Securities and Futures Commission v. Mandarin Resources Corporation Ltd. and Another

HCCW000348B/1996

HCCW348/96

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING UP NO.348 OF 1996

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Coram : Hon Burrell J. in Chambers

Date of Hearing : 15th January 1999

Date of Handing Down Reasons : 22 January 1999

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REASONS FOR DIRECTIONS

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1. On January 15th 1999 a pre-trial directions hearing was held.

2. In this judgment I give the Court's reasons for two of the decisions made arising out of that hearing.

(1) Translation of documents into Chinese

3. The pre-trial review was originally listed on January 8th 1999. On that occasion it was adjourned to January 15th 1999 because, inter alia, the 2nd Respondent, who is appearing in these proceedings in person, made a request that all the documents in the case be translated into the Chinese language. The Petitioner has refused the request and so the 2nd Respondent is asking the Court to make an order pursuant to s.5(4) of the Rules (infra).

4. The Court firstly determined, pursuant to s.5 of the Official Language Ordinance, Cap.5 that the proceedings would be conducted in the English language.

5. The 2nd Respondent's request was made under s.5 of the Supreme Court Civil Procedure (Use of Language) Rules, Cap.5. The 2nd Respondent had not complied with s.5(2) which states that any request under s.5(1) shall be in writing and made within three days after the service on him of any document requested to be translated. However, Mr Philip Heslop Q.C., appearing for the Petitioner did not ask the Court to refuse the 2nd Respondent's request simply because of his failure to comply with s.5(2) but on more substantial grounds as well. Section 3(1) of the Rules states :-

"In deciding to use either or both of the official languages in any proceedings or a part of any proceedings under s.5(1) of the ordinance, a judge shall give paramount consideration to the just and expeditious disposal of the proceedings ...."

6. This is the test to be applied in determining in which language the proceedings will be conducted. When determining whether documents should be translated into Chinese the Court should have regard to this test when deciding how familiar with the English language the requesting party truly is.

"Just and expeditious disposal"

7. Under the heading of "just", the Court must consider whether or not the 2nd Respondent is sufficiently familiar with the English language so that it would not be unjust to refuse his request.

8. Under the heading of "expeditious" the Court must examine the practical consequences of granting his request.

9. The Court heard submissions from both Mr Heslop Q.C. and the 2nd Respondent on these issues. In addition it heard evidence from Mr Martin David Rogers, a partner of Herbert Smith. Mr Rogers had also filed an affidavit on January 14th 1999 and was further cross-examined by the 2nd Respondent.

10. In refusing to make the order the Court accepted and took into account the following matters :-

(a) The 2nd Respondent had been appearing in person in these proceedings since July 11th 1997. The first occasion he made a request for all documents to be translated into Chinese in Court was on January 8th 1999. Apart from his failure to make any written request pursuant to s.5(2), Cap.5 Rules, he had had at least four opportunities to make the request in Court when he appeared for various matters on July 12th 1997, August 12th 1998, December 2nd and December 8th 1998. In particular, on August 12th 1998 the 2nd Respondent confirmed to the Chief Judge, Mr Justice Patrick Chan, that he would be representing himself in the proceedings and that he was able to do so. No mention was made of translation of documents.

(b) Mr Rogers has been directly involved with these proceedings since June 1996. He has conversed with the 2nd Respondent in English on many occasions and has found him to be very familiar with, but not perfect in, spoken English.

(c) All correspondence between Herbert Smith and the 2nd Respondent since July 1997 when he started to represent himself have been in English. This includes numerous letters from the 2nd Respondent and signed by him.

(d) In these proceedings the 2nd Respondent has sworn a 36 page affirmation containing 340 pages of exhibits, all in English. The affirmation does not contain an endorsement that it has been translated to him pursuant to s.8 of the Oaths and Declarations Ordinance, Cap.11.

(e) Also in these proceedings, on another occasion when the 2nd Respondent appeared in person, on August 2nd 1996, he submitted a seven page document in English to the Court which was an outline of his submissions in support of an application to discharge the 1st Respondent's provisional liquidators.

(f) In other proceedings the 2nd Respondent has also filed affirmations in English with a Cap.11 s.8 endorsement. There is an eight page affirmation with 453 documents in English in Judicial Review proceedings against the SFC, a five page affirmation in libel proceedings against SFC employees and a seven page affirmation in misfeasance proceedings also against SFC employees. All pleadings in relation to these proceedings were also in English. No request was ever made for them to be translated.

(g) On numerous occasions meetings have been held in connection with these proceedings between the 2nd Respondent and various members of the SFC. Both the meetings themselves and the notes and minutes relating to them have always been in English.

(h) There is no evidence that either in the conduct of these proceedings or in the conduct of the 2nd Respondent's business concerning the matters in issue, it has ever been necessary to have documents translated into Chinese.

(i) It would be necessary to translate 50 such files of documents if the request were granted. The costs would be enormous and the translation exercise itself could take six months. Then the 2nd Respondent would ask for time to read them and so the resulting delay to the trial would be around nine months. Given the present starting date it would therefore be unlikely to start this century.

11. The 2nd Respondent has failed to discharge the onus upon him to satisfy the Court that he is not sufficiently familiar with the English language so as to be able to conduct the proceedings in person with the use of documents in English.

12. The Court is satisfied that the proceedings will be disposed of justly and expeditiously notwithstanding its refusal of the 2nd Respondents' request under s.5, Cap.5 Rules.

(2) The role of the 1st Respondent

13. At the pre-trial directions hearing the Petitioner sought an order in the following terms :-

"that the role of the 1st Respondent at the hearing of the Petition be limited to (i) the issue whether the court should make an order for the winding up of the 1st Respondent and (ii) the form of reliefs which the court should make."

14. In other words it is the Petitioner's submission that the correct role for the company, Mandarin Resources Corporation Ltd, to play in these proceedings is a passive as opposed to an active role. The practical consequence of the company being permitted to play an active role is that the company could and would then fight, at the shareholders' expense, on behalf of the unrepresented 2nd Respondent. Not only would this be a practical consequence but it is also, so it is submitted, the reality of the situation.

15. The Petitioner seeks relief under both s.37A and alternatively s.45(1) of the Securities & Futures Ordinance, Cap.24, namely, that a winding up order be made because the affairs of the company have been conducted in a manner unfairly prejudicial to the interest of its members, alternatively that it would be just and equitable in the public interest that the company be wound up.

16. The general rule is that for both "unfair prejudice" petitions and in "just and equitable" petitions the spending of large sums of company money on legal costs or litigation which is more often than not a dispute between shareholders should not be allowed. It was argued by Mr Miu on the company's behalf and also by their solicitors in correspondence that because the SFC was the Petitioner the principle which has emerged from cases concerning disputes between shareholders should not apply here. This argument has no merit in this case. The SFC are acting both in the interest of the public and in the interest of the minority shareholders and thus the principle is directly applicable.

17. The principle of law which has been strongly and clearly stated in a number of English authorities is directly applicable in Hong Kong firstly, because the Hong Kong legislation follows, virtually word for word, the English legislation and secondly, because the Hong Kong Court of Appeal has expressly said so. The following statement of Harman J. in Re a Company No.004502 of 1988, ex parte Johnson [1991] BCC 234 was cited with approval in the Hong Kong case of Re GC & L Investment Ltd & Wyatt Estates Ltd [1992] 1 HKC 78 :-

"... The train of authority being well established, it seems to me quite clear that, if it is shown that directors of a company have been causing the company's money to be spent on financing the resistance either to a 'pure' sec.459 petition or, according to Plowman J. in Re A&BC Chewing Gum and myself in Re Hydrosan, in financing the company's resistance to a member's winding-up petition based on the just and equitable ground, the court should prevent such expenditure. Such expenditure is a misfeasance, there is no excuse for it in law and it is not a question of an arguable case being raised showing that it may be right to permit misfeasance. Misfeasance are not matters that are permitted by the courts and there is no question of an arguable case at all."

18. Since those authorities Lindsay J. in Re a Company No.001126 of 1992 [1993] BCC 325 has reinforced the statement of principle as follows :-

"Thirdly, that the test of whether such participation and expenditure is proper is whether it is necessary or expedient in the interests of the company as a whole (to borrow from Harman J. in ex parte Johnson).

Fourthly, that in considering that test the court's starting point is a sort of rebuttable distaste for such participation and expenditure, initial scepticism as to its necessity or expediency. The chorus of disapproval in the cases puts a heavy onus on a company which has actively participated or has so incurred costs to satisfy the court with evidence of the necessity or expedience in the particular case. What will be necessary to discharge that onus will obviously vary greatly from case to case.

Fifthly, if a company seeks approval by the court of such participation or expenditure in advance then, in the absence of the most compelling circumstances proven by cogent evidence, such advance approval is very unlikely."

19. All the issues at trial in the present petition stem from the alleged wrongful conduct of the 2nd Respondent in the affairs of the company in his capacity as the controlling shareholder and/or the director and chairman. His obvious and understandable desire for the company to use its resources to oppose the winding-up of the company is precisely the situation which the clear principle of law is designed to prevent.

20. On the company's behalf Mr Miu, in seeking to resist the direction sought, relies on the costs order made by Rogers J. (as he then was) on October 29th 1996 which includes the following :-

"1. Notwithstanding the presentation of the Petition herein, the payment of all necessary legal costs and disbursements (on a solicitors and client basis) out of the funds of the 1st Respondent to its legal advisers in respect of legal services rendered for the following purposes, namely:-

(a) ......

(b) the preparation for, and the attendance and conduct of the hearing of the Petition including in particular the study and preparation of evidence, pleadings and/or affidavits and affirmations in connection thereto;

(c) the preparation for, and the attendance and conduct of all interlocutory proceedings in connection with the Petition herein including this Application and all applications made by the Provisional Liquidators concerning the 1st Respondent before and up to the date of this Order;

shall not be void or avoided by virtue of Section 182 of the Companies Ordinance ...."

21. I am satisfied that the inclusion of a direction at this stage of the proceedings, in the terms sought neither conflicts with nor does it purport to amend the above order. The "necessary legal costs" (in para.1, supra) are those which flow from passive involvement in the conduct of the petition from now on.

22. In order to carry out their limited role, it will clearly be necessary for the company to keep up to date with the progress of the hearing. To this end it would be an allowable cost for the company's solicitors to arrange for a member of their staff to attend the hearing to take a note of the proceedings. Alternatively they could pay for the daily transcript.

Representation:

Mr Philip Heslop Q.C. leading Mr Anderson Chow, inst'd by M/s Herbert Smith, for the Petitioner

Mr Nelson Miu, inst'd by M/s Wilkinson & Grist, for the 1st Respondent

Mr Chim Pui-chung, 2nd Respondent, appearing in person