GALA PROSPER INVESTMENT LTD v. STEPS CONSULTING LTD AND OTHERS

HCMP 156/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 156 OF 2008

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JUDGMENT  ON  COSTS

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1.  On 28 January 2008, Gala Prosper Investment Limited (“the Applicant”), one of the two shareholders of S&W Handbags Limited (“the Company”) issued an Originating Summons against the other shareholder of the Company, Steps Consulting Limited (“the 1^st Respondent”), and the Company, seeking orders and directions for the convening of a meeting of the board of directors of the Company and of an Annual General Meeting of the Company pursuant to section 114B of the Companies Ordinance (Cap. 32).

2.  Shortly before the first hearing of the Originating Summons, Ms Pang Siu Sim, Sian (“Ms Pang”), a shareholder of the 1^st Respondent was joined as the 3^rd Respondent to the proceedings on her own application, in order to oppose it.

3.  The background to the application can be briefly stated.  The Company has two shareholders, namely the Applicant and the 1^st Respondent, each owning 50% of the shares in the Company.  They are also its only directors.  The Applicant and the 1^st Respondent in turn also have two equal shareholders.  In the case of the Applicant, its shareholders are Mr Raymond Ng and his wife, Ms Bella Dan, and in the case of the 1^st Respondent, its shareholders are Mr Andrew Ng (the younger brother of Raymond Ng) and Ms Pang.  The Company is principally engaged in the sale of handbags.

4.  From about October or November 2007, difficulties arose between the Ngs and Ms Dan on the one hand, and Ms Pang on the other, in relation to the affairs of the Company.  Ms Pang suggests that these difficulties are largely attributable to the fact that the Company’s main supplier of handbags, a company called Worldbe Limited, was owned by Mr Raymond Ng and Ms Dan.  It appears that Ms Pang had concerns about the appropriateness of payments that were being made by the Company to Worldbe.  The Ngs and Ms Dan do not accept that there was anything questionable about this relationship, and contend that the difficulties were of Ms Pang’s making.

5.  It is not necessary, nor would it be possible solely on the basis of the affirmation evidence filed in these proceedings, to determine who is right as to this.  However, the upshot of the difficulties was that Ms Pang, who, along with Ms Dan, was one of the two authorised signatories on the Company’s bank account, refused to sign a number of cheques which she considered were not sufficiently supported by appropriate documentation or reasons.  She also declined to participate in meetings of the board of either the 1^st Respondent or the Company.  Her non-participation in meetings of the 1^st Respondent’s board meant that the 1^st Respondent was unable to participate in meetings, whether of directors or shareholders, of the Company.  This had the result that, among other things, the Company was unable to hold its Annual General Meeting, as there would not be a sufficient quorum in the absence of the 1^st Respondent.

6.  By this application, the Applicant sought the convening of a meeting of the board of the Company for the purpose of considering the addition of Mr Raymond Ng and Mr Andrew Ng as additional or alternate signatories for certain of the Company’s bank accounts, and of an Annual General Meeting of the Company for the purpose of considering its audited financial statements for the year ended 31 March 2007, the approval of a proposed declaration of dividend, the appointment of auditors and the re-election of the Applicant and 1^st Respondent as directors of the Company.

7.  At the hearing of the Originating Summons on 16 April 2008, I indicated to Mr Suen, who appeared for the Applicant, that I doubted whether section 114B of the Companies Ordinance would enable the court to order a board meeting in respect of the Company, having regard to its terms.  Ms Pang, through her counsel Mr Beel, then indicated that she was prepared to consent to the holding of an Annual General Meeting, and to agree to the resolutions that were proposed.  After a brief adjournment to enable the parties to consider the position, Mr Suen indicated that, in the light of Ms Pang’s offer to consent to the passing of the resolutions sought to be passed at the Annual General Meeting, the Applicant would not seek to pursue the application.

8.  Both parties, however, sought an order for costs against the other.  As Mr Beel wished to refer to certain correspondence which was not readily available, I directed the parties to file written submissions as to the question of costs.

9.  Mr Beel submitted that the costs of the application, or at least the costs of the hearing on 16 April 2008, should be paid by the Applicant to Ms Pang.  As a fall back position, he suggested that the costs could be borne by the Company, or that there should be no order as to costs.

10.  Mr Beel advanced a number of reasons in favour of his submission.

11.  First, he suggested that the application was misconceived and that it was brought with a view to placing pressure on Ms Pang to sell her shares in the 1^st Respondent.

12.  Second, he submitted that Ms Pang had in fact been willing to attend, and had attended, at an Annual General Meeting of the Company.  It appears that she did attend at what proved to be an abortive Annual General Meeting of the Company on 7 and 14 January 2008.  However, on each occasion, she made it clear that she was there in her personal capacity, and declined to agree to the meeting proceeding by resolving with Mr Andrew Ng that the 1^st Respondent should attend and participate at the meeting.  In the circumstances, the 1^st Respondent could not participate in the meeting, which was rendered inquorate.

13.  Third, he suggested that Ms Pang had, prior to the hearing, offered substantially what was offered through him and accepted by the Applicant at the hearing on 16 April 2008, when, in a letter of 11 April 2008 from her solicitors to the Applicant’s solicitors, she said that she would undertake to “execute in the future all duties as required as a director and signatory and to participate in any forthcoming AGM”.  As a result, said Mr Beel, at least the hearing on 16 April 2008 was no longer necessary.

14.  I think, however, that the starting point must be that the Applicant has succeeded in obtaining some, though not all, of the relief that it sought.  Companies are required to hold annual general meetings, at which their accounts are considered, and other business may be transacted.  In agreeing to cooperate in relation to the holding of such a meeting, and more importantly, to consent to the passing of the resolutions proposed to be put to that meeting, Ms Pang was, in effect, conceding that the application was, to that extent, well founded.

15.  Further, given the nature of the resolutions to be proposed at the Annual General Meeting, they were not such as would affect Ms Pang’s position as a shareholder of the 1^st Respondent, or her interests in the dispute which had arisen in relation to the affairs of the Company.  In particular, it was proposed that the Applicant and 1^st Respondent should be re-appointed as directors, thus preserving the status quo.

16.  If Ms Pang’s concern was that there should be no changes to the Company’s authorised signatories, this could have been addressed separately from the question of whether or not the Company should hold its Annual General Meeting.  This, however, was never done.

17.  I therefore do not agree that the application was misconceived, at least so far as it sought the convening of an Annual General Meeting.  Nor, so far as that was concerned, do I see that it would have affected Ms Pang’s position so as to place any real pressure on her, as was suggested on her behalf.

18.  Nor do I think that Ms Pang’s attendance at the abortive attempts to hold an Annual General Meeting on 7 and 14 January 2008 mean that it was not impracticable to hold such a meeting.  Clearly, so long as she was intent on preventing the 1^st Respondent from participating in such a meeting, the meeting could not be held for want of a quorum.  In the circumstances, I am satisfied that, having regard to her position until shortly before the hearing, it was impracticable for the Company to hold its Annual General Meeting.

19.  Finally, as for the offer that was said to have been made in the letter of 11 April 2008, I think that Mr Suen is right to say that the offer was inadequate.

20.  First, it was made very late in the day.  The suggestion that Ms Pang might be willing to cooperate in relation to the convening of the Annual General Meeting of the Company came just five days before the hearing (which had been fixed for some time), at a time when much of the costs of the application would already have been incurred.

21.  In any event, as Mr Suen pointed out, the offer was not adequate to address the Applicant’s concerns.  What was offered was that Ms Pang would participate in any forthcoming Annual General Meeting.  However, it was not sufficient for Ms Pang herself to participate in such a meeting – what was necessary was for her to cooperate in allowing the 1^st Respondent to attend such a meeting so that it would be quorate.  Absent a consensus between Ms Pang and Mr Andrew Ng as to representation and voting on behalf of the 1^st Respondent, I do not think that it was unreasonable for the Applicant to press on with the hearing.  Moreover, what was offered through Mr Beel at the hearing was a significant improvement on what had been offered previously, in that Ms Pang was (through Mr Beel) offering to consent to the items of business that were proposed to be transacted at the meeting.  By contrast, in the offer of 11 April 2008, no such consent was evident.

22.  Finally, in making the offer, Ms Pang did not offer to bear any part of the costs of the application, thus making it necessary for the Applicant to proceed with the application, if only to deal with the question of costs.

23.  For these reasons, I am of the view that the Applicant has been successful to a sufficient degree that it would be appropriate to make an award of costs in its favour.

24.  That said, I would agree with Mr Beel that the application was not entirely successful, in that the Applicant did not obtain the whole of the relief which it sought, having failed to obtain an order for the convening of a directors’ meeting of the Company, and that this should be reflected in the costs order made.  Part, at least, of the evidence filed in support of the application was directed mainly to this aspect of it, and could have been omitted or dealt with much more briefly, had it not been part of the application.

25.  In all the circumstances, I think that the appropriate order would be that Ms Pang should pay two-thirds of the Applicant’s costs of this application, such costs to be taxed on the party and party basis in default of agreement.