CHAN WOON FUI v. CHAN WING SUEN AND OTHERS

HCCW 350/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 350 OF 2004

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J U D G M E N T

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Introduction

1.  This was an application by the 1st, 2nd and 4th Respondents to the petition presented by Mr Chan Woon Fui (“the Petitioner”) in respect of Linea Trading Company Limited (“the Company”) seeking to strike out certain paragraphs of the petition and certain paragraphs in the prayer for relief contained in it, primarily on the grounds that such paragraphs are embarrassing.

2.  The application was made by summons dated 28 April 2005, and was preceded by a letter from the Respondent’s solicitors to the Petitioner’s solicitors in March 2005, indicating that such an application would be made and inviting the Petitioner to consider making amendments to the petition to avoid such an application.  On 18 October 2005, Mr Remedios, representing these Respondents, served on the petitioner and the court a copy of a skeleton argument, setting out the reasons why it was said that the paragraphs complained of were embarrassing – in essence, the complaint was that they were lacking in particulars to such an extent that the Respondents were unable to know what the case against them was, and thus were unable to deal with it.  The skeleton indicated in some detail the sort of particulars that the Respondents suggested should have been included in the petition.

3.  A few days later, on 21 October 2005, the Petitioner issued a summons seeking leave to amend the Petition, in which a number of the paragraphs and prayers complained of were either amended or deleted.  The proposed amended petition also contained a number of new allegations which had not previously been made in the petition, although some of them had been made in the Petitioner’s third affirmation in these proceedings, parts of which I struck out on an earlier application by the Respondents.  The Respondents resist the application to amend, principally on the grounds that the amendments to the existing paragraphs do not cure the defects, and the new allegations are themselves objectionable for lack of particularity.

4.  The background to these proceedings, and a summary of the allegations made in the petition will be found in my judgment dated 11 July 2005 dealing with that application.  I do not propose to repeat them here.  It is, however, pertinent to note that in addition to seeking relief in the form of a winding up order or a buy out order, which is commonly seen in petitions brought under sections 177(1)(f) and 168A of the Companies Ordinance (Cap. 32), a number of the prayers in the petition seek monetary relief or the taking of accounts in favour of the Company (a form of relief more commonly found in actions by the Company, or, where the complaining shareholder is a minority shareholder or there is a deadlock, a derivative action brought on behalf of the Company).  Many of the prayers which are the subject of the striking out application are of this nature.  There is also one prayer seeking an order requiring the Company to repay to the Petitioner a sum of money.  That prayer, too, is the subject of the striking out application.

The striking out application

5.  The parts of the petition which it is sought to strike out are:-

(1)     Paragraph 16 and prayer (1);

(2)     Paragraphs 24 and 25 and prayer (6);

(3)     Paragraph 33 and prayer (2);

(4)     Paragraph 34 and prayer (3);

(5)     Paragraph 35 and prayer (15);

(6)     Paragraph 36; and

(7)     Prayer (10).

The Respondents’ position

6.  The Respondents contend that each of these parts of the petition should be struck out because they are embarrassing.  In addition, it is contended that paragraph 16 and prayer 1 should be struck out on the alternative basis that they are statute barred, relating, as they appear to do, to matters which took place more than six years prior to the presentation of the petition, and that paragraphs 24, 25 and prayer 6 (which claims payment by the Respondents of an amount including but not limited to HK$1,882,421.52) should be struck out on the alternative basis that it is clear that the determination of the amount, if any, of the Respondents’ liability to the Company cannot conveniently be dealt with at the hearing of the petition.

The applicable legal principles and practice

7.  Before considering the various parts of the petition which the Respondents say are objectionable, it will be convenient first to deal with a number of arguments that were made as to the law and the correct approach to this application as a matter of practice.

Embarrassment due to lack of particularity

8.  The principal attack on the paragraphs and prayers complained of was that they were embarrassing.  In most cases, the prayer was associated with the allegedly defective paragraphs, so that if those paragraphs were to be struck out, the prayer would fall away with them.  The source of the embarrassment to the Respondents was said to be a lack of particularity and clarity in the allegations, which left the Respondents unable to know how to respond to those parts of the petition.

9.  The importance of clarity and particularity in the allegations contained in a petition seeking relief under section 168A of the Ordinance, or the winding up of a company on the just and equitable ground should not be understated.  The petition is the document in which the allegations that form the basis for asking for the relief sought are to be found.  In considering whether or not to grant the relief prayed for, the court will have regard to the allegations in the petition, and will not travel beyond them.  It is therefore the principal document from which the court will take the issues requiring to be determined in the proceedings before it.  It is the document which tells the respondents what the allegations against them are, which they will have to meet.  If the petition does not contain the necessary particulars of the allegations that are made, the respondents will be placed at a disadvantage, as they may well be unable to respond satisfactorily to the claims and complaints that are made against them.

The Petitioner’s position

10.  I do not think that Mr Chung, who represented the Petitioner at this hearing, seriously disputed this.  He suggested, however, that many of the Respondents’ complaints were overstated, in that while some paragraphs of the petition might be lacking in particularity to some extent, that lack of particularity was cured by the evidence filed by the Petitioner, as it provided the details which the Respondents said they required, and exhibited documents from which the information said to be needed could be located.  Mr Chung also submitted that in many cases, the Petitioner was not in a position to take matters much further, as he was not in control of the Company and did not have the information available from which to provide the particulars sought.  Finally, he suggested that it was wrong for the Respondents to have taken out a striking out application, when it would have been good enough for them to have asked for particulars of the allegations, and failing a satisfactory response, to have made an application to the court for further and better particulars, or for directions designed to produce a similar result as such an application.

Particulars provided in supporting affirmations

11.  So far as the first point is concerned, I do not think that the fact that material may be contained in the supporting affirmations filed by a petitioner is a sufficient answer to the complaint.  As I have noted, in proceedings such as these, the petition is the document which defines the issues and thus the scope of the proceedings.  As Chu J said in Re Tourmaline Ltd [2000] 4 HKC 348 at 354C-D:-

“Although a petition does not constitute a formal pleading, it serves to define the scope of the matters in issue and the disputes that the court has to resolve.  Accordingly a petition must set out with precision and sufficient particulars the matters complained of or relied on by the petitioner in justifying a winding-up order on just and equitable ground, and the court will not travel beyond the allegations contained in the petition in adjudicating the matter: In re Fildes Bros Ltd [1970] 1 WLR 592 at pp. 597G-598C.  It follows that a sufficient case must be stated on the petition and defect or omissions in the petition cannot be cured by supporting affidavit: see Derek French, Applications to Wind Up Companies, pp 86-88; Re Wear Engine Works Co. (1875) LR 10 Ch App 188 at p.191.”

12.  I bear in mind that in Golden Screen Ltd v Village Cinemas Australia Ltd (unreported, CFI, Kwan J, 12 October 2005), Kwan J directed that amendments be made to a petition so as to incorporate material contained in supporting affidavits.  In my view, this approach confirms that it is necessary to set out the matters complained with sufficient particularity of in the petition, as distinct from the evidence in support of it.  In that case, it would appear that Kwan J considered that the material in the affirmations was sufficiently particularised and so was suitable for inclusion in the petition.  As will become apparent, I do not consider that that is the position here.

Inability to provide particulars at this stage

13.  As to the suggestion that the Petitioner ought not be required to provide particulars as he might not be in possession of the necessary information to enable him to do this, I do not think that this provides the Petitioner with any excuse.  A petitioner who is not in a position properly to make an allegation should not in general be permitted to make it in the hope that something might turn up on discovery.  That is particularly so where, as here, many of the allegations concern conduct that is said to be unfair or improper.  In such cases, fairness to the respondent requires that a petitioner make his allegation clearly and with proper particularity so as to enable the respondent to deal with it.  If the petitioner’s case is that certain matters should be inferred on the basis of the allegations, he should state the factual allegations and make it clear that what inferences he seeks to draw from them.  Where this is done, the respondent will be in a position to respond to the case against him, either substantively, or perhaps (where he thinks that the inferences cannot be justified) by making an application to strike out.

14.  In this case, Mr Remedios submitted that the Petitioner had been given complete access to all documents of the Company.  Mr Chung disputed this.  It is not possible for me to determine this question on the material before me.  However, for the reasons given in the preceding paragraph, I do not think that the Petitioner is excused from having to give the best particulars that he can when putting forward his petition.

Whether particulars can be ordered of a petition

15.  Finally, as to Mr Chung’s suggestion that the Respondents should have taken out an application for particulars, in accordance with the normal practice, I have to say that it is not the practice of the court to order that particulars be given of a petition.  RHC Order 18 rule 12 provides that the court may order a party to serve particulars of any matter in his pleading (see rule 12(3)).  However, a petition is not a pleading – see RHC Order 1 rule 4.  I am also unaware of the existence of a practice (which would be contrary to the provisions of the rules to which I have just referred) of ordering particulars of a petition.  Mr Chung also relied on the decision of Harman J in Re Unisoft Group Ltd (No. 3) [1994] 1 BCLC 609 to suggest that it was possible to obtain particulars in the context of proceedings under section 459 of the Companies Act 1985 (which is the equivalent of our section 168A).  However, it is clear from the judgment that the basis on which Harman J ordered particulars in that case was that there had been an order for the service of points of claim and of defence (in accordance with the practice in England on unfair prejudice petitions), and that such points of claim and defence were pleadings with the meaning of the rules.  No such direction has been sought or given in this case.  Indeed, it is clear that Harman J was of the view that particulars cannot be sought of a petition - see his judgment at p.613c-d, where he said:-

“... from that Mr Davies derived the proposition which is unanswerable and which I entirely accept, that a petition is not a pleading.  One cannot get further and better particulars of a petition, and a petition cannot be dealt with under the ordinary rules of pleading and it is not intended to be in the form of an ordinary pleading.”

16.  By contrast, when it comes to applications to strike out, Order 18 rule 19(3) makes it clear that a petition is susceptible to such applications, since it provides that Order 18 rule 19(1) shall apply to a petition as if it were a pleading.

17.  I therefore consider that it is necessary for a petitioner to set out in his petition all material averments relied upon in support of his claim for relief with proper particularity, and that in the absence of such particularity, it is not possible to order that particulars should be given, but an application to strike out can be made in an appropriate case.

Inclusion of Company’s claims in a section 168A petition

18.  There is one further issue of law which it would be convenient to deal with at this point.  This arises out of the fact that many of the prayers for relief complained of seek orders for the payment of money by the Respondents to the Company.  As I have observed, such claims are more usually to be found in actions by a company against its directors, whether brought by the Company itself, or derivatively on its behalf by a shareholder.

19.  Mr Remedios did not dispute that a court hearing a section 168A petition had jurisdiction to grant relief in favour of the company.  However, he suggests that although the court has such jurisdiction in the strict sense, it will not necessarily be appropriate for it to exercise that jurisdiction in every case.  He submitted that whether or not the court dealt with such claims in a section 168A petition was a matter of discretion, which should be guided by the following considerations:-

(1)     the order sought under the section 168A petition must be the same as the order to which the company would be entitled if the allegations had been successfully prosecuted in an action by the company (or in a derivative action on its behalf);

(2)     it is clear, at the pleading stage, that the amount claimed from the director can be easily determined at the hearing of the petition;

(3)     it should be borne in mind that there could be unfairness in allowing such a course to be taken in that a director who successfully resisted such a claim in a section 168A petition might later find himself faced with an action by the company, or a derivative action, founded on substantially the same facts.

20.  I accept these propositions, which derive from the judgment of the Court of Final Appeal in Re Chime Corporation Ltd (2004) 7 HKCFAR 546.

21.  These propositions go to the question of whether particular relief should be allowed to be claimed in proceedings such as these.  Whether the allegations themselves should be allowed to stand is a different question.  As to that, the approach endorsed by the Court of Final Appeal is to enquire whether the allegations involve complaints as to mismanagement, or are purely complaints of misconduct, bearing in mind that certain allegations might give rise to both types of complaint.  If the allegations give rise only to the latter type of complaint (misconduct) it will be appropriate for them to be dealt with in an action by the Company, and not in section 168A proceedings.

22.  I should note that Mr Remedios made it clear that he was not seeking to shut the Petitioner out of his complaints altogether.  His concern was that given the difficulties in ascertaining the amount to be claimed, it was more appropriate that this should be done in proceedings by the Company.

23.  I turn now to consider the parts of the petition complained of.

Paragraph 16 and prayer (1)

24.  Paragraph 16 was originally in the following terms:-

“16.   During the period from 1986 to 1997 whilst 1^st Respondent was in Australia as immigrant and engaged himself full-time in his washing and dyeing factory there, wrongfully and without approval and authority of the Company, 1^st Respondent procured payments by the Company to him in a total sum of HK$1,392,000.00.  In or about October 1996, 1^st Respondent also procured the Company to remit Australian $350,000.00 to him and/or to his son, the 1^st Respondent in Australia.  Annexure 4 hereof is a copy of Application for Telegraphic Remittance Form.”

25.  Prayer (1) sought an order “that the 1^st, 2^nd 3^rd and 4^th Respondents return to the Company the sum of HK$1,392,000.00 and A$350,000.00 with interest thereon as pleaded in paragraph 16 herein”.

26.  These allegations were responded to in the evidence filed by the 1^st Respondent, in which he said that these sums were in fact dividends payable to him, and that the payments were in fact effected by instructions given to the Company’s bankers by the Petitioner himself.  It was also pointed out that the payments complained of were in any case made more than 6 years prior to the presentation of the petition, so that any claim by the Company to recover them would be statute barred.

27.  Perhaps in response to these points, the Petitioner now proposes to amend paragraph 16 by deleting the words “wrongfully and without approval and authority of the Company”.  He also seeks to delete the last five words of the paragraph, which appear to be surplusage.  The original prayer (1) is also to be deleted.  The limitation point therefore no longer arises.

28.  However, Mr Remedios says that as a result of the deletion of the allegation of wrongfulness and of the associated prayer for relief, the Respondents are left wondering as to what the purpose of the allegation is.  More importantly, he says, it is quite unclear what the 1^st Respondent is said to have done to “procure” the payments which were made.

29.  Mr Chung responded that the point of this allegation was to demonstrate that the 1^st Respondent retained control over the affairs of the Company even while he was away in Australia for a period of some 10 years.  I must say that this is not readily apparent from the paragraph itself.  But be that as it may, this was also the position taken on behalf of the Petitioner during the course of the previous hearing in relation to the striking out of parts of the Petitioner’s 3^rd Affirmation, so that the Respondents would (at least now) be aware of this.

30.  To my mind the more substantial difficulty is posed by the allegation that the 1^st Respondent “procured” the making of the payments.  Nothing in paragraph 16 gives the 1^st Respondent any means of knowing what acts he is said to have done by way of such procurement.  Nor (leaving aside the point that it is not good enough to provide particulars in the supporting affidavits) is any help to be found in the evidence filed by the Petitioner.

31.  Mr Chung submitted that the use of the word “procured” was itself sufficient particularisation, since it told the 1^st Respondent that the complaint was that he had got someone else to effect the transfers at his bidding.  He said that the 1^st Respondent had, in any case, responded to the point by putting in his evidence in response.  He also said that this was the best that the Petitioner could do at this point.

32.  I do not think that these submissions provide any answer to the complaint.  While the use of the word “procured” may indeed convey the point which Mr Chung said it did, that tells the 1^st Respondent nothing about what it is that he has done that is said to constitute the “procurement” complained of.  He is left wholly unable to answer the allegation, because he cannot tell from the petition what the alleged factual basis for it is.  I have considered the relevant parts of the 1^st Respondent’s affirmations, and there is nothing there that responds to the allegation of procurement.  It is therefore not the case that the 1^st Respondent has been able to respond to this allegation.  As to the submission that this is the best that the Petitioner can do, that is no answer to the complaint for the reasons that I have given in paragraph 13 above.

33.  In my view, it is clearly necessary for particulars of the alleged acts of procurement to be provided, or at the very least, for the Petitioner to state the nature of his case as to this, by setting out the factual basis on which he will invite the court to draw an inference of such procurement.  I therefore consider that paragraph 16 requires amendment to provide such information in order to prevent it being embarrassing.

34.  As prayer (1) is to be deleted, it is not necessary for me to deal with it.

Paragraphs 24 & 25 and prayer (6)

35.  Paragraphs 24 and 25 are in the following terms:-

“24.   Notwithstanding that, it was further discovered by the Petitioner that the mode of operation of the Company as pleaded in paragraph 11 hereof had been drastically changed to FOB method as required by the said Factory and agreed by the 1^st, 2^nd, 3^rd and 4^th Respondents scarifying (sic) the interests of the Company to the advantage of the said Factory.  Under the FOB method, the Company accepts orders from its customers for supply of garments, the Company, in return, shall place orders on the said Factory.  The Company still provides raw materials to the said Factory.  After the manufacture of the products are finished, the finished products are delivered to the Company ONLY UPON PAYMENT ON FREIGHT ON BOARD (FOB) by the Company.  This requires full payment of all costs of labour, raw materials (even though the latter are already and previously provided to the said Factory by the Company) and costs for washing or dyeing (even though these costs are part of the FOB price quoted by the said Factory).  The Company then delivers the finished goods to its customers to get payment.  The said Factory is supposed to refund the costs of raw materials and washing or dyeing expenses to the Company on an agreed length of time but the 1^st, 2^nd, 3^rd and 4^th Respondents have generously allowed the said Factory to keep the refunds indefinitely but any payment payable for reimbursements of the said Factory on behalf of the Company are made immediately.  The 1^st, 2^nd, 3^rd and 4^th Respondents also procure the Company to pay the suppliers of washing and dying services which are supposed to be paid by the said Factory resulting double over payments thereof.  Such change of the operation and payment method is detrimental the Company.  Further, by this FOB method the Company’s effective profit margin will be reduced to 5% on Company’s orders but the said Factory will earn a profit margin of about 3% higher than the said four factories.

25.    The 1^st, 2^nd, 3^rd and 4^th Respondents have failed or refused for and on behalf of the Company to issue to the said Factory debit notes for refund of moneys due to the Company for a total sum of HK$1,882,421.52 and the said Factory has failed or refused to settle the same.  Annexure 7 are two letters dated 15^th and 18^th March 2004 respectively by the Petitioner’s solicitors.  The Company suffers loss and damages as a result thereof as well as a reduction of profit margin.”

36.  Prayer (6) seeks an order that “1^st, 2^nd, 3^rd and 4^th Respondents are personably (sic) liable for all loss and damages including but not limited to the said sum of HK$1,882,421.52 suffered by the Company as a result of and incidental to placing the Company’s orders on the said Factory and other transactions with the said Factory”.

37.  Although some amendments were put forward in relation to paragraph 24, they do not have any impact on the argument in relation to these parts of the petition.

38.  At the hearing Mr Remedios contended that particulars should have been provided of the alleged arrangements with the factory under which such refunds should have been made, setting out the Petitioner’s case as to the terms thereof so as to give rise to the complaint which is made.  He also contended that particulars should be given of the alleged failure by the Respondents to act promptly.  Finally, he said that as there were no particulars of the extent of the alleged personal liability beyond a statement that it included but was not limited to the sum of HK$1,882,421.52, and might extend beyond losses arising from placing orders with the Factory, the amount of the claim was obviously uncertain, and as such was not one which should be brought in these proceedings.

39.  Mr Chung’s response was essentially that the Petitioner was not able to particularise the nature of such arrangements, as he was not aware of them, the Company and the factory referred to being both under the control of the Respondents.  He referred me to various allegations and evidence as to this.  The Respondents’ position is that the factory in question was set up with the agreement of the Petitioner and that it is either beneficially owned by the Company, or by the Petitioner and 4^th Respondent in the same proportions as their interest in the Company.

40.  However, it does not seem to me that the question of the ownership of the factory bears on the Respondents’ complaint in any material way.  This is because the complaint is that the Respondents are unable to perceive the nature of the Petitioner’s case as to the arrangements which are said to have given rise to the obligation on the part of the factory to make repayments to the Company, and the terms of that arrangement in relation to the timing of such repayment which the Respondents are said to have ignored, to the benefit of the factory and detriment of the Company.  Even if the Respondents are proven to be wrong in claiming that the factory belongs to the Company or the Petitioner and 4^th Respondent, it will still be necessary to show that there has been some conduct which constitutes a breach of duty on the part of the Respondents before relief in favour of the Company could be granted.  It is to that breach of duty that the information sought goes.

41.  As I have already held, it is incumbent on a Petitioner making allegations of wrongdoing to put forward a properly particularised case in his petition.  I therefore do not consider that the alleged lack of information or knowledge on the part of the Petitioner as to such arrangements excuses the failure to provide such particulars as he can.  If there is material showing that some arrangement existed which was not enforced by the Petitioners, that can be distilled into the necessary allegations.  If there was no such arrangement, the Petitioners would not appear to have acted unfairly in failing to enforce it, although it may be that the failure to provide for such repayments to be made on a timeous basis may itself provide some justification for complaint (which is not, as I understand it, the complaint presently made).

42.  Further, even if there were a properly particularised basis for this complaint, I do not think that it is one which should properly be brought in the context of a section 168A petition.  The question of the losses (if any) suffered by the Company as a result of any alleged breach of duty will not be a straightforward matter to determine.  It may not be the case that the Company is entitled to claim the entire amount of the alleged debt of the factory to the Company from the Respondents.  It may be that the correct measure of compensation, if compensation is to be ordered, is different.  It is clear from the terms of the prayer itself that the amount of any such claim is not presently capable of precise quantification.  That being so, it seems to me that the relief should not be permitted to be pursued in section 168A proceedings, having regard to the guidance given by the Court of Final Appeal in the Chime Corporation case.

43.  While I would accept that a properly particularised complaint (whether of failing to enforce arrangements which had been agreed, in which case particulars of the arrangements should be given, or of failing to agree the necessary arrangements at all) might go beyond a complaint of misconduct, and amount to a complaint of mismanagement which can properly be the subject of a section 168A petition, the complaint here is not sufficiently particularised, for the reasons I have given.

44.  I am therefore satisfied that paragraphs 24 and 25, and prayer (6) are defective as being embarrassing.

Paragraph 33 and prayer (2)

45.  Paragraph 33 is in the following terms:-

“33.   On or about 16 June 2003, the 1^st, 2^nd, 3^rd and 4^th Respondents, wrongfully and unlawful (sic) procured the Company to transfer and/or designate a sum of HK$500,000.00 from the Company’s HSBC Account No. 588-396622-001 to a sole name bank account held by the said Factory with [a named bank] No 04021000615195, which Chan Senior, the 1^st and/or 2^nd Respondents and/or their associates or relatives have control therewith and interest therein.  See Annexure 5.”

46.  Prayer (2) seeks recovery of such sum of HK$500,000 for the Company.

47.  Leaving aside what is meant by “designating” a sum of money, which I have difficulty in understanding, the transaction complained of would appear to be adequately identified.  However, the problem with this paragraph is (as in the case of paragraph 16) with the allegation that this payment was “procured” by the Respondents.  No particulars are given which would enable the Respondents to know the case that they have to meet in this regard.  The arguments on this paragraph and prayer were substantially the same as those in relation to paragraph 16, and for the same reasons as I gave in relation to that paragraph, I consider that this allegation is at present embarrassing in this respect.  If paragraph 33 cannot stand, it follows that prayer (2) must fall along with it.  If, however, proper particulars are given of paragraph 33, I did not understand Mr Remedios to suggest that this was not a matter which could be dealt with in these proceedings, since the sum involved was readily identifiable.

Paragraph 34 and prayer (3)

48.  Paragraph 34 reads:-

“In or about October and November 2003, 1^st, 2^nd, 3^rd and 4^th Respondents, wrongfully and unlawfully and without the board approval and authority, banked in transferred and/or designated respective sums of HK$142,210.00, HK$100,313.00, HK$113,562.50 and HK$37,898.00 totalling HK$393,983.50 being moneys belonging to the Company to a sole name bank account held by 1^st Respondent with [a named bank] No. 1000397957101, for the personal use and benefit of the 1^st, 2^nd, 3^rd and 4^th Respondents.  See Annexure 5.”

49.  Prayer (3) seeks to recover the said amounts for the benefit of the Company.

50.  Mr Remedios complains that this allegation suffers from the following defects:-

(1)     There is no information as to when these payments are said to have been made; and

(2)     It is not clear what the Petitioner’s case is as to why these amounts are said to belong to the Company.

51.  Mr Chung said in response that the information was contained in the exhibits to his client’s affirmation, which included the paying in slips or banking documents in relation to each payment.  If that is the case, it should be simple enough for the Petitioner to provide particulars to deal with the first complaint made by Mr Remedios.  However, he was unable to point to any material that threw light on the second complaint.  He suggested that it was easy enough for the Respondents, if they said that such funds did not belong to the Company, to put forward their case as to why that was so.  However, this is to put things the wrong way round.  A respondent is required to meet the case against him.  But if that case is not properly put, he should not have to be troubled by it.  I therefore consider that the Petitioner must provide particulars in the petition of his case as to when such transfers were made (which he would seem to be able to do) and why he says that such funds belonged to the Company.  Failing that, I agree with Mr Remedios that the Respondents are unable to deal with this aspect of the allegation, which is accordingly embarrassing.

52.  As to prayer (3), it stands in the same relationship to paragraph 34 as prayer (2) does to paragraph 33.  Accordingly, if paragraph 34 is struck out, prayer (3) should be as well.  Again, the amounts involved are specific, and I do not understand Mr Remedios to be suggesting that the prayer should be struck out if the allegation can be particularised.

Paragraph 35 and prayer (15)

53.  Paragraph 35 was in the following terms:-

“The 1^st Respondent in breach of the Shareholders’ Agreement and without board resolutions authority by misrepresentation, inducement, coercion, unwarranted threats, manipulation wrongfully and unlawfully procured the appointments of 2^nd, 3^rd and 4^th Respondents as directors and the transfer 100 shares too to 2^nd Respondent and 3,800 shares to 4^th Respondent”.

54.  Prayer (15) seeks an order (presumably for a declaration) that “the appointment of 2^nd, 3^rd and 4h Respondents as directors and the transfer of shares to the 2^nd and 4^th Respondents are null and void”.

55.  It is scarcely surprising that this paragraph should have been objected to.  In an attempt to meet the striking out application, the proposed amendment to the paragraph deletes the reference to inducement, coercion, unwarranted threats and manipulation, and the suggestion of wrongfulness and unlawfulness.  However, that leaves an allegation that the matters complained of were brought about by misrepresentation.  Nowhere in the petition (or elsewhere) can one discern any details about such alleged misrepresentations – what they were, to whom and by whom they were made, or when they were made.

56.  Mr Chung accepted that this allegation required particulars to be given, and said that the Petitioner could do so.  That may or may not be the case, but it is quite clear that absent any particulars, the allegation is embarrassing.

57.  If this allegation goes, so too does prayer (15).

Paragraph 36 and prayer (19)

58.  Paragraph 36 is in the following terms:-

“36.   Since about February to March 2003, the 1^st, 2^nd, 3^rd and 4^th Respondents have started to wrongfully and unlawful persecute, harass, intimidate, coerce the Petitioner by distorting the truth of past remuneration of the Petitioner.  On or about 3^rd March 2003, on the inducement and in consideration of the promise made by 1^st, 2^nd, 3^rd and 4^th Respondents to buy out the Petitioner at a fair price to be valued, the Petitioner paid the Company a sum of HK$866,000.00 which was part of the past hard earned legitimate and taxed remuneration of the Petitioner.  After further negotiation broke down and notwithstanding repeated demand of 1^st, 2^nd, 3^rd and 4^th Respondents to procure the Company to return the said sum of HK$866,000.00, the 1^st, 2^nd, 3^rd and 4^th Respondents have failed or refused to do so.  Annexure 11 is the copy of demand letter by the Petitioner’s solicitors.”

59.  Although prayer (19) is not the subject of the striking out summons, in my view it should have been.  It seeks the repayment by the Company to the Petitioner of the sum of HK$866,000 referred to in paragraph 36 of the petition.  At the hearing, Mr Remedios complained of this prayer as well.

60.  Mr Remedios’ contention was that it was wholly inappropriate for such relief to be sought in a section 168A petition, seeking, as it did, relief against the Company.  I agree.  In a section 168A petition, or a petition for winding up on the just and equitable ground, the Company is made a respondent as a necessary party, to enable it to be bound by the relief claimed.  It has a very limited role to play in the proceedings.  It does not take an active or partisan part in them, and generally will only participate to the extent of giving discovery, and taking judgment and perhaps making submissions as to the appropriate form of relief to be granted (for example where it is suggested that such relief should include an order requiring the Company to buy out one or other party, or for orders to be made requiring it to do or refrain from doing particular things).  To have a prayer claiming damages or a debt from the Company defeats this, since the Company will then be forced to take an active role in the proceedings.

61.  At the hearing, Mr Chung accepted this.  He indicated that the Petitioner would reconsider its position in relation to this claim, and consider either withdrawing it altogether, or making it in separate proceedings against the Company.  He therefore accepted that prayer (19) should not remain.

62.  Mr Remedios went on to submit that if prayer (19) went, paragraph 36 became irrelevant, and so should be struck out on that ground.  That apart, he complained of the lack of particularity in the first sentence of the paragraph, and that it was not clear how the sum of HK$866,000 was arrived at.

63.  Mr Chung, however, submitted that the allegation was relevant, since it tended to show unfair conduct on the part of the Respondents.  The complaint about lack of particularity in the first sentence was met by proposing its deletion in the amendments which were put forward.  As to the complaint about the manner in which the sum complained of was arrived at, Mr Chung said that this was made clear in the Petitioner’s affirmation.

64.  I am inclined to accept that the allegation could be said to be relevant for the reason given by Mr Chung, and that the deletion of the first sentence of paragraph 36 cures the worst of the embarrassment caused by this paragraph.  I think that there is less force in Mr Remedios’ submission as to the need to particularise the way in which the sum of HK$866,000 was arrived at, when compared with his criticisms of other parts of the petition.  It is tolerably clear that the complaint is that the sum was paid to the Company by the Petitioner on the strength of his belief that a fair and reasonable offer to buy him out would be made.  If no relief involving payment of this sum is to be claimed, the precise figure involved would appear to be of no particular relevance.  As the claim for relief in prayer (19) is to go, this would appear to be the position now.  The position might be different if relief of some similar nature were to be sought against the Respondents.

65.  So far as paragraph 36 is concerned, therefore, I am of the view that with the proposed deletion of the first sentence, it is no longer embarrassing, and the Respondents are or should be able to deal with the allegations contained in it.

Prayer (10)

66.  Prayer (10) seeks an order that the “1^st, 2^nd, 3^rd and 4^th Respondents account to the Company for all monies misappropriated and/or misapplied by them”.  This paragraph does not appear to relate to any allegation in the body of the petition.  It is wholly vague, and provides no information whatsoever as to what such allegedly misappropriated and/or misapplied monies might be, and on what basis it is alleged that they were misappropriated and/or misapplied.  That being so, the prayer is clearly embarrassing, and should not be permitted to remain as part of this petition.

Conclusions in relation to application to strike out

67.  It will be apparent from the foregoing that despite the amendments proposed, there remain difficulties in relation to all of the parts of the petition and the prayer that are the subject of the application to strike out, with the exception of paragraph 36 (in the form of the proposed amendment to it).  The question therefore arises as to what ought to be done in relation to these paragraphs.  Mr Chung submitted that it was not necessary or appropriate to make an order for striking out, and that it would suffice to direct that amendments be put forward, or that particulars be given.  For his part, Mr Remedios did not suggest that the parts complained of should be struck out altogether, with no opportunity to offer satisfactory amendments (assuming these can be formulated).

68.  In my view, the appropriate course would be to make an order that the parts of the petition complained of should be struck out unless a further application for leave to amend is made within a specified period of time, and is ultimately successful.  If this is not done, there will be no effective sanction if the Petitioner fails or is unable to offer a satisfactory amendment to the petition.  The effect will be that if no further application to amend is taken out within the time specified, the paragraphs of the petition and prayer referred to in the Respondents’ summons of 28 April 2005 and prayer (19) will be struck out.  In the light of the fact that I will dismiss the present application to amend, for the reasons which I give below, this will apply to all of the paragraphs and prayers mentioned in the Respondents’ summons.  Having considered the matter, it seems to me that it would be appropriate to allow the Petitioner a reasonable time to formulate his proposed amendments, and I shall allow 56 days for this purpose.  A summons seeking leave to amend the petition should therefore be issued within 56 days of today, failing which those paragraphs and prayers will be struck out without further order.

69.  In his skeleton argument, Mr Remedios posed, in relation to each part of the petition complained of, the sort of questions which he says should be answered by way of particularisation.  Mr Chung did not address me on these matters, and they were not expanded on by Mr Remedios, who concentrated on what he perceived to be his strongest points.  In the circumstances, I do not propose to express any views as to whether or not all of those questions require to be addressed in the proposed amendments beyond what I have already said in this judgment.  This is a matter that can be considered by the Petitioner’s legal advisers, who will no doubt advance a proposed amendment that gives those particulars to which they consider the Respondents are entitled, and which they are able to provide.

The application for leave to amend

70.  I turn now to the application for leave to amend.  I have already dealt above with those parts of the proposed amendments which relate to paragraphs which are the subject of the striking out application.  In addition to these, there are a number of additional amendments put forward to raise new matters.  Each of these was objected to by Mr Remedios, also on the ground that the amendments put forward were not sufficiently particularised and were thus embarrassing and should not be permitted.

New paragraphs 12A to 12D and new prayer (1D)

71.  These paragraphs are in the following terms:-

“12A.    Since about 1990, to continue the Company’s policy and practice that the Company allowed 0.5% to 2% of the purchase price of materials etc from the Company’s suppliers be set aside or received from the company’s suppliers be paid in a separate bank account no. 588-7-000866 of HSBC (“the said HSBC account”) in the name of a Madam Choi Siu Lan (“the said Madam Choi”).  The said HSBC account was opened with approval and consent of 1^st Respondent, Chan Hak Kin (person hereinafter described) and the Petitioner and with subsequent approval and consent of the 2^nd Respondent to be used to reimburse expenses spent by the employees and staffs on the Company’s behalf and/or to be treated and used as the fringe benefits or bonus of the employees and staffs of the Company whether in cash and/or in kind at Chinese year end.  They money kept in the said HSBC account was known as “炮金” in Chinese.  The Petitioner, the 1^st, 2^nd, 3^rd and 4^th Respondents were well aware of the said HSBC account and familiar with the trade customs in garment industry in setting up and reserving funds as “炮金” for the general welfare of or as bonus of the staff and employees of the Company.  Annexure 15 hereof are copies of bank passbook of the said HSBC account showing the said payments received from suppliers or the Company’s set aside sums and various payments made to the staff and employees as well as to the 1^st Respondent, 2^nd Respondent and the Petitioner as bonus or reimbursements.

“12B.     Initially, Chan Han Kin (sic) and the said Madam Choi, a bookkeeper of the Company, were responsible for the management and keeping of the said HSBC account but such responsibility had been taken over by the 1^st Respondent subsequently.

“12C.    On or about 30^th April 2004, the said Madam Choi told the 2^nd Respondent that the “炮金” was then kept in the said HSBC account with the closing balance of HK$84,425.57.  On 29^th May 2004, the 2^nd Respondent instructed and accompanied the said Madam Choi to the HSBC branch to close the said HSBC account and to hand over in cash all monies therein (after deductions of reimbursement) to the 2^nd Respondent.

“12D.    After the withdrawal of the balance monies from the said HSBC account and the closing of the said HSBC account, as instructed and directed by the 2^nd Respondent on the spot, the said Madam Choi handed over to the 2^nd Respondent the balance monies in the sum of HK$76,139.62 which in fact was the Company’s funds by reasons of the facts stated in paragraphs 12A to 12C above.”

72.  Associated with these allegations is new paragraph (1D) of the prayer, which seeks an order against the 2^nd Respondent for the return of the sum of HK$76,139.62 mentioned in paragraph 12D of the petition.  At the hearing, Mr Remedios complained that these paragraphs were lacking in particulars, in that it was not made clear who was supposed to pay the 0.5% to 2% referred to in paragraph 12A – whether this was to be paid by the supplier or the Company, and that it was unclear what was meant by “taking over the management” of the HSBC account, as pleaded in paragraph 12B.

73.  In his submissions, Mr Chung explained that what was intended to be alleged was that it was a custom in the garment trade for a portion of payments to suppliers to be returned to the Company, either by a refund by the supplier or a withholding by the Company.  Such sums were regarded as being for the benefit of the Company’s staff.  It was therefore improper for the 2^nd Respondent to have taken such monies for himself as alleged in paragraphs 12C and 12D.  On hearing this explanation, Mr Remedios suggested that it left unclear whether the monies were trust monies, in which case the Company was not entitled to complain, or whether they were simply to be regarded as Company funds, which were intended to be used for a particular purpose at the Company’s discretion.

74.  It seems to me that the explanation put forward by Mr Chung is at least intelligible.  However, it is also much clearer than paragraphs 12A and 12B themselves.  I cannot see why the matter could not have been set out in a much clearer fashion, that would not be susceptible to the complaints made by Mr Remedios.  So far as the question of what “taking over the management” of the account means, I confess that I too have some difficulty in understanding what is intended to be conveyed.  As for the final point made by Mr Remedios, it seems to me to be fairly clear from paragraph 12D that the Petitioner’s case is that these were funds belonging to the Company.

75.  In all the circumstances, it seems to me that it would be desirable for the allegations (particularly those in paragraphs 12A and 12B) to be set out in a more coherent fashion.

New paragraph 32 and new prayer (1B)

76.  This paragraph alleges in effect that the 2^nd Respondent misappropriated a vehicle registration number (or licence plate) that had been registered in the name of the Company by having it transferred to a vehicle owned by him without proper authority or approvals.  The prayer seeks an order for the return (or re-registration) of the vehicle registration number, so that it will once more be registered in the name of the Company.

77.  Mr Remedios accepted that this allegation was probably sufficiently particularised.  In my view it is.  However, he submitted that I should not allow this amendment to go through on a piecemeal basis, and that it would be more appropriate to refuse leave to amend in relation to this allegation for the time being, given the other deficiencies in the existing petition and the proposed amendments.

78.  In my view, having regard to the fact that fairly extensive amendments, going well beyond those which have been proposed, will be required to the petition as a result of the striking out application, and will also be needed in respect of some at least of the proposed new allegations, the more convenient course would be to require all proposed amendments to be put forward in a single application to amend.  I therefore think that this amendment, too, should be refused at this stage, but without prejudice to the Petitioner’s ability to put it forward again when making the application to amend which will be required as a result of my decision on the striking out application.  Proposed prayer (1B) stands in the same position.

New paragraphs 32A to 32D and new prayers (1), (1A), (1C) and (1E)

79.  Paragraphs 32A to 32D are in the following terms:-

“32A.  On or about 22^nd July 2004 after this Petition was first presented on 22^nd March 2004, the Petitioner subsequently discovered for the first time that on unknown date(s), a bank account number no. 020-606-000-7688-6 (“the said secret bank account”) had been opened in the name of the Company with Wing Lung Bank Limited in the absence of the Petitioner’s knowledge and consent and such act was in breach of the Shareholders’ Agreement.

“32B.  The 1^st , 2^nd, 3^rd and/or 4^th Respondents had always hidden the said secret bank account from the Petitioner and the Court.

“32C.  Sometimes after this Petition was first presented on 22^nd March 2004, the Petitioner subsequently discovered that notwithstanding the presentation of this Petition, the 1^st, 2^nd, 3^rd and/or 4^th Respondents continued to trade an receive payments from the Company’s customer(s), in the name of the Company and/or to deposit money into the said secret bank account and other banks accounts.  Annexure 17 hereof are bank statements of the said secret account showing payments in by Company’s customers.

“32D.  The 1^st, 2^nd, 3^rd and/or 4^th Respondents misappropriated the Company’s funds kept in the said secret bank account and other bank accounts and knowingly and unlawfully paid out the Company’s funds for the benefit and interest of the 1^st, 2^nd, 3^rd and/or 4^th Respondents.  Annexure 18 hereof are copies payments for the said secret account, inter alia, 1^st, 2^nd, 3^rd and/or 4^th Respondents themselves and to two firms of solicitors, Messrs. Wong Fung & Co., and Messrs. S.H. Chan & Co., acting on their behalves previously.”

80.  The associated prayers for relief that are proposed to be added in relation to these paragraphs would appear to be the following:-

“(1)        That the 1^st, 2^nd, 3^rd and 4^th Respondents be ordered to disclose all those bank accounts of the Company and to produce all statements, passbooks and reports in relation to all those bank accounts of the Company, including but not limited to the said secret bank account no. 020-606-000-7688-6 with Wing Lung Bank Ltd. referred to in paragraph 32A above;

“(1A)     That 1^st, 2^nd, 3^rd and or 4^th Respondents account for and repay all monies misappropriated by them the Company’s funds paid in or kept in or paid out the said secret bank account or elsewhere;

“(1C)     That a declaration that all transactions, payments to creditors whosoever, purchases and sales done in the name of the Company after this Petition was presented in March 2004 are ultra vires and the 1^st, 2^nd, 3^rd and/or 4^th Respondents account for any loss and/or damages suffered by the Company as a result thereof; and

“(1E)     That the said secret bank account be closed with balance of monies therein be paid to the Company.”

81.  Mr Remedios complained that there were no details of the allegation of continued trading in paragraph 32C.  He also complained of the reference to other, unspecified, bank accounts in paragraph 32D and prayers (1) and (1A).

82.  In my view the allegations as presently framed are objectionable for a number of reasons.  First, the reference to other unspecified bank accounts is clearly unsatisfactory, as it leaves the Respondents wholly in the dark as to the nature of the allegations against them.  Second, I have considerable difficulty in understanding why the setting up of a bank account in the Company’s name should be thought to be harmful to the Company.  Third, there appears to have been a mistaken belief that because this petition has been presented, the Company is not entitled to carry on business at all.  It may be that if a winding up order is made, transactions entered into after the presentation of the petition will be void unless validated, but this does not prevent a company from carrying on business if it chooses and is able to do so.

83.  As for the proposed prayers, prayer (1C) is clearly unsuitable, having regard to its vagueness and open-ended nature, to be included in an unfair prejudice petition such as this.  Prayer (1) and (1A) are also unsatisfactory in referring to other unspecified accounts.

Conclusions in relation to application for leave to amend

84.  Having regard to these problems, it seems to me that the appropriate course would be to decline to allow the amendments, but without prejudice to an application to introduce properly formulated amendments in due course.

85.  Thus, for the reasons which I have set out above, I am of the view that the application to amend should be refused, although I shall leave it open to the Petitioner to put forward adequately formulated amendments at the same time as the amendments that are required in relation to the existing paragraphs of the petition which are the subject of the striking out application are put forward.

Disposition and costs

86.  I shall therefore make an order in relation to the Respondents’ summons in the terms indicated in paragraph 68 above, and shall dismiss the Petitioner’s summons for leave to amend the petition.

87.  Having regard to the outcome of the applications, it is clear that the Respondents’ have been substantially successful in their application, and I accordingly make an order nisi as to costs that the Petitioner is to pay the Respondents’ costs of both summonses, such costs to be taxed on the party and party basis if not agreed.