LAM CHARM AND ANOTHER v. YUNG SHIU CHING AND OTHERS

HCCW 279/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 279 OF 2010

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BETWEEN

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JUDGMENT ON COSTS

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1.  On 28 June 2010 the Petitioner issued a petition to wind up the 5^th Respondent (“Company”) pursuant to section 177(1)(f) of the Companies Ordinance on the grounds that there had been a break down in trust and confidence between the Petitioner and the 1^st to 4^th Respondents, the latter’s conduct of the affairs of the Company had been seriously improper and that it was just and equitable to wind up the Company.

2.  The Petition came on for the first time before a judge on 4 October 2010.  I made directions for the filing of evidence and for the Petition to be adjourned to 15 December 2010 before Fok J (as he then was) who was on that day to hear an application for the appointment of provisional liquidators.

3.  On 15^th December 2010 Fok J appointed provisional liquidators.  Mr Richard Leung who appeared on that occasion, as he did today, for the 1^st to 4^th Respondents told the court that his clients did not object to a winding-up order.  Fok J declined to make a winding-up order on that occassion.  The clerk’s notes say that Fok J adjourned the Petition to 10 January 2011 and stated “Winding-up order will be made on 10-01-2011 in any event…”.  So far as I can tell it seems to have been intended that the Company be wound up on the same date as a related company, De Rodeo Catering Limited, which had a Petition against it returnable before a judge on 10 January 2011 in HCCW 346 of 2010.

4.  The Petition came on before Poon J on 10 January 2011.  So far as I can ascertain from what I was told at the hearing before me and from reading the notes on the court’s file it appears that counsel for the Petitioner in the De Rodeo proceedings suggested to Poon J that the court must be satisfied that it is just and equitable to wind up a company before making an order; in other words the court should not wind up the company simply because the respondent does not contest the Petition.  This seems to have been seen as a jurisdiction issue which, assuming the point had merit, a subject which I address in the next paragraph, certainly in the case of the Company it is not. The court had jurisdiction to wind up the Company.  The point raised in the De Rodeo proceedings goes to whether or not the jurisdiction should be exercised.

5.  Before it winds up a company the court must be satisfied that a petition contains allegations that are capable of justifying the relief sought and that the relevant procedural and substantive formalities, in particular the requirement for an affidavit verifying the petition, have been complied with.  If it is so satisfied, as I am in the present case, if the respondent indicates that it will not contest the petition it seems to me that a court can make a winding-up order without having to enquire further into the merits of the case.  What may have caused some confusion in the present case is that the 1^st to 4^th Respondents, whilst agreeing that the Company should be wound up, insisted that were doing so without admitting liability for the matters complained of in the Petition.  It seems to me that a respondent in the position of the 1^st to 4^th Respondents has to make it clear whether it is or is not contesting the Petition.  It cannot try and hedge its bets.  It does not, however, have to expressly admit the allegations against it.  It can simply decline to respond to the Petition or give notice that it does not contest the Petition and the relief sought in it.

6.  At the hearing before me today Mr Leung told me that:

(1)   The 1^st to 4^th Respondents do not challenge the allegations in the Petition;

(2)   The 1^st to 4^th Respondents accept that there has been a breakdown in trust and confidence between them and the Petitioner;

(3)   The 1^st to 4^th Respondents accept that a winding-up order should be made; and

(4)   The 1^st to 4^th Respondents agree to pay the costs of the proceedings.

7.  As I have already stated the Petition contains allegations that justify the relief sought.  The Petition has been verified by affirmation. It does not seem to me that any further consideration of the merits of the case are required and I make a winding-up order.

8.  What proved contentious were costs.  Mr Charles Manzoni, who appeared with Mr Liu and Mr Lai, sought costs on an indemnity basis.  He accepted that it was unrealistic to expect the court to go into the merits of the underlying complaints in order to assess whether or not indemnity costs should be ordered.  He submitted that this was unnecessary.  He sought indemnity costs on the basis that the 1^st to 4^th Respondents could have made the concessions made before me earlier.  He argued that as they admit in the evidence of Yung Shui Ching one of the most serious allegations in the Petition, namely, the misappropriation $9,212,000, this should have been done at the outset.  It is only their prevarication at the hearings of the Petition, at which they have always qualified their agreement to a winding up with the comment that they do not admit liability for the matters alleged in the Petition and a refusal to admit liability for costs, that has led to a considerable amount of unnecessary work being done.

9.  I accept that it is unsatisfactory that this matter had dragged on for longer than appears necessary with attendant increases in costs.  The difficulty I have in adopting the robust approach to assessing the basis of costs proposed by Mr Manzoni is that having looked at the court file and tried to determine why the Company was not wound up earlier it is unclear to me to what extent it was a result of the 1^st to 4^th Respondents trying to hedge their agreement to a winding up with reservations or a misunderstanding on the part of the Parties as to the appropriate way for the court to proceed on 10 January 2011.  The court notes of the hearing on 15 December record the intention being that the Company be wound up at the hearing of 10 January 2011.  It seems to me that this probably should have happened and only the question of costs, if it was in issue, adjourned for argument.

10.  Whilst I have a certain sympathy for the Petitioner’s position it does not seem to me that I can determine whether or not indemnity costs should be ordered without a detailed analysis of the evidence in the case.  Mr Manzoni had not invited me to do this rather he accepted that if this were to be my conclusion that I should order costs on a party and party basis, which I do.