MKGWH (aka MKKWH) v. RKSH

CACV 229/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 229 OF 2010

(ON APPEAL FROM HCMC NO.9 OF 2010)

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RULING ON COSTS

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Hon Yuen JA (giving the ruling of the court):

1.  On 12 January 2011 we handed down a judgment in this appeal, which is to be read with corrigenda dated 13 January and 17 January 2011. We gave an order nisi regarding costs (“the order nisi”).

2.  Both parties applied for variation of the order nisi. 

3.  On 19 September 2011, the parties signed a Consent Summons asking that the applications for variation of the order nisi be dealt with by way of written submissions.  An order was given in terms.

4.  A written submission from the Wife was received, followed by a submission from the Husband, which was in turn followed by a submission from the Wife.  We have also had the benefit of reading the transcript of the hearing before us.

Background events

5.  We will not repeat the background of these proceedings which has been set out in the judgment handed down on 12 January 2011 but in view of the submissions, it is necessary to refer to some background events.

6.  Essentially the Husband and Wife had set up a company which was later listed.  However they remain substantial shareholders.  Apart from shares in their own names, substantial shares are held (through corporations) in a discretionary trust called the M Foundation managed by the Husband and in which both parties are interested.  There are some shares held by a corporation called JOL to which we will refer later. 

7.  The Husband ran the listed company but the Wife was the Chairman and an Executive Director.  It would appear that as part of her remuneration package, she lived rent-free in 2 apartments held in the name of a subsidiary (although we understand the ownership of this company and/or the apartments is now disputed in ongoing proceedings).

8.  As a result of the Wife’s sale of an asset of the company and instructions given by her regarding the proceeds, the board of directors of the company removed her as Chairman and re-designated her as a Non-executive director.

9.  In August 2010 (in anticipation of the company’s AGM which was originally scheduled for October 2010), the Wife made an application for 2 interlocutory injunctions - a prohibitory injunction and a mandatory injunction, which are set out below. 

10.  One of the points advanced by the Wife was that she would lose her accommodation if she were not restored as Executive Director.

11.  One of the points advanced by the Husband was that the regulatory authorities had questioned the company on the Wife’s rent-free occupation of its property after her removal as Executive Director.

Deputy Judge Carlson’s Orders

12.  On 7 October 2010, Deputy Judge Carlson made 2 interlocutory orders:

(1) a prohibitory injunction - that pending the determination of ancillary relief, the Husband should not deal with the “Family Shares” which were defined as shares under the control of the Husband, the M Foundation, “and/or any of their related entities including ... JOL” (“the 1^st Order”);

(2) a mandatory injunction - that at the AGM, the Husband be compelled to vote the Family Shares to restore the Wife as an Executive Director (“the 2^nd Order”).   

13.  The learned judge ordered that the costs of the application be in the cause.

14.  The Husband appealed Deputy Judge Carlson’s orders.  The appeal was heard 10 days before the adjourned AGM.  The arguments centered upon the 2^nd Order.   

Undertakings given by the Husband

15.  During the hearing, leading counsel for the Husband gave certain undertakings.  Two undertakings concerned payment for the Wife’s occupation of the 2 apartments (“the payment undertakings”).  One was that he would pay the market rent of the 2 apartments for a licence to the Wife to remain in occupation there, on the basis that such payments would be taken into account in the ancillary relief proceedings.  The other undertaking was to pay the difference between the market rent and the licence fees paid since June 2010 (when the Wife was redesignated Non-executive Director).

16.  Another undertaking related to voting at the AGM.  The Husbandundertook not to vote the M Foundation shares at the AGM (“the non-voting undertaking”).

This court’s order

17.  We allowed the appeal and set aside the 2^nd Order (i.e. the mandatory injunction) for reasons set out in our judgment - essentially that it was contrary to established legal principles to impose a director on a company (especially a public company), and particularly when there has been a history of strained working relationships between the Wife and the other directors, including independent directors.    

18.  We made a costs order nisi that the Wife was to pay the costs of the appeal, and to pay half of the costs of the application before the judge. As for the balance of those costs, the judge had ordered costs in the cause and we did not disturb this to reflect her success in obtaining the 1^st Order.

Wife’s application to vary the order nisi

19.  The Wife has applied to vary the order nisi on 4 grounds:

(1) the Husband’s appeal only succeeded on the basis of arguments and undertakings which he had not made before the learned judge, and on fresh evidence not previously adduced;

(2) the Wife’s objective in seeking the injunction was partly achieved through the undertakings proffered to this court by the Husband;

(3) the Husband’s undertakings were partly illusory or insincere;

(4) the Husband has since breached those undertakings.                

20.  The Wife has sought an order that the Husband do pay the costs here and below, alternatively, that each party pays his/her own costs here and below.

Husband’s application to vary the order nisi

21.  The Husband’s position is that the costs order for the appeal should not be disturbed, and that even though the Wife obtained the 1^st Order before the judge, the costs for that application should be the Wife’s costs in the cause. 

Discussion

22.  We have considered the parties’ submissions.  It is correct that the Husband did offer undertakings before this court (not proffered before the judge) which served to alleviate the Wife’s concerns about her accommodation, but at the end of the day, the main focus at the appeal was whether the court should impose a director on a public company when there has been strained relationships between her and the other members of the board, including independent directors.  The Husband succeeded on this crucial issue.

23.  As for the reference to “partly illusory or insincere” undertakings, essentially the Wife is complaining that the Husband’s undertaking not to vote the M Foundation shares was not adequate as he was still able to vote the JOL shares at the AGM.  The Wife submitted that she had taken the approximately 30m shares held by JOL to be part and parcel of the approximately 405 m shares referred to in public documents as being held upon discretionary trust.

24.  However the transcript shows that at the hearing of the appeal, it was noted that the 2001 Deed of Divorce had disclosed that approximately 30m shares were held by JOL and the Wife had acknowledged in that Deed that JOL belonged to the Husband.  Whatever may be the correct interpretation of disclosure statements in public documents, the point remains that the Deed contains her direct acknowledgment that JOL was the Husband’s personal company; in other words, that it was not a company in which she had interests.  The “non-voting undertaking” was to bring about the result that irrespective of the Husband’s actual control over shares, he should not be permitted to vote those shares in which both parties had interests.  As was recognised by the Wife’s representatives in correspondence subsequent to the hearing, the parties were to be at liberty to vote their personal shares. 

25.  As for the allegation that the Husband has breached his payment undertakings, no evidence has been adduced to support this serious allegation.  Accordingly we do not consider that we should take this allegation into account.

26.  As for the Husband’s application for an order that the cost of the application for the 1^st Order should be the Wife’s costs in the cause, it is correct that the traditional order for the costs of an interlocutory injunction had been the successful party’s costs in the cause, but as Hong Kong Civil Procedure 2012 notes, there is no rule to that effect, and we are not disposed to interfere with the judge’s discretion in the absence of any of the established grounds.     

27.  Having considered both parties’ submissions, we take the view that there should be no change in the result, and accordingly the order

nisi is hereby made absolute.