NEW INTERTRADE FOODS CO LTD v. SUN FUNG TIMBER COMPANY LTD AND ANOTHER

HCMP 363/2020

[2023] HKCFI 1093

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 363 OF 2020

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D E C I S I O N

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Introduction

1.  Before me this morning is the summons filed by the plaintiff on 6 July 2022, pursuant to section 738 of the Companies Ordinance, Cap 622. The plaintiff asks for its costs in these proceedings to be paid by the 2^nd defendant, Mr Simon Tsang, personally on an indemnity basis. Tsang disagrees and contends that the 1^st defendant (“the Company”) should indemnify the plaintiff of such costs out of its assets. This is the main contentious issue before me today.

Background

2.  The plaintiff commenced these proceedings by originating summons on 21 April 2020, pursuant to sections 732 and 733 of the Companies Ordinance. It sought leave to intervene in and defend on behalf of the Company the proceedings in HCCT 25/2019, HCMP 2171/2019 and HCMP 84/2021. I shall refer to the present proceedings as “the intervention application”.

3.  The plaintiff and Tsang are the sole shareholders of the Company, each owning 50 percent of its shares. Mr Dany Lee and Tsang are the sole directors. Lee is the majority owner of the plaintiff.

4.  The HCCT proceedings are proceedings brought against the Company by a mainland company called 廣東順德展煒商貿有限公司 (“Guangdong Co”). Guangdong Co applied to enforce an arbitration award made against the Company by the Zhanjiang Arbitration Commission (湛江仲裁委員會) in 2017. On 5 August 2019, judgment was entered against the Company on the basis of the arbitration award in the HCCT proceedings. The arbitration award was in turn based on a contract purportedly entered into between the Company and Guangdong Co for the supply of marble stones. I shall refer to the contract below as “the marble stones contract”. That contract was signed by Tsang on behalf of the Company. After judgment was entered in the HCCT proceedings in August 2019, Guangdong Co issued a number of enforcement proceedings against the assets of the Company. A winding-up petition was also presented.

5.  In the course of 2019, a charging order was made against the real property located in Tsuen Wan and owned by the Company. A bank account of the Company was also garnisheed and a sum of over HK$32 million was paid out to Guangdong Co out of the Company’s bank account.

6.  The two sets of HCMP proceedings referred to above are further enforcement proceedings taken out by Guangdong Co, seeking an order for sale of the Company’s Tsuen Wan property. It would immediately be noted that by the time the present intervention application was taken out, the HCCT proceedings had gone beyond the judgment stage and significant enforcement actions had been taken. In the intervention application, what the plaintiff sought to do is to act in the name of the Company and apply to set aside the HCCT judgment and reverse all the enforcement actions.

7.  On 12 March 2021, I granted leave to the plaintiff to do so. The plaintiff has been successful in setting aside the HCCT judgment and the enforcement orders.

Discussion

8.  There is no serious dispute that the plaintiff has met the threshold set out in section 738(3) of the Companies Ordinance. I am satisfied that in making the intervention application, the Company had acted in good faith and it had reasonable grounds for making the application. The end result in the HCCT proceedings really speaks for itself. Further, under section 738, the court has a discretion to make costs order as it sees fit for the intervention application.

9.  Having considered the evidence before me and the detailed submissions made by counsel, I am of the view that Tsang should personally bear the costs incurred by the plaintiff in this intervention application. I find that Tsang had acted unreasonably in relation to the application. Such unreasonable conduct had made what should have been a straightforward application unnecessarily and unacceptably lengthy. But for such unreasonable conduct, there might have been no need for the plaintiff to take out the intervention application in the first place. In any event, much of the costs it incurred could have been avoided if Tsang had acted in a responsible and timely manner. His conduct resulted in an extraordinary delay in this application.

10.  I start my discussion with a few observations.

11.  First, the intervention application itself was a straightforward application with no specific complexity. It is true that there has been a dispute between the plaintiff and Lee and Tsang. The parties have been in a deadlock. Still, the subject-matter here is whether the plaintiff should be allowed to intervene in the HCCT proceedings. It is well-known that the threshold for such an application is low. The court is to decide if there is a serious question to be tried and whether it appears to be in the interests of the company to grant leave. See re Primlaks (HK) Ltd [2016] 2 HKLRD 31 at paras 7 to 9, cited in Lam Yee Tung, Mona v A House Design Ltd [2019] HKCFI 287 at para 13.

12.  My second observation is that it is indisputable or undisputed that Tsang himself has at all times been familiar with (1) the daily operation of the Company, (2) the marble stones contract, and (3) the arbitration award.

13.  I say Tsang has at all times been familiar with the operation of the Company as that is evidenced by what his own solicitors said in a letter dated 16 January 2018 in the context of the winding-up petition. The solicitors wrote:

“… Our Client would inform Mr. Lee of the major business operations as well as the financial conditions of the Company, even after the completion of the financial statements of the Company for the year ended 31^st December 2015. At all material times, our Client did also from time to time discuss the financial conditions of the Company with Mr. Lee over the phone.

Moreover, in fact, Mr. Lee also through New Intertrade Foods Co. Limited (“New Intertrade”) [ie the plaintiff] holds the other half of the share of the Company. Since the incorporation of the Company, Mr. Lee has entrusted Our Client to deal with the daily operations of the Company as Mr. Lee is inexperienced in the trading of construction materials.”

14.  Tsang has at all times been familiar with the marble stones contract. He was the person who signed the contract on behalf of the Company.

15.  Tsang has at all times been familiar with the arbitration award as he himself attended the arbitration hearing in May 2017. The recital in the decision of the arbitration commission (湛江仲裁委員會裁決書) stated:

“胡宗逸及其委托代理人何逸翔,被申請人的公司股東、董事曾已峰到庭參加庭審活動,本案現已審理終結。”

16.  My third observation follows from the above two observations. I find that Tsang at all times has personal knowledge of and is fully familiar with the arbitration award, and hence he should be in a position to take a view on this matter and the related HCCT proceedings.

17.  Against the above observations, I turn now to the chronology in relation to the intervention application.

18.  The relevant chronology starts from March 2020, which is about one month before the originating summons here was issued. By letters dated 13 and 16 March 2020 to Tsang and his solicitors, the plaintiff urgently requested Tsang to attend a board meeting on 20 March for the purpose of discussing the HCCT proceedings and the related enforcement proceedings against the Company and to provide the plaintiff with details and documents in relation to these proceedings.

19.  Tsang did not respond to these letters. He did not attend the board meeting. He did not give any explanation at that time as to why he failed to accede to the plaintiff’s request. Even up to now, Tsang has not tried to explain his omission.

20.  By follow-up letters to Tsang and his solicitors on 23 March 2020, the plaintiff once again requested Tsang to provide answers to a list of questions in relation to the HCCT proceedings. The questions included the following:

“9. 閣下Simon Tsang 是否贊成SF [ie the Company] 對上述HCCT訴訟案件的Judgment ,向法庭進行擱置申請 (set aside application)?

10. 若贊成, 是基於甚麼理據進行擱置申請?

11. 若反對, 是基於甚麼理據反對進行擱置申請?”

21.  Tsang did not respond to that list of questions. Even up to now, he has not tried to explain his silence. With complete silence on Tsang’s part, the plaintiff proceeded to take out the intervention application in these proceedings in the following month, April 2020.

22.  On 7 May 2020, Tsang lodged an acknowledgment of service indicating that he intended to contest the intervention application. The next step for Tsang would of course be for him to file an opposing affirmation given his explicit stance. Yet, it took him nine months to eventually file an affirmation. The affirmation was four pages long. He stated the following:

“I adopt a neutral stance to the Plaintiff’s current application. I am neither consenting nor opposing to its application and I leave the matter for the Court to decide.”

“As I take a neutral stance in these proceedings, I will not further participate in the proceedings and I crave leave from the Court to excuse my attendance in the upcoming substantive hearing. I maintain that I should not be responsible for costs. However, should the Court be invited to impose a cost order against me, I reserve my right to file further submissions addressing the issue of costs when such a need arises.”

23.  I should note here that in that period of nine months, Tsang sought time extensions for five times. The last time extension was granted on an unless basis with the deadline set for 8 February 2021 and that was exactly the date when he filed the four-page affirmation and came up with the neutral stance.

24.  Mr Arthur Poon, counsel for the plaintiff, has described this as extreme dilatoriness. I agree. There is no better or more succinct way to put it. As a result of this extreme dilatoriness, this intervention application has been unnecessarily dragged on for at least nine months for nothing.

25.  It is also noteworthy, in the course of these nine months, that Tsang has by correspondence given the impression that in fact he was actively preparing an affirmation in reply. See, for example, his solicitor’s letter dated 11 September 2020.

26.  In that letter, the solicitors asked for a further time extension for the filing of Tsang’s opposing affirmation. The solicitors also proposed that the hearing of the originating summons be adjourned to a date to be fixed before a judge for substantive arguments in consultation with counsel’s diaries with three hours reserved. One of the things mentioned by the solicitors in the letter was as follows:

“… preparation of the affirmation in reply. We confirm with the Court that the preparation of the 2^nd Defendant’s affirmation in reply is underway and we intend to seek leave from the Court to file it out of time before the hearing on 15^th October 2020.”

27.  But in the end, the affirmation of Tsang was only filed on 8 February 2021 with him taking a neutral stance. Since Tsang did not consent to the application, a substantive hearing took place before me on 12 March 2021. Ms Jacqueline Law, appearing for Tsang with Ms Clara Wong, accepts today that in the circumstances, the substantive hearing could not be avoided.

28.  Taking a step back, objectively speaking, in my view, there is simply no good reason for such extreme delay on the part of Tsang. Reasons are now put forward by him to explain the delay. But none of them hold water.

29.  Tsang says he needed time to consider the affidavit evidence filed by the plaintiff in support of the intervention application. He emphasises that the exhibits are voluminous and go beyond 1,000 pages. Tsang also says now that there was an amendment application filed by the plaintiff and he needed more time to deal with it. Tsang also says now that he needed to instruct counsel in relation to the intervention application. Lastly, Tsang says that the COVID situation has had an impact on his preparation of the case.

30.  As I have observed above, Tsang has at all times been fully familiar with the marble stones contract and also the arbitration award. Even allowance is being given for the COVID situation, the time taken by him to come up with his neutral stance was totally unjustified. Ms Law is at pains to emphasise that at least Tsang does not oppose the intervention application, and for that reason there had been no need for the plaintiff to file reply affidavit, thus incurring more costs. I should of course take note of that, but I should also take into account another factor.

31.  In the course of the nine months, while Tsang was apparently sitting on the matter, further enforcement actions were taken by Guangdong Co, including another set of garnishee proceedings and the proceedings in HCMP 2171/2019. On the materials before me, Tsang should know about these further enforcement proceedings.

32.  Overall speaking, the key question before me today is whether Tsang’s conduct in relation to the intervention application was reasonable or not. On the whole, in light of the undisputed or indisputable facts, I find that he had acted unreasonably. As a result, the intervention application had been dragged on. Even at the last stage, Tsang was not prepared to consent to what was really a meritorious application.

33.  I therefore conclude that Tsang should be personally liable for the plaintiff’s costs in this intervention application. Such unreasonable conduct also takes this case out of the norm, which warrants that the costs be taxed on an indemnity basis.

34.  As for the substantive hearing before me in March 2021, I consider that the attendance of one counsel would be sufficient.

35.  Lastly, I should put on record what I have not taken into account in arriving at the above conclusion. I have not given any weight to the factual finding made by Mimmie Chan J in the HCCT judgment that the arbitration award was procured by Tsang in collusion with Guangdong Co. Furthermore, I have not taken into account the alleged breach of fiduciary duties on the part of Tsang referred to in the derivative action in HCA 673/2019.

Orders

36.  For the above reasons, I make the following orders:

(a)  Costs of and incidental to these proceedings, including costs of the plaintiff’s summons filed on 25 February 2021 and all costs reserved, be paid by Tsang to the plaintiff on an indemnity basis with certificate for one counsel, to be taxed if not agreed.

(b)  The Company shall indemnify out of its assets the plaintiff against all costs incurred and to be incurred by it in intervening in the HCCT proceedings and the related enforcement proceedings.

(c)  Service of all documents in relation to this summons on the Company be dispensed with.

[Discussion re costs]

37.  I order that the costs of this costs application, including costs of today’s hearing and all reserved costs, be paid by Tsang to the plaintiff on a party and party basis, to be taxed if not agreed.

38.  Costs should follow the event.

39.  While the conduct of Tsang was not relied upon in the plaintiff’s supporting affirmation, it was referred to in its reply affirmation. Having seen the reply affirmation, Tsang nonetheless proceeded with the substantive hearing.

40.  There is therefore no basis to reduce the plaintiff’s costs by 20%, as suggested by Ms Law. I therefore award the costs of the entire summons to the plaintiff.