HUA HAN HEALTH INDUSTRY HOLDINGS HOLDING LTD v. HAW PAR PHARMACEUTICALS HOLDINGS PTE LTD

HCCW 110/2019

[2019] HKCFI 2032

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 110 OF 2019

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J U D G M E N T

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1.  On 18 July 2019, I heard, amongst other things, the application for the substitution of the petitioner in this matter which was originally commenced by a creditor’s petition in April 2019. The intended substituted petitioner is a contributory being a shareholder of approximately 10 per cent of the shares in the company. I also heard an application by that contributory for the appointment of provisional liquidators. I acceded to both applications, allowing the contributory to be substituted as the petitioner and I ordered the appointment of provisional liquidators. I did so by a reasoned judgment which I delivered orally on the day of the hearing albeit that the typed version of those reasons and the decision were provided to the parties subsequently in the usual court judgment or ruling format.

2.  By summons dated 25 July 2019, an application has been made by the company to appeal from my ruling, and the draft notice of appeal seeks the dismissal of both the Substitution Summons and the PL Summons, as I called them in my original ruling. 

3.  Three grounds of appeal are identified in the draft notice of appeal.  In his skeleton argument, Mr Maurellet SC who has replaced Mr William Wong SC who led the representation for the company on the 18 July 2019 hearing, albeit still leading Mr Kevin Lau, has identified the three grounds as each raising, to use his language, “a thorny legal issue”.

4.  The first ground he said is the need for investigation by itself is an insufficient basis for seeking up a winding order at least on a contributory’s petition, and Mr Maurellet says that Court of Appeal scrutiny should be invited as to a decision of Madam Justice Le Pichon in Re Comtowell Limited [1998] 2 HKLRD 463 and by extension the cases which follow it, because of either a tension with earlier English authority or a failure to take into account the proposition in that English authority.

5.  Ground 2 suggests an error in my ruling in that arriving at my decision I took into account factors which apply only on a public interest petition by the SFC or the Secretary for Justice.  Mr Maurellet says that puts into focus the question of whether private litigants can pray in aid the public interest winding-up jurisprudence on which there are conflicting precedents in Hong Kong and England, a situation again suitable for appellate consideration and review.

6.  Ground 3 suggests that I failed fully to address the issue as to whether a derivative action in an unfair prejudice claim constituted alternative remedies in this case for the contributory and that that raises a question of whether there is a unified spectrum spanning derivative action, unfair prejudice and just and equitable winding-up petitions.  Orally Mr Maurellet has not really pushed the third point recognising, as he does, that there is some factual sensitivity in my ruling and it seems to me, in any event, that the point in ground 3 probably loops back to either one or both of the first two points.  I do not intend to address it further.

7.  As to ground 1, Mr Maurellet accepts that I followed a long line of Hong Kong cases following the Comtowell case which is support for the proposition that a need for investigation alone is sufficient to justify winding up even on a contributory’s petition, but Mr Maurellet says that the original Comtowell decision and the cases which followed it have failed to draw the distinction between the position on creditor’s petitions and on contributory’s petitions.  He has referred to the case of Re Othery Construction Limited [1996] 1 WLR 69, which in effect said that for a contributory to be able to bring a petition it must at least plead and aver that the investigations which are sought through the winding up are likely to produce a surplus which would benefit him, differently from the position that would apply on a creditor’s petition.

8.  Mr Tim Kentish, again for the contributory, points out as Mr Maurellet has been constrained to accept, that this is a new point that was not argued at first instance.  But Mr Kentish says, in any event, it is settled that a company can be wound up on an application by a contributory where the contributory has a tangible interest in the winding up and that tangible interest is not limited to the circumstances where there might be a surplus. He also points out that the English authority of Othery, which essentially was based on an earlier English authority, Re Rica Gold Washing Company Limited [1879] 11 Ch D 36, has been cited and considered in the Hong Kong cases.

9.  I note, for example, that both those cases were cited by the Hong Kong Court of Appeal in Ng Yat Chi v Max Share Ltd [2001] 1 HKLRD 561, under the heading, “The need to show a tangible interest,” and where the Court of Appeal specifically identified that they should not be unduly restrictive of the concept of a tangible interest.

10.  Ng Yat Chi was itself cited by the judge at first instance in Re China International Business Development Hong Kong Limited in a passage which was quoted by the Court of Appeal in its reasons for judgment dated 18 November 2005 in CACV 94 of 2005.  In particular, Mr Kentish has drawn my attention to the judgment in that case of Mr Justice Stone who, in agreeing with the Vice President’s judgment which had traversed some of the same ground, in paragraphs 45 to 47 essentially thought that each case must depend on its own facts and the rule in Rica Gold, and inferentially in Othery, should not be so slavishly applied that in effect it constitutes a straitjacket for the exercise of judicial discretion.

11.  In my view, though I acknowledge the reasoning identified by Mr Maurellet which he says gives rise to an interesting point which might be reviewed by the Court of Appeal, it seems to me that I followed a line of authority which has been accepted in Hong Kong for many years including by the Court of Appeal whose decision would ordinarily bind me and that the Court of Appeal’s decisions were not made with eyes entirely closed to the English authorities on which Mr Maurellet relies and which he says gives rise to the argument that the Comtowell case and the subsequent cases were wrongly decided.

12.  On that basis, where the Court of Appeal appears to have made what are decisions I consider to be binding on me, I do not think at present that there are reasonable prospects of success on ground 1, and nor am I persuaded that this ground would fall under the alternate limb for the grant of leave, namely, that there is some other reason in the interests of justice why leave should be granted.  It seems to me that if this is a point which the Court of Appeal thinks that it would wish to revisit then it is for the Court of Appeal to choose its own diet in that respect.

13.  As regards the second ground relating to the public interest, again in part Mr Maurellet relies on what he says is a tension between the Hong Kong authorities, part of which I set out as some of the legal background in paragraph 64 of my ruling, and other English authority which asserts that a private litigant is not able to put forward public interest reasons for the winding up.

14.  Now, whilst recognising that potential tension, I agree with Mr Kentish that this also new point does not arise in this case where the

15.  Indeed, my response to those submissions in those paragraphs was, in my view, an exercise in the flexibility of the approach for the exercise of a judicial discretion of the sort that Mr Justice Stone seemed to have in mind in paragraph 47 of the China International Business Development Hong Kong Limited case.

16.  So in those circumstances, I do not think that there is the appropriate merit or other reason for the grant of leave to appeal on the proposal ground 2.  Ground 3 I have already dealt with.

17.  I would make one additional point in relation to the context, although primarily it arises in the context of the proposed ground 1, that I see some force in Mr Kentish’s point that it lies in the mouth of the company now to put forward an argument which is predicated upon an assertion that the company is insolvent when its stance at the hearing which led to my ruling on 18 July 2019 was specifically that the company was solvent.  I acknowledge that there may be a pleading point of the sort identified by Mr Maurellet but the context does not attract me through this apparent approbation and reprobation.

18.  For those reasons, I therefore refuse leave to appeal.  On the 18 July 2019 hearing Mr Wong indicated that if I were to decide in favour of the contributory on the Substitution Summons and the PL Summons then he would ask for an interim stay of the order making the appointment of PLs pending an application for leave to appeal from that order.  In view of the chronology of events to that date and indeed taking into account the basis which I identified as proper for the appointment of PLs, I was only prepared to grant in the first instance an interim stay of seven plays within which period the company would have to apply for leave to appeal if it was going to do so albeit that if it did so the interim stay would continue until this hearing.

19.  Mr Maurellet on behalf of the company has indicated obviously if I were to have granted leave he would want the interim stay to continue pending that hearing, but even in circumstances where I have refused leave he would want the interim stay to continue at least until he had the opportunity of renewing an application for leave to appeal to the Court of Appeal.  In that context, he has provided undertakings from the Chairman and CEO of the company, Mr Zhang and Mr Deng respectively, each of whom has undertaken to resign from his post as director, supervisor, legal representative of the company and each of its subsidiaries as applicable, and that he will not seek by any means to be reinstated without the leave of the court.

20.  On the basis of those undertakings which I accept I am prepared to grant the interim stay for a period of time so as to permit the company to be able to renew its application for leave to appeal, but I agree with Mr Kentish that the extension of that period of stay should be relatively circumscribed, he suggests to no more than seven days in which he says the company could make its application for leave and a further extension of the stay to the Court of Appeal could be made on an urgent basis.

21.  I will extend the stay for a period of a further seven days within which the company can if it chooses to renew its application for leave to appeal.  It does seem to me to be correct that an urgent application should be sought before the Court of Appeal or if necessary on paper for any further period of stay pending the Court of Appeal’s consideration of any application for leave to appeal.  For what it is worth, the parties can inform the listing officer or clerk of the Court of Appeal that I consider this a case which is suitable for urgent hearing or determination either by a physical hearing or on paper by the Court of Appeal if an application for leave to appeal is made and an application for a further continuation of a stay is also made.

(Discussion re costs)

22.  I have had an opportunity to look at the statement of costs for summary assessment.  It seems to me these are classically suitable circumstances for a summary assessment of costs and I order the company to pay the costs of the contributory in a sum which I summarily assess at $27,500.