Hui Yin Sang and Another v. Tsoi Ping Kwan and Another

CACV 208/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 208 OF 2011

(ON APPEAL FROM HCA NO. 392 OF 2008)

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BETWEEN

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Before: Hon Fok JA and Bharwaney J in Court

Date of Hearing: 29 March 2012

Date of Handing Down Judgment: 19 April 2012

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Hon Fok JA:

1.By her Decision handed down on 21 July 2011, Deputy High Court Judge Mimmie Chan dismissed the application of the 1^st and 2^nd defendants (D1 and D2 respectively) for an order for security for costs against the 3^rd and 4^th plaintiffs (P3 and P4 respectively). This is D1 and D2’s appeal against that decision.

The background

2.There are four plaintiffs in this action.  The 1^st plaintiff (P1), Mr Hui Yin Sang, is a shareholder of P3 and its sole director.  The 2^nd plaintiff (P2), Mr Wong Wai, is a shareholder of P4 and its sole director.  Both P3 and P4 are companies incorporated and registered in the BVI.  They were acquired and held by P1 and P2 respectively for the main if not sole purpose of holding shares in New Land Holdings Limited (D4).

3.D4 is also a BVI company within a corporate structure devised for P1, P2 and D1 to hold a property development project in Shanghai, known as the New Land Plaza.  D4 holds all the shares in another BVI company, Catford Development Limited (D3), which in turn holds the shares in a PRC company called Shanghai New Land.

4.Shanghai New Land owns the land rights in the New Land Plaza project.  P3 and P4 have brought these proceedings as a derivative and multiple derivative action on behalf of D3 and D4 respectively.

The basis of the application to the Judge and her decision

5.The application for security for costs below was put, first, on the basis that P3 and P4 are ordinarily resident out of the jurisdiction (RHC O.23 r.1(1)(a)) and, secondly, on the basis that P3 and P4 are nominal plaintiffs suing for the benefit of some other person and that there is reason to believe they will be unable to pay the costs of D1 and D2 if ordered to do so (RHC O.23 r.1(1)(b)).

6.The Judge decided that P3 and P4 are not ordinarily resident out of the jurisdiction within the meaning of O.23 r.1(1)(a).

7.As to the application under O.23 r.1(1)(b), the Judge did not consider P3 and P4 to be nominal plaintiffs suing for the benefit of some other person, within the meaning of the rule, and furthermore, was not satisfied that it was established that there was reason to believe that P3 and P4 would be unable to pay the costs of D1 and D2 if ordered to do so.

Leave to appeal

8.The order refusing security for costs being interlocutory, D1 and D2 were required to seek leave in order to appeal against that order and they duly applied to the Judge for such leave.

9.By her Decision dated 30 September 2011, it would appear that the Judge was prepared to grant leave to appeal in relation to the application under O.23 r.1(1)(b) but not O.23 r.1(1)(a).[1] This would have been an instance of the Judge granting leave “in respect of a particular issue arising out of the interlocutory judgment or order” under the power contained in s. 14AA(3)(a) of the High Court Ordinance (Cap. 4).

10.However, notwithstanding that indication, the order as drawn up and sealed simply provides that it is ordered as follows, namely:

“Leave to the 1^st and 2^nd Defendants to appeal, with costs of the application for leave in the [cause] of the appeal.”

11.Since the Judge’s order does not expressly limit the appeal to a particular issue or issues and was not the subject of an application to correct it in accordance with the Decision and since P3 and P4 did not take objection to the competency of the appeal of D1 and D2 in respect of O.23 r.1(1)(a), we were prepared to hear this appeal on the basis that leave to appeal in relation to the application under both O.23 r.1(1)(a) and O.23 r.1(1)(b) was granted by the Judge.

The issue in this appeal

12.Ironically, in the light of the Judge’s Decision on leave to appeal, at the outset of the hearing before us, Mr Johnny Mok SC, leading counsel for D1 and D2, indicated that he would not argue the appeal on the basis of O.23 r.1(1)(b) since he found the submissions for P3 and P4 on that issue to be convincing and agreed with their conclusion.  Thus, the only issue argued before us on the appeal was the question of whether the Judge was correct in her conclusion that P3 and P4 are not ordinarily resident out of the jurisdiction for the purposes of O.23 r.1(1)(a).

The Judge’s analysis of whether P3 and P4 are ordinarily resident out of the jurisdiction

13.On the issue of whether P3 and P4 are ordinarily resident out of the jurisdiction, the Judge approached the question of the residence of a limited company by reference to the location of its central management and control, applying Insurance Co of the State of Pennsylvania v Grand Union Insurance Co Ltd & Another [1988] 2 HKLR 541.

14.The Judge applied the propositions derived from the judgment of Lindsay J in Re Little Olympian Each Ways Ltd [1995] 1 WLR 560 which were considered and applied by Keith J (as he then was) in Charter View Holdings (BVI) Ltd v Corona Investments Ltd & Another [1998] 1 HKLRD 469, namely:

(1)  The mere assertion of where the company’s central management and control is located is unsatisfactory.  What is needed are the primary facts on which that assertion is based.

(2)  All the circumstances in which the company carries on its business should be taken into account, though the weight to be applied to each factor will differ from case to case.  Those factors include:

(a)   the provisions of the company’s objects clause,

(b)  the place of incorporation,

(c)  the place where the company’s real trade and business is carried on,

(d)  the place where the company’s books are kept,

(e)  the place where the company’s administration is carried out,

(f)  the place where the directors with power to disapprove of local steps or to require different ones to be taken themselves meet or are resident,

(g)  the place where its chief office is or where the company secretary is to be found, and

(h)  the place where its most significant assets are.

(3)  In applying the test to a non-trading company, it may be more important to have regard to the nature of the company’s corporate activities.

15.The Judge noted that the determination of the residence of a company is essentially a question of fact and that the question is to be decided on the facts and evidence available in each case.

16.She contrasted cases such as Re Charter View Development Ltd, HCCW 45/2006, unrep., 21.12.06 and Charter View Holdings (BVI) Ltd v Corona Investments Ltd & Another, where the court held that the relevant foreign-incorporated company was not ordinarily resident in Hong Kong, with cases such as Jade Harbour Ltd v Eltones Profits Ltd [2005] 3 HKLRD 158, where the court held that the BVI company was ordinarily resident in Hong Kong.

17.She also considered D1 and D2’s reliance on the decision in Silver Stone Development Ltd v Lau Kwong Ching, James, HCA 2206/2000, unrep., 27.6.02 in which the court held that the BVI company was resident outside the jurisdiction but rejected the invitation to base the determination of ordinary residence of the company on the sole factor that the sole reason for the existence of the BVI company was the holding of the shares in and the exercise of the rights of a registered shareholder of the company out of the jurisdiction of Hong Kong, for tax or other benefit or reason.

18.After examining the evidence in respect of P3 and P4, to which I shall refer below, the Judge concluded that the facts were distinguishable from the cases of Re Charter View Development Ltd, and Charter View Holdings (BVI) Ltd v Corona Investments Ltd & Another.  She concluded:

“17. I accept that the different factors set out in Lindsay J’s judgment in Re Little Olympian Ltd. can carry different weight in the consideration of the test of the ordinary residence of the company. Even after giving due weight to the fact that Shanghai Consultants and Direct Properties were acquired for no other apparent reason than the holding of and the exercise of the rights in the shares in New Land Holdings and Catford offshore, when the other factors of where the shareholders and directors ordinarily reside and meet, and where the companies’ books and registers are kept are considered, I come to the conclusion that the most that can be said, on the evidence available in this case, is that the offshore and the Hong Kong elements are equal on the balance. On that basis, it cannot be said that Tsoi and Lam have discharged their burden of showing that Shanghai Consultants and Direct Properties are not ordinarily resident in Hong Kong.”

The evidence relating to P3 and P4

19.It is helpful to start by setting out the paragraphs of the Judgment below which summarised the relevant evidence, set out in the affirmations of P1 (Hui) and P2 (Wong) respectively, concerning P3 (Shanghai Consultants) and P4 (Direct Properties):

“11. On the evidence produced in this case, despite the fact that Shanghai Consultants and Direct Properties had been st[r]uck off the register in the BVI in 1999, allegedly due to the wrongful acts of Tsoi who was hitherto responsible for maintaining and managing the BVI companies, the companies were restored by Hui and Wong respectively in January 2009. The evidence of Hui is that he had come to Hong Kong from the Mainland in 1976, was married in Hong Kong in 1982, and now resides with his wife in Hong Kong at a property purchased by him and registered in his wife’s name. Hui has 2 sons who live in Hong Kong. He has a permanent Hong Kong identity card, is a Hong Kong permanent resident, and holds a bank account in Hong Kong.

12. Hui claims that the shares in Shanghai Consultants are held by himself and his elder sister, and accepts that Shanghai Consultants’ only activity is to hold the investment in the Project. Hui claims that he controls and manages Shanghai Consultants in Hong Kong, and that all the board resolutions of Shanghai Consultants were passed in Hong Kong. Its books and statutory records are kept by Hui in Hong Kong. Its corporate secretary is a Hong Kong company, with a Hong Kong address at Lippo Centre. Meetings of the shareholders of Shanghai Consultants are conducted by Hui and his sister in Hong Kong.

13. According to the evidence of Wong, the shares in Direct Properties are held by Wong and his nephew (‘Lai’). Wong is the sole director of Direct Properties, and a permanent Hong Kong resident. He came to Hong Kong from the Mainland in 1978 with his wife and 2 sons. Wong's eldest son carries on business in Hong Kong, and his younger son is studying at a university in Hong Kong. Wong and his family reside at a property rented in Wong’s name. Wong currently works in Hong Kong.

14.  Wong claims that Direct Properties is solely managed by him in Hong Kong. The only function and activity carried on by Direct Properties is to hold the investment in the Project. According to Wong, Direct Properties is controlled and managed by him in Hong Kong. All directors’ resolutions are passed in Hong Kong. The books and statutory records of Direct Properties are kept by Wong in Hong Kong, with the same company secretary as Shanghai Consultants. According to Wong, meetings of the shareholders of Direct Properties are conducted by Wong and Lai in Hong Kong.”

The submissions of D1 and D2 in support of the appeal

20.On behalf of D1 and D2, Mr Mok did not dispute that the ordinary residence of a company is decided by reference to the location of its central management and control.  However, he referred to the third of Lindsay J’s above-mentioned propositions, namely that, in the case of a non-trading company, it may be more important than would otherwise be the case to have regard to the nature of the company’s corporate activities.

21.He submitted that, when the test is applied to an offshore non-trading holding company owned and controlled by Hong Kong residents (such as P3 and P4 in this case), little weight should be given to the place of residence and activities of those individuals owning and controlling such offshore company.  Instead, predominant weight should be given to the nature and purpose of such offshore companies as holding companies incorporated outside Hong Kong.

22.Mr Mok relied on the decision of Keith J in Charter View Holdings (BVI) Ltd v Corona Investments Ltd & Another where he held that the plaintiff company, a BVI company owned and controlled by a Hong Kong resident, was ordinarily resident out of the jurisdiction since: (a) it was incorporated out of Hong Kong, (b) its company secretarial functions were presumably carried on out of Hong Kong, (c) it was not clear where its books were kept, and (d) it was not registered under Part XI of the Companies Ordinance (Cap. 32).  Keith J (as he then was) observed (at p. 472D) that:

“… to say that a non-trading company is managed and controlled in Hong Kong, simply because that is where its sole director and shareholder lives and where it has a name-plate , is in my view disingenuous …”.

23.Mr Mok also relied on Silver Stone Development Ltd v Lau Kwong Ching, James in which Deputy High Court Judge Muttrie similarly considered (at §§9-12) that it was disingenuous to regard investment holding companies set up in an offshore tax haven (such as the BVI) for tax or other benefits as resident in Hong Kong even if the individuals behind them live in Hong Kong and keep their corporate documents in Hong Kong.

24.Mr Mok submitted that it was the whole purpose of such persons to control the company from Hong Kong but to enjoy all the benefits of holding assets through offshore companies, including tax advantages and anonymity.  Such companies did not fall within the ambit of s. 357 of the Companies Ordinance[2] and so, if a BVI company were readily held to be ordinarily resident in Hong Kong, it could escape having to provide security for costs even if insolvent.

25.Reliance was also placed on the decision of Kwan J (as she then was) in Re Charter View Development Ltd, who endorsed the above views of Keith J and Deputy Judge Muttrie, in holding that:

“20. … for a non-trading company, the court does recognise that it may be more important than would otherwise be the case to have regard to the nature of the company’s corporate activities … .

21. As a holding company, the reason for the petitioner’s existence is to hold its shares in the Company and in any other company for its shareholder or shareholders in the jurisdiction of Liberia. The real business of the petitioner is in its place of incorporation, where it ‘keeps house’.”[3]

26.Similarly, Kwan J’s above approach was followed in the recent case of A REvans Capital Partners Ltd v Novel Alternative Investment Ltd, HCMP 1991/2011, unrep., 16.2.12, in which Deputy Judge P Ng SC concluded that an offshore holding company which had not applied for registration under Part XI of the Companies Ordinance until shortly before the hearing was not ordinarily resident in Hong Kong (see §§17, 18 and 37).

27.Mr Mok submitted that these authorities clearly demonstrated that for an offshore non-trading investment holding company, the purpose of such company as an offshore investment holding vehicle is of unique significance and should take precedence over other formalistic factors for the purpose of determining whether such company is ordinarily resident out of Hong Kong within the meaning of O.23 r.1(1)(a).

28.This was the approach which we were invited by Mr Mok to endorse, as being most just and in accordance with the purpose and effect of O.23, the object of which was to avoid difficulty in recovery of costs, should a plaintiff be unsuccessful in his action.[4] It was contended that this is an approach which is not only supported by the line of authorities cited but it is also necessary in the light of an undesirable lacuna in the existing statutory rules whereby an impecunious overseas incorporated company, which had established ordinary residence in Hong Kong, could not be required to provide security for costs either under s. 357 of the Companies Ordinance (because of the reason set out in FN2 above) or under O.23 r.1(1)(a) (because it was not ordinarily resident outside the jurisdiction).  It was submitted that the Courts should act vigilantly to scrutinise any claim made by an offshore non-trading investment holding company that it is ordinarily resident in Hong Kong to ensure that such company did not take unfair advantage of that lacuna to avoid giving security for costs.

29.As for the case of Jade Harbour Ltd v Eltones Profits Ltd [2005] 3 HKLRD 158, Mr Mok contended that this case was not in fact concerned with an offshore non-trading company but rather with a company which was used to subscribe for a convertible bond issued by a company proposed to be listed in Hong Kong.  As such, it was submitted, this case is distinguishable from the line of cases relied upon above.

30.Mr Mok submitted that in the present case the following facts were significant, namely that:

(1)  P3 and P4 were intentionally set up in the BVI by P1 and P2 respectively for the sole purpose of holding their respective interests in the Shanghai Project through a corporate structure;

(2)  Not only is the Shanghai Project located outside Hong Kong, the other companies involved in the corporate structure for holding the Shanghai Project are all incorporated in jurisdictions outside Hong Kong with no presence in Hong Kong;

(3)  Despite the assertion that P3 and P4 are ordinarily resident in Hong Kong, neither had been registered under Part XI or the Business Registration Ordinance; and

(4)  Although the Register of Members and Register of Directors of P3 and P4 are said to be respectively kept by P1 and P2 in Hong Kong, it is expressly provided in their respective Register of Members and Register of Directors that “the original or copy of [the Register] must be kept at the office of the Company’s registered agent”, i.e. in the BVI – hence, it was submitted that this showed P3 and P4 must keep house in the BVI.

31.It was submitted that the Judge, in deciding the issue in favour of P3 and P4, had given undue weight to the factor that the companies were owned and controlled by residents in Hong Kong.  It was further submitted that, had the Judge adopted the correct approach set out above, she would have reached the correct conclusion that P3 and P4 are ordinarily resident outside Hong Kong within the meaning of O.23 r.1(1)(a).

The submissions for P3 and P4

32.For his part, Mr Nigel Aiken SC, leading counsel for P3 and P4, contended that the Judge below had applied the correct principles and adopted the approved approach based on Lindsay J’s propositions in Re Little Olympian Each Ways Ltd. as applied in Hong Kong in Charter View Holdings (BVI) Ltd v Corona Investments Ltd & Another.

33.He submitted that the Judge was conscious of D1 and D2’s attempt to grade those propositions in order to give some more weight than others.  It remained, he submitted, the approach of D1 and D2 in this Court to try to treat some factors as more important than others, namely the fact that the sole reason for the use of a BVI company was the holding of shares in and the exercise of the rights of a registered shareholder of the company out of the jurisdiction of Hong Kong for tax or other benefit or reason.

34.Mr Aiken submitted that the Judge was entitled to reject that suggested approach as a matter of principle and that she was entitled to consider all the evidence and not be bound to give one aspect more weight than others.  It was submitted that the Judge had properly considered the facts of the present case against the background of the other cases cited to her and, having arrived at the decision that the competing arguments on the evidence were equally balanced, she was bound to decide, as she did, that D1 and D2 had failed to prove that P3 and P4 were ordinarily resident outside Hong Kong.

35.It was not the time or place, submitted Mr Aiken, to re-write the established test for determining the ordinary residence of a company by reference to the place where its central management and control was located.  He submitted that an acceptance of Mr Mok’s suggested approach would be to adopt a wholly different test. It would mean that it would be impossible to demonstrate that an overseas incorporated non-trading company was ordinarily resident in Hong Kong and that all the other considerations which courts have held to be relevant would fall away.  That would be a significant change of substance to the law and ought to be achieved by way of amendment to s. 357 of the Companies Ordinance or to O.23 r.1(1)(a).

Was the Judge in error?

36.As the Judge rightly held (Judgment §7), the determination of the residence of a company is essentially a question of fact and is to be decided on the facts and evidence available in each case.

37.The applicable test is that laid down in Insurance Co of the State of Pennsylvania v Grand Union Insurance Co Ltd & Another, in the application of which the propositions in Re Little Olympian Each Ways Ltd and Charter View Holdings (BVI) Ltd v Corona Investments Ltd & Another are relevant, and there can be no doubt that the Judge had due regard to that test and those principles (Judgment §§4 to 6).

38.In addition, the Judge was aware of the fact that P3 and P4 were non-trading companies and that their position was therefore distinguishable from that in Jade Harbour Ltd v Eltones Profits Ltd (Judgment §8).  She was aware that it was not disputed that P3 and P4 were not registered under Part XI of the Companies Ordinance or under the Business Registration Ordinance and that their only function was to hold their interests in the property development project through D3 and D4, the project being outside Hong Kong (Judgment §9).

39.In relation to the first proposition of Lindsay J, mere assertion of the location where it is said the company’s central management and control is situated is insufficient.  Evidence of the primary facts on which such a contention is based is required.  In the present case, the Judge summarised those primary facts by reference to the evidence given by P1 and P2 (Judgment §§11 to 14, set out above).  There is no suggestion that she disbelieved or rejected any of that evidence; on the contrary, her conclusion suggests she accepted it.

40.Lindsay J’s second proposition makes it clear that all the circumstances in which the company carries on its business should be taken into account.  It is true that the proposition includes the concept that different weight may be applied to each factor from case to case.  There is nothing startling in this approach.  In the case of a company whose directors hold board meetings in Hong Kong but who live elsewhere, for example, the connection of the company to Hong Kong as the place where its board meetings are held may carry less weight.  On the other hand, a company whose directors are all resident overseas may yet be held to be resident in Hong Kong if all its assets are located here.

41.The third proposition is but a specific example of the above process of reasoning.  In the case of a trading company, the place where its trading activities take place (where it “does business”) will be a factor in favour of its residence in that place.  But in the case of a non-trading company, it will be necessary to look more closely at the corporate activities (where it “keeps house”) in order to arrive at a correct decision as to where the company’s central management and control is located.  One is looking to determine what is being centrally managed and controlled, in order to determine where it is being so managed and controlled.

42.The examples I have given merely serve to illustrate the fact that the weight to be accorded to any particular factor in any given case is a matter of judgment in the circumstances of that case and that there is no fixed hierarchy of factors, some with more weight and others with less.  Furthermore, it is clear, from paragraph 17 of the Judgment, that the Judge was aware of the fact that different factors can carry different weight in the consideration of the test of ordinary residence of a company.

43.Similarly, reference to other cases may be helpful but each case turns on its own facts and therefore care must be taken not to treat the cases as if they create checklists of criteria, the existence of which is then said to lead in another case to the conclusion that the particular company is or is not ordinarily resident in Hong Kong.

44.I would therefore reject the submission made on behalf of D1 and D2 that there is a principle, emerging from the cases of Charter View Holdings (BVI) Ltd v Corona Investments Ltd & Another, Re Charter View Development Ltd, Silver Stone Development Ltd v Lau Kwong Ching, James and A R Evans Capital Partners Ltd v Novel Alternative Investment Ltd, that the purpose of an offshore non-trading investment holding company is a factor of unique significance which should take precedence over other factors for the purpose of determining whether the company is resident in Hong Kong or not.  That submission is tantamount to a submission that the place of incorporation of a company is where it is ordinarily resident, and it has long been recognised that the concept of residence of a company is entirely different from that of domicle: see per Stone J in Akai Holdings Ltd v Ernst & Young [2008] 5 HKLRD 133 at §41.  Moreover, as Lindsay J’s second proposition makes clear, the place of incorporation of a company is but one of the factors to be taken into account.

45.I also do not accept the submission made by Mr Mok that his suggested approach does not amount to a re-writing of the test of central management and control.  His suggested approach was to give weight to the factors identified in Lindsay J’s second proposition depending on whether they accorded with the purpose of O.23 (namely to avoid difficulty in the recovery of costs), so that if the particular factor aided the recovery of costs against the company, more weight should be attached to it, but if it increased the difficulty in recovering costs, less weight should be attached to it.  But it seems to me that this would be a significant re-writing of the applicable test and would be to confuse the purpose of the test for determining residence of a company, by reference to its central management and control, with the question of whether it is amenable to having a costs order enforced against it.

46.It is important to bear in mind, in the context of O.23, that:

“The purpose of ordering security for costs against a plaintiff ordinarily resident outside the jurisdiction is to ensure that a successful defendant will have a fund available within the jurisdiction of this court against which it can enforce the judgment for costs. It is not, in the ordinary case, in any sense designed to provide a defendant with security for costs against a plaintiff who lacks funds. The risk of defending a case brought by a penurious plaintiff is as applicable to plaintiffs coming from outside the jurisdiction as it is to plaintiffs resident within the jurisdiction.”

(Per Sir Nicholas Browne-Wilkinson VC (as he then was) in Porzelack KC v Porzelack (UK) Ltd [1987] 1 WLR 420 at p. 422H – cited in Akai Holdings Ltd v Ernst & Young (2009) 12 HKCFAR 376 at §14).

47.Therefore, once one acknowledges, as in my view I consider one must, that impecuniosity alone is not sufficient to make a Hong Kong-resident plaintiff liable to provide security for costs under O.23, it cannot be right to apply the suggested approach of Mr Mok to the weighting to be given to the factors identified in Lindsay J’s second proposition when applying them in order to determine if a particular company is or is not ordinarily resident in Hong Kong.

48.As to the cases relied upon by Mr Mok, there are features in each of those cases distinguishing them from the present case.  Thus, in contrast to the evidence of P1 and P2 concerning the administration of P3 and P4 in this case, in Charter View Holdings (BVI) Ltd v Corona Investments Ltd & Another, the company’s secretarial functions were assumed to be carried on out of Hong Kong and the company was reticent in disclosing what its assets were, where its books were kept and where its administration was performed.  In Re Charter View Development Ltd, Kwan J noted that the books and records of the petitioner were kept in Liberia, whereas P3’s and P4’s books and records are kept by P1 and P2 respectively in Hong Kong.  The only reason for the petitioner’s existence in Re Charter View Development Ltd was to hold shares for its shareholders in Liberia and that was the real place of its business, where it kept house.  Unlike the present case, there is no indication that there was any evidence in Silver Stone Development Ltd v Lau Kwong Ching, James as to the place where shareholders’ and directors’ meetings took place or where the company’s books and records were kept.  Similarly, in A REvans Capital Partners Ltd v Novel Alternative Investment Ltd there was no evidence, as there is in the present case, that shareholders’ and directors’ meetings took place in Hong Kong.

49.It is clear from the way the Judge expressed herself that she did not consider the evidence pointed clearly one way or the other.  On the contrary, she expressly found that “the offshore and the Hong Kong elements are equal on the balance” and that, since the burden lay on D1 and D2 to establish that P3 and P4 were resident outside Hong Kong, they had not discharged that burden.  We share the Judge’s view that it is not easy to arrive at an answer to the question of where the central management and control of P3 and P4 is located.  However, insofar as she arrived at a finding of fact, by reference to the burden of proof, that P3 and P4 were not shown to be resident outside Hong Kong, we do not consider that she was in error as contended by D1 and D2.

50.I would add that, insofar as the result of holding P3 and P4 to be not ordinarily resident out of the jurisdiction is that they are not liable to provide security for costs under O.23 r.1(1)(a) but are also immune from the provisions of s. 357 of the Companies Ordinance, the solution to the perceived anomaly[5] is to amend one or other of O.23 r.1(1)(a)[6] or s. 357 of the Companies Ordinance[7].

Conclusion

51.For these reasons, I would dismiss the appeal of D1 and D2.

52.As to costs, I would make an order nisi that D1 and D2 pay the costs of P3 and P4 of the appeal, such costs to be taxed (if not agreed) and paid forthwith, with a certificate for two counsel.

Hon Bharwaney J:

53.I agree with the judgment of Fok JA and with the proposed orders.

Mr Nigel Aiken SC and Mr Tony Ko, instructed by Wilson Yeung & Co., for the 3^rd & 4^th Plaintiffs/Respondents

Mr Johnny Mok SC and Mr Anson Wong, instructed by Yuen & Partners, for the 1^st & 2^nd Defendants/Appellants

[1]   See the Judge’s Decision dated 30 September 2011 at §§1-5.

[2]   Because s. 357 only applies to “a company formed and registered under this Ordinance or an existing company” (the latter being those created under earlier Companies Ordinances) and does not apply to overseas companies: see Insurance Co of the State of Pennsylvania v Grand Union Insurance Co Ltd & Anor at p. 544E-F.

[3]   The concept of keeping house is one which derives from Lord Loreburn’s test of the place of residence of a limited company for tax purposes in De Beers Consolidated Mines Ltd v How [1906] AC 455.

[4]   See Insurance Co of the State of Pennsylvania v Grand Union Insurance Co Ltd & Another at p. 543F and Akai Holdings Ltd v Ernst & Young (2009) 12 HKCFAR 376 at §14.

[5]   Per Cons VP in Insurance Co of the State of Pennsylvania v Grand Union Insurance Co Ltd & Another at p.544H.

[6]   As suggested by Chan PJ in Akai Holdings Ltd v Ernst & Young at §42.

[7]   As suggested by Cons VP in Insurance Co of the State of Pennsylvania v Grand Union Insurance Co Ltd & Another at p.544I.