Poon Ka Man Jason v. Smart Wave Ltd and Others

HCA 304/2011

[2022] HKCFI 773

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 304 OF 2011

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Before:  Hon Coleman J in Chambers (Open to Public)

Date of Ruling:  18 March 2022

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R U L I N G

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A. Introduction

1.In this Ruling, I shall continue to adopt the definitions and abbreviations used in my Judgment [2019] HKCFI 1141 (“Judgment”).

2.The claim in this common law derivative action was brought by Jason on behalf of himself and all other shareholders in the Company except Ricky, with respect to Ricky’s conduct in relation to D3-D31.  Mak and Wong were the new shareholders to whom Ricky had transferred shares.

3.The Judgment summarises the rather contorted and long procedural background leading to the Notice of Sanctioned Payment filed on 25 April 2017 by Ricky and D3-D31 (giving notice to Jason that they had paid HK$40 million into court in settlement of the whole of his claim), and the subsequent argument as to whether the sanctioned payment should be accepted.

4.Over four days in April 2019, I heard the Sanctioned Payment Summons dated 18 September 2017.  Though it was issued by solicitors purporting to act for the Company, the application must have been directed by Ricky, as he was the sole director of the Company.  In simple terms, the person making the sanctioned payment was the person controlling the Company’s attempts to force acceptance of it.  That person, Ricky, had already been adjudged to be a wrongdoer in control.

5.The Company had, meanwhile, been directed not to participate in the hearing, because it would be an improper use of Company assets to argue points which would be bound to be raised in any event by the other parties.

6.At the end of the hearing, I gave an ex tempore decision, which was subsequently reduced into writing in the 75-page Judgment.

7.In the Judgment, I identified the clear battles lines, and what seemed to me to be the issues to be resolved, being: (1) a jurisdiction point on Order 22; (2) whether Mak and Wong and others were Ricky’s nominees and/or close associates; (3) whether the Shares Transfer was a sham; (4) the adequacy or sufficiency of the sanctioned payment; (5) whether the nature of the private agreement between Ricky and Mak and Wong meant that Mak and Wong could not bind the other shareholders; (6) whether the votes of the majority who passed Resolution 1 were invalid through those voters lack of bona fides; and (7) whether Ricky’s “approval” of the Shares Transfer was valid.

8.In summary – but see more detail below – I found in my Judgment that the Sanctioned Payment Summons should be dismissed by reference to two out of the seven issues identified by me: first, because the application was not properly jurisdictionally founded, and secondly, because the Shares Transfer by Ricky to Mak and Wong was invalid, Ricky’s exercise of discretion as to whether to refuse to register the transfer and his decision to “approve” registration being an abuse of his power.

9.As to (1) the jurisdiction point (which was not fact sensitive, and did not depend on finding any facts in dispute), either the Company could demonstrate that it is the party under and within the meaning of the provisions in Order 22 which could accept the sanctioned payment of which notice was given to Jason as plaintiff, or it could not.  My conclusion was that it could not.  That was determinative, and on its own would have led to the dismissal of the application.

10.Nevertheless, because significant resources had been deployed in respect of the other issues, I went on to deal with the other aspects.  I held that: (2) Mak and Wong and others were not Ricky’s nominees; (3) the Shares Transfer was not a sham; (4) it was unnecessary to determine whether the sanctioned payment amount was adequate or sufficient, but the final figure from the accounting exercise may be more than the amount of the sanctioned payment; (5) the transfer agreement between Ricky and Mak and Wong were binding on other shareholders; (6) the votes of the majority could not be impugned for the alleged lack of bona fides; and (7) the transfers were invalid because Ricky did not act in the best interest of the Company when “approving” the transfer.

11.Following the Judgment, the defendant parties made a number of applications, being:

(1)  Ricky’s and D3-31’s application for leave to appeal, and for a stay of further proceedings pending appeal;

(2)  Mak’s and Wong’s application for leave to appeal; and

(3)  the Company’s application for leave to appeal.

12.Those matters were originally to be dealt with on paper submissions only, and submissions were indeed filed by the parties (in May, July and August 2019).

13.Unfortunately, following an administrative oversight or failure, the applications were not then determined.  On the other hand, neither did any solicitor for any of the parties write to the Court at any time to remind that a decision was awaited, or to ask when a decision might be forthcoming (despite the fact that it might be generally known that I am ordinarily reasonably prompt in decision-making).  In those circumstances, until the papers ‘resurfaced’, the Court had lost sight of the fact that determination of the applications for leave to appeal might still be needed.

14.Thereafter, in October 2021 the Court made telephone enquiry with the parties as to whether the matter might have otherwise been consensually resolved.  Only in response to that enquiry (but without mentioning it) did the parties jointly write to ask whether any further submissions should be provided to assist (apparently confirming a disposition was still required).

15.To adopt a currently popular euphemism, this situation is “less than ideal”.  But – not so as to deflect all responsibility – perhaps it can usefully be remembered that, in addition to the duties placed on the Court to seek to achieve the underlying objectives of the Rules of the High Court, the same rules mandate the parties to any proceedings and their legal representatives to assist the Court in furthering those underlying objectives.

16.Occasionally, there are gaps in even good administration.  If there is a concern that the Court may have overlooked something, surely the parties would be entitled, and arguably be obliged, to raise the question with the Court with some reasonable degree of promptitude.  Albeit more directly in a different context, it has long ago been established that ‘letting sleeping dogs lie’ is no longer an acceptable strategy for parties and their legal representatives.

17.I recognize some natural degree of reluctance on the part of parties or their solicitors to ‘push’ the Court.  No litigant or his solicitor would want to offend the Court who is to decide their dispute.  But, as stated, the rules can be seen to promote effective collaboration between the Court, the parties and their legal representatives in achieving the underlying objectives.  Therefore, a busy Court (which might have been distracted by other pressures of work) should unlikely be affronted or offended by – and in circumstances like the present might even welcome – a courteous enquiry or reminder.  Further, such contact can perhaps ordinarily be made jointly by the parties.

B.      More Detail about the Judgment

B.1    Jurisdiction Point

18.So as to understand the argument and my conclusions on it, I set out in my Judgment the various provisions of the rules and relevant court forms under Order 22 and Order 22A.  I then approached the various arguments, in a way which might be summarised as follows:

(1)  I rejected the idea that where Order 22 rule 17 says “the plaintiff may obtain payment out”, that is only permissive and does not bar payment out to someone else.  In my view the use of the word “may” identifies the creation of a discretionary power.

(2)  I held that the words “party entitled” in Order 22A rule 2(2) do not change what is the fundamentally clear sense of the regime in Order 22, namely that a notice of sanctioned payment is given by a defendant (the offeror) to a plaintiff (the offeree), and that notice of acceptance is given, if at all, by that plaintiff to that defendant.  Read with Order 22, Order 22A rule 2(2) simply provides that payment is payable to the plaintiff or his solicitor, as the plaintiff is the “party entitled” under Order 22.

(3)  Neither the unfettered discretion created by Order 22A rule 1, nor the underlying rationale of encouraging parties to take positive settlement seriously, can themselves change the identity of the parties and the respective roles they play within the regime under the rules.

(4)  There is more force in the argument that the Company is the “real plaintiff”, where it cannot be controversial that the cause of action in a common law derivative claim is a cause of action belonging to the company on whose behalf it is brought by the plaintiff, and that damages ultimately recovered are payable to the company.

(5)  But, insofar as it is suggested that the sanctioned payment is the fruit of a judgment, the Company in this case was in the first situation identified in Prudential.  After the ordering of the account, the Company did nothing, such that the plaintiff was entitled to issue the summons to proceed with the enquiry.

(6)  That a company in a different action might have taken control over the proceedings, or even decided to take no further action on the prior judgment, is beside the point.

(7)  In this case, the Company was named and could only have been as a defendant, because it remained under the wrongdoer’s control.  It might be added that, in practical terms, that would mean that the person making the sanctioned payment and the person controlling the Company in its assertion that it wished to accept the sanctioned payment were one and the same.

(8)  In any event, that the particular sum of money generated by the account of profits would be payable to the Company, and if not paid would be enforceable by the Company, does not quite deal with the question as to whether or not the Company is to be treated as the “plaintiff” for the purposes of the operation of the sanctioned payment regime under Order 22.

(9)  If Jason, as plaintiff, refuses to settle and fails to obtain a judgment better than the sanctioned payment, he alone will face the cost sanctions under Order 22 rule 23.  Further, if the sanctioned payment is not bettered by the account, that fact will likely show the continuing pursuit of the proceedings was not reasonable and prudent in the interests of the Company, meaning that Jason as plaintiff would likely remain personally liable for the costs.

(10)  If the Company cannot bring itself within the provisions of Order 22, read together with Order 22A, and because there is a statutory scheme delineating the jurisdiction of the court, there can be no recourse to the ‘inherent jurisdiction’.

(11)  The jurisdiction question is not fact sensitive. Either the Company can demonstrate that it is the party under and within the meaning of provisions in Order 22 which can accept the sanctioned payment of which notice was given to Jason as plaintiff, or it cannot.

(12)   On my above analysis, including the fact that the Company remained under the wrongdoer’s control, it could not.

B.2    Shares Transfer Point

19.My analysis in the Judgment on this point might be summarised as follows:

(1)  Mak and Wong asked Ricky for a discount on the price for their intended purchase of the shares, and it was agreed by Ricky, in consideration for the ability to effect approval of the sanctioned payment.

(2)  Therefore, it may not matter that the transaction was not itself a sham.  It was clearly intended to provide the circumstances in which shares which otherwise could not have been used to vote for the sanctioned payment were put into the hands of persons who clearly would have exercised a vote in that way.

(3)  The price to Ricky of ensuring that shares which otherwise he could not vote were voted to accept the sanctioned payment was potentially significantly less than the benefit to him as sole or main shareholder if a full account required payment of more.

(4)  I rejected the suggestion that Ricky might seriously have thought that Mak and Wong might ultimately not vote to accept the sanctioned payment, including because it was his own evidence that the Shares Transfer was at least part motivated by a desire to procure acceptance of the sanctioned payment and to end these proceedings.

(5)  As sole director of the Company, Ricky continued to owe fiduciary duties to it.

(6)  Ricky must have understood that there was at least a significant risk that he would be required to account for a figure rather in excess of the amount of the sanctioned payment.

(7)  In approving the Shares Transfer knowing that the shares would be voted in favour of accepting the sanctioned payment, Ricky failed to act in the best interest of the Company.

(8)  The fiduciary duty owed by Ricky to act in the best interests of the Company required him to exercise his discretion either to refuse to register the transfer or choose not to exercise a refusal.  He could not just do nothing.

(9)  In any event, as a matter of fact, the Board resolution signed by Ricky recorded that he had “approved” the Shares Transfer.  So it was not open to Ricky to suggest that any default position might have been reached on an assumption that he might have not exercised his discretion to refuse to register the transfer.

(10)  As he constituted the entire Board, Ricky remained in the position of conflict, which was precisely the capacity in which he had already been found to be in breach of his duties.

(11)  The rule about avoiding a conflict of interest is strict and inflexible, and the question of fairness or unfairness of the transaction is immaterial.

(12)  The motives of other persons acquiring shares cannot get around the fundamental problem that they could only have acquired shares if the purchase was made the subject of a transfer effective to permit them to vote.  Ricky acknowledged in evidence that no transfer would have been affected but for his approval of the transfer, or the exercise of his discretion not to refuse the registration.

C.      Leave to Appeal

C.1    Applicable Test

20.There is, and there can be, no real dispute as to the applicable test on this application.  The relevant test for the grant or refusal of leave to appeal is to be found in section 14AA of the High Court Ordinance Cap 4.

21.Leave to appeal should not be granted unless the Court is satisfied that either (1) the proposed appeal has a reasonable prospect of success, or (2) there is some other reason why in the interest of justice the appeal should be heard.

22.As to the first limb, an appeal which has a reasonable prospect of success means an appeal with prospects which are more than fanciful, but which do not need to be shown to be probable.  Hence, even if it is thought that the first instance decision might eventually be found to be correct on the substantive appeal, that does not necessarily mean that there has not been shown a more than fanciful prospect of success.

23.As to the second limb, though there can be no exhaustive list given, one consideration would be where the Court of Appeal might give leave on a question of general principle, decided for the first time, or a question of importance upon which further argument and a decision of the Court of Appeal would be to the public advantage.  It is sometimes said that questions of law which are not settled should be settled, by the Court of Appeal.

24.I will apply that test to the points raised by the parties, but noting that many of the arguments deployed by Ricky, Mak and Wong and the Company in support of their applications for leave to appeal are similar and/or overlapping.  As a result, many of the arguments deployed by Jason in response are also similar and/or overlapping.

C.2    Ricky and D3-D31

25.As to the jurisdiction point, Ricky’s submissions essentially rehearse the same arguments as were deployed at the hearing in April 2019, namely that (1) the cause of action belongs to the Company, not Jason nor any other shareholder, (2) the claim is brought by Jason merely as a derivative claim on behalf of the Company, (3) any sums to be recovered are recovered on behalf of and payable to the Company, not Jason, and (4) the Company is joined as a “defendant” to recover any sum recoverable or to enjoy the benefit of any judgment.  Hence, the submission is that it is the Company which is the “real plaintiff”, and the sanctioned payment is properly to be regarded as the “fruit” of the relevant Court of Appeal Judgment, to which only the Company is entitled.

26.It is also again submitted for Ricky that Order 22 and Order 22A, read together, mandate that the sanctioned payment shall be made to the “party entitled”, here said to be the Company, in accordance with the unfettered discretion to order payment out of money in Court in order to achieve justice amongst the parties.  So, it is said, it is therefore wrong to read the words “plaintiff” or “defendant” in Order 22 literally or restrictively.

27.On behalf of Jason, it is submitted that there is a failure to explain why the analysis in the Judgment as to why the Company is not entitled to issue the Sanctioned Payment Summons is wrong.  I am not sure that is entirely fair.  Ricky has – and, indeed, the other intended appellants have – set out various arguments which they say identify sufficient merits for the grant of leave to appeal.  Ricky does – and the other appellants do – seek to explain in what way the Court went wrong, though in practical terms that is done by offering their own arguments as being what is said to be right.

28.Those arguments are essentially the same arguments as were rejected in the Judgment.  Simply rehearsing them does not of itself likely meet the necessary threshold for the grant of leave to appeal – though of course I accept that the fact that the arguments were rejected in the Judgment also does not of itself mean that there is no realistic prospects of success on the intended appeal.  But having looked at the matter afresh, I do not think there are reasonable prospects of success in upsetting my conclusion.

29.Also, I do think there is a failure to explain why – on the fact (which was not in dispute) that the Company remained under wrongdoer control – the Company was entitled to accept or force acceptance of the sanctioned payment made by the wrongdoer.

30.Further, I agree with the submission made for Jason that he has probably no right to recoup his costs out of the Company’s assets without the assistance of a court order, but – as was already pointed out in the Judgment – if Jason fails to beat the Sanctioned Payment, he will likely not be regarded as having acted in a reasonable and prudent manner, hence would likely not be entitled to any order for indemnity.  I do not think Resolution 2 changes the analysis.

31.Further, the attempted continued reliance on the Prudential case simply repeats the arguments run and dismissed in the Judgment, where the present case plainly falls within the ‘first situation’ in Prudential, not least because the Company did not take any steps to intervene before Jason elected to proceed with the account of profits.  Of itself, that is no surprise, where the Company remained in the control of Ricky – and so where the Company also could not have taken the second situation in Prudential of releasing Ricky from his wrongdoing.

32.Lastly, it is suggested for Ricky that no provision of Order 22 or Order 22A abrogates the inherent jurisdiction of the Court, so that the Company can accept the sanctioned payment in reliance on the inherent jurisdiction.  But, as I held in the Judgment, I agree with the submission made for Jason that the court cannot assume a jurisdiction outside the statutory scheme – here delineated by Order 22 – which does not allow a defendant to accept (or to force a plaintiff to accept) a sanctioned payment.  I do not think there are reasonable prospects of success to argue otherwise.

33.As to the Shares Transfer, reference is again made to Article 7 of the Company’s Articles of Association.  It is submitted for Ricky that refusal of registration requires a valid active exercise of the right of refusal, in the absence of which, the transfer is registered by default.  So, Ricky’s subjective thoughts are irrelevant, and insofar as any purported “approval” was invalid, that meant there was simply neither valid approval no valid exercise of discretion to refuse to register – leading to registration of transfer going ahead.

34.Further, it is submitted for Ricky that the breach of fiduciary duty concerned only the registration of the Shares Transfer, and could not provide any basis for impugning the Shares Transfer. Also, by virtue of Article 29 of the Company’s articles, Ricky was entitled to vote to pass the board resolution, even if he had an interest in the registration of the Shares Transfer, where the application of Article 29 was not affected by Article 27.  It is submitted that the Court failed to give consideration to whether Ricky’s “interest” in the registration was “material”, and if so whether the “nature” of interest was sufficiently declared in the resolution when it expressly stated Ricky being the transferor.

35.Lastly, it is suggested that until registration is set aside, which has so far not happened, the transfer and registration remained valid permitting Mak and Wong full rights as shareholders to vote in any general meeting.

36.Therefore, it can be seen that as to the Share Transfer point Ricky again seeks to rehearse arguments, based on Article 7, already dealt with in the Judgment.  With respect, again I do not think there are reasonable prospects on that point.

37.Then, Ricky seeks for the first time to argue that Ricky’s approval was a purported exercise of power in excess of the powers conferred, hence invalid.  But, I agree with the submission made on behalf of Jason that such an argument is against Ricky’s own evidence, and in any event reinforces the conclusion that the Shares Transfer was invalid because no transfer would have been effective but for Ricky’s approval of the transfer.

38.Further, in so far as the points for intended appeal raise the argument that Ricky did not place himself in a position of conflict, I think that argument is wholly without merit.  The position of conflict was actually obvious: on the one hand, there was a real risk that the Sanctioned Payment was or might be inadequate, so that it was in the Company’s interest to reject it; on the other hand, it was obviously in the interest of Ricky (who made the payment) to accept it so as to limit his liability.  The submission that Ricky was not in a position of conflict is also against the very finding of the Court of Appeal which gave rise to the need to take the account of profits.  Further, I agree with the submission made on behalf of Jason that there are no reasonable prospects of successfully arguing that the issue of conflict is dependent on whether the Shares Transfer was a sham.

39.As to the argument that Ricky was allowed to act in conflict because of Article 29, it can be noted that this is sought to be deployed for the first time.  I do not think it reasonably arguable that Article 29 is not subject to Article 27.  Further, a declaration of interest must be made out loud, and anyway the Article could not absolve Ricky’s separate duties to exercise his power for proper purposes and in the best interests of the Company.  Further still, had the point been raised before, Ricky and others would likely have been cross-examined on it, and still no good explanation has been given for the failure to have raised it earlier (even assuming, which I do not, that the point is one of law alone).

40.Lastly, in answer to the argument that the Shares Transfer was only voidable (but not voided before the EGM), the submission for Jason correctly makes reference to the finding in the Judgment that, but for Ricky’s approval of the Shares Transfer, no transfer would have been effected and Mak and Wong could not have voted on the shares, so that it follows to hold that the votes ought not to have been counted in the vote for Resolution 1.  Further, it is obviously unrealistic to place reliance upon the fact that the Company has not rescinded or voided the Shares Transfer, when the Company remains under the wrongdoer control.

41.In any event, where the Court has an unfettered discretion under Order 22 rule 15, no reason is given as to why the Court would not be entitled to take into account those matters when exercising the discretion against allowing the Sanctioned Payment Summons.

C.3    Mak and Wong

42.Mak and Wong essentially make the same points, and in particular that the Court’s construction is “too literal” and fails to pay regard to the intent behind the rules which is to facilitate settlement of the action by payment into court including sanctioned payment.

43.It is also submitted that, even on a literal reading, the construction adopted is not correct, this being a further reference to the words “party entitled”.  Further, it is submitted that the unfettered discretion on the question of payment out of money paid into court should be exercised so as to achieve justice between the parties, and it is “impossible to understand” why the Company did not fall within the second situation in the Prudential case.

44.Mak and Wong also submit that the payment into court is to be regarded as the “fruit of judgment”, because the sanctioned payment was made because of the prior Court of Appeal Judgment, but anyway, the payment into court need not be the fruit of judgment for a person to be entitled to have it paid out.

45.Those points are submitted to have a reasonable prospect of success.  But I have already identified why I do not think that to be correct.

46.As to the Shares Transfer point, Mak and Wong seek to adopt the grounds intended to be advanced by Ricky (and D3-D31) and the Company on the question of the alleged “invalidity” of Ricky’s approval of the transfer of his shares to Mak and Wong.  It is further submitted that the Judgment overlooked the fact that the transfers did not arise in relation to transactional arrangement with the Company, but were private deals between Ricky and Mak and Wong.  Further, as no one can say with clarity that more might be obtained on the account than in the sanctioned payment, and where the test on conflict is to be applied realistically, and required answering the question whether reasonable men looking at the facts would think there was a real possibility of conflict, a realistic assessment in this case means that there could not be a conflict.

47.Insofar as those points duplicate Ricky’s argument, I have dealt with them above.  As to the other points, I do not think the Judgment did overlook the private nature of the Shares Transfer, but it was transfer of shares in the Company for the reasons found by me as a fact.  Nor do I think it an argument with reasonable prospects of success to say that my assessment that there was a conflict would be interfered with by the Court of Appeal.

C.4    The Company

48.The Company took no active role in the hearing of the Sanctioned Payment Summons, and its attendance was excused.  Indeed, in fact by Order dated 26 February 2019 it was directed by Au Yeung J that the Company should not be permitted to participate in the Sanctioned Payment Summons, on the basis that there is nothing additional which only the Company could address which was not already bound to be addressed by the other parties, and it would be unjust for the Company to incur costs in an unnecessary attendance.

49.Nevertheless, the Company wishes to appeal on two points of law.  As to its locus to seek leave to appeal, in summary it submits that: (1) it is trite that any party to an action may appeal; (2) the Company remains a party to the present proceedings; (3) the Sanctioned Payment Summons itself was taken out by the Company, and sought to deal with money paid into court in satisfaction of liability owed to the Company; (4) the Company should be entitled to take the benefit of the appellate judgment: (5) the Company cannot adopt a ‘wait and see’ attitude; (6) Au Yeung J cannot by her previous order have intended that the Company would not be entitled to appeal against any Order made, as is in part made clear by the materials relating to the argument she heard.

50.As to the two points of law, the first relates to the jurisdiction question.  Essentially, the Company wishes to advance the same arguments as would be put forward by the other parties (subject, perhaps, to one potentially additional point about Jason not owing a fiduciary duty as a shareholder).

51.The second proposed point on appeal relates to the validity of the Share Transfer.  The Company submits that, regardless of the correctness of the finding that Ricky failed to act in the best interests of the Company, the Court did not address the consequences of such a breach. In short, where there is nothing in the Court’s finding that the Company has taken steps to avoid the Share Transfer, it must follow from the absence of rescission that Mak and Wong’s title to vote the shares remained valid at all material times (including at the EGM).  Reliance is also placed on the suggestion that the written resolution dated 4 August 2017 was merely confirmatory of the default position under Article 7 of the Company’s Articles of Association.

52.First, I have already addressed why these two intended points do not seem to me to ground the grant of leave to appeal.

53.Secondly, the almost exact similarity of these two points with the points intended to be raised by other parties demonstrates the abuse in the Company’s seeking to step in to provide a supporting role in the intended appeal.  For the Company to be able to say that its intended points are questions of law which are not coterminous with the points raised by the other defendants does not seem to me fundamentally to change the position. Even if not exactly coterminous, the high degree of overlap and repetition is evident.  I also see no reason why those points cannot be taken by any other party.

54.The suggestion that an intended appeal does not fall within the scope of Au Yeung’s order directing the Company not to participate in the Sanctioned Payment Summons, with respect, makes no sense. The Company seeks by its intended appeal precisely the same relief as that sought under the Sanctioned Payment Summons.  In any event, the Company was precluded from participation because it sought to advance the same arguments as would in any event be put before the Court by other parties.

55.Therefore, it does not assist to answer the criticism that the Company might be seeking (like the other defendants) to raise new points, by saying that is only because the Company was not given the opportunity to raise the points before.  In fact, Au Yeung J was satisfied that the Company was not in a position to raise points different from those which would be raised by the other defendants.  If that was wrong, the correct step would have been to appeal from the order of Au Yeung J; it is not correct for the Company to have sat back and waited to see how the Sanctioned Payment Summons was dealt with before deciding it might want to try to jump back into the fray.

56.Nor do I think there is force in the suggestion made for the Company that the questions of who needs to be heard by the Court and who needs to be a proper party to an appeal have been conflated.  Contrary to the Company’s submission, I do not think the Company needs to appeal so that it can be bound by, or to take the benefit of, any appellate judgment.  Indeed, it might be thought that suggestion contradicts the argument put forward by the Company on Order 22.  Further, the Company is clearly not in fact suggesting it merely wants to raise an appeal but then not make representations on the appeal.

57.For that reason of abuse, I would also dismiss the Company’s application for leave to appeal.

58.It is also a settled matter of principle that a company in a derivative action should ordinarily remain a nominal defendant and take no active part in the proceedings.  The real ‘fight’ is between the shareholders, and it is a fight about the Company not with the Company.  Again, just as with the issue of the Sanctioned Payment Summons, it must be Ricky which has caused the Company to issue its application for leave to appeal. Though I do not need to decide the point now, that is arguably a misfeasance on the part of a director.  But it also emphasises that any point which the Company might be instructed to raise can be raised by Ricky.

59.I also agree with the submission made on behalf of Jason that to permit the Company to participate in challenging the Judgment, on the instructions of Ricky, would be tantamount to allowing Ricky to use the Company’s funds to advance his personal interest and to act in a position of conflict.

C.5    Second Limb

60.Most of the above is to deal with the merits threshold for an intended appeal.  But, as stated, it is also suggested that leave should be granted on the alternative limb that there is some other reason why in the interest of justice the appeal should be heard.

61.It is submitted on behalf of Mak and Wong that the proper construction of Order 22 and Order 22A in the context of a derivative action is a ‘novel’ point which should be argued and determined in the Court of Appeal.  In response, the submission made for Jason is that the reason why it might be said to be ‘novel’ is simply because it is unarguable and inconsequential.

62.My own view is that the point is not one of such novelty as justifies the grant of leave by me for it to be taken to the Court of Appeal.

63.Mak and Wong also say that, in the context of the Shares transfer point, the Court of Appeal should be asked to decide on the test for conflict of interest.  It is submitted that the question is whether the no conflict rule is absolute in the present circumstances.  But I do not think there is any real contest as to the common law test of conflict, which needs to be resolved by an appeal.

C.6    Conclusion on Leave to appeal

64.In conclusion, I dismiss each of the applications for leave to appeal.

D.      Stay

65.On that basis, the application for a stay pending appeal falls away.  But I shall go on to express my thoughts on the application, had I granted leave to appeal.

66.Against the “less than ideal” chronology I identified at the beginning of this Ruling, it may seem a little odd to be considering the question of any stay of proceedings.  The fact is that there is no order for any stay of the proceedings.  Though Ricky’s application for leave to appeal sought an interim stay pending the determination of the application, I have not granted any such interim stay.

67.Yet the Court file identifies that no party has taken any step at all in the proceedings since May 2019.  To put it at its lowest, it seems that (for whatever reason) no party has shown any great enthusiasm for moving things along – or asking the Court to move things along.

68.On behalf of Jason, it is submitted that the Court should only grant a stay where there are very good reasons or in rare and compelling circumstances, and that any stay must not cause injustice to the plaintiff, where the defendants must show that continuing the proceedings would be unjust to them.  Complaint is made that staying the proceedings will cause further, significant delay to the account-taking exercise, and would in any event save little costs or time on those steps of the accounting process which have already been performed.  Indeed, the reminder is given that the detailed directions on the account-taking exercise were in an order made with the agreement of all parties after the Sanctioned Payment had been made.

69.On the other side, it is argued that if the intended appeal has good prospects of success, and no stay is granted, substantial costs will be wasted.  Further, it is said that Jason’s submissions about the time taken for the action to come to the present stage are misconceived, and his own stance in the accounting exercise has added substantially to the time required.  Further, the only possible prejudice would be suffered by the Company (not Jason), in the delay in the Company’s receipt of the amount to be accounted for – where such prejudice can be compensated for with an award of interest (there being no evidence to suggest that Ricky and D3-D31 would not be good for the interest).  Alternatively, it is argued that any condition for interest to be payable during the stay should be in a relatively limited amount.

70.Had this application been disposed of shortly after the filing of written submissions, I think I would not have granted any stay pending an appeal.  Rather, I would have thought that the remaining steps in the taking of the account ought to be able to be concluded with relative economy of time and costs.  I acknowledge that over the significant period since, it appears that no further steps have been taken on the account, notwithstanding the absence of any stay.  That might suggest that the balance of potential prejudices would tilt in favour of the grant of the stay. However, my overall view remains the same, that even the grant of leave to appeal or not in the particular circumstances of this case to lead to a stay pending that appeal.

E.      Costs

71.The applications having failed, I see no reason why costs should not follow the event.  Therefore, I order the Jason’s costs to be payable jointly and severally by (a) Ricky and D3-D31 and (b) Mak and Wong.

72.By way of a Statement of Costs for Summary Assessment, the plaintiff seeks costs (including Counsel’s fees) in the total of $171,730.  Next to the costs as would have been claimed on summary assessment had I found in favour of those Defendants – the frankly extraordinary sums exceeding $725,000 and $600,000 respectively – the claimed figure seems modest.  Nevertheless, taking the usual approach to a summary assessment – looking in a broad brush manner at the proportionality against the complexity of the issues considered both overall and as regards individual costs elements – I assess the costs in the sum of $150,000.  This was, after all, only an application for leave to appeal based largely on arguments already previously deployed.

73.As to the Company’s costs, for reasons which are evident from above, I do not think they have been properly expended. Instructions to pursue the application and incur the costs must have been on Ricky’s direction and instructions.  I direct that the Company’s costs shall be payable on a full indemnity basis by Ricky, assessed in the claimed sum of $469,000.  Though that figure is very high, and assuming they have actually been paid, I do not think the Company should bear any part of it.

T. H. Koo & Associates, for the plaintiff

Kelvin Cheung & Co., for the 1^st, 3^rd to 31^st defendants

Anthony Siu & Co., for the 2^nd defendant

Lau, Chan & Ko., for the 32^nd and 33^rd defendants