YAU TAK v. YAU NGAI AND ANOTHER

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HCA 1309/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1309 OF 2007

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D E C I S I O N

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1.  This application is by the defendants in the first action and the plaintiffs in the second action to include two companies in the second schedule of an order I made on 7 January 2008.  These two companies, if included, could then be used by the applicants for their businesses. 

2.  The respondents to this application object to the use of the name of the first company on the ground that it suggests that the company is the pioneer of the businesses now undertaken by the applicants and the respondents.  I do not think this objection has merit as the applicants can set up such a company but for the undertaking, regardless of the meaning of its name.  The important point, however, is to consider whether the applicants have justified their application. 

3.  An undertaking is a serious and solemn matter.  It can only be revised upon good grounds.  What are good grounds will depend on the circumstances of the case.  See Pet Plan Limited v Protect-A-Pet Limited [1988] FSR 34 at page 40.

4.  The ground of the application in relation to the first company is to segregate the domestic sales and the export sales so that the first company would handle one business and its wholly-owned parent would operate the other.  The applicants say that it would be convenient to have the two businesses done by two companies for taxation purpose as both are mainland companies and subject to the mainland tax system. 

5.  The respondents disagree.  They say that so long as the parts and products are physically segregated and are clearly documented and accounted for in the accounts, there would be no problem.  In fact, they say that they have been doing this with two companies for quite some time.

6.  I agree with the respondents.  I do not think separate legal personality is a necessity in order to deal with this tax issue.  The correct way to tackle the tax issue is to have proper physical segregation and storage of the parts and products and proper documentation and accounting for these things.  There is thus no need to have another company to handle either the domestic sales or the export business.  The application in relation to the first company fails.

7.  Regarding the second company, it was also regarded as a family company and eligible to be included.  However, the applicants, when giving the undertaking, just included its parent company but omitted this second company which was wholly owned by the parent.  They thought that the inclusion of the parent company would impliedly include the second company.  That was a mistaken view which resulted in the second company not being included in the second schedule.  The second company should have been included.  To vary the undertaking to include it in the second schedule would rectify the error but without affecting the status quo at the time of the giving of the undertaking.

8.  The respondents argue that this second company is not a family company and not wholly owned by Italina (Hong Kong).  They take issue with the certificate signed by the current nominee owners of the shares of the second company. 

9.  I think this argument has little merit.  I think the certificate has the effect that it is designed to have.  I therefore vary the undertaking by including the second company in the second schedule of the said order.  I also include it in the first schedule as well so that its status as a family company would be confirmed.

(Discussion re costs)

10.  The applicants do pay the respondents the costs of this application up to 8 February 2008 and thereafter there be no order as to costs.