RE NICE & WELL LTD

HCMP 2148/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2148 OF 2008

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D E C I S I O N

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1.  There are two applications before me.

2.  The first is by way of an originating summons taken out on 31 October 2008 by Leung Kar Fai against Nice & Well Limited (“the Company”) under section 168BC of the Companies Ordinance, Cap. 32.  Mr Leung is a shareholder and director of the Company.  He seeks an order in these terms:

(1)  leave to him to bring a statutory derivative action in the Company’s name against its other shareholder and director Madam Fu Mee Yuk, Shirley; and

(2)  he should be indemnified of the costs of the leave application he has incurred and costs in the statutory derivative action yet to be incurred out of the Company’s assets.

3.  The other application is a summons issued on 8 December 2008 by Madam Fu under Order 15 rule 6 of the Rules of the High Court.  She seeks an order that:

(1)  leave be given to her to be joined as the 2^nd respondent in these proceedings; and

(2)  she should have leave to file an affirmation to oppose the application for an indemnity against the assets of the Company in relation to the costs of the leave application and the costs to be incurred in the statutory derivative action.

4.  I understand from the submission of Mr Earl Deng, who appeared for Madam Fu, that she does not challenge Mr Leung’s application for leave to bring a statutory derivative action.  The reason she seeks leave to join as the 2^nd respondent in these proceedings is to oppose the order sought by Mr Leung regarding costs of the leave application and of the statutory derivative action.

5.  The leave application may be disposed of briefly.  I have considered the supporting affirmations of Mr Leung and the draft statement of claim.  The Company is unable to bring an action against Madam Fu as there is deadlock, the parties are equal shareholders and the only directors of the Company.  The complaints against Madam Fu are that:

(1)  she caused the Company to repay loans to her of $1 million which was excessive, in that she had failed to disclose she had charged interest of 12% per annum on the Company, which was never approved and was opposed by Mr Leung at all times; and

(2)  she had without authorisation caused the Company to pay her a total of $563,000; in one instance, she caused the Company to issue 12 cheques of $10,000 each on the same day and on another occasion 22 cheques of $10,000 each on the same day, apparently to circumvent the requirement that for cheques above $10,000 Mr Leung would need to co-sign.

6.  Madam Fu has filed evidence in support of her summons for joinder and deposed to the allegations made against her.  She alleged two oral agreements with Mr Leung for the repayment of shareholder’s loan in 2000 and in June 2007.  She asserted that repayment of the loans to her was with the consent of Mr Leung and there was agreement that the Company should pay interest at 1% per month.  Further, she had caused $164,690.33 being an amount she was overpaid to be returned to the Company on 4 July 2008, before the Company was served with any notice in the present proceedings.

7.  The court is not required to enter into the merits of the dispute in detail for present purpose.  I am satisfied the Company does have an arguable claim against Madam Fu at this stage.  There is a serious question to be tried and it would be prima facie in the interests of the Company for leave to be granted to Mr Leung to bring a statutory derivative action against Madam Fu.  The requisite notice under section 168BD has been served on the Company.  The requirements in section 168BC(3) are satisfied.  I grant leave in terms of paragraph 1 of the originating summons.

8.  I also grant leave to Madam Fu to join in the originating summons as the 2^nd respondent to argue the question of costs.  Clearly she has an interest as a shareholder and director in that an order is sought that the Company is to indemnify the costs of Mr Leung in the leave application and the costs in the statutory derivative action to be incurred on the Company’s behalf.

9.  I do not think it is appropriate at this stage to order the Company to indemnify the costs to be incurred on its behalf in the statutory derivative action.  I have no idea as to the likely amount of such costs.  This action is likely to be contested by Madam Fu and it is not known if the Company is in a position to pay the costs.  I make no order at this stage and give liberty to Mr Leung and Madam Fu to apply to court on this issue.

10.  As for the costs of the leave application, under section 168BI(3) it is provided that the court may only make an order about costs under this provision in favour of the member applicant if it is satisfied that the member was acting in good faith in, and had reasonable grounds for, making the application or bringing the proceedings.  Having considered the affirmation of Madam Fu, I think it would be more appropriate to determine if the requirements in section 168BI(3) are met at a later stage, after the position on good faith and reasonable grounds to bring this application has become clearer.  So this question would also be deferred and I give the parties liberty to apply.

11.  I order the costs of Madam Fu’s application to be joined as the 2^nd respondent in the originating summons to be costs in the cause of the originating summons.  So the question of who eventually is going to pay such costs is to be deferred as well.

12.  The parties are to seek directions from the court by letter in the event the originating summons is restored to determine the various questions of costs regarding the filing of any further evidence and the estimated hearing time.