WONG WAI TUNG v. LAM CHUN FUNG AND ANOTHER

HCCW 150/2018 & HCA 2057/2018
(HEARD TOGETHER)

[2019] HKCFI 3034

HCCW 150/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 150 OF 2018

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2057 OF 2018

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(HEARD TOGETHER)

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D E C I S I O N

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1.  I heard on 4 December 2019 a summons to strike out the prayer for a winding up order in the present petition, an application to amend a validation order and a case management conference. Most of the orders were agreed either prior to or during the hearing and do not require comment. There are, however, a couple of issues for which reasons will be helpful to practitioners in the future.

2.  The first relates to the costs of the strike out application.  There is no dispute that the Petitioner should pay the 1^st Respondent’s costs.  The only issue is whether the costs should be assessed on a higher than party and party basis.

3.  I summarise in paragraphs 9 to 10 of my decision in  Re Sun Light Elastic Limited[1] the court’s approach to granting a  winding-up order of a solvent company at the behest of a shareholder who has petitioned on the just and equitable grounds relying on matters that are capable of constituting unfair prejudice and what needs to be pleaded (a term I use loosely as a petition is not a pleading) in the petition:

“9. In my view what is clear from the authorities is that the court will only grant a winding-up order rather than relief under section 168A if there is good reason to do so. In my view if a winding-up order is to be sought, particularly in the alternative it should only be because the Petitioner has a particular reason for doing so. It is not enough simply to say ‘well one never knows what will transpire’. This would be no criteria at all. The Petitioner must be able to point to particular matters he is concerned might make a winding-up order the appropriate or only practical relief. It is for this reason that in Sin Chung Yin Ronald and others v Sinodental Investments Ltd and Anor [2] I said:

‘21. I think it is appropriate to end with the salutary reminder of Madam Justice Yuen in Re Wong To Yick Wood Lock Ointment Limited [2001] 2 HKC 618 at 623F. There is a Practice Direction in England, (No. 1 of 1990) [1990] 1 WLR 490 reminding practitioners of the undesirability of including as a matter of course a prayer for winding up as an alternative to an order under section 459 of the Companies Act (1985) (equivalent to section 168A of the Companies Ordinance) that:

 “It should be included only if that is the relief that the petitioner prefers or if it is considered that it may be the only relief to which he is entitled.”

22. It is clear that the prayer for a winding-up order has been included in this case without sufficient thought as to whether or not it is necessary. Practitioners should not automatically include as an alternative relief in a petition presented primarily for relief under section 168A of a prayer for winding up. They should only do so if there is reason to believe that this may be the relief that will be sought at trial, and the facts relied on in forming this view should be set out in the petition and amplified as necessary in the petitioner’s evidence filed in support of that petition.’

10. It seems to me that to require a petitioner to state in his Petition why he has sought in the alternative a winding-up order is not only sensible but consistent with the requirement that a petition must adequately set out the grounds on which relief is sought: Re Fildes Bros Limited [1970] All ER 923.”

4.  The Petition did not contain any averments explaining why a winding-up order was sought.  This having been drawn to the attention of the Petitioner’s legal team amendments were made, but they contain nothing of any substance. Mr Herbert Leung, who appeared for the Petitioner, submitted before me that it had always been the Petitioner’s preferred relief despite the inadequacies of the Petition, but if this was the case it seems to me likely to be because he had not been properly advised at the court’s approach to the granting of relief in cases of this sort.   It seems to me that if a petitioner includes a prayer for a winding-up order, for which he is not able to provide a plausible explanation, and necessarily if the petitioner fails to give any reason at all, the claim for a winding-up order is an abuse and it is appropriate to award costs on a higher than normal basis.  In the present case it seems to me that it should be a common fund basis and I so order with a certificate for counsel.

5.  The next point concerns the costs of the validation orders. The first and substantive validation order was granted by Ng J and costs reserved.  A subsequent order was granted by DHCJ Ismail SC making a minor amendment to the earlier order and making an order that costs be in the cause.  Mr Mak, who appeared for the 1^st Respondent, invited me to vary the costs order in the light of the striking out of the prayer for a winding-up order and order that the Petitioner pay the costs of the validation order applications to the 1^st Respondent forthwith.  There was some debate as to whether or not the court could do this as the orders having been sealed it is functus so far as the issue of costs is concerned.   I am inclined to the view that this is probably correct, but in any event it I would not have amended the order.  Although it seems to me that it would have been open to the 1^st Respondent to ask for an order that the costs of the validation order applications be costs in the cause of the prayer for a winding-up order, he did not do so.  If he had done so it seems to me that it would probably have been the correct order to make and, if it had been made, the prayer now having been struck out the 1^st Respondent would have been able now to proceed to taxation of his costs if they could not be agreed.  In expressing this view I do not suggest that there is any fault on the part of the 1^st Respondent’s legal team in not seeking such an order, because I do not recall a case in which I have seen it done.  However, it does seem to me that if lawyers for a company or a shareholder making such an application are aware that there is a striking out application in respect of the prayer for relief this would be an appropriate order for them to seek and, depending on the facts of the case, normally an appropriate order to make.

6.  The final point concerns the variation of the substantive provisions of the validation order, which are no longer necessary in the light of the striking out of the prayer for a winding-up order.  The Petitioner does not object to this, but Mr Leung brought to my attention a judgment of Deputy Judge Winnie Tsui hearing a personal injuries case in the District Court [3]. In paragraphs 27 to 28 of a thorough analysis of the limits of the court’s freedom to alter orders after they have been perfected the Judge says this:

“27. Thirdly, in respect of ‘liberty to apply’ cases, generally speaking, ‘liberty to apply’ is expressed, and if not expressed will be implied, where the order drawn up is one which requires working out, and the working out involves matters on which it may be necessary to obtain the decision of the court: Cristel v Cristel [1951] 2 KB 725 at 728.

28. Accordingly, the court’s power to revisit an order pursuant to ‘liberty to apply’ is for the sole purpose of working out the order. Somervell LJ said (at 728): Prima facie, certainly, it does not entitle people to come and ask that the order itself shall be varied.”

7.  Mr Leung suggested that this called into question the court’s ability to vary the substantive validation order.  As a matter of practice the Companies Court does vary validation orders1 because by their nature they are orders that need to be amended to deal with the changing circumstances faced by both solvent and insolvent companies carrying on business or needing to dispose of assets during the course of proceedings seeking that they be wound up.  Indeed this happened in the present case, albeit the variation was minor.  It seems to me that the correct analysis is this.   It is in the nature of the power granted to the Companies Court under section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32), that the relief is flexible and may be varied if the circumstances change.  The inclusion of liberty to apply simply reflects that.  An example would be an application to validate a sale of a specific valuable asset that had not been envisaged at the time an initial order had been granted; the terms of which were not wide enough to cover the proposed discrete disposal of a valuable asset.  It matters not whether the new order is framed as a separate one or an amendment to an existing order.  It seems to me that to suggest that once a substantive order has been made no further substantive orders can be made, because the Companies Court has decided whether or not a validation order should be granted, become functus and thus is unable to entertain further applications under section 182 must be wrong.  It seems to me that the same reasoning justifies a variation of the substantive provisions of an existing validation order.  The right to seek such a variation is not dependent on the inclusion of liberty to apply, but the nature of the power granted under the Ordinance to the Companies Court.