LAU WAI YIN AMY AND ANOTHER v. POON CHUNG KWONG PETER AND OTHERS

HCMP 152/2019

[2020] HKCFI 439

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 152 OF 2019

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DECISION ON COSTS

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1.  On 24 December 2019, I heard the petition substantively. As the only issue is the claim for the return of HK$2.5 million by Sunrise Air Conditioning Equipment Limited (the “Company”) from Messrs. S.W. Tai & Co., the 2^nd Respondent, I ascertained from the 2^nd Respondent whether it was willing to return the said sum to the Company. The 2^nd Respondent duly informed this Court that it was willing to return the sum of HK$2.5 million to the Company which clearly belongs to the Company. Indeed, it is the 1^st Respondent’s case that he merely transferred the HK$2.5 million to the 2^nd Respondent to preserve the said sum of money.

2.  As I see it, there is no defence to a claim by the Company for the return of the sum of HK$2.5 million which is its property.  

3.  As a result of such clarification and on the 2^nd Respondent’s undertaking to return the sum of HK$2.5 million to the Company, the Petitioners withdrew the Petition on 24 December 2019.  The only remaining issue is costs.  The parties have since then filed written submissions on costs pursuant to the directions of this Court.

4.  Mr Lo for the 1^st Respondent submitted that the starting point in relation to costs upon withdrawal of the Petition with leave of the Court is that, in general, the withdrawing party, here the Petitioners, should pay for the costs of the opposing party, namely, the 1^st and 2^nd Respondents.  It is only in exceptional circumstances then the Court would depart from the general rule. (See Leung Yuet Ching v Leung Yuet Kun [2001] 1 HKC 562 at 567G per Deputy High Court Judge Muttrie; Anmol Kumar Sawlani v Yeshma Gobindarn Sawlani unreported, HCA 2231/2011, at §10 per Recorder Paul Shieh SC and Re Peaktop Technologies (USA) Hong Kong Ltd [2007] 4 HKLRD 207 at §7 per Barma J (as he then was)) 

5.  I have no doubt about the correctness of the above legal propositions.  The real issue is whether there are exceptional circumstances.  Mr Lo for the 1^st Respondent fairly accepted in assessing the issue of costs, the Court is entitled to take into account, amongst others, the conduct of the parties. (See Hong Kong Civil Procedure 2020 Vol.1 at §§62/5/5 to 62/5/6)  In particular, the Court is entitled to and must consider whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue. 

6.  In the present case, in relation to the HK$2.5 million issue, the starting point of the analysis is that there is no reason for the 2^nd Defendant to continue to keep the said sum given that it is the Company’s properties.  I am of the view that the 2^nd Defendant, being a firm of solicitors, albeit also acting for the 1^st Respondent, should be clear that as a matter of law, it has no basis to hold on to the said sum unless there is a proper board resolution to authorise it to receive the same.  Had the 1^st and 2^nd Respondents simply returned the said sum to the Company prior to the hearing on 24 December 2019, the hearing would not be necessary. 

7.  Mr Wong for the Petitioner is right that upon the undertaking of the 2^nd Respondent, it is reasonable for the Petitioner not to press ahead with the Petition and duly applied to withdraw the same. 

8.  However, Mr Lo for the 1^st Respondent is also correct that at least since 29 April 2019 when the Petitioner has regained control of the Company, as a matter of law, it is not appropriate for the Petitioner to continue with the Petition.  Instead, the Company should have commenced a High Court action in its own name to claim for the return of the said HK$2.5 million from the 1^st and/or the 2^nd Respondents to which they have no defence at all. 

9.  I am of the view that the overriding consideration in determining the issue of costs is fairness taking into account all the relevant circumstances of the case.  In the present case, I take into account the following three main factors.  First, it is incorrect for the 1^st and 2^nd Respondents to have transferred the sum of HK$2.5 million out of the Company and paid it into the account of the 2^nd Respondent.  The Petitioners have to come to this Court in order to have the HK$2.5 million returned to the Company.  So, the Petitioners have, in essence, achieved what they prayed for in the Petition.  

10.  Secondly, Mr Lo for the 1^st Respondent might have a strong point on the appropriateness of the unfair prejudice petition commenced by the Petitioner in the present case.  There is a dispute that the complaint is one of misconduct rather than mismanagement and as such the Petitioner should have commenced a derivative action.  Mr Wong for the Petitioner fairly accepted that the nature of the complaint in the Petition is misconduct by the 1^st Respondent against the Company.  Nonetheless, he submitted that this is an exceptional case for the Court to exercise its discretion under its unfair prejudice jurisdiction because the Petitioners have no other choice but to commence an unfair prejudice at the time as the Petitioners did not have the relevant standing to commence a derivative action back on 31 January 2019 as the 1^st Respondent has unreasonably refused to register them as members.

11.  Further, this case falls within the limited circumstances in which Lord Scott has delineated as proper for such a relief to be sought under a petition in Re Chime Corp Ltd (2004) 7 HKCFAR 546 at 575J-576D as (i) the order sought corresponds exactly with the order to which the Company would have been entitled had the allegations in question been successfully prosecuted in an action by the Company; and (ii) there is no difficulty with the amount of restitution to be ordered at all and the Petitioners have not sought any compensation for breach of director’s liability by the 1^st Respondent, so no question of assessment of damages arise.

12.  I am of the view that there is no need to definitively resolve this issue for the purpose of costs.  It is quite clear to this Court that the Petitioners would be entitled to seek judicial protection against the transfer of the HK$2.5 million out of the Company.  Even if they have resorted to an incorrect initiating procedure, the Court, in all fairness, would allow them to convert to a proper legal procedure with minimum costs implication.

13.  Indeed, the Petitioners have obtained interim injunctive relief under the current Petition.  The 1^st and/or the 2^nd Respondents have not applied to have the current Petition struck out on the basis that the Court has no jurisdiction to grant the relevant injunctive relief.

14.  As I see it, the critical question is whether there was an abuse of process by the Petitioners which caused prejudice to the Respondents. On the existing evidence, there is none.

15.  Thirdly, after 30 April 2019, it appears to me that Mr Lo for the 1^st Respondent has a strong point that the original rationale for the presentation of the Petition was no longer there.  However, I am of the view that Mr Wong for the Petitioners also has a strong point that had the proper procedure been commenced, it is unlikely that the 2^nd Respondent would have conceded to the Company’s request and costs could have been avoided.  Mr Wong referred this Court to the fact that all along Messrs. S.W. Tai & Co acted for the 1^st and 2^nd Respondents in opposing the present Petition.  The 1^st Respondent could have said that now that the Petitioners are in control of the Company, it is willing to return the sum of HK$2.5 million to the Company but it failed to do so until the hearing on 24 December 2019.

16.  Mr Wong for the Petitioners also referred to a post hearing event which the 1^st Respondent issued a new summons seeking that the orders of this Court be varied to the effect that the HK$2.5 million be directly paid to an alleged major creditor of the Company.  This necessitated the Petitioners to take out a further unless Summons on 8 January 2020 compelling the 2^nd Respondent to comply with the orders of this Court which resulted in the 2^nd Respondent consenting to the terms of the Petitioners’ summons right before the hearing and agreeing to pay HK$33,000 to the Petitioners for costs under the two summonses.

17.  Mr Wong for the Petitioner submitted that it is clear that the 2^nd Respondent’s interests were aligned with the 1^st Respondent’s and that even a formal court order would not make the 2^nd Respondent return the sum of HK$2.5 million let alone a mere request by the Company.

Exercise of Discretion

18.  For all the reasons stated above, I exercise my discretion and make the following costs orders:

(1)  All costs of and incidental to the Petition (including all costs reserved) up to and including 29 April 2019 be paid by the 1^st and 2^nd Respondents to the Petitioners to be taxed, if not agreed, on a party to party basis.

(2)  All costs of and incidental to the Petition from 30 April 2019 up to and including the hearing on 24 December 2019 be paid by the Petitioners to the 1^st and 2^nd Respondents to be taxed, if not agreed, on a party to party basis.

(3)  There be no order as costs in relation to written submissions on costs incurred after 24 December 2019.

19.  Finally, it remains for this Court to thank Mr Wong for the Petitioners and Mr Lo for the 1^st Respondent for their helpful submissions.