LIU TIEH CHING BRANDON (also known as LAU TIT SHING) v. LIU JU CHING AND OTHERS

HCCW 109/2019

[2020] HKCFI 3176

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 109 OF 2019

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D E C I S I O N

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1.  On 20 January 2020 the 6^th Respondent (“Company”) to the petition which commenced these proceedings issued an application under section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 for a validation order. The petition is a dispute between the shareholders who are family members of the Company in which the Petitioner seeks either a winding-up order or relief under section 724 of the Companies Ordinance, Cap 622.

2.  The summons was supported by an affirmation.  After the application was issued the parties agreed a consent summons for the further conduct of the application culminating in a hearing before me.  This proved unnecessary as before the Petitioner had filed any evidence in opposition the parties had agreed the terms of a validation order permitting the payment of HK$4 million by the Company to an associated company: Chiao Chi Properties Limited.

3.  Normally the costs of the Company would be payable out of its assets or possibly be made costs in the cause.  However, the Petitioner and the Company were unable to agree such a costs order.  The Company took the view that prior to issue of the application the Petitioner had been obstructive in agreeing a validation order and approached the application in an inappropriately unconstructive way seeking primarily to use it as an opportunity to obtain financial information and documents about the Company which it was not necessary for it to have in order to assess whether or not the validation order should be agreed.

4.  The court has made it clear that parties to an unfair prejudice petition concerning a company, which has an ongoing business and is solvent, which includes winding-up relief, which consequently necessitates the Company requiring a validation order, should not approach such applications in an adversarial manner, but endeavour to agree them.  I say this in my decision in Re Emagist Entertainment Ltd [1]: It is “not only normal but necessary for a company to obtain a validation order and that it would only be if the shareholder has specific concerns which he can support by credible evidence that he should actively contest any part of the application.”  As I explain in Re Jessop & Baird (Hong Kong) Ltd [2],     I expect parties to agree such applications if possible.  Approached practically I would expect a petitioner and its advisors to ask the question: is there any reason not to agree an application?  It is always open to a petitioner to agree a validation order without prejudice to any claims and complaints it advances in the petition which may relate to financial and accounting issues concerning the Company’s affairs.

5.  If a petitioner opposes an application and files evidence in opposition and actively opposes an application at a hearing, in circumstances which the court considers unreasonable assessed by reference to the principles I have summarised in the previous paragraph, I would normally expect the court to order that the Petitioner pays the costs of the application other than those costs which would always have had to have been incurred in order to obtain the necessary order under section 182.

6.  As will be apparent from my summary of the background to the present application that the Petitioner has not filed evidence in opposition and a validation order was agreed.  It would appear to me that the Company’s approach to the question of costs has overlooked a number of considerations. First, the costs incurred in the extensive exchange of correspondence and the provision of information and documents prior to issue of the summons is probably not recoverable on taxation.  What the Company should have done was to have written explaining why a validation order was required and if it did not prove possible to agree quickly the application to have issued it.  If the Petitioner had continued to object to the application and as a consequence the court was satisfied that the costs of the application itself were unnecessarily escalated, it may well have been that the Petitioner would have been ordered to pay those costs.  I did not understand Ms So to disagree with my suggestion that a significant proportion of the costs which the Company felt had unnecessarily been incurred related to exchanges of correspondence which were sufficiently distant to the application itself that they are not recoverable.

7.  There is a limited amount of correspondence in March and April 2020 between the solicitors which relates to a request from the Petitioner for further bank statements and answers concerning queries that the Petitioner had arising from certain notes on documents that had previously been provided.  It seems to me that the requests were not necessary for the Petitioner to decide whether or not to agree the validation order, however, they are sufficiently limited in scope that it does not seem to me that they justify departing from the normal costs order.  That issue certainly did not justify the present contest over the terms of the costs order.  This becomes even more evident when one takes into account that the Petitioner offered in without prejudice correspondence to pay the Company HK$145,000 by way of costs.  It seems to me that the Company should have agreed to accept an order that the Petitioner pay HK$145,000 towards the Company’s costs and the balance of the Company’s costs, if any, be paid out of the assets of the Company, to which the Petitioner would have been contributing indirectly as he owns 28% of it.

8.  In conclusion it seems to me that there is insufficient reason to depart from the normal costs order, namely, that the Company’s costs of the application be paid out of the assets of the Company and that the Petitioner’s costs be costs in the cause of the Petition.

9.  So far as the costs of this application to determine costs are concerned it seems to me that they should follow the event.  The Company will pay the Petitioner’s costs summarily assessed at HK$145,000 forthwith.