JONE SON LTD v. NEW ASIA OPTICAL CO LTD

HCMP1302/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1302 OF 2011

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BETWEEN

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D E C I S I O N

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1.  I have before me an originating summons issued on 11 July 2011 by the Applicant, which is a shareholder in the Respondent company (“Company”) for an order pursuant to section 168BC of the Companies Ordinance for leave to intervene in High Court Action 1823 of 2009 brought by Lam Ying-kwan against the Company.

2.  The Applicant has four directors:  Lam Ying‑fan, Lam Ying‑yue, Lam Siu‑wah and Lam Ying-kwan, who also hold 25 per cent of the Applicant’s issued capital each.  The Company has three shareholders.  In addition to the Applicant, Lam Chi‑cheung was, prior to his death on 26 December 2010, the registered owner of 58 per cent of the Company’s share capital.  The remaining 18 per cent is held by Clean Optical Co Limited.  The Company had, until December 2010, three directors:  Lam Chi-cheung, Clean Optical (HK) Limited, and (allegedly) Lam Ying‑kwan.

3.  Lam Ying-kwan’s claim in HCA1823 of 2009, which was commenced on 24 August 2009, is for a debt allegedly of HK$3,124,577.05.

4.  The Company filed notice of intention to defend in September 2009 through solicitors Lam and Lai.  On 23 November 2009, a defence was filed, but the defence was not verified by a statement of truth, and Lam Ying-kwan took out an application to strike out the defence.  On 9 December 2009, the Company took out a summons to waive the requirement for verification.  The application was supported by an affirmation by Cheung Shuk-chun, the wife of Lam Chi-cheung.  Madam Cheung identified three reasons for making the application:  first, that Lam Chi-cheung was mentally ill and did not have the capacity to verify the truth of the defence; secondly, that the other purported director, Lam Ying-kwan, is the Plaintiff in the proceedings; thirdly, that Clean Optical (HK) Limited did not wish to get involved in a dispute that they know little about and see as a family affair.

5.  Initially, the two applications were adjourned sine die by consent.  On 23 May 2011, Lam Ying-kwan filed a notice of intention to proceed.  On 24 June 2011, he took out a summons to enter judgment in default of defence.

6.  That application was heard by Master de Souza on 8 July 2011.  The Master adjourned the application pending the outcome of this originating summons. 

7.  The directors of the Applicant believe that the Company is unable to defend itself.  Their reasons for reaching this conclusion are first, that Madam Cheung probably has no locus to make the application, although she is the beneficiary of her late husband’s estate; secondly, that Clean Optical (HK) Limited does not wish to do so.

8.  On 4 July 2011, the Applicant’s board of directors resolved to make this application.

9.  I have read the defence that has been filed in the High Court Action and a proposed amended version of it.  I am satisfied that in the circumstances of this case, it is prima facie in the interest of the Company that leave be granted to the Applicant to intervene in the High Court Action and defend the proceedings, as the Company is unable to diligently defend the action itself for the reasons explained earlier in this judgment.

10.  I will therefore make an order in the terms of paragraph 1 of the originating summons, which seeks leave to intervene in the High Court Action.  I will also make an order in the form of paragraph 2, which seeks dispensation from service of the written notice required by section 168BD(1) of the Companies Ordinance.  Section 168BD provides that subject to the court granting such a dispensation, a member of a company who proposes to make an application under section 168BC shall serve a written notice on the company at least 14 days before he applies for leave under section 168BC(3).

11.  The application before me has been served on the Company, the Company’s directors, and therefore is known to all interested parties, none of whom have appeared before me today or given any notice of an intention to appear.

12.  I agree with Mr Maurellet’s submission that section 168BD seems primarily intended to give a company notice of a proposed application in order that before the application is issued, it can consider whether or not it intends to contest it or acquiesce to it.  Where, in a case such as the present, the application has been met with no response and the interested parties would have been aware of the intention to make it before it was actually issued, it seems to me that it is appropriate for the court to grant the dispensation provided for in subsection (4).

13.  The remaining matter to consider is costs.  I order that the costs of the application itself should be paid by the Company to the Applicant.  The position in respect of the indemnity sought in paragraph 3 of the originating summons, namely an indemnity by the Company for all legal costs incurred by the Applicant in defending the High Court Action, is more complicated.

14.  In Re F & S Express Limited [2005] 4 HKLRD 743, Kwan J (as she then was) granted an application made under section 168BC and also ordered that the Applicant’s costs of the application itself be paid by the company.  Her Ladyship, however, declined at the hearing of the substantive application to order an indemnity for the costs incurred by the Applicant in relation to the proceedings to be incurred in the proposed statutory derivative action.  In paragraph 28 of her judgment, she said this:  “I decline to order the Applicant’s costs in bringing a statutory derivative action to be indemnified out of the assets of the Company at this stage.  The costs involved might or might not be substantial.  There is no evidence as to the Company’s ability to meet such costs.  As stated in Swansson v R A Pratt Properties Pty Limited & Another [2002] 42 ACSR 313 at page 326, para 75, before the court can make such an order, there must be evidence as to the company’s ability to pay the costs of the proposed derivative action as at the time that leave is sought.”

15.  I respectfully agree that this must be the correct approach, and therefore I adjourn paragraph 3 of the originating summons.  That paragraph can be restored for hearing before me at such time as the Applicant is able to put before the court evidence of the Company’s ability to indemnify it for the costs of its proposed defence of the High Court Action.