LO NGAN FUNG v. CARRYMAN INDUSTRIAL LTD. AND OTHERS

HCCW 393/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 393 OF 2000

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REASONS FOR DECISION

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1. There were 2 applications before me on 20 October 2000. One was an application dated 20 June 2000 of the 1st Respondent to strike out the Petition and to remove the Petition from the file of the proceedings. The other was an application dated 14 October 2000 of the 1st Respondent and the 2nd Respondent for leave to amend the striking out application by adding the 2nd Respondent as an applicant thereto. Both applications were opposed by the Petitioner. After hearing the parties, I dismissed both applications. The reasons for doing so are as follows.

2. The Petitioner and the 2nd Respondent were respectively wife and husband. The 1st Respondent is a company which the Petitioner claims was a family business which used to be run by the married couple. The marital relationship broke down and the Petitioner commenced divorce proceedings against the 2nd Respondent. A divorce decree nisi was granted on about 28 January 2000 but proceedings relating to ancillary relief are still pending.

3. The Petition herein was taken out pursuant to Sections 168A and 177(1)(f) of the Companies Ordinance Cap. 32, that is, the affairs of the 1st Respondent were or have been conducted in a manner unfairly prejudicial to the interest of the Petitioner and it is just and equitable that the company be wound up. Although winding up is included as one form of relief in the Petition, it is apparent that the Petitioner is primarily seeking what can conveniently be called a "buying-out" order, that is, the Respondents are to purchase the Petitioner's 50% shareholding in the 1st Respondent. Because of the way in which a recent affirmation of the 2nd Respondent and the Respondents' skeleton argument was worded, it appeared at one stage that the 2nd Respondent was also willing to purchase the Petitioner's share in the 1st Respondent on that basis. However, Ms Lau for the 1st Respondent and the 2nd Respondent clarified at the hearing the 2nd Respondent is only willing to purchase the Petitioner's shares on the basis she holds only 1 out of 10,000 shares in the 1st Respondent. Further, this is entirely without prejudice to the Respondents' claim that the Petitioner is only a nominal shareholder.

4. The question of the Petitioner's shareholding is one of the important issues in this Petition. One of the Petitioner's complaint is that the 2nd Respondent has attempted to "dilute" her shareholding. She alleges that prior to November 1998 she and the 2nd Respondent were, in accordance with the parties' understanding, each holding one share in the 1st Respondent. In November 1998, the 2nd Respondent allotted the remaining 9,998 shares in breach of the said understanding. 8,998 of those shares were allotted to the 2nd Respondent and the remaining 1,000 shares were allotted to the 3rd Respondent. This complaint is denied by the Respondents.

5. The first main ground in support of the striking out application is that the Petitioner has not come to court with clean hands. This is based on allegations made in the 2nd Respondent's affirmations filed herein and in the divorce proceedings. In essence, the 2nd Respondent alleges that the Petitioner misappropriated approximately $140,000 from the 1st Respondent, and that she refused to attend the 1st Respondent's meetings. Ms Lau submits that these allegations were not expressly denied by the Petitioner and thus she should be regarded as having impliedly admitted them. I do not agree. Without the need to go into the details, the affirmation evidence filed by both parties shows that numerous factual issues have been raised. This, coupled with the nature of the dispute between the Petitioner and the 2nd Respondent, indicates that the parties do not accept the other side's allegations (unless it is expressly admitted). Ms Lau relies on Yeung Bun v. Brio Technology International Limited [2000] 2 HKLRD 218 as an authority that a winding-up petition can in law be struck out if the Petitioner does not come to court with clean heads. The headnote of this case accurately reflects the court's decision on this aspect. It reads:-

"Further, there was no overriding requirement that a petitioner must come to court with clean hands. The clean hands doctrine only applied where a breakdown of confidence was the basis of the petition, and that breakdown was the result of the petitioner's misconduct. This involved a finding of fact that could only be made after a full hearing." (see also pages 223F and 224A-D of the report)

6. Ms Lau accepts the observation in Yeung Bun that whether a petitioner has come to court with clean hands involves a finding of fact. The allegation against the Petitioner has not been accepted. This is a striking out application. In these circumstances, I do not consider that this ground has been established to the requisite standard.

7. The other main ground in support of the striking out application is that this Petition amounts to an abuse of the court's process. It is common ground that matrimonial proceedings are pending between the Petitioner and the 2nd Respondent. Ms Lau argues that there will be a duplication between the relief asked for in this Petition and that asked for in the ancillary relief in the matrimonial proceedings, namely, the relief relating to a "buying-out" of the Petitioner's share. In response to this argument, the Petitioner has indicated that she is prepared to undertake to court not to ask for such a relief in the matrimonial proceedings.

8. I shall proceed to examine the validity of this ground without regard to the Petitioner's proposed undertaking. Ms Lau agrees that the issues raised herein and those raised in the matrimonial proceedings are different. The issues herein relate to the Petitioner's alleged proprietary right in the share registered in her name. She claims she is the beneficial owner thereof whereas the 2nd Respondent claims she is only a nominee holding the share for him. The resolution of the issues regarding the alleged "dilution" of shareholding also involves a determination of the said disputed point. The issues to be raised in the matrimonial proceedings (leaving aside the question of the court's jurisdiction) are in essence about the manner in which the court is to exercise its power to transfer properties between the parties taking into account all the circumstances of the case. This is in the nature of the exercise of a discretion. The question of the Petitioner's proprietary right in the share is only a factor to be taken into account and may not even be an important factor. I do not consider that a litigant ought to be compelled to limit his/her claim to proceedings the outcome of which is dependent on the court's discretion.

9. Further, the Petitioner's allegation that her right as 1 of the 2 shareholders entitled to an equal shareholding will affect the interest of the 3rd Respondent. I consider that this issue is more appropriate to be dealt with herein rather than in the matrimonial proceedings. Ms Lau refers me to Harwood v. Harwood [1992] FCR 1 and contends that it is possible for that issue to be dealt with in the matrimonial proceedings. Without deciding the correctness of that contention or whether the observations in Harwood are applicable to the facts in this case, I still consider that the issues are more appropriate to be raised herein in view that a proprietary claim is asserted. Ms Lau also argues that this Petition is a means to pressurise the Respondents in order to achieve a collateral purpose. I do not find that there is evidence to show that there is plainly and obviously such a case.

10. For the above reasons, I refused the application to strike out the Petition.

11. Since I have been able to determine this application without regard to the Petitioner's undertaking or to the arguments raised by Mr Li for the Petitioner regarding the jurisdiction of the Family Court to order a "buying-out" of the Petitioner's share, I shall not comment on whether they are valid arguments and if so how they should affect the outcome of this application.

12. In the course of Ms Lau's arguments, she mentioned that the Petition herein ought to be stayed. This is of course not a stay of proceedings application. If anything has been said by the court which appears to be related to a stay of proceedings application, it should not be taken as affecting such an application in the absence of proper material and/or arguments having been put before the court. The matter should be regarded as still being at large.

13. As regards the application to add the 2nd Respondent as an applicant to the striking out proceedings, since I have concluded that there are no merits in the striking out application, the application to amend is also refused.