XCHRX RE Tin Tin Yat Pao (International) Ltd.

HCCW 579/95

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 579 OF 1995

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REASONS FOR DECISION

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1. At the hearing scheduled for 30-31 May 2001, there were before the Court

(a) an application under s.199(1)(f) Companies Ordinance by the Liquidators of Tin Tin Yat Pao (International) Ltd ("the Company") for an order that they be at liberty to compromise 3 sets of proceedings on the terms set out in a draft Deed of Settlement, and

(b) an alternative summons under s.200(3) CO also issued by the Liquidators for an order that they be at liberty to apply to Court to enter judgment on an alternative claim in the first of the 3 sets of proceedings, and to apply for payment out of an aggregate sum paid into Court.

2. Both summonses were opposed by Cheng Yun Sing ("Cheng"), a creditor. Through a company by the name of Tin Tin Yat Pao Ltd., he also owns 90% of the shares of the Company. Mr Cheng's position was that the Company should carry on with all the proceedings. I should indicate for the record that there was no objection to my hearing this matter.

3. On the first day of the hearing, counsel for Mr Cheng disclosed that Tin Tin Yat Pao Ltd had, the day before, entered into a binding agreement under which an investor would provide sufficient funds to discharge the Company's indebtedness and to pay the liquidators' charges and costs. Copies of this agreement (with the identity of the investor expurgated) were provided to the Court and the Liquidators.

4. Under the agreement, a sum of $50m. would be provided on 15 July 2001. It has been agreed by the investor that Tin Tin Yat Pao Ltd would be authorized to use this sum to acquire the publication rights of the Tin Tin Daily News.

5. It was submitted on behalf of Mr Cheng that the hearing of the summonses should be adjourned until after that date when (it is anticipated) his company would regain control of the Company and be able to direct the proceedings again.

6. The liquidators objected to an adjournment on the ground (discussed below) that the Company might lose the opportunity to settle the 3 sets of proceedings within the intervening period.

7. At the end of the hearing, I considered that it would be in the best interests of the Company to adjourn the hearing. I ordered that the hearing be adjourned to an early date to be fixed not before 7 days after 15 July 2001. I said that I would reduce the reasons for that decision into writing to be handed down. I do so now.

8. It is first necessary to summarize the 3 sets of proceedings which were the subject matter of the proposed Deed of Settlement.

HCA 6856/90 ("the Main Action")

9. In these proceedings, the Company (which previously published the Tin Tin Daily News) is the Plaintiff. There are four Defendants.

10. The 1st and 2nd Defendants Ho Sai Chu and his wife Salina Ko ("the Hos") had previously controlled the Company.

11. The 3rd Defendant is a company called Tin Tin Publication Development Ltd ("TTPD") to which the Plaintiff (whilst controlled by the Hos) had granted a licence to publish the newspaper under a Licence Agreement (and extensions).

12. The 4th Defendant is a company controlled by Mrs Ho to whom the Company had paid certain management fees.

13. After the Company passed from the control of the Hos to Mr Cheng, the 1st set of proceedings was instituted in 1990. Briefly, it is alleged in this action that the Licence Agreement was invalid in that the Hos were acting in breach of trust in procuring the Company to enter into it (and its extensions). The Company is seeking to avoid the agreement and is claiming an account of profits from TTPD and damages for breach of fiduciary duty from the Hos. This claim has been called the Primary Claim.

14. By way of an alternative case, it is alleged that if the licence agreement was valid, the Company is entitled to the licence fees thereunder. This claim has been called the Alternative Claim.

15. After the commencement of the 1st set of proceedings in 1990, TTPD paid the licence fees regularly into Court by way of tender as a defence to the Alternative Claim. There is therefore now a sum in Court of about $38m comprising about $29m. in principal with interest accrued thereon. This sum has been called the Fund in Court.

16. In August 1998 however, TTPD failed to pay the licence fees into Court. This prompted the Company to issue a summons in October 1998 for interim payment. This was met by TTPD's application in November 1998 for leave to amend its Defence to add a new defence, the effect of which was that the tender of the licence fees was not necessary.

17. The matter eventually went to the Court of Final Appeal which held in July 2000 that the proposed amendment was inarguable and ordered TTPD to pay $6.6m by way of interim payment and the Company's costs.

HCCW 784/00 ("the Winding-Up proceedings")

18. The failure by TTPD to make payment under the CFA order led to garnishee orders nisi being made against its bank accounts. Funds of about $4.5m. are now frozen.

19. On 29 August 2000, the Company issued winding-up proceedings against TTPD. There were other creditors who appeared in the petition. Apart from a firm of solicitors (who had represented TTPD in the Main Action) who had at one time supported the petition, these other creditors have opposed the petition. The hearing of the petition has been adjourned pending the determination of the present summonses.

HCA 9048/00 ("the Injunction proceedings")

20. On 7 September 2000, shortly after the CFA's decision in the Main Action, TTPD ceased publication of the Tin Tin newspaper. The next day, a newspaper by the name of Everybody's Daily News (in Chinese, Yan Yan Daily News) appeared.

21. The Company issued injunction proceedings against TTPD and others for passing-off and breach of copyright, on the grounds of similarities between the two newspapers and evidence of representations that the Tin Tin Daily News was carrying on with merely a change of name.

22. On 19 September 2000, Cheung J. granted an interim injunction in this, the 3rd set of proceedings, stopping the publication of Everybody's Daily News.

23. The other defendants in this 3rd set of proceedings are Televerse Publishing Ltd ("Televerse"), Benjamin Lau Shun-chi and Henry Woo Kwok-hang. Televerse is the parent company of a company called Chios Ltd which is now the controlling shareholder of TTPD. Mr Lau controls Televerse, and he and Mr Woo are directors of Televerse, Chios and TTPD.

24. I should add that on 8 September 2000, i.e. the first day of publication of Everybody Daily News, the Company terminated the Licence Agreement for breach by TTPD.

Proposed compromise

25. The 1st summons issued by the liquidators is to compromise all 3 sets of proceedings under the terms of a Deed of Settlement, the parties to which would be the Company, TTPD, Televerse, Mr Lau and Mr Woo.

26. In relation to the Main Action, the Company would

(a) have paid out to it the Fund in Court

(b) have judgment entered in its favour in the following sums:-

i. $7.5m. being the licence fees for the period from August 1998 (when TTPD stopped tendering payment into Court) to September 2000 (when the Licence Agreement was terminated by the Company); as such, this would overlap with the interim payment ordered by the CFA;

ii. $4.2m. as liquidated damages representing the aggregate licence fees payable to the Company until the expiry of the Licence in December 2001;

iii. $4.3m. being agreed costs ordered to be paid by the CFA;

(c) have withdrawn against it TTPD's proof of debt in the sum of $13m. which is a restitutionary claim by TTPD of the aggregate sum of all the licence fees that TTPD had paid the Company. This restitutionary claim would only apply if the Licence Agreement were to be rescinded.

27. Mr Cheng is opposed to this compromise because of its possible ramifications on the Company's claims against the Hos and Mrs Ho's company, the other defendants in the Main Action.

28. In relation to the Winding-up proceedings, the Company would discontinue the petition and the Company would discharge the garnishee orders (over the sum of $4.5m.) to enable TTPD to apply the money towards repayment of external creditors of TTPD. These external creditors include Chios, a company called Times Ringier (HK) Ltd, the former solicitors of TTPD and employees.

29. The Injunction proceedings would be discontinued on the basis that TTPD, Televerse, Mr Lau and Mr Woo would provide undertakings in terms identical to the interim injunction "but excluding any reference to the Defendants' dealing with `Everybody's Daily News'. It is also expressly provided that they would be able to use that name for their publications. As for costs, Televerse would pay $300,000 towards the Company's costs in the injunction proceedings and the defendants would bear their own costs.

Liquidators' opposition to adjournment

30. As stated in paragraph 6 above, the Liquidators have opposed the adjournment. In respect of the 1st summons, it is said that the opportunity to compromise the proceedings (if approved by the Court) might be lost in the interim. In respect of the 2nd summons, it has been suggested that the Company might lose the opportunity of applying to enter judgment on the Alternative Claim.

31. In respect of the 2nd summons, it seems fairly clear that the concern is not a substantial one. The Fund in Court cannot be withdrawn without the Court's leave and there has been no application made by TTPD for its withdrawal. It also seems reasonably clear that the Company is a secured creditor to the extent of the Fund in Court, so that even if TTPD is wound-up during this period of adjournment, the Company's right to take the Fund in Court out would not be threatened. Therefore, the Company's "fall-back" position of applying for judgment under the Alternative Claim would appear to be fairly secure.

32. So the only real issue is in respect of the 1st summons, which involves the assessment of any prejudice that the Company might suffer if, in this period of adjournment, it lost the opportunity to compromise the 3 sets of proceedings.

33. Counsel for the Liquidators has contended that the following additional benefits of the compromise are put at risk by an adjournment:-

(a) as far as the Main Action is concerned, the Company would be getting judgment in the sum of $11.7m. and would have withdrawn against it TTPD's proof of debt of $13m. The Company would also not be liable to pay TTPD's costs in defending the Primary Claim;

(b) as far as the Injunction proceedings are concerned, the Company would be able to preserve the name of the Tin Tin Daily News and its copyright in archive materials.

34. I note that it has not been advanced as a positive case by the Liquidators that one of the benefits of the compromise would be to enable the Company to carry on with its claims against the Hos and Mrs Ho's company. It was accepted that the claim for the licence fees was inconsistent with the contention that the Licence Agreement was invalid, although it was said that "it does not necessarily follow" that the Company would not be able to pursue its claims for breach of fiduciary duty and for the management fees.

Decision

35. Considering all the above matters, in the exercise of my discretion, I took the view that it would be in the best interests of the Company to adjourn the hearing. The Company has the "all-back" of taking payment out of $38m. even if the compromise is withdrawn by the other parties during this period of adjournment.

36. Without wishing in any way to decide the summonses, I was not persuaded that the benefits that have been advanced on behalf of the Liquidators were so substantial that I should deny Mr Cheng and his company the relatively short adjournment of 6 weeks.

37. As far as the judgment in the sum of $11.7m. is concerned, the sum of $6.6m is already covered by the CFA's order for interim payment and the Company already has the benefit of the garnishee order in the sum of $4.5m. In any event, what the Company would be getting would be a judgment, not immediate funds.

38. As for the withdrawal of the proof of debt of $13m. against the Company, counsel for the Liquidators accepted that this restitutionary claim would have to go in any event if judgment is entered on the basis that the Licence Agreement was valid.

39. As for the costs of the Main Action, it would appear that this would not amount to much. The Action has not proceeded beyond pleadings, and all costs since 1998 have been won by the Company.

40. As for the injunction, nothing has happened since September 2000 and the summons for an inter-partes hearing has not been restored for hearing. As for the archive materials, they have in fact been returned to the Company.

41. There is therefore not that much in the way of benefits from the compromise that would be put at risk during the period of adjournment. That is to be balanced against refusing the adjournment. If the summonses are heard and leave is given to the Liquidators to compromise the proceedings or enter judgment on the Alternative Claim, there is a risk that the Company's claims against the Hos and the management company may be lost forever to the Company. Whilst the creditors would be satisfied by the discharge of the Company's indebtedness to them, the contributories would be prejudiced by the loss of that possible corporate asset (the claims against the Hos and the management).

42. In the circumstances, an adjournment was granted. I ordered that the costs of the adjournment be paid by Mr Cheng in any event. That was because the costs of the appearances at this hearing might have been saved had he informed the Liquidators of the progress or imminence of the agreement. If he had done so, it would then have been up to the Liquidators to see if they wished to press ahead with instructing counsel and solicitors at the hearing.