EXCELLENT INVESTMENT (GROUP) LTD (IN LIQUIDATION) v. SIN YUK LING

HCCW 294/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 294 OF 2012

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D E C I S I O N

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1.  This is the adjourned hearing for arguments to deal with the issue of costs in respect of :

(a)  A Misfeasance Summons (“JSL Summons”) dated 30 June 2014 taken out by the Joint and Several Liquidators (“JSL”) on behalf of Excellent Investment (Group) Ltd (in liquidation) (“Company”) against the Respondent (“Sin”), which have been incurred after 30 June 2014; and

(b)  Sin’s Summons (“S Summons”) dated 10 September 2014.

2.  At all material times, Sin was the sole director and one of two shareholders of the Company.  For the present purpose, the material facts can be set out by way the following chronology :

Date	Events
15.4.2010	The Company entered into a sole agency agreement with Savills (Hong Kong) Ltd engaging the latter’s service for the sale of its property.
25.10.2010	After learning that the Company had sold its property through another agent, Savills (Hong Kong) Ltd issued an invoice to the former for a sum of HK$210,000.
31.3.2011	The Company had made a gross profit of over HK$7.3 million in the year ended 31.3.2011.
15.4.2011	The Company declared dividends of HK$6,587,400 (the entirety of its retained profit) to its 2 shareholders.
31.5.2011	The Company paid HK$6,587,400 to its 2 shareholders.
28.12.2011	Saville (Hong Kong) Ltd sued the Company for the unpaid invoice of HK$210,000 under DCCJ 4928 of 2011.
3.2.2012	Judgment by default was obtained by Savills (Hong Kong) Ltd against the Company.
14.8.2012	Savills (Hong Kong) Ltd petitioned for winding up of the Company based upon the unpaid judgment of HK$210,000 plus HK$6,500 fixed costs.
24.10.2012	Winding up order of the Company was made.
10.4.2013	JSL were appointed as liquidators of the Company.
3.7.2013	Master J Wong sanctioned JSL’ application to seek legal advice for the purpose of recovering the dividends paid by the Company to its shareholders and to commence legal proceedings to recover the paid dividends.
9.6.2014	Upon an ex parte application by JSL under s.199(1) of the Companies (Winding Up And Miscellaneous Provisions) Ordinance, Cap 32, Master Hui sanctioned the commencement of legal proceedings against Sin to recover the dividends paid by the Company in 2011 to its shareholders.
30.6.2014	Pursuant to the ex parte Order, JSL took out the JSL Summons against Sin seeking, inter alia: (a)  an order for Sin to repay or restore the sum of HK$6,587,400 to the Company by way of compensation; (b)  alternatively, Sin do account for and/or repay the sum of HK$5,928,660 (the dividends she received) to the Company.
13.8.2014	Call over hearing before Anthony Chan J when Sin, acting in person, offered to discharge the judgment debt of the Company.
1.9.2014	Sin, through her solicitors, wrote to JSL suggesting, inter alia, a variation of the ex parte Order to sanction the commencement of legal proceedings on behalf of the Company to recover the judgment debt of HK$210,000 with costs etc and a draft Consent Order and draft supporting affirmation were enclosed for consideration of JSL. In the draft affirmation, it was made clear that the only debt of the Company was the judgment debt and Sin was willing to discharge the same and to pay the reasonable costs of the JSL.
4.9.2014	JSL declined Sin’s proposal.
10.9.2014	Sin took out the S Summons to set aside the ex parte Order or alternatively to vary the same so as to enable JSL to commence legal proceedings in the name of the Company to recover from her thejudgment debtof HK$210,000 payable to Savills (Hong Kong) Ltd and taxed costs arising from DCCJ 4928 of 2011.
15.10.2014	Adjourned hearing before A Chan J when the court queried the appropriateness of seeking the return of the entirety of the dividends from Sin. Sin made an open offer to resolve both JSL Summons and S Summons by paying: (a)  to JSL the judgment debt of HK$210,000 with interest and costs under DCCJ 4928 of 2011; (b)  to the Petitioner and Official Receiver via JSL their costs of the winding up of the Company; (c)  to JSL their costs and disbursement of the winding up; (d)  to JSL their costs of JSL Summons up to an inclusive of 30.6.2014. Sin further suggested that the costs of the parties incurred since 1.7.14 under both JSL Summons and S Summons be determined by the court by way of paper disposal.
20.10.2014	JSL responded by asking Sin to enter into a Deed of Settlement upon various undertakings, including a term that should the agreed sum of HK$264,508.85 (judgment sum plus interest and costs in DCCJ 4928) not be paid on or before a particular day, judgment be entered against her for HK$6,597,480 (it was a sum in excess of the dividends distributed by the Company but it might be attributable to human error).
28.10.2014	Sin declined to accept the counter offer.
5.1.2015	JSL proposed 2 sets of directions for the parties to file affirmations to deal with the issue of costs.
2.2.2015	Sin proposed that directions should only be given for hearing of argument of the parties without filing affirmations.
16.2.2015	JSL insisted that Sin should execute the Deed of Settlement.
21.4.2015	Adjourned hearing before A Chan J where a Consent Order was made that: (a)  Sin would pay JSL the sum of HK$273,050.22 (with daily interest at HK$47.45), which was the judgment sum plus interest and costs; (b)  Sin would pay the costs of JSL Summons up to and including 30.6.2014 and the costs of liquidation incurred in the winding up of the Company up to and including 30.6.2014, to be taxed if not agreed; (c)  the costs of JSL Summons and costs of liquidation incurred after 30.6.2014 and the costs of 21.4.2015 be adjourned for argument; (d)  Sin had leave to withdraw S Summons and the costs thereof be adjourned for argument.

3.  For completeness, the sum of HK$273,050.22 together with interest due was duly paid by Sin after the hearing on 21 April 2015.

4.  At the hearing this morning, Mr Chong, appearing for Sin, has confirmed that Sin is seeking an order that the JSL[1] should pay the costs of and occasioned by the JSL Summons which have been incurred from and including 1 July 2014, as well as the costs of the S Summons.  As regards the costs of liquidation, Sin accepts that she would be liable for the costs of winding up of the Company incurred from and including 1 July 2014, but excluding the costs incurred for purposes of the JSL Summons (“Excluded WU Costs”).  No order should be made for the Excluded WU Costs, consequently the JSL would not be able to recover such costs. 

5.  Two points are apparent from the chronology. Firstly, this case arose from the failure by the Company to honour its payment obligation of HK$210,000 to Savills (Hong Kong) Ltd (“Savills).  Quite rightly, Savills sought to enforce the judgment it obtained against the Company resulting in its winding up and the appointment of the JSL.  The action by the JSL to seek recourse against Sin in such circumstances is not surprising.

6.  Secondly, the obstacle to the settlement of these matters was the insistence by the JSL that the dividends should be repaid to the Company and hence their failure to accept the repeated offer by Sin to put an end to these matters.

7.  There is controversy on whether the JSL Summons was justified.  Mr Chong criticised it as misconceived.  He argued that the appropriate course was to take out an application under s.275 of the Companies (Winding Up And Miscellaneous Provisions) Ordinance, Cap 32 (“Ordinance”) for fraudulent trading.  Hence, the alternative relief sought in the S Summons.  Ms Cheung, who appeared for the Company, maintains that the misfeasance proceedings were rightly brought. 

8.  In light of the fact that the dispute here is confined to costs, I do not believe that it is necessary to resolve the myriad of technical issues concerning s.276 (on which the JSL Summons was based) and s.275 of the Ordinance.  I agree with Mr Chong that the court is entitled to take a reasonably broad brush approach on costs arguments. 

9.  In my view, the key to resolving the arguments here rests in the appropriate relief under the JSL Summons.  Pursuant to s.276(1) of the Ordinance, the court might compel Sin to repay or restore the money of the Company, which had been misapplied or in respect of which she had been guilty of misfeasance or breach of duty, or any part thereof with interest.  Assuming in favour of the JSL that their application was rightly brought, it must be accepted, as Ms Cheung did, that the appropriate relief was in the discretion of the court. 

10.  There can be no serious dispute that, on the evidence before the court, the only debt of the Company was the judgment debt in favour of Savills (“Debt”).  Indeed, it appears from the audited financial statements of the Company that it was a simple company, and was probably used as a corporate vehicle for property holding. 

11.  Ms Cheung submitted that the Petition has not been advertised and that creditors may appear from the woodwork once that is done.  I am not attracted by the submission.  The Statement of Affairs was dated 30 August 2013.  As Mr Chong pointed out, the Petition was publicised.  No other creditor has come forward.  There is no indicated in the audited financial statements that the Company had any other debt.  In addition, the JSL had investigated the affairs of the Company.  There is simply no reason to suggest that Sin has misrepresented the financial position of the Company.

12.  I should add that even if it were the case that a creditor would come forward before the conclusion of the winding up, as Ms Cheung has accepted, the JSL would not be precluded from seeking relief against Sin arising from the newly discovered debt. 

13.  Sin should not be proud of what she had done in evading the liability over the Debt, but she took the first opportunity to make amends by agreeing to pay the Debt.  I was very surprised to see this case coming back to court after the call over hearing on 13 August 2014.

14.  With respect to the JSL, it was unreasonable to insist on the repayment of the entirety of the dividends.  I fail to see what useful purpose it could have served.  By the same token, it was unlikely for the court to grant such relief.  This unreasonable stance had thwarted Sin’s attempts to put an end to these proceedings and stop the wastage of both legal costs and liquidation costs.

15.  It was 8 months after the call over hearing that the JSL finally agreed to abandon the claim to have all the dividends repaid by agreeing to the Consent Order in April 2015.

16.  Ms Cheung sought to justify the JSL’ action by relying on a proposed Deed of Settlement.  That document came about after the hearing in October 2014 and in response to an open offer made by Sin.  Sin was unable to accept the terms in the Deed.  I agree with Mr Chong that, given the prevailing circumstances, the conclusion of these proceedings ought not have been hindered by an insistence on a warranty that the Company had no other liability and that judgment be entered against Sin for the entirety of the dividends in default of various payments (paras 3.1 and 4.2 of the Deed). 

17.  There is no doubt in my mind that the JSL had acted unreasonably in taking an unrealistic stance in these proceedings.  Their repeated failure to accept Sin’s offer to settle these matters means that costs and their fees are continued to be incurred.  It appears from the material before the court that the costs incurred for the JSL Summons up to and including 30 June 2014, subject to taxation, were in the sum of HK$256,537. The fees of the JSL up to 31 July 2014 amounted to HK$279,986.70.  With respect, these circumstances call into question the propriety of JSL’s position.   

18.  There can be no escape that the costs order must reflect the stance taken by the JSL.  I order that, firstly, the costs of the JSL Summons incurred up to and including the 1 September 2014 be paid by Sin, and the costs incurred thereafter (including the hearing on 21 April 2015) be borne by the JSL personally[2].  Secondly, the costs of the liquidation be borne by Sin with the exception of those costs which were incurred after 1 September 2014 for the purposes of the JSL Summons.  The excluded liquidation costs be borne by the JSL.

19.  I am not satisfied, after hearing Ms Cheung’s detailed submissions, that the JSL Summons was misconceived.  The costs of the S Summons should be borne by Sin. 

20.  As for the costs of today’s hearing, Sin has not been entirely successful.  I make an order that 2/3 of such costs be borne by the JSL.