XCHRX ECKART WILHELM HALLER v. HALLER INTERNATIONAL LTD. AND ANOTHER

HCCW 169/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) NO. 169 OF 1998

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J U D G M E N T

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1. This is an application by the 2nd Respondent by summons issued on 30th November 1998 for an order that the Petitioner do give security for the 2nd Respondent's costs in the sum of HK$1,000,000.00. This application by the 2nd Respondent is made at a very late stage in the proceedings.

2. The petition brought by the Petitioner is for the winding up of the 1st Respondent ("the company") on the ground that it is just and equitable to wind up the company. The Petitioner, who is a German national residing in Germany, is a 50% shareholder in the company. The other 50% shareholder is the 2nd Respondent. Mr. Sham Tat Wing and Mr. Heck are directors and shareholders of the 2nd Respondent.

3. The petition alleges, inter alia, exclusion of the Petitioner and a Mr. Lorcy from the management of the company and breaches of fiduciary duty by Mr. Sham and Mr Heck. There is also an allegation that the Petitioner has been denied financial information on the company. The petition is opposed by the 2nd Respondent. It is, however, agreed by the parties that, inter alia, there is an irreconcilable deadlock between the shareholders and that there has been a complete breakdown of the mutual trust and confidence between the shareholders.

4. The petition came on for hearing before me for three days from 16th November to 18th November 1998. Those dates were fixed months in advance and the estimate of three days was agreed by both parties. Unfortunately, as I said at the time, that was a gross underestimate of the length of the hearing of the petition by both sides. It is most unfortunate that neither side bothered to inform the court in advance that the original three days' estimate was wholly inadequate. This led to the case being adjourned part-heard at the end of the three days reserved for the hearing with a direction that five further days be fixed in consultation with counsel's diaries and that there be as early hearing dates as possible for the resumed hearing. Due to counsel's commitments, it was not possible to fix the resumed hearing of the petition for five further days before 23rd June 1999. Dates have been fixed for the resumed hearing from 23rd June 1999 to 29th June 1999.

5. This application was launched on 30th November 1998. The case, as I have said, is part-heard and the Plaintiff is still in the course of cross-examination. The 2nd Respondent asks for security in the sum of HK$1,000,000.00. It is said that the estimated costs for the additional five days in June 1999 runs to over $500,000.00.

6. It is trite law that it is a matter of the court's discretion whether or not to order security for costs under O. 23, r. 1 Rules of the High Court. The Petitioner is a foreign petitioner residing in Germany. As a matter of discretion, it is the usual ordinary or general rule of practice to require the foreign petitioner or foreign plaintiff to give security for costs because it is ordinarily just to do so. However, the court has to consider all the circumstances of the case.

7. Mr. Ho, for the 2nd Respondent, submits that the petition is bound to fail because the Petitioner has no or no substantial interest to bring the petition as there is no or no substantial surplus in the event of a winding up. He relies on the principle applied in Re Rica Gold Washing Co. [1879] 11 Ch. D. 36, and as followed in the authorities he cited, that a fully paid shareholder has no locus standi to wind up the company unless he establishes that he has a sufficient interest to petition and that there will be a surplus if the company is wound up. He submits that on the evidence disclosed in the 4th affirmation of Mr. Sham Tat Wing there would be a deficit of over HK$7,000,000.00 in the company.

8. There is some doubt whether the principle applied in Re Rica Gold Washing Co. [1879] 11 Ch. D. 36 is applicable in Hong Kong. See the judgment of Jones J., an experienced Companies judge, in Re Cirtex Co. Ltd. [1987] 3 HKC 13.

9. Furthermore, the Petitioner hotly disputes that there will be no surplus in a winding-up. One of the reasons why the petition has been brought is because, according to the Petitioner, he has been deprived of financial information of the company. Mr. Sham and Mr. Heck have been in control of the company since about March 1997. According to the Petitioner, a liquidator should be appointed to ascertain the true financial position and that there would be assets available for distribution in a winding-up. These are obviously matters of dispute between the parties.

10. I have not yet heard all the evidence in the case and I must, of course, keep an open mind on the matter until I have heard all the evidence and the submissions of counsel. But it does seem to me at this stage that there are merits in the petition and that a prima facie case has been made out.

11. I would also observe that according to the Petitioner, he does have assets within the jurisdiction, namely the debt he says is owed by the company to him in a sum in excess of HK$2,000,000.00. Mr. Sham and Mr. Heck, at a director's meeting held on 31st October 1997, purported to write off that debt but that is very much a matter in issue between the parties. It has not been demonstrated that the Petitioner clearly has no assets within the jurisdiction.

12. As I have said earlier, this application is made at a very late stage. The Court of Appeal in Anderson & Another. v. Huang Kuang Yuan & Others [1997] HKLRD 1360 held, inter alia, that it was rare to order security during the course of a trial. If security for costs was to be ordered, it should be ordered sooner rather than later so that the plaintiff has a sensible opportunity to decide, at an early stage in the proceedings, whether or not to invest additional funds for the prosecution of the action. Indeed, the rejection of the defendant's previous applications for security for costs positively encourages a plaintiff to continue with the action.

13. In BBMB Finance (Hong Kong) Ltd. and China Underwriters Life and General Insurance Co. Ltd. (In Liquidation) and Others [1991] 1 HKLR 617 it was held, inter alia, that although an application for security for costs may be made at any stage of the proceedings, it should not be made too late or too close to trial, since unless there is a reasonable explanation for the delay, the application may be refused. The proper test of lateness is whether the defendants were dilatory after they had obtained the information on the company's financial position which enabled them to apply.

14. The accounting information exhibited to Mr. Sham's 4th affirmation was available to the 2nd Respondent since 26th October 1998. That is the date that appears in the accounting records exhibited. No application for security for costs was made before the hearing of the petition on 16th November 1998 although that information was already available to the 2nd Respondent. In September 1998, the 2nd Respondent first requested security for costs in the sum of $600,000.00 but that was rejected by the Petitioner's solicitors. However, no application was made for security for costs although that was threatened at that time. The fact that there was no application for security for costs made then, in my view, positively encouraged the Petitioner to continue with the petition. The hearing of the petition then commenced on 16th November 1998 and it was only on 30th November 1998 that an application for security for costs was made. Mr. Ho, for the 2nd Respondent, frankly conceded that if the trial had continued for a further five days after the original three days estimate, no application for security for costs would have been made. The Petitioner is not responsible for the case overrunning. The original three days estimate was, as I have said, a gross underestimate by both sides.

15. I have considered all the submissions of counsel on this application. It seems to me that at this very late stage in the proceedings, in the exercise of my discretion, the proper course is to dismiss the application and I dismiss the application.

16. [After hearing submissions]

17. I make an order that the costs of the application including the costs reserved on 7th January 1999 be paid by the 2nd Respondent to the Petitioner and to be taxed and paid forthwith.