Re HLHP Oriental Food Ltd
| Jurisdiction | England & Wales |
| Judge | Paul Matthews |
| Judgment Date | 20 November 2023 |
| Neutral Citation | [2023] EWHC 2920 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2022-BRS-000101 |
In the Matter of
And in the matter of the Companies Act 2006
[2023] EWHC 2920 (Ch)
HHJ Paul Matthews
(sitting as a Judge of the High Court)
Case No: CR-2022-BRS-000101
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN BRISTOL
INSOLVENCY AND CONPANIES LIST (ChD)
Bristol Civil Justice Centre
2 Redcliff Street, Bristol, BS1 6GR
Charlie Newington-Bridges (instructed by Shakespeare Martineau LLP) for the Petitioners
Olivia Chaffin-Laird (instructed by R & H Lawyers LLP) for Respondents 1–4 and 6–8
The Fifth Respondent was not present or represented
Hearing dates: 15 November 2023
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this revised version as handed down may be treated as authentic.
This judgment will be handed down by the Judge remotely by circulation to the parties or representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10:30 am on 20 November 2023.
Introduction
This is my judgment on the costs issues arising out of an application by the petitioners by notice dated 18 October 2023 for an interim injunction. The injunction sought was to restrain the use of the funds of the sixth respondent, one of the three companies the subject of the petition, for the purposes of paying the legal expenses of the first five respondents. The substantive part of the application is no longer pursued by the petitioners, but they seek their costs of and occasioned by it. This is opposed by the respondents, who conversely seek their costs from the petitioners. This matter arises in the context of a petition under Part 30 of the Companies Act 2006 alleging conduct unfairly prejudicial to the petitioners as members of the companies concerned. That petition was presented on 21 September 2022, and a defence was filed on 2 November 2022. It is listed for trial over 10 days in March 2024.
The application for an interim injunction
Evidence in support
As I have said, the application was made on 18 October 2023, when it was supported by the fourth witness statement of Richard Gore, the petitioners' solicitor. His evidence included reference to a number of matters, which he said showed that the respondents' legal costs were being paid by the sixth respondent. He said this in particular (omitting reference to the exhibits):
“36. The evidence of the financial disclosure showed that the legal costs of the Respondents were being paid by the Sixth Respondent. I was very concerned that the Respondents were using company funds to pay their legal fees. This was a point the Respondents were warned about in a letter from Andrew Marsden, original counsel instructed in this matter, when he wrote to the Respondents' original solicitors Jackson Lyons on 24 May 2022. …
37. Noting the significant amounts being paid out to the solicitors in the bank statements, I therefore contacted Ms Sissy He of R&H lawyers, who acts for the First to Fourth Respondents (she has acted for the Fifth Respondent as well, but does not do so anymore), and pointed out that the funds of the Companies could not be used for the purpose of advancing any shareholders' defence in proceedings under s994 of the Companies Act 2006.
38. In my letter dated 19 September 2023 to Sissy He of R&H lawyers, a copy of which is annexed hereto, I noted that the bank statements of the Sixth Respondent show a payment of £364,000 to R&H lawyers. Having reviewed the bank statements, I now note the sum is in fact £432,000. I note that a further c. £68,000 has been paid to Jackson Lyon Solicitors since last September. Jackson Lyon are the solicitors that previously acted for the First to Fifth Respondents. I attach to this witness statement those bank statements.
39. The response to my letter of 19 September 2023 written by Sissy He of R&H lawyers to me is mistakenly dated 10 April 2023. However, it was received after my letter of 19 September 2023, refers to correspondence I have sent in September and so it can be reasonably assumed to have been written towards the end of September 2023. …
40. Ms He on behalf of the Respondents confirmed that Companies' money was being used or expended in the defence put forward in these proceedings by the First to Fourth Respondents. Extraordinarily, she also seemed to suggest that there was no reason why the Companies' funds could not be used or expended on the Respondents' costs of the Litigation. It is stated in her letter that:
‘the legal fees listed in the 1st paragraph were incurred by your clients, who caused financial prejudice and damages to the company's shareholders. Eventually these direct losses will be claimed back from your clients via various ways.’”
Evidence in answer
I gave directions for service of the application on the respondents, and for their evidence to be filed and served by 27 October 2023, with the hearing of the application being listed for 2 November 2023. In fact, only the fifth respondent (who is a litigant in person) filed and served his evidence by 27 October 2023. The other respondents (represented by R & H Lawyers LLP) did not. The witness statement of the fifth respondent, in English translation (apparently using Chat GPT), included the following:
“18 Therefore, as the sole director of 6th–8th Respondents, after careful consideration, I decided to cover itself and other Respondents' legal fee using the funding available in the Company's account, and still leave more than enough funding in the Company's account.
[…]
22 I also used the available funds in the Company account to pay for the legal fee to R&H Lawyers and Petitioners' solicitor, Shakespeare Martineau as per the Board Meeting minutes dated May 2022.”
(The reference to a payment to Shakespeare Martineau is a reference to paying costs under an earlier court order in favour of the petitioners.)
On 31 October 2023, their solicitor sought an adjournment of the hearing fixed for 2 November 2023. For reasons given at the time, I refused that adjournment. Overnight on 1–2 November 2023, a witness statement from Steven Xin Li, the sole director of the sixth respondent, was sent by email to the petitioners' solicitors. This witness statement contained for the first time a suggested justification for the payments being made by the sixth respondent. In part, it says the following (again omitting reference to the exhibits):
“7. I can confirm monies have been transferred from the Company to the aforementioned solicitors. The sums paid out however are not Company funds but rather, as clarified further below, represent repayment of loans made by the First, Second, Third, Fourth and Fifth Respondents to the Company. Rather than such repayment having been made to the individuals to in turn pay them on to the solicitors the sums were paid directly to the firms of solicitors.
8. The Company has a registered share capital of £100,000.
9. In 2019, following suitable premises being identified, the shareholders each agreed to provide a loan to the Company. On 31 December 2021 the shareholders collectively invested in the Company the sum of £1,918.442. This is borne out by bank statements confirming the same …
10. It was agreed in line with standard practice any excess funds would be recorded as Directors' loans. This is reflected in Company accounts …
11. On 31 December 2021 the balance on the Director's loan account was as follows:
[There is then inserted a table headed “ Director's Loan balance on 31/12/2021”, followed by entries relating to different directors, including the petitioners.]
12. In January 2022, the financial health of the Company was good with the effect it was able to make repayments to shareholders.
13. The Company, in turn, on 29 January 2022 made part repayments to the Petitioners before, six months later, on 28 June 2022, making part repayments to the Respondents. This is borne out in the Company accounts, referred to as ‘Directors Loan’ summarised as follows:
[There is then inserted a table headed “ Details of repayment of Director's loan in 2022”, including entries relating to the first three petitioners.]
14. The balance on the Directors' Loan Account as at 31 October 2023 is as follows:
[There is then inserted a table, including entries relating to the petitioners.]
[…]
17. It follows the sums paid to solicitors, both Lyon and R&H Lawyers LLP do not belong to the Company. They are sums held for and on behalf of the Respondents for distribution as they decide, in line with the options set out at §15 above. It follows the legal fees are being paid by the First, Second, Third, Fourth and Fifth Respondents from the repayment of loans they had previously advanced to the Company.”
The hearing on 2 November 2023
At the hearing on 2 November 2023, the petitioners said that they wished to proceed with the injunction application. However, given the new evidence, and also difficulties for the court in going behind witness evidence which had not been subject to cross-examination, they sought an order for the adjournment of the application and for the cross-examination of witnesses. I made that order, which also included a direction that Mr Li should provide a further witness statement by midday on 6 November 2023, and that the petitioners should provide witness evidence in response by 4 PM on Thursday, 9 November 2023. In the meantime, I was minded to grant an injunction against the respondents over...
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