WONG CHUN KIT and WONG PUI KWAN (suing for and on behalf of all shareholders of MADERA LIMITED, save and except for the 1st - 3rd Defendants herein) AND ANOTHER v. CHENG KWONG FAT AND OTHERS

HCA 1705/2017

[2020] HKCFI 486

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1705 OF 2017

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D E C I S I O N

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Applications before the court

1.  Before the court is the plaintiffs’ application (“Application”) by summons issued on 22 November 2017 for:

(1)  leave to continue with this derivative action; and

(2)  a pre-emptive costs order that the 4^th defendant (“Madera”) shall indemnify the 1^st plaintiff against all costs incurred and to be incurred by them in this action on a common fund basis[1]; and

(3)  a pre-emptive costs order that the 5^th defendant (“Boden”) shall indemnify the 2^nd plaintiff against all costs incurred and to be incurred by them in this action on a common fund basis.

2.  In support of the Application, the plaintiffs’ solicitors have estimated the costs required by them to bring this action to conclusion to be $1,190,090, out of which $84,000, $236,000, $76,000 and $20,000 (adding up to $416,000) have already been incurred by the plaintiffs on preparing their pleadings, obtaining the Injunction (defined in [13(2)] below), making the Application and attempting mediation respectively.  The plaintiffs have, however, made it clear that they are not seeking interim payment of any such costs by either Madera or Boden (“Companies” collectively).  There was certainly no suggestion that the plaintiffs needed any funds so as to be able to continue with this action.

Relevant background

3.  The shareholdings and directorships of the Companies are identical.  Each of the plaintiffs, Mr Wong Chun Kit (“Mr Wong”) and Ms Wong Pui Kwan, and the 1^st to 3^rd defendants, Mr Cheng Kwong Fat, Mr Yip Kam Yuen and Mr Lui Siu Fung (“Mr Cheng”, “Mr Yip” and “Mr Lui” respectively and “defendants” collectively), is a 20% shareholder and director of each of the Companies, through which they carry on business as suppliers of construction materials.

4.  Madera maintains an integrated account numbered 383-xxxxxx-883 (“Madera Account”) with Hang Seng Bank Limited (“HSB”).  Prior to about 5 July 2017, the Madera Account was operable by:

(1)  any 2 of the signatures of the plaintiffs, Mr Cheng and Mr Yip for transactions under $300,000;

(2)  any 3 of the signatures of the plaintiffs, Mr Cheng and Mr Yip for transactions over $300,000.

5.  Boden also maintains an integrated account numbered 789-xxxxxx-883 (“Boden Account”) with HSB. Prior to about 5 July 2017, the Boden Account was operable by any 2 of the signature of the plaintiffs and Mr Cheng.

6.  On about 5 July 2017, the defendants effected the following changes to the mandate for the operation of the Madera Account with immediate effect with the use of a resolution recorded in the minutes of a meeting of the directors of Madera stated to have taken place on 23 June 2017 attended by them but at which the plaintiffs were absent:

(1)  the addition of Mr Lui as an authorised signatory (so that all 5 shareholders and directors have signing right); and

(2)  the authorisation of any 3 of the 5 signatories to operate the account.

7.  Similarly, on about 5 July 2017, the defendants effected the following changes to the mandate for the operation of the Boden Account with immediate effect with the use of a resolution recorded in the minutes of a meeting of the directors of Boden stated to have taken place on 23 June 2017 attended by them but at which the plaintiffs were absent:

(1)  the addition of Messrs Yip and Lui as authorised signatories (so that all 5 shareholders and directors have signing right); and

(2)  the authorisation of any 3 of the 5 signatories to operate the account.

8.  There is no dispute that the plaintiffs had not been given notice of any such board meetings of the Companies on 23 June 2017.

9.  The effect of these changes to the mandates for the operation of the Madera and Boden Accounts (“Accounts” collectively) is that the defendants can between themselves control the operation of the Accounts, without reference to, and to the exclusion of, the plaintiffs.

10.  On 18 July 2017, the defendants withdrew:

(1)  3 sums of $616,404.50 each and a sum of $307,554.30 from the saving account of the Boden Account;

(2)  2 sums of $307,554.30 each from the current account of the Boden Account.

These 6 withdrawals (“Withdrawals”) added up to $2,771,876.40 (“Fund”).  After the Withdrawals, there remained in the Madera Account and the Boden Account the respective sums of $1,524,700.55 and $316,146.29.  That is to say, the Fund represented about ³/₅ of the deposits held in the Accounts on 18 July 2017.

11.  The Fund was eventually split into 3 equal sums of $923,958.80 each, which were then deposited into the defendants’ respective personal bank accounts on 24 and 25 July 2017.

12.  In the meantime, the plaintiffs had discovered the said changes to the mandates for the operation of the Accounts and the Withdrawals on 18 July 2017. 

13.  After inquiries with the defendants via WhatsApp and by telephone and at a face to face meeting on 19 July 2017 (“19.7.2017 Meeting”) to no avail, on 19 July 2017, the plaintiff suing for and on behalf of all the shareholders of the Companies save and except the defendants (which of course means just the plaintiffs themselves):

(1)  issued the writ of summons herein against the defendants claiming for declarations that the defendants have acted in breach of their fiduciary duties to the Companies and are holding the Fund on constructive trust for Boden and an order for the return of the Fund to Boden; and

(2)  applied ex parte to Mr Justice Yau and obtained against the defendants a Mareva injunction, restraining them from disposing of their assets up to the amount of the Fund (“Injunction”).

14.  On 28 July 2017, the Injunction was discharged by Mr Justice Anthony Chan upon the defendants’ undertaking to pay the Fund into court and not to make use of the funds in the Companies’ bank accounts without the plaintiffs’ consent (“Undertaking”).  By Mr Lui’s affirmation dated 25 July 2017, the defendants:

(1)  explained that they made the Withdrawals to protect and preserve the assets of the Companies from being misappropriated by the plaintiffs as they had in April 2017 obtained information from the Companies’ accounting documents which showed that the plaintiffs had committed serious misconduct in relation to the Companies’ affairs;

(2)  therefore, questioned if the plaintiffs came to court with clean hands;

(3)  disclosed, with the support of banking records, the whereabouts of the Fund; and

(4)  offered to pay the Fund into court which would be an even better way of protecting the Companies’ interests.

15.  Pursuant to the Undertaking, the defendants paid the Fund into court on 8 August 2017.

16.  In the meantime, the plaintiffs had, on 3 August 2018, presented petitions under HCMP 1705/2017 and HCMP 1706/2017 (“Unfair prejudice Petitions”) against the defendants pursuant to ss 724 to 726 of the Companies Ordinance (Cap 662) seeking orders that the defendants do sell their shares in the Companies to the plaintiffs.

17.  Further, on 23 November 2017, the plaintiffs presented petitions under HCCW 365/2017 and HCCW 366/2017 (“Winding Up Petitions”) pursuant to s 177(1)(f) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) for the Companies to be wound up.

18.  The matters complained of as constituting unfair prejudice against the plaintiffs and as making it just and equitable to wind up the Companies include all the plaintiffs’ complaints against the defendants in this action namely, the said changes to the mandates for the operation of the Accounts, the Withdrawals and the defendants’ conduct at the 19.7.2017 Meeting.

19.  Subsequent to the issue of the summons for this application, the plaintiffs applied by summons dated 2 March 2018 in the Winding-up Petitions for validation orders which included an order for the Fund to be transferred out of court into the Boden Account or the plaintiffs’ solicitors’ clients’ account solely for the purpose of setting off the payments in respect of which the validation orders were sought. 

20.  On 19 March 2018, Mr Justice G Lam, while validating some of the payments, adjourned the application in respect of inter alia the legal expenses of this action if ordered by this court to be paid by Boden sine die with liberty to restore and dismissed the application for payment out of the Fund.

Defendants’ position regarding the Fund

21.  I have already set out the points made by the defendants in Mr Lui’s 1^st affirmation.

22.  The defendants have since filed their defence on 25 January 2018 and Mr Lui’s 2^nd and 3^rd affirmations on 18 August 2017 and 5 January 2018 respectively.  I think it is fair to say that, by their pleading and depositions, the defendants seek to answer the plaintiffs’ allegations against them largely by making cross-allegations against the plaintiffs. 

23.  Quite apart from the principle that the court should not, on an application such as the one at hand, conduct a mini-trial on affidavits, due to the peculiar circumstances of this case, it is unnecessary for the court to examine the merits of either party’s contention to any significant degree.

24.  In this regard, it is unfortunate that the defendants take as a secondary point in paragraph 51 of their defence (not drafted by Ms Ebony Ling who appears for the defendants in opposition of the Application) that they were each entitled to withdraw 20% of the funds kept in the Accounts in proportion to their shareholdings in the Companies.  Not only could this be read as detracting from the purity of their primary position (see the next paragraph), this is clearly wrong as a matter of law.  Ms Ling readily accepts on behalf the defendants that they can only participate in the assets of the Companies through proper declarations of dividends. 

25.  Nevertheless, it should be patent on a reasonable reading of the defendants’ defence that their primary position is that contained in paragraph 50:

“… The 1^st, 2^nd and 3^rd Defendants aver and repeat that the withdrawals taken place on or about 18 July 2017 was to preserve the funds belonging to Boden and/or Madera from being withdrawn and/or transferred out by Mr. Wong and/or Ms. Wong for their own personal gain and other purposes without proper approval by the boards of the Companies, and in breach of the fiduciary duties of Mr. Wong and Ms. Wong as directors of Boden and Madera.” (emphasis added)

26.  I read paragraph 50 of the defendants’ defence as containing an acknowledgment that the Fund belongs to the Companies, more particularly, Boden.

27.  The standard denial in paragraph 54 of the plaintiffs’ entitlement to the relief sought or at all should, in my view, be read in the light of the defendants’ case that they had not breached their fiduciary duties to the Companies by making the Withdrawals.  I do not read this denial as suggesting that Boden is not entitled to the return of the Fund at all, just not on the basis asserted by the plaintiffs.

28.  Indeed, Mr Wong himself has said in paragraph 12 of his affirmation made on 2 March 2018 in HCCW 365/2017 in support of the application for a validation order that from paragraphs 5 and 8 of Mr Lui’s said 1^st affirmation herein that there is no dispute that the Fund is Boden’s money.

29.  I consider the defendants’ open acknowledgment that the Fund belongs to Boden to be critical to the Application (had it been necessary for me to rule on it).

Agreement at hearing on 4 April 2018

30.  At the hearing on 4 April 2018, the plaintiffs and the defendants through counsel managed to agree for the Fund to be paid out of the court into the Boden Account on terms that any withdrawals from such fund whilst in the hands of Boden by whatever means will have to be authorised in writing by all of the plaintiffs and the defendants, failing which by an order of the court (“Agreement”).

31.  In view of the Agreement, the plaintiffs, though counsel Mr Albert Chan, confirmed to the court and the defendants at the hearing that it was no longer necessary for them to further prosecute this derivative action for the recovery of the Fund and, hence, they need not proceed with the Application either.  There was, however, no consensus as to the costs of this action and the costs of the Application.

32.  As the just resolution of the former costs issue seems to me to be dependent on the merits of the plaintiffs’ case that the defendants had acted in breach of their fiduciary duties to the Companies, I made an order reserving the costs of this action to the judge hearing the Unfair Prejudice Petitions and the Winding-up Petitions which, I assume, would be dealt with together or by the same judge one after the other given the substantial overlap.  I do so because, as said earlier, the matters relied upon as constituting unfair prejudice against the plaintiffs and as making it just and equitable to wind up the Companies include all the matters complained of by the plaintiffs against the defendants in this action.

33.  As for the costs of the Application, I was going to deal with the same myself given that the Agreement came about at almost the end of the hearing of such application.  And I proposed to approach the incidence of such costs by first considering how I would otherwise have determined the Application had Mr Chan not confirmed that the plaintiffs would not further pursue the Application.

Development after the hearing

34.  Then, after the hearing, on 5 April 2018, Mr Chan lodged further written submissions, without leave of the court or consent of the defendants, by which he contended (in the guise of “clarification”[2]) that:

(1)  Notwithstanding the defendants’ agreement to have the Fund repaid to Boden, this derivative action has not yet been fully disposed of.  Leave should still be granted to the plaintiffs to prosecute this action.

(2)  Regardless of the reservation of the costs of this action to the judge hearing the Unfair Prejudice Petitions and the Winding-up Petitions, this court should still determine the issue of indemnity between the plaintiffs and the Companies though the plaintiffs would seek an indemnity only for the costs incurred up to the date of the hearing before this court, and not for future costs.

(3)  Even if the court be minded to deal with just the costs of the Application, given that the defendants opposed the same in “their personal capacity and out of self interest, costs should follow the event and be borne by them personally, and not by [the Companies]”.

35.  In short, Mr Chan repudiated what he had confirmed to the court and the defendants to be his clients’ position on this action and the Application following the Agreement.

36.  Ms Ling was highly critical of Mr Chan’s attempt to re-open matters already settled in the course of the hearing and invited the court to reflect its disapproval by an appropriate costs order, although out of abundance of caution she did make substantive reply submissions on the plaintiffs’ changed position.

Should the plaintiffs’ post-hearing submissions be entertained?

37.  Unfortunately, I have received no assistance from either counsel on the principles governing the reception or rejection of post-hearing submission made by parties without leave, not to mention post-hearing submission changing the position adopted by a party at the hearing.

38.  In Hong Kong, the leading authority is To Pui Kui v Ng Kwok Piu, CACV 281/2012, unreported (21 August 2014), where Lam VP said:

“56. We must state firmly that this [i.e. the making of post-hearing submission] is not a proper course to take. After the close of a hearing, unless the leave of court has been given, no further submissions should be advanced whether by counsel, solicitors or litigants in person. In light of what had happened even when experienced counsel is involved, it is necessary for us to reiterate the observations by Pickering Acting CJ in Sheung Kwok Leung v R [1976] HKLR 742 at 755:

‘There are no grounds for the assumption that this Court will permit further argument either orally or in writing after the conclusion of the hearing of the appeal.  Were this to be allowed as a practice the task of the Clerk of Court in organizing the court’s calendars would be rendered unmanageable and that of the judges in hearing and deciding the appeals coming before the court, impossible. There may be cases in which something both cogent and urgent comes to counsel’s attention after the conclusion of the hearing of the appeal and in such circumstances - and they must be very rare - with the consent of the other side and, we emphasise, the approval of this Court, it may be permissible to allow a second bite at the cherry.”

57.  See also the postscript to the judgment of this court in陳梓深對金源洋樓業主立案法團CACV 235/2002, 14 April 2003. [footnote omitted]

58.  Thus, even in the rare and exceptional circumstances as described by the Acting CJ, the party who wishes to advance further submissions should, as a matter of courtesy and proper practice, approach the other parties first to see whether they agree to the lodging of the further submissions.  Even if there is a consensus between the parties, they must apply for leave from the court before such further submissions are lodged.  It cannot be assumed that the court would necessarily adopt the course suggested by the parties.  Whether the court will entertain a further round of submissions is a matter of discretion bearing in mind the general rule that all arguments should have been canvassed at the hearing and further submissions should be rare and exceptional.

59.  In the present case, Mr Sussex started by saying in his Further Submissions that few things could not be better expressed with the benefit of reflection.  In our view, that is precisely the reason why the court should not lightly allow further rounds of submissions after the close of a hearing.  Otherwise, counsel and litigants in person would be tempted to recast their submissions in view of what was said at the hearing and there would be proliferation of submissions and escalation of costs.  This would not be conducive to the effective and efficient management of the process.  After all, there is no guarantee that the further submissions, if entertained, would not trigger the need for a further hearing (which may not be able to be scheduled within the near future in order to fit the diaries of the court, counsel and parties) and the determination of a matter will be unduly delayed.”

39.  The Court of Appeal reiterated in Keen Lloyd Holdings Ltd v Commissioner of Customs and Excise [2016] 2 HKLRD 1372 at [33]:

“We must reiterate what was said in To Pui Kui v Ng Kwok Piu [2014] 5 HKLRD 103, at [55] – [59]. After the close of hearing, unless the leave of court has been given, no further submissions should be advanced whether by counsel, solicitors or litigants in person, whether in writing or otherwise. In rare and exceptional circumstances where there is good and cogent reason for drawing the court’s attention to additional matters, the party who wishes to advance further submissions should, as a matter of courtesy and proper practice, approach the other parties first to see whether they agree to the lodging of further submissions. Even if there is a consensus between the parties, they must apply for leave from the court before such further submissions are lodged. It cannot be assumed that the court would necessarily adopt the course suggested by the parties. Whether the court will entertain a further round of submissions is a matter of discretion.”

40.  More recently, the Court of Appeal again deprecated the practice of making post-hearing submission in Re Estate of Au Kong Tim (Wills: Validity) [2018] 2 HKLRD 864 at [62].

41.  The Hong Kong courts’ approach is consistent with that adopted by the courts in other common law jurisdictions.  For instance, in Carr v Finance Co of Australia Ltd (No 1), 34 ALR 449, a case before the High Court of Australia, Mason J said at 458 that:

“… After argument had concluded in this Court lengthy written submissions dealing with issues not hitherto raised and a further affidavit were filed. The affidavit asserts that the mortgages were extended but no attempt is made to specify the extended expiry dates or the facts giving rise to the alleged extension. The material was submitted without leave having been given by the Court. The impression, unfortunately abroad, that parties may file supplementary written material after the conclusion of oral argument, without leave having been given beforehand, is quite misconceived. We have to say once again, firmly and clearly, that the hearing is the time and place to present argument, whether it be wholly oral or oral argument supplemented by written submissions.”

42.  The High Court of Australia restated the principle in Eastman v Director of Public Prosecutions (ACT) 198 ALR 1, [2003] HCA 28.  In that case, McHugh J said in the postscript of his judgment that:

“[29] Parties to matters before the court need to understand that, once a hearing in the court has concluded, only in very exceptional circumstances, if at all, will the court later give leave to a party to supplement submissions. Parties have a legal right to present their arguments at the hearing. If a new point arises at the hearing, the court will usually give leave to the parties to file further written submissions within a short period of the hearing — ordinarily 7 to 14 days. But a party has no legal right to continue to put submissions to the court after the hearing. In so far as the rules of natural justice require that a party be given an opportunity to put his or her case, that opportunity is given at the hearing.”

43.  After citing Mason J’s dictum in Carr v Finance Co of Australia Ltd, supra, McHugh J continued:

“[31] Once the hearing has concluded, the workload of the court makes it impossible for the court to give leave to file further submissions — with all the attendant delay in the court’s business by a fresh round of submissions. Efficiency requires that the despatch [sic] of the court’s business not be delayed by further submissions reflecting the afterthoughts of a party or — as perhaps is the case in this appeal — some dissatisfaction with the arguments of the party’s counsel.”

44.  It is clear from the aforesaid authorities that, save in rare and exceptional circumstances, no post-hearing submission should be entertained.

45.  In the present case, I do not see why the court should indulge the plaintiffs and consider their post-hearing submissions.  The plaintiffs have simply not identified any such “rare” or “exceptional” circumstances.  Nor have they followed the protocol of first seeking the opposite party’s consent or the court’s leave.  They just lodged the post-hearing submissions as if it was a matter of right for them to do so. That the defendants’ counsel had been able to make reply submissions is neither here nor there.

Relevant legal principles

46.  As said earlier, I shall approach the costs of the Application by first considering how I would otherwise have determined the Application had the Agreement not been made. Hence, I start with the respective principles governing the grant of leave to continue a common law derivative action and the grant of a pre-emptive Wallersteiner order.  Given the peculiar circumstances of this case, I need not go any further than stating the tests, which are not controversial at all. 

Leave to continue with a common law derivative action

47.  To obtain leave to continue with a common law derivative action, the plaintiff should at least establish a prime facie case: (1) that the company is entitled to the relief claimed and (2) that the action falls within the proper boundaries of the exception to the rule in Foss v Harbottle.  See Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 (CA) at 221H-222A, followed in Tan Eng Guan v Southland Company Limited [1996] 2 HKLRD 117 (CA).

Pre-emptive Wallersteiner order

48.  As for the pre-emptive Wallersteiner order, the test is whether an independent board, exercising the standard of care which a prudent businessman would exercise in his own affairs, would consider that it ought to bring the action: Wallersteiner v Moir (No 2), supra, at 404D (per Lord Buckley); Smith v Croft [1986] 1 WLR 580 at 590G (per Walton J); and Chung Sau Ling v Asia Women’s League Ltd [2001] 3 HKC 410 at 415E-F (per Chu J as she then was).

49.  An important question that such a hypothetical board would ask is what is the benefit to be gained by the shareholders or the company from the litigation and how would that weigh against the risks and costs of litigation: Chung Sau Ling at 419B-C.

Application for leave to continue action

50.  In view of the low threshold, the defendants had raised no objection to leave being granted to the plaintiffs to continue with this action, provided that the costs of doing so should not come out of the assets of the Companies.

51.  The court is not bound by the defendants’ stance.

52.  Mr Chan provided the court with a detailed analysis of the factual and legal bases of the plaintiffs’ derivative claims against the defendants on behalf of the Companies and the strength of such claims in paragraphs 17 to 20 of his written submissions dated 28 March 2018. 

53.  Counsel then casts doubt on the credibility of the defendants’ ground of defence (i.e. that they conducted in the ways complained of to protect and preserve the Companies’ assets from the plaintiffs) in paragraphs 13 to 16 and 21 to 23 of his said written submissions.

54.  Mr Chan might or might not be right about the genuineness of the defendants’ ground of defence. However, the stark practical reality is that, by raising such ground of defence, the defendants have from the beginning of this action not disputed that the Fund is Boden’s property.   And the purpose of this derivative action, from the point of view of the Companies on whose behalf it is taken, is to restore the Fund to Boden.

55.  In short, this is a rare case where the alleged wrongdoing majority does not dispute the entitlement of the company for whose benefit the derivative claim is made to the recovery of company property allegedly misappropriated.

56.  Given the defendants’ open stance on the ownership of and entitlement to the Fund, with or without the Agreement, I fail to see any or any real point in the further prosecution of this action against these defendants.

57.  In the premises, regardless of the Agreement, I would not have granted the plaintiffs leave to continue with this action.  It follows that the first contention of the plaintiffs’ post-hearing submissions, even if entertained, would have been ruled to be bad.

Application for pre-emptive Wallersteiner order

58.  Even if I had been minded to grant the plaintiffs leave to continue, I would most certainly not have made any pre-emptive Wallersteiner orders in respect of future costs against the Companies in their favour, even without the Agreement.

59.  I have no doubt in my mind that the hypothetical independent board would not have continued with this action, certainly not on the scale of costs suggested by the plaintiffs.

60.  The defendants have acknowledged Boden’s ownership of and entitlement to the Fund right from the start of this action.  The further prosecution of this action would at most establish whether the defendants have breached their fiduciary duties to the Companies.  Such a finding would, however, produce no tangible benefit to the Companies.  As observed by Madam Justice Chu in Chung Sau Ling, supra, at 419C-D, “a prudent businessman would not ordinarily incur expenses in litigating a dispute when there is no apparent pecuniary or other advantage and benefit to be gained from such a course, having regard to the inherent risks in and the high costs of litigation”.

61.  A finding of breach of fiduciary duties against the defendants would only serve to enhance the plaintiffs’ position under the Unfair Prejudice Petitions and the Winding Up Petitions.  And Mr Chan (rightly) accepted on behalf of the plaintiffs that there is no question of an indemnity by the Companies of their costs in the Unfair Prejudice Petitions or the Winding Up Petitions.  In this regard, Ms Ling has reminded me that a Wallersteiner indemnity order is limited to a true derivative claim brought for the benefit of the company, as opposed to a claim brought by shareholders asserting individual rights, even if those rights are based on a breach of fiduciary duty to the company.  See Re a company (Case No 5136 of 1986) [1987] BCLC 82 at 85 (per Hoffmann J); Bhullar v Bhullar [2016] 1 BCLC 106 at [70] (per Morgan J); and Hollington on Shareholders’ Rights(7^th ed), §6-100.

62.  In Bhullar v Bhullar (supra), Morgan J held at [70] that where the dispute is between two shareholders, and the derivative proceedings will determine certain points in dispute between them, and are a stepping stone towards an unfair prejudice petition, the costs position should be the same as the costs position in relation to an unfair prejudice petition generally, such that they should be treated equally and each of them should be on risk as to costs.  The court held that in such circumstances, an order which gives one shareholder a considerable advantage at the possible expense of the other should not be made.

63.  On the other hand, the hypothetical independent board which discovered the unilateral changes to the mandates for the operation of the Accounts and the Withdrawals and which made repeated attempts to obtain from the defendants an explanation about their actions via WhatsApp and by telephone and at the 19.7.2017 Meeting to no avail would probably have sought to protect the proceeds of the Withdrawals by obtaining a proprietary/Mareva injunction against the defendants as the plaintiffs have done in this case.  Such board would however cease any further legal action upon being explained, and properly advised in respect of, Mr Lui’s said 1^st affirmation filed on 25 July 2017.  Instead of proceeding with the action, such board would have immediately engaged in negotiation with the defendants for a neutral mechanism for securing the Fund, as the defendants agreed to at the hearing on the return date before Anthony Chan J.

64.  On such analysis, regardless of other considerations, the court might have been prepared to make a Wallersteiner indemnity order though it would have been limited to the plaintiffs’ costs up to 28 July 2017 only.

65.  However, there are indeed other considerations in deciding the entitlement to a Wallersteiner pre-emptive costs order and therefore the incidence of the costs of an application for such an order.  As expressed by Walton J in Smith v Croft, supra, at 597G-H and Cooke J in Certain Limited Partners in Henderson PFI Secondary Fund II LP v Henderson PFI Secondary Fund II LP [2013] QB 934, [2012] EWHC 3259 (Comm) at [74], it was incumbent on a claimant for a Wallersteiner pre-emptive costs order to show that it was genuinely needed inasmuch as they did not have sufficient resources to finance the action in the meantime.  If they had, there would be no reason to place an extra burden upon the company.  The rationale for a pre-emptive costs order is to ensure that the claimant in a minority shareholders’ action should not be prevented from pursuing an obviously just case through lack of funds or fear that he might, for some reason, fail at the end of the day and be at risk as to costs which he could not possibly pay.

66.  As said earlier, the plaintiffs do not seek interim payment of any part of their costs. They do not need to have their pockets replenished right away to carry on with this action.  In such circumstances, the court would not have had any reason to make a pre-emptive costs order.

Appropriate costs order of the Application

67.  On such basis, I order the plaintiffs to pay the defendants their costs of and occasioned by the Application, including the costs of and occasioned to them by the plaintiffs’ post-hearing submissions, to be taxed if not agreed on a party and party basis with certificate for counsel for the hearing on 4 April 2018.

68.  For the sake of completeness, I should mention that even if the plaintiffs were otherwise entitled to a Wallersteiner indemnity order for their costs of this action up to 28 July 2017, I would not have been minded to award them the costs of the Application or any part thereof.

69.  As stated in [2] above, the plaintiffs had incurred $76,000 for making the Application.  Such costs is in my opinion disproportionately high as compared to the plaintiffs’ costs of this action which was commenced on 19 July 2017 up to 28 July 2017.  This is particularly so when the plaintiffs would in any event have been left to bear some proportion of the relevant costs: see Smith v Croft, supra, at 597H-598A.  In this connection, those advising the plaintiffs are reminded of the objectives underlying the Civil Justice Reform, in particular, those provided for under Order 1A, rule 1(a), (c) and (f) of the Rules of the High Court (Cap 4A).