RE VIEW DEVELOPMENT LTD

HCCW 45/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 45 OF 2006

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D E C I S I O N

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1.  There are two applications before me, one to strike out the relief for winding up in a petition presented under sections 177(1)(f) and 168A of the Companies Ordinance, Cap. 32 and the other is to seek security for costs against the petitioner.  Both applications are taken out by the 2^nd and 3^rd respondents.

2.  I will deal with the strike out application first.

3.  The matter is relatively straightforward.  The principles I should apply in a strike out application in this context are clear.  I am to assume that all the allegations in the petition were true.  I then ask if it is plain and obvious there is no real possibility or prospect of a winding-up order being made.  If the answer is yes, because there is an alternative available remedy, such as an order to buy out the petitioner’s shares under section 168A and the petitioner is acting unreasonably in not pursuing it, I should strike out the winding-up relief.

4.  The respondents say that the company in question, Charter View Development Limited (“the Company”), is solvent.  It owns landed properties or interests in landed properties in the New Territories.  The petitioner has not indicated a preference for winding up to a buy out of its shares, or has not explained why it would pursue winding-up relief rather than a buy out of its shares.  On this basis, the respondents say there is no real possibility or prospect of the court winding up the Company, as it would not be in the interest of members to have a solvent company wound up and its assets disposed of at break-up or unsatisfactory prices.

5.  If that submission is to be made good, there must be cogent evidence before the court that the Company is indeed solvent, otherwise it would not be possible for the court to come to a view on the strike out application it is plain and obvious there is no real prospect of a winding up.

6.  Here, we have merely an assertion made in one of the affirmations filed by the respondents that the Company is a “solvent entity holding valuable assets”.  The submission is made that the petitioner did not suggest the Company is insolvent.  I do not regard this as adequate.

7.  What is known of the financial condition of the Company according to the documents and evidence placed before the court is this.

8.  The nominal capital of the Company is $10,000, divided into 10,000 shares, of which only 900 shares are issued and paid up or credited as paid up.  The Company has been dormant since 2003, it has no bank account at present.  It is stated in the amended petition that, according to Tse Kin Wah David of the 2^nd and 3^rd respondents, since mid1993 the Company had acquired approximately 204,000 sq ft of agricultural land and approximately 3,000 sq ft of building land, giving a total site area of about 207,000 sq ft in Yim Tin Tsai of Sai Kung in Demarcation District 246 and Demarcation District 250, and such lots are set out in a schedule annexed to the petition.

9.  It is also stated in the petition that the Company has acquired the “development rights” from indigenous villagers, but the legal title of most of the lots has not yet been assigned to the Company, and the Company only has “equitable rights” over the lots.

10.  The most up-to-date accounts of the Company placed before the court are the audited accounts for the year ended 31 December 2004.  According to the accounts, as at that date, there were accumulated losses of $9,635,387.  There were no assessable profits for the Company for the years of 2003 and 2004.  The only assets are non-current assets being investment representing the costs on acquisition of landed properties with a value of $7,205,678.  Current liabilities stood at $16,840,165, of which $16,810,165 was the amount due to directors.  According to the audited accounts, the Company is balance sheet insolvent.

11.  The financial position of the Company is a far cry from that of the company in Re Wong To Yick Wood Lock Ointment Limited [2001] 2 HKLRD 683 and [2003] 1 HKC 484.

12.  The strike out application of the winding-up relief simply cannot get off ground.  I would have to dismiss it.

13.  I turn to the application for security for costs.

14.  In the summons, it is stated that the application was made under Order 23 rule 1 of the Rules of the High Court or section 357 of Cap. 32.  It does not appear from the submission of Mr Maurellet, who appeared for the respondents, that he is relying on the latter provision.

15.  The first question I need to ask is whether the petitioner is ordinarily resident out of the jurisdiction.

16.  The petitioner, Patkie Investments Limited, was incorporated in Liberia on 23 April 1992.  It was set up as a holding company.  The 1^st directors were Tsang Wing Kei Wilkie and his wife.  Mr Tsang is now the sole director.  The petitioner holds 210 or 23.33% shares in the Company.  It does not carry on any business in Hong Kong.

17.  In the amended petition, the petitioner’s address is stated as its registered address in Monrovia, Liberia.  The petitioner has not refuted the suggestion in the respondents’ affirmation that to comply with Liberian company law, the books and records of the petitioner are kept in Liberia.

18.  The respondents first sought security for costs from the petitioner by a letter of their solicitors dated 4 May 2006.  On 20 May 2006, the petitioner took out a business registration in Hong Kong, some 14 years after its incorporation.  On 12 June 2006, the petitioner submitted an application to the Companies Registry for registration under Part XI of Cap. 32 as an oversea company.  According to the recent searches of the respondents’ solicitors, the petitioner has not yet been registered under Part XI.

19.  I agree with Mr Maurellet that the above measures are merely contrived steps belatedly taken, to make it appear that the petitioner is ordinarily resident in Hong Kong to resist an application for security for costs.

20.  The ordinary residence of a company is decided by reference to where its central management and control is (Insurance Co of the State of Pennsylvania v Grand Union Insurance Co Ltd [1988] 2 HKLR 541).  However, for a non-trading company, the court does recognise that it may be more important than would otherwise be the case to have regard to the nature of the company’s corporate activities (Re Little Olympian Each Ways Ltd [1995] 1 WLR 560; Charter View Holdings (BVI) Ltd v Corona Investments Ltd & Another [1998] 1 HKLRD 469 at 471F-J; Winvar Investment Inc v Southern Mark Ltd,DCCJ No. 4768 of 2001, HH Judge Carlson, 18 July 2001, paragraph 8; and Silver Stone Development Ltd & Another v Lau Kwong Ching James & Others, HCA No. 2206 of 2000, Deputy Judge Muttrie, 27 June 2002, paragraphs 5 to 12).

21.  As a holding company, the reason for the petitioner’s existence is to hold its shares in the Company and in any other company for its shareholder or shareholders in the jurisdiction of Liberia.  The real business of the petitioner is in its place of incorporation, where it ‘keeps house’.

22.  I find that the petitioner is ordinarily resident out of the jurisdiction.

23.  The next question is whether I should exercise my discretion to order the petitioner to provide security for costs.

24.  This power to order security is usually exercised against a foreign plaintiff, because it is prima facie unjust that the foreign plaintiff who by virtue of his residence abroad is more or less immune to the consequence of a costs order against him, and he should only be allowed to proceed on making funds available within the jurisdiction against which the costs order can be executed.

25.  I recognise that that discretion may not be exercised if the petitioner satisfies the court that it does have substantial assets within the jurisdiction that would be readily available for costs.  I am not satisfied in this instance.

26.  The petitioner has pointed to its shares in the Company, and its shares in various other private companies as assets available for execution.  I agree with Mr Maurellet that these shares in private companies are not satisfactory, because it cannot be said that they would certainly be available for costs.  The value of shares in such private companies is difficult to ascertain on the available evidence, if not doubtful, and it is uncertain if a buyer could readily be found for such shares.

27.  I think it would be appropriate to order security for costs in this situation.

28.  Regarding the amount of security, the respondents seek $750,000.  The skeleton bill makes no differentiation between costs actually incurred and projected costs.  I make an allowance for this and for taxation on a party and party basis.  I fix the amount of security at $550,000.

29.  I make the following order:

In the event of the petitioner not paying into court $550,000 or providing a bank guarantee of the said sum as security for the costs of the 2^nd and 3^rd respondents in these proceedings within 28 days hereof, all further proceedings in this petition are to be stayed until such time as such security for costs is provided.

30.  I vary the order on 14 August 2006 that the petition is to be restored for hearing on the first Monday after the determination of the strike out application.  I order that the petition is to be restored to the first Monday 9:30 a.m. upon compliance with the order for security for costs.  I also give leave to the respondents to restore the petition on 7 days’ notice, if there should be failure to comply with the order to provide security.

31.  For the strike out application, I order the 2^nd & 3^rd respondents to pay the petitioner’s costs in any event.  On the application for security for costs, I order the petitioner to pay the costs of the 2^nd & 3^rd respondents in any event.  For the purpose of taxation, I would apportion half of the costs of the hearing today to each application.