Lau Cho Kwan, Leo and Another v. Lau Siu Fan, Elaine and Others
Read the full judgment text of HCCW 262/2020 on BabelCite. This High Court CFI judgment was delivered on 18 October 2021.
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”).
Cited by 6 cases · Cites 6 cases
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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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________________________ Before: Hon Coleman J in Chambers (Open to Public) Date of Hearing: 11 October 2021 Date of Judgment: 18 October 2021 ________________ J U D G M E N T ________________ A. Introduction 1.The 8th 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 1st and 2nd Petitioners (“Leo” and “Betty” respectively), both shareholders in the Company, essentially complain of the conduct of the 1st Respondent (“Elaine”) and, to a lesser extent, the 2nd 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 3rd to 7th 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:
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:
(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:
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 3rd 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:
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):
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:
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:
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:
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 1st Defendant to HCA 561/2019, but she is also the 4th 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 2nd 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:
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.)
Mr Victor Joffe and Mr Felix Ng, instructed by Oldham, Li & Nie, for the 1st and 2nd petitioners The 1st respondent was excused from court attendance The 2nd, 3rd, 4th, 5th, 6th and 7th respondents were not represented and did not appear Mr Abraham Chan SC, leading Ms Natalie So, instructed by Hugill & Lp, for the 8th respondent The Official Receiver was excused from court attendance | ||||||||||||||||||||||||||||||||||||||||||||||||
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