XCHRX RE KING PACIFIC INTERNATIONAL HOLDINGS LTD.

HCMP1039/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.1039 OF 2000

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D E C I S I O N

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On 13 March 2000, three summons were due to be heard before Le Pichon J. All matters except costs were agreed. The three summons were (i) the 2nd respondent's summons to strike out the petition, (ii) the petitioners' summons for leave to discontinue the proceedings, and (iii) the petitioners' summons to withdraw the petition.

The petition was withdrawn, the proceedings discontinued and therefore the summons to strike out was also withdrawn.

This morning's hearing has been solely in relation to costs.

1. Costs as between the petitioners and the 1st respondent (the Company)

In view of correspondence exchanged between the parties, the petitioners accept that the 1st respondent is entitled to its costs from 6 March 2000. The 1st respondent contends that it is entitled to its costs prior to that date as well.

I am satisfied that prior to 6 March 2000, "the Company" could have and should have pursued a passive role in relation to the petition. I order that there be a costs order in favour of the 1st respondent for costs incurred since 6 March 2000. Prior to 6 March 2000, there be no order as to costs.

2. Costs as between the petitioners and the 2nd respondent

The 2nd respondent submits it is entitled to its costs on two grounds. Firstly, because of the general rule that costs follow the event. The "event" here being the petitioners' discontinuance. Secondly, because had the matter been pursued, the petitioners were bound to fail.

The bulk of the submissions made in this costs hearing related to the second ground. Mr Jason Pow submits that the petitioners had no jurisdiction to bring a petition under section 168A of the Companies Ordinance because that section does not apply to an "overseas company". He submits, succinctly, that an overseas company is not a company as defined under the ordinance for the purposes of section 168A. Such a company, to get the same relief, would have to use the provisions of section 37A of the Securities and Futures Ordinance, Cap.24 which enables such a petition to be brought in the name of the Securities and Futures Commissioner.

Mr Allman-Brown for the petitioners argued that section 168A could be construed so as to apply to overseas companies. He submitted that his proposition was not only arguable but also attractive. He acknowledged that there was no direct authority in support, nor was there any academic commentary which has dealt with the matter in his favour.

I do not propose to make a ruling on this issue for two reasons. Firstly, it is a novel point which at first blush seems unsustainable. However, it is not totally devoid of merit and would, if a finding was made in the petitioners' favour, have far reaching consequences. Secondly, the point arises in the context of a costs argument only, and is not being heard in the Companies Court. Moreover, it is not a situation where the court must grasp the nettle and make a decision, because the costs issue can be determined on the first issue alone, to which I now turn.

In respect of the first ground upon which the 2nd respondent claims to be entitled to its costs, namely that costs should follow the event, Mr Allman-Brown submits that where a petition is discontinued, the court has a discretion with regard to costs. This is plainly correct. In order to decide how that discretion should be exercised, the court should examine the reason or reasons for the discontinuance.

It is clear that the petition was not discontinued because the petitioners came to the conclusion that they had no jurisdiction under section 168A. I am satisfied that the true reason for the discontinuance was because the primary objective of the petitioners was the setting up of an independent enquiry into the "Wuhan Water Joint Venture". This objective was ultimately achieved and once it was so, the petitioners applied for leave to discontinue the proceedings and withdraw the petition. The affirmation of Cheung Yiu Wing dated 11 March 2000 makes it plain that this objective was not achieved easily, but only after considerable efforts. The Company and those controlling it resisted the setting up of the independent enquiry and placed obstacles in its way until the intervention of the Stock Exchange. This factor, on its own, provides a ground for exercising the court's discretion as to costs in the petitioners' favour. However it is not the only factor to take account of.

A departure from the usual rule entitling a defendant to his costs might arise if the matter in dispute had become academic (as per Keith J's ruling in Trend Publishing (HK) Limited v. Vivien Chan & Co. (a firm) HCA 9183 of 1995). The petitioners argue it had become academic once the setting up of the independent enquiry had been established. The defendant on the other hand makes two submissions in reply. Firstly, the mere fact of the setting up of an independent enquiry does not constitute an exception to the general rule. Secondly, the appointment of an independent board was not the only prayer in the petition. There were others which made allegations and claims against the 2nd respondent personally, including fraud. Mr Allman-Brown responds by resubmitting that all other prayers in the petition became academic once the primary objective was achieved.

This is a finely balanced issue. There is, on the one hand a natural sense of affront by the 2nd respondent on being accused of fraud. It is understandable that they do not concede that such a claim had become academic. I think the use of the word "academic" in this context should be construed as meaning "no longer necessary" rather than "of legal interest only".

In the petitioners' favour, I find that the true and primary purpose of the petition was as contented by Mr Allman-Brown for the petitioners. I also accept that the petitioners' concern about the management of the Company have been addressed as a result of the independent enquiry.

I have come to the conclusion, therefore, that this is a somewhat unusual situation in which a just outcome, in the exercise of my discretion, is that each side bears its own costs.

As between the petitioners and the 2nd respondent, I make no order as to costs.