ALEA INSURANCE LTD (formerly known as CYBER INSURANCE BROKERS LTD) v. JOHN RONALD LAROCHE AND OTHERS

HCCW 474/2021

[2024] HKCFI 2076

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 474 OF 2021

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D E C I S I O N

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1.  On 1 December 2023 the Petitioner issued against the four Defendants an application under section 276 of the Companies (Winding Up) Ordinance, Cap 32 seeking an order that:

“1. each of ,the 1^st to 4^th Defendants, being the former directors of Relevant Marketing (HK) Limited (in liquidation) the Company, having misapplied, retained, become liable for or otherwise accountable for any money or property of the Company or having been guilty of misfeasance, breach of duty or breach of trust in relation to the Company which is actionable at the suit of the Company, be compelled to repay or restore the property or any part thereof respectively together with interest at such rate as the court thinks fit or to contribute to the assets of the Company by way of compensation in respect of such misapplication, retainer, misfeasance, breach of trust as the Court thinks just.”

2.  On 7 June 2024 the Defendants issued summonses for the dismissal of the misfeasance summons. In short, the grounds on making the application was neither the summons itself nor the supporting affidavit contained any details, let alone evidence, of any of the Defendants committing the wrongs asserted in the summons.

3.  On 1 February 2024, when the misfeasance summons first came on before me the Defendants made the same point. I expressed sympathy for their concerns but did not accept the invitation to dismiss the misfeasance summons at that hearing. Instead, I ordered the matter to proceed by the filing of initially points of claim on 29 February 2024 by the Petitioner and then I make directions for subsequent pleadings.

4.  The Petitioner has not served any points of claim and, presumably, that is what led to the issue of the summonses for the dismissal of the misfeasance summons. The day before the hearing the Petitioner’s solicitors wrote to the Defendants’ solicitors offering to withdraw the misfeasance summons and pay the costs on a party and party basis. Before me today, there were two issues which required consideration. The first was whether the summons should be withdrawn or dismissed, the second was whether or not the costs should be assessed on an indemnity basis.

5.  In my view the misfeasance summons should be dismissed as the way in which the claim advanced by the Petitioner was presented in the first place and the failure to progress it satisfactorily justifies bringing the prospect of any similar application by the Petitioner to an end. It has had the opportunity to formulate a properly formulated claim and progress it and it is not be able to do so. I would, however, note that it is not in dispute that this does not prevent either the Company or a liquidator of the Company issuing essentially the same application if they thought that they had evidence that justified doing so. So far as costs had concerned, my view of the position is this.

6.  Mr Ho on behalf of the 2^nd Defendant reminded me of the principles which guide the court in determining whether or not to order costs to be assessed on an indemnity basis, by reference to the summary of those principles which are contain in [8] of the judgment of DHCJ Winnie Tsui in Law Yin Pok Bosco v Dr Chan Yee Shing[1]:

“8. …

(1) Generally speaking, the court has a broad discretion to determine how costs shall be paid and whether indemnity costs should be ordered: see, in general, Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 at para 12.

(2) In order to obtain an order for costs on an indemnity basis, it is for the party seeking it to show that the case has some “special or unusual feature”: Town Planning Board at para 15.

(3) It is now well recognised that indemnity costs are no longer confined to cases where the paying party’s conduct lacks moral probity or deserves moral condemnation for which the court wishes to express disapproval. Conduct which falls short of that can be so unreasonable as to justify an order for indemnity costs. But such conduct would need to be unreasonable to a high degree. Unreasonable in this context does not mean merely wrong or misguided in hindsight: Kiam v MGN (No 2) [2002] 1 WLR 2810 at para 12; cited recently in Hong Kong in Heung Wing Yan v Hangway Housing Management Ltd HCPI 347/2012, 14 February 2017 at para 19.

(4) The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs. On the other hand, to maintain a claim that one knows, or ought to know, is doomed to fail on the facts and on the law, is conduct that is so unreasonable as to justify an order for indemnity costs: Wates Construction Ltd v HGP Greentree Allchurch Evans Ltd 105 CLR 47 at 55; Heung Wing Yan at para 19.

(5) There is an infinite variety of situations in which the court may consider appropriate to make an indemnity costs order. But ultimately what the receiving party must demonstrate is something in the conduct of the action or other circumstances of the case that ‘takes it out of the norm’ which warrants such an order: Heung Wing Yan at para 20.”

7.  In particular Mr Ho emphasised that although the court would not usually order indemnity costs simply because the claim is weak, it will do so where the court takes the view that the claimant either knew or ought to have known that its claim was bound to fail on its facts or the law. The justification for that being, of course, that it is simply unreasonable and a waste of a defendant’s time and usually to have to address a claim which has no prospects of success.

8.  In determining whether this is such a case it seems to me that the court should ask this question. At the time the Petitioner issued its application did it have information which was sufficient to prima facie found a claim under section 276. It seems to me on the information before the court, namely, the evidence that was filed in support of the misfeasance summons and the inability of the Petitioner to formulate and serve points of claim containing the necessary facts to support the misfeasance summons, the correct conclusion must be no.

9.  I will, therefore, order that the costs of the misfeasance summons up to and including the hearing before me today be paid by the Petitioner to the Defendants, such costs to be taxed on an indemnity basis and paid forthwith with a certificate for counsel in the case of the 2^nd Defendant. I will also include a costs order, although it may be academic, that the costs of the joint and several liquidators of the Company and the Official Receiver be paid by the Petitioner on an indemnity basis. The costs reserved on 1 February 2024 be paid by the Petitioner to the Defendants with a certificate for counsel.