ENG WAH HING AND OTHERS v. SHUN KWONG INVESTMENT & TRUST CO LTD AND OTHERS

HCCW 958/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 958 OF 2000

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D E C I S I O N

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1. This is an application by Shun Kwong Investment & Trust Company Limited ("the Company") for a validation order. The summons was issued on 30 April 2003. The Company seeks an order that it be authorised to pay out of the Company's funds an amount not exceeding HK$358,000 to Carrier Hong Kong Limited ("Carrier") for the payment of the replacement and coating of condenser coils for water chiller units located at Shun Kwong Commercial Building, and that in the event of an order for the winding up of the Company being made on the petition, such payment shall not be avoided by section 182 of the Companies Ordinance, Cap. 32.

2. The application is opposed by the petitioners. The Official Receiver has been excused from attendance as in the previous applications for validation orders made by the Company.

3. The Company is solvent with very substantial assets. The cash assets alone are in excess of HK$20 million. The approach of the court in an application for a validation order in a situation like this is that where the directors take the view a particular transaction is necessary or expedient in the interest of the company and that reasons for their opinion are such that an intelligent and honest man could reasonably hold, the court would rarely interfere with the exercise of the discretion of the directors, unless the party opposing the application is to adduce compelling evidence to prove that the disposition is likely to injure the company (In Re Burton & Deakin Ltd [1977] 1 WLR 390 at 397F-H).

4. The amount of the expenses sought to be authorised in this application is a small sum in proportion to the total assets of the Company. The Company has filed evidence to explain why it is necessary to replace the condenser coils for the water chiller units and to spray a protective coating on the coils. A quotation was obtained from Carrier, the manufacturer of the chiller units. Carrier had installed the chiller units in the building over 10 years ago and it has prepared a proposal to the Company in April 2003, giving a description of the problems identified and making a recommendation for replacing the coils which are corroded before the summer. The quotation was given by Carrier to the Company on 11 April 2003 and the directors have passed a board resolution to accept the proposals of Carrier on 28 April 2003.

5. The summons seeking a validation order was issued on 30 April 2003. Due to the opposition of the petitioners, it was adjourned on 18 June 2003 to today. The petitioners have put forward these reasons for opposition. Firstly, it is contended that in view of the earlier outbreak of SARS, the Company should commission an expert report to investigate whether the cooling towers were the source of the spread of SARS before embarking on the replacement of the condenser coils. This ground of opposition is no longer pursued at the hearing today.

6. The second ground is that the Company should have invited tenders to obtain the best possible price, as there might be a conflict of interest for Carrier to recommend to the Company that the proposed work should be carried out. In my view, this point is of no substance. There is no basis to suggest that the decision of the directors to engage Carrier to carry out the work at the price quoted is such that an honest and intelligent member of the board could not reasonably have made in the interests of the Company.

7. In the circumstances, I make an order in terms of paragraphs 1 and 2 of the summons. I order the costs of this application be in the cause of the petition.