XCHRX WONG WAN HUEN FREDERICK AND OTHERS v. W HAKING ENTERPRISES LTD. AND OTHERS

HCCW 1166/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 1166 OF 2000

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D E C I S I O N

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1. This is an application by the 6th respondent, under Order 18, rule 19, or under the inherent jurisdiction of the court, that paragraph 7(1) and prayer (1) of the petition be struck out insofar as they are directed at the 6th respondent on the grounds that they are frivolous and vexatious or an abuse of the process of the court.

2. This is a petition issued by four of the minority shareholders of W. Haking Enterprises Limited (the company) on the basis that, since 8 April 2000, the affairs of the company have been conducted in a manner unfairly prejudicial to the interests of the petitioners, and seeking, inter alia, an order under section 168A of the Companies Ordinance, Cap 32, that their shares be purchased by the company or the respondents. It is in respect of this part of the petition, and this prayer, that the 6th respondent seeks this order. The unfairly prejudicial conduct complained of may briefly be stated, that, at the AGM of the company held on 8 April 2000, the reappointment of the 1st, 2nd and 3rd petitioners as directors was opposed by a majority of the shareholders present, which included some of the respondents, and they have accordingly ceased to be directors.

3. The shares in the company are held by family members of the three founders, Dr Haking Wong, Mr Wong Chiu Lee, and Dr Pauline Chan, and a number of family trusts. The total number of issued shares is 1,056,869 of which the Dr Haking Wong family and trusts hold 635,405, the Wong Chiu Lee family hold 130,256, and Dr Pauline Chan, her niece and the 6th respondent hold 291,208. Those held by the 6th respondent were shares held by Dr Pauline Chan which she transferred to the 6th respondent, a BVI company, in July 1994. All the shares in the 6th respondent are now held by HSBC Trustee in A/C 006-097448-001. I have no other information about this trust. Prior to the annual general meeting on 8 April 2000, HSBC Trustee caused the 6th respondent to appoint Dr Pauline Chan as its proxy for the meeting, in her position as chairman of the company and settlor of the trust.

4. What happened at the meeting is set out in the minutes, but may briefly be described as follows. All directors, which included the petitioners and respondents who were not corporate entities, were required to retire under the company's articles of association, but were eligible for re-election. A majority voting against the usual practice of re-electing all the directors en bloc, the meeting proceeded to vote on individual directors on a show of hands. Any director could, under the articles, have demanded a poll, when votes would be by number of shares held, but none did. The votes were accordingly only of those present in person. As a result of this voting procedure, the first three petitioners were not re-elected.

5. The petition herein cites the exclusion of the first three petitioners from the management of the company as a result of the proceedings at the meeting on 8 April 2000 as their cause of complaint, and, in paragraph 8, names the 6th respondent as being represented by proxy exercised by Dr Pauline Chan. It is apparent that this was not the case. As no poll was required in the voting on the directors' re-election, and the vote was on a show of hands only by those present, Dr Chan was only voting on her own behalf, and not as proxy for the 6th respondent, whose shares did not come into consideration at all. There can accordingly be no sustainable allegation of wrongdoing at all on the part of the 6th respondent.

6. Mr Chan, for the 6th respondent, says that it must follow that the petition cannot succeed as against this respondent and must accordingly be struck out. However, this assumes that the court cannot make an order, or would be extremely unlikely to do so, against a member of the company against whom no wrongdoing is alleged. This is clearly not the case. As Mr Graham for the petitioners has pointed out, the language of section 168A is sufficiently wide to allow the court, in its discretion, to make a wide variety of orders, including the purchase of the shares of any members of the company by other members of the company, or by the company. This does not restrict the powers of the court in any way as to who should be ordered to buy out any other member, and Mr Graham again points out that the 6th respondent's shares are arguably under the control of the 5th respondent, Dr Chan, and the court is entitled to take this, and any other matters into account in deciding what relief should be ordered. To grant the order requested would be effectively to deny the court which hears the petition the discretion which section 168A clearly gives it.

7. This was recognised by Vinelott J when considering the equivalent English legislation in Re a company (No 007281 of 1986) [1987] BCLC 593, where he says at page 598:

"A petition under s 459 is not analogous to litigation in which the issues raised affect only those against whom allegations are made by the plaintiff. A closer analogy is an administration action, where all beneficiaries having an interest in the relief sought should be made parties or represented. The practice that has so far been followed in the Companies Court is to require that all members of the company whose interests would have been affected by the misconduct alleged or who would be affected by an order made by the court under the very wide powers conferred by s 461 are to be made respondents to a petition or served with it."

8. The same view was expressed by Lindsay J in Re Little Olympian Each-Ways Ltd [1994] 2 BCLC 420 where, after quoting Vinelott J, he pointed out that that case showed that it is not a necessary condition of joinder that a respondent should have been involved in any way as a wrongdoer in the events complained of.

9. It may well be, as Mr Chan submits, that to make such a buy out order it would have to be an exceptional case, but to accede to the request made I would have to be sure that no court would make such an order in this case. I find that I cannot do that. The 6th respondent is the largest shareholder of all in this company, and may well be controlled by one of those against whom wrongdoing is alleged. It is not sought to have the 6th respondent removed from the proceedings entirely, but only in respect of this part of the relief the petitioners seek. There is therefore no prejudice in respect of this respondent, for instance by being forced to incur what may turn out to be unnecessary costs, but there may well be in respect of the petitioners by denying the judge hearing the matter the discretion to pursue a course of action otherwise available under the ordinance.

10. Of course there are boundaries to any jurisdiction conferred on the court, however wide that jurisdiction might be stated to be. But it is not in my view for the court at a preliminary stage, looking only at the petition, and without the benefit of examing all the evidence surrounding the events complained of, and the nature and control of each of the shareholdings, to deny the judge hearing the case any part of his discretion within that jurisdiction.

11. For these reasons I find that there is no merit in this application which will be dismissed with an order nisi that the petitioners have their costs of it in any event.