TAN MAN KOU AND ANOTHER v. CHIME CORPORATION LTD AND OTHERS

HCMP 4146/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4146 OF 2001

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D E C I S I O N

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The applications

1. I have before me three summonses adjourned by Yuen JA, sitting as an additional Judge of the Court of First Instance, on 28 June 2002. I shall refer to these summonses in the same way as in the Reasons for Decision of Yuen JA handed down on 3 July 2002. They are to be dealt with in the following order in this decision:

(1) the petitioners' abuse summons filed on 25 June 2002, to stay or strike out the summons in (2) as an abuse of the process of the court;

(2) the Company's strike-out summons ("the Company" being Chime Corporation Limited, the 1st respondent herein) filed on 2 May 2002, to strike out prayer (3) of the petition for disclosing no or no reasonable cause of action; and

(3) the petitioners' summons to amend the petition filed on 30 May 2002.

2. The petition was presented by the joint administrators pendente lite of the estate of Mr Wang Teh Huei ("Mr TH Wang") on 31 July 2001, under section 168A of the Companies Ordinance, Cap. 32, on the basis that the affairs of the Company have been conducted in a manner unfairly prejudicial to the interests of Mr TH Wang as a member. I do not propose to set out the background facts and the principal allegations in the petition, as they have been summarised in paragraphs 3 to 9 of the Judgment of the Court of Appeal in CACV No. 106 of 2002 handed down on 31 July 2002 ("the CA Judgment").

The background to the petitioners' abuse summons

3. It is necessary to give the background of the two previous applications that led to the petitioners' abuse summons.

4. On 2 August 2001, the petitioners issued a summons under section 168A of Cap. 32 and Order 29 rule 1 of the Rules of the High Court seeking interim relief ("the interim relief application") against Madam Nina Kung alias Nina T H Wang ("Madam Wang"), the 2nd respondent herein, as well as the Company, pending final determination of the orders sought in the petition. On 6 August 2001, Madam Wang issued a summons under inter alia Order 32 and the inherent jurisdiction of the court to strike out or stay the petition and to set aside or stay the interim relief application pending further order of the court ("Madam Wang's strike-out application"). Although the Company was not a party to Madam Wang's strike-out application, it was served with the summons and leading counsel for the Company was heard on that application.

5. Both applications were heard by Deputy High Court Judge Gill from 26 November 2001 to 1 December 2001. Madam Wang's strike-out application was dealt with first, judgment was given on 27 November 2001 dismissing the application. The interim relief application was heard immediately afterwards. Submissions were made on behalf of Madam Wang and the Company opposing the application. On 14 December 2001, Reasons for Judgment in Madam Wang's strike-out application were handed down. The Judge also handed down Judgment in the interim relief application in which he granted some of the reliefs sought.

6. The grounds on which Madam Wang's strike-out application were made are very different from the grounds of the Company's strike-out summons which is before me. In summary, Madam Wang sought to argue that there was a procedural irregularity on the part of the petitioners in presenting the petition and in taking out the interim relief application pending the determination of the petition. This was based on an order obtained by the petitioners in a Beddoe application before Chu J on 16 June 2001, in which it was ordered that if Madam Wang should fail to provide certain undertakings upon the petitioners' request, the petitioners do have leave to issue proceedings on behalf of the estate of Mr T H Wang against inter alia the Company and Madam Wang under section 168A and to apply for suitable interim protective relief. Madam Wang did provide some form of undertakings on 28 July 2001 but they were not accepted by the petitioners who issued the petition on 31 July 2001 and took out the interim relief application on 2 August 2001. Madam Wang contended that this conduct of the petitioners was improper and amounted to an abuse of the process of the court in that she was denied the opportunity to be heard on the adequacy of the undertakings she was prepared to give before the petitioners were to issue proceedings pursuant to leave granted under the Beddoe order. This contention was rejected by the Judge, for reasons I do not need to go into.

7. In the course of the hearing of Madam Wang's strike-out application, leading counsel for the Company informed the court that whilst the Company had not taken out an application of its own, the Company would "adopt everything" submitted by leading counsel on behalf of Madam Wang in her application.

8. In dismissing the application, the Judge made an order of costs against Madam Wang. The Company was not ordered to bear the petitioners' costs as it was not a party to that application.

9. The Company's strike-out summons (which is confined to prayer (3) in the petition) is made on a very different basis. Prayer (3) seeks an order for Madam Wang to pay to the petitioners the dividends that have accrued to her in the event that the allotments to her of 15,000,000 B shares in the Company ("the Chime B shares") are to be set aside. It is contended by the Company there is no legal basis for the relief sought in that the dividends previously declared and paid by the Company on the Chime B shares should be returned to the Company and not to the petitioners as they were the assets of the Company.

10. This contention was one of the grounds upon which the Company opposed the interim relief application and extensive submissions on this were made to the Judge, notwithstanding objection was raised by the petitioners that the Company had no locus at the hearing to mount an attack on the petition. The Company relied on this contention to say that as the dividends should belong to the Company and the petitioners are not entitled to payment, there would be no jeopardy to the assets at all and interim relief should not be granted. I shall deal with the question subsequently what finding or ruling was made by the Judge on this contention in his Judgment.

11. As mentioned earlier, the Judge granted some of the reliefs sought in the interim relief application. He came to the view that there is a serious question to be tried in respect of the allegations made in the petition and the balance of convenience should lie in favour of granting some form of interlocutory relief that would offer appropriate protection to the petitioners in the interim. Madam Wang appealed against the Judgment and both the Company and the petitioners appealed by way of respondent's notice to vary parts of the order. One of the grounds raised by the Company in its respondent's notice was in respect of the contention mentioned above. In the CA Judgment that I have referred to, the Court of Appeal dismissed Madam Wang's appeal and the Company's appeal by way of its respondent's notice and allowed in part the cross appeal of the petitioners on their respondents' notice.

The grounds of the petitioners' abuse summons

12. I turn to consider the grounds of the petitioners' abuse summons. Firstly, it is contended that the Company's strike out summons is bad in law in that there is a cause of action estoppel against the Company arising from the dismissal of Madam Wang's strike-out application. Secondly, the Company's strike-out summons is an abuse of the process of the court because the argument in support of this application was available to the Company at the hearing of Madam Wang's strike-out application, which was supported by the Company, albeit on different grounds. Thirdly, there is an issue estoppel against the Company arising from the Judgment in the interim relief application.

Cause of action estoppel

13. For there to be cause of action estoppel, the cause of action in the later proceedings must be identical to the earlier proceedings, the two sets of proceedings must be between the same parties or their privies, the subject matter in dispute must be the same, and the judgment in the earlier proceedings is final and conclusive. The petitioners' argument on cause of action estoppel runs as follows:

(1) The cause of action in Madam Wang's strike-out application is identical to the cause of action in the Company's strike-out summons in that both are striking out applications. Whilst the Company's strike-out summons is confined to prayer (3) of the petition and Madam Wang's strike-out application is in respect of the entire petition, this difference is immaterial as the lesser is included in the greater. It also makes no difference that the grounds or bases upon which the striking out applications are made are entirely different, so long as the causes of action are identical.

(2) The parties to both applications are identical as Madam Wang's strike-out application was also served on the Company and the Company was heard on the earlier application.

(3) The two applications involve the same subject matter in that the purpose and factual substratum to both applications arise from the fact and content of the petition.

(4) The judgment on Madam Wang's strike-out application is a final and conclusive judgment for res judicata purpose notwithstanding it was made on an interlocutory application.

14. I am unable to accept that the essential ingredients for a cause of action estoppel are satisfied in this instance.

15. I do not think it is correct to say that there is identity in the cause of action in the two applications. I agree with Mr Poon, SC, who appeared for the Company, that it is inappropriate to describe the striking out of a pleading as a cause of action. As stated in Letang v Cooper [1965] 1 QB 232 at 242 to 243, "a cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person." The striking out of a pleading is a remedy, not a cause of action. Nor is it correct to say that the two applications involve the same subject matter. Madam Wang's strike out application was based on an alleged procedural irregularity. The Company's strike-out summons is put on the basis of a substantive defect in the petitioners' claim to the dividends. It is quite impossible to say that everything that is in controversy in the Company's strike-out summons as the foundation of the claim for relief was also in controversy or open to controversy in Madam Wang's strike-out application (see Halsbury's Laws of England, 4th ed, Vol. 16, para. 973). Further, the Company was not a party to Madam Wang's strike-out application, notwithstanding it was served with the summons. I will deal with the contention of a final and conclusive judgment on an interlocutory application for res judicata purpose when I consider the arguments on issue estoppel.

Abuse of process

16. The petitioners' argument on abuse of process is based on the rule in Henderson v Henderson (1843) 3 Hare. 99, 67 ER 313, which requires parties to litigation in a court of competent jurisdiction to bring their whole case before the court so that all aspects of it may finally be decided once and for all. At the hearing of Madam Wang's strike-out application, the Company had every opportunity to raise the argument it now seeks to raise on the Company's strike-out application and which it did raise to resist the interim relief application. Instead, the Company at that hearing merely chose to adopt the submissions advanced on behalf of Madam Wang when it supported Madam Wang's strike-out application. Having failed or neglected to advance a particular argument in support of an unsuccessful application, the petitioners submitted that it would be an abuse of the process of the court for the Company to advance such an argument in a fresh application.

17. I am unable to accept the above submissions either. Given that the bases of the two applications are entirely different, it is just not reasonable to suggest that the Company could and should have raised the argument based on the substantive defect in the petitioners' claim to the dividends in supporting Madam Wang's strike-out application. I find there is no abuse of the process of the court.

Issue estoppel

18. An issue estoppel arises in the situation where a party is precluded from contending the contrary of any precise point which, having once been distinctly put in issue, has been solemnly and with certainty determined against him. The other conditions are the same as in a cause of action estoppel, regarding the identity of parties and the finality of the judicial decision said to create the estoppel (see Halsbury's Laws of England, op. cit., para. 977).

19. As I have mentioned earlier, extensive arguments were made on behalf of the Company in the interim relief application that prayer (3) in the petition is defective in law, but was this question distinctly decided by the Judge when he granted interim relief? It was contended by the petitioners that in granting an interlocutory injunction requiring Madam Wang to pay an amount equivalent to the dividends paid to her in respect of the Chime B shares into an escrow account pending the determination of the petition, the Judge must have been satisfied that the petitioners had established a serious question to be tried and had necessarily rejected the argument that dividends could not, as a matter of law, be paid to any party other than the Company.

20. It seems to me this argument is flawed in two respects.

21. Firstly, on a fair reading of the Judgment on the interim relief application, it cannot be said that the Judge had made any distinct determination on this issue. The extensive arguments advanced by the Company on this issue were not even alluded to in the Judgment. There was no finding on this issue in that part of the Judgment in which the Judge considered whether there was a serious question to be tried, although in a subsequent part of the Judgment when the balance of convenience was considered, the Judge would appear to have proceeded on the basis that if the allotment of the Chime B shares to Madam Wang were set aside, the estate of Mr T H Wang would have been entitled to the dividends previously declared in respect of those shares. It is an essential prerequisite of issue estoppel that the findings of the court which are said to create the estoppel must be "sufficiently clear and precise" (Turner v London Transport Executive [1977] ICR 952 at 960A to D, 963A to C, 966G to 967E).

22. Secondly, even if the Judge had made a distinct determination on this issue, his decision on this issue is not a final decision for the purpose of res judicata. It was submitted on behalf of the petitioners that a judgment on an interlocutory application can be final and conclusive for res judicata purpose, relying on Desert Sun Loan Corp v Hill [1996] 2 All ER 847. For the Company, it was submitted that res judicata is inapplicable to procedural interlocutory applications, citing Chu Hung Ching v Chan Kam Ming & Ors. [2001] 1 HKC 396 at 401E to 402D and Pocklington Foods Inc. v Alberta (Provincial Treasurer) (1995) 123 DLR (4th) 141 at 144 to 145.

23. For my part, I do not think there is any conflict in the authorities. I do not find it particularly helpful to categorise the determination as interlocutory or procedural. Whether the determination on an interlocutory application is capable of giving rise to issue estoppel would depend on the nature and substance of the ruling. In Mullen v Conoco Ltd. [1998] QB 382 at 396D to G, examples were given of determinations capable of giving rise to res judicata (a successful application for summary judgment) and determinations not capable of doing so (an unsuccessful application for summary judgment, the exercise of discretion to set aside a default judgment). Another obvious example of a determination not capable of constituting a final decision is a ruling on the merits of a case in granting an interlocutory injunction pending trial (see Desert Sun, supra. at 863e).

24. If the Judge had indeed made a ruling on this issue when he ruled there is a serious question to be tried, the decision he reached on the merits of the case is clearly a provisional one subject to revision after trial. It is not a final and conclusive decision capable of giving rise to res judicata.

Decision on the petitioners' abuse summons

25. For the above reasons, I dismiss the petitioners' abuse summons. I make an order nisi that the petitioners should pay the Company's costs of this application and that the petitioners' own costs be paid out of the estate of Mr T H Wang and be taxed on a trustee basis.

The Company's strike-out summons

26. The Company seeks to strike out prayer (3) of the petition on the ground that it discloses no reasonable cause of action. This paragraph reads as follows:

"That Madam Wang be ordered to pay to your Petitioners such sums as are found owing by her pursuant to the inquiry ordered at paragraph (2) above together with such interest thereon as the Court thinks fit."

27. The short point here taken by the Company is that there is no legal basis for this relief as in the event that the allotments of the Chime B shares to Madam Wang are set aside as sought in prayer (1) of the petition, and an account be taken of the dividends that have accrued to Madam Wang on account of such shares as sought in prayer (2), the dividends previously declared and paid should be returned to the Company as these were the assets of the Company and it is trite law that the assets of a company do not belong to a shareholder. This point had also been taken by the Company on appeal against the Judgment in the interim relief application and the Court of Appeal is of the view that the Judge should have considered the case on the basis that if the allotments were set aside, the payment of the dividends may be set aside and in those circumstances, the money received in respect of dividends for the Chime B shares would have to be returned to the Company, whether or not the dividends were maintained and paid out in different proportions and that such relief is well within the court's powers under section 168A (see paragraph 15 of the CA Judgment).

28. Mr Lunn, SC, who appeared for the petitioners, has not sought to contend otherwise in this hearing. Nor has he sought to argue that in a petition under section 168A, the court would have jurisdiction to award damages at common law to the petitioner. As I understand the submissions for the petitioners, the Company's strike-out summons is opposed for these reasons.

29. Mr Lunn submitted that the court has a very wide discretion as to the order it can make on the hearing of a petition under section 168A by virtue of section 168A(2), and reliance was placed on Re Hailey Group Ltd. [1993] BCLC 459 at 472g to h in which the court stated that as section 461(1) of the Companies Act 1985 gives jurisdiction to "make such order as [the court] thinks fit for giving relief in respect of the matters complained of", the provision should not be too narrowly construed and the relief "need not be directed solely towards remedying the particular things that have happened". It was contended that the question of what would be appropriate reliefs to be granted on this petition should be looked into at the end of the day, and should not be determined summarily on an interlocutory hearing. The petitioners have proposed an amendment to prayer (3) of the petition that would address this complaint of the Company and have sought leave to amend so this prayer would read as follows:

"That Madam Wang be ordered to pay to Chime, alternatively to your Petitioners such sums as are found owing by her pursuant to the inquiry ordered at paragraph (2) above together with such interest thereon as the Court thinks fit."

30. It was argued that if the allegations in relation to the allotments of the Chime B shares are established, it is possible that the court may not set aside the allotments and could order instead such shares be offered to the estate of Mr T H Wang in accordance with the pre-emption provisions in the articles of association or to order that such shares be held on trust for the estate of Mr T H Wang. In either situation, the dividends or some part thereof, would potentially be payable to the petitioners rather than to the Company.

31. No amendment has been sought in the prayer to seek alternative reliefs of the kind suggested above. The primary relief sought in the prayer remains that of setting aside of the allotments in prayer (1) with ancillary reliefs in prayers (2) and (3) in the event the allotments are set aside. In deciding the question if prayer (3) discloses a reasonable cause of action, I should look at the pleading at it stands and not approach this on the basis of what hypothetical orders that the court might make. I do not think the amendment sought to be made to prayer (3) would have addressed the Company's complaint in that the petitioners still claim as an alternative relief that Madam Wang be ordered to pay the dividends to the petitioners.

Decision on the Company's strike-out summons

32. For the above reasons, I rule that prayer (3) of the petition is to be struck out. I will consider the amendments sought to be made to this paragraph when I deal with the petitioners' amendment summons. I make an order nisi that the petitioners do pay the Company the costs of this application and that the petitioners' own costs are to be paid out of the estate of Mr T H Wang and be taxable on a trustee basis.

The proposed amendments to the petition

33. Additional allegations are made in the proposed amendments of acts unfairly prejudicial to the interest of Mr T H Wang as a member of the Company. The amendments sought to be made to the petition may be grouped under the following heads.

(1) Loans to Chinachem Agencies Limited ("CAL")

34. The proposed amendments are in paragraphs 26.1, 44.1 to 44.5, 45 and prayers (3.2) to (3.5). It is alleged that between 10 April 1990 and 30 June 2000, Madam Wang had procured the Company to advance a total of HK$4.5 billion to CAL, a company she was and remains beneficially interested but in which she asserts Mr T H Wang has no beneficial interest, on an unsecured and interest-free basis, with no fixed terms of repayment and for no proper commercial purpose.

35. The proposed reliefs in respect of this allegation consist of the following: (i) an account be taken of the interest which ought to have accrued to the Company by reason of the HK$4.5 billion loans; (ii) Madam Wang and five other directors be ordered jointly and severally to pay to the Company the sums found owing pursuant to the account taken in (i); (iii) Madam Wang be ordered to procure CAL to repay to the Company the HK$4.5 billion loans; and (iv) further or alternatively, Madam Wang and five other directors be ordered jointly and severally to pay to the Company the HK$4.5 billion loans, alternatively such sums outstanding from CAL as are not repaid pursuant to (iii).

(2) Improper participation by the Company in the petition

36. The proposed amendments are paragraph 45.1 and prayers (5.1) and (5.2) of the petition. It is averred that to the extent the Company seeks to or does participate in the petition proceedings beyond that which is necessary or expedient to the interest of the Company as a whole, such participation is improper and the directors are liable to repay to the Company the costs incurred by the Company by reason of such improper participation.

37. In the supporting affidavit of the petitioners, they assert that although the Company was made the 1st respondent in these proceedings, they had not expected the Company to play an active role. However, they have found that the Company has appeared at every hearing leading up to and including the interim relief application and has played an active role in support of Madam Wang's case. It is alleged that this has gone beyond that which is necessary or expedient to the interest of the Company.

38. The proposed reliefs sought in respect of this allegation are an account of the sums improperly expended by the Company since the presentation of this petition in the defence thereof and an order that Madam Wang and five other directors do repay the Company all sums found due pursuant to the account taken.

(3) Repayment of dividends

39. This relates to prayer (3) of the petition that I have already mentioned.

40. Mr Chang, SC, who appeared on behalf of Madam Wang, has opposed all three amendments. His submissions at the hearing were entirely in respect of the amendments in (1), he was content to adopt the written submissions prepared by another leading counsel on behalf of Madam Wang on a previous occasion in respect of (2) and (3). Mr Poon has opposed the amendments in (2) and (3) only. I will deal with each amendment in the order set out above.

Loans to CAL

41. I should mention first of all that although the question of the loans to CAL does not arise on the petition, evidence on this had been filed in the interim relief application and in paragraph 19 of the CA Judgment, Rogers VP made this observation in rejecting the submission that the amount of security ordered by the Judge was excessive:

"I would also note that it [i.e. the loan] is the subject of a proposed amendment to the petition which is at present being sought by the petitioners. No reason has been put forward as to why this amendment should not be allowed. In my view, in the present context there is ample justification for the requirement of security of the amount sought."

42. I understand from Mr Chang, who had appeared for Madam Wang in the appeal, that no submissions were made before the Court of Appeal as to the appropriateness or otherwise of the proposed amendments relating to the loans to CAL. Mr Lunn, who also appeared for the petitioners in the appeal, did not dissent from this. In the circumstances, I consider that I am not in any way pre-empted from dealing with the application to amend on its merits.

43. The fundamental objection taken by Mr Chang to this proposed amendment is that the substantive allegations relating to the loans and the specific reliefs sought in relation to the matters complained of made it plain that this is in essence a complaint by the Company for relief in favour of the Company which should be brought by way of a derivative action and is outside the jurisdictional ambit of a petition under section 168A.

44. This raises an important issue of the relationship between the unfair prejudice remedy under section 168A and the derivative action at common law. The question as posed in Gower's Principles of Modern Company Law, 6th ed, page 737 is this: when a wrong has been committed against the company, may a shareholder leap over the restrictions of the rule in Foss v Harbottle (1843) 2 Hare 461 by presenting a petition founded upon unfair prejudice?

45. Mr Lunn for the petitioners submitted that the answer is in the affirmative, citing the dictum of Hoffmann LJ (as he then was) in Re Saul D Harrison & Sons plc [1995] 1 BCLC 14 at 18c that "enabling the court in an appropriate case to outflank the rule in Foss v Harbottle was one of the purposes of the section [i.e. section 459 of the Companies Act 1985, similar to section 168A of Cap. 32]". But as the author of Gower has asked at page 738, what then is "an appropriate case"?

46. There are no direct authorities on this point. Mr Lunn has referred me to several authorities in support of his submissions and Mr Chang has relied on other authorities for propositions to the contrary. I should mention that if this point is to be taken, it should be raised and resolved at an early stage of the proceedings, whilst bearing in mind at the same time that an amendment should not be disallowed unless it is plainly untenable. I note that in the Scottish decision of Anderson v Hogg [2002] SLT 354 at 361, the petition presented under section 495 of the Companies Act had "proceeded without challenge to a proof before answer at which these matters were addressed in evidence and submission" and the court was of the view it was "highly unfortunate if at that stage ... the court were to refuse a remedy simply because alternative mechanisms [e.g. a derivative action] might have been invoked".

47. Before I go to consider the authorities, I should point out that the relevant provisions in the Hong Kong legislation (section 168A of Cap. 32) and the Companies Act (sections 459 and 461) are not entirely the same, as noted by Kaplan J in Prime Aim International Ltd. v Cosmos-Pavis International Ltd. & Ors. [1994] 2 HKC 545 at 547 to 548. Hence, the English authorities must be treated with some care. In section 168A(2), the reliefs which may be granted by the court are qualified by the words "with a view to bringing to an end the matters complained of", whereas section 461(1) of the English Act is not so qualified and it is simply provided that the court "may make such order as it thinks fit for giving relief in respect of the matters complained of". In this respect, the local legislation is similar to section 205 of the Irish Companies Act 1963, considered by the Irish Supreme Court in Irish Press plc v Ingersoll Irish Publications Ltd. [1995] 2 IRLM 270 at 279 to 280. In holding that the court had no power to award damages in a section 205 petition as the relief which could be granted had to be made "with a view to bringing to an end the matters complained of", the court had this to say:

"While compensation was included in the relief given in each of these two cases, it was given in an extremely limited context - where the oppressor had been directed to purchase the shares of the oppressed shareholder, and where the compensation resulted from the court's determination of what would be a fair price for the shares in the particular circumstances. The element of compensation was incidental to the main relief which was the purchase of the shares. The cases are not authority for a general right to compensation for loss resulting from oppression ..."

48. I start with the decision of Hoffmann J (as he then was) in Re a Company [1986] BCLC 68. There, the court was concerned with an application to strike out as a respondent in a petition on the ground that the reliefs sought against the former shareholder should not be included in a petition under section 459. The relief initially sought was to account to the company for unauthorised payments, the petitioners also applied to amend the petition to claim additional relief requiring the former and present shareholders to purchase the petitioners' shares. It was accepted that on the facts alleged in the petition, the petitioners would be able to mount a derivative action against the former shareholder to require him to account for the assets of the company which he had disposed of without authority. It is pertinent to note that the buy-out relief could not have been claimed in a derivative action. In dismissing the striking out application, the court took the view that the availability of a derivative action should not constitute a bar to an unfair prejudice petition. The following passage in the judgment at 71d to g was particularly relied on by Mr Lunn:

"Looking at the matter from a practical point of view that [i.e. commencing a separate derivative action by writ] does not seem to me to be very convenient. It would mean separate proceedings having to be commenced by writ and separate pleadings delivered in respect of matters which would very substantially overlap, if not duplicate, the issues canvassed in the petition and affidavits under s 459. It would then be necessary for both sets of proceedings to be heard together. I would be reluctant to come to the conclusion that this form of duplication was necessary unless it was clear that the jurisdiction under ss 459 and 461 did not permit the whole matter to be dealt with on the petition. It seems to me that although it is true that s 461(2) shows that the normal order under s 461 will be an order against the company or another member, there is no reason why the words of s 461(1) should not be given their full effect and allow the court to give relief in respect of a complaint that the company's affairs have been conducted in a manner unfairly prejudicial to the interests of members, even when this would involve giving relief against a respondent who is no longer a member."

49. The above passage, with its emphasis on the practical aspect of litigation, does not really resolve the question when it is clear that the jurisdiction under section 168A would not permit the proposed amendments to be raised in the petition instead of a derivative action. Besides, as I have pointed out, the wording in section 168A(2), which is based on section 210 of the Companies Act 1948 with amendments recommended by the Jenkins Committee, would seem to have a narrower scope as compared to section 461(1) of the Companies Act 1985.

50. I should also mention that in Prime Aim International, supra., Kaplan J was dealing with the reverse situation compared to the application that I am concerned with. He dismissed an application to strike out a derivative action and allowed a derivative action and an unfair prejudice petition to proceed (notwithstanding substantial overlap in the two sets of proceedings), as he did not think it was plain and obvious that the wording of section 168A is wide enough to include an order for restitutionary relief claimed in the derivative action so that the plaintiff was abusing the process of the court in issuing separate proceedings in the derivative action. Kaplan J was referred to the above decision of Re a Company and the decision of Re Charnley Davies Ltd. (No. 2) [1990] BCLC 760, which Mr Chang has relied on.

51. I next turn to Lowe v Fahey & Ors. [1996] 1 BCLC 262. In that case, as in Re a Company, the petitioner also sought an order for buying out of her shares in the company at a price calculated on the assumption that the acts complained of had not occurred, apart from restitutionary relief and damages for the company owing to the alleged diversion of company funds. The question was raised on a strike out application whether the restitutionary relief and damages should have been sought in a derivative action instead of in a petition under section 459. The application was dismissed by Aldous QC. After considering Re a Company and Re Little Olympian Each-Ways Ltd. [1994] 2 BCLC 420, and expressing his agreement with these authorities that section 461(1) confers a "very wide jurisdiction", he had this to say at 268b to c:

"In my judgment, where for example the unfairly prejudicial conduct involves the diversion of company funds, a petitioner is entitled as a matter of jurisdiction to seek an order under s 461 for payment to the company itself not only against members, former members or directors allegedly involved in the unlawful diversion, but also against third parties who have knowingly received or improperly assisted in the wrongful diversion. This is not to say that in a case where the only substantive relief being sought was a claim on behalf of the company against such a third party that a claimant could always proceed by petition instead of derivative action." (emphasis supplied)

52. Mr Chang laid emphasis on the last sentence in this passage. In the present case, no relief is sought in the petition or the proposed amendments for a purchase of the shares of Mr T H Wang by any one or a purchase of the shares of other members by the petitioners. He submitted that in our case, it is clear that the only substantive reliefs sought in the proposed amendment in respect of the HK$4.5 billion loans are claims on behalf of the Company in respect of the Company's loss and Lowe v Fahey does not provide support for the petitioners' case that such reliefs may be claimed in a petition under section 168A.

53. The position was analysed by Millett J (as he then was) in Charnley Davies, supra. The petition in that case was brought against an administrator under section 27 of the Insolvency Act 1986 (which has no material difference from section 459 of the Companies Act 1985 for present purpose) on the ground that the company's affairs had been managed by the administrator in a manner unfairly prejudicial to the interests of its creditors. The petition was dismissed because on the facts, the administrator had not acted negligently in the sale of the company's business. The court also addressed the question obiter dictum whether it was proper to bring proceedings in a petition under the Act on an allegation that the administrator had sold the company's assets at a negligent undervalue. The relevant passages in the judgment at 783f to h and 784a to b read as follows:

"In my judgment the distinction between misconduct and unfairly prejudicial management does not lie in the particular acts or omissions of which complaint is made, but in the nature of the complaint and the remedy necessary to meet it. It is a matter of perspective. The metaphor is not a supermarket trolley but a hologram. If the whole gist of the complaint lies in the unlawfulness of the acts or omissions complained of, so that it may be adequately redressed by the remedy provided by law for the wrong, the complaint is one of misconduct simpliciter. There is no need to assume the burden of alleging and proving that the acts or omissions complained of evidence or constitute unfairly prejudicial management of the company's affairs. It is otherwise if the unlawfulness of the acts or omissions complained of is not the whole gist of the complaint, so that it would not be adequately redressed by the remedy provided by law for the wrong. In such a case it is necessary to assume that burden, but it is no longer necessary to establish that the acts or omissions in question were unlawful, and a much wider remedy may be sought."

"The very same facts may well found either a derivative action or a s 459 petition. But that should not disguise the fact that the nature of the complaint and the appropriate relief is different in the two cases. Had the petitioners' true complaint been of the unlawfulness of the respondent's conduct, so that it would be met by an order for restitution, then a derivative action would have been appropriate and a s 459 petition would not."

54. Mr Chang submitted that in respect of the proposed amendment relating to the loans, the only substantive relief claimed is relief which only the Company could claim, whether in its own name or by way of a derivative action, as this is loss suffered by the Company in respect of which the Company has its own cause of action, under the principle of company autonomy. The whole gist of the complaint is misconduct of Madam Wang in procuring the Company to advance the loans to CAL, there is no suggestion that this complaint would not be adequately redressed by an order of restitution, which is the only form of relief sought in the proposed amendment in respect of this complaint.

55. Mr Lunn has not disputed the analysis in Charnley Davies, which he acknowledged is of great weight although it was made obiter. The only caveat he made is that there is no reported decision in which the analysis in Charnley Davies has been applied with the result as contended by Mr Chang. That I think is immaterial if I am satisfied that the analysis is correct and should be followed.

56. I do not propose to lay down a comprehensive test as to when it would be appropriate to proceed by way of a derivative action and when it would be an appropriate case to use section 168A to "outflank the rule in Foss v Harbottle". The matter is not free from difficulties (see Gower, op. cit. at pages 738 to 740) and it would not be appropriate to deal with this in a summary manner. I am however satisfied that in the present situation this is not an appropriate case to allow the proposed amendment, applying the analysis in Charnley Davies. I am of the view that the true nature of the remedy sought in this instance is compensation for the Company, rather than a personal remedy of the shareholder. The House of Lords in Johnson v Gore Wood & Co. [2001] 1 BCLC 312 has re-affirmed the statements of the Court of Appeal in Prudential Assurance Co. Ltd. v Newman Industries Ltd. (No. 2) [1982] 1 Ch 204 at 222 to 223 that where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss, and reiterated that the court must respect the principle of company autonomy (at 337f to g, 338d, 358e to i, 365c to 366h). I am mindful of the fact that to require the petitioners to bring separate proceedings in a derivative action would lead to inconvenience and additional costs being incurred even if the two sets of proceedings are to be heard together. However, I do not think the practical procedural considerations should override the principle of company autonomy.

57. As I am of the view that it is untenable for the petitioners to claim the reliefs sought in respect of the loans to CAL in this petition, I refuse leave to amend the petition as per paragraphs 26.1, 44.1 to 44.5, 45 and prayers (3.2) to (3.5) in the draft submitted.

Improper participation by the Company in the petition

58. I turn to consider the next kind of amendments sought by the petitioners. The proposed amendments alleging improper participation by the Company in the petition are founded on a line of authorities which include Re Crossmore Electrical & Civil Engineering Ltd. [1989] BCLC 137, Re a Company No. 001126 of 1992 [1993] BCC 325, and Re a Company ex parte Johnson [1992] BCLC 701. In the last case, it was held by Harman J at 706g to 707d that in view of section 461 of the Companies Act 1985, there is now no need for a separate action to be brought, as in Re A & B C Chewing Gum Ltd. [1975] 1 WLR 579, to claim reimbursement for the company of expenses improperly incurred in opposing the petition, as there is power under section 461 to make an ancillary order of reimbursement in favour of the company, once the court is satisfied that the petition under section 459 is well founded.

59. I will first deal with the grounds of opposition raised by Mr Poon. Mr Poon has not sought to oppose the amendments on the ground that there is no jurisdiction to grant the relief sought in the petition. He submitted that the amendments should be refused as the averment in paragraph 45.1 of the draft amended petition is entirely hypothetical and anticipatory in nature in that it is not alleged that the Company has already participated in the proceeding in an improper manner or to an improper extent. Further, it is not pleaded in the draft amendments what factual circumstances are said to exist to justify the allegation of improper participation in the proceedings, citing In re Fildes Bros. Ltd. [1970] 1 WLR 592 at 597G to 598C.

60. Insofar as reliance is placed on the supporting affidavit filed by the petitioners, it would appear that the complaint is in respect of the Company's participation in various interlocutory applications. Mr Poon submitted that given the interlocutory nature of the hearings in question, there was nothing improper for the Company to adopt a stance at those hearings and make submissions thereon.

61. I do not think the allegation of the petitioners of improper participation is hypothetical, at least that is not the position taken in the affidavit filed by the petitioners in support of the present application in which they have identified in paragraphs 10.1.1 to 10.1.5 of the affidavit which are the applications in which the Company had participated and why it is alleged that the extent of the participation was improper with reference to the transcript of proceedings in each of the hearings. I do however take the point that the proposed amendments as drafted have not pleaded the material facts in support of the allegation of improper participation. What I propose to do is to give leave to amend to raise the allegation of improper participation in the petition by the Company on terms, by requiring the petitioners to plead the material facts in support of this allegation.

62. I should also mention that I reject the submission of Mr Poon that it is untenable for the petitioners to allege that the Company's participation in the various interlocutory applications was improper. I accept the submission of Mr Lunn that it is an arguable averment that the Company's active participation in the interlocutory applications goes beyond that which is necessary or expedient in the interest of the Company as a whole.

63. As to the opposition raised on behalf of Madam Wang, this is solely based on the contention that the claim for reimbursement of expenses improperly incurred should have been brought by the Company or in a derivative action. In view of Re a Company ex parte Johnson, I do not think it is plainly unsustainable that the court would have no jurisdiction under section 168A(2) to make an ancillary order of reimbursement in favour of the Company once the court is satisfied that the allegations of unfairly prejudicial conduct in the petition are established.

64. For the above reasons, I would allow the amendments to raise the matters complained of in paragraph 45.1 and prayers (5.1) and (5.2) of the draft submitted, on terms that the petitioners are to plead the material facts relied on in support of the allegation of improper participation.

Repayment of dividends

65. As I have struck out the existing prayer (3) in the petition, I would treat this as an application to amend this paragraph as follows:

"That Madam Wang be ordered to pay to Chime such sums as are found owing by her pursuant to the inquiry ordered at paragraph (2) above together with such interest thereon as the Court thinks fit."

66. Mr Poon has opposed the proposed amendment as then drafted on the basis that there is still an alternative claim for the dividends to be paid to the petitioners instead of to the Company. He has raised no objection to the amendment formulated in the manner that I have indicated above.

67. As for the opposition raised on behalf of Madam Wang, again this is on the basis that it is not open to the petitioners to claim this relief in the petition as the claim should have been pursued by the Company or in a derivative action in the event that the allotments of the Chime B shares are set aside. I do not think the situation here is on a par with the claim in respect of the loans to CAL where it is clear that the only substantive relief sought is restitutionary relief to the Company. Mr Chang has recognised this in his submissions relating to the loans to CAL. Here, the primary relief is setting aside of the allotments in prayer (1) of the petition. Prayer (3) is an ancillary relief consequent upon the setting aside of the allotments. I am not persuaded it is plainly unsustainable that the court would have no jurisdiction under section 168A(2) to make an ancillary order as sought in prayer (3) upon the setting aside of the allotments.

68. For the above reasons, I would allow the amendment to prayer (3) of the petition in the manner as indicated above.

Decision on the petitioners' amendment summons

69. I ought to mention that the petitioners have sought other amendments to the petition, apart from the ones that I have specifically considered, but as no objection was raised by any of the respondents to them, I do not propose to mention them specifically save to say that these other amendments are allowed.

70. In summary, I give leave to amend the petition as per the draft annexed to the summons subject to the following terms:

(1) the amendments in paragraphs 26.1, 44.1 to 44.5 and prayers (3.2) to (3.5) are not allowed;

(2) the amendments in paragraph 45.1 and prayers (5.1) and (5.2) are allowed subject to the petitioners pleading material facts in support of the allegations therein; and

(3) the amendment in prayer (3) is allowed on the basis that the alternative claim for payment to the petitioners is struck out.

71. As for the costs of the summons, I make the following order nisi:

(1) the costs of and occasioned by the amendments (except for the costs incurred in respect of the hearing on 7 January 2003) shall be paid by the petitioners to the 1st to 3rd respondents in any event;

(2) the costs in respect of the hearing on 7 January 2003 shall be costs in the cause of the petition; and

(3) the petitioners' own costs in this application are to be paid out of the estate of Mr T H Wang and be taxed on a trustee basis.

Remarks