MARRAKESH INVESTMENTS LTD v. TANGIERS HOLDINGS LTD AND ANOTHER

HCCW 352/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING‑UP) NO 352 OF 2016

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D E C I S I O N

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1.  I have before me an inter-parte summons issued on 3 November 2016 for a validation order in respect of the payments and dispositions of property which the company (which is the subject of the present unfair prejudice petition) says that it needs to make in order to carry on business. In addition, a validation order is sought in respect of the legal costs of continuing with certain actions to which the company is a party.

2.  When the matter came on before me today the petitioner and the 2^nd respondent had agreed the terms of the validation order, which is in the terms of the appendix attached to this decision.  The only issue that arose for decision concerns the incidence of costs. Mr William Wong SC, who appeared for the 2^nd respondent, seeks an order that the petitioner pay the costs of the summons on an indemnity basis.  In order to understand why that application is made, it is necessary to understand the background to the application.

3.  On 7 September 2016, the 2^nd respondent's solicitors wrote to the petitioner's solicitors seeking a validation order other than for the request that a validation order be agreed in respect of the legal costs of other proceedings to which I have referred.  What was sought was in conventional terms.

4.  As I made clear in my decision in Re Emagist Entertainment Limited [2012] 5 HKLRD 703, 706-707, where the company which is the subject of an unfair prejudice petition is solvent and has an ongoing business, I expect the petitioner and the company to agree the necessary validation order or at least those parts of it which I would normally expect to be uncontentious, and to avoid the necessity of an urgent application being made to the Companies Court.

5.  In the present case the petitioner's solicitors did not reply to the initial letter.  On 14 September 2016 they finally replied after receiving a chasing letter from the 2^nd respondent's solicitors saying they were not prepared to agree the 2^nd respondent's proposal.  Correspondence continued between the 2^nd respondent and the petitioner's then solicitors PC Woo & Co, with the petitioner's position remaining intransigent and objecting to any validation order 

6.  On 7 November 2016 after the inter-parte summons had been issued, the petitioner changed solicitors and instructed Tanner de Witt, who in turn instructed Mr Richard Khaw SC and Mr Martin Ho.  I assume as a result that change of legal team, the petitioner was advised (or at least advised in terms which he found more convincing than those he had previously received) that it was appropriate to agree to a validation order.  As a result this morning proved to be uncontentious.  It did, however, require the preparation of fairly extensive evidence on the part of the 2^nd respondent and result in the court's time being wasted in having to read the documents in support of an application which should not have been necessary. 

7.  I accept Mr Khaw's submission that generally, the costs order in respect of an application for a validation order should reflect the possibility that the petitioner's complains will be upheld and as a result the petitioner will be able to argue credibly that, to the extent that there has been much in the way of legal costs incurred in dealing with the validation order, he should not be penalised by having to pay them, but this does not seem to me to be a normal case.  I am not inclined to order that the costs are paid on an indemnity basis, but I will order that the costs of the application are paid to the 2^nd respondent forthwith.

8.  I will emphasise again that I expect practitioners to recognise that when an unfair prejudice petition contains a prayer for a winding-up order as alternative relief, it is incumbent upon the petitioner to try and agree the terms of a validation order with the company if there is no sensible ground for disputing that the company is solvent and carrying on business.  In future I might be more inclined to make a cost costs order against a petitioner who proves to be uncooperative on an indemnity basis.

Appendix

1.   Notwithstanding the presentation of the Petition dated 3 October 2016 (the "Petition"), unless otherwise ordered by the Court, any payment or other disposition of property made on or after 3 October 2016 in the ordinary course of the business of the 2^nd Respondent (the "Company") shall not be void by virtue of section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance ("CWUO") (Cap.32);

2.   Without prejudice to the generality of paragraph 1 above, the payments made into or out of the bank account of the Company maintained with the Hongkong and Shanghai Banking Corporation Limited ("HSBC") (account no. 491-385563-838) in respect of expenses occurred in the ordinary course of business be sanctioned;

3.   The bank in paragraph 2 above shall be under no obligation to verify for itself whether any transaction through the Company's bank account is in the ordinary course of business;

4.   Notwithstanding the presentation of the Petition, the payment of reasonable legal expenses incurred by the Company in High Court Actions (i.e. HCA 2100/2016 and HCA 2572/2016) and payment of necessary legal expenses reasonably incurred by the Company for the compliance of this order shall not be void by virtue of section 182 of CWUO;

5.   The Company shall provide to the Petitioner and the 1^st Respondent respectively within 14 days of the end of each calendar month, a statement of accounts summarising the expenses and payments (including legal costs and expenses) of the Company (with the date, amount, payee and nature of payment) for the relevant calendar month;

6.   The Petitioner be at liberty to inspect the documents supporting or evidencing the above payments;

7.   There be liberty to apply;

8.   The costs of this application be paid by the Petitioner to the Company forthwith, to be taxed if not agreed.