LUCK CONTINENT LTD v. CHENG CHEE TOCK THEODORE AND OTHERS

HCMP 702/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 702 OF 2010

_________________

_________________

_________________

_____________________________

DECISION ON COSTS

_____________________________

Introduction

1. On 25 April 2012, I handed down judgment in these proceedings in favour of the Petitioner, making an order in terms of paragraph 1(a) of the prayer to the Petition, amending Bye-law 86(4) of C Y Foundation Group Limited (“the Company”), the 9^th Respondent to the proceedings, so that a director of the Company could be removed by way of an ordinary resolution in general meeting (rather than a special resolution as the Bye‑law originally provided).  The Petition had been presented on 14 April 2010, and the trial took place over 10 days in March and April 2011.  In my judgment, I directed that costs of the proceedings should be dealt with at a separate hearing.  This was that hearing.

2. At this hearing, the Petitioner was represented by Mr Douglas Lam and Mr John Hui (Mr Lam having been junior counsel for the Petitioner at the trial), the 1^st to 8^th Respondents by Mr John Litton QC (who had not taken part at the trial), and the Company by Mr Kent Yee (who also had not taken part at the trial, and who was instructed by the Company under its present management, its management having changed during the course of the trial, as explained in my earlier judgment).

3. The main question for determination was as to how costs should be dealt with as between the Petitioner and the 1^st to 8^th Respondents.  There was also an issue as to who should be responsible for the Company’s costs of the proceedings.

The costs to be dealt with

4. There are a total of three sets of costs to be dealt with.  These are:-

(1)  The costs of the Petition, and the costs orders made in the proceedings which have been ordered to be in the cause of the Petition;

(2)  The costs of the Petitioner’s interlocutory application for the appointment of Independent Investigating Accountants (“IIA”), made by summons dated 30 April 2010; and

(3)  The costs of the Petitioner’s interlocutory application for the appointment of Receivers and Managers of the Company, made by summons dated 15 September 2010 (“the Receivership Summons”).

A summary of the relevant background

5. Although the background to the proceedings, and the course that the proceedings took, has been set out in some detail in my earlier judgment, it is convenient to summarise certain salient features of that background and the procedural history:-

(1)  The proceedings can best be described as a struggle for control of the Company between the Petitioner (who held just under 50% of its shares and was its largest shareholder) and the 1^st to 8^th Respondents.  The 2^nd Respondent held just over 25% of the shares in the Company through the 3^rd to 8^th Respondents, which were companies she controlled, and was the second largest shareholder of the Company.  The 1^st Respondent (who formerly owned most of the shares held by the 2^nd Respondent, and is her husband) was the Chairman of the Company’s board of directors.

(2)  By the latter part of 2009, the majority of the Company’s board consisted of persons who could be regarded as aligned with the 1^st and 2^nd Respondents. Although the main shareholder of the Petitioner (a Dato Poh) had previously been a director of the Company, he had ceased to be one by this time.

(3)  Towards the end of 2009, the Petitioner had become dissatisfied with the way in which the board was conducting the Company’s affairs, and wished to replace the board with persons in whom it had more confidence.  However, when an attempt was made to requisition a general meeting for the purpose of removing members of the existing board, it was discovered that under the Company’s Bye-laws, a special resolution (requiring a three‑quarters majority) was needed for the removal of a director.

(4)  The Petitioner then requisitioned a special general meeting to consider amending the Bye-laws so that an ordinary resolution would suffice to remove a director.  This would also have brought the Bye-laws into line with the requirements of the Listing Rules of the Hong Kong Stock Exchange Limited, on which the Company was listed.  The Company agreed to convene the meeting, which was held on 26 February 2010, and recommended that shareholders should vote in favour of the resolution.  However, at the meeting, the resolution was defeated, as a result of the 3^rd to 8^th Respondents voting their shares against the resolution, having been caused to do so by the 2^nd Respondent.

(5)  On 14 April 2010, the Petitioner presented the Petition in these proceedings, complaining that the Company was in breach of the Listing Rules because of the terms of Bye‑law 86(4), had failed to rectify this situation by amending the Bye‑law, and was thereby acting in a manner that was said to be unfairly prejudicial to its members.  Apart from this complaint, complaints were also made in respect of a large number of transactions entered into by the Company under the stewardship of the 1^st Respondent and its then board, and as to the way in which certain other aspects of its affairs were being conducted.

(6)  On 30 April 2010, a second special general meeting was held, at which a resolution for the amendment of Bye-law 86(4) was again proposed.  The resolution was again defeated, again as a result of the 3^rd to 8^th Respondents voting their shares against it, in accordance with the 2^nd Respondent’s wishes (similar resolutions were put forward again at two subsequent general meetings – in July 2010 and July 2011 – with the same result).

(7)  Also on 30 April, the Petitioner issued the IIA Summons, supported by substantial affirmation evidence dealing with the transactions of which complaint was made, and in respect of which an independent investigation was sought.  The summons came on for hearing on 5 May 2010, when it was adjourned to 12 May 2010.  On 12 May 2010, on the Company undertaking to appoint Messrs BDO as the IIA, the IIA Summons was adjourned sine die with liberty to restore. Shortly afterwards, however, citing an alleged conflict of interest on the part of BDO, the Company notified the Petitioner and the Court that it would instead appoint Messrs Ernst & Young.  Dissatisfied with the course taken by the Company, the Petitioner thereafter sought to restore the IIA Summons for hearing, leave to do so being given on 13 July 2010.

(8)  On 30 August 2010, the Company’s offices were raided by the Independent Commission Against Corruption, and the 1^st and 2^nd Respondents were arrested.  The 1^st Respondent was subsequently charged with an offence of fraud in relation to one of the transactions of which complaint was made, which was referred to in the proceedings as “the 17^th Floor transaction”.  The 2^nd Respondent was released without charges being laid against her.  I was told by Mr Lam at this hearing that the 1^st Respondent has recently been convicted, and is currently awaiting sentencing.  Mr Litton, however, said that in the reasons for verdict, Dato Poh and Mr Sneah Kar Loon (who were the Petitioner’s main witnesses at the trial) had been implicated in the conspiracy in respect of which the 1^st Respondent had been convicted.

(9)  On 13 September 2010, the Company announced that its 2010 annual general meeting, which should have been held by 31 October 2010, would be postponed indefinitely.  The annual general meeting would have provided an opportunity for the Petitioner to take control of the Company’s board, as most of the sitting directors were due to retire from office at the annual general meeting.  Faced with this development, and the failure of the Company to suspend the 1^st Respondent from his duties notwithstanding his arrest, the Petitioner issued the Receivership Summons on 15 September 2010.  The Petitioner also sought to amend the petition to raise further complaints in relation to other transactions by the Company, leave to make such amendments being granted on 7 October 2010.  In addition, on 27 October 2010, the Petitioner issued separate proceedings seeking to compel the Company to hold its 2010 annual general meeting promptly.

(10) Subsequently, directions were given for the Receivership Summons to be dealt with.  As the result of it having become possible for early trial dates to be given (in March and April 2011), the IIA and Receivership Summonses were both adjourned to be dealt with at the trial.

(11) The Petitioner’s other proceedings relating to the 2010 annual general meeting were met by an application by a director of the Company to the Bermuda court (Bermuda being the place of the Company’s incorporation) for an order to postpone the holding of the annual general meeting, in which the Petitioner intervened to seek an order compelling the holding of that meeting.  The parties agreed that those issues should be litigated in Bermuda.  In the event, on 1 March 2011, the Bermuda court (Kawaley J) ordered the Company to hold its 2010 annual general meeting by no later than 5 April 2011.  Following various unsuccessful attempts by the Company to seek a stay of, and to appeal against, Kawaley J’s order, the annual general meeting was held on 6 April 2011 (a short extension of time for the holding of the meeting having been granted by Kawaley J).  At the meeting, the chairman purported to exclude the Petitioner’s votes from being counted, but on 7 April 2011, Kawaley J ordered that the Petitioner’s votes should be counted, with the result that the Petitioner succeeded in having its nominated directors elected in place of the incumbents who were standing for re‑election, thus taking control of the Company’s board.  As a result of the time difference between Bermuda and Hong Kong, such control was not effected until 8 April 2011.  In a number of his judgments and rulings, Kawaley J trenchantly criticised the Company, and those then in control of it, for their conduct in resisting the holding of the annual general meeting.

(12) Following Kawaley J’s decision of 1 March 2011, the Petitioner indicated that, in the light of its impending acquisition of control over the board of the Company, it did not consider that the appointment of IIA or Receivers was necessary any longer, and stated that it would not pursue the IIA and Receivership Summonses.  It also stated (at first) that it would, at the trial, confine its case to arguments as to the unfairly prejudicial nature of the failure of the Company to amend Bye‑law 86(4), and would not pursue any relief other than the amendment of the Bye-law.  Although the 1^st to 8^th Respondents (and the Company) sought to insist on the other complaints being dealt with at the trial, I did not accede to this suggestion.  Subsequently, however, the Petitioner took the position that the other complaints in the Petition were relevant to the arguments in relation to the amendment of the Bye-laws. Eventually, the Petitioner decided to pursue only its allegations in respect of the 17^th floor transaction at the trial, on the basis that this was (in its view) its strongest claim of misconduct, and that it was relevant to the claim that failure to amend the Bye-laws was unfairly prejudicial, since it meant that the Petitioner could not remove directors (in particular the 1^st Respondent) against whom serious wrongdoing, in respect of which there was a case to answer, had been alleged.

(13) In the event, I concluded, for the reasons given in my judgment of 25 April 2012, that the Petitioner’s allegations of unfairly prejudicial conduct were well founded, and that Bye‑law 86(4) should be amended in the terms suggested by the Petitioner.  However, for the reasons explained in paragraphs 105 and 106 of my judgment, I declined to express any view as to whether or not the allegations against the 1^st Respondent in respect of the 17^th Floor transaction were valid ones, and held that even if a prima facie case had been established in relation to them, this would not have been relevant to the question of unfair prejudice in relation to the state of the Bye-laws.

(14) It necessarily follows from this conclusion that all of the other allegations of wrongdoing would likewise have been of no assistance on the case of unfair prejudice based on the existing terms of Bye‑law 86(4).

6. Against this background, I propose to deal first with the position in relation to the costs of the Petition as between the Petitioner and the 1^st to 8^th Respondents.  I shall then deal with the costs of the IIA Summons and the Receivership Summons as between those parties, and finally go on to deal with the costs position as between the 1^st Respondent and the Company.

The costs of the Petition as between the Petitioner and the 1^st to 8^th Respondents

7. Mr Lam, for the Petitioner, submitted that the 1^st to 8^th Respondents should pay the Plaintiff all of the costs of the Petition (and those costs orders that were in the cause of the Petition).  In essence, he contended that usual rule that costs should follow the event should be applied, and that the event for this purpose was the Petitioner’s successful claim for amendment of Bye-law 86(4).  He submitted that this approach was in accordance with RHC Order 62 rule 3(2) and (2A) and rule 5.  He also submitted that the burden of demonstrating that some other costs order should be made lay with the unsuccessful party, and that here, the 1^st to 8^th Respondents could not make out any good reason for departing from the usual rule that costs should follow the event, some relevant factors in this respect being identified in RHC Order 62 rule 5.

8. So far as the legal principles to be applied were concerned, Mr Lam suggested that the well-known principles laid down in Re Elgindata Ltd (No 2) [1992] 1 WLR 1207 continued to apply, and that the approach to be taken was as explained by Kwan JA in the recent Court of Appeal decision in Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679, where she said (at paragraph 100 of the judgment):-

“Although the principles in Re Elgindata Ltd (No 2) [1992] 1 WLR 1207 at 1214A to C continue to apply after the Civil Justice Reform, the approach these days is to regard the proposition that costs should follow the event not as a general rule but only operates to shift to the unsuccessful party the burden of showing why some different approach should be adopted on the facts of a particular case (Chan Mei Yiu Paddy v Secretary for Justice (unrep, HCAL 16/2007, [2010] HKEC 1910), para 5 (Saunders J)), the rationale being that a mechanistic adoption of follow the event principle may result in parties incurring unnecessary costs in civil litigation (Wong Kam Tong v Tin Shing Court, Yuen Long (IO) (No 2) [2012] 2 HKLRD 1128, paras 10-13).”

9. Although Mr Litton submitted that the observations of Lord Woolf MR in A.E.I. Rediffusion Music Ltd v Phongraphic Performance Ltd [1999] 1 WLR 1507 at 1522H-1523A, suggesting that the courts should be far more ready to make separate orders reflecting the outcome of different issues, should now be adopted in Hong Kong (notwithstanding that he acknowledged that the Hong Kong courts have, on a number of occasions, declined to adopt this approach – see e.g. Akai Holdings Ltd v Thanakharn Kasikorn Thai Chamkat (Mahachon) (unreported, HCCL 27/2009, Stone J, 15 December 2010, at paragraphs 26-30 of the judgment), I think that, at the end of the day, he did not really suggest that this would result in a different outcome as to compared to the outcome by reference to the approach described by Kwan JA in the Hung Fung Enterprises Holdings case.

10. Mr Litton submitted that:-

(1)  The 1^st to 8^th Respondents should not be ordered to pay any of the Petitioner’s costs, because the 2^nd to 8^th Respondents had (as I recognised in my judgment) been doing no more than exercising their legal rights in voting their shares as they did.  As such, they should not be penalised in costs for doing so.

(2)  The adoption of the Bye-laws as they stood (and the failure to amend them) was an act of the Company, not the individual shareholders, so the responsibility for failure to amend the Bye-laws rested with the Company.

(3)  This litigation was clearly part of an overall struggle for control in respect of the Company, in which the Petitioner had previously adopted aggressive tactics on an ex parte application (in other proceedings between similar parties – HCA 2246/2009 and CACV 42/2010) in respect of which they had been criticised by the Court of Appeal.

(4)  As the Petitioner recognised, it was bound eventually to get control of the board, when the annual general meeting was held.  Thus, contrary to the Petitioner’s contention, it was not actually necessary to bring the proceedings for this purpose.

(5)  Even if some of his clients should be ordered to pay some or all of the Petitioner’s costs, the 1^st Respondent should not be ordered to do so, as the board of the Company had agreed to convene the necessary special general meetings and recommended that the shareholders should vote in favour of the amendments proposed.  The 1^st Respondent was a member of the board, and there was (so far as Mr Litton could discern) nothing to suggest that he had taken any different view from that taken by the board.  Accordingly, the failure to amend the Bye‑laws could not be laid at his door.

(6)  Even if a costs order were to be made against some or all of the 1^st to 8^th Respondents, the Petitioner’s costs should be limited to those properly arising in relation to the claim in respect of the Bye‑laws – in other words, the costs relating to the 17^th floor transaction and the other transactions complained of (which were not gone into at the trial) should not be recoverable by the Petitioner.  These matters were unnecessary for the determination of the proceedings, had resulted in substantial extra time and expense being spent, and so should be disallowed.

11. Mr Litton’s first and second points can be dealt with together.  In my view, they lack merit.  While it is true that the adoption of the Bye‑laws in the form in which they stood, and the failure to amend them as sought by the Petitioner, were properly to be regarded as acts of the Company, this does not mean that the 1^st to 8^th Respondents were not responsible for them also.  It is quite clear from the facts as they emerged that the reason for the Company’s inability to amend the Bye-laws, so as to remove the unfair prejudice that was being caused to its shareholders, was due to the 2^nd Respondent causing the 3^rd to 8^th Respondents to vote their shares against the proposed amendments.  True it is that in doing this, she was acting in accordance with her strict rights, but it is well established that the fact that a certain course of action may be legitimate, or in accordance with the legal rights of a party, does not prevent it being at the same time unfair and prejudicial to other shareholders so as to entitle them to relief under section 168A of the Companies Ordinance.  This was precisely the case here.  By her decisions and conduct, the 2^nd Respondent had caused the Company to act in a manner unfairly prejudicial to its shareholders, thus giving rise to a good claim for the relief sought.  In the result, the Petitioner had to bring these proceedings in order to obtain the amendment to the Bye‑laws, and there is no basis for suggesting that the 1^st to 8^th Respondents (or at least the 2^nd to 8^th Respondents) should not bear the costs incurred as a result (subject to the possibility of some part of such costs being disallowed on the basis of the argument identified in paragraph 10(6) above).

12. As for Mr Litton’s third argument, I do not accept it either.  The fact that the proceedings were part of what was clearly a hard fought battle for control of the Company is neither here nor there, and provides no justification for departing from the normal principles governing the award of costs.  Nor does the fact that the Petitioner may have been criticised for the way in which it has conducted other proceedings between the same parties make any difference. For present purposes, what is relevant is these proceedings, and the way in which they were conducted.

13. As for Mr Litton’s fourth argument, the fact that the Petitioner would ultimately obtain control of the Board does not mean that it was not necessary or reasonable for it to have commenced these proceedings.  As Mr Lam observed, the obtaining of control would not have resulted in the removal of the unfairly prejudicial conduct or state of affairs, in that it would still have been necessary to amend the Bye-laws to achieve this, and this could not be done without the cooperation of the Respondents other than the Company, which was never forthcoming.  The proceedings were, therefore, necessary in order to achieve what was sought by the Petitioner.

14. So far as the fifth argument advanced by Mr Litton is concerned, although it is true that the position of the 1^st Respondent was different from that of the 2^nd to 8^th Respondents, since he was not himself a shareholder of the Company at the relevant times, it is important to bear in mind that the Petition was, as Mr Litton himself put it, part of a struggle for control of the Company.  In that struggle, the 1^st and 2^nd Respondents stood on the same side, against the Petitioner.  The resistance to the Petition was as much by the 1^st Respondent as the 2^nd to 8^th Respondents.  While it is fair to say that the 1^st Respondent might have been also concerned with the allegations in relation to the 17^th Floor Transaction, the 1^st to 8^th Respondents were jointly represented throughout the proceedings, and at no stage until now has it been it suggested that his position was different from that of the other jointly represented Respondents.  In particular, it was never suggested by the 1^st Respondent that he was agreeable to the grant of the relief sought in relation to the amendment of the Bye-laws, or even that he took a neutral stance in respect of it.  I therefore reject any suggestion that the 1^st Respondent should be treated any differently, so far as costs are concerned, from the 2^nd to 8^th Respondents.

15. This leaves Mr Litton’s final point in relation to the costs of the Petition: that a significant portion of the costs incurred in respect of the Petition related to matters in respect of which the Petitioner had decided not to proceed, or had proceeded with at trial (the 17^th Floor Transaction) to no purpose, it having been held that this aspect of the matter was irrelevant to the determination of the issue relating to amendment of the Bye‑laws.  Mr Litton submitted that whether one adopted the approach embodied in the A.E.I. Rediffusion case, or in the Hung Fung Enterprises Holdings case, or in the Elgindata case, there was here a strong case for disallowing some part of the Petitioner’s costs.

16. Mr Lam very fairly recognised that in the light of my judgment, the allegations in respect of the 17^th Floor Transaction and the other complaints had to be regarded as being irrelevant to the claim for amendment of the Bye-laws. However, he suggested that the amount of time and expense spent on these matters was not so significant as to call for a departure from the usual costs order that costs should follow the event.  As a fallback position, he submitted that any discount to be made to the costs recoverable should be a modest one in percentage terms.

17. In my view, it would be appropriate to disallow part of the Petitioner’s costs in relation to the Petition.  Having regard to my conclusions as to the relevance (or lack of them) of the complaints in relation to the 17^th Floor Transaction and the other transactions referred to in the Petition to the one head of relief that was pursued and on which the Petitioner succeeded, it would be proper to disallow the costs of preparing for and dealing with those matters.  So far as time spent on the 17^th Floor Transaction at trial is concerned, this was one of the main complaints against the 1^st Respondent.  A significant part of his cross-examination was spent dealing with it.  It also featured in the opening of the case, and represented a significant part of the closing submissions, both in terms of time spent and work done in respect of the written submissions.  Considerable parts of the evidence were devoted to the topic.  So far as the other allegations that were not pursued at trial are concerned, the position is a fortiori.  Although no time was spent on them at trial, there was nonetheless substantial evidence in relation to them, and time and costs were spent on its preparation to no ultimate purpose.  It therefore seems to me that whether one approaches the matter on the basis of the Elgindata principles in their original form, or as applied by the Court of Appeal in the Hung Fung Enterprises Holdings case, it would be appropriate to depart from the costs follow the event approach in relation to these matters, and to order that the Petitioner should not recover any of its costs in respect of them.  I do not, however, think that it is possible to say that the Petitioner had acted unreasonably in introducing these matters, and therefore go no further than this.

18. I should also record that Mr Lam submitted that the costs relating to these issues would overlap to a very large extent with the costs incurred in dealing with the IIA and Receivership Summonses, so that the amount of additional costs spent on them purely in the context of the Petition would be limited, and that for this reason, it was not necessary or appropriate to make a special costs order in relation to such costs.  I do not accept this submission.  First, it does not assist the Petitioner, as, for the reasons which appear below, I have concluded that the Petitioner should not recover any of its costs in relation to those Summonses either.  Second, and in any event, I am satisfied that even viewing the Petition in isolation from those Summonses, a significant amount of additional time and cost was expended on dealing with these matters.

19. I have considered whether or not I should deal with the matter by applying a percentage reduction to the Petitioner’s overall costs of the Petition. However, I do not think that this is appropriate in this case.  It is likely that the amount of costs to be recovered will have to be determined by a taxation in any event, and in such proceedings, it should not prove too difficult to factor out the costs attributable to these issues, which are well delineated and self evident in the Petition and supporting affirmations. It will similarly be possible to identify with reasonable accuracy the amount of time spent on them at trial, given that there are full transcripts of the proceedings.

20. I therefore order that so far as the costs of the Petition, and any costs ordered to be in the cause of the Petition, are concerned, the 1^st to 8^th Respondents are to pay the Petitioner’s costs, less such costs as were incurred in dealing with the 17^th Floor Transaction and the other transactions of which specific complaint was made in the Petition, to be taxed on the party and party basis if not agreed.  This will, I think, ensure that all other costs incurred by the Petitioner (in particular those expended on dealing with the argument in relation to the Bye-laws, and other general and incidental matters) will be recoverable by it.

The costs of the IIA and Receivership Summonses as between the Petitioner and the 1^st to 8^th Respondents

21. The contrast between the respective parties’ positions in respect of the costs incurred in dealing with the IIA and Receivership Summonses was stark.  Mr Lam contended that the Petitioner should be entitled to its costs, while Mr Litton countered that the 1^st to 8^th Respondents should get their costs.  As a fallback position, Mr Litton suggested that no order should be made as to such costs.

22. Mr Lam’s argument ran broadly as follows:-

(1)  Having regard to the circumstances in which the Petitioner found itself, being unable to effect a change to the board of the Company when it had good reason to be dissatisfied with its management under the 1^st Respondent and persons associated with him, and no prospect of changing the management in the near future, it was reasonable for the Petitioner to apply for the appointment of IIA following the failure to get the Bye‑laws amended at the first special general meeting held for this purpose in February 2010.

(2)  The reasonableness of the Petitioner’s application was demonstrated by the fact that the Company itself, through its independent board members, considered that IIA should be appointed, and agreed to do so, giving undertakings to this effect.

(3)  It had only been necessary to restore the IIA Summons because of the Company’s volte face in terminating the appointment of BDO and unilaterally appointing Ernst & Young in their place on different terms of reference.  It was therefore reasonable for the Petitioner to have continued to pursue it.

(4)  Although the IIA Summons was not ultimately pursued, this should not be viewed as an abandonment of the application by the Petitioner, but rather as a case of the Petitioner acting reasonably and responsibly in the light of the changed circumstances then prevailing – namely the decision of Kawaley J in Bermuda, which meant that the Petitioner would obtain control of the Company imminently – in order to save unnecessary costs, and to avoid an unnecessary waste of the court’s time.

(5)  The IIA Summons was necessitated by the 1^st to 8^th Respondents and the Company’s failure to effect the necessary changes to the Bye‑laws.  Had the Bye-laws been amended voluntarily earlier, or had the Petition not been opposed, it would not have been necessary to make the IIA application.

(6)  Finally, even though the IIA Summons was never argued, and the court was not (even now) being asked to come to a view on its merits (as appears from paragraph 24 below), it could be said that the Petitioner had obtained what it was seeking when the 1^st to 8^th Respondents and the Company agreed on 12 May 2011 to the appointment of BDO as IIA, and the Petitioner could thus be regarded as having succeeded.

(7)  In this respect, the court could derive some assistance from the approach adopted in cases in which there had been a settlement of the substantive dispute, with costs left to be determined by the court.

(8)  In relation to the Receivership Summons, Mr Lam suggested that the position was much the same as set out in sub‑paragraphs (1) to (5) above, having regard to the circumstances that led to its issue – in particular the arrest of the 1^st Respondent, the failure of the Company to suspend him, and the attempt by the Company to postpone the holding of its annual general meeting.

(9)  For these reasons, costs of the IIA and Receivership Summonses should be awarded to the Petitioner.

23. Mr Litton, however, contended that:-

(1)  Having issued the IIA and Receivership Summonses, but not pursued them, the Petitioner should be ordered to pay all the costs relating to them, since they had ultimately resulted in no benefit to the Petitioner.  In other words, the Petitioner should be treated as having abandoned the applications, or as having effectively withdrawn them.

(2)  Given that the Petitioner was contending that it was only a matter of time before it would obtain control at the Company’s annual general meeting, it was unnecessary for it to have made the applications.

(3)  Moreover, all of the transactions of which complaint was made, and which were relied upon for the two summonses had already taken place (many at a time when Dato Poh was still a member of the Company’s board), so that there was, for this reason too, no need for the appointments of IIA or receivers to be made.

(4)  The agreement to the appointment of IIA in May 2011 should not be regarded as a concession or acceptance of the Petitioner’s position, as the IIA were in fact appointed to look into other complaints made against the Petitioner’s controlling shareholders as well, and both Petitioner (and Dato Poh) and the 1^st and 2^nd Respondents had undertaken to assist the IIA with the investigation.

(5)  There was no basis on which the court could come to any view as to the likely outcome of the IIA and Receivership Summonses.

(6)  In the circumstances, having regard to the points mentioned in sub-paragraphs (1) to (3) above, costs of the IIA and Receivership Summonses should be awarded to the 1^st to 8^th Respondents.  Alternatively, there should be no order as to costs.

24. Both sides made it clear that they did not ask the court to attempt to come to a view as to who would have succeeded on the applications for the appointment of IIA or receivers.  Mr Lam and Mr Litton recognised that the evidence in relation to the transactions in dispute for the purposes of those applications was voluminous and hotly disputed.  To attempt to investigate the matters in dispute would require a hearing of many days (certainly more than the three days fixed for this hearing), and the costs of doing so would be far disproportionate to what was at stake.  They did not, therefore, suggest that the court should embark on a trial of these matters, as happened in Re Super Deluxe International Ltd (unreported, HCCW 186/2001, Kwan J, 3 June 2003).

25. I think that the approach taken in previous cases where parties have settled all aspect of their disputes but the incidence of costs is of limited assistance here, where there has been, and can be, no basis for the court to express any view as to the likely outcome of the applications which have been settled.  While it may be that where the relief applied for was obtained by agreement, it might be possible to regard the applicant as the “winner” and so entitled to costs on the basis that he had to bring to proceedings to get what he did (as in Re Chinese United Establishment Ltd (unreported, HCCW 391/1994, Rogers J, 5 October 1995; unreported, CACV 214/1995, Court of Appeal, 24 April 1996), this is not the situation here.  Receivers were not appointed as sought by the Petitioner, and while IIA were appointed, this does not take matters further for the reasons explained in paragraph 26(4) below.

26. Doing the best that I can in the circumstances, I have come to the conclusion that the appropriate course would be to make no order as to the costs of the IIA and Receivership Summonses.  This is for the following reasons:-

(1)  I agree with Mr Lam that it was reasonable for the Petitioner to have made the applications (and in the case of the IIA Summons, to have restored it). Even though it might have been the case that the Petitioner would expect ultimately to obtain control of the board of the Company, this was not, at any time until 1 March 2012 (when Kawaley J ordered the Company to hold its annual general meeting) an imminent likelihood.  As at April 2011, when the IIA Summons was issued, no annual general meeting needed to be held until the end of October, some six months later.  As at July 2011, when it was restored, the annual general meeting was still some months off.  By September 2011, when the Receivership Summons was issued, the annual general meeting had apparently been postponed indefinitely.  In all of the circumstances, I do not think that the Petitioner can be criticised for making the applications and pursuing them for as long as they did.

(2)  I do not think that the fact that the transactions complained of had already taken place makes a difference.  Given the concerns voiced by the Petitioner, it was, I think, understandable that they should be concerned at the prospect of leaving the Company in the hands of its then management, without any form of independent review or oversight.

(3)  The failure to pursue the applications is not something that should result in a costs order being made against the Petitioners.  The decision not to pursue the Summonses was due to a combination of the early trial dates and the decision of Kawaley J (the latter being the more significant factor, in my view). The Petitioners acted promptly thereafter to indicate that they would no longer pursue the IIA and Receivership Summonses.  This was a reasonable course to take, and was one which undoubtedly saved much time and costs.  The failure to pursue the applications was not, having regard to these circumstances, in any sense an acknowledgment of defeat on the part of the Petitioners.  That being so, I cannot agree with Mr Litton that the costs of the Summonses should be awarded to the 1^st to 8^th Respondents.

(4)  At the same time, I do not think that it is possible to regard the Petitioner as having been the successful party either.  The fact is that the applications were being, and would have been, hotly contested.  Without a close examination of the allegations and counter-allegations (which neither party suggests should be undertaken), it is not possible to say what the outcome of the applications would have been.  I do not think that the subsequent conviction of the 1^st Respondent on charges of conspiracy to defraud in relation to the 17^th Floor Transaction, which only happened recently, well after the applications might otherwise have been dealt with, justifies a different conclusion being drawn.  Nor do I think that the (initial) agreement to the appointment of BDO as IIA is a factor to which much weight should be given.  Such agreement was forthcoming only a very short time after the application was made.  It was, in my view, a neutral factor, as the independent board members would appear to have been seeking to achieve a balance between the claims and counter‑claims being asserted, in that both the Petitioner’s and the 1^st to 8^th Respondents’ allegations against each other were to be investigated, and both camps had undertaken to assist in the investigations.  For this reason, I do not think that the situation is truly analogous to that which obtained in the Chinese United Establishment Ltd case.

(5)  Finally, I think that the most important factor in this context must be the likely outcome of the applications in question.  As this is not something that the court can (or has been asked to) deal with here, it would not be right to simply hazard a guess, and make a costs order in favour of one party rather than the other.

27. I therefore make no order as to costs as between the Petitioner and the 1^st to 8^th Respondents in respect of the IIA and Receivership Summonses, and any costs orders relating thereto under which costs were reserved.

The Company’s position in relation to costs

28. The Petitioner does not seek any costs order against the Company.  Nor do the 1^st to 8^th Respondents.  However, the Company suggests that it should be entitled to recover from the 1^st Respondent at least some part of its costs incurred in relation to the proceedings.

29. For the Company, Mr Yee submitted that the role played by the Company in the proceedings went well beyond that normally to be expected in what was, as both Mr Lam and Mr Litton recognised, a fight for control between the two principal sets of shareholders.  He submitted that in such cases, the Company should generally take a neutral role, limiting itself to such matters as providing discovery and taking the benefit of, and being bound by, any orders to be made (see e.g. Core-Pacific Yamaichi International (HK) Ltd v Yuanta Securities Asia Financial Services Ltd (unreported, HCMP 3231/2003, Barma J, 17 October 2003).  He went on to submit that to cause the Company to take a greater part in the proceedings and expend its funds on doing so amounted to misfeasance on the part of the directors who caused it to do so, and that the 1^st Respondent was such a director.  He therefore contended that the 1^st Respondent should bear the Company’s costs of the proceedings, to the extent that they exceeded those which would have been properly incurred by it in performing the limited role that it should have.

30. At this hearing, Mr Yee sensibly acknowledged that the 1^st Respondent would have to be given an opportunity to respond to such an application, and to set out his case and file evidence if necessary.  He suggested that in these circumstances, bearing in mind that there might be other (former) directors against whom a similar claim might be made, the best course would be to make no order as to costs in these proceedings, but making it clear that this was to be without prejudice to any claim for misfeasance that the Company might later wish to make against the 1^st Respondent and other former directors in respect of their having caused the Company to improperly expend its funds in dealing with these proceedings beyond the extent to which it should have done so.

31. Mr Litton agreed that this was a possible course, but suggested that it would not be appropriate for the stipulation as to the Company reserving its rights to pursue the 1^st Respondent for such costs in other proceedings to be included.  He said that all that was necessary was to make no order as to costs, leaving the Company to decide whether or not it wished to pursue the 1^st Respondent.  This, he said, would be fair to both parties, as it would also preserve any arguments based on res judicata that might be open to the 1^st Respondent in that event.

32. I do not agree with Mr Litton in this respect.  It seems to me that if I were to take the course he proposed, the Company might well be faced with a res judicata argument in later proceedings, which it would not be if it pressed ahead with the costs application against the 1^st Respondent in these proceedings.  But to do this would, in any event, require directions to be given for that application to be properly formulated and dealt with.  Further, as I have noted, it may be that other parties would have to be joined to such an application.  In these circumstances, to accede to Mr Yee’s preferred course would be to do no more than to preserve the position as it stands at present.  This does not cause any real prejudice to the 1^st Respondent.

33. I therefore order that there should be no order as to the Company’s costs of these proceedings, but that this is to be without prejudice to the right of the Company to seek to recover some or all of such costs from the 1^st Respondent (or others) in separate misfeasance proceedings in future.

Conclusion and costs

34. To conclude therefore, I shall order that:-

(1)  As between the Petitioner and the 1^st to 8^th Respondents, the 1^st to 8^th Respondents are to pay the Petitioner’s costs of the Petition and of these proceedings, to be taxed on the party and party basis if not agreed, save that such costs are not to include:-

(a)  any costs incurred in relation to the complaints relating to the 17^th Floor Transaction;

(b)  any costs incurred in relation to any other transactions of which complaint was made in the Petition but which were not pursued at the trial;

(c)  any costs incurred in relation to the IIA Summons; or

(d)  any costs incurred in relation to the Receivership Summons.

(2)  There is to be no order as to costs as between the Petitioner and the Company.

(3)  There is to be no order as to costs as between the Company and the 1^st to 8^th Respondents, but such order is without prejudice to any claim that the Company may see fit to make in future against the 1^st Respondent in respect of such costs by way of separate misfeasance proceedings.

35. As for the costs of this hearing, it seems to me that while both the Petitioner and the 1^st to 8^th Respondents have had some of their arguments accepted, the Petitioner has clearly had the greater measure of success, and I therefore order that the 1^st to 8^th Respondents are to pay the Petitioner half of its costs of this hearing, such costs to be taxed on the party and party basis if not agreed.  As far as the Company is concerned, there should be no order made in relation to the Company’s costs of this hearing.  Both of these orders are orders nisi, which will become absolute if no application for them to be varied is made within 14 days.