LEONG YUET WAH AND ANOTHER v. WONG WEI LIN AND OTHERS

HCMP 428/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 428 OF 2006

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D E C I S I O N

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1.  This is a summons issued by the 1^st to 3^rd respondents to strike out a petition presented under section 168A of the Companies Ordinance, Cap. 32 in respect of Ovin-Consortium Limited (“the Company”), on the grounds that the petition discloses no reasonable cause of action, that it is frivolous and vexatious, and/or is an abuse of process of the court.

2.  It is not contended that the petition discloses no reasonable cause of action.  As what is sought to be argued is that the petition was presented by the 2^nd petitioner for a collateral purpose, and that none of the complaints in the petition has any substance, it seems that the respondents are relying on the last two grounds for striking out.

3.  I am firmly of the view that it is inappropriate to strike out the petition in this case.  Nothing is to be gained by giving a lengthy decision and subjecting the arguments and evidence filed to detailed analysis.  I wish to say for the record I have of course studied the evidence filed, which is considerable, as there have been several rounds of evidence and the papers placed before me are over 1,700 pages.  It is not appropriate to analyse the strength and weakness of the case advanced on each side and express any view thereon, as the petition should go to trial.  Suffices it to say that I am not able to conclude on the conflicting evidence, without the benefit of cross-examination and discovery, that it is plain and obvious the allegations put forward in the petition are entirely without substance.  I have considered the submissions made on the respondents’ behalf by Mr Ng, SC, and the 3 lengthy affirmations of the 2^nd respondent.  A good deal of what the 2^nd respondent deposed to is really in the nature of submissions.

4.  I will set out succinctly the reasons why I am against the respondents.

5.  I will go first to the allegation that the petition was presented for a collateral purpose.  If this is indeed established, the petitioners will not be entitled to relief.  There are examples of a petition that was struck out for this reason (Re Astec (BSR) plc [1998] 2 BCLC 556 at 591-2), or was dismissed after trial (Re Bellador Silk Limited [1965] 1 All ER 667).  For the court to do so at the striking out stage, I must be able to say with confidence that the allegation of collateral purpose is clearly made out.  This is not a conclusion or inference I can possibly reach now.  As was rightly pointed out by Mr Yuen, SC for the petitioners, the respondents’ case of collateral purpose is premised on the basis that the 2^nd respondent had committed wrongful acts in relation to the joint venture companies of the Company in China.  Very considerable evidence has been filed by the 2^nd petitioner in answer to these allegations of wrongdoing, it would be wrong to reject his explanations and evidence summarily.

6.  The other matter I bear in mind is the timing of the events.  There is evidence before me, supported by documents, that after the family meeting on 1 January 2005, the petitioners’ camp had been looking into the affairs of the Company.  By November and December 2005, both sides were making their moves and things were steadily coming to a head.  The petitioners had raised with the 1^st respondent the increase in capital of the Company, which they allege was without their consent, and letters were produced to show they did question the increase of capital.  The 2^nd respondent has deposed that in November 2005, he had been pressing the 2^nd petitioner to provide a written report on the joint ventures in China and that the 2^nd petitioner had refused to do so, although there is nothing in writing to support the respondents’ contention they did at this time ask for a report or had demanded the 2^nd petitioner to give an account of the affairs of the joint ventures.  The next thing that happened was that a board meeting was held on 9 December 2005 and the directors who attended passed a resolution to appoint the 1^st respondent to replace the 2^nd petitioner as the chairman and legal representative of the joint venture in Shanghai.

7.  Seen from the respondents’ angle, what the petitioners did between January and March 2006 with regard to the joint venture in Shanghai could be seen as unjustifiable and prejudicial to their interest.  But seen from the petitioners’ angle, what they did was a reaction to the moves made by the respondents to oust the 2^nd petitioner from management and to protect their own interest.  From January 2006, both sides were trying to gain control of the joint venture in Shanghai by various moves and by approaches made to the Chinese joint venture partner.  I do not think the action taken by the petitioners in this regard must necessarily be viewed in a sinister light, without the benefit of cross-examination.  I am not prepared to deduce or infer ulterior motives for the presentation of the petition at this stage.  I note that the proceedings in the court in Shanghai, which were stayed due to the commencement of this petition, were brought after the presentation of this petition.

8.  I agree with Mr Yuen it is at least arguable that the steps taken by the respondents to oust the 2^nd petitioner from the Company and from the Shanghai joint venture had prompted the commencement of this petition.

9.  I turn to the contention that the complaints in the petition are unsustainable on the evidence.  I have looked at them individually and cumulatively.  I am not prepared to strike out any of the complaints.

10.  There are 6 heads of complaint.  Two are more important than the others.  One complaint is that there was wrongful increase of the share capital in 1999 and November 2005.  The effect of this increase is that the 3^rd respondent, a company apparently controlled by the 1^st and 2^nd respondents, has become a 67% shareholder and the share holdings of the 1^st and 2^nd petitioners, which had together taken up two-thirds of the share holdings before the 2 increases in capital, have been diluted to just 21%.  The other complaint is that unauthorised long term loans were allegedly made by the 3^rd respondent to the Company, to the tune of HK$30 million.  The petitioners say they have no knowledge of the loans and there was no reason for the Company to obtain the loans.  The respondents say the loans were advanced by the 2^nd respondent to the Company and the 2^nd respondent had assigned his loans to the 3^rd respondent.  The loans were incurred for building new machineries which were injected into the joint ventures in China as capital contribution.  They were repaid in 1999 and November 2005, when they were capitalised by the new shares allotted to the 3^rd respondent in the 2 increases of capital.

11.  As indicated earlier, I do not propose to give a detailed analysis of the conflicting evidence.  I am satisfied that it is arguable in law that the equitable consideration in Re Westbourne Galleries Limited [1970] 1 WLR 1378 may be invoked.  This is a small private family company established by the head of the family, Wong Heck Guong (“WHG”), who had retired as a director for quite some time.  The 4 shareholders, namely the 1^st and 2^nd petitioners and the 1^st and 2^nd respondents, had received their shares in the Company as gifts from WHG.  It is arguable on the evidence they had become shareholders on the implicit understanding that the share holding structure as planned by WHG (that his wife, his son, his daughter and son-in-law together, would each hold one-third of the shares in the Company) would not be varied without the consent of all parties.

12.  The difficulty about the petitioners’ case is that they had, over the years, signed a number of documents, such as resolutions and accounts, that would appear to be inconsistent with the contention that they had no knowledge of or did not consent to the increase of capital and the capitalization of loans.  There would also appear to have been some shifting of ground on the petitioners’ part, whether they had signed blank documents or that they had signed without understanding or knowledge of the contents of the documents.  Further, there was no mention of the allegation of any implicit understanding on the share holding structure in the correspondence of solicitors exchanged before action.  I am not prepared to say, without the benefit of cross-examination, that the explanations given by the petitioners how they came to sign those documents, which on the face would appear inconsistent with their case, are plainly incredible.

13.  There is dispute on the evidence if any money was advanced to the Company for the building of new machineries.  The petitioners say no advance was needed as the Company had made a profit in the building of the new machineries in all instances.  The 2^nd respondent says that as the Company had no factory to build the new machineries in Africa, this would support his case that he had advanced the money from a company in Kenya owned by him.  I note there is no source document adduced by the respondents to establish that money was advanced by the 2^nd respondent or by his company.  I cannot resolve this dispute on the affirmations.

14.  I do not think it is unarguable that the complaints must fail on the ground of laches.  I agree with Mr Yuen it is inappropriate to decide this question against the petitioners on a striking out.

15.  As for the complaints that the 2^nd petitioner was wrongfully excluded from the management of the Company and the Shanghai joint venture, I think it is arguable that the 2^nd petitioner had a legitimate expectation he would have the right to participate in the management and that he would not be removed without just cause.  As mentioned earlier, there is substantial dispute if there was misconduct on the part of the 2^nd petitioner in the management of the joint venture companies.

16.  There is complaint that the 1^st and 2^nd respondent had borrowed money from a bank on the security of a charge of the assets of the Company.  The respondents say this was done with the 2^nd petitioner’s consent as he had signed the charge.  Besides, the loan had been repaid and the charge was discharged in 2005.  The petitioners say they were not consulted about the charge.  They would need to explain the circumstances under which the charge was executed by the 2^nd petitioner.  As for the discharge of the security, past conduct may be relied on to found a petition, if there is genuine concern there may be a repetition of the wrongdoing.

17.  The last complaint relates to the denial of access to documents and records of the Company.  This should be looked at in conjunction with the other complaints.  I am not prepared to strike out this complaint.

18.  I dismiss the strike out application for the reasons given.  Costs should follow the event.  I order the 1^st to 3^rd respondents to pay the petitioners’ costs of this application in any event.  I will give a certificate for two counsel.