LI FU HUA (also known as DENISE LI) v. CHEN CHING CHIH AND ANOTHER

HCMP 1374/2018

[2018] HKCFI 2786

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1374 OF 2018

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REASONS FOR DECISION

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1.  I have before me three summonses:-

(1)  Chen Ching Chih’s (the “1^st Respondent”) summons dated 27 September 2018 to strike out the petition presented by Li Fu Hua (also known as Denise Li) (the “Petitioner”) on 31 August 2018 (the “Petition”). Alternatively, the 1^st Respondent prayed for the Petition to be dismissed or permanently stayed (the “Strike Out Summons”).

(2)  The Petitioner’s summons dated 24 September 2018 to amend the Petition (the “1^st Amendment Summons”).

(3)  The Petitioner’s summons dated 27 November 2018 to further amend the Petition (the “2^nd Amendment Summons”).

PROCEDURAL HISTORY

2.  On 31 August 2018, the Petitioner presented the Petition pursuant to sections 724-725 of the Companies Ordinance, Cap 622 against the 1^st Respondent. Prosperous Global China Holding Limited (the “Company”) was joined as a nominal party. In the Petition, the Petitioner relied on various unfairly prejudicial conducts allegedly committed by the 1^st Respondent and sought equitable relief from the court.

3.  On 6 September 2018, Yi Chun Navigation Inc. (“Yi Chun”) served a statutory demand for repayment of GBP6,682,457.40 (the “Debt”) on the Company.

4.  On 24 September 2018, the Petitioner took two steps:

(1)  First, she issued the 1^st Amendment Summons to amend the Petition;

(2)  Secondly, she presented a contributory’s winding up petition (“Contributory’s Winding Up Petition”) against the 1^st Respondent and the Company.

5.  On 28 September 2018, Yi Chun presented a creditor’s winding up petition (“Yi Chun’s Winding Up Petition”).

6.  On 3 October 2018, the Petition was listed for hearing before this court. In view of the pending Yi Chun’s Winding Up Petition which the court was told would be uncontested, this court ordered a temporary stay of the Petition including the 1^st Amendment Summons. I also expressed the view that it might not be proper for the Petitioner to present the Contributory’s Winding Up Petition. If circumstances have developed such that the Petitioner takes the view that the primary relief she intends to seek is a winding up order, then the proper way is to apply to turn the Petition into a winding up petition instead of presenting a new winding up petition. I also note that in the Contributory’s Winding Up Petition, the Petitioner deposed that the Company was insolvent.

7.  Despite this court’s order to temporarily stay the Petition and Mr Lam, for the Petitioner, also agreed that it was sensible for all procedural steps in the Petition to be stayed pending the outcome of Yi Chun’s  Winding Up Petition, the Petitioner nevertheless issued the 2^nd Amendment Summons on 27 November 2018 seeking substantive amendments to the Petition.  The rationale of the temporary stay order is that pending determination of the Yi Chun’s Winding Up Petition, unnecessary legal costs should not be incurred.

8.  On 10 December 2018, Mr Justice Harris made the usual winding up order against the Company on Yi Chun’s Winding Up Petition.

ANALYSIS

9.  Mr Lam for the Petitioner submitted that in view of the fact that the Company was wound up on 10 December 2018, the proper order is for the Petition to be stayed. Mr Lam, S.C., for the 1^st Respondent opposed and submitted that the proper order is for the Petition to be struck out or dismissed. Having heard the parties’ submissions, I am of the view that the Petition should be struck out or dismissed.

10.  First, there is no reason why the Petition should be hanging over the head of the 1^st Respondent when in reality there is no prospect that the Petition would be heard. The relief as prayed are not relief that could ever been granted in view of the winding up of the Company.

11.  Secondly, with the winding up of the Company, it now rests with liquidators of the Company to investigate wrongdoings against the Company, if any. If there are legitimate claims, it is up to the liquidators to pursue the same in the name of the Company. Hence, there is no utility in maintaining the Petition.

12.  Mr Lam for the Petitioner then applied to withdraw the Petition. The application to withdraw is not opposed by the 1^st Respondent. So I made an order that the Petition be withdrawn by consent. The only remaining issue is costs. The usual rule is that the party who applies to withdraw an action or any proceedings would have to bear the costs of the action or proceedings. In Brookes v HSBC Bank plc [2011] EWCA Civ 354 at §6, Moore-Bick L.J. helpfully summarised the applicable legal principles as follows:

“(1) when a claimant discontinues the proceedings, there is a presumption by reason of the CPR 38.6 that the defendant should recover his costs; the burden is on the claimant to show a good reason for departing from that position;

(2) the fact that the claimant would or might well have succeeded at trial is not itself a sufficient for doing so;

(3) however, if it is pain that the claim would have failed, that is an additional factor in favour of applying the presumption;

(4) the mere fact that the claimant’s decision to discontinue may have been motivated by practical, pragmatic or financial reasons as opposed to a lack of confidence in the merits of the case will not suffice to displace the presumption.

(5) if the claimant is to succeed in displacing the presumption he will usually need to show a change of circumstances to which he has not himself contributed;

(6) however, no change in circumstances is likely to suffice unless it has been brought about by some form of unreasonable conduct on the part of the defendant which in all the circumstances provides a good reason for departing from the rule.”

13.  First, Mr Lam for the Petitioner submitted that there has been a change of circumstances, namely, the making of the winding up order by Mr Justice Harris on 10 December 2018 which renders the continuation of the Petition unnecessary. However, it cannot be said that such change of circumstances was caused by some form of unreasonable conduct by the 1^st Respondent.

14.  Mr Lam for the Petitioner fairly agreed that had the winding up petition been presented by, say, HSBC, there would be no argument that the Petitioner would have to bear the costs of her withdrawal application. In the circumstances, I do not see why any distinction should be drawn between a creditor’s winding up petition presented by HSBC or by Yi Chun, albeit that it was not disputed that Yi Chun is controlled by the 1^st Respondent. There is nothing to suggest that it was improper for Yi Chun to present the Yi Chun’s Winding Up Petition. Indeed, Mr. Justice Harris duly granted the usual winding up order.

15.  Secondly, Mr Lam for the Petitioner submitted that there are good reasons for the Petitioner to present the Petition as she was wrongly excluded from the management of the Company by the 1^st Respondent and there were various breaches of the articles of association committed by the 1^st Respondent. Further, there has been no determination of the merits of the Petition. However, the court cannot determine the merits of the Petitioner’s grounds of petition at this stage and it is not necessary to do so. The fact that the Petitioner would or might well have succeeded at trial is not itself a sufficient reason for departing from the general rule.

16.  Thirdly, Mr Lam for the Petitioner forcefully submitted that the Petition was presented on 31 August 2018, well before the statutory demand served by Yi Chun which resulted in the winding up order granted on 10 December 2018. When presenting the Petition, the Petitioner did not have any knowledge that any statutory demand would be served on the Company, let alone any creditor’s winding up petition would be presented.  As a matter of fact, that is correct. However, given that the Petitioner applied to withdraw the petition, those are not grounds for departing from the usual rule. More importantly, in the Petitioner’s Contributory Winding Up Petition, she confirmed that the Company was insolvent. When a company is insolvent, contributories have no interest in the company. It is not appropriate to present a contributory’s winding up petition when the subject company is insolvent. The 1^st Respondent is entitled to argue that in view of the insolvency of the Company, the Petitioner has no interest or locus standi to present and continue the Petition.

17.  In the circumstances, there are no good reasons to depart from the general rule.

18.  The Petitioner also applied to withdraw the 1^st Amendment Summons and the 2^nd Amendment Summons. The 1^st Respondent has no objection to the applications for withdrawal.

19.  As far as costs for the 1^st Amendment Summons is concerned, I am of the view the correct order is for the Petitioner to pay the 1^st Respondent such costs to be taxed if not agreed on a party to party basis.

20.  However, for the 2^nd Amendment Summons, I agree with Mr Lam, S.C., for the 1^st Respondent that costs of the same should be ordered against the Petitioner on an indemnity basis. First, the taking out of the 2^nd Amendment Summons is a breach of this court’s order dated 3 October 2018. Secondly, the justification for taking out the 2^nd Amendment Summons, namely, to contest Yi Chun’s Winding Up Petition, turned out to be wrong in view of Mr Justice Harris’ order dated 10 December 2018.

DISPOSITION

21.  For the reasons stated above, I make the following orders:

(1)  Leave be granted to the Petitioner to withdraw the Petition herein with costs to be paid by the Petitioner to the 1^st Respondent, such costs to be taxed if not agreed, on a party to party basis, with certificate for one counsel;

(2)  Leave be granted to the Petitioner to withdraw the 1^st Amendment Summons with costs to be paid by the Petitioner to the 1^st Respondent, such costs to be taxed if not agreed, on a party to party basis, with certificate for one counsel;

(3)  Leave be granted to the Petitioner to withdraw the 2^nd Amendment Summons with costs to be paid by the Petitioner to the 1^st Respondent, such costs to be taxed if not agreed, on an indemnity basis, with certificate for one counsel.

22.  Finally, it remains for me to thank Mr Lam and Mr Cheung for the Petitioner and Mr Lam, S.C., and Miss Law for the 1^st Respondent for their helpful assistance rendered to this court.