TO CHUN FAN v. HAU SHEK WAH AND OTHERS

HCCW 43/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 43 OF 2010

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J U D G M E N T

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Introduction

1.  This matter first came before me on 21 April 2000 on the hearing of the 2^nd and 3^rd Respondents’ application to strike out paragraphs 58, 59, 60, 61 and the prayer for a winding-up order under section 177(1)(f) of the Companies Ordinance; the just and equitable ground.  At the hearing I pointed out that I thought there was a more fundamental problem with the Petition than the inclusion of a claim for a winding-up order.  The Petition made little reference to the Petitioner’s involvement with the Company.  It appears from paragraph 47 to 55 that it is the Petitioner’s case that she should not have become a shareholder for the reasons explained in those paragraphs.  As it is, the Petition alleges, she holds her shares in the Company on trust for CHL Enterprises Limited (“CHL”), alternatively Mr Chan Chak Sang Simon (“Chan”) and Mr Li Kam Ming (“Li”): paragraph 55.    The Petition contains a series of complaints about how the 1^st Respondent has conducted his business relationship with Mr Chan and Mr Li.

2.  At the hearing on 21 April 2010 I expressed doubts about the Petitioner’s claim as the Petition contains no allegations of unfair prejudice to her as shareholder in the Company; on the contrary her principal complaint appeared to be that she should not be a shareholder at all: paragraph 21 of her 2^nd affirmation.  In these circumstances it seemed doubtful to me whether the Petition disclosed a reasonable cause of action.  I adjourned the 1^st and 2^nd Respondents’ summons.  I invited the Petitioner to consider her position and the 1^st and 2^nd Respondents to consider expanding the scope of their application.

3.  The matter came back before me on 22 October 2010.  The 1^st and 2^nd Respondents had, unsurprisingly, applied to amend their summons to seek an order striking out the entire Petition.  Equally unsurprisingly the Petitioner had issued a summons to amend the Petition.  The Petitioner wished to add 2 petitioners: Madam Yu Chui Man Yvonne (“Madam Yu”), the wife of Mr Chan and CHL. There is also added to the draft Amended Petition a new prayer (A) that the 1^st Respondent transfer the shares registered in his name to CHL and a new prayer (1A) that the 1^st and 2^nd Respondents sell their shares to the Petitioners.  Whether or not that application should be granted depends on whether or not it addressed the problems that I identified earlier in this judgment and various other complaints made about the Petition by the 1^st Respondent, which the 2^nd Respondent adopts.  I refer in the remainder of this judgment to the 1^st Respondent’s arguments and submissions as the 2^nd Respondent did not advance its own independent submissions.

The case in respect of shareholding in the Company

4.  Prior to November 2008 the Company was owned by CHL (7000 shares) and Friendship Investments Ltd (3000 shares) (“Friendship”). CHL is owned by Mr Chan, Mr Li and the 1^st Respondent.  According to an annual return dated 25 May 2009 for Friendship its shareholders are Chan Hon Hung (1 share) and Chan Yuk Ying Eliza (5 shares).  The Petitioner alleges that of the 5 shares registered in Ms. Chan’s name 2 were held by her for Mr S.K. Leung and one share for Ms. Iris Lai.  She further alleges that on 16 June 2009, 1 of Mr Leung’s shares was sold to the 1^st Respondent.

5.  In October 2008 the shareholders of the Company changed.  CHL’s shares were transferred to the Petitioner (1,400) shares, Madam Yu (2,800) and the 1^st Respondent (2,800) shares.  The Petition alleges that the transfer came about in the following manner.  In or about July 2008 it was decided by CHL to alienate itself from any interest in real property.  Mr Chan, Mr Li and the 1^st Respondent agreed that this should be done by transferring CHL’s shares in the Company, which owned real property, to the Petitioner, Madam Yu and the 1^st Respondent. The necessary documents of transfer and board minutes approving the transfer was produced and signed, but left undated pending preparation of the necessary accounts for stamping purposes.  The original intention of Mr Chan, Mr Li and the 1^st Respondent was to go ahead with the share transfers when the requisite accounts were ready.  In late September 2008 after an initial discussion with some people in corporate finance about an initial public offering of the Company, Mr Chan was told that there should not be any change in the Company’s shareholding one year prior to an IPO.  Mr Chan told Mr Li and the 1^st Respondent about this and it was agreed to put the transfer on hold.  Unbeknown to Mr Chan and Mr Li, the 1^st Respondent caused the transfers to be completed in November 2008.  The Petitioner and Madam Yu hold their shares on constructive trust for CHL: paragraphs 48 to 55 of the draft Amended Petition.

6.  The Petition also alleges that in or about June 2008 the 1^st Respondent informed Mr Chan and Mr Li that he wished to withdraw from CHL.  He then embarked on a course of conduct intended to pressure Mr Chan and Mr Li into agreeing his terms: paragraph 43 to 46 of the draft Amended Petition.  In draft amended paragraph 58A it is alleged that the wrongful transfer was a tactical ploy implemented by the 1^st Respondent with the approval of Friendship to defeat the common understanding alleged in paragraph 11, which concerned the basis upon which a joint venture, of which CHL is a partner, was established by giving Friendship and the 1^st Respondent 58% of the shares of CHL, whereas previously CHL controlled the Company and Mr Chan and Mr Li had de facto control (60%) of CHL.

7.  From paragraph 59 of the Petition there follows some unparticularised allegations that the 1^st Respondent had acted in collaboration with Friendship to prejudice the interests of CHL and the Petitioner, which appear, along with the allegation of wrongful transfer, to constitute the unfair prejudice.  In the original petition it is completely unclear how it is alleged the Petitioner is unfairly prejudiced as a shareholder as the allegations seem to be directed at the breakdown of the relationship between the 1^st Respondent, Mr Chan and Mr Li and the prejudice caused to CHL, in which the Petitioner is not a shareholder.  Draft amended paragraph 58A to 58D attempts to remedy this by asserting wrongful acts that marginalise and exclude CHL, Mr Chan, Mr Li, the Petitioner and Madam Yu from the affairs of the Company.

8.  I note that it is nowhere suggested in the Petition that the Petitioner was the nominee of CHL, in the sense of becoming a shareholder to represent its interests, and for there being an understanding between CHL, the Petitioner, Friendship and the 1^st Respondent that she would be allowed to represent its interests by taking a particular role in the conduct of the affairs of the Company.  The Petition simply contends that she holds shares as constructive trustee.

9.  The way in which the Petition formulates the Petitioner’s case gives rise to this issue.  Can a shareholder who does not assert that she has been unfairly excluded from the affairs of the Company bring an unfair prejudice position on the basis that the interest of the person for whom she holds shares on constructive trust (and I consider later whether this could ever be the correct legal analysis) are being unfairly prejudiced? In addition the 1^st Respondent raises a number of other complaints about the Petition.

Principles governing strike out applications

10.  The principles and approach to strike out application are not in dispute and are conveniently summarised in paragraph 5 of the judgment of Kwan J in Four Twenty Company Limited (HCCW 278/2004, unreported, 6 January 2005):

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

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

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

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

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

11.  I am, therefore, to consider the application on the basis that the Petitioner’s factual allegations, including those in the draft amended Petition, will be established at trial.  Before striking out the Petition, or any part of it, I need to be satisfied that it has no prospect of success.  However, if after argument I conclude that this is a plain and obvious case, I should not decline to strike out on the ground that the issues are difficult and complicated: Byjoy Ltd. Thorogood Estates Ltd. [1985] 2 HKC 746 at 758F-I.

The Argument

12.  The 1^st Respondent argues that the Petition should be struck out for various reasons.  I shall deal with what I consider to be the weaker arguments first.

13.  First, the 1^st Respondent contends that it necessarily follows from the way in which the Petitioner puts her case that the Petitioner, and the proposed 2^nd Petitioner, have not agreed to be a member of the Company and do not satisfy the requirement of becoming a member specified in section 28(2) of the Companies Ordinance and, therefore, cannot present a petition.  It seems to me clear that the Petitioner’s position is that she should not have become a member, but as she has been registered she accepts the position.  She has made no application to rectify the register or rescind the share transfer.  Rather she has made an application, the Petition, which necessarily involves an acceptance that whatever she believes should have happened, as a matter of fact she has become a member of the Company.

14.  Secondly, the 1^st Respondent argues that the Petition has been brought for an ulterior purpose.  I am invited to trawl through the evidence and the history of other proceedings to draw this conclusion and strike out the Petition on the grounds that it is an abuse of process.  The answer to this point is that it is simply not possible to determine whether or not this is a clear and obvious example of a case being brought for an ulterior purpose on the basis of the Petition and the evidence before me.

15.  Thirdly, the 1^st Respondent argues that there is no alleged personal relationship between CHL and the 1^st Respondent and, therefore, the equitable considerations are insufficient to bring into play section 177(1)(f) of the Companies Ordinance.  The 1^st Respondent submits that the evidence demonstrates that the relationship was purely commercial.  I do not think that this is a matter I can properly determine on a strike out application in which I have to assume all the Petitioner’s assertions to be true and only grant an order if I am satisfied that it is a plain and obvious case for a striking out.

16.  Fourthly, that the Petition does not contain a reasonable cause of action.  Paragraph 9 of the draft Amended Petition refers to an oral shareholder’s agreement which concerns CHL and the CHL group of companies (“shareholders agreement”).  Details of the shareholders agreement are contained in draft paragraph 9A.  The import of this is that CHL was a quasi-partnership.  Draft paragraph 11 refers to a joint venture agreement between the CHL group and Friendship, which involved the Company becoming the holding company of the joint venture.  Paragraph 11(h) states that Friendship accepted the quasi-partnership arrangements reflected in the shareholders agreement.  Quite what this means is unclear.  The implication seems to be that the partners in CHL, namely, Mr Chan, Mr Li and the 1^st Respondent would take part in the management of the Company’s business.  It will be noted that nothing is said about the role of the Petitioner or the proposed 2^nd Petitioner.  There then follows a description of the members of the CHL group (paragraphs 13 to 35).

17.  Paragraphs 36 to 40 describe the Company.  It has 2 directors: Mr Li and the 1^st Respondent.  Paragraphs 41 to 46 describe CHL.  In paragraph 43 it is explained that in June 2008 the 1^st Respondent explained to Mr Chan and Mr Li that he wished to withdraw from the CHL group and that in order to force them to acquiesce to his proposal he had issued 4 winding-up petitions against companies in the CHL group.  There then follows, as I have already explained, paragraphs stating the circumstances in which the Petitioner and the proposed new 3^rd Petitioner came to be shareholders in the Company.  It is not alleged in the Petition that at the time this was done there was any agreement that they should take an active role in the affairs of the Company.  The consequence of this change of shareholding was to give a de facto control of the Company at shareholder level to Friendship and the 1^st Respondent whereas prior to the transfer Mr Chan and Mr Li had de facto control through their control of the CHL.  This was the affect of the change in shareholding which the Petitioner accepts was originally agreed: paragraphs 48 and 49.  The substance of the complaint is that following this shift of control the 1^st Respondent and Friendship have not honoured the shareholders agreement: new paragraph 58C to 58D.  In other words Mr Chan and Mr Li have been excluded from “management of the CHL group, including (after the acquisition to be mentioned below) the Company and GA Hong Kong”: new paragraph 9A(a).  However, the particulars under paragraph 58C are not the common type of complaint that one gets in cases of this sought, namely, that a majority shareholder has used his control to remove another shareholder from the board of the company and the management of its affairs.  What instead we get is a series of unparticularised complaints which seem to amount to breaches of the articles of association.  It is easiest if I quote them in full as they are not lengthy:

“PARTICULARS

(a) Hau had devised and successfully implemented the tactical ploy as stated in paragraph 58B above (to the knowledge and with the acquiescence, approval, consent and/or assistance of Friendship).

(b) In breach of his duties as director of the Company, Hau had (to the knowledge of Friendship and with its acquiescence, approval, consent and/or assistance) caused certain “board minutes” to be kept at the Company’s books, which purportedly recorded some “resolutions” being passed by the Company’s board approving the said purported and/or wrongful share transfers, when Hau knew and/or ought to have known that no such “resolutions” had ever been passed.

(c) Notwithstanding the absence of any resolution approving the said purported and/or wrongful share transfers, Friendship and/or Hau wrongfully proceeded to make changes to the Company’s register of members, without the knowledge, consent and/or approval of CHL, Li, Madam To, Chan and Madam Yu.

(d) In breach of the articles of association of the Company and of GA Hong Kong and/or contrary to the parties’ agreements, common understandings and/or the reasonable expectations as mentioned in paragraph 11 above, Hau and/or Friendshi had refused and/or failed to give any or any proper notice to CHL, Li, Madam To, Chan and/or Madam Yu for the extraordinary general meetings of the Company and GA Hong Kong as mentioned in paragraph 56 above.

(e) In flagrant breach of his duties as director of the Company, Hau had, without any or any proper authority and without any or any proper purpose, purportedly approved the special resolutions of GA Hong Kong dated 6 November 2008 for and on behalf of the Company as stated in paragraph 56 above.

(f) Contrary to the agreements, common understandings and/or the reasonable expectations of the parties as stated in paragraph 11 above, Hau and Friendship had, despite CHL, Chan, Madam Yu, Li and/or Madam To’s clear objection, purported to convene an extraordinary general meeting of the Company on 19 March 2010 and purported to appoint a Ms. Chan Yuk Ying Eliza as director of the Company at the said extraordinary general meeting. The aforesaid steps were taken by Hau and Friendship with a view of further excluding CHL, Chan, Madam Yu, Li and/or Madam To from, and marginalizing them in, the affairs of the Company.

(g)     CHL, Madam Yu, and/or Madam To had received no dividend whatsoever from the Company for the financial year ended 31 October 2009, whereas Friendship received a dividend of HK$240,000 for the same financial period.”

18.  Other than paragraph 58C(g) it is unclear how it is suggested that any of these matters are unfairly prejudicial to the Petitioner as opposed to Mr Chan or Mr Li.  It is also unclear how it is said that the complaints engage the just and equitable provision of section 177(1)(f) of the Companies Ordinance.  If the Petitioner believes that in breach of her legal rights she is entitled to be paid a dividend for a particular financial year she can take legal action to enforce that right.  If she believes that a dividend has been wrongfully paid to another shareholder she can also take action possibly in her own name for breach of the contract represented by the articles of agreement or by way of derivative action.  It is not a situation which immediately engages section 177(1)(f), which is primarily directed to acts or omissions which, although lawful, engage equitable considerations because of the particular circumstances of the company under consideration as explained by Lord Wilberforce in Ebrahimi v Westbourne Galleries [1973] AC 360, 379A to 380B.  In my view in presenting a petition either for relief under section 168A or section 177(1)(f) it is not sufficient for a petitioner to allege a type of matter that has the characteristics of unfairly prejudicial conduct or inequitable behaviour.  It is necessary to allege properly particularised facts or matters, which if proven at trial would justify the court granting the relief sought. 

19.  The 1^st Respondent argues that the Petition is artificial.  He says it was very obviously so in its original form.  The draft Amended Petition tries to disguise this fact, but it is clear from paragraph 58C that the Petitioner is not able to advance a case that if proven at trial would justify the court making any of the orders sought in the prayers.

20.  The Petitioner seeks to avoid this conclusion with a series of arguments.  First, she says that a trustee can present an unfair prejudice petition to protect the interests of the beneficial owner of shares: Re Brightview Ltd [2004] 2 BCLC 191 §§35-39.  I accept that as a statement of principle this is correct, although I do not think that of itself this proposition takes us very far.  More importantly I accept that the arrangements that have been entered into as part of the circumstances in which a person came to be a shareholder may be relevant in determining whether or not there has been unfair prejudice: see Re a Company (No. 003160 of 1986) [1986] BCLC 391 per Hoffmann J (as he then was) at page 396.  In other words, if it was agreed that a shareholder’s representative be appointed to the board and be actively involved in the management of the company, the representatives exclusion may be a matter constituting unfair prejudice.  However, there is no allegation of this sort.  All that we have is new paragraph 58C:  “Because of Friendship and Hau’s alliance and the acts more particularly stated below, CHL, Chan, Madam Yu, Li and/or Madam To have been excluded from, and became marginalized in, the affairs of the Company and of GA Hong Kong”.  It is clear from the Petition, however, that the Petitioner (Madam To) and Madam Yu were never intended to have any role in the affairs of the Company.  The matters about which the Petitioner complains are contained in new paragraph 58C(b) to (g). Sub-paragraphs (b) to (c) relate to the share transfer, which it is earlier alleged should not have been completed.  Sub-paragraph (d) relates to general meetings details of which are not given so it is unclear what matters they are relevant to.  If, however, it is correct that proper notice was not given then the resolutions would be invalid and could be challenged independently of an unfair prejudice or winding-up petition.  Sub-paragraph (f) asserts that the appointment of an additional director was taken with a view to excluding Mr Chan and Mr Li from the affairs of the Company, but it is not explained how in practice it achieved this result, for example, were resolutions passed or business decisions implemented that would not otherwise have taken place and which unfairly prejudiced Mr Chan and Mr Li?  If they did not the mere passing of the resolutions, even if improper, would not necessarily have resulted in any material unfair prejudice.  Sub-paragraph (g) I have already addressed.

21.  What the complaint amounts to is this.  The 1^st Respondent took advantage of the execution of the instrument of transfer to change the shareholding of the Company so as to give him and Friendship control of the Company first at shareholder level and then at board level.

22.  The 1^st Respondent complains that the complaints are embarrassing because they are too vague.  I was referred to the judgment of Deputy Judge Roger Kaye QC in Re a Company (No. 007936 of 1994) [1995] BCC 707 at 709 at which he said this:

“(4) As a document initiating the process against the company, the grounds relied on must disclose valid grounds upon which the court can validly order the winding up of the company under s.122 and those grounds must be specified with clarity and sufficient precision to enable the company to know the case it has to meet at trial.

The winding up of an active company is a serious step with serious consequences for all concerned, creditors as well as contributories. It therefore behoves petitioners to set out their case in the petition with clarity, substance and precision so that the respondent company knows, and the court knows, what case the company has to meet. The petition must, either in its original form or as amended, therefore contain all the material averments or, to use the words specified in r. 4.22(1), ‘the grounds’ upon which it is based. It is these grounds which the company here has to meet and it is these grounds which the petitioners must prove at trial, on the ordinary civil burden of proof, if it is to have any hope of succeeding in obtaining the winding-up order it seeks. The analogy from the realm of pleadings which I do find helpful, and which is, in my judgment, useful to bear in mind can be taken from the words of Lawton LJ in Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1986] Ch 246 CA at p. 309; (1984) 1 BCC 99, 158 at p. 99, 203, words which appear to me to be wholly apposite to petitions:

‘I wish, however, to add a comment about the pleading points which have had to be considered in this appeal. From the way they were raised by counsel and dealt with by the trial judge I was left with the impression that neither the judge nor defending counsel appreciated as fully as they should have done the need for precision and expedition when dealing with pleading points. My recent experience in this court shows that some counsel and judges are not giving pleadings the attention which they should. Pleadings are formal documents which have to be prepared at the beginning of litigation. They are essential for the fair trial of an action and the saving of time at trial. The saving of time keeps down the costs of litigation. A plaintiff is entitled to know what defences he has to meet and a defendant what claims are being made against him. If the parties do not know, unnecessary evidence may be got together and led or, even worse, necessary evidence may not be led. Pleadings regulate what questions may be asked of witnesses in cross-examination.’

(5) If, therefore, the pleadings do not show the ground on which a court could validly make a winding-up order or if, on the grounds that are pleaded, it is plain and obvious that, even if proved at trial, the petitioners must fail, the court will and must exercise the exceptional jurisdiction to strike out the petition.  To do otherwise would be to prolong for more than is necessary the state of uncertainty that a petition inevitably brings to an operating company’s activities and plans.  All these points merely serve, in my judgment, to emphasise once again the duty on petitioners to ensure that their petition contains the material facts on which the petition is based.”

23.  I have some sympathy with the complaint that the draft Amended Petition, let alone the original Petition, fails to set out with clarity and precision what are the matters on which the Petitioner relies as constituting unfair prejudice.  Quite clearly a better job could have been done.  However, it seems to me that it is apparent from the draft Amended Petition what are the matters which the Petitioner alleges constitute unfair prejudice. It also seems to me that I cannot at this stage conclude that the Petition is unsustainable.  I am not asked to decide whether or not the case is strong or the Petition badly drafted, but to decide whether or not it is so obviously bad that it is bound to fail.  I do not think that I can properly conclude that if all the allegations are proved at trial I would not find that the Petitioner and the proposed 2^nd  and 3^rd Petitioners have not been unfairly prejudiced by virtue of an improper transfer of the shares and the resulting change in control of the Company.

Winding up relief

24.  The Petitioner argues in the alternative that the prayer for a winding-up order should be struck out.  The reasons are those commonly advanced when dealing with a case of this sort.  At the first hearing before me the 1^st and 2^nd Respondents offered to buy the Petitioner’s shares and those of Madame Yu at a value to be assessed by an independent valuer agreed by the parties or appointed by the Court. Alternatively, they were willing to sell their shares on the same basis.  This offer has not been accepted.  The 1^st Respondent says not only is this unreasonable but that in these circumstances there is no realistic prospect of the Court ordering a winding up of the Company and the prayer for a winding up order should be struck out.

25.  As I understand the Petitioner’s justification for including the prayer for winding up it is as follows.  First, if there was a quasi-partnership and the 1^st Respondent has behaved in a manner inconsistent with it and which constitutes unfair prejudice, it is not unreasonable for the Petitioner to seek a winding-up order.  Secondly, a winding-up order would not necessarily have an adverse impact on the underlying businesses of the Company because it is only a holding company.  A winding-up order will avoid a dispute about which party should buy the other out.  A liquidator can sell the Company to the highest bidder.

26.  In The New China Hong Kong Highway Limited HCCW 550/2009 unreported 23 February 2010 I summarised in paragraph 21 the principles by reference to which the Court assesses and determines this type of application as follows:

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

27.  In practice this means that a party who petitions on the basis of unfair prejudice must advance reasonable grounds for seeking a winding-up order rather than an order that one or other shareholder buy the other out.  In paragraph 23 of The New China Hong Kong Highway Ltd I referred to the judgment of Yuen J. in Re Wong To Yick Wood Lock Ointment Ltd., which demonstrates this.

“Re Wong To Yick Wood Lock Ointment Ltd in which Yuen J referred at page 645D to there being no “substantive benefit they would gain for a winding-up order which they would not from a buy out order. There is no evidence that a winding-up order is the preferred remedy for any of the petitioners, and reason given for any preference”. In the Court of Appeal Le Pichon J agreed that this was a legitimate consideration: see page 489F-G.”

28.  As I explained in paragraph 24 of The New China Hong Kong Highway Ltd. a reasonable anticipation that a petitioner might recover more if a winding up is ordered than if shares are bought or sold might be a reason to pursue a winding up.

29.  I do not accept that the Petitioner’s first argument has any merit.  The Company may prove to have been founded as a quasi- partnership, but it does not seem to me that behaviour by one shareholder, which is inconsistent with an agreement or understanding reached with another shareholder about how a company should be managed necessarily entitles the prejudiced party to insist on a winding up if the other party is willing to buy his shares at a fair market price.

30.  So far as the second argument is concerned it seems to me that in order to avail herself of it the Petitioner has to demonstrate that there is an actual, rather than theoretical, reason to think that a winding up might produce a better return.  In The New China Hong Kong Highway Ltd. the reason that was suggested was that the value of the petitioner’s shareholding was probably more than the respondent could afford to pay.  I would anticipate that this argument is generally more likely to be germane when dealing with larger companies, which by their nature might be an attractive acquisition by an investor and where there is reason to think that any one shareholder might have difficulty in acquiring the shares of the others.

31.  The problem with this issue is that it is difficult to be sure that it will not transpire at the trial that a winding-up order is the appropriate remedy.  It is all very well offering to buy shares at a price arrived at by a valuer, but it is very common in shareholder disputes for a buy-out order to evolve into a major argument about valuation; commonly because insufficient thought has been given to the process in advance.  I note, for example, that in the present case the offer that has been made by the 1^st and 2^nd Respondents does not state whether the valuation of shares should take into account minority interest, which I anticipate could be a matter of dispute.

32.  In conclusion I think that this is a border line case, but I am not satisfied that it has been demonstrated that it is a plain and obvious case for striking out the prayer for a winding-up order.

The addition of Parties and amendments

33.  The amendments propose that Madam Yu and CHL be added as 2^nd and 3^rd Petitioners respectively.  I do not understand there to be any objection to Madam Yu being added if I am not with the Petitioner on her strike-out summons.  The 1^st Respondent objects to the addition of CHL on the basis that the matters complained of post date it being a member and, therefore, it does not come within section 168(A)(2) of the Companies Ordinance.  I do not think this is correct.  At the core of the complaint is the completion of the share transfer.  In my view this process commenced during a time, albeit necessarily a brief one, when CHL was a member.  In my view it has sufficient interest in the affairs of the Company complained of in the draft Amended Petition to justify its inclusion as a Petitioner.

34.  No objection is taken to any of the other new paragraphs in particular and I, therefore, allow the amendments.

Costs

35.  In my view this is a border line case.  But for the draft amendments, I would have been minded to strike out the Petition.  I also take the view that the amendments are not easy to construe and the Petition even in its amended form is an unsatisfactory documents albeit not sufficiently objectionable to justify refusing to allow the amendments.  A fair costs order would be no order as to the costs of the Respondents’ summonses of 5^th March, 12^th March and 7^th September 2010. I make an order nisi in these terms.  If any party wishes to challenge the order they must write to the court within 7 clear days of handing down of this judgment notifying the Court that he or she wishes to do so.

36.  So far as the Petitioner’s summons of 11th June 2010 is concerned I order that the Petitioner pay the costs of the application in any event, such costs to be taxed if not agreed.

37.  The Parties may issue a summons for directions for the further conduct of this Action.