriate bases.

14.  Further, this Court also accepted the Relevant Plaintiffs’ submission that it was not appropriate for the Liquidators to apply under section 53 of the High Court Ordinance, Cap. 4, namely for an independent review lawyer to determine the disputes LPP between the parties (at §70 of Decision).

15.  Finally, this Court did not make orders in terms of further orders sought by the Liquidators by way of the draft Order, including (i) for the Relevant Plaintiffs to procure the “full assistance at all times of all persons and/or staff present in the Premises”, (ii) for the Relevant Plaintiffs to “instruct and procure those persons or staff present at the Premises” to provide the Liquidators with physical and electronic documents, and (iii) for the independent review lawyer to attend the Premises to facilitate the inspection of the office area (see §85(6) of the Decision). The Court further accepted the Plaintiffs’ proposed amendments on other terms of the draft orders (see §85(3) and (9) of the Decision).

16.  I have noted the Liquidators’ submission that this Court should consider the overall conduct of the Relevant Plaintiffs (and those persons directing the acts or omissions of those parties) in the context of a liquidation in Hong Kong. However, to be fair, the Court has also to consider the outcome of a particular application before it.

17.  I am thus of the view that a fair costs order is the costs order nisi made by this Court.

18.  However, I am of the view that a practical way forward is for this Court to determine the costs of the Liquidators on a gross sum assessment basis so that such costs can be assessed and paid forthwith to the Liquidators.

19.  Accordingly, I make an order to dismiss the Liquidators’ Variation Summons with costs to be paid by the Liquidators to the Relevant Plaintiffs.

20.  I direct both parties to:

(1) file a schedule of costs within 14 days herein and;

(2) file a list of objections to the items of costs claimed with reasons stated within 14 days thereafter.

Mr Martin Kok, instructed by Hogan Lovells for the 1^st, 4^th, 6^th, 7^th, 12^th, 13^th, 15^th, 17^th – 21^st, 24^th, 26^th, 27^th, 29^th – 36^th, 38^th, 41^st, 43^rd – 45^th, 47^th – 49^th, 51^st – 54^th, 57^th, 59^th – 62^nd, 65^th, 66^th, 68^th, 69^th, 71^st – 75^th and 77^th Plaintiffs

Messrs. YTL LLP, for the Liquidators (Defendant)

HCMP 1015/2023

[2024] HKCFI 540

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1015 OF 2023

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D E C I S I O N

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THE APPLICATION

1.  By a summons dated 6 October 2023 (the “Summons”), the Liquidators apply for, inter alia, an order that the agreed undertakings jointly given by the parties including the Liquidators (the “Agreed Undertakings”) be discharged and that the books and papers pursuant to which the Agreed Undertakings were entered into be released to them (the “Books and Papers”).

2.  The background facts of the present proceedings are set out in this Court’s earlier decision in The Joint and Several Liquidators of China Properties Group Ltd (In Liquidation) v Wong Sai Chung [2023] HKCF 2346 dated 15 September 2023 (the “Decision”). This Court should not repeat the same here. Suffice it for this Court to mention that it is the Liquidators’ complaint and case that since their appointment into the office of the liquidators of the Company, they have not yet received any meaningful Books and Papers relating to the Group, meaning the Company and its subsidiaries and sub-subsidiaries (collectively “Subsidiaries”) or any assistance from the Group’s former management.

3.  First, it is plain and obvious that the Liquidators are entitled to take control of the Books and Papers otherwise it is quite impossible for them to discharge their duties vis-à-vis all stakeholders, in particular, the creditors of the Company and the Group.

4.  Mr Wood for the Liquidators rightly pointed out that there is an ongoing compulsory liquidation of the Company, which is massively insolvent owing billions of dollars, and that the Liquidators were appointed six months ago on an urgent basis pursuant to a Regulating Order for the purpose of taking immediate control of its business, assets, and affairs.

5.  Secondly, as a matter of law and practice, Courts in this jurisdiction do have the inherent jurisdiction to grant orders to assist its liquidators in the discharge of their duties. Mr Wood has kindly referred this Court to its own orders made in the case of Re Sunwell Trading (HK) Company Limited HCCW 303 of 2019 and Re Youyuan International Holdings Limited HCCW304 of 2019 in relation to the appointment of provisional liquidators. For the effective conduct of a provisional liquidation and/or a formal liquidation, provisional liquidators or liquidators are usually given powers to gain access to documents not only of the subject company itself but to its wholly owned subsidiaries and sub-subsidiaries. Otherwise, it will be quite impossible or at least time consuming for the liquidators to take speedy and appropriate actions to preserve the assets of the Company including the value of its subsidiaries.

6.  In Re Sunwell Trading (HK) Company Limited HCCW 303 of 2019, this Court gave the Liquidators the power, inter alia,

“To ascertain, take possession of, collect, give valid receipts for and protect the money, books, records, documents, property, things in action, shares held in subsidiary companies and other assets of the Company (collectively “Assets”) including, but without prejudice to the generality of the foregoing powers, to exercise voting and all other rights of the Company as a creditor with regard to any debt owing to it in such manner as the Provisional Liquidators think fit, as well as to demand and receive all debts due or which may fall due to the Company, but not to distribute or part with them save for the exercise of the powers hereunder or until further order.”

PROCEDURAL HISTORY

7.  In brief, the Company was ordered to be wound-up on 31 May 2023 in HCCW 67/2022 pursuant to section 327 of Cap. 32 on the ground of its insolvency.

8.  On 23 June 2023, the Liquidators were appointed pursuant to a Regulating Order under sections 227A and 227B of Cap. 32 upon the application of the Petitioner and the Official Receiver.

9.  On 27 June 2023, the Plaintiffs brought an urgent ex parte application in these proceedings, namely, HCMP 1015/2022, in the middle of the night to injunct the Liquidators from removing the Books and Papers from the Company’s principal place of business in Hong Kong (the “Premises”) at Wheelock House, Central (the “Ex Parte Application”).

10.  On 28 June 2023, the Ex Parte Application was withdrawn and the parties entered into the Agreed Undertakings to the Court as set out in Schedule 1 to the Order of the Court dated 28 June 2023.

11.  On 29 June 2023, the Plaintiffs in these proceedings filed the Originating Summons.

12.  On 15 September 2023, this Court made an order in HCCW 67/2022 (the “15 September Order”) that Mr Wong pass resolutions pursuant to s.21L of Cap. 4 to appoint Ms Tiffany Wong as the sole director of the Company’s wholly owned BVI subsidiaries (“BVI subsidiaries”): see The Joint and Several Liquidators of China Properties Group Ltd (In Liquidation) v Wong Sai Chung [2023] HKCF 2346. Ms Tiffany Wong is one of the Joint and Several Liquidators of the Company, together with Mr Edward Simon Middleton.

13.  As far as this Court is concerned, the 15 September Order is both valid and effective. This Court recognises Ms Tiffany Wong as the sole director of the Company’s BVI subsidiaries. The effect of the 15 September Order was to place the Company’s BVI Subsidiaries under the control of Liquidators.

14.  Mr Wood for the Liquidators informed this Court that Mr Wong, however, attempted to contemptuously subvert the 15 September Order by having two of the Company’s purported directors, namely Dr Wang Shih Chang, George , Mr Wong’s 91-year-old brother (“Dr George Wang”) and associate Mr Xu Li Chang (“Mr Xu”), pass resolutions on behalf of the Company on 16 September 2023 purportedly removing Mr Wong as sole director of the BVI Subsidiaries (i.e. the day before Mr Wong passed his resolutions on 17 September 2023 appointing Ms Tiffany Wong as the sole director of the BVI Subsidiaries in purported “full compliance” with the 15 September Order) and appointing Mr Wang Ming and Mr Hsieh Cheng Sen as directors in his place and with immediate effect.

15.  On 21 September 2023, Mr Xu and Dr George Wang (acting in their capacity as directors of the Company) also passed shareholder resolutions for the BVI Subsidiaries to remove Ms Tiffany Wong as the director of the BVI Subsidiaries and resolve that the resolutions of 17 September 2023 were invalid.

16.  Whilst it is not appropriate for this Court to determine the issue of contempt at this stage, it does appear odd and indeed wrong that directors of a company in liquidation could still exercise the power to remove other directors of the company. As far as Hong Kong Courts are concerned, Dr George Wang and Mr Xu have no power to trump the Liquidators by removing Mr Wong as the sole director of the BVI Subsidiaries, in particular, if they have knowledge of this Court’s 15 September Order.

17.  This Court in clear terms rules that the resolutions of 17 September 2023 are valid and recognises Ms Tiffany Wong as the sole director of the Company’s BVI Subsidiaries pursuant to this Court’s 15 September Order. This will have a bearing on the Court’s exercise of its discretion to order the Books and Papers to be released to the Liquidators.

18.  On 20 November 2023, Wallbank J sitting in the BVI Court refused the BVI Subsidiaries’ application (commenced on the instructions Mr Wong) for an interim injunction against the Liquidators which was intended to prevent them from acting on behalf of the BVI Subsidiaries.

19.  In delivering his ruling, Wallbank J concluded his decision to dismiss the interim injunction application by asking certain rhetorical questions to the effect that: “Do the Liquidators validly control the Company? Yes. Is the Company allowed to vote the shares of the BVI Companies? Yes. Anything else for the BVI Court to take into account? No.”

20.  At the hearing on 6 December 2023, this Court stated that as far as Hong Kong is concerned Ms Tiffany Wong is the sole director of the BVI Subsidiaries and that the 16 September and 21 September resolutions were invalid.

21.  This Court accepted undertakings from Mr Wong that he will not act or hold himself out or otherwise give any instruction, without leave of the Court, as a director of the Company, or, in any other capacity represent the Company (without prejudice his conduct of the appeal against the Winding-up Order in CACV 197/2023), including by voting or purporting to vote the Company’s shareholdings in its wholly owned BVI Subsidiaries.

22.  Further, this Court also ordered that Mr Xu and Dr George Wang be injuncted under s.21L of Cap. 4 from acting or holding themselves out or otherwise giving any instruction (without leave of the Court) as directors of the Company, or, in any other capacity representing the Company, including by voting or purporting to vote the Company’s shareholdings in the BVI Subsidiaries.

23.  This Court did not make an order under s.570 of Cap. 622 to convene meetings of the sub-subsidiaries incorporated in Hong Kong (the “Hong Kong Subsidiaries”) so that the Liquidators could immediately hold a meeting and vote the BVI Subsidiaries 99.9% shareholdings in the Hong Kong Subsidiaries to appoint themselves as directors as there was no evidence to support a case of impracticability to convene and conduct EGMs of the Hong Kong Subsidiaries.

24.  This Court, however, did state that if the Hong Kong Subsidiaries did not convene the EGMs as requisitioned by the BVI Subsidiaries (acting at the direction of Ms Tiffany Wong as sole director) or Ms Amy Yu (the 0.1% shareholder of certain HK Subsidiaries) did not agree to attend the proposed EGMs such that those EGMs were rendered inquorate, the Liquidators could return before this Court for further directions to give effect to the liquidation.

THE AGREED UNDERTAKINGS

25.  Mr Wood for the Liquidators submitted that Mr Wong was clearly caught off guard by the appointment of the Liquidators following the urgent ex parte application of the Official Receiver and Petitioner in HCCW 67/2022 for the Regulating Order.

26.  The purpose of the Agreed Undertakings was to (i) resolve the impasse at the reconvening hearing before Deputy High Court Judge Simon Leung, and (ii) create a process by which the Books and Papers that belong to the Group or which relate to the Company could be identified expeditiously and then released to the Liquidators.

27.  The Liquidators’ case is that the Agreed Undertakings have not worked to serve its intended purposes for the effective conduct of the liquidation. The Liquidators submitted that there has not been any significant progress on joint inspections. When the Liquidators sought to commence the joint inspection of the Books and Papers on 29 June 2023, Mr Wong raised various far-ranging claims of legal professional privilege (“LPP”) and refused to progress the joint inspection unless a protocol to deal with the LPP claims had been agreed (the “Protocol”). The Protocol was finally agreed around midday on 4 July 2023 and the joint inspection started at the Premises on the same day at 2:30pm.

28.  However, after the joint inspection finally commenced, Ms Amy Yu and Mr Lai Siu Hung (“Mr Lai”), the Group’s General Manager – Corporate Accounts Department, immediately asserted on behalf of unidentified co-tenants of the Premises that the vast majority of the Books and Papers at the Premises were subject to LPP. Many of the documents over which LPP claims have been asserted are documents addressed to the Company itself. Moreover, no proper particulars of the nature or type of documents and the exact basis over which LPP had been asserted by the co-tenants of the Premises and/or their legal representatives have been given or explained.

29.  The Plaintiffs have also sought to frustrate the inspection of the Books and Papers in electronic form by adopting a similar strategy of insisting on having another protocol in place before commencing any review of those items. However, even after a further protocol was agreed on 11 July 2023 and after the parties agreed the list of electronic media on 20 July 2023, the Plaintiffs still refused to reply to the Liquidator’s request to commence a review of the electronic materials.

30.  The Plaintiffs have not agreed to any joint inspections of the Books and Papers since July 2023 save for 2 hours between 2 August and 15 September 2023 and no progress has been made for months.

31.  Further, despite agreeing to a protocol for the review of the electronic material on 11 July 2023, the Plaintiffs have not commenced a review of the same despite the Liquidators’ requests.

32.  In summary, up to now only 9 out of 132 boxes of inspected documents have been released to the Liquidators and the remaining boxes are disputed by the Plaintiffs as either (i) belonging to the Subsidiaries (and not the Company itself), (ii) “documents to be reviewed” or (iii) are asserted as being subject to LPP. The majority of the documents that have been released to the Liquidators are obsolete or draft documents that serve little or no purpose in assisting the Liquidators to understand the present assets, affairs, and dealings of the Company.

33.  The Agreed Undertakings do not discriminate as to the physical documents/assets that are subject to the joint review. The Agreed Undertakings merely say that “In respect of all physical documents/assets presently located in the premises… both the 1^st to 77^th Plaintiffs (the “Plaintiffs”) and the Defendant shall jointly go through each item for the purpose of identifying and determining whether to raise any objection (including the taking of any brief note for such purpose of identification).”

34.  Importantly, notwithstanding that the Company carried on its property business through its Subsidiaries (i.e. its subsidiaries and sub-subsidiaries) and its accounts were prepared on a consolidated basis, Mr Wong and his fellow Plaintiffs want to narrowly read down the Liquidators’ entitlement to documents merely to those documents that are owned only by the Company itself.

35.  Ms Amy Yu and Mr Lai have refused to hand over property or information about the affairs of the Subsidiaries on the basis that the same are confidential and are not assets of, or otherwise relate to or concern, the Company. Ms Tiffany Wong has deposed that this position cannot be correct given that the Company is an investment holding company and all of its published accounts have been prepared on a consolidated basis.

36.  I am of the firm view that given that pre-liquidation the directors of the Company were entitled to access all Books and Papers at the Premises (there being no evidence to the contrary), it follows that the Liquidators should have the same rights as the Company’s directors had qua directors.

37.  It is correct that the Agreed Undertakings (at Schedule 1 to Deputy High Court Judge Leung’s Order) were given in lieu of the Plaintiffs’ ex parte application for an injunction against the Liquidators. It is incumbent upon the Liquidators to show “good grounds” for such application to the Court: Hong Kong Civil Procedure 2024, at §29/1/36.

38.  Generally, a party seeking to be released of an undertaking would need to show one of the following circumstances — (i) a material change of circumstances which was not foreseeable and which makes compliance not feasible, (ii) the subject matter relating to the undertaking no longer exists which renders compliance impossible, (iii) the party to whom the undertaking was given releases him with compliance, and (iv) the undertaking was obtained through fraud, misrepresentation, or mistake: MCYP v. CWYW[2022] HKFC 262 at §7(d).

39.  Ms Eu SC for the Plaintiffs also submitted that the requirement to show “good grounds” are even more demanding in the present case (than a case in which the undertaking acts as a temporary holding function), since the Joint Undertakings are “wide ranging and include positive obligations to be performed for some time ahead”: Pet Plan Ltd v. Protect-a-Pet Ltd [1988] FSR 34 (Eng CA), at 34, 40.

40.  It is submitted that contrary to the Liquidators’ allegations, the parties had progressed with the joint inspections under the Agreed Undertakings.

41.  However, the mere fact that there is a subsisting difference on the position of the parties in relation to the documents of the Subsidiaries is a good reason as to why the Agreed Undertakings could not work. The difference between the parties is fundamental. There is no mechanism under the Agreed Undertaking to resolve such impasse. The same also applies to the documents in electronic form.

42.  Additionally, the Agreed Undertakings also carry no mechanism to resolve the claims of LPP.

43.  I am of the view that the Court should be pragmatic about the Agreed Undertakings. It could not work for its intended purposes. There is no way the Liquidators are going to get the Books and Papers they should get hold of in order to discharge their legal duties under the Agreed Undertakings.

44.  This, in my view, a very powerful reason to release the Liquidators from the Agreed Undertakings. In Re Aeso Holding Ltd[2018] HKCFI 1195, Le Deputy High Court Judge Pichon held at [127] that she had to depart from an arrangement that had proven to be unworkable, and that the status quo was not a realistic way forward. The same considerations apply in the present case.

45.  The Plaintiffs submit that the Agreed Undertakings serve an important function to safeguard the status quo (in lieu of an injunction order) — in particular the Agreed Undertakings continue to ensure the documents and assets would be preserved pending the resolution of disputes, subject to agreement between the parties or Court Order as provided under the Agreed Undertakings (at §3 of Agreed Undertakings). I disagree. Preservation does not serve the purposes of an efficient liquidation. Preservation is a necessary but insufficient condition for the intended purposes of the Agreed Undertakings.

46.  The Plaintiffs further submitted that if the Liquidators were permitted to discharge the Agreed Undertakings (given in lieu of an injunction order against them), the Liquidators would no doubt seek to wrongfully seize all the documents and assets from the Premises (including privileged and highly confidential materials) to which the Liquidators have no entitlement at all. I disagree. The Liquidators are appointed by the Court. They are professionals and they know what documents they are entitled to take possession, custody and control of. I am of the view that the Liquidators will not take possession, custody and control of books and papers to which they are not entitled to. If it does happen, no doubt, the parties can come back to the court for proper directions and relief.

47.  Accordingly, I exercise my discretion to discharge the Agreed Undertakings.

POSSESSION, CUSTODY AND CONTROL OF THE BOOKS AND PAPERS

48.  With the discharge of the Agreed Undertakings, I am of the view that the default position is that the Liquidators are entitled to take possession, custody and control of the Books and Papers at the Premises including books and papers of the Company and its Subsidiaries. But not the documents of the private companies of Mr Wong.

49.  In Re MK Airlines Limited [2012] EWHC 1018 (Ch), the Court held that:

“…In all cases the property right remains vested in the company but its custody and control passes from the directors to the administrators or liquidators on appointment and without the need for any further action on their part” (see [14]–[15]). (Emphasis added.)

50.  I am of the view that prior to the liquidation, the directors of the Company were entitled to have access and take possession, custody and control of all the books and papers in relation to the Company and the Group at the Premises. Upon liquidation, such legal rights pass to the present Liquidators. It is as simple as that.

51.  Ms Eu SC for the Plaintiffs submitted that the present disputes concern the ownership rights and entitlement over documents and records located at the Premises. It is not in dispute that at the material times, the Premises were occupied by a significant number of corporate entities, including (but not limited to) the Plaintiffs.

52.  I do not entirely agree. This case does not depend on the ability of the Liquidators to demonstrate that every single books and papers is a property of the Company. The Liquidators are not exercising and they do not need to exercise any proprietary rights over every single piece books and papers at the Premises. They only need to show that the Company were entitled to have access, possession, custody and/or control of the same.

53.  It is very often that for easy management and/or for the purpose of preparing consolidated financial statements, books and records of the Company and its subsidiaries were placed in the same premises for both internal and external audits. No doubt directors are entitled to have access to and/or inspect and/or take copies of such books and documents in order to discharge their duties. The same applies to liquidators in a post-liquidation scenario.

54.  It will be different if the books and records of subsidiaries are separately kept and the directors of the parent company had to obtain approval from the board of directors of the subsidiary before he or she could inspect the same. This is not the case here.

55.  It is the Plaintiffs’ own evidence is that “over the years, there has not been any clear demarcation or identifications of the respective parts of the Premises”. The Liquidators’ evidence, which is uncontradicted, is that “there was/is no clear division at any part of the Premises which separates or divides the dealings or affairs of each Co-tenant. Put simply, each person and entity at the Premises (including the Plaintiffs in these proceedings) conducted their business and affairs using common resources and a flexible population of employees and other staff that had no definitive relationship with any particular entity occupying the Premises”. Further, the abysmal physical state of the Premises illustrates that there was no division between the documents relating to the Group, which was publicly traded on the HKSE.

56.  Of course, the Liquidators could not have access to or the right to inspect or to take copies of books and documents not of the Company and/or the Group. If the Liquidators would like to obtain such documents, they have to pursue other legal avenues.

57.  Secondly, I am of the view that the Court has an inherent jurisdiction to give effect to its winding up orders by ordering (if necessary) that custody and control of the relevant company’s property and that of its subsidiaries be passed to its liquidators who are officers of the Court.

58.  In Siti Khotimah & Reza Sahin v. Director of Immigration [2022] 2 HKLRD 54, albeit in a different context, the Court said that there is an immense public interest in protecting the court system from being abused and ensuring that orders are complied with. Specifically, the Court of Appeal held at [23] that:

“To maintain its essential character as a court of justice capable of fulfilling its judicial function, the courts at all levels are vested with various powers, by statute and inherent jurisdiction under the common law, to prevent the judicial process from being abused. The powers are necessarily very extensive so as to be truly effective. And they are well justified by the immense public interests in protecting the court system from being abused. In particular, the court needs to develop its inherent jurisdiction to arrest the infinite variety of abuse as soon as they arise in a timely manner.” (Emphasis added.)

59.  It is submitted that there exists no inherent jurisdiction which is directly in conflict with the statutory regime. That I agree. However, the inherent jurisdiction here does not conflict with the statutory regime. It supplements the statutory regime. There are no statutory provisions which mandate that the Liquidators were only entitled to collect books and records, in law, belongs to the subject company.

60.  Insofar as necessary, I will make an order in terms of Paragraph 6 above.

61.  Thirdly, this Court has recognised Ms Tiffany Wong as the sole director of the BVI Subsidiaries. As 99.9% shareholders of the Hong Kong Subsidiaries, the BVI Subsidiaries could pass shareholders’ resolutions to change the board of directors of the Hong Kong Subsidiaries and/or to demand the Hong Kong Subsidiaries to deliver up its books and records. Equity treats as done what should have been done. Conceptually, this is different from the doctrine of separate legal personality. The Court needs not pierce the corporate veil in this case.

62.  Fourthly, I agree that the ‘Relevant Plaintiffs’, namely, the Plaintiffs represented by Kobre & Kim, are not Subsidiaries of the Company, and thus Mr Wong and his solicitors have no basis and capacity to challenge the release of documents belonging to the Subsidiaries.

63.  For the sake of completeness, first, I should say that I agree that Section 197 of the Companies Ordinance, Cap.32 is not a proper avenue for the Liquidators to obtain their relief. It is true that the section imposes a duty on the liquidators to take custody and control of assets, but it does not give powers to the Court to enforce delivery of any property to the liquidators. (See Promail International (HK) Ltd HCCW 373 of 2002, 19 July 2006 at §28 per Kwan J (as she then was).

64.  Secondly, I should also say that it is not appropriate for the Liquidators to advance this application on the basis that it is in substance an application under section 286B of the Companies Ordinance, Cap.32. Ms Eu SC for the Plaintiffs is correct in submitting that a section 286B application is an entirely different application.

65.  Further, the Liquidators have already taken out a section 286B application under the Omnibus Summons in HCCW 67 of 2023. It is also correct that at the hearing on 18 October 2023, this Court did accede to the Liquidators’ request for the section 286B application to be adjourned with directions for the filing of evidence.

66.  Finally, for the avoidance of doubt, I repeat that the Liquidators are only entitled to have access to and/or take possession, custody and control of the Books and Papers of the Group which are stored at the Premises. They are not entitled to the books and records of, say the 38^th Plaintiff, Frank Union, which is a co-tenant of the Premises.

67.  The Liquidators are entitled to have access to and/or take possession, custody and control of the Books and Papers of the Group only and return the other properties to other owners.

LEGAL PROFESSIONAL PRIVILEGE

68.  As regards LPP, the law is clear that any LPP belonging to the Company now vests in the Liquidators. Upon the making of the Winding Up Order, the Liquidators stepped into the shoes of the Company and can assert and waive privilege: Re China Medical Technologies, Inc. (unrep., HCCW 435/2012, 2 October 2015) at [13].

69.  If the concern is in respect of advice given to the Company’s directors in their personal capacity or in respect of the appeal of the Winding Up Order, the same can be easily identified and dealt with.

70.  The Liquidators proposes to engage an Independent Review Lawyer to identify documents covered by LLP. I agree that section 53 of the High Court Ordinance, Cap.4 is not entirely appropriate. The issue of LPP is to be determined ultimately by the Court not by an independent assessor.

71.  However, I am of the view that the Liquidators are entitled to engage services providers and/or professionals to help identify documents which could potentially be covered by LPP.

72.  The concept of appointing an Independent Review Lawyer has been approved by Hong Kong Court: see for example CITIC Pacific Ltd v Secretary for Justice (No 2) [2015] 4 HKLRD 20 at [14] and [76(1)(c)].

73.  The suggested procedure where LPP is asserted is set out in CITIC Pacific Ltd (supra) as follows:

(1)  The person claiming LPP should (i) identify the materials over which LPP is claimed; (ii) specify, with respect to each of the materials identified, whether the LPP claimed is legal advice privilege or litigation privilege; (iii) support the LPP claims by statement or affirmation setting out the special basis or bases and the full factual context which LPP is claimed in respect of each of the materials;

(2)  The claimant should seriously consider giving a limited waiver for specified personnel or independent counsel to inspect the disputed materials so that the latter can consider, bearing in mind what has been set out in the supporting affirmation, whether any concession can be made; and

(3)  Both parties should actively consider instructing an Independent Review Lawyer to resolve any LPP claim without prejudice to their right to bring the matter to court for determination. Where an Independent Review Lawyer is instructed:

(i)  If any legal issue arises and cannot be resolved in the course of any disputed LPP claim, either party may apply to court for directions;

(ii)  After the court gives a determination on the legal issue, the independent review lawyer will then continue with his task accordingly in light of the determination; and

(iii)  The parties may apply to the court to determine any LPP claim which remains unresolved by the Independent Review Lawyer.

74.  The Liquidators propose Mr Wayne Patrick Walsh SC, Head of Parkside Chambers and a former senior lawyer in the Department of Justice as the Independent Review Lawyer. He is willing to take up that role and has signed a ‘Consent to Act’ confirming that he has no conflicts of interest.

75.  The Plaintiffs oppose the appointment of Mr Wayne Patrick Walsh SC but instead proposed for the matter to be resolved by a Master of the High Court following the case of Canton Plus Enterprise Ltd and Anor v. Tong Zhenjun and Ors[2018] HKCFI 1402.

76.  I do not like to burden a High Court Master with more work as they are already overworked. It also appears to this Court that even with the appointment of Mr Wayne Patrick Walsh SC, it could potentially lead to more satellite litigation and disputes and is not conducive to an efficient liquidation.

77.  As the documents to be covered by LPP would not be large and I trust the Plaintiffs to be sensible, this Court will deal with the issue of LPP in this case. It will be more efficient.

DISMISSAL OF THE ORIGINATING SUMMONS

78.  The Liquidators submitted that pursuant to O.28, r.10 of the Rules of the High Court (Cap. 4A), if the Court is satisfied that the plaintiff’s default in prosecuting commenced by originating summons has been intentional and contumelious, the Court may order the cause or matter be dismissed or make such other order as may be just. The principles to be applied in considering an application under O.28, r.10 are summarised in Nanyang Commercial Bank Ltd v Chan Hon Keung and Ors (unrep., HCMP 1500/2001, 19 January 2010) at [25].

79.  Mr Wood submitted that while there have not yet been delays of years in these proceedings, that fact is irrelevant in circumstances where the Plaintiffs’ default in prosecuting the Originating Summons has been intentional and contumelious and designed for no other reason than to subvert the Winding Up Order so as to block the Liquidators from gaining access to the Books and Papers located at the Premises. The Plaintiffs’ conduct must be viewed in light of the fact that there is an urgent need for the Liquidators to gain access to the Books and Papers so as to give effect to the liquidation and in circumstances where there has been no impetus whatsoever to move the Originating Summons forward.

80.  There were no solicitors acting in these proceedings on behalf of the Plaintiffs for more than six weeks – i.e. between 4 September and 19 October 2023 – and that the Plaintiffs failed to file any evidence in opposition within the timeframe specified in RHC O.28, r.5 and had to seek an extension of time until 21 November 2023 to do so.

81.  Further, these proceedings were originally commenced by all the 77 Plaintiffs when the Originating Summons was taken out. At present, Kobre & Kim only act for 50 Plaintiffs out of these 77 Plaintiffs. Out of the remaining 27 Plaintiffs, (i) the Company is already in liquidation; (ii) 14 entities were subject to receivership prior to the commencement of these proceedings; (iii) 11 entities have been dissolved; and (iv) 1 entity is one in respect of which Mr Wong, Ms Amy Yu and another officer of the Company each ceased to be a director in July 2023.

82.  Whilst I can understand the sentiments of the Liquidators, I am of the view that it is premature for this Court to conclude there is intentional and contumelious default at this stage. As to whether there is any utility in maintaining the present proceedings, it is a matter for the Plaintiffs to decide bearing in mind potential costs consequences.

83.  Accordingly, I will not make an order to dismiss the Originating Summons in these proceedings.

DISPOSITION

84.  For all the reasons stated above, I make the following orders to:

(1)  Discharge the Agreed Undertakings (Paragraph 1 of the Summons)

(2)  Deliver up the documents (Paragraphs 2 and 3 of the Summons).

85.  Pursuant to the directions of this Court, the parties have filed and commented on a detailed draft order. I will make the following orders:

(1)  The undertakings offered by the Liquidators are accepted;

(2)  Order in terms of Paragraph 3 except that the documents to be removed should be confined to the books and records and documents of the Group.

(3)  Order in terms of Paragraph 4 except that the Plaintiffs’ representatives are entitled to be present and to raise issue of LPP when a review of the same is to take place.

(4)  Order in terms of Paragraph 5 only in relation to the books and records and documents of the Group.

(5)  Order in terms of Paragraph 6 except that the documents to be removed should be confined to the books and records and documents of the Group.

(6)  No order is made in terms of Paragraphs 7 and 8.

(7)  Order in terms of Paragraph 9.

(8)  Order in terms of Paragraph 10 only in relation to the books and records and documents of the Group.

(9)  Order in terms of Paragraph 18 with the words proposed by the Plaintiffs being incorporated.

86.  The Liquidators’ solicitors are directed to file and serve a draft order according to the terms as set out above.

87.  There be general liberty to apply including the procedures to be taken in relation to the determination of the LPP issue before this Court if the parties cannot agree.

88.  As far as costs is concerned, this Court makes a costs order nisi that the Plaintiffs do pay the costs of and occasioned by the Summons to the Liquidators to be taxed on a party to party basis if not agreed. This costs order nisi will be made absolute within 14 days from the date of this Decision unless an application is taken out to vary the same within the 14-day period.

89.  Finally, it remains for this Court to thank Mr Wood for the Liquidators and Ms Eu SC and Mr Kok for the Plaintiffs for their helpful assistance.

Ms. Audrey Eu SC, and Mr. Martin Kok, instructed by Kobre & Kim for the 1^st, 4^th, 6^th, 7^th, 12^th, 13^th, 15^th, 17^th – 21^st, 24^th, 26^th, 27^th, 29^th – 36^th, 38^th, 41^st, 43^rd – 45^th, 47^th – 49^th, 51^st – 54^th, 57^th, 59^th – 62^nd, 65^th, 66^th, 68^th, 69^th, 71^st – 75^th and 77^th Plaintiffs

The 2^nd Plaintiff , 3^rd Plaintiff , 5^th Plaintiff , 8^th Plaintiff , 9^th Plaintiff , 10^th Plaintiff, 11^th Plaintiff, 14^th Plaintiff, 16^th Plaintiff, 22^nd Plaintiff, 23^rd Plaintiff, 25^th Plaintiff, 28^th Plaintiff, 37^th Plaintiff, 39^th Plaintiff, 40^th Plaintiff, 42^nd Plaintiff, 46^th Plaintiff, 50^th Plaintiff, 55^th Plaintiff, 56^th Plaintiff, 58^th Plaintiff, 63^rd Plaintiff, 64^th Plaintiff, 67^th Plaintiff, 70^th Plaintiff and 76^th Plaintiff were not represented and did not appear.

Mr. James Wood, instructed by YTL LLP, for the Defendant

The Official Receiver, attendance is excused