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HCMP 1789/2015
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO 1789 OF 2015
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| IN THE MATTER of PRIMLAKS (HK) LIMITED |
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| IN THE MATTER of sections 732 and 733 of the Companies Ordinance (Cap 622) |
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| BETWEEN |
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ASHOK KODUMAL HEMNANI |
Applicant |
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and |
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PRIMLAKS (HK) LIMITED |
Respondent |
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| Before : Hon Ng J in Chambers |
| Date of Hearing : 11 September 2015 |
| Date of Judgment : 28 January 2016 |
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J U D G M E N T
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Introduction
1. There is before this court an application by Mr Ashok Kodumal Hemnani (“Applicant”) for leave to commence a statutory derivative action on behalf of Primlaks (HK) Limited (“Company”). The application is opposed by Mr Hui who confirmed in court that he acts on behalf of the 6 intended defendants of the proposed action viz Mr Ramchand Kodumal Hemnani (“Ramchand”), Mr Raj Kodumal Hemnani (“Raj”), Mr Anil Ram Hemnani (“Anil”), Mr Ravi Ram Hemnani (“Ravi”), Oriental Properties LLC and Primlaks Holding Company (Panama) Inc (“Primlaks Holding”). According to Mr Lung on behalf of the Applicant, the Company is in a deadlock, both at the board level and at the shareholders level. The Company did not appear at the hearing.
2. The Company was incorporated on 7 September 1973. The Applicant is a member of the Company holding 25% of its shareholding. Ramchand is a member of the Company holding the remaining 75%[1]. The Applicant and Ramchandare the Company’s only directors. According to the Applicant, the Company is “balance‑sheet” insolvent.
3. It should be apparent from their names that the Applicant and the other Hemnanis are part of the same family. For the present purpose, Ramchand, Raj and the Applicant are among the 1st generation of the Hemnanis while Anil and Ravi, sons of Ramchand, belong to the 2nd generation.
The Law
4. Statutory derivative actions are covered by Part 14, Division 4 of the Companies Ordinance, Cap. 622 (“CO”). Sections 732 and 733 of CO provide:
“732. Member of company or of associated company may bring or intervene in proceedings
(1) If misconduct is committed against a company, a member of the company or of an associated company of the company may, with the leave of the Court granted under section 733, bring proceedings in respect of the misconduct before the court on behalf of the company.
(2) If, because of misconduct committed against the company, a company fails to bring proceedings in respect of any matter, a member of the company or of an associated company of the company may, with the leave of the Court granted under section 733, bring proceedings in respect of the matter before the court on behalf of the company.
(3) …
(4) The cause of action in relation to the proceedings under subsection (1) or (2) is vested in the company. Any of those proceedings must be brought in the name of, and the relief (if any) must be sought on behalf of, the company.
…
733. Leave of Court to bring or intervene in proceedings
(1) On application by a member of a company or of an associated company of a company, the Court may grant leave for the purposes of section 732(1), (2) or (3) if it is satisfied that –
(a) on the face of the application, it appears to be in the company’s interests that leave be granted to the member;
(b) in the case of –
(i) an application for leave to bring proceedings under section 732(1) or (2), there is a serious question to be tried and the company has not itself brought the proceedings; or
(ii) …; and
(c) except where leave is granted by the Court under subsection (5), the member has served a written notice on the company in accordance with subsection (3), and the notice complies with subsection (4).
…
(3) The written notice must be served on the company, at least 14 days before the member applies for leave in respect of the company –
(a) in the case of a company as defined by section 2(1), by leaving the notice, or by sending the notice by post to, its registered office; or
(b) in the case of a non-Hong Kong company, in a manner that the notice is sufficiently served on the company by virtue of section 803.
(4) The written notice must state –
(a) the member’s intention to apply for leave for the purposes of section 732(1), (2) or (3) in respect of the company; and
(b) the reasons for that intention.
(5) The Court may grant leave to dispense with the service of a written notice for the purposes of subsection 1(c).”
5. In order for the Applicant to obtain leave to bring the proposed statutory derivative action on behalf of the Company, he must satisfy all the conditions in section 733. For the present purpose, only the following two are material:
(1) whether on the face of the application, the proposed action appears to be in the interests of the Company (“Interests of the Company Requirement”); and
(2) whether there is a serious question to be tried and the Company has not itself brought the proceedings (“Serious Question Requirement”).
6. This court shall consider the two requirements in reverse order. This is because, if the Serious Question Requirement cannot be met, it is difficult to see how it can be in the interests of the Company concerned to commence legal proceedings which ex hypothesis are liable to be struck out: Re Li Chung Shing Tong (Holdings) Ltd [2011] 5 HKLRD 274 at [31]; Veron International Limited v RCG Holdings Limited & ano unrep.; HCMP3210/2013; 20 July 2015; Ng J.
Serious Question Requirement
7. The threshold of the Serious Question Requirement is relatively low: Re F&S Express Ltd [2005] 4 HKLRD 743 at [21]; Re Grand Field Group Holdings Ltd [2009] 3 HKC 81 at [21]; Re Li Chung Shing Tong (Holdings) Ltd supra at [32]; Re China Shanshui Investment Company Limited unrep.; HCMP360/2015; 17 March 2015; Harris J at [8]; Veron International Limited v RCG Holdings Limited & ano at [24].
8. In Re Li Chung Shing Tong (Holdings) Ltd supra at [33], Harris J observed:
“…in ascertaining whether or not there is a “serious question to be tried”, the prospects of the plaintiff’s success are to be investigated only to a limited extent, and the court should be slow to find against the plaintiff unless his prospects are so slim that he cannot be said to have any expectation of success. I am reminded, in this regard, of Megarry VC’s oft-cited explanation in Mothercare Limited v Robson Books Ltd [1979] FSR 466, in which he said, at 474:
‘… the prospects of the plaintiff’s success are to be investigated to a limited extent, but they are not to be weighed against his prospects of failure. All that has to be seen is whether the plaintiff has prospects of success which, in substance and reality, exist. Odds against success no longer defeat the plaintiff, unless they are so long that the plaintiff can have no expectation of success, but only a hope. If his prospects of success are so small that they lack substance and reality, then the plaintiff fails; for he can point to no question to be tried which can be called...
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