Court Sends Clear Message to Directors and Employees Unreasonably Refusing to Cooperate with Corporate Management

In Central Medical Holding Limited & Ors v Tsang Wah Tak Kenneth, Shiu Shu Ming & Ors [2025] HKCFI 4653, the Hong Kong Court of First Instance has ordered the Defendants—former directors and employees—to pay the Plaintiffs’ costs of proceedings after they unreasonably failed and/or refused to cooperate with the new management’s attempts to access vital corporate documents and information while they remained in the office. This follows a mandatory order made in July 2024 compelling the Defendants to cooperate and deliver up documents and information, amongst other things. 

The DLA Piper team is led by Harris Chan (Partner) and assisted by Matthew Tam (Associate) and Winsome Lai (Associate). Assisted by Jonathan Chang SC and Counsel Sik Chee Ching of Temple Chambers.

 

Background 

At the outset of the proceedings, the Plaintiffs, comprising a group of medical and healthcare companies, sought an injunction against the Defendants to:

1. Identify the whereabouts of corporate documents and information;
2. Deliver up such documents and information;
3. Allow uninterrupted access to office premises.

The Plaintiffs’ application was necessitated by the Defendants’ conduct leading to July 2024. At the material time, the Plaintiffs were undergoing a change of management. The Defendants were directors and employees of the group belonging to the incumbent management. When the new management sought to access vita corporate documents and information of the group to inter alia prepare and publish the group’s consolidated accounts, the Defendants resisted and acted in a deliberately unhelpful, sarcastic and aggressive manner.

The Defendants initially resisted the Plaintiffs’ court application, filing affidavits and submissions in opposition. At the first hearing on 12 July 2024, the Court granted an injunction order substantially in the terms sought by the Plaintiffs, enabling the new management to assume control, access office premises as well as retrieve and access necessary corporate documents and information.

Armed with the injunction order, the Plaintiffs finally secured the Defendants’ full cooperation. After the order has served its purpose and the Defendants have all resigned from the Plaintiffs, the Plaintiffs deemed it no longer necessary to maintain the order and to proceed with the substantive relief sought in the originating summons. By agreement, the order was discharged. The parties argued on who should bear the costs of the proceedings.

 

The Parties’ Positions

The Plaintiffs submitted that they were the effective winners, having secured the Defendants’ cooperation and achieved the relief sought. They argued the proceedings were necessitated by the Defendants’ conduct.

On the other hand, the Defendants argued for no order as to costs or for costs after certain dates. They alleged that the proceedings were an abuse of process and contrived to pressurize the Defendants in relation to another dispute.  On the basis that the Plaintiffs agreed to discharge the order and sought no final relief, the Defendants argued that the Plaintiffs were effectively discontinuing the action which should prima facie entitle the Defendants to costs.

 

The Decision

The Court rejected the Defendants’ arguments and found that:-

1. The Plaintiffs were legally entitled to the injunction order and had achieved their objective in the proceedings.
2. The Defendants’ conduct necessitated the proceedings. The Court noted their initial resistance and attempts to burden the Plaintiffs with unreasonable logistical and administrative hurdles to access their own corporate documents and information. The Court criticized the Defendants for failing to adopt a mature and responsible approach prior to commencement of the proceedings. Taking a global view of the dispute, the Court agreed that it was only with the Plaintiffs’ injunction application that the underlying disputes were resolved sensibly during the first hearing.
3. Regardless of whether the Plaintiffs needed to apply for a discontinuation of the originating summons, it does not follow that the Plaintiffs should be deprived of their costs or made to pay the Defendants’ costs if it can shown that the Plaintiffs were the “effective winners” under a broad-brush approach. 
4. In any event, instead of applying to discontinue the action, the Plaintiffs indicated in their Notice of Appointment for a Hearing of an Originating Summons that they were not seeking full relief as stated in the originating summons, and were only seeking costs which would mark the final resolution of the proceedings. The Court approved of the Plaintiffs’ procedural approach.

The Court ordered the Defendants to pay the Plaintiffs’ summarily assessed costs of the proceedings.

 

Key Takeaways

This judgment sends a clear message that directors and employees who resist reasonable access to corporate documents and information by the management expose themselves to adverse costs orders.

The Court emphasized that the “effective winner” principle applies even when proceedings are resolved without a full trial and where superseding development at a particular stage of the proceedings meant that a plaintiff no longer needs to seek the substantive relief set out in the originating summons. What matters is which party achieved substantive relief through the litigation. In this case, the Plaintiffs were found to be the effective winners, having obtained the Defendants’ cooperation and the access to corporate documents and information which they had sought.

Furthermore, the Court expects parties to conduct themselves in a mature and responsible manner. Unnecessary resistance, procedural gamesmanship and unreasonable demands will be frowned upon, in particular conduct displayed by the parties prior to the commencement of legal proceedings. In this case, the behavior of the Defendants prior to the first hearing has largely sealed their fates. The Court observed that undertakings requested by Counsel for the Defendants during the first hearing had not been raised by the Defendants to the Plaintiffs in a timely, orderly, civilized and clear manner prior to litigation.

The judgment highlights that the Court takes a broad-brush approach to costs, focusing on the practical outcome rather than technicalities or speculative arguments about motives. Ultimately, the decision reinforces the importance of cooperation and transparency in corporate governance and demonstrates that the Court will not hesitate to protect the interests of new corporate management seeking to discharge their duties.

Click here to view the full judgement.