NGAN SUI HUNG OSWELL v. TRINITY MANUFACTURING LTD AND OTHERS

HCMP 1241/2025

[2026] HKCFI 5304

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1241 OF 2025

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J U D G M E N T

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Introduction

1.  On 25 July 2025, the Plaintiff applied by way of an originating summons for leave under sections 732 and 733 of the Companies Ordinance, Cap. 622 (“Ordinance”) to commence on behalf of the 1^st Defendant (“Company”) a statutory derivative action against the 2^nd and 3^rd Defendants (collectively, “Defendants”). The application is opposed by the Defendants[1].

2.  On 31 December 2025, DHCJ Gary Lam ordered, by consent, inter alia that the substantive hearing of the originating summons be refixed and that the Defendants be granted leave to apply for relief from sanction out of time as well as retrospective leave to file and serve their affirmations in opposition.

3.  This is my decision in respect of the Plaintiff’s application and the costs of the consent summons dated 23 December 2025.

Background

4.  The background history of this dispute is familiar. The Plaintiff and the 2^nd Defendant met sometime around 1993 or 1994 when they were working for the same company. The Plaintiff worked in sales and the 2^nd Defendant worked as a marketing manager. In 1997, they both changed to another company. Despite the Plaintiff changing to yet another company in late 1997, they remained good friends. After SARs in around 2004, the 2^nd Defendant suggested that they go into the disinfectant wipe business together. On 14 January 2004, the Company was incorporated in Hong Kong. At all material times, it was in the business of supplying disinfectant wipes and wet tissues, which were manufactured at the Company’s factory in Mainland China (“Factory”), to businesses in Hong Kong. The Company had an office in Kwai Chung.

5.  Initially, to help the Plaintiff acquire his equity interest in the Company, the 2^nd Defendant obtained a bank loan in his personal capacity for the Plaintiff. The Plaintiff says for this he is very grateful. He subsequently repaid the loan with interest. The Plaintiff also says, understandably, that the 2^nd Defendant’s magnanimity reinforced their friendship, and his trust and confidence in the 2^nd Defendant.

6.  In around 2007, the Plaintiff and the Defendants agreed to own and manage the Company to manufacture disinfectant wipes on the following basis (“Understanding”), and I quote from paragraph 10 of the Plaintiff’s affirmation made on 25 July 2025:

“(a) I would hold 50% shares in the Company and Mr. Ng and Ms. Ko as a camp would hold the other 50% shares therein;

(b) Mr. Ng would be the president and in charge of the Company’s accounts, finance, manufacturing, administration and internal operations, including logistics coordination and production communication with the Mainland staff of the Company;

(c) I would be the vice-president and in charge of purchase and sales;

(d) Mr. Ng and I would each be entitled to the same amount of monthly salary as president and vice-president of the Company respectively subject to adjustments depending on the circumstances, such as the performance of the Company; and

(e) Directors of the Company would receive no remuneration unless approved by a shareholders’ resolution in accordance with the Articles of Association […] of the Company.”

7.  Over the years, the directorship and the shareholding of the Company had changed. On 15 April 2005, the 2^nd Defendant became a director and his wife, the 3^rd Defendant, became both a director and the company secretary. On 1 September 2007, the Plaintiff became a director and a 50% shareholder, whilst the 3^rd Defendant became a 49.98% shareholder. On 2 April 2012, the 2^nd Defendant acquired the remaining shares and became a 0.02% shareholder. Currently, the Company’s directors are the Plaintiff, the Plaintiff’s wife and the Defendants; the shareholders are the Plaintiff (50%), the 2^nd Defendant (0.02%) and the 3^rd Defendant (49.98%) (“Parties”); and the company secretary is the 3^rd Defendant.

8.  In around September 2007, the 2^nd Defendant opened bank accounts for the Company (“Company’s Bank Accounts”) with The Hong Kong and Shanghai Banking Corporation Limited (“HSBC”). It is the Plaintiff’s case that the 2^nd Defendant became responsible for the financial affairs of the Company and the operation of the Company’s Bank Accounts of which he was, for a long time, the sole signatory[2]. In addition, the Plaintiff says that at the end of every business year, the 2^nd Defendant would spend some time explaining to him the Company’s overall financial performance and profitability by reference to the Company’s financial statements. The Plaintiff says that he never asked for details or supporting documents from the 2^nd Defendant whom he trusted and assumed was dealing with the Company’s financial affairs in good faith.

9.  Whilst the Plaintiff and the 2^nd Defendant would, as noted in [6] above, each be entitled to the same amount of monthly salary as vice-president and president of the Company respectively, the Plaintiff says, as far as he is aware, there has never been any resolution by the directors or the shareholders to pay any salary to the 3^rd Defendant. It is implicit in the Plaintiff’s case that the 3^rd Defendant’s position was as a passive shareholder. This appears to have changed in June 2016 when the 3^rd Defendant became a part-time sales manager of the Company. The Plaintiff says he recalls the 2^nd Defendant showing him an agency agreement signed by the 3^rd Defendant, although he says he was never given a copy of the agreement. The Plaintiff also says the 3^rd Defendant’s title as a part-time sales manager did not, as the 2^nd Defendant explained, mean that she was an employee but rather her retention was more in the nature of a part-time sales agent. Additionally, the Plaintiff and the 2^nd Defendant (acting also on behalf of the 3^rd Defendant) orally agreed that the rates of commission due to the 3^rd Defendant would depend on the profits from the sales that she had made. If the gross profit from the sale was 30% or more, the 3^rd Defendant was to receive 10% of the revenue generated by the sale. If the gross profit was less than 30%, the 3^rd Defendant would receive 5% of the revenue generated by the sale.

10.  Matters seem to have progressed satisfactorily from the perspective of the Plaintiff until about May 2024. Sometime about the first quarter of 2024, the Plaintiff and the 2^nd Defendant considered suspending the Company’s business. In April 2024, the Plaintiff became, for the first time, an authorised signatory of the Company’s Bank Accounts. At about the same time, the Plaintiff asked the 2^nd Defendant to give him the Company’s accounting records so that he might review them. The 2^nd Defendant refused, claiming that the documents were not available at the time due to the Company’s ongoing operations. The Plaintiff was, however, given some soft copies of the Company’s finance and accounting records, including the auditor’s reports from 2019 to 2023, by the Company’s auditor. On 11 April 2025, the Plaintiff received an email from the auditor saying that the Company’s finance and accounting records were provided to them by the 2^nd Defendant. In May 2024, the Plaintiff registered for internet banking access to the Company’s Bank Accounts which allowed him, for the first time, he says, to access and review the Company’s bank statements for the preceding seven years. Having reviewed the documents, the Plaintiff says that he has discovered some misconduct in respect of which he wishes leave to commence a statutory derivative action against the Defendants.

The Plaintiff’s Case

11.  A draft statement of claim is exhibited to the Plaintiff’s affirmation. It pleads the relevant background, the Defendants’ fiduciary duties and the discovery of misconduct by the Plaintiff in about May 2024. In particular, the Plaintiff alleges that the Defendants had procured the following five unauthorised payments in favour of themselves.

12.  First, between July 2020 and April 2024, unauthorised payments of salary were made out of the Company’s Bank Accounts in favour of the 3^rd Defendant (“Unauthorised Salary Payments”). The Plaintiff says without his knowledge, consent or authorisation the 2^nd Defendant had procured the Company to make monthly payments of HKD15,000 to HKD60,000 out of the Company’s Bank Accounts to the 3^rd Defendant’s personal bank account, totalling HKD1,995,000. Whilst the Company’s accounting records contain no documents to substantiate the Unauthorised Salary Payments, such payments were described as salary in the accounting records. It is the Plaintiff’s case that the 3^rd Defendant was not entitled to any salary and was only entitled to the commission calculated as I have described earlier in [9].

13.  Secondly, between July 2020 and March 2024, unauthorised payments of mandatory provident fund (“MPF”) were made out of the Company’s Bank Accounts in favour of the 3^rd Defendant (“Unauthorised MPF Payments”). The Plaintiff says without his knowledge, consent or authorisation the 2^nd Defendant had procured the Company to make monthly MPF contributions of HKD750 to HKD3,000 in favour of the 3^rd Defendant, totalling HKD125,750. As the 3^rd Defendant was not an employee of the Company, the Plaintiff contends that the 3^rd Defendant was not entitled to any MPF contribution.

14.  Thirdly, between March 2023 and March 2024, there were unauthorised releases of the Company’s profits and/or purported salaries out of the Company’s Bank Accounts to the Defendants (“Unauthorised Profits Payments”). Since 2013, the Parties had been sharing the Company’s profits in accordance with their shareholdings. On six different occasions between March 2023 and March 2024, payments[3] were made out of the Company’s Bank Accounts to the Parties, which the Plaintiff understood to be a distribution of profits. Instead of distributing the profits in accordance with their shareholdings, the payments were made in three equal shares. This is particularly problematic in the case of the 2^nd Defendant because of his very small shareholding (0.02%). By contrast, it will be appreciated that, in the case of the 3^rd Defendant, the alleged overpayment of dividends was minimal since her shareholding was just slightly below 50% (49.8%). However, the Plaintiff says that the 3^rd Defendant was also wrongly credited with what was characterised by the 2^nd Defendant as salary on two of those six occasions. Accordingly, the Plaintiff says that the 2^nd Defendant has been overpaid HKD799,680 (as dividends), and the 3^rd Defendant overpaid HKD320 (as dividends) and HKD110,000 (as salary).

15.  Fourthly, the Plaintiff alleges that, on 11 March 2019, the 2^nd Defendant procured the Company to purchase a vehicle from Crown Motors Limited (“Toyota Vehicle”) for a total of HKD295,244 without his knowledge, consent or authorisation (“Unauthorised Use and Purchase of the Toyota Vehicle”). The Plaintiff contends that the Company had no need to purchase the Toyota Vehicle because there was a monthly travel allowance available to all its salespersons and that all logistics works had already been outsourced to a third-party company since 2015. By procuring the Company to purchase the Toyota Vehicle, the Plaintiff complains that the 2^nd Defendant has incurred not only the original purchase price but also maintenance costs which include mainly, I assume, purchasing fuel totalling HKD328,351. The Plaintiff pleads that this was effectively a misappropriation of company property. Although not expressly pleaded, it seems implicit that he is saying the 2^nd Defendant has purchased the Toyota Vehicle for his own use, and that it was in fact used by him for his own use.

16.  Fifthly and finally, the Plaintiff alleges that, between April 2020 and April 2024, the 2^nd Defendant had been overpaid by the Company HKD6,675,263 in the form of reimbursement (“Unauthorised Reimbursements”). The Plaintiff says he has orally agreed with the 2^nd Defendant that the 2^nd Defendant would pay the Company’s staff in Mainland China who would pay the suppliers on behalf of the Company and produce the relevant supporting documentation, such as invoices, receipts or proof of payment, for the 2^nd Defendant to then claim reimbursement from the Company in HKD. The Plaintiff also says that, between April 2020 and April 2024, the 2^nd Defendant had procured the Company to reimburse him without any supporting documentation and/or at an inflated amount by rounding up the RMB figures.

17.  As summarised in paragraph 59 of the draft statement of claim, the Plaintiff now claims against the Defendants a total of HKD10,329,608.

Legal Principles

18.  Before granting leave under section 733 of the Ordinance, the Court must be satisfied that the proposed proceedings raise a serious question to be tried, and that it appears to be in the interests of the company that it be tried. The issues are normally considered in that order, because if the first requirement is not satisfied, it would be difficult to see how it could be in the interests of the company to commence a derivative action[4].

19.  The correct approach to determining whether the two requirements are met was most recently restated by Coleman J in Kwok Hiu Kwan v Convoy Global Holdings Ltd[5]:

(1)  As to the requirement for a serious question to be tried, the threshold is relatively low. Therefore, the prospects of success on the claim are to be investigated only to a limited extent, and the Court should be slow to refuse leave unless the prospects are so slim that the plaintiff cannot be said to have any expectation of success. The question is whether there can be seen prospects of success which, in substance and reality, exist. Unless the pleaded claim is demurrable, or there are some easily demonstrated fatal flaws, the merits will not be further investigated. Certainly, at this stage, it is not the Court’s function to try to resolve conflicts of evidence or difficult questions of law: [56].

(2)  Of course, when considering whether a serious question to be tried is made out, the Court is not obliged to accept whatever evidence the plaintiff chooses to place before it without any critical thinking: [57].

(3)  As to the requirement that the intended action appears to be in the interests of the company, again the threshold is low. In most cases, if a serious question to be tried has been demonstrated, it will follow that it is prima facie in the interests of the company that proceedings are pursued (and, of course, vice versa): [58].

(4)  In assessing whether it appears to be in the interests of the company that the statutory derivative action be pursued, the Court should also take into account whether any practical benefit is likely to result. This involves making some assessment as to whether it appears that the company stands to gain in money or money’s worth in light of the costs to be incurred. That is not necessarily the same as a cost-benefit analysis of possible outcomes of the prospective litigation, as that assessment may not be possible with any degree of confidence or accuracy. But the Court should be looking to see whether there is a realistic tangible and practical overall benefit which might be obtained: [59].

(5)  Ultimately, section 733 provides a discretionary power for the Court to grant leave to commence a statutory derivative action. In exercising its discretion, the Court is deciding—on the basis of the criteria laid down by statute—whether the plaintiff should exceptionally be allowed to sue in place of the company which is normally the proper plaintiff. The question to be asked by the Court includes the consideration whether the case is a proper case for the Court to exercise its discretion. Part of the reason for the discretion is to act as a safeguard against vexatious and inappropriate proceedings by disgruntled members. The Court can properly be regarded as exercising a “gatekeeping” function: [60].

(6)  If the applicant can satisfy the serious question to be tried requirement and the interests of the company requirement, the fact that he may also be engaged in broader disputes and hostile litigation with the intended defendants does not of itself give rise to an inference that the leave application is for an ulterior motive and hence an abuse of process: see, for example, Lau Wing Yan v Pacific Bulk Investment Ltd[6]. If something is in the best interests of a company, it does not matter who the shareholders are and the state of the relationship between them: [61].

20.  In addition to the above applicable principles, I bear in mind that if the applicant can achieve the desired result in proceedings in his own name, it may not be in the best interests of the company to be involved in litigation at all[7]. The fact that there is an alternative remedy is a factor to be taken into account when considering whether to allow a derivative action to proceed[8].

21.  In Re Chime Corp Ltd[9], the distinction between misconduct, which warrants a derivative action, and mismanagement, which constitutes unfairly prejudicial conduct, was discussed at length by Lord Scott NPJ at [47]:

“… in Re Charnley Davies Ltd (No 2) [1990] BCLC 760 … Millett J was concerned to distinguish between proceedings where the complaint was of unfairly prejudicial conduct of the company’s affairs and proceedings where the complaint was of breaches of duty to, or other misconduct actionable by, the company. The distinction, he said, ‘does not lie in the particular acts or omissions of which complaint is made, but in the nature of the complaint and the remedy necessary to meet it’. He went on:

‘If the whole gist of the complaint lies in the unlawfulness of the acts or omissions complained of, so that it may be adequately redressed by the remedy provided by law for the wrong, the complaint is one of misconduct simpliciter. There is no need to assume the burden of alleging and proving that the acts or omissions complained of evidence or constitute unfairly prejudicial management of the company’s affairs. It is otherwise if the unlawfulness of the acts or omissions complained of is not the whole gist of the complaint, so that it would not be adequately redressed by the remedy provided by law for the wrong. In such a case it is necessary to assume that burden, but it is no longer necessary to establish that the acts or omissions in question were unlawful, and a much wider remedy may be sought.’

As Hoffmann LJ (as he then was) was later to say in Re Saul D Harrison & Sons plc [1995] 1 BCLC 14 at p. 19:

‘Not only may conduct be technically unlawful without being unfair: it can also be unfair without being unlawful.’

Millett J in Re Charnley Davies concluded that the essence of the petitioners’ complaint was not the unlawfulness of the respondent’s conduct, but its unfairness and its prejudicial disregard of their interest. They wanted to be bought out, not to achieve payment of compensation to the company: ‘They wanted relief from mismanagement, not a remedy for misconduct’ (p. 784) …”

The Defendants’ Case

22.  The Defendants say that the Plaintiff’s case is a mischaracterisation of the circumstances in which the dispute arose. On 30 August 2024, the Parties executed a Deed of Settlement, which provided that the Company’s customers were to be split between the Plaintiff on the one part and the Defendants on the other, and that the Company would cease to accept new purchase orders from 1 November 2024. The Parties also agreed to distribute all the Company’s assets in accordance with their respective shareholdings and to proceed to dissolve and deregister the Company. In other words, the Parties have agreed to terminate the business of the Company, divide up its customers, and go their separate ways. The catalyst for this was, says the 2^nd Defendant, his discovery that the Plaintiff had established a competing company.

23.  Broadly, the Defendants contend that:

(1)  The allegations and evidence are insufficient to show that there are serious questions to be tried;

(2)  Irrespective of whether there is a serious question to be tried, the proposed action does not appear to be in the interests of the Company when it has clearly been the shareholders’ unanimous decision[10] to dissolve and deregister the Company upon the distribution of its assets. The Defendants say that the proposed action will force the Company to continue for the sole purpose of litigation and to use its assets for litigation instead of distribution as envisaged in the Deed of Settlement; and

(3)  The Plaintiff is not acting in good faith, and if leave is given, the Company should not be required to indemnify the Plaintiff against the costs of the proposed action.

24.  As is unfortunately all too common with small companies in Hong Kong, a large part of the problems that have arisen and the difficulty in assessing the parties’ respective positions lies in the failure of the parties to keep a written record even of things which obviously should require something in writing.

25.  In respect of the payments that the Plaintiff says have been wrongfully made to the Defendants, the 2^nd Defendant has this to say in paragraph 63 of his affirmation made on 6 November 2025:

“In any event, the six batches of payments referred to in Section F of the Plaintiff’s Affirmation are indeed such director’s bonus as agreed between all shareholders of the Company. I will add that we had not made any formal director’s resolution regarding paying a bonus to Ms. Ko, and indeed we never had any such resolution in regards bonus payments to the Plaintiff and myself, because we were a small company and had all along made decisions via information discussions. In fact, we had never agreed that profits would be distributed in accordance with our proportion of shareholding; if so, Ms. Ko would have received director’s bonus payments prior to 2023, which she never did.”

26.  Any profit would have been an asset of the Company, which could only be properly distributed as a dividend. On the assumption that the directors were also employees, rather than having any surplus accumulate within the Company, they could have included in their employment contracts provisions for them to be paid bonuses. These would have been deductible for tax and accounting purposes, and would have reduced what would probably be described as the profit of the Company. What I have quoted from the 2^nd Defendant’s affirmation plainly demonstrates a failure to understand this. None of the Parties have exhibited to their evidence the Company’s audited financial statements, anything which resembles management accounts, or anything that looks like a properly prepared accounting ledger. Instead, the exhibits consist of individual schedules, bank statements, bank slips, and other documents which, I assume, are intended to support a contention but cannot be tied properly to the Company’s accounts or any particular agreement.

27.  As I explained in the previous section of this Judgment, the threshold for satisfying the Court that there is a serious question to be tried is low. The prospects of the Company’s success are to be investigated only to a limited extent. If the Plaintiff’s draft statement of claim sets out a case with some prospect of success when only the allegations contained in the pleading are considered, the criteria will be satisfied unless the Defendants can demonstrate fairly readily that there is a serious flaw in the claim or that it has no real substance.

28.  In practice, if a company director and shareholder allows a company to be run with indifference to even basic principles of good commercial practice and corporate governance, it will become very difficult to contest an application of this sort. The practical position is this. The claims that the Plaintiff wishes to advance have, on their face, some substance. A defendant cannot expect to avoid leave being given by inviting the Court to delve into the details of the running of a company. For the Court to refuse leave, I would have to conclude that what on their face appear to be questionable or improper transactions were not objectionable, but this cannot be readily shown because the prospective Defendants had not bothered to record anything properly in writing.

29.  Ms Lydia Leung, who appeared for the Defendants, attempted to overcome this practical problem by making the following submissions.

Unauthorised Profits Payments

30.  In respect of the Plaintiff’s complaint that the Company’s profits were not being distributed as they should have been in accordance with the Parties’ respective shareholdings, Ms Lydia Leung submitted that this is not a dispute that should involve the Company in litigation. The Company, she said, does not receive any money or money’s worth from the resolution of this dispute. Moreover, this is a matter of unfair prejudice, and the Plaintiff can simply sue on the alleged Understanding which I have outlined in [6] above.

31.  It does not seem to me that the above submission is an answer which so undermines the claim as to justify concluding that it does not give rise to a triable issue. The position appears to be that what the Defendants themselves characterise as profits were distributed in three equal shares rather than, as one would expect it to be, in accordance with the Parties’ respective shareholdings. In so doing, the Defendants are unable to point to any document which supports the understanding they rely on.

32.  It is also incorrect to say the Company would not receive any money or money’s worth if the claim was successful. The claim, as I understand it, is that the Company has paid to the Defendants money that was not due to them under the guise of a distribution of profits. How this is recorded in the accounts the Court has not been told, and it is not immediately clear why. Unless the Defendants are able to justify the distributions to themselves, the Company is entitled to recoup the excess payments, which will then be available for distribution to its shareholders, assuming the Company has a surplus, as dividends. In my view, a serious question to be tried has been shown.

Unauthorised Use and Purchase of the Toyota Vehicle

33.  In his affirmation, the 2^nd Defendant claims that the Plaintiff would have long been aware of the Toyota Vehicle because the Company’s financial statements, which were signed by the Plaintiff at all material times, had always reported “motor vehicle expenses”, but there is no evidence that the Plaintiff ever complained about the purchase and/or the use of the Toyota Vehicle.

34.  At the hearing, Ms Lydia Leung seemed to accept in her argument that there is a serious issue as to whether or not the Company needed a car, and whether or not the Defendants had misused the car by treating it as their own car for all practical purposes. She submitted also that this is a complaint of mismanagement as opposed to misconduct. I disagree. Plainly, the purchase of a car with a company’s funds for personal use by the company’s director is prima facie a breach of fiduciary duty. In my view, a serious question to be tried has again been shown.

Unauthorised Salary Payments

35.  The explanation for the circumstances in which the 3^rd Defendant was paid a salary was submitted as follows. There was an agreement, as alleged by the Plaintiff, that the 3^rd Defendant would receive commission as a percentage of the sizeable sales introduced, presumably, by the 3^rd Defendant. The 3^rd Defendant did not receive any salary. She only received commissions. However, the commissions appeared as rounded-up figures because the 3^rd Defendant agreed (although this Court is not told by whom, when, and whether the agreement was recorded in writing) not to calculate her commission payments exactly each month in order to save administrative work for the Company’s administrative staff and to allow the Company more liquidity. It does not appear to be disputed that such payments to the 3^rd Defendant were described as salary. Whilst the 2^nd Defendant has exhibited a large quantity of contemporaneous documentary evidence intended to show that the 3^rd Defendant received no other payments, the Defendants have not produced any internal accounting records of the sort one would expect to have been produced at some point which are consistent with this explanation.

36.  In my view, the Plaintiff has demonstrated a serious question to be tried in respect of this claim as well. It is not a satisfactory answer to say that the records relied upon by the Plaintiff are inaccurate because the Defendants did not deal with the recording of arrangements and matters of account properly. In paragraph 34 of Ms Lydia Leung’s skeleton submissions, she submitted that the Plaintiff “has essentially jumped to a premature conclusion of unauthorised payments just because those payments were labelled ‘salary’”. If I have understood the Defendants’ case properly, they are thus saying that they caused the payments to the 3^rd Defendant to be labelled as “salary”, but this was wrong. This, in my view, is not the kind of answer to a claim which can sensibly be characterised as readily showing that a prospective claim is ill-founded.

Unauthorised MPF Payments

37.  In his affirmation, the 2^nd Defendant says that he has all along agreed with the Plaintiff that the 3^rd Defendant would be an employee of the Company receiving commission payments as remuneration. As with the alleged agreement that the 3^rd Defendant would not calculate her commission payments exactly each month, this Court is not told by whom, when, and whether this agreement between the Plaintiff and the 2^nd Defendant was recorded in writing. But the argument appears to be that since the Company had always made MPF contributions for its salespersons, it follows that the 3^rd Defendant who is also a salesperson should be entitled to such payments. As I have already explained, the burden is on the Defendants to demonstrate fairly readily that there is a serious flaw in the claim or that it has no real substance. Other than bare assertions, however, there is no evidence before me of the 3^rd Defendant’s employment with the Company and thus the 3^rd Defendant’s entitlement to MPF contributions. I therefore take the view that there is a serious question to be tried in respect of this claim.

38.  I note the 2^nd Defendant says that it “made no sense” for the 3^rd Defendant to be an independent contractor (who would not be entitled to MPF contributions) when she was also a director and a major shareholder, and that her sales had contributed to half of the Company’s revenue each month. I do not see how this can be a defence to the claim. To contest the claim, the Defendants have to prove positively—ideally with contemporaneous documentary evidence—that the 3^rd Defendant was an employee and was thus entitled to MPF contributions, not that it would be “absurd” for the 3^rd Defendant not to be an employee.

Unauthorised Reimbursements

39.  This claim also seems to be bedevilled by a lack of proper record keeping. The 2^nd Defendant says that, in assessing this claim, regard has to be had to a profit-sharing arrangement entered into by him and the Plaintiff, pursuant to which they would both be paid a “China bonus” or “China salary” so that they could share the Company’s profits from the Factory.

40.  I have some difficulty in understanding how this is said to be a defence to the claim. The claim is that the 2^nd Defendant was paid in HKD to which he was not entitled, because he claimed to be receiving reimbursement but in fact the sums for which he had made payments were less than the amount of the reimbursement. In paragraph 39 of Ms Lydia Leung’s skeleton submissions, she submitted that the Plaintiff has presented an incomplete picture of how the Company’s finances were handled in his affirmation. The Plaintiff, said Ms Lydia Leung, unfairly singles out certain payments to the 2^nd Defendant and unjustifiably concludes or alleges that the 2^nd Defendant has hence been overpaid. In reality, both the Plaintiff and the 2^nd Defendant have been paid sums in order to share the Company’s profits from the Factory. The Plaintiff cannot, she submitted, now say that he has not agreed to such a scheme, since there is no evidence that he ever complained about such profit sharing.

41.  That, however, does not seem to me to be a complete answer to the claim. It may be (but then again, it may not be) that the answer to the prima facie discrepancies between what the 2^nd Defendant received by way of the reimbursement and what he had paid on behalf of the Company (taking into account some other arrangement involving distributions of profits to him and the Plaintiff) shows that he did not receive more from the Company than he was entitled to. That, however, is a fairly complicated accounting exercise and not one which is appropriate for the Court to even try to do on an application of this sort. Indeed, it would be impossible in the circumstances of this case because the necessary accounting records do not appear to have been kept. Getting to the bottom of this matter is presumably going to involve recreating the kind of accounts and records that should have existed, but do not. I, therefore, take the view that there is a serious question to be tried in respect of this claim as well.

Disposition

42.  I am satisfied that the Plaintiff has demonstrated serious issues to be tried in respect of the claims contained in the draft statement of claim. It normally follows when this is shown that the Court takes the view that the claim is brought bona fide. The Defendants question the Plaintiff’s bona fides in the present case. It may well be that the catalyst for bringing the application is scepticism and animosity arising from a falling out between the Parties, which is at least in part attributable to the Defendants’ concern that the Plaintiff had established a competing company. However, it does not follow that the Plaintiff does not believe that the claims contained in the draft statement of claim are justified after he had reason to look at the Company’s accounting records back in April 2024. I will, therefore, make an order in the terms of paragraph 1 of the originating summons.

43.  The Plaintiff seeks an order that the Company do indemnify him out of its assets in respect of the costs of the originating summons and the costs of bringing the proposed action up to the stage of discovery. I will adjourn this issue, which is paragraph 3 of the originating summons, for further consideration when the Parties are able to file evidence about the Company’s current financial position.

44.  I have noted already that the Company’s financial statements have not been put before the Court. I would also note that in considering whether or not it is appropriate to order an indemnity, I will be mindful of the fact that the Plaintiff also, as a director, had responsibility for ensuring that the Company’s finance and accounting records, including such things as commercial agreements and appropriate board resolutions, were properly kept. It would appear from the evidence that the Plaintiff plainly did nothing in this regard at all. I consider that this is relevant in exercising discretion whether or not at this stage to order an indemnity. I will make an order that the Plaintiff and the Company have liberty to apply for an order that the costs of bringing the proposed action up to the stage of discovery be paid out of the Company’s assets, if any, pursuant to any indemnity that is ordered to be borne personally by the 2^nd and 3^rd Defendants.

45.  I will make a costs order nisi that the costs of the originating summons are paid by the 2^nd and 3^rd Defendants to the Plaintiff with a certificate for counsel.

Costs of the Consent Summons

46.  On 23 December 2025, the Parties signed a consent summons which gave retrospective leave to the Defendants to file and serve their affirmations in opposition out of time. The Defendants now seek their costs on the basis that the Plaintiff did not deal with this issue in a reasonable and practical manner. I am not satisfied that reason has been demonstrated for the Plaintiff to bear the costs associated with the Defendants having to obtain an order from the Court relieving them from the sanction of non-compliance with the order dated 23 October 2025. I will, therefore, order that the costs of the application for relief from sanction, including the costs of the consent summons dated 23 December 2025, be paid by the 2^nd and 3^rd Defendants to the Plaintiff.