XCHRX Re Chor Lau Heung Restaurant Co. Ltd.

HCCW 63/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.63 OF 1999

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D E C I S I O N

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1. This is the costs hearing following the dismissal of the petition on 21 March 2000.

2. The respondents seek costs on an indemnity basis.

3. The applicable legal principles are set out in the judgment of the Court of Appeal in Sung Foo Kee Ltd v. Pak Lik Co. [1996] 3 HKC 570 at 575C-576H. These may be summarised as follows :

(1) In Hong Kong, judges have a discretionary power to direct the taxation of the receiving party's costs on the basis which they consider to be appropriate to the case, including the indemnity basis.

(2) This is not a discretion limited by indications in previous cases as to the sort of special or unusual features (there does have to be some special or unusual features) which could justify an award of indemnity costs. The examples given by Godfrey JA in Overseas Trust Bank Ltd v. Coopers & Lybrand [1991] 1 HKLR 177 at 182J-183C are not to be taken as determinative of the sort of case in which indemnity costs may be ordered.

(3) When they consider it appropriate, judges should not be slow to make orders for the receiving party's costs to be taxed on that basis.

4. In arriving at those principles, the Court of Appeal followed the approach of the English court in Disney v. Plummer (CA, 16 November 1987, unreported), Macmillan Inc v. Bishopgate Investment Trust Ltd (Millet J, Ch D, 10 December 1993, unreported) and Munkenbeck & Marshall v. McAlpine (1995) 44 Con LR 30. In Disney v. Plummer, Kerr LJ rejected the submission that indemnity costs would only be appropriate where there had been deception or underhand conduct, but not if the litigation was merely fought bitterly or even unreasonably. In the Macmillan case, Millet J rejected the submission that the power was confined to cases brought with an ulterior motive or for an improper purpose and held that litigants who conducted their cases in bad faith, or as a personal vendetta, or in an improper or oppressive manner, or who caused costs to be incurred irrationally or out of all proportion as to what is at stake, are equally at risk.

5. In Disney v. Plummer, Eastham J said :

"The judge having listened to the various submissions which are summarised, clearly took the view that this was one of the cases in which he could, and should, make a robust order so as to discourage other plaintiffs from pursuing litigation in the way in which this litigation has been pursued on behalf of this particular plaintiff. In my judgment he had ample material on which he could find that it was appropriate to order costs on the indemnity basis and indeed, after the defendants had been exposed to the very serious consequences of this bitterly conducted litigation, they would have felt a sense of considerable injustice if their costs had been whittled away down to the costs on a standard basis."

(See Sung Foo Kee Ltd v. Pak Lik Co at 575H-576A.) That was followed in the Macmillan case where Millet J held :

"... the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be 'appropriate'."

To similar effect is the Munkenbeck case where the court held (at 33) :

"In my view it is a pity that various courts have attempted to define in exactly what circumstances indemnity costs may be ordered. It is a matter in each case of the judge exercising his discretion to order costs on an indemnity basis when appropriate to the facts before him."

Whether indemnity costs appropriate

6. The question is whether the petition was nothing more than ordinary hostile litigation or whether as leading counsel for the respondents submitted, there are special circumstances or unusual features that justify the making of an order for indemnity costs. Not only (as was the court's findings) did no sound basis exist in fact and in law for those proceedings, it was also submitted that the petition was presented and pursued for a collateral purpose and was therefore an abuse of the process of the court rendering it appropriate for an indemnity costs order.

Collateral purpose

8. The petition was a minority shareholder's petition seeking a buy out and in the alternative a winding-up order. Open offers made by the respondents to purchase the shares registered in the petitioner's name at a price to be valued by an independent valuer with full access to be company's books and records were unreasonably rejected. Indeed, one was made in December 1997, well before the presentation of the petition. At that time, the only proceedings on foot as regards the Company were HCMP3907 and 4158 of 1997 which were subject to a stay and a receiver had been appointed pending resolution of the majority control issue. Had the petitioner been genuine in seeking the relief of a buy-out, she would not have rejected the open offers outright : at a minimum she would have responded to them in a constructive manner. As noted in my judgment, the six reasons eventually advanced for not taking up the offer were found to be of no substance.

9. When cross-examined as to the reasons for her issuing the petition, the petitioner stated that it was for the recovery of rent for the premises occupied by the company. As a response it was both irrational and illogical. More than that, it betrayed a fundamental lack of understanding of the proceedings. So taken at face value and assuming that the petitioner was telling the truth, the answer made no sense. But if the answer given was not a truthful one, it would only be legitimate to infer that she did not have a proper purpose as I see no basis to warrant an inference of a proper purpose. It is to be noted that the petitioner was never re-examined on that issue.

10. The inference of an improper motive is only reinforced when the above matters are viewed against the backdrop of events occurring during the period commencing with the deceased's death until the date of the petition. The probate action was commenced a week after the deceased's death. Until its resolution, the identity of the ultimate controlling shareholder (whether it was the petitioner or her children) remained uncertain. In October 1997, the petitioner sought to obstruct or impede the efforts of the respondents to obtain a general restaurant licence in order to continue the restaurant business. A year later, in October 1998, the petitioner effectively abandoned the probate action and thus any contention that her beneficial entitlement gave her control of the Company. With the disposal of the probate proceedings, the logical consequence would have been the resumption of management and control by the respondents, the disposal of HCMP3907 and 4158 of 1997 in their favour and the termination of the receivership order. All these did not come to pass because of the petition.

11. The opposition to HCMP3907/1997 by the petitioner after the lifting of the stay in January 1999 was immediately followed by the filing of this petition. The inevitable consequence was to thwart any immediate prospect of the respondents being able to resume control of the company. The timing of the petition was such that it was unlikely to have been fortuitous. This is quite apparent when one considers the matters relied on in the petition as constituting oppression and/or unfairly prejudicial conduct : they all took place prior to 1998. Put differently, nothing new occurred in late 1998 that could be said to have precipitated the petition. The inference is inescapable that the petition was brought for a collateral purpose.

12. It is settled to law that the presentation of a petition in order to bring pressure to bear to achieve a collateral purpose is an abuse of the process of the court. See Re Bellador Silk Ltd [1965] 1 All ER 667 at 672B and Re Astec (BSR) plc [1998] 2 BCLC 556 at 591G-H.

Conclusion

13. In those circumstances, I do not agree that the present case was nothing more than ordinary hostile litigation, where the witness simply failed to come up to proof.

14. Applying the principles set out in Sung Foo Kee Ltd v. Pak Lik Co (supra), it is entirely appropriate, given the collateral purpose of the petition and the court's finding that it had no merit in fact and in law, for an order for indemnity costs and I so order in favour of the respondents.