NG WONG ALFRED AND ANOTHER v. WONG HENG INVESTMENT CO LTD

HCMP 1302/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1302 OF 2009

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BETWEEN

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D E C I S I O N

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1.  I have before me an application for security for costs, adjourned by a Master on 11 August 2009. This is an opportunistic application.

2.  The substantive proceedings is an originating summons for leave to bring a statutory derivative action by the company, Wong Heng Investment Company Limited (“the Company”) under section 168BC of the Companies Ordinance, Cap. 32. The originating summons was issued on 9 July 2009 with the return date of today. The two applicants also seek an order that the Company should indemnify them for the costs they have incurred in bringing the originating summons.

3.  By this application for security for costs, which is made by the Company, those who are in control of the Company and the intended defendants in the proposed statutory derivative action have turned the table on the other side.

4.  This application is odd, to say the least. It was issued on 6 August, without a prior letter seeking security for costs in the amount of $262,000 from the applicants. It smacks of haste, with no serious attempt to give an opportunity to the other side to respond. It seeks an order that unless and until security is furnished, the Company should not have to file and serve evidence in opposition to the originating summons. This seems to me to be an attempt to delay the substantive proceedings.

5.  I would exercise my discretion to refuse security for costs for two reasons.

6.  Firstly, on the merits of the originating summons. For present purpose, it is not necessary to come to a firm view on the merits. A tentative view will suffice. In doing so, I have taken into account the comprehensive letter in reply written by the Company’s solicitors dated 29 October 2008, as well as the additional grounds advanced by one of the directors to contest the statutory derivative action sworn in support of this application for security. It is well established in an application for leave to bring a statutory derivative action, it is only necessary to show it appears prima facie in the interest of the company to bring the proposed action. There is no need and it is not appropriate to establish this to a particularly high standard. I am inclined to think on the available evidence, the applicants have good prospects of meeting the relatively low threshold laid down by statute and would succeed in obtaining leave to bring a statutory derivative action. There is no need to discuss further the merits of the proposed action at this stage.

7.  Secondly, I am satisfied the applicants do have substantial assets in Hong Kong that would be available to meet any adverse costs order that might be made against them, in the unlikely event they should fail in the leave application by originating summons.

8.  The two applicants together hold a 25% stake in the Company, which is a property holding company with a very valuable property in Johnston Road assessed to be worth over $47.5 million in 2007. The applicants’ stake in the Company would be worth $12 million on that basis.

9.  As in the casecited by Mr Suen for the applicants, Lee Wing Kim v Lee Tak Yee, HCA No. A12428 of 1998, Findlay J, 17 March 1999, the applicants cannot dispose of their shares without the approval by the Company, and the Company will have at its mercy a substantial asset of the applicants to the tune of $12 million. The shares of the applicants in the Company would provide the Company with security for any award of costs in its favour as good as money paid into court.

10.  Besides, the Company would from time to time make distributions to its shareholders, including the applicants, of profits being rental income received by the Company. The applicants are entitled to 1/5 of such distributions. That is another source of funds of the applicants under the Company’s control that may be used to meet any liability of the applicants for costs.

11.  Lastly, one of the applicants has maintained a bank account with a bank in Hong Kong. His latest bank statement has a credit balance of over $500,000.

12.  For these reasons, the application for security for costs is refused.

13.  I award costs of this application to the applicants, to be paid forthwith.

14.  As I have held, this is an opportunistic application. I also found that the applicants have substantial assets in Hong Kong, the disposal of which would be under the control of the Company. This is something that is known to the Company all along.

15.  For these reasons, it is appropriate to order costs to be paid forthwith instead of in any event.

16.  I also award costs on an indemnity basis, having regard to the special nature of the substantive proceedings.

17.  I have considered the skeleton bill of costs submitted by the applicants in the amount of $62,600. Mr Chow for the Company submitted that costs should be taxed down to $40,000.

18.  Considering that the basis for taxation is on an indemnity basis, I would only be prepared to knock off $5,000 from the skeleton bill. I assess the costs of the applicants in this application on a gross sum basis at $57,600.