YUNG YUI KWAI v. YUNG WOON KWAI AND OTHERS

HCCW 463/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 463 OF 2012

____________

____________

____________

AND

HCCW 464/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 464 OF 2012

____________

____________

____________

AND

HCCW 465/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 465 OF 2012

____________

____________

____________

AND

HCCW 466/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 466 OF 2012

____________

____________

____________

AND

HCCW 468/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 468 OF 2012

____________

____________

____________

AND

HCCW 469/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 469 OF 2012

____________

____________

____________

AND

HCCW 470/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 470 OF 2012

____________

____________

____________

AND

HCMP 1685/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1685 OF 2009

____________

____________

____________

AND

HCMP 1686/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1686 OF 2009

____________

____________

____________

AND

HCMP 2153/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2153 OF 2009

____________

____________

____________

AND

HCMP 2154/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2154 OF 2009

____________

____________

____________

AND

HCMP 2567/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2567 OF 2009

____________

____________

____________

AND

HCMP 2568/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2568 OF 2009

____________

____________

____________

AND

HCMP 2569/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2569 OF 2009

____________

____________

____________

(Heard Together)

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J U D G M E N T

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Introduction

1.  I have before me applications which can be grouped into two categories. The first are applications to strike out seven winding‑up petitions.  In the case of two of those petitions, namely, HCCW 463 of 2012, which concerns Chun Yip Holdings Limited (“CY Mauritius”), and HCCW 464 of 2009, which concerns Chun Yip Plastics Limited (Macao Commercial Offshore) (“CY Macao”), the applications are made on the ground that the companies, which are incorporated in Mauritius and Macao respectively, have insufficient connection with Hong Kong to justify this court exercising its jurisdiction under section 327 of the Companies Ordinance, Cap. 32, to wind them up.  In the case of the five other winding-up petitions which concern companies incorporated in Hong Kong the ground is that there is no reasonable prospect of the Court making winding-up orders as the Respondent shareholders are willing and able to buy the Petitioner’s shares.  The five companies in question are:

(1) Chun Yip Plastics Limited (“Plastics”);

(2) Chun Yip Industrial (Holding) Limited (“Holdings”);

(3) Well Joy Investment Limited (“Well Joy”);

(4) Max Smart International Enterprise Limited (“Max Smart”); and

(5) Joinmark Investment Limited (“Joinmark”).

2.  The second category are summonses issued by Yung Yui Kwai (“YYK”) to amend the unfair prejudice Petitions in respect of Plastics and Holdings to substitute the original remedy sought, reinstatement of Lawrence Yung (“Lawrence”) as a director, with a buy-out order.

3.  Given the number of Petitions that have been issued by the respective parties, 14 in total of which 9 are directly relevant to the applications before me, it is helpful to start by identifying them and the respective parties to them.  The Petitioner in the Petition to wind up CY Maurtius (HCCW 463/2012 issued 12 December 2012) is YYK and the Respondents, other than the company, are YWK and Tang.  The Petitioner and the Respondents, other than the company, are the same in the Petition to wind up CY Macao (HCCW464/2010 issued 12 December 2012). 

4.  The 5 winding-up Petitions (all issued on 12 December 2012) in respect of the Hong Kong incorporated companies concern: Plastics (HCCW 466/2012), Holdings (HCCW 465/2012), Joinmark (HCCW468/2012), Max Smart (HCCW469/2012) and Well Joy (HCCW470/2012).  YYK is the sole Petitioner in the case of Plastics, Holdings and Joinmark.  Lawrence is also a Petitioner in the case of Max Smart and Well Joy.  The Respondents (excluding the companies themselves) are in each case except Well Joy, YWK and Tang.  Patricia is also a Respondent in the Well Joy Petition.  For convenience I shall generally refer to YWK and Tang collectively as the “Respondents” in this judgment. 

5.  In addition YYK issued on 1 September 2009 the unfair prejudice Petitions pursuant to section 168A of the Companies Ordinance, Cap. 32, to which I have referred in paragraph 2, in respect of Plastics (HCMP 1685/2009) and Holdings (HCMP 1686/2009).

6.  YWK, Tang and Patricia have issued a series of unfair prejudice petitions:

(1) HCMP 2153/2009 issued on 23 October 2009: in which they seek, amongst other things, an order that YWK and Tang buy YYK’s shares in Plastics.

(2) HCMP 2154/2009 issued on 23 October 2009: in which they seek, amongst other things, an order that YWK and Tang buy YYK’s shares in Holdings.

(3) HCMP 2567/2009 issued on 11 December 2009: in which YWK, Tang and Patricia seek, amongst other things, an order that they buy YYK and Lawrence’s shares in Well Joy.

(4) HCMP 2568/2009 issued on 11 December 2009: in which YWK and Tang seek, amongst other things, an order that they buy YYK and Lawrence’s share in Max Smart.

(5) HCMP 2569/2009 issued on 11 December 2009: in which YWK and Tang seek, amongst other things, an order that they buy YYK’s shares in Joinmark.

7.  At the hearing YYK and Lawrence were represented by Ms Roxanne Ismail SC and Sara Tong.  YWK, Tang and Patricia were represented by Mr Victor Joffe and Mr Jose Maurellet.

8.  I shall deal first with the applications to strike out the companies incorporated outside Hong Kong, but before doing so I shall explain the background to the present series of disputes.

Background

9.  Plastics was incorporated in 1979 to take over the business of Chun Yip Polyeyethylene Products Co, which was founded by YYK in the 1960s.  Yung Woon Kwai (“YWK”) began assisting YYK in the business in the early 1970s. Tang Chack Wing (“Tang”) joined Plastics in around 1981.  At the material times YYK, YWK and Tang each held 1/3 of the shares in Plastics.

10.  In June 1979 the manufacturing business was moved to Shenzhen.  Plastics manufacturing operations are currently conducted at a sizable factory in Shenzhen which is owned by Chun Yip Plastics (Shenzhen) Limited (incorporated in the Mainland) (“Chun Yip Shenzhen”), which is in turn owned by CY Mauritius.

11.  Holdings was incorporated in December 1994 to engage in trading plastic resin, so that Plastics could focus on the manufacturing and exporting side of the business.  At the material times YYK, YWK and Tang each held 1/3 of the shares in Holdings.  Subsequently other companies were incorporated of which they and their family members were shareholders and directors.  These companies play various roles in business activities which have their origin in Chun Yip Polyeyethylene Products Co.  Each of the seven companies which are the subject of petitions is owned by individual shareholders.  There is no holding company or cross shareholdings between the various companies. 

12.  Plastics and Holdings have been operated over the years by YYK, YWK and Tang.  Prior to August 2009, YYK (being the founder, Chairman and Managing Director of the Chun Yip Group) was responsible for overseeing all aspects of the business and the day to day operations of the business of Plastics and Holdings, and, in particular, was the only one who managed the resin trading business of the Chun Yip Group.  YWK was responsible for the overall management of the manufacturing and production process in the Shenzhen Factory, whereas Tang was responsible for sales and export and shipping logistics at Plastics.

13.  It is YYK’s case that due to the reduced participation by YWK and Tang in the business of the Chun Yip Group since around 2002 (due to health reasons and to pursue their own business interests), it was agreed as between YYK, YWK and Tang that YYK would continue his role as the Chairman and Managing Director of Plastics and Holdings with principal support from Lawrence, who would be appointed as permanent executive director of Plastics and Holdings, with the view that he should take over YYK’s role as Chairman and Managing Director of Plastics and Holdings upon YYK’s retirement. 

14.  Towards the end of 2006 and early 2007, YWK and Tang indicated to YYK that they no longer wished to continue their participation in the business of the Chun Yip Group and indicated their wish to sell their interests in it to YYK.  YWK and Tang provided a written proposal to YYK for the sale of their shares on 3 June 2009.  A counterproposal was provided by YYK, but was rejected by YWK and Tang.  Shortly after the negotiations broke down, YWK and Tang took steps to remove Lawrence from his directorships in Plastics and Holdings.  The removal took effect on 13 August 2009.  Despite the objection of YYK, YWK and Tang procured resolutions to be passed appointing Patricia Yung (“Patricia”) as one of the authorised signatories of Plastics and Holdings.

15.  In response to the removal of Lawrence from the board of directors of Plastics and Holdings, YYK issued the Plastics and Holdings Petitions, seeking an order for reinstatement of Lawrence as a director of Plastics and Holdings.  Various other allegedly unfairly prejudicial conduct on the part of YWK and Tang have also been set out in Section I of

16.  the Petitions, including: (i) YWK setting up a competing business in breach of his fiduciary duties; (ii) Tang putting himself in a position of conflict of interest by reason of his interests and involvement in other businesses including in the business of a customer of Plastics; (iii) YWK mismanaging the company by purchasing unsuitable machinery on behalf of Plastics; (iv) misappropriation of company funds by YWK; and (v) various other instances of alleged mismanagement.

17.  Between October and December 2009, the Plastics and Holdings Cross-Petitions and the Well Joy, Joinmark and Max Smart HK Petitions were issued by YWK, Tang and Patricia, on the basis of various alleged unfairly prejudicial conduct on the part of YYK, as summarised at paragraph 64 of the Plastics Cross-Petition. 

18.  YYK and Lawrence allege that since late 2009, YWK and Tang have sought to disrupt and derail the business of Plastics and Holdings, by amongst other things, refusing to approve instructions to banks to fund ordinary transactions, and insisting that every transaction had to be subject to a formal board resolution or that an independent firm of accountants be appointed effectively as receivers and managers.  YWK and Tang also procured winding up petitions to be issued in respect of CY Mauritius and CY Macao in December 2009 subsequently agreeing to withdraw them by consent in February 2010.

19.  As a result of these events, YYK found it impossible to continue operating the business and resigned from his directorships in Plastics, Holdings and Joinmark in March 2010.  YYK’s family associates, namely, Lawrence, Ben Yung (Lawrence’s brother) and Jannie (Lawrence’s wife) also resigned from their respective positions in those 3 companies at around the same time.

20.  Since the resignations by YYK and his family associates, YYK complains that YWK and Tang have excluded him from the group’s business altogether; refusing to provide them with financial information, holding an AGM of Plastics without giving notice to him, procuring Holdings to enter into substantial transactions without consultation with him.  YWK and Tang removed YYK as legal representative and director of Chun Yip Shenzhen in around June 2010 and prohibited YYK, Lawrence, Ben and Jannie from entering Plastics’ offices in Hong Kong and the premises of the Shenzhen Factory.  YYK says he has been kept in the dark as regards the operations and management of the companies, and was not consulted on major decisions concerning the business and the assets of the Chun Yip Group.

21.  In addition to the legal actions commenced in Hong Kong, in November 2010, YWK and Tang procured Chun Yip Shenzhen to commence 7 civil actions against Max Smart Development Co Ltd (“Max Smart Shenzhen”) in the Baoan People’s Court of Shenzhen concerning a sum of RMB166m, disrupting Max Smart Shenzhen’s business.  YWK and Tang also procured Chun Yip Shenzhen to file a legal claim against YYK in April 2010 relating to the sale of a property known as “Max Smart Commercial and Residential Complex” to Well Trade Import & Export Co Ltd.

22.  YYK and Lawrence’s previous solicitors, Clifford Chance (“CC”), wrote to the solicitors acting for YWK, Tang and Patricia, Baker  & McKenzie (“B&M”) on 10 January 2011 inviting YWK, Tang and Patricia to buy out YYK’s shares in Plastics, Holdings, Well Joy, Max Smart, Joinmark, CY Mauritius and CY Macao at prices to be agreed or to be determined by the Court.  CC referred to the fact that this was the primary relief sought in the 168A Cross-Petitions, and that it seemed most appropriate that the buy‑out be by YWK and Tang as they had been in control of the businesses since early 2010.  CC further stated that whilst the valuation was likely to be disputed, an agreement that YWK and Tang to buy out YYK would narrow the issues.

23.  By letter dated 21 January 2011 from B&M in reply, YWK and Tang took the stance that they “are not in a position to agree to buy out your client’s interests in the Chun Yip Group before a full picture of the affairs is presented to our clients”.  YYK and Lawrence say they plainly do have sufficient information to decide whether, in principle, they wish to purchase YYK’s interest.

24.  In light of the events since March 2010, YYK and Lawrence take the view that there is no utility in seeking a reinstatement of Lawrence as a director of Plastics and Holdings as was initially sought in the Plastics and Holdings Petitions.  Consequently, draft amended petitions in the two actions were prepared to substitute the original relief for reinstatement of Lawrence’s directorships with a buy-out order.

25.  By letter from CC to B&M dated 10 August 2011, the Amendment Summonses were served and YWK and Tang were invited to agree, inter alia, to the proposed amendments to the Plastics and Holdings Petitions. 

26.  By letter dated 1 September 2011 from B & M to CC, YWK and Tang refused to consent to the proposed amendments unless YYK agreed to pay all of their costs of the actions from 31 August 2009 (i.e. since the actions commenced) to date, on the basis that the proposed amendments were “equivalent to a complete discontinuance of your client’s original claims ….. and a fresh commencement of new claims…”.  Further, B & M asserted that a buy-out of YYK’s shares was already sought by YWK and Tang in their Cross-Petitions at (3) of the respective prayers, so that YYK could simply consent to that.

Principles applicable on a striking out application

27.  The principles by reference to which the Court should determine a strike out application are well established.  The Court will only strike out a petition or claim in a petition if it is clear that the claim has no prospect of success.  In considering the viability of the claim the Court will assume that the allegations in a petition are correct.  A corollary of this is that a petition, although not technically a pleading, must contain all necessary averments and sufficient particulars of the matters relied on by a petitioner to justify the relief that is sought.  This principle is stated in Re Fildes Bros Ltd [1] and has been adopted in Hong Kong.[2]

28.  As I explain in paragraph 10 of my judgment in Re Sun Light Elastic [3] this principle requires a petitioner to state in his petition why a winding‑up order is sought as opposed to some other relief.  This is a consequence not only of the general requirement that a petition set out adequately the case that a respondent has to face, but the equally well established principle, which I discuss in more detail later in this judgment, that a court will not order a winding up of a company if there is another viable alternative form of relief.  Generally this means that in the case of solvent, active companies such as those in the present case the court will order a buy-out of one or other parties’ shares rather than make a winding‑up order.  If a petitioner issues a petition pursuant to both sections 168A and 177(1)(f) of the Companies Ordinance (or their equivalent in the new Ordinance), and it is apparent from the prayer that the preferred relief is a buy-out of the petitioner’s shares, as in the present case, it is necessary for the petition to set out the matters that justify the inclusion of a prayer for a winding-up order. 

29.  In the case of a petition to wind up a company incorporated in another jurisdiction another matter has to be expressly addressed in the petition.  Section 327 of the Companies Ordinance, Cap. 32, gives the Court a jurisdiction, which is discretionary, to wind up a company incorporated outside Hong Kong, referred to in the Ordinance as an “unregistered company ”.  I will discuss how this jurisdiction is exercised in the next section of this judgment.  In short the Court will only, subject to limited exceptions, exercise the jurisdiction if it is demonstrated that the following criteria are met:

(1) There is a substantial connection between the company and Hong Kong;

(2) There is a reasonable possibility of a winding-up order benefiting those applying for it;

(3) There is a person within the jurisdiction with sufficient economic interest in the liquidation of the company to justify a winding up in Hong Kong.

30.  It is, therefore, necessary for a petition to state that these three criteria are satisfied and set out with sufficient particularity the matters relied on to prove the assertion and to enable a respondent to understand the case he has to meet and also for a court reading a petition to understand the grounds upon which it is said it should exercise its discretion.  

31.  In Re Four Twenty Company Limited [4] Kwan J (as she then was) summarised the way in which the Court proceeds to assess whether a sufficiently arguable claim is set out in a petition as follows:

“5. There is no dispute as to the approach and principles to be adopted in the strike out application and they may be summarised as follows:

(1) It is assumed that the particulars and allegations in the petition and the supporting affidavits of the petitioner would be established and the conflicts resolved in favour of the petitioner (Re Forecast Nominee Limited [1996] 4 HKC 12 at 18C; Re Prudential Enterprise Limited [2001] 2 HKC 687 at 692D-E).

(2) The application should be approached with the greatest circumspection and it is only in a plain and obvious case that the court should exercise its discretion to strike out the petition for winding up or the parts complained of (Re Wong To Yick Wood Lock Ointment Limited [2001] 2 HKC 618 at 623I).

(3) The burden is on the applicant to show that it is plain and obvious that the petition for winding up would fail on the ground there is an alternative remedy available to the petitioner and that the petitioner is acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy (section 180 (1A) of Cap. 32; Re Wong To Yick Wood Lock Ointment Limited, supra.at 622I to 623F and 623H and on appeal at [2003] 1 HKC 484 at 487H to 488B).

(4) Where proposed amendments are put forward in an application to strike out, the court should have regard not only to the allegations in the existing petition but also to matters in the proposed amendments (Re Prudential Enterprise Limited, supra. at 692D).”

32.  This statement of principle, or slight variations of it, has been adopted in subsequent cases.  It will be noted that in sub‑paragraph (1) Kwan J refers to an assumption that “the particulars and allegations in the petition and the supporting affidavits of the petitioner would be established and the conflicts resolved in favour of the petitioner”.  I do not understand this passage to indicate that omissions in a petition can be rectified by evidence.  If it becomes clear during the preparation for a strike out application that crucial matters that should have been included in a petition have been omitted from it, the correct course is for the petitioner to produce an amended petition and invite the respondent to consider whether the amendments answer the criticisms of the petition or put them before the court and seek leave to amend.

CY Macao and CY Mauritius

33.  Section 327(3) of the Companies Ordinance, Cap 32, gives the Court a jurisdiction to wind up an unregistered company in the following circumstances:

“(3) The circumstances in which an unregistered company may be wound up are as follows-

(a) if the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs;

(b) if the company is unable to pay its debts;

(c) if the court is of opinion that it is just and equitable that the company should be wound up.”

34.  The Court’s power to order a winding up is discretionary.[5]  It is well established that the jurisdiction is an exorbitant one.  Hong Kong private international law recognises that generally the proper jurisdiction in which to seek a winding-up order of a company is that of its incorporation: Re Yung Kee Holdings Ltd [6].  The Court will, however, make winding up orders in the case of applications under both sub‑sections (3)(b) (insolvency) and (c) (just and equitable) if three criteria I referred to in paragraph 29 are satisfied.

35.  These principles have been discussed in detail in the context of just and equitable winding-up petitions, in Re Gottinghen Trading Limited [7] and Re Yung Kee Holdings Limited [8].  In the present case two objections are taken to the petitions against CY Macao and CY Mauritius.  First, that the petitions do not aver that the three criteria to which I have referred are satisfied and are, therefore, fundamentally defective and liable to be struck out.  Secondly, that even if one puts this objection to one side and looks at the case on jurisdiction that is revealed in the evidence they demonstrably fall short of establishing sufficient connection.  At the hearing before me the Respondents did not argue that the second and third criteria could not be satisfied.  It is likely that they could be.

36.  It is clear that neither of the relevant Petitions contain any express averment that the three criteria are met.  It seems likely that although the petitions were drafted after my decisions in Re Gottinghen [9] and Re Yung Kee Holdings Limited [10] were handed down [11] the drafter failed to appreciate the need to include a section addressing jurisdiction.  Particularly following my decision in Grand China Logistics Holding (Group) Co. Ltd. [12] I would have expected it to have been appreciated that it was necessary for the Petitioner's case on jurisdiction to be addressed expressly.  As matters stand the Petitions contain no paragraphs at all which can fairly be read as being directed specifically to the issue of jurisdiction.

37.  Ms Ismail put the Petitioner's case as follows.  CY Macao and CY Mauritius were part of a group of companies, which have common shareholders and connected businesses operations.  The management and control of the group was at all material times in Hong Kong and this is where the disputes between the shareholders arose.  Although there is no allegation of unfairly prejudicial conduct in the affairs of the CY Macao and CY Mauritius themselves conduct in the affairs of other members of the group which entitle the Petitioner to winding-up orders are capable of entitling the Petitioner to a winding-up order on the just and equitable ground over CY Macao and CY Mauritius.  It follows, so the argument develops, that as the matters of which complaint is made in connection with the other members of the group occurred in Hong Kong there is at least arguably sufficient connection with Hong Kong to justify the Court exercising its jurisdiction over CY Macao and CY Mauritius.  It is sufficient, argued Ms Ismail, that the Petitions recite the matters concerning the other members of the group which occurred in Hong Kong. 

38.  The Petitions are over 30 pages.  Excluding the introductory paragraphs and the prayers there is very little reference to either CY Macao or CY Mauritius in their respective petitions. No where does the reader find a section or paragraphs which alert him to the Petitioner's case on jurisdiction. I accept that it is not essential that a petition uses any particular form of words to set out the basis upon which it is contended the Court should exercise jurisdiction.  I also accept that there may be cases in which, although there is no section included in a petition which is directly addressing the issue of jurisdiction, it is fairly readily apparent on a reading of the complete petition what a petitioner's case on jurisdiction is.  This is not such a case. The Court has before it two Petitions which contain no allegations of facts or matters which are said to be, or could reasonably be understood to be, assertions of sufficient connection with Hong Kong to justify the Court exercising jurisdiction.  This is not just a technical point.  The shortcomings in the Petitions present a practical problem for the reader, which can be most readily illustrated by reference to CY Macao.  CY Macao was incorporated on 17 August 2004.  It has two members: Patricia and Lawrence. There is a dispute about whether they are the beneficial owners of the shares registered in their names or their respective Fathers, namely, YWK and YYK.  CY Macao has 2 “administrators” (Patricia and Lawrence) who I take to be the equivalent to directors.  The Petition says that CY Macao had a “physical presence in Macao”: a rather weasel worded description of an office, and employees who worked there.  Its only business was to invoice clients until it ceased to have any role in the group in June 2010.  It was a tax vehicle.  The financial system of which it formed part operated as follows: Plastics purchased raw materials and shipped them to Chun Yip Shenzhen which manufactured products and shipped them to customers.  CY Macao invoiced customers and received payments from them.  CY Macao would pay Chun Yip for the cost of raw materials out of the proceeds of sale that it received.  In her evidence Patricia explains that the business was funnelled through Macao to enjoy tax exemptions and that it had two employees based in Macao.  All of these matters point firmly to CY Macao having no relevant connection with Hong Kong and would be likely to leave the reader assuming, as it seems to me is likely, that the Petition was drafted without regard to the principles I have discussed above.

39.  Another way of approaching the matter is to ask this question: what would a liquidation of CY Macao in Hong Kong by a Hong Kong liquidator involve?  On the basis of the information in the Petition the answer would appear to be nothing other than ask questions of CY Macao’s administrators and take control of one bank account.  Everything else would have to be done in Macao and, presumably, this could be done most efficiently by a liquidator appointed in Macao.  There is no reason to think, and none has been suggested, that it is necessary to liquidate CY Macao in Hong Kong.  The reason for issuing the Petition here is because it is more convenient for the Petitioner.

40.  As a fall back position Ms Ismail argued that if the Court thought that the Petitions were defective, but could be saved by an amendment, the Court should not strike out the Petitions but give leave to amend. 

41.  Ms Ismail referred me to the decision of Kwan J in Golden Screen Ltd v Village Cinemas Australia Pty Ltd [13] in which her Ladyship says this at paragraphs 28 and 29:

“28. It does not seem to me the approach of Mr. Bartlett, that the court should confine itself to the allegations made in the petition and no more, is satisfactory. If the deficiency in the petition is such that it can be cured by amendment, and if it is tolerably clear on the evidence what amendments ought to be made, there is no reason why on an application for striking out the power to direct an amendment should not be exercised. How this discretionary power is to be exercised would depend on the circumstances in each case. In Re Forecast Nominee Ltd., the court took the view that the factual matters contained in the petition were adequate to substantiate an averment of legitimate expectation without an amendment. In Re Ringtower Holdings plc (1989) 5 BCC 82, leave to amend the petition was refused and the petition was ordered to be struck out as the claimed legitimate expectation was manifestly unsustainable, but the court had nevertheless considered the petition in the form it would have, if leave for the draft amendments were granted (at 90B to C).

29. In the present case, it seems to me that the averments that should have been contained in the petition, but were not, have been stated with sufficient particularity in the 2^nd affirmation of Mr. Phoon as summarised earlier.  These additional averments should be taken into account when I consider if the petition should be struck out on any of the grounds advanced by the 1^st respondent. If I should then conclude that the petition should not be struck out, I will give directions for the petition to be amended to incorporate these averments. If I should form the view that the petition is bound to fail notwithstanding these averments, the petition will be struck out.”

42.  I do not understand Kwan J to be suggesting that it is not necessary for a Petition to set out all relevant facts and matters relied on and necessary to obtain the relief sought.  I understand her Ladyship to be suggesting that in assessing a strike out application regard can be given to what is contained in the evidence and if the Court concludes that the Petition is incomplete, but it is possible to identify in the evidence matters that could cure the defect in the Petition, the Petitioner should be given the opportunity to amend.  This may be so in simple cases where it is clear what the amendment will be.  I think it reflects a common sense approach where matters are straightforward rather than a qualification to the principles I have referred to in paragraphs 27 and 28.

43.  I do not think that her Ladyship had in mind the Court going through Petitions, of the type I am here concerned with, after the hearing has been completed and without the assistance of Counsel and, as Ms Ismail was in effect suggesting, assessing whether an amendment could be drafted that would save the Petition.

44.  It seems to me quite clear that the Petitions do not deal satisfactorily with jurisdiction and that it would have been prudent to have produced amended Petitions if it was thought possible.  I will strike out the Petitions on the grounds that they do not set out a basis upon which the Court could properly exercise jurisdiction to wind up either company.  Although that is sufficient to dispose of the two summonses in respect of CY Macao and CY Mauritius I shall also address the question of whether it has been demonstrated that there are facts and matters that if established at trial would justify the Court exercising jurisdiction under section 327(3)(c).

45.  I have already explained that CY Macao has itself no connection with Hong Kong.  As is clear a conscious decision was made to distance the business affairs conducted by CY Macao from Hong Kong for tax reasons.  I have also explained how the Petitioner puts its case on jurisdiction.  I do not accept that the fact that a dispute has arisen between YYK, YWK and Tang in respect of a Hong Kong company is capable of giving rise to sufficient connection between CY Macao, of which their children are shareholders, and Hong Kong to justify this Court exercising jurisdiction over CY Macao.  Ms Ismail did not draw to my attention any case with remotely similar facts in which the Court has reached the alternative view.  What has to be established is sufficient connection between the company and Hong Kong to justify making an order engaging the entire Hong Kong insolvency regime.  In my view properly analysed the Petitioner's argument amounts to this: it is sufficient in the case of a just and equitable winding up for a petitioner to demonstrate a sufficient connection between the shareholders and Hong Kong.  This is a very different test and one that it would in my view be wrong in principle to adopt.  A company is an independent legal entity distinct from its shareholders.  Its shareholders affairs are not its affairs.  This principle, that has most recently been considered and affirmed by the Supreme Court in Prest v Petrodel Ltd and Others [14], is fundamental to company law.  Lord Sumption summarises the position under English Law with which Hong Kong Law is consistent:

“8. Subject to very limited exceptions, most of which are statutory, a company is a legal entity distinct from its shareholders. It has rights and liabilities of its own which are distinct from those of its shareholders. Its property is its own, and not that of its shareholders. In Salomon v A Salomon & Co Ltd [1897] AC 22, [1895–9] All ER Rep 33, the House of Lords held that these principles applied as much to a company that was wholly owned and controlled by one man as to any other company. In Macaura v Northern Assurance Co Ltd [1925] AC 619, [1925] All ER Rep 51, the House of Lords held that the sole owner and controller of a company did not even have an insurable interest in property of the company, although economically he was liable to suffer by its destruction. Lord Buckmaster said ([1925] AC 619 at 626–627, [1925] All ER Rep 51 at 54):

‘no shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest therein. He is entitled to a share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound up.’

In Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 the House of Lords held that documents of a subsidiary were not in the 'power' of its parent company for the purposes of disclosure in litigation, simply by virtue of the latter's ownership and control of the group. These principles are the starting point for the elaborate restrictions imposed by English law on a wide range of transactions which have the direct or indirect effect of distributing capital to shareholders. The separate personality and property of a company is sometimes described as a fiction, and in a sense it is. But the fiction is the whole foundation of English company and insolvency law. As Robert Goff LJ once observed, in this domain ‘we are concerned not with economics but with law. The distinction between the two is, in law, fundamental’: Bank of Tokyo Ltd v Karoon [1986] 3 All ER 468 at 486, [1987] AC 45n at 64. He could justly have added that it is not just legally but economically fundamental, since limited companies have been the principal unit of commercial life for more than a century. Their separate personality and property are the basis on which third parties are entitled to deal with them and commonly do deal with them.”

46.  The Petitioners’ argument involves adopting a different approach. Although this is my description rather than Ms. Ismail’s, it seems to me that the argument develops like this.  It treats the interests of owners of a number of companies operating associated businesses as constituting one common economic unit.  A dispute between them concerning the business of the economic unit can be said to concern each company and if the economic unit viewed as a whole has a substantial connection with Hong Kong that is sufficient to justify the Hong Kong court exercising jurisdiction.  This in my view is inconsistent with the principle of private international law that recognises that generally the proper law in which to wind up a company is its place of incorporation and the principle recently restated by Lord Sumption. 

47.  I would, therefore, also strike out the Petition against CY Macao on the ground that there is no reasonable prospect of the Petitioner establishing at trial that this is a proper case for the Court to exercise jurisdiction.

48.  CY Mauritius is simpler.  The directors are based in Hong Kong.  It is a holding company that owns shares in Chun Yip Shenzhen, which in turn holds an interest in another Mainland company called Max Smart Shenzhen, which in turn owns Shenzhen Man Shing Property Management Company and various properties in the Mainland.  The Company has no connection with Hong Kong other than the fact that its shareholders and directors are here.  However, the Petition does not assert that they carried out any particular activities of significance in relation to CY Mauritius in Hong Kong and indeed it does not assert that CY Mauritius was managed in Hong Kong rather, in paragraph 20, it says that CY Mauritius was set up solely as a holding company of Chun Yip Shenzhen and has no direct operations of its own.  The only reference to any of the affairs of the company being conducted in Hong Kong is in paragraph 81 which refers to a board meeting being held in Hong Kong reconfirming that a purported change of legal representative of Chun Yip Shenzhen was illegal.  It seems to me that the Petition and the Petitioner’s evidence clearly reveal insufficient connection between CY Mauritius and Hong Kong to justify this Court exercising jurisdiction over it.  I would also strike out the Petition against CY Mauritius on this ground.

Application to strike out winding up relief - principles

49.  As I have already mentioned the Respondents to the remaining 5 Petitions seek to strike them out on the grounds that they are all solvent and that there is no realistic prospect of winding-up orders being made.  I have already addressed the general principles by reference to which the Court determines applications to strike out petitions.  The Companies Court has in a series of cases considered how those principles apply to applications, which are relatively common, to strike out the prayer for a winding-up order in an unfair prejudice petition.  These are discussed in Re Mahr China Ltd[15] and the New China Hong Kong Highway Limited [16].  The core principle which can be distilled from the authorities, and I do not understand this to be in dispute, is summarised by me in paragraph 21 of my judgment in New China:

“21. The 2^nd Respondent accepts that in assessing this application I should assume that all the allegations in the Petition and the supporting evidence are true and on this assumption I should consider whether or not there is any real possibility or prospect of a winding-up order being made having regard to section 180(1A) of the Companies Ordinance: Re Wong To Yick Lock Ointment Ltd [2001] 2 HKC 618 per Yuen J (as she then was) at 623H-624B approved by the Court of Appeal at [2003] 1 HKC 484 per Le Pichon J.A. at 487H. Section 180(1A) provides that the court shall not refuse to make a winding-up order on the grounds that some other remedy is available unless it is of the opinion that the petitioner is acting unreasonably in seeking to have the company wound up instead. It follows that I should strike out the petition if I consider that there is no real prospect of the court making a winding-up order. In assessing whether or not this is the case I should, as with an application to strike out a pleading (which the Petition is technically not), bear in mind that it is only in a plain and obvious case that a petition or part of it should be struck out.”

50.  As I note in paragraph 22 of New China the difficulty that arises in applications such as the present one lies not in identifying the relevant principles, but in applying them.  The authorities commonly reveal a tension between those decisions in which the court emphasises the undesirability of including prayers for winding-up orders as alternative relief simply as a matter of form, and those in which the Court is concerned not to strike out a prayer, which it might transpire at trial is justified.  Unsurprisingly the differing facts of individual cases and the Court’s ultimate decision and the need to craft a judgment which supports it, tend to produce authorities with differing emphasis.  However, ultimately it is clear that the question for the Court is whether on the evidence before it the claim for a winding-up order has no realistic prospect of success.

The argument case

51.  The Respondents’ case can be summarised as follows.  It does not seem to be in dispute that both parties would prefer their differences to be resolved by a buy-out and that in practice this means the Petitioners’ shares being bought by the Respondents.  It is also not in dispute that the 5 companies are solvent.  The Respondents have the means to purchase the Petitioners’ shares.  There is nothing for a liquidator to do and if the companies were put into liquidation all that it can sensibly be anticipated would result is a diminution in the value of assets available for distribution to shareholders: in other words it clearly makes more sense for one or other party to buy the other out. Insisting otherwise would make no commercial sense.

52.  The Petitioners say that the Respondents have failed to demonstrate that there is no realistic prospect of a winding-up order being made.  There reasons are as follows:

(1) The Respondents have not made any offer, let alone a reasonable one, to purchase the Petitioners’ shares since the commencement of the proceedings.  The Petitioners have suggested that it is appropriate for the Respondents to purchase their shares.  Their response has consistently been that they do not have sufficient information to decide whether or not to agree to this.  This is a disingenuous position as they have been in control of the Group since 2010 and must have access to all the information necessary to decide whether or not they are willing in principle to buy out the Petitioners.  This raises the spectre of a protracted dispute about the value of their interest, which could be avoided if a liquidator was appointed.  On 13 November 2012 CC had given notice that if the Respondents had no intention of purchasing their clients’ shares winding-up petitions would be issued.  This was an opportunity for the Respondents to state that this was unnecessary, but they did not do so.  The Respondents have done little to progress their own cross-petitions since they obtained control of the Group in 2010 and seem to have little interest in agreeing a constructive way forward given they now have control of the companies.  This also suggests that it is unsafe to assume that YYK will not decide, and be able to justify the decision, to seek a winding-up order rather than a buy-out at trial.

(2) The Respondents estimate the Group to be worth approximately $1 billion in their evidence. Assuming that this is correct (the Petitioners say it is worth considerably more) it follows that YYK’s interest is worth at least $333,000,000.  The Petitioners have expressed their concerns about YWK and Tang’s ability to pay this sum.  The Respondents have not adduced any evidence that they can do so. They have simply asserted that they have the means to pay.  Such an unsubstantiated assertion in response to a party calling into question the ability to pay should be treated with caution: Re Yung Kee Holdings Ltd [17].  It cannot be assumed to be the case.  It would be unsatisfactory for YYK to be left with a personal judgment that it is difficult to enforce.  If there is a real possibility that this might happen it would be quite reasonable for him to seek a winding-up order and quite possible that the Court would accede to the application.

(3) One of the Petitioners’ principal complaints is exclusion from management and the Respondents usurping control of the Group.  The Petitioners complain that they have been provided with limited financial information and that YWK and Tang have changed the business model to ensure their control over the proceeds of the Group’s business.  They have procured a substantial increase in their director’s emoluments at a time when the profitability of the Group has decreased.  No explanation for this has been provided.  Conversely, the Respondents allege that YYK and persons associated with him have misappropriated substantial funds from the Group.  They also complain that they have set up competing businesses.  The Petitioners suggest that in these circumstances the most efficient and fair way of determining how much the shareholders should receive is by the appointment of liquidators who can realise the companies’ assets and investigate the competing claims of wrongdoing.  Put slightly differently: it would be very difficult for a valuer to arrive at a fair valuation of the parties’ respective interests in the companies given the claims and counterclaims each faction makes about the conduct of the other.  It is common for the valuation of shares in shareholder disputes to be problematic and lengthy and it may be that YYK will take the view, and be able to satisfy the Court, that it is fairer and more efficient to make winding-up orders.

(4) The Petitioners also suggests that YYK may recover more on a winding up.  This argument is a variant on the suggestions I have referred to earlier that a valuation may be highly problematic.  The Petitioners say that the cost of a contentious valuation may be high enough that a liquidation may realise a greater net return.  This is particularly so taking into account the next matter they rely on.

(5) The Group has an on-going business and valuable assets.  A liquidator could sell these. Each shareholder would have the opportunity to bid for them against the other shareholder and any independent third party who might be interested in acquiring them.  It is quite possible that this would produce the best return. The obvious examples of assets which could readily be sold are the Shenzhen Factory and various other properties owned by members of the Group. 

53.  The Respondents point out, correctly, that the Petitions only state 2 reasons for seeking winding-up orders.  The first is the concern that YWK and Tang do not have sufficient funds to buy YYK’s shares.  The second is the suggestion that a full investigation of YWK and Tang’s management of the Group since April 2010, when they took control, is necessary, although, the Respondents point out, no particulars of what needs to be investigated is given in any of the Petitions.  There is no reference to the valuation process being potentially so problematic that a liquidation may be the more expedient remedy to order.  The Respondents suggest that the additional reasons advanced for including the prayers for winding-up orders referred to in YYK’s evidence and explained in paragraph 47 have been constructed ex post facto in an attempt to maintain relief which has an adverse effect on the Group and pressures the Respondents to reach an accommodation.  They also suggest that the real reason for its inclusion was probably a concern that YWK and Tang would not agree to a buy-out.  This can be seen, it is contended, from CC’s letter of 13 November 2012 which states explicitly that the reason for pursuing winding‑up relief is their client’s concern that YWK and Tang will not buy him out.  What the Petitioners should have done, it is suggested, is to have proceeded apace with unfair prejudice petitions and sought buy-out orders.  It is for the Court to choose what relief is granted and if YWK’s case was made out a trial there is no reason to think that the Court would not order a buy‑out.

54.  The Respondents say that Tang has gone on oath that he and YWK are able to finance the purchase of YYK’s shares.  This cannot be dismissed as an unsubstantiated assertion.  The fact is that YWK and Tang hold the majority of the Group’s shares.  There is no suggestion that their interest is encumbered. There is thus no reason to think that if ordered to buy YYK out they would not be able to raise the finance necessary to do so.  This is not a case like Re Kinong Group Ltd [18], to which the Petitioners refer, in which the respondents held 41% of the company.  It is inherently unlikely that they would not be able to raise the finance to acquire the entire shareholding of the Group given their current 66% interest in it and its substantial property interests, which the Petitioners have valued at approximately $380,000,000.  Mr. Joffe also referred me to the decision of Vinelott J in Re Ghyll Beck Driving Range Ltd [19] in which the respondents inability to pay for shares was not considered a reason to decline to order a buy‑out.  As I understand the judgment Vinelott J envisaged the respondents selling their shares, in practice along with those of the successful petitioner, in order to pay the petitioner.  Mr. Joffe submitted that it is very difficult to believe that given the valuation of the companies it would not be possible for them to be sold for a price sufficient to realise enough to satisfy the amount due to YYK even on the most favourable assumption, namely, that the companies are valued on a going concern basis and his shares valued on a pro rata basis with no discount for minority interest.

55.  The Respondents contend that the suggested need for an investigation by liquidators is illusory.  They say that 2 of the companies are holding companies: Max Smart and Well Joy.  It is difficult to see what could usefully be investigated in their case.  If there are documents that YYK believes he, as a shareholder, is entitled to see he can, if necessary, apply to Court under section 152FA of the Companies Ordinance, Cap. 32, or its equivalent under Cap. 622.  If he believes the directors have overpaid themselves this is a matter that he can seek the Court to direct a valuer to take it into account.

56.  In short, the Respondents say that the Petitioners are not able to point to any substantial reason for concluding that, first, the Court will not, if the complaints in the Petitions are made out at trial, order a buy‑out, secondly, that there would be any more difficulty in valuing YYK’s interest than in any other case and, thirdly, YWK and Tang would not be able to pay.

57.  The issue of valuation will only arise if the Petitioners’ complaints are made out.  Necessarily valuing a group of companies whose controlling shareholders have been found by the Court to have conducted their affairs in a manner unfairly prejudicial to a minority shareholder is likely to be complicated and costly.  In my experience unless both parties are cooperative the valuation process can become very drawn out and expensive.  Valuers have difficulty in obtaining information and dealing with the parties’ respective contentions about how the company should be valued.  In some cases it may be more straight forward to appoint liquidators.  However, the process of liquidation itself is commonly expensive and slow and, if there have been claims of misconduct, spawns further litigation.  I can see nothing in the Petitioners’ evidence to suggest that there is any realistic reason to think that the Court would order a winding up because of concerns about the difficulties in valuation in the present case.

58.  It also does not seem to me that the very limited matters, which it is suggested by the Petitioners need investigation, are matters that cannot be dealt with by the Court at trial and appropriate given directions to a valuer. It is quite common for the Court to do so.

59.  So far as payment is concerned, I accept that YWK and Tang have provided no evidence of how they anticipate raising finance to pay YYK in the event that the Court orders them to buy his shares.  However, I also accept that given the financial position of the various companies it is likely that they would be able to raise the finance to buy him out.  However, in my view a stronger objection is the fact that if the Court orders them to buy YYK’s shares and they do not pay the price once the valuation is complete, YYK will be able to look to their interest in the Group, which will in practice be 100%, to satisfy the judgment.  I see no realistic prospect in these circumstances in YYK being left with an empty personal judgment.  On the contrary YWK and Tang will have every reason to raise the finance to pay him.

60.  In conclusion, in my view the prayers in the winding‑up Petitions have no realistic prospect of success and I make orders in the terms of the Respondents’ summonses.

Amendment application

61.  On 1 September 2009 YYK issued the Plastics and Holdings Petitions.  The prayers of each Petition are the same.  They seek an order that the 1^st and 2^nd Respondents, YWK and Tang, take all necessary steps to procure Lawrence’s reinstatement as director of Plastics or Holdings as the case may be, such other orders as the Court thinks fit and costs.  On  10  August 2011 YYK issued summons to amend both Petitions.  The only amendments are to the prayers.  Other than for the reference to the name of the company the proposed amendments are in the same form.  They delete the prayer seeking Lawrence’s reinstatement and seek to replace it with the following:

“(1) An order that the 1^st and 2^nd respondents (or either of them) do purchase all of the Petitioner’s shares in the Company at a fair value to be determined by the Court in such manner as it thinks fit, on the following bases:

(i) on the basis of a sale between a willing vendor and willing purchaser, acting at arm’s length, of the entire issued share capital of the Company;

(ii) on the basis that the Company is a going concern;

(iii) by reference to the assets, goodwill, profitability and future prospects of the Company as at the date of the presentation of the Petition herein;

(iv) without any discount to reflect the fact that the Petitioner’s shareholding represents only a minority of the issued ordinary shares in the Company; and

(v) after taking account of and making due allowance for the unfairly prejudicial conduct of the Company about which complaint is made herein and any unfairly prejudicial conduct on the part of the 1^st and 2^nd Respondents concealed from the Petitioner.

that the 1^st Respondent and the 2^nd Respondent may be ordered to take all necessary steps to procure the reinstatement of LY as director of the Company and CYIHL;”

62.  The reasons for deciding to abandon the claim for reinstatement of Lawrence as a director and replace it with a claim that YYK’s shares are purchased is said to be this.  Since March 2010 Lawrence and YYK have been excluded from Plastics and Holdings’ operations.  YWK and Tang have changed the modus operandi of the companies and matters have progressed to the point at which YYK no longer sees any purpose in having his representative on the board.  He has decided that it is more appropriate to sell his shares and cease his involvement in both companies.  As it has not been possible to agree terms with YWK and Tang he has decided to seek an order that his shares are bought by them, having been advised, I assume, that the matters which justified seeking the original order for Lawrence’s reinstatement to the board justify an order that he is bought out.

63.  Ms. Ismail also suggested that leave be given to amend the Petitions to include post-Petition events.  However, I indicated during the hearing that I would not give general leave to amend.  If YYK wishes to make additional amendments they should be drafted and, in the absence of agreement, an application made to the Court.

64.  The Respondents do not dispute that the relief that YYK now wishes to seek could always have been included in the Petitions.  They query the thinking that led to issuing Petitions under section 168A in September 2009 without including in the alternative a claim that his shares should be bought by the Respondents and then issuing winding‑up petitions on 12 December 2012. They further point out that despite my order made on 10 June 2013 that all further interlocutory orders be taken out by 9 August 2013 YYK has not produced proposed amendments to the unfair prejudice Petition raising events after September 2009 which appears from Ms. Ismail’s submissions he will want to rely on.  The result of this, at least prior to the Court striking out the winding-up relief in the Petitions, was unsatisfactory because the 2 associated sets of proceedings do not contain the same allegations.  Mr. Joffe points out correctly that the majority of the complaints in the winding-up Petition do not appear in the unfair prejudice Petition.  As a consequence, he says, it is inevitable if the Petitions are going to proceed together, which is currently the position, that in addition to the amendment currently sought, YYK will have to make another application for further substantial amendments.  In fact Ms. Ismail acknowledges as much in her written submissions.  Mr. Joffe says that it would have made rather more sense to have sought to amend the winding-up Petitions that, presumably, contains a complete statement of YYK’s present case.

65.  Mr. Joffe suggested that the reason for, what he suggests, is a rather odd way of proceeding is that YYK, or his advisers, must have come to appreciate that there is little prospect of obtaining an order that Lawrence be reinstated as a director.  Section 157B of the Companies Ordinance, Cap. 32 [20], provides that a company cannot exclude the right of shareholders to remove a director by ordinary resolution in its articles or any agreement that it enters into with the director.  It would be wrong to make an order that was inconsistent with this provision.  It can only be justified if the order is sought on the grounds that there is an agreement between the shareholders and the order is necessary to prevent breach of the agreement or, perhaps, to enforce it.  But even in these circumstances the Court is reluctant to make an order that imposes a director that a board and the majority of shareholders do not want.  In H v H [21] the Families Court made an interlocutory order, apparently on the basis that it formed part of ancillary relief in divorce proceedings, requiring the Husband to vote a strategic block of shares in a public company in favour of a resolution appointing his Wife as a director.  I note in passing that in my view such an application should have been made before the Companies Court as it fell within its jurisdiction and raised issues that a Companies Judge is better placed to assess.  The Court of Appeal overturned the order noting in its judgment the authorities which demonstrate the Court’s reluctance to makes orders that impose directors on a company: English Court of Appeal in Pringle v Callard [22], Re Chime Corp Ltd [23] and Muir v Lampl [24].

66.  Mr. Joffe suggests that it clearly would make more sense to withdraw the unfair prejudice petitions and amend the winding-up Petitions to add the relief that YYK now seeks.  He argues that the reason for not doing so is that it would result in YYK having to pay the costs of the unfair prejudice Petitions and this is the real reason that YYK is proposing to proceed in such a cumbersome manner.  Accordingly, the proposed amendment should be treated as a de facto discontinuance of the original winding-up Petitions and the treatment of costs approached on that basis.  Mr. Joffe referred me to the decision of Recorder Shieh SC in Anmol Kumar Sawlani v Yeshma Gobindram Sawlani [25] in which he undertakes a comprehensive review of the principles that govern the determination of costs on a discontinuance:

“10. …

Generally speaking, upon an application for leave to discontinue, the discontinuing plaintiff pays the costs of the defendant. The fact that the discontinuance had been caused by the issues becoming academic does not of itself justify departure from this starting point as a matter of discretion. See Inchroy Credit Corporation Limited v Cheung Man Chung [1992] 1 HKLR 120, a decision of Mr Justice Kaplan. In the case of Ta Chung China and Arts Limited v Fontana Restaurant Limited [1999] 1 HKLR 404, Mr Justice Godfrey JA said at 407:

‘Where a plaintiff seeks to recover costs against a defendant in an action in which the substantive issues have been determined in one way or another before the trial, the only way in which the plaintiff can recover his costs if the defendant refuses to pay them is to bring the action to trial for the purpose of doing so.’

11. At page 406 at letter I, Mortimer VP said:

‘There is no doubt that there are two ways in which a party can have the matter of costs determined if the liability issues of the action have become academic. First, he may apply for leave to discontinue the action and ask for the costs to be determined. In those circumstances, although it would not be impossible for the plaintiff to ask for an order for the payment of the costs by the party against whom he is discontinuing, it undoubtedly would be most unusual. For my part, I have never come across such a case.’

12. In the case of Leung Yuet Ching v Leung Yuet Kun HCA9924/2000, Deputy Judge Muttrie observed at paragraph 23:

‘However, the general rule remains that the defendant should have his costs on the discontinuance and that there must be good reasons to depart from that general rule. To award costs to a plaintiff would be to depart a very long way from it. As I see it, this could only happen where the plaintiff’s case is certain of success and the discontinuance comes about because the defendant accepts that. Certainty of success means, in my view, that the defence if found would be open to striking out under Order 18 Rule 19 of the Rules of the High Court on the ground that it discloses no reasonable cause of action or defence, as the case may be, or it is unrealistic, frivolous or vexatious, or it may prejudice, embarrass or delay the fair trial of the action, or it is otherwise an abuse of the court.’

The learned judge did go on to say at paragraph 24:

‘I put forward this proposition with some diffidence, remembering that even in Burgess v Hills, where the defendant had accepted that the plaintiff’s case against him was justified even before the plaintiff applied for the injunction, it was held that the only way for the plaintiff to get his costs was to bring the action to trial for the purpose of doing so.’

13. The plaintiff contends that these cases were pre-CJR cases and that post-CJR the courts have adopted the approach that the parties need not go to trial in order to have the question of costs resolved. Among the cases cited by the plaintiff is the decision by Mr Recorder Jat, SC, in Graham Morley v Kwan HCA4366/2003. After rehearsing a number of authorities, including Ta Chung, the learned Recorder observed in paragraph 31:

‘With respect, I agree with Madam Justice Kwan that Ta Chung does not purport to limit the way in which the court may approach questions of cost where the substantive issues between the parties have become happily resolved. I say so for two reasons.’

Then paragraph 32:

‘First, the decision in Ta Chung must be considered in context. In that case, the parties, having settled their dispute, only wanted the court to determine the question of costs without in some way disposing of the action. The Court of Appeal held it was not possible to decide a pure question of costs without also disposing of the action. That is not the situation in the current case, as the action has been disposed of by the consent order and it is continuous of the action against Mr Tung. I consider that the scenario in the current case is indistinguishable from that in Re China United Establishment Limited, where the action is disposed of by consent order, leaving only the issue of costs outstanding.’

This is paragraph 33:

‘Secondly, and in any case, it seems to me that to hold that in the absence of agreement or an application to discontinue the action, the parties must go to trial in order to resolve any outstanding questions of costs would be contrary to the overriding objective enshrined in RHC Order 1A Rules 1 and 2’

14. Reading these authorities in context, I do not believe that the cases about posts-CJR approach and the possibility of resolving costs without going to trial have any bearing on the facts of this case. First of all, Graham Morley is not a case on leave to discontinue, and no one is asking in this case that the issue of costs should be determined by having a trial, and therefore in this connection, the relevant test to be applied in a case where leave to discontinue is sought and where the issue of costs is to be determined on paper is that laid down by Deputy Judge Muttrie in the Leung case that I have referred to.

15. In my respectful view, there is a good deal of sense in the judgment of Deputy Judge Muttrie, and he need not have been so diffident, because if the parties were not to go to trial to resolve a costs dispute in an application for leave to discontinue, then the normal rule should apply, namely a discontinuing plaintiff should pay costs unless it can be demonstrated, without the need to go to trial, that his case is so strong that he is bound to win had it gone on to trial and therefore he was justified in commencing the action in the first place. I cannot see how a lesser standard such as he may be 70 per cent right would suffice, because at the end of the day to award costs to a party is to recompense him for the fact that he was justified in issuing the writ in the first place.

16. At the end of the day, the questions as to whether or not the plaintiff should pay the defendant’s costs on discontinuing, or the appropriate merit threshold that the plaintiff should be required to achieve in order to be able to reverse the normal starting point, have been rendered academic, because the defendant had, in his words, “generously” agreed by a letter dated 31 October to pay the plaintiff’s costs on discontinuance, but not on an indemnity basis and not agreeable to any part of the taxed off costs being borne by the state. But in the face of that, the plaintiff took out his summons for discontinuance seeking costs.”

67.  The Respondents say that YYK has elected not to prove that he would have succeeded if the unfair prejudice Petition had gone to trial.  He is simply abandoning the only relief currently in the Petition.  In these circumstances it is just that the normal rule is applied and that he pays the costs up to the date that he discontinues his claim.

68.  It seems to me that Ms. Ismail’s characterisation of what is proposed, namely, pursuing in substance the same complaints and simply amending the relief, is artificial.  The fact that in December 2012 YYK thought it necessary to issue the winding-up Petition indicates that at that time it was thought necessary to seek, in the alternative to reinstatement of Lawrence, an order which would result in YYK exiting Plastics.  Why it was not thought prudent at that stage to include a prayer in the winding-up Petition seeking in the alternative a buy-out is unclear.  However, it seems a reasonable inference that by December 2012 it was recognised that reinstating Lawrence was probably not practical and it was necessary to change tack.  The position in December 2012 was that there were proceedings in which YYK sought to exit Plastics and Holdings (the winding-up Petitions) and others, premised on the assumption he remained a shareholder, which sought Lawrence’s reinstatement (the unfair prejudice petitions).  In these circumstances it is artificial to suggest that deleting the prayer for reinstatement and changing the unfair prejudice Petitions into ones which seek buy-outs does not involve the abandonment of the original claim and the introduction of materially different ones.  It seems to me that YYK’s failure to produce at this stage amendments, which as I have already noted it is acknowledged are necessary, to the unfair prejudice Petitions adding complaints in respect of matters occurring since 1 September 2009 also suggests an attempt to camouflage the extent of the change that YYK wishes to make.

69.  I will allow the amendment summons, but order that the costs of the proceedings until the date of the order are paid by YYK to YWK and Tang forthwith on a party and party basis such costs to be taxed if not agree.