FRIENDSHIP INVESTMENTS LTD v. TO CHUN FAN AND OTHERS

HCCW 197/2018

[2020] HKCFI 356

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 197 OF 2018

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D E C I S I O N

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1.  I have before me a summons issued by the 7^th Respondent, General Appliance (Hong Kong) Limited (“General Appliance”), for an order that the Amended Petition and Points of Claim be struck out under Order 18 rule 19 of the Rules of the High Court (“RHC”).

2.  The Petitioner holds 30% of the shares of the 6^th Respondent, General Appliance (Holdings) Limited (“Company”), which is the subject of the Petition. The Petitioner seeks an order that the Company be wound up on the just and equitable ground pursuant to s177(1)(f) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32; alternatively, an order pursuant to s724 of the Companies Ordinance, Cap 622, that the 1^st to 5^th Respondents do purchase the Petitioner’s shares in the Company.  The Company is a holding company.  It has one asset.  It owns the 7^th Respondent.

3.  In summary, the application is made because no relief is sought against the 7^th Respondent. The Petitioner suggests that the only reason that General Appliance was joined as a party to the Petition that was issued on 19 July 2018 was as a ploy to enable a submission to be made to Chung J in an application by the Company on 20 July 2018 for a mandatory injunction for delivery up by the Petitioner, Eliza Chan and Leung Siu Kuen (who had been removed as directors in April and May 2018) and a William Chan of title deeds to the Company’s properties, that the Petitioner had a defence, revealed in the Petition, to the action in which the injunction was sought.  Mr Phang on behalf of the 7^th Respondent submits that the Petition, which was not shown to Chung J and I assume not seen by the Company’s legal team at that time, did not contain any defence.

4.  This amounts to suggesting that Chung J was misled and not inadvertently.  This is a serious allegation and one, which Mr Phang is inviting the Court to infer because there is no direct evidence of it.

5.  The Court of Final Appeal has warned judges in two decisions of the need to adopt a disciplined approach to the drawing of inferences.  In Nina Kung v Wong Din Shin [1] Ribeiro PJ explains the correct approach:

“In HKSAR v Lee Ming Tee & Securities and Futures Commission (2003) 6 HKCFAR 336, Sir Anthony Mason NPJ acknowledged the need for such a disciplined approach to the drawing of inferences and in particular for inferences of fraud or serious misconduct to be drawn only where such inferences are compelling. Dealing with an allegation that senior SFC officers had deliberately and improperly terminated an investigation in order to avoid compromising the standing of the subject of the investigation who was acting as an expert witness in a criminal trial in which the SFC was interested, his Lordship stated:

...that conclusion was not to be reached by conjecture nor, as the respondent submitted, on a mere balance of probabilities. It was to be plainly established as a matter of inference from proved facts. (at §72).”

As Sir Anthony Mason explains (quoting Lord Nicholls in Re H [2]) in   Lee Ming Tee at [71]:

“When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability.”

6.  In my view I cannot properly draw the inference that Mr Phang is inviting me to draw.

7.  The Petitioner’s argument is straightforward.  The 7^th Respondent is the Company’s sole asset and it is the conduct of         the 7^th Respondent’s affairs that is a central feature of the dispute.  The affairs of a subsidiary can be regarded as the affairs of its parent for the purposes of an unfair prejudice petition [3]. It may be, argued Mr Kwong for the Petitioner, that discovery will be required from the 7^th Respondent and possibly relief granted that effects it.  There is nothing objectionable, submitted Mr Kwong, in a party against, whom no final relief is sought being made a respondent [4].

8.  The court generally only strikes out a petition if it is plain and obvious that no relief will be granted against a respondent [5]. This case is different to the extent that it is common ground that no final relief is sought against the 7^th Respondent and that is not of itself a fatal flaw if there are other reasons, which justify joining it.  That having been said, it seems to me that the guiding principle remains largely the same.  The court will strike out a petition against a party against, whom no final relief is sought if it is plain and obvious that there is no need for them      to have been joined as a party and RHC O15 r6(2) does not apply.  Rule O15 r6(2) provides:

“(b) order any of the following persons to be added as a party, namely—

(i)   any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii)  any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.”

9.  It seems to me that it may be that discovery by the 7^th Respondent is necessary.  This being the case it seems to me that r6(2)(b)(i) applies.  In my view it is certainly not clear and obvious that discovery by the 7^th Respondent is unnecessary. It is possible that I might take a different view in a case in which a subsidiary is able to demonstrate that having a winding up petition presented against it is having a serious negative impact on its ability to carry on business, for example by impacting negatively its banking facilities, to an extent that provided a significant counter weight to the advantage of having it as a party for the purposes of discovery rather than requiring the petitioner       to make a discrete application against the subsidiary for discovery. However, that has not been argued in the present case.

10.  I will dismiss the 7^th Respondent’s summons.  I will make a costs order nisi that the 7^th Respondent pays the Petitioner’s costs with a certificate for counsel forthwith.