WONG SZE LING AND ANOTHER v. YOUNG CHEUNG LEE AND OTHERS

HCCW 388/2019

[2021] HKCFI 892

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 388 OF 2019

_______________

_______________

_______________

______________

D E C I S I O N

______________

1.  There is before the Court a summons dated 19 November 2020 issued by the 1^st and 2^nd respondents (together “Rs”) to strike out §§98, 99 and the winding-up relief in prayer (1) of the Petition presented by the petitioners (“Ps”) on 6 December 2019 (as amended pursuant to the order made by this Court on 27 May 2020) (“Amended Petition”). I shall refer to the present summons as the “2^nd Strike out Summons”, given that Rs had previously issued a summons dated 2 March 2020 to strike out §§98, 99 and the winding-up relief in the Petition (“1^st Strike out Summons”), which was withdrawn by Ps in the circumstances described in §§9 to 11 below.

2.  By a joint letter dated 2 February 2021, the solicitors for Ps and Rs agreed that the 2^nd Strike out Summons should be determined on papers, thereby waiving their right to an oral hearing.  On 3 February 2021, Godfrey Lam J gave directions for the parties to file their written submissions.

A.      BACKGROUND

3.  Shing Tai Ginseng Company Limited, the 3^rd respondent herein (“Company”), was incorporated in Hong Kong in 1993 to carry on the business of buying and selling ginseng and other dried seafood.  Since its incorporation, the shareholding of and the positions held by Ps and Rs have always been equal in that:

(1)  Ps hold 50% shares, with 40% held by the late Mr Young Cheung Chin (2^nd petitioner) (“Deceased”) and 10% held by his wife, Ms Wong Sze Ling (1^st petitioner) (“P1”);

(2)  Rs hold 50%, with 40% held by Mr Young Cheung Lee (1^st respondent) (“R1”) and 10% held by his wife, Ms Kung Pui Shuen;

(3)  Each camp has one representative on the board: R1 and the Deceased had been the only 2 directors of the Company until the latter’s demise on 31 October 2018, and P1 was appointed as director on 10 January 2019;

(4)  Each camp has equal right to act as authorised signatories of the Company’s bank accounts: The Deceased and R1 had been the authorised signatories of all bank accounts until the Deceased requested to add his son, Mr Young Chun Wai (“Ps’ Son”) as an authorised signatory of the Company’s accounts with 3 banks[1] in 2016.  After P1’s appointment as director, she and Mr Young Chun Wah (the son of Rs) were added as authorised signatories of the account with Bank of Communications and all payments required to be approved by a signatory from each camp.  

4.  It is Ps’ case that the Company has always been managed on the bases of personal relationship of mutual trust and confidence and the “Mutual Understanding” between Ps and Rs to the effect that each camp has equal right and authority in relation to the Company’s business, decisions and assets. Since 2016, the relationship between Ps and Rs has broken down owing to the discovery of the alleged “misconduct” which included[2]:

(1)  R1 had used the blank cheques pre-signed by the Deceased or Ps’ Son to make payments on behalf of the Company, without seeking the consent of the Deceased or Ps’ Son or providing supporting documents to them (§§27-31);

(2)  P1 has been excluded from the management of the Company’s affairs and has not been provided with the keys to the Company’s office and shop, such that she has not been able to have access to the Company’s documents, goods or chattels or to check the stocks kept therein (§§36-44);

(3)  P1 has been denied of access to the books and accounts of the Company (§§45-46);

(4)  Since P1’s appointment as director, no board meeting or general meeting has been held (§§47-50);

(5)  In March 2019, Ps engaged SHINEWING (HK) CPA Limited (“Shinewing”) to carry out preliminary stock taking which resulted in a “Report on Agreed-up Procedure” in respect of the Company (“Preliminary Report”).  In the Preliminary Report, it was stated that (i) the Company had purchased stocks suspected to be of endangered species; (ii) there were discrepancies between the quantities of the inventories recorded in the stock list and the actual inventories kept by the Company; and (iii) there were 2 “dubious” payments in the aggregate amount of $796,000 to alleged suppliers (§§51-71);

(6)  Ps have since 2015 been deprived of the right to receive dividend (§§72-73);

(7)  R1 unilaterally increased the staff’s salaries by 12-24% without the consent of P1 and the Company did not have employment contracts with its employees (§§74-75);

(8)  Since April 2019 when P1 visited the Company and raised the alleged “misconduct” with R1, she has not been asked to sign any cheque for the Company.  Instead, R1 had instructed the staff not to deposit the cash received from the sale into bank accounts such that it could be used to settle payments for purchase of goods.  R1 had opened an account for the Company with Bank of China and operated that account on his own.  In so doing, R1 has misappropriated the Company’s funds and P1 has been kept in the dark (§§76-82);   

(9)  Despite her appointment as administratrix of the estate of the Deceased, R1 refused to register the 40% shares held by the Deceased in the name of P1 (§§83-86);

(10)  R1 has withdrawn and misappropriated $912,500 from the Company’s account at Nanyang Commercial Bank in February, March and September 2019 even though the Deceased was one of the joint authorised signatories required to operate the account (§87);

(11)  R1 has likely forged the signatures of the Deceased in the audited financial statements of the Company for the year ended 31 December 2017 (“2017 Accounts”) and the audit confirmation dated 2 October 2018 in respect of shareholder loans of $6.9 million (§§88A-88B);

(12)  R1 has on 18 July 2019 offered to pay $20 million to purchase (i) Ps’ 50% shares in the Company, (ii) Ps’ interest in a loan of $50 million to a third party (“Third Party Loan”), (iii) the Deceased’s 50% interests in 6 landed properties in Hong Kong, and (iv) the Deceased’s 100% interest in another property in Hong Kong.  Although R1 later increased the offer to $31 million and said that P1 could purchase Rs’ interests at the same price, when P1 offered to purchase Rs’ interests at $31 million, they refused to sell their interests (§§89-95); and

(13)  In January 2019, R1 provided a loan agreement dated 25 June 2018 in respect of the Third Party Loan and 2 handwritten notes which recorded that the Company had advanced loans in the amounts of $10 million and $20 million to the Deceased and R1, but neither of the loans has been recorded in the Company’s audited accounts (§§95A-95D). 

5.  Ps claim that the above “misconduct” was “fraudulent, unlawful and/or improper” and constituted a breach of fiduciary duties owed by R1 to the Company and, consequently:

(1)  there was a complete breakdown in the mutual confidence between Ps and Rs in the quasi partnership such that they will not be able to manage the Company jointly (§§88, 96);

(2)  the affairs of the Company have been conducted in an unfairly prejudicial manner and against the interest and legitimate expectation of Ps (§§97, 100);

(3)  Ps are entitled to seek a winding-up order against the Company (§98);

(4)  the Company “pressingly require a full and independent investigation” in respect of the impropriety associated with the 2017 Accounts and the “irregularities” identified in the Preliminary Report.  Unless and until these matters are “thoroughly investigated by an independent liquidator”, it is “impossible” for the Court to ascertain the true and fair value of the financial position of the Company and arrive at a fair value of Ps’ shareholding in the Company for the purpose of making a buy out order (§98A);

(5)  although Ps are not in a position to aver to the solvency of the Company, they rely on R1’s assertion that the Company is solvent and is an going concern and, as such, there will be surplus available for distribution to the shareholders in the event that the Company is to be wound up (§99);

(6)  Rs have not demonstrated that they have the financial ability or sufficient cash to buy out the shares of Ps at a fair price (§99A);

(7)  Ps seek a winding-up order against the Company (prayer (1));

(8)  Alternatively, Ps seek an order that Rs do buy out their shares at a fair value without any discount together with interest and costs of valuation (prayer (2)-(10)); and

(9)  An interim order that the Company shall take all steps to preserve its assets and not to dissipate them save to meet the ordinary expenses of the Company (prayer (11)).

B.      PROCEDURAL HISTORY

6.  The Petition first came before this Court on 23 January 2020 in respect of Rs’ application for a validation order to allow the Company to operate its bank accounts and to carry on its ordinary course of business.  Despite the clear authorities which state that where the petition involves only a dispute between shareholders and the company is solvent and has a valuable ongoing business, a validation order will normally be granted to enable the company to continue its business pending determination of the winding-up petition[3], at the hearing, counsel then representing Ps[4] opposed the application on, inter alia, the ground that the Company was insolvent.  This raised the concern that the Petition was either demurrable or that those advising Ps did not have a proper understanding of the nature of the proceedings in particular, the need to plead solvency of the Company and to demonstrate that Ps have a sufficient interest in seeking a winding-up order against the Company. 

7.  As a result of the unreasonable stance adopted by Ps in rejecting Rs’ proposed validation order following the usual terms of the order made by the Court[5], I ordered the costs of the application against Ps on an indemnity costs.     

8.  Immediately after the hearing, Rs through their solicitors demanded Ps to withdraw their claim for a winding-up order but Ps refused to do so.  On 2 March 2020, Rs filed the 1^st Strike out Summons in these terms:

“Paragraphs 98, 99 and the winding-up relief sought in Relief (1) of the Petition presented on 6 December 2019 be struck out on the alternative grounds that,

(a) the contents of the Petition disclose no reasonable cause of action to wind up the 3^rd Respondent Company, and/or

(b); they amount to an abuse of the process of the court;”

9.  Ps continued to oppose the 1^st Strike out Summons and filed their affirmation on 6 May 2020.  It was only until 25 May 2020 (ie 2 days before the substantive hearing of the 1^st Strike out Summons) when Ps’ new counsel team[6] lodged their submissions that it was indicated, for the first time, that Ps would seek leave to file the Amended Petition so as to put Rs’ “complaints to a complete rest”.  In their Skeleton Argument lodged on behalf of Ps (“Ps’ Skeleton”), counsel submitted that:

(1)  Ps sought a winding-up order for 2 main reasons:

(i)   The alleged misappropriation of the Company’s assets (which involved alleged forgery of the Deceased’s signatures), the serious concern on the accuracy of the Company’s audited accounts and the irregularities identified in the Preliminary Report need to be thoroughly investigated by an independent liquidator (as summarised in §4(1), (5), (8), (10), (11) and (13) above);

(ii)  Rs had not demonstrated that they had sufficient financial resources to buy out Ps’ shares, citing Re T-Hero Industrial Company Ltd [2019] HKCFI 1374, §§28-46, per DHCJ Le Pichon; Re Perfect Trade Limited, HCCW 1147/1999, 1 June 2001, §§59-60, per Chu J (as she then was);

(2)  Where there was a lack of financial information and the petitioner had been shut out from the company’s affairs, it was legitimate for the petitioner to wish to have the affairs of the company properly investigated by an independent liquidator, citing Re Everglory Energy Limited, HCCW 198/2016, 19 January 2017, §§82-85, per Anthony Chan J; Re T-Hero, §§48-49; and

(3)  Where a buy out order would involve the Court embarking on a laborious and expensive process requiring a degree of cooperation between the parties which had hitherto been lacking, it might be prudent to wind up the company and leave the matters to the liquidators to investigate, citing Re Nu-West Natural Products Corp Ltd, HCCW 293/2006, 3 August 2007, §73, per Kwan J (as she then was); Re China International Business Development (Hong Kong) Ltd, HCCW 603/2001, 14 February 2005, §78.

10.  Having considered Ps’ Skeleton, counsel for Rs[7] then lodged their Submissions in Reply dated 26 May 2020 (“Rs’ Reply”), stating that:

(1)  Rs would not pursue the 1^st Strike out Summons, but would ask for costs of the application for amendments of the Petition in the usual way;

(2)  “Paragraph 99 [of the Amended Petition] addresses the original gap of failure to plead that Ps have or would have a tangible interest in the event of winding up while paragraph 99A seeks to cure the defect pointed out by Rs that in the original Petition nothing was pleaded that winding up is an appropriate or the only practical relief”;

(3)  Rs do not take the point of absence of a summons to seek leave to amend the Petition; and

(4)  Rs would seek costs of the 1^st Strike out Summons on an indemnity basis on the grounds that despite the observation of this Court and Rs’ demand, Ps continued to oppose the 1^st Strike out Summons and only sought to amend the Petition 2 days before the substantive hearing.

11.  In light of the stance taken by Rs, at the hearing on 27 May 2020:

(1)  leave was given to Rs to withdraw the 1^st Strike out Summons;

(2)  leave was given to Ps to file the Amended Petition; and

(3)  the costs of and occasioned by the 1^st Strike out Summons were ordered to be paid by Ps to Rs on an indemnity basis. 

12.  The Amended Petition was filed on 1 June 2020.  Between 5 June 2020 and 30 June 2020, Rs demanded Ps to advertise the Amended Petition, as required by rule 29 of the Companies (Winding-up) Rules (“Rules”). In response, Ps’ former solicitors in their letter dated 3 July 2020 said this:

“… in order to advertise the Amended Petition, we need to have a hearing date of the Amended Petition so as to include it in the advertisement. In fact, according to Senior Judicial Clerk II (Insolvency) (Atg), as a result of the GAP the hearing of the Petition will need to be re-advertised anyway when the new hearing date is available, regardless as to whether there has been any amendments to the Petition. As no new hearing date of the Petition has been fixed by the Court yet, we are unable to advertise the Amended Petition.

  Moreover, we have also been informed by Senior Judicial Clerk II (Insolvency) (Atg) that we should not write to the Court to ask for the new hearing date as the Court will give notice of the new hearing date when it is assigned/available.”

13.  Rs claim that no follow-up action was taken by Ps for nearly 4 months.  By letter dated 4 November 2020 to Ps’ then new solicitors, Rs’ solicitors again urged Ps to comply with rule 29.  This was followed by Rs issuing the 2^nd Strike out Summons on 19 November 2020. 

14.  In the meantime, Ps changed solicitors again and Messrs King & Wood Mallesons (“KWM”) filed notice of change of solicitors on 6 November 2020. 

15.  By letter dated 26 November 2020, KWM requested the Senior Judicial Clerk II (Insolvency) to give direction on fixing the new hearing date of the Amended Petition. 

16.  In their letter dated 1 December 2020 to Rs’ solicitors, KWM stated, inter alia, that:

(1) in June 2020, Ps’ former solicitors “had attempted to obtain a hearing date of the Petition but was unable to do so due to the Judiciary’s limited arrangement in response to the evolving condition of COVID-19 pandemic at that time”;

(2) they had only be able to obtain the papers from Ps’ former solicitors in mid-November 2020.  The failure to advertise was certainly not deliberate, and they were seeking direction from the Court and would advertise the Amended Petition after the hearing date has been fixed; and

(3) the 2^nd Strike out Summons is “wholly unnecessary and unmeritorious” and all the complaints raised in R1’s 5^th affirmation are misguided and the application should be withdrawn.

17.  On 9 December 2020, the Court informed KWM that the Amended Petition had been re-fixed to 3 February 2021.  KWM then caused the Amended Petition to be advertised on 15 January 2021. Registrar certificate was issued on 1 February 2021. At the hearing before Master on 3 February 2021, the Court was informed about the pending 2^nd Strike out Summons whereupon the Amended Petition was adjourned to 31 March 2021 (subsequently vacated) and 5 May 2021.

C.      DISCUSSION

C1.    Applicable principles

18.  The principles governing an application to strike out a petition have been sufficiently summarised by Kwan J (as she then was) in Re Four Twenty Co Ltd, HCCW 278/2004, at §5 as follows:

“(1) It is assumed that the particulars and allegations in the petition and the supporting affidavits of the petitioner would be established and the conflicts resolved in favour of the petitioner …

(2) The application should be approached with the greatest circumspection and it is only in a plain and obvious case that the court should exercise its discretion to strike out the petition for winding up or the parts complained of …

(3) The burden is on the applicant to show that it is plain and obvious that the petition for winding up would fail on the ground there is an alternative remedy available to the petitioner and that the petitioner is acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy …” (underlined added)

C2.    Grounds for striking out

19.  The 2^nd Strike out Summons was issued under rule 29 of the Rules, s 180(1), (1A) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32), Order 18 rule 19 of the Rules of the High Court and inherent jurisdiction of the Court and in these terms:

“Paragraphs 98, 99 and relief (1) claimed in the Amended Petition dated 1 June 2020 relating to winding-up of the 3^rd Respondent company be struck out on the following alternative grounds,

(a) The Petitioners failed to comply with Rule 29 of the [Rules]; and/or

(b) they amount to an abuse of the process of the court;”

20.  It can immediately be seen that other than their reliance on rule 29 and the reference to the Amended Petition, the terms of the 2^nd Strike out Summons are almost identical to those of the 1^st Strike out Summons.

21.  In their Skeleton Submissions, Mr Ambrose Ho SC (leading Mr Erik Shum and Ms Christy Wong) submits that the prayer for a winding-up order should be struck out on the following grounds:

(1)  Ps delayed in advertising the Petition and the Amended Petition for 6 months and 7 months respectively and failed to obtain a registrar certificate without good reasons (Rule 29 point);

(2)  Ps did not take step to prosecute the Petition diligently for more than 13 months, and the Company has been prejudiced due to the prolonged proceedings hanging over its head (Want of prosecution point); and

(3)  There is no real prospect of a winding-up order being granted, given that the Company is a going concern enjoying goodwill and has been carrying on business under the validation order.  It is not in the interest of any of its members to wind up the Company. There is no prejudice to Ps by striking out the winding-up relief as neither (i) the need to investigate the Company’s affairs nor (ii) the potential laborious and expensive process for ascertaining the value of the Company’s shares assists Ps. 

22.  On the other hand, Mr Johnathan Chang SC (leading Mr Martin Ho) submits that the 2^nd Strike out Summons must be dismissed for the following reasons:

(1) It is an abuse of process for Rs to seek to re-argue the substantive merits or the viability of the winding-up relief sought in the Amended Petition in the absence of material change of circumstances (Abuse of process point); and

(2) Ps have already provided a full explanation on their delay in complying with rules 24 and 29 of the Rules, and Rs have failed to demonstrate that it is plain and obvious that there was “want of prosecution” of the Amended Petition.

23.  I shall deal with the Abuse of process point first. 

C3.    Abuse of process point

24.  It is well established that if a point was open to a party on an earlier interlocutory application and was not pursued, it is not open to him to take the point at a later application when there has been no material change of circumstances and no new fact.  The principles have been sufficiently summarised by the Court of Appeal in Compania Sud Americana De Vapores SA v Hin-Pro International Logistics Ltd [2015] 2 HKLRD 458, §§16-17:

“16. The principle derived from Chanel Ltd v FW Woolworth & Co Ltd is that if a point was open to a party on an earlier interlocutory application and was not pursued, then it is not open to him to take the point at a later application when there has been no material change of circumstances and no new facts …

17. The Chanel Ltd v FW Woolworth & Co Ltd principle is founded on the basis that the party has a responsibility to take the point when it is first reasonably available to him before the court and that it would be an abuse of process to delay taking it until a subsequent application: Gee, ibid. Where, as here, the interlocutory injunction is continued at the return date but there had been an express intimation that the defendant was contemplating an application to discharge once his evidence is in order, he is not guilty of any abuse of process as envisaged by the Chanel Ltd v FW Woolworth & Co Ltd principle. Cf. Gee, at para.23-015 at 714 (which concerns undertakings but equally applies to injunctions). That principle does not apply to debar him from taking out the subsequent discharge application.” (underlined added)

25.  Mr Chang submits that prior to the hearing of the 1^st Strike out Summons, Ps put forward the Amended Petition to address Rs’ contentions in particular the complaint on (1) a lack of plea of solvency and available surplus for distribution if the Company is wound up, and (2) the availability of a buy-out order such that it was an abuse of process for Ps to pursue the  winding-up relief.  On the strength of the proposed amendments to the Petition, in particular the newly added §98A and the amendments to §99 (adding full investigation of the Company’s affairs as an independent ground for seeking a winding-up order), Rs’ counsel accepted that the amendments were capable of curing the defects in the Petition, such that Rs would not pursue the 1^st Strike out Summons.  Having taken such a stance, it is an abuse of process for Rs to re-argue the substantive merits of the winding-up relief sought by Ps. 

26.  Mr Ho does not accept that the withdrawal of the 1^st Strike out Summons was “in view of the strength of the proposed amendments to the Petition”.  He contends that there is no abuse of process given that:

(1)  Rs agreed to the amendments and decided not to pursue the 1^st Strike out Summons “in order to expedite the matter without further delay and not to waste the Court’s time and costs”;

(2)  The 1^st Strike out Summons was “premised only on the deficiencies in the Petition”, and given that “the pleading points have been addressed by the proposed amendments”, Rs sensibly withdrew the Summons;

(3)  Unlike the 1^st Strike out Summons, the 2^nd Strike out Summons is based on 3 reasons viz., (i) belated compliance with rule 29; (ii) Ps’ winding-up claim amounts to an abuse of process; and (iii) there is no real prospect of a winding-up order being made;

(4)  The cases cited by Ps are distinguishable as they were concerned with the making of a second application or a second claim to “re-open” or “re-argue” a matter which has previously been determined by the Court; and

(5)  The result of the 1^st Strike out Summons should have alerted Ps that they should pursue the Amended Petition diligently, but Ps have since June 2020 failed to advertise the Amended Petition, which is a “new fact/circumstance arising subsequent to the 1^st Strike out Summons”.

27.  In my view, it is an abuse of process for Rs to have issued the 2^nd Strike out Summons for the following reasons.

28.  First, there was no material change of circumstances between the hearing of the 1^st Strike out Summons and the date when the 2^nd Strike out Summons was issued.  A 6-month delay in advertising the Amended Petition can hardly be a material change of circumstances.  The non-compliance with rule 29 is, at its highest, only a technical point and no one has been prejudiced:

(1)  Unlike a creditor’s petition against an insolvent company, where advertisement of the petition in good time is important so as to put the creditors on notice of the proceedings, in the present case, the Company is solvent and there is no suggestion that the creditors will not be paid their debts in full.  As a matter of fact, it was precisely because the banks which had been providing credit facilities to the Company were aware of the proceedings and decided to freeze the bank accounts that it was necessary for Rs to apply for a validation order back in January 2020 (see §6 above).

(2)  Rs were fully aware of the proceedings and have actively participated in the proceedings. 

(3)  There are obvious avenues available to Rs to expedite the proceedings if they were genuinely concerned about delay.  They could seek the agreement of Ps on a time table for filing pleadings and making discovery pending advertisement of the Amended Petition and the first hearing before a Master.  After the CJR, Rs are under as much duty as Ps in assisting the Court to further the underlying objectives of the rules (see Order 1A rule 3). 

29.  Second, the paragraphs and relief which Rs sought to strike out under the 1^st Strike out Summons are exactly the same as those in the 2^nd Strike out Summons.  In Rs’ Reply, they took the stance that the amendments to the Petition were sufficient to address the gap and the defect in the Petition, such that they would not pursue the 1^st Strike out Summons.  It is not open to Rs to adopt a volte-face and contend that §§98, 99 and prayer (1) of the Amended Petition are liable to be struck out. 

30.  Third, it is wrong for Mr Ho to characterise the 1^st Strike out Summons as an application which concerned only the “pleading points”. 

(1)  As stated in §8 above, the 1^st Strike out Summons was issued on 2 grounds viz., the Petition “disclosed no reasonable cause of action to wind up [the Company]”; and §§98, 99 and prayer (1) amount to an abuse of the process of the Court.  On any view, the second ground is not “pleading points”.  

(2)  In the Skeleton Argument for Rs (“Rs’ Skeleton”), extensive submissions were made by counsel on Ps’ failure “to plead clearly matters which show that a winding up order is the appropriate or only practical relief” (§§11-13, 26-30).

(3)  In Rs’ Skeleton, counsel refuted the allegation that Rs have no means to purchase Ps’ shares, and submitted that “there is no evidence to show that R1 does not have the means” to do so; and  “there is nothing to enable the Court to reasonable infer that [Rs] are unwilling or unable to buy [Ps’] shares” (§31).   

31.  Fourth, I do not accept Rs’ contention that the 3 reasons advanced in support of the 2^nd Strike out Summons are not the same as those advanced in respect of the 1^st Strike out Summons.  Plainly, the second reason (Ps’ winding-up claim amounts to an abuse of process) and the third reason (no real prospect of a winding-up order being made) relied on by Rs in the 2^nd Strike out Summons were already advanced by Rs as their grounds for striking out the winding-up relief under the 1^st Strike out Summons (see §30(2)-(3) above).  Even if (which I do not think is the case) there is any proper basis to suggest that the second and third reasons were not advanced or pursued in the 1^st Strike out Summons, they were points open to Rs on the 1^st Strike out Summons and, therefore, caught by the principle discussed in Compania Sud Americana De Vapores SA. 

32.  Lastly, I do not think the distinction drawn by Mr Ho is well founded.  As is clear from the passage in Compania Sud Americana De Vapores SA quoted in §24 above, the principle applies not only to a situation where the Court has determined an application.  It also applies to a situation where there has been no determination by the Court.  Indeed, in Chanel Ltd v FW Woolworth & Co Ltd [1981] 1 WLR 485 where the English court first propounded the principle, there was no determination by the Court.   

33.  For the above reasons, I hold that the 2^nd Strike out Summons constitutes an abuse of process and should be dismissed in limine. 

34.  Having concluded that the 2^nd Strike out Summons should be dismissed, it is strictly speaking unnecessary to consider the Rule 29 point and the Want of prosecution point.  Nevertheless, I shall state my view on these points, in case I am wrong in holding that the delay in compliance with rule 29 is not a material change of circumstances.    

C4.    Rule 29 point

35.  Rule 24 provides that every petition shall be advertised 7 clear days or such longer time as the court may direct before the hearing.  Rule 29 provides that:

“After a petition has been presented, the petitioner or his solicitor, shall, on a day to be appointed by the Registrar, attend before the Registrar and satisfy him that the petition has been duly advertised, that the prescribed affidavit verifying the statements therein and the affidavit of service (if any) have been duly filed, and that the provisions of the rules as to petitions for winding-up companies have been duly complied with by the petitioner. No order for winding up of a company shall be made on the petition of any petitioner who has not, prior to the hearing of the petition, attended before the Registrar at the time appointed, and satisfied him in manner required by this rule.”

36.  Practice Direction 3.1, Part II, §§3.1 and 3.3 (“PD”) state as follows:

“3.1 Under Rule 29 of the Companies (Winding-Up) Rules, the petitioning creditor has to obtain a certificate of compliance from the Registrar prior to the making of a winding-up order. In the case of a contested petition, the master will not adjourn the petition to a judge for hearing in the absence of such a certificate.”

“3.3 Practitioners are reminded that they should obtain the certificate of compliance without undue delay. Failure to obtain such a certificate without good reasons may result in dismissal of the petition.”

37.  Mr Ho submits that a failure to obtain a registrar certificate without good reasons may result in the dismissal or striking-out of the petition (PD §3.3;Re Aim Investments (Holdings) Ltd [2004] 2 HKLRD 201; Re a Company (No 002791 of 1986)(1986)2 BCC 99,281;Re Royal Mutual Benefit Building Society [1960] 1 WLR 1143).  In the present case, Ps’ purported compliance with rule 29 is “seriously out of time” and no extension of time was sought:

(1)  There was a delay of 6 months and 7 months in advertising the Petition and the Amended Petition respectively.  Reliance is placed on the events described in §§12-16 above.

(2)  No good reasons have been shown, given that (i) the General Adjournment Period (“GAP”) only lasted from 29 January 2020 to 3 May 2020; (ii) change of solicitors cannot justify any substantial delay (Hoi Sing Construction Co Ltd v ITC Corp Ltd (HCA 11433/1998, 22 April 2005) at §24(f); China Link Construction Co Ltd v China Insurance Co Ltd [2002] 1 HKLRD 844 at 856 E-F); and (iii) the delay caused by the party’s legal representatives is attributable to the representing party (Wing Fai Construction Co Ltd v Yip Kwong Robert (2011)14 HKCFAR 935 at §75(11)).

38.  Rs’ reliance on Re Aim Investments, Re a Company (No 002791 of 1986) and Re Royal Mutual Benefit Building Society is misplaced.  In each of these cases, there was no attempt to comply with rule 29 (or its English equivalent[8]) by the time the petition was heard by the Court.  By contrast, at the time the Amended Petition was heard before Master on 3 February 2021, it had already been advertised (and registrar certificate had been issued on 1 February 2021).  It was therefore unnecessary for the Court to consider whether it was appropriate to exercise the power under rule 24 to cancel the hearing or remove the Petition from the file. 

39.  Mr Chang contends that Ps have already given a full explanation on the delay in complying with rules 24 and 29.  In short, the delay was attributed to (1) the closure of the High Court Registry during GAP; (2) the subsequent mis-communications between Ps’ former solicitors as to whether it was necessary to apply for a new hearing date of the Amended Petition; and (3) the Amended Petition could not be advertised without a new hearing date.  Upon being made aware of Rs’ complaint, KWM took immediate steps to secure a new hearing date of the Amended Petition and advertised the same. 

40.  Other than repeating the same points made in the first Skeleton, Mr Ho is unable to refute the points made by Mr Chang. 

41.  I am satisfied that there are good reasons for P’s failure to comply with rule 29, having regard to the following matters:

(1) the Petition was originally listed for hearing on 5 February 2020 but was adjourned generally due to GAP;

(2) at the hearing of the 1^st Strike out Summons on 27 May 2020, Rs (rightly) did not take issue with the non-compliance with rule 29 or oppose Ps’ application for leave to file the Amended Petition;

(3) in July 2020, Ps’ former solicitors were informed by the Court’s clerk that new hearing date had yet been fixed and the Court would give notice of the new hearing date once such date has been assigned.  Having been told in these terms, it was understandable that Ps’ former solicitors decided to wait for the Court to assign a new hearing date; and

(4) as soon as Rs’ complaint about non-compliance with rule 29 had been brought to Ps’ attention, KWM immediately took steps to obtain a new hearing date and, thereafter, advertised the Amended Petition before such hearing. 

42.  The Rule 29 point must be rejected.

C5.    Want of prosecution ground

43.  The principles governing an application to strike out the proceedings  for want of prosecution have been stated by the Court of Final Appeal in Wing Fai Construction Co Ltd (2011) 14 HKCFAR 935, §75 in this way:

“(1) It is first important to bear in mind that striking out is a remedy of the last resort, as stated above, and only where it would be plain and obvious to do so. If there are other measures that are more appropriate to be taken, they ought to be.

(2) Abuse of the process of the court is the foundation for the exercise of the jurisdiction to strike out for delay.

(3) Abuse can take many forms. The Birkett v James second limb will continue, where it is proved, to be a form of abuse so that inordinate and inexcusable delay causing real prejudice would be an abuse. Thus, where a delay which is inordinate and inexcusable causes a substantial risk that a fair trial is not possible, this is perhaps the most compelling form of prejudice to a defendant: cf Birkett v James, 318C–D. There may be other forms of prejudice, such as the prejudice caused by proceedings hanging over the head of a defendant, causing undue anxiety (Biss prejudice: see para.17(5)(c)above) ...

(4) In the context of abuse, some mention should be made of ‘warehousing’ ... In order for the ‘warehousing’ of claims to justify striking out, it must be clear that the plaintiff is abusing the process of the court. Accordingly, where the ‘warehousing’ of claims indicates that there is simply no intention to bring proceedings to a conclusion or there is a ‘wholesale disregard’ of the rules or court orders, abuse can be found to exist ...

(5) It is still important when looking at the aspect of delay that it should be both inordinate and inexcusable, and that abuse is shown. It has never been the law that mere delay will be sufficient to justify an order to strike out … I would also adopt what was said by Neuberger J in Annodeus Ltd v Gibson regarding the court’s consideration of delay:

… it is normally relevant to consider the following factors. First, the length of the delay; secondly, any excuses put forward for the delay; thirdly, the degree to which the claimant has failed to observe the rules of court or any court order; fourthly, the prejudice caused to the defendant by the delay;fifthly,the effect of the delay on trial; sixthly, the effect of the delay on other litigants and other proceedings; seventhly, the extent, if any, to which the defendant can be said to have contributed to the delay; eighthly, the conduct of the claimant and the defendant in relation to the action; ninthly, other special factors of relevance in the particular case.

…

(7) I now deal with prejudice … in the majority of applications to strike out for delay, the aspect of prejudice to the defendant will often be extremely relevant …”(underlined added)

44.  Rs rely on Ps’ delay in compliance with rule 29 and contend that such delay shows that Ps have no real intention to prosecute the Amended Petition. 

45.  The contention is wholly without merit. 

46.  First, the delay in advertising the Petition was only for a period of 6 months, not 13 months as Rs suggest.  There is no basis for Rs to complain about the Petition not having been advertised, for the reasons stated in §41(1)-(2) above.

47.  Second, a delay of 6 months cannot, on any view, be said to be inordinate.  This is particularly so when one compares the delay in compliance with rule 29 with the delay occasioned by Rs’ successive striking out applications.  In any event, for the reasons stated in §41 above, I do not think that Ps’ delay is inexcusable.

48.  Third, other than non-compliance with rules 24 and 29, Rs have not been able to identify, let alone demonstrate, that it is plain and obvious that there have been a “wholesale disregard” of the rules or court orders on the part of Ps or that Ps have no intention to bring proceedings to a conclusion.  This is reinforced by the fact that Rs do not seek to strike out the entire Amended Petition for want of prosecution, such that the proceedings will have to proceed further.    

49.  Fourth, the prejudice relied on by Rs concerns the Company.  As submitted by Mr Chang, such prejudice is the result of the general nature of winding-up petition.  It is not a prejudice caused by the delay in compliance with rule 29 (or rule 24 for that matter).  In any event, as stated in §28(3) above, if Rs were genuinely concerned about delay, they could have taken the obvious step to expedite the progress of the proceedings. 

D.      DISPOSITION

50.  The 2^nd Strike out Summons is dismissed. 

51.  As for costs, I make a cost order nisi that the costs of and occasioned by the 2^nd Strike out Summons be paid by Rs to Ps and the Official Receiver (if any) on an indemnity basis with certificate for 2 counsel. The costs are to be assessed by way of gross sum assessment. 

52.  The higher scale of costs is appropriate to reflect the view of this Court that it is a complete waste of the Court’s time and the parties’ costs for Rs to pursue the 2^nd Strike out Summons, having previously adopted the stance that the defects in the Petition had been addressed by the amendments to the Petition such that the 1^st Strike out Summons should be withdrawn.

53.  For the purpose of gross sum assessment, I direct Ps and the Official Receiver (if she claims costs) to lodge their statement of costs within the next 3 days of this Decision, and Rs to provide their comments on the statements within the next 3 days thereafter. 

54.  To ensure that the Amended Petition can progress without any further delay, I direct the parties to submit an agreed directions on filing of pleadings, following the usual Stage 1 directions on shareholders’ petitions, within 7 days of this Decision.  If no agreement can be reached within the time limit, Ps and Rs do submit their respective proposed directions within the next 3 days thereafter. 

55.  I further direct that unless otherwise ordered by the Court, all further interlocutory applications in these proceedings (other than those which can be heard by a Master) should be listed before this Court.