ANDRE JOSEPH ABEL FREZOULS v. LAW YU YEE ALAN

HCMP 4903/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4903 OF 2003

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J U D G M E N T

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1. This was an application for directions as to the further conduct of these proceedings, which involve a petition seeking relief under section 168A of the Companies Ordinance (Cap. 32) ("the Ordinance") by Mr Andre Frezouls, a shareholder of Proud View Investment Limited ("the Company") against the Company's only other shareholder, Mr Alan Law. For present purposes, it is not necessary to go into the details of the dispute, save to note that the only relief sought by the petition is under section 168A, there being no prayer for a winding up order under the just and equitable ground contained in section 177(1)(f) of the Ordinance, as is sometimes the case in shareholder disputes.

2. At the hearing, there was agreement between Mr Yau, who appeared for the Petitioner, and Mr Leung, who appeared for the Respondent, on all of the directions that should be made, with one exception. This related to a direction, proposed by the Petitioner, that he should have leave to advertise the Petition in accordance with rule 24 of the Companies (Winding-Up) Rules (Cap. 32) ("the Rules") within 28 days of the making of the order, as the Petition, although presented on 7 November 2003 and served on the Respondent by 20 November 2003, had not yet been advertised in accordance with the terms of that rule.

3. Mr Leung submitted that such a direction was unnecessary, since it has for some time been the practice of the court not to insist upon advertisement of petitions under section 168A, where no order for winding up is sought. In such cases, the dispute is a private dispute between the parties to the Petition, and, at least where the company concerned is solvent, there is no question of the position of creditors or other third parties being affected. That is certainly the case in relation to the present proceedings, where the parties are the only two shareholders of the Company, and both parties agree that the Company is solvent.

4. Mr Yau agreed that, if the court had a discretion to dispense with the need for an advertisement, this was a case in which the discretion should be exercised, for the reasons mentioned in the previous paragraph. He submitted, however, that rule 24 did not provide the court with any such discretion, so that no dispensation could be given, and the direction sought should therefore be made. However, in the event that I was satisfied that the court did have such discretion, he applied for dispensation from the requirement to advertise the petition.

5. By section 168A(6) and 296 of the Ordinance, the Rules are made applicable to petitions presented under section 168A. When section 168A was introduced, a number of amendments were made to the Rules to cater for it. However, rule 24, which deals with the advertisement of petitions, does not appear to have been amended. It is, so far as material for present purposes, in the following terms:-

"Every petition shall be advertised 7 clear days or such longer time as the court may direct before the hearing, as follows -

(a) ...

(b) ...

(c) the advertisement shall state the day on which the petition was presented, and the name and address of the petitioner, and of his solicitor and shall contain a note at the foot thereof, stating that any person who intends to appear on the hearing of the petition, either to oppose or support, must send notice of his intention to the petitioner, or to his solicitor within the time and in the manner prescribed by rule 30, and an advertisement of a petition for the winding up of a company by the court which does not contain such a note shall be deemed irregular.

And if the petitioner or his solicitor does not within the time hereby prescribed or within such extended time as the Registrar may allow duly advertise the petition in the manner prescribed by this rule the appointment of the time and place at which the petition is to be heard shall be cancelled by the Registrar and the petition shall be removed from the file unless a judge or the Registrar shall otherwise direct."

6. It is pertinent to note, however, that notwithstanding that rule 24 was not amended, a new Form 4A, providing a form of advertisement of petitions by minority shareholders, was introduced in the appendix to the Rules.

7. The only other rule which may be relevant for present purposes is rule 1(2), which provides:-

"(2) Rules which from their nature and subject matter are, or which by the head lines above the group in which they are contained or by their terms are made applicable only to the proceedings in a winding-up, whether by the court or voluntarily, shall not apply to proceedings under section 168A of the Ordinance."

8. Apart from the Rules, the question of advertisement of minority shareholders' petitions is also dealt with in paragraph 2.2 of Part II of Practice Direction 3.1 ("the Practice Direction"), which is in the following terms:-

"2.2 Where the only relief sought in a petition is under Section 168A of the Ordinance, in the absence of exceptional circumstances, the petition will not be ordered to be removed from the file for failure to advertise pursuant to [rule 24]. To avoid uncertainty, applications for dispensation from advertising such petitions may be made to the master in charge of the Bankruptcy and Winding-up List at any time after the filing of the petition."

9. Mr Yau submitted that notwithstanding the terms of the Practice Direction, which clearly proceed on the basis that the court has the power to dispense with advertisements in the case of petitions that claim only section 168A relief, the true position was that there was nothing in rule 24, or any other part of the Rules or the Ordinance, which gave the court such power. He contended that the terms of rule 24 were mandatory, so far as advertisements were concerned, and that there was no basis on which the rule could be said not to be applicable to section 168A petitions. The words at the end of rule 24, he suggested, only gave the court power not to cancel an appointment for hearing, or not to order the removal of the petition from the court file, which would be the normal consequences of a failure to advertise, and that they applied only in a case where there had been a failure to advertise within the time limits, and not to a case where there had been a total failure to advertise at all.

10. With respect, I do not agree. Although it is, I think, clear from the terms of rule 24 and the existence of Form 4A (and indeed the Practice Direction) that the requirement to advertise applies to petitions under section 168A (and there is nothing in the nature or the subject matter of the rule, or the headlines above it, or its terms, which would make it inapplicable to such petitions by the operation of rule 1(2)), rule 24 also lays down, in its last paragraph, the consequences of a failure to comply with its terms. These consequences are that the appointment for hearing of the petition shall be cancelled, and the petition removed from the file. However, these consequences are not inevitable, as the court is given the power, by the final words of the rule, to direct that they shall not ensue.

11. It seems to me that the fact that the court has the power, in its discretion, to excuse a non-compliance with rule 24 from the usual consequences, necessarily means that the court is empowered by rule 24 to dispense with the need for an advertisement in appropriate cases, since the effect of directing that the consequences of a failure to advertise shall not apply is, once such a direction has been given, to dispense with the need for an advertisement, for the proceedings begun by the petition will then simply continue in the normal way.

12. I do not see any reason to limit the circumstances in which the court may exercise this power to those in which there has been a late advertisement, as opposed to no advertisement at all. There is nothing in the wording of the rules to suggest that such a limitation on the courts power was intended.

13. Thus, I am satisfied that the court does have the power to dispense with the need for advertisement of a petition in appropriate cases. That being so, there would appear to be no reason why that power cannot be invoked by the making of an application for dispensation from advertising, as envisaged by the Practice Direction.

14. In these circumstances, since Mr Yau seeks such a dispensation, and there appears to me to be no reason why such a dispensation should not be given, having regard to the facts that only section 168A relief is claimed, and that the company is solvent, I shall dispense with the need to advertise the petition, and will direct that it should not be removed from the file notwithstanding the failure to advertise it. It follows that there is no need for an order extending the time for advertisement, and I shall make no such order.

15. So far as costs are concerned, at the end of the hearing I made an order that the costs should, save insofar as they related to the argument in relation to the direction concerning the extension of time for advertising, be in the cause of the petition, and reserved the question of the costs relating to that argument. In the light of the conclusion to which I have come, and the fact that as early as November last year, the Respondent had suggested that this was a case in which there was no need to advertise the petition, it seems to me that the appropriate order to make would be that the Respondent should have its costs in relation to the application for leave to extend the time for advertising the petition in any event, such costs to be taxed on the party and party basis if not agreed, and I make an order nisi to that effect.