Grande Holdings Ltd v. Christopher Ho Wing on

HCA 565/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 565 OF 2013

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REASONS FOR DECISION

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1.The plaintiffs commenced this action on 10 April 2013 but are yet to serve the writ on the d444efendants. This was the defendants’ application for dismissal of the action. At the end of the hearing, I dismissed the summons with costs. As indicated, I now give my reasons.

BACKGROUND

2.Grande Holdings Limited (“Grande”) was incorporated in the Cayman Islands and subsequently re-domiciled to Bermuda.  It was the holding company of a group comprising almost 100 companies across more than 10 jurisdictions as at 2011.  Grande was listed on the Stock Exchange of Hong Kong in 1987.  Trading of the shares was suspended in May 2011 by the management upon the presentation of a creditor’s petition for winding up.  The claims by the 2 groups of creditors exceed HK$1,860 million and US$47 million respectively.

3.The provisional liquidators (“PLs”) were accordingly appointed.  Since then, the PLs apparently took the view that restructuring Grande with a view to its resuming trading in the stock exchange would probably give the greatest chance of recovery to the creditors.  The petition has since been adjourned to enable this to materialise.

4.On 10 April 2013, Grande and the other plaintiffs commenced the present action.  This is a protective writ, with a view to preserving the various potential causes of action that the plaintiffs may have against the various defendants on the basis of the company accounts and report that allegedly came to light in April 2007.

5.Aware of the commencement of the present action, the defendants, through solicitors, demanded that the plaintiffs served the writ.  Correspondence ensued; and both sides considered that the other side failed to justify the stance taken.

6.By summons dated 3 July 2013, the defendants applied for the dismissal of the action or such order as the court thinks fit.  The summons was taken out pursuant to O.12, r.8A of the Rules of the High Court.

7.On 3 September 2013, the Company was wound up by the order of the court: see written judgment in HCCW 177/2011, per Deputy High Court Judge Le Pichon.

DISCUSSION

8.At the hearing, Mr Man for the defendants did not seek dismissal of the action but direction that the writ should be served within 42 days.  He accepted that such (alternative) position was not spelt out in the correspondence between the parties.

9.Pursuant to O.6, r.8(1), the writ is valid for service within 12 months from the date of issue in the first instance.  This will expire 9 April 2014 in the present case.

10.However O.6, r.8 does not give the plaintiff the right to insist that the writ need not be served so long as it is still valid for service.  Hence O.12, r.8A in the following terms:

“(1) Any person named as a defendant in a writ which has not been served on him may serve on the plaintiff a notice requiring him within a specified period not less than 14 days after service of the notice either to serve the writ on the defendant or to discontinue the action as against him.

(2)        Where the plaintiff fails to comply with a notice under paragraph (1) within the time specified the Court may, on the application of the defendant by summons, order the action to be dismissed or make such other order as it thinks fit……”

11.This is the discretion of the court.  Each case must be decided in its own circumstances.

12.Counsel only managed to locate a single authority on the exercise of discretion under the rule, which was the transcript version of the decision of District Judge Carlson (as he then was) in Chan Tsz Fung v China Airlines Ltd, DCPI 224/2001 (26 February 2002).  Suffice it to say that the circumstances of that case differed too much from the present one to be of significant assistance here.

13.In line with the terms of O.12, r.8A, it is the burden of the defendant, as the applying party, to satisfy the court that the action should be dismissed or any other order should be made for the very reason that the plaintiff refuses to serve the writ despite the plaintiff’s notice.  The defendant has to satisfy the court that the circumstances of the case call for the court’s intervention, notwithstanding that the time for service of the writ is yet to expire.  This the defendant has to do by way of an affidavit verifying the factual basis of the application pursuant to O.12, r.8A(3).

14.Having stated what I believe the approach in an application like this should be, I proceeded to consider the circumstances of the parties.

15.On behalf of the defendants, the major arguments were that the defendants would suffer prejudice as a result of the writ hanging over their heads; and that the underlying objectives of the rules of court call for the expeditiousness in litigation and thus active case management.

16.According to the defendants’ affirmation in support, the writ is accessible to the public.  Therefore the writ endorsed with causes of action based on serious allegations against the defendants might cause them prejudice and hardship.  It was suggested that the defendants might encounter difficulty if they want to apply for director positions and senior positions in listed companies and large private companies (since declaration of the presence of the action would be expected).  The premiums payable for the director and officer insurance cover might also be higher than would ordinarily be the case.  The defendants’ further affirmation added nothing substantial in this respect.

17.What the defendants suggested was potential prejudice that the presence of a legal action might bring to them.  Mr Man accepted that he could not go beyond the parameter of the affirmations.

18.A person carrying on business or trade or profession will probably find the fact that he or she is named as a defendant in an action is undesirable or damaging in some way, whether to reputation or business.  However, I do not think that the suggestion of potential prejudice of that sort and extent, which could well be said to somehow arise in any given case, suffices for the purpose of O.12, r.8A.

19.To discharge the burden as the applying party, the defendant need to satisfy the court that it is not just for the plaintiff to withhold the service of the writ or to do so any further.  As far as prejudice or hardship is concerned, it could be actual or potential; but if it is the latter, it should be imminent or likely instead of merely possible.  Then there is the question of its gravity on the defendant.

20.In the present case, as far as the complaint was that prejudice and hardship stem from the presence of the action, this would not change, unless and until the action is disposed of.  Short of dismissal of the action, the direction for the service of the writ, even if acceded to, will not meaningfully address such complaint.

21.Mr Man submitted that the direction requested would at least get the proceedings going so that at the end of the day delay would still be saved.  As to that, I have my reservation.

22.First, it was not that the plaintiffs have not explained why they were not in a position to serve the writ since April.  In their affirmation, they gave the following explanation in some detail:

(1) As mentioned, Grande’s group comprised almost 100 companies in over 10 jurisdictions.  The companies’ affairs were complex and multifarious.

(2) Since their appointment in May 2011, the PLs have endeavoured to pursue a restructuring of the Company with a view to resuming trading in the Stock Exchange of Hong Kong.  Eventually, winding up could not be prevented; yet this happened only a month ago and after the present application has been taken out.

(3) The PLs were under a duty to secure and to preserve the assets of the Company, including the identification of potential claims against third parties. The claim, now generally endorsed in the writ, against the defendants became one of such potential claims.

(4) Whilst the investigation was still continuing, the action needs to be commenced to avoid future dispute as to limitation (on the basis that the factual basis for the potential causes of action were allegedly known in April 2007).  Hence the protective writ.

(5) The PLs need to continue the detailed analysis of the company accounts before forming a view on whether the same reflect the true state of its financial position.  They also need to assess various complex transactions entered into by the company to determine whether they were genuine transactions.

23.The PLs believe that it is likely that they would be in a position to decide whether there is indeed sound basis for pursuing the claim against any of the named defendants before the expiry of the validity of the writ.

24.The PLs are not litigating for themselves but should do so only if this is in the interest of the creditors.  Hence the necessary investigation and consideration before an informed decision could be made.  There was no suggestion that the PLs have not been genuine in their explanation.  Importantly, according to the PLs, they have regularly reported to the court in the winding-up proceedings concerning the conduct of the provisional liquidation and the allocation of their resources.  Again this was not contradicted for the present purpose.

25.Second, the underlying objectives of the rules of the court set out in O.1A, r.1 do not connote ‘the faster, the better’.  The objectives are cost-effectiveness, expeditiousness as is reasonably practicable, reasonable procedural economy and fairness.  No doubt the direction sought by the defendants would sort of set the proceedings going.  However, in view of the complexity of the matter and the exceptional number of parties involved, I am sceptical that the abovementioned objectives would really be achieved economically, both in terms of time and costs, and fairly, if the plaintiffs are directed as requested when they are not in a position to comply.  It would be counter-productive if such directions were given in the circumstances that would almost certainly necessitate more applications.

26.On the basis of the time table that the PLs have projected, it has occurred to me whether the plaintiffs should be directed to serve the writ on or before the expiry of the validity of the writ.  But such direction would not be meaningful even for the defendants.  In the event that the plaintiffs do not manage to do so, it would then be for them to apply pursuant to O.6, r.8(2); and to satisfy the court that the failure to serve the writ within its validity should be excused and that there are good reasons for extending the validity of the writ.

27.For the above reasons, I dismissed the summons with costs to the plaintiffs in any event.  Miss Lam asked but I did not see sufficient justification for awarding costs on indemnity basis.  I gave directions for the submission of statement of costs for summary assessment of costs on paper.

Miss Rachel LAM, instructed by Lipman Karas for the 1^st to the 65^th plaintiffs

Mr Bernard MAN, instructed by K&L Gates for the 1^st to the 10^th defendants