LUN KWONG KIU, ROGER v. FEXON ENTERPRISES LTD

HCMP 2239/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2239 OF 2012

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BETWEEN

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DECISION ON COSTS

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1.  The plaintiff issued the Originating Summons dated 10 October 2012 for inspection of some of the company’s records, books and papers of the defendant (“the Company”) under s 152FA of the Companies Ordinance, Cap 32.

2.  In the hearing, the parties agreed on the documents to be disclosed.  Further, the Company, by its director Mr Lam Yin Lok, was prepared to make an affirmation to disclose or clarify the whereabouts of certain documents.  The parties could not agree on the costs of the application and so I have to make a determination on such issue.

3.  According to Mr Maurellet, counsel for the plaintiff, the plaintiff’s position is a simple one.  It has all along the Company’s stance that the plaintiff was not entitled to those documents as it was said that he acted in bad faith and for an improper purpose, and thus the Company argued that there was no jurisdiction for the court to make the order for inspection.  Despite such stance, the Company was prepared to disclose certain selected documents, but the process of getting information from the Company was slow, painful and difficult.  The plaintiff needs to inspect the documents to protect his interest, because there were clearly some very suspicious transactions involving self-dealing by the majority shareholder who is controlling the Company and who through the so-called “management fees” has sucked out all the benefit of the rental income of the Company.  Mr Maurellet therefore submits that, in line with the reasoning of Re Applied Development [2011] 5 HKLRD 241 (at §30) emphasising the importance of good corporate governance, costs in these situations ought to be granted to the plaintiff.

4.  In opposing the application for costs, Ms Lee, counsel for the Company, submits that the plaintiff has been acting unreasonably in making his request for inspection of documents.  Firstly, the plaintiff should and could have pointed to the precise categories of documents which he sought to inspect, which he had failed to do.  Secondly, the Company would have agreed to any reasonable request for inspection and so it was unreasonable for the plaintiff to commence the present proceedings against the Company.

5.  Having carefully considered the submissions of the parties, I take view that the plaintiff should get the costs of the application. The business carried on by the Company was a simple one: the leasing of the 2 shops in Wanchai owned by the Company.  Despite that, the Company was paying substantial management fees to a company owned by the majority shareholder of the Company (“the Management Company”).  The Company’s account also reveals that the Company was owing considerable amounts of money to the Management Company. In such case, there is certainly justification for the plaintiff to inspect the documents involved in these transactions.  Furthermore, taking into account the simple nature of the business and the transactions between the Company and the Management Company, it should not be too difficult for the Company to know the kinds of documents requested by the plaintiff.  If there was any doubt, the Company could have asked for clarification from the plaintiff.

6.  Furthermore, the Company only revealed some selected documents and informed the plaintiff that it no longer kept the documents listed out in items 1 to 8 of the Originating Summons at a very late stage of the proceedings.  In such circumstances, it was only reasonable and necessary for the plaintiff to commence the proceedings against the Company for inspection of documents.  Coupled with the fact that the agreed order covers substantially what was sought by the plaintiff, I order that the costs of the Originating Summons be to the plaintiff to be taxed if not agreed.