LAU CHO KWAN, LEO AND ANOTHER v. LAU SIU FAN, ELAINE AND OTHERS

HCCW 262/2020

[2021] HKCFI 3352

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP)  PROCEEDINGS NO. 262 OF 2020

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R U L I N G

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A.  Introduction

1.  As in my previous Judgment [2021] HKCFI 3067 (“Judgment”), I will continue to refer to the petitioners as Leo and Betty and the 8^th respondent as the Company, and to adopt the other definitions.

2.  On 11 October 2021, I heard the following summonses:

(1)  a summons dated 6 September 2021 (“Set Aside Summons”), by which the Company applied to set aside the Carry On Order that appointed Betty to represent the estate of Leo to carry on these proceedings and the proceedings to be carried on as if she had been substituted for Leo;

(2)  a summons dated 8 January 2021 (“Amendment Summons”), by which Leo and Betty sought leave to amend the Petition;

(3)  a summons dated 10 March 2021 (“Strike Out Summons”), by which the Company sought to strike out the prayer for winding up relief in the original Petition and the relevant paragraphs and prayer for winding up relief in the draft Amended Petition, on the grounds that the winding up relief sought is plainly and obviously unsustainable and seeking such relief against the Company is frivolous, vexatious or otherwise constitutes an abuse of process;

(4)  a summons dated 12 April 2021 (“Injunction Summons”), by which Leo and Betty applied for an order that:

The [Company] be restrained until the final resolution of these proceedings or further order of the Court in the meantime from expending its money or other assets, or otherwise incurring any further legal costs, in participating in the present proceedings (HCCW 262/2020), or any other legal proceedings between the shareholders in which the [Company] is only named as (or stands in the capacity of)  a nominal party, save and except for complying with the Court’s orders/directions and to give discovery in the aforementioned proceedings.

3.  On 18 October 2021, I gave the Judgment, by which:

(1)  I dismissed the Set Aside Summons;

(2)  I dismissed the Strike Out Summons;

(3)  I allowed the Amendment Summons;

(4)  I dismissed the Injunction Summons;

(5)  I ordered that, without prejudice to any subsequent ruling as to its operation or effect whilst extant, §1 of the Validation Order should immediately cease to be of effect (and, for the avoidance of doubt, the remaining paragraphs are to continue in effect);

(6)  I ordered that any future intended costs expenditure by the Company in these or any other proceedings are to be made the subject of an application for a validation order in these proceedings; and

(7)  I also reserved the question of costs of the summonses.

4.  The detail of the reasoning leading to those Orders can, of course, be read in the Judgment.

5.  Each of the Orders made was interlocutory for the purposes of considering whether or not leave to appeal is required. Therefore, leave to appeal is required, and the time within which an application for leave to appeal against an interlocutory judgment or order is within 14 days from the date of the judgment or order.  In this case, that period expired on 1 November 2021.

6.  However, on 1 November 2021 – that is, on the last day for making an application for leave to appeal – the solicitors for Leo and Betty and the solicitors for the Company filed a Consent Summons, seeking an order by consent that the time for the Company to apply for leave to appeal against the Judgment be extended to 23 November 2021.

7.  No other materials were provided with the Consent Summons.  Therefore, by letter dated 3 November 2021, I asked the parties to explain the reasons said to justify why the Court should grant the extension of time.

8.  In response, the solicitors for the Company wrote a letter dated 3 November 2021, as follows:

We refer to the Court’s note dated 3 November 2021 regarding the Consent Summons dated 1 November 2021 seeking extension of time until 23 November 2021 to file the application for leave to appeal if so advised.

The Company intends to take advice from solicitors and/or Counsel in relation to possible merits of any appeal in relation to the Judgment of 18 October 2021.  In order to do so, the Company has sought Messrs. Oldham, Li & Nie’s (“OLN”)  clients as to consent to validate the Company’s legal expenses for this exercise.  The parties have not managed to reach agreement as to quantum, but OLN have indicated that 1) their clients will take a neutral stance on any such application made by the Company, and 2) for the purpose of saving costs, they agree to a time extension for applying for leave to appeal until 23 November 2021.

Copies of the relevant letters exchanged between ourselves and OLN are enclosed for the Court’s information.

The Company will apply by Summons imminently regarding the above validation.

As the Company wishes to have the benefit of further legal advice before making any application for leave to appeal (if so advised), it therefore seeks the Court’s indulgence for the time extension set out in the Consent Summons.

We shall be grateful if this letter is placed before His Lordship for consideration.

9.  As indicated, the correspondence exchanged between solicitors was enclosed with the letter.  Amongst the matters stated in the correspondence was the Company’s solicitors’ estimate that it would cost in the region of $180,000 to obtain advice from Counsel on potential appeal, and for “subsequent conduct of the action as may be necessary and/or appropriate up to and including the time when such advice is rendered”.

10.  Having considered the letter, and the correspondence exchanged between the parties, I refuse to grant the extension of time within which the Company can file an application for leave to appeal, as sought by the Consent Summons.

B.  Reasons for Refusal

11.  At the hearing on 11 October 2021, the Company was represented by leading Counsel, junior Counsel and solicitors.  Indeed, it was part of the Company’s argument as to why the Company should be permitted to expend funds on legal costs that its legal advisers, including leading Counsel, had advised that such expenditure was appropriate.

12.  For the reasons set out in the Judgment, I took the view that the Company should only be permitted to expend funds on legal costs if such funds are specifically identified and validated by the Court. More importantly, each of the Orders made in the Judgment was made by the application of generally well settled principles to the particular facts of the case, and in the exercise of discretion.

13.  It is trite that leave to appeal from an interlocutory judgment or order of the Court of First Instance in any civil cause or matter should not be granted unless the Court hearing the application for leave is satisfied that the appeal has a reasonable prospect of success. If the Company is to obtain leave to appeal from any of the Orders, the Company will need to demonstrate those reasonable prospects of success.

14.  Similarly, in considering whether or not to grant any extension of time within which an application for leave to appeal can be made, the Court will consider (amongst other things)  the merits of the proposed application for leave to appeal.  Unless sufficient merit is demonstrated, there is ordinarily no point in granting any extension of time.

15.  In the same vein, if the Company is to obtain validation for the expenditure on legal costs, it will need to identify that that expenditure is or will be properly incurred.  To do that in the current circumstances, the Company will need to identify at least some proper basis for thinking that there might be any viable ground of appeal from the Judgment which is worth exploring through the proposed costs expenditure.

16.  However, nowhere in the correspondence between solicitors, or in the letter to the Court, does the Company identify even the slightest reason why the Court might consider that any appeal from any part of the Judgment might have any reasonable prospect of success.

17.  This may not be a surprise:

(1)  The Carry On Order was always one unlikely to affect the Company as a nominal respondent to the Petition (except perhaps positively, in having matters relating to the Company dealt with in one go). Therefore, even leaving aside any technical argument on Order 15, I presently do not see likelihood in the grant of leave to the Company to appeal from the dismissal of the Set Aside Summons.

(2)  Striking out is for plain and obvious cases only.  Not least where the strike out was targeted at only an alternative prayer for winding up relief (where leading Counsel for the Company properly conceded that the Company itself has no interest in whether it is or is not wound up), I do not presently think that there is any reasonable prospect that an appellate court would interfere with the dismissal of the Strike Out Summons.

(3)  The Amendment Summons was decided in the exercise of my discretion on the application of well-settled principles.  To an extent it was also simply the ‘flip side’ of the target of the strike out. Again, I do not presently think there is any reasonable prospect that an appellate court would interfere with the allowing of the Amendment Summons.

(4)  It seems to me unlikely that the Company would want to appeal from my dismissal of the Injunction Summons, which is what the Company wanted to happen.  Further, the Company retains the ability to make applications for validation orders (and indeed has already done so in respect of other matters).

18.  Lest it be thought otherwise, this is not a ‘Catch-22’ situation.  I acknowledge that the Company might suggest that it cannot identify any particular grounds of intended appeal, nor speak to their merits, prior to taking advice, yet it is not able to take that advice without first obtaining validation for spending the money on obtaining the advice.  But I do not think such a suggestion would be right.

19.  First, the Company’s stance on the summonses dealt with at the 11 October 2021 hearing, leading to the Judgment, was expressly said to have been based on legal advice (including from leading Counsel).  The Judgment directly addressed the arguments flowing from that legal advice.  The Judgment was provided when that advice and those arguments must have been fresh in the mind of all participants, including the Company’s legal representatives.  If there is to be any merit at all in a challenge to the discretionary orders made in the Judgment, one might think that they would ‘leap off the page’ to those deeply involved in the case.  In those circumstances, I confess I find it difficult to imagine why $180,000 would need to be spent in forming a view as to whether there was any proper basis for seeking leave to appeal.

20.  Secondly, it might be said that the lack of a validation order in respect of the costs of seeking advice on appeal does not prevent those costs being spent at all.  Validation orders can be obtained retrospectively.  Therefore, the absence of prior validation merely means that unless those costs are subsequently validated, the disposition of the property of the company by that costs expenditure would be void.

21.  Thirdly, the lack of a validation order in respect of the costs of seeking advice on appeal does not prevent those costs being spent by someone else, such as any director of the Company – Elaine or Rose – who feels strongly about the matter (albeit in my view, obviously, erroneously).

22.  Anyway, quite simply there is no hint at what might be the subject of any appeal and why it might have any merit.  It is obviously insufficient merely to say “I want more time to think about whether or not to appeal”, and it is also insufficient merely to say “I want to spend some money to see whether or not anyone can come up with any viable ground of appeal”.

23.  In the circumstances, and in the exercise of my discretion, I do not think I have been shown any reason why an extension of time is justified and should be granted.