SCANTY INVESTMENT CO AND ANOTHER v. BRILLIANT FUNCTIONS LTD AND OTHERS

HCCW 190/2018

[2021] HKCFI 1273

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 190 OF 2018

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D E C I S I O N

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1.  I have three summonses before me:

(1)  A case management summons;

(2)  A summons for dismissal of the Petition; and

(3)  A summons seeking clarification of the scope of an undertaking given to the court, which I will describe in detail later, or depending on my interpretation, an order releasing the Petitioner from the undertaking.

2.  There is no dispute that the Petition should be dismissed and the Petitioners pay the Respondents costs.  The only issue is whether or not the costs should be paid on an indemnity basis.  It follows that the case management summons does not require consideration and I order it withdrawn and the associated costs be in the cause of the Petition.

3.  The more substantial application concerns the undertaking.  The undertaking is in the following terms and is contained in my order of 26 March 2020, which arose from a strike-out application. My reasons for decision are set out in [2020] HKCFI 498:

“AND UPON undertaking proffered by Senior Counsel on behalf of the Petitioners that in the event that this Court declines to make a winding-up order in these proceedings, the Petitioners would not commence proceedings in the Courts of the British Virgin Islands seeking any relief for unfair prejudice based on the same or similar facts as alleged in the Petition filed herein on 13^th July 2018 as amended pursuant to the Order made by the Honourable Mr. Justice Harris dated 26^th March 2020”

4.  The Petitioners say that the undertaking only extends to proceedings commenced in the British Virgin Islands (“BVI”) for relief of the sort provided for in Part IV of the Companies Ordinance, Cap 622.  I disagree.  The wording is sufficiently wide to cover both a petition to wind up the Company on the just and equitable ground and a petition for some other form of relief.  Both would be relief sought to address unfairly prejudicial behavior.  In the context in which it was given it seems to me clear that it was intended to extend to any proceedings by the Petitioners for any form of relief qua members based on the complaints made in the Petition and, therefore, there is no reason not to give the undertaking its natural reading.  Certainly at the time it appeared that the Petitioners were only intending to proceed in Hong Kong and that is how I understood the undertaking.  It follows that if the Petitioners wish to act inconsistently with that interpretation they need to be released from their undertaking.

5.  Neither the affirmation in support made by a solicitor on behalf of the Petitioners nor Mr Lok’s skeleton argument explain why the Petitioners wish to be released from the undertaking.

6.  The Court has a discretion to release a party from its undertaking [1], but in order to do so the Court needs to have it explained to it the reasons why it should do so in order that it can properly determine how to exercise the discretion.  Buxton LJ summarises the relevant considerations in [54]–[56] of his Lordship’s judgment in Mid Suffolk District Council v Clarke [2]:

“54. Two bases were suggested to the judge and to us. (1) That the alteration or discharge was the appropriate course to take in the interests of justice: this being the way in which the ratio of Kensington Housing Trust is expressed in the headnote to the report at 30 HLR 608. (2) If there has been a material change of circumstances.

55. As to the first of these, while it is no doubt a necessary condition that an order under this jurisdiction, as under any jurisdiction, should be just, I cannot accept that that is a sufficient condition, and cannot accept that this court in Kensington Housing Trust 30 HLR 608 intended so to hold. The judge’s view that he was entitled to do justice without further qualification led him into error in three ways. First, he seems, at his para 7, to have been influenced by the fact that when the undertaking was given Mr Clarke had ‘dispensed with his legal advisers’. That might, on appeal, be a ground for saying that consent had not been full or properly informed, but it cannot be a reason for the alteration of the order by a court of concurrent jurisdiction. Secondly, the judge thought that the original order was ‘demonstrably too Draconian’ (para 13); and that the term ‘or otherwise howsoever’ should not have been included (para 25). In both of these respects the judge impermissibly converted himself into an appellate court. There was no basis for that step, apart from his belief that it was open to him critically to review the justice of another judge’s order.

56.  This jurisdiction should, therefore, be limited to significant change of circumstances. Some guide to the necessary extent of the change is provided by Butler-Sloss LJ in Kensington Housing Trust 30 HLR 608, 613 where she suggested that developments must have occurred which made it no longer proper to punish the undertaker for breach of his undertaking.  It need hardly be said that that requirement is unlikely to be satisfied if, as happened in this case, the contemnor is in one and the same proceedings punished for contempt by breach of the undertaking and also relieved of future liability under the undertaking.  And, quite apart from that, for the reasons given by Lloyd LJ, the stringent standard required to alter an undertaking given in lieu of a final injunction was plainly not met in this case.”

7.  The Court needs to be told, and told with candour, what change of circumstances has arisen that the applicant contends justify being released from the undertaking.  Mr Lok told me that he understood that the Petitioners were contemplating commencing proceedings although a final decision had not yet been made.  This should have been stated clearly in the supporting affirmation.  It was not.  Instead we get the following two paragraphs of Ms Wang:

“18. Subsequent to the Hearing, the Petitioners have sought further advice from Counsel and Senior Counsel and it was after careful consideration, the Petitioners made a decision to discontinue the Petition in Hong Kong.

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27.  Moreover, we have also taken out the Undertaking Summons so as to seek clarification of the Undertaking and, so far as is necessary, the Court’s indulgence to be released from the same.  I verily believe that the intention of the Undertaking was to ensure that there would be no prejudice to the 1^st – 3^rd Respondents, such that, in the words of the Honourable Mr Justice Harris at §3 of the decision, ‘arguably they are advantaged as if the court cannot be persuaded that this case is one of the few in which a winding-up order is appropriate, as opposed to relief under s725 of the Ordinance, [the Petitioners] will lose’.  The purpose of the Undertaking is to ensure that the 1^st – 3^rd Respondents would not be vexed a second time with the same allegations in another jurisdiction, once/if the Hong Kong Court considers the merits of the Petition and on that basis decides against the Petitioners.  That said, upon further reflection, instead of seeking to persuade the Hong Kong Court to make a winding-up order upon the Petition, the Petitioners would like to withdraw the present Petition (which needs to be dismissed formally) such that relevant proceedings may be pursued in the place of incorporation.  I therefore verily believe that no prejudice would be suffered by the 1^st – 3^rd Respondents, save perhaps as to costs.”

8.  Although these paragraphs suggest that new proceedings will be commenced it is not clear whether any proceedings in the BVI would be limited to the relief available to the Petitioners in Hong Kong or it is intended to seek relief of the sort available in Hong Kong under Part IV. This should have been made clear.  That having been said having heard Mr Lok it is clear what the position is.

9.  The undertaking was given at my suggestion during the course of the one-day hearing.  Following the hearing further thought was given to the implications of agreeing to forego the option of seeking relief under Part IV.  I am not told, as I should have been when this occurred.  However, the language of [16] suggests that it was at the end of last year as the Petitioners proposed to terminate the proceedings in January 2021.

10.  Ms Lee argued that it would be unfair to the Respondents to release the Petitioners from the undertaking as this would result in the work undertaken since my decision was handed down in March 2020 being wasted and her clients being inconvenienced by having to start again in defending new proceedings in the BVI.

11.  Although the situation is unsatisfactory I do think that it is just to release the Petitioners from their undertakings if any new proceedings in the BVI are issued on or before 18 June 2021 and the Respondent’s costs of the present proceedings are assessed on an indemnity basis (including all reserved costs).  If I had dismissed the Petition in March 2020 there would have been nothing to stop the Petitioners issuing new proceedings in the BVI.  The proceedings have only reached the stage of close of pleadings and those documents can be used in the BVI proceedings so the extent of the waste of time and resources resulting from the Petitioners changing their mind at this stage and choosing to terminate these proceedings and start again in the BVI, is limited.

12.  I will, therefore, dismiss the Petition. The costs of the proceedings including all reserved costs are to be paid by the Petitioners to the Respondents such costs to be taxed on an indemnity basis.  I will order that the Petitioners be released from the undertaking if by 18 June 2021 they issue proceedings seeking relief for unfair prejudice in connection with the Company on substantially the same grounds as the Petitioners relied on in these proceedings in the BVI.  Costs of the undertaking summons to be paid by the Petitioners on an indemnity basis.  The Official Receiver’s costs shall be paid out the Petitioners’ deposit, the balance of which shall be returned to the Petitioners.