RE GREATER BEIJING REGION EXPRESSWARYS LTD

HCCW399/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING UP PROCEEDINGS NO.399 OF 1999

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J U D G M E N T

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1. This is an application by Greater Beijing Region Expressways Limited ("GBRE") to strike out the petition presented by Miracle Chance Limited ("MCL") on 5 May 1999. There is also an application for security for costs in the event that the petition is not struck out.

THE STRIKING OUT APPLICATION

2. The issues which arise are :

(1) whether MCL has locus standi to present the petition; and

(2) whether it is clear and obvious that the petition is bound to fail.

Locus standi

3. GBRE is an unregistered company. Part X of Cap.32 deals with the winding-up of unregistered companies. The question of construction which arises is who is a "contributory" for the purposes of Part X and, specifically, whether a person who is a contributory within the meaning of sections 170, 171 and 179 of the Ordinance is entitled to present a petition to wind up an unregistered company. Leading counsel for the Company submitted that because GBRE is an unregistered company, section 170 has no application and the meaning of "contributory" is governed solely by section 328.

4. The starting point of this determination is section 179(1) of the Ordinance which provides :

" An application to the court for the winding up of a company shall be by petition, presented subject to the provisions of this section ... by any ... contributory ..."

Section 179 itself does not provide any definition of "contributory". Rather one has to go to the definitions section (viz. section 2(1)) where 'contributory' is defined by reference to section 171 which reads :

" The term 'contributory' (分擔人) means every person liable to contribute to the assets of a company in the event of its being wound up, and for the purposes of all proceedings for determining, and all proceedings prior to the final determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory." (emphasis added)

In commenting on the English counterpart to section 171, namely, section 74 of the Companies Act of 1862, Roxburgh J in Re Consolidated Goldfields of New Zealand Ld [1953] 1 Ch 689, after setting out the ratio decidendi of In re Anglesea Colliery Co. (1866) LR 1 Ch 555 observed (at 696) :

"... section 74 ... [i.e. s.171 of Cap.32] does not mean what, upon the face of it, it would appear to mean; but that, on the contrary, all past and present members of the company, without limitation, are contributories within the meaning of section 74 of the Act of 1862 ..."

In the Anglesea case, the Court of Appeal had to consider whether or not a holder of fully paid-up shares in a limited liability company was a "contributory" within the meaning of the Companies Act, 1862. In reaching the conclusion that holders of paid-up shares were "contributories", Turner LJ explained that [section 171 of Cap.32] referred to a liability under the Ordinance but did not define the persons on whom the liability created by it was to attach. Rather, one has to look to [section 170] to ascertain the persons who are to be liable. Section 170 reads :

" (1) In the event of a company being wound up, every present and past member shall be liable to contribute to the assets of the company to an amount sufficient for payment of its debts and liabilities, and the costs, charges, and expenses of the winding up, and for the adjustment of the rights of the contributories among themselves, subject to the provisions of subsection (2) and the following qualifications-

.....

(d) in the case of a company limited by shares no contribution shall be required from any member exceeding the amount, if any, unpaid on the shares in respect of which he is liable as a present or past member; ..."

It was held (at 559) that the various paragraphs (such as para.(d)) to subsection (1) :

"... assume the members to be liable, and merely provide in what cases, and to what extent, the liability is to be enforced against them ... Upon these sections alone, therefore, I can hardly doubt that all members of a company, and there can be no doubt that the holders of paid-up shares are members, ought to be held to fall within the description of contributories; but when we look at the scope and purpose of the Act, any doubt which there might be upon the point seems to me to be removed."

Turner LJ went on to describe the scope and purpose of the legislation :

" Now it seems to me to be clear, beyond all doubt, that the purpose of the Act is, inter alia, to adjust the rights of all the members of companies which should be wound up under it. Indeed, I do not see how the rights of those members who have not paid up in full could be adjusted without the rights of those members who have paid up in full being taken into account."

In short, section 170 is descriptive of the persons to whom section 171 refers and upon whom the liability is fixed. Accordingly, all the members including holders of paid-up shares must be considered to be contributories. It is common ground that the above analysis applies to contributories of companies incorporated in Hong Kong.

5. I now turn to the provisions of Part X of the Ordinance. Section 327 provides as follows :

" (1) Subject to the provisions of this Part, any unregistered company may be wound up under this Ordinance, and all the provisions of this Ordinance with respect to winding up shall apply to an unregistered company, with the exceptions and additions mentioned in this section.

(2) No unregistered company shall be wound up voluntarily under this Ordinance.

(3) The circumstances in which an unregistered company may be wound up are as follows-

(a) ...

(b) ...

(c) if the court is of opinion that it is just and equitable that the company should be wound up. ..."

Leaving aside for the time being the opening words "subject to the provisions of this Part", one has first to ascertain the provisions of the Ordinance "with respect to winding-up" which are being referred to in subsection (1). Mr Poon, SC, for MCL submitted that this must be a reference to all the provisions contained in Part V of the Ordinance which has the heading "Winding-Up". Mr Bleach SC, for GBRE, submitted that the provisions referred were only those commencing with section 176 under the rubric "(ii) Winding Up By The Court". Pausing here, it is to be noted that the relevant words in section 327(1) are "with respect to winding up" and not "with respect to winding up by the court".

6. Set out below is the table of contents of Part V :

PART V
WINDING UP

(i) PRELIMINARY
(Sections 169 - 175)

(ii) WINDING UP BY THE COURT
(Sections 176 - 227)

(iiA) WINDING UP BY THE COURT WITH A REGULATION ORDER
(Sections 227A - 227E)

(iiB) WINDING UP BY COURT BY WAY OF SUMMARY PROCEDURE
(Section 227F)

(iii) VOLUNTARY WINDING UP
(Sections 228 - 257)

(iv) (REPEALED)
(Sections 258 - 262 (repealed))

(v) PROVISIONS APPLICABLE TO EVERY MODE OF WINDING-UP
(Sections 263 - 296)

It is unclear whether GBRE's position is that only the sections within rubric (ii) are applicable. It would appear not since the sections under rubric (v) as well as rubrics (iiA) and (iiB) must necessarily apply. If so, then quite why the provisions appearing under rubric (i) which relate to 'preliminary' matters are to be excluded is not apparent. Moreover, it would appear that GBRE's written submissions relied specifically on section 171 which falls under rubric (i). A selective (and, seemingly, contrived) application of Part V provisions is not a valid reason for excluding rubric (i) from being incorporated by reference. For example, apart from section 171 referred to above, section 169(2) under rubric (i) is also a provision of general application to winding up. It provides :

" (2) The provisions of this Ordinance with respect to winding up apply, unless the contrary appears, to the winding up of a company in any of those modes."

Indeed, the more natural and logical construction is that the provisions applicable are prima facie all those within Part V (including those under rubric (iii)) since they all concern 'winding-up'. The provisions under rubric (iii), relating as they do to voluntary winding-up, would fall to be excluded only by reason of section 327(2) read together with the concluding words of section 327(1). In contrast, nothing in section 327(2) to (4) requires the provisions under rubric (i) to be excluded.

7. Turning to the opening words "subject to the provisions of this Part", there are two provisions in Part X that are of particular relevance :

"328. Contributories in winding up of unregistered company

(1) In the event of an unregistered company being wound up, every person shall be deemed to be a contributory who is liable to pay or contribute to the payment of any debt or liability of the company, or to pay or contribute to the payment of any sum for the adjustment of the rights of the members among themselves, or to pay or contribute to the payment of the costs and expenses of winding up the company, and every contributory shall be liable to contribute to the assets of the company all sums due from him in respect of any such liability as aforesaid. ..."

"331. Provisions of Part X cumulative

The provisions of this Part with respect to unregistered companies shall be in addition to and not in restriction of any provisions hereinbefore in this Ordinance contained with respect to winding up companies by the court, and the court or liquidator may exercise any powers or do any act in the case of unregistered companies which might be exercised or done by it or him in winding up companies formed and registered under this Ordinance:..."

As I understand it, GBRE's submission is that section 328 provides a self-contained definition of 'contributory' governing Part X companies and therefore there is no room for the application of the provisions under rubric (i). The effect of the construction put forward on behalf of GBRE is that a fully paid-up shareholder of an unregistered company has no locus to present a winding-up petition. Mr Bleach SC for GBRE referred to a statement in Palmer's Company Law, Vol.3 at 15.659 to the effect that "contributory" as defined technically includes a member of a limited company who has no liability (because his shares are fully paid) but it does not include a member of an unregistered company who has no actual liability to contribute. Re Welsh Highland Railway Co. [1993] BCLC 338 was cited as authority for that proposition. The relevant passage from the judgment of Vinelott J is at 353a-c :

"... For reasons I have already given, Holdings cannot claim to be a creditor or a contributory. I should perhaps add that even if Holdings could by some means obtain the registration of transfers of ordinary shares to it, it would still not be contributory entitled to apply for a stay. In the case of a registered company a member holding fully paid shares in a company limited by shares is brought within the definition of a contributory in s 507(1) of the 1985 Act by s 502(1) [viz. s.170 of Cap 32], notwithstanding that by virtue of s 502(2)(d), he cannot be required to contribute to the payment of the company's debts and liabilities . However, in the case of an unregistered company, only a person who is liable to pay or contribute to the payment of any debt or liability of the company or to contribute to the payment of any sum for the adjustment of the rights of members amongst themselves or to pay or contribute to the payment of the costs and expenses of the winding up, is to be deemed to be a contributory (see s 328 of the 1985 Act)."

Mr Poon SC submitted, in my view correctly, that the observations of Vinelott J were obiter since he had already decided that Holdings had no locus. More importantly, it would not appear that the construction of the various sections equivalent to our sections 170, 171 and 328 were considered in any depth. It would appear that the phrase "liable to contribute" was simply taken at face value. But, as noted earlier,

"[section 171] does not mean what, upon the face of it, it would appear to mean".

See per Roxburgh J in Re Consolidated Goldfields of New Zealand Ltd (supra) at 696. Its meaning can only be ascertained by reference to section 170. In these circumstances, little weight is to be attached to Welsh Highland Railway case, which, in any event, is not binding on this court.

8. GBRE's position is that only persons who have an actual liability to contribute qualify as "contributories" for Part X purposes under section 328(1). This requires a closer examination of the provisions themselves. It is noteworthy that the word "actual" nowhere appears in section 328(1). When section 328(1) is put side by side with the opening words of section 170(1), what is striking is the similarity of the two provisions. Both use the phrase "liable to contribute" and the purposes for which a person may be liable to contribute are in substance the same under both sections including the adjustment of the rights of the members among themselves. As noted above, the ratio in the Anglesea case is that the rights of members who have not paid up in full cannot be adjusted without the rights of those members who have paid up in full being taken into account. In Re Phoenix Oil and Transport Co. Ltd [1958] Ch 560, Roxburgh J observed (at 564) :

"... By this line of reasoning the statutory definition is expanded to mean every person who would be liable to contribute in any possible event under the Act. The importance of this analysis for the present purpose is that holders of fully paid shares do not become contributories because they are entitled to participate in surplus assets, but for another reason."

In order to carry out that purpose, i.e. the adjustment of the rights of members inter se, one has to give "contributory" the meaning established by the Anglesea line of authorities. To hold otherwise would be to give substantially similar provisions in the same Ordinance different meanings which could not have been intended by the legislature. Moreover, it would have the effect of differentiating between the position of a paid-up shareholder in a company incorporated in Hong Kong and that of an unregistered company where no readily discernible reasons can be identified.

9. Such difficulties do not exist if, as a matter of construction, section 328(1) merely supplements section 170. That there is such a need is not surprising given the wide meaning of "unregistered company" which, in addition to companies, includes any partnership or association. Moreover, section 328(1) is framed as a deeming provision rather than a provision defining the meaning of the term "contributory" : as such, it would most naturally cater for persons liable under those broader categories. Such a construction is entirely consistent with the approach of section 331 which stipulates that the provisions of Part X be "in addition to" and not "in restriction of" the provisions of the Ordinance with respect to winding up companies by the court. Nor is there anything in section 328(1) itself that requires the word "contributory" to be construed differently from that established under sections 170, 171 and 179.

10. For these reasons, a fully paid-up shareholder of an unregistered company is a 'contributory' entitled to present a winding-up petition so long as he also satisfies the conditions set out in proviso (a) to section 179(1). It is common ground that MCL is within section 179(1)(a)(ii). Accordingly, I hold that MCL does have locus standi to present a winding-up petition.

Rule of practice

11. Prior to its taking the point on the statutory construction of 'contributory' for the purposes of an unregistered company, GBRE had earlier submitted that as there is a dispute as to whether MCL owns any shares in GBRE, that issue should be decided in other proceedings, that the petition is not the appropriate place for determining the ownership of shares in GBRE and should accordingly be struck out. Leading counsel for GBRE relied on cases such as In re J.N. Ltd [1978] 1 WLR 183 at 187; In re Bambi Restaurant Ltd [1965] 1 WLR 750 at 753 and Alipour v. Ary [1997] 1 WLR 534 at 544. But in those cases whether the petitioner was a 'contributory' entitled to present a petition was bona fide disputed. Here, in view of my ruling on the meaning of "contributory", MCL's locus standi is no longer an issue. Accordingly, I do not derive much assistance from those decisions.

12. However, in Re a Company (No.001363 of 1988) ex parte S-P [1988] Ch 579 at 588f Warner J referred to Re Garage Door Associates Ltd [1983] BCLC 164 as showing that :

"Where the petitioner does have locus standi to present a petition it lies in the discretion of the court whether to allow any dispute about the ownership of the shares in the company to be resolved on the hearing of the petition or to require that the dispute should be dealt with in separate proceedings before any petition is proceeded with."

It would thus appear that the court still retains a discretion notwithstanding the holding that MCL has locus standi to present a petition if indeed the dispute is about ownership of shares in GBRE.

13. The petition does not seek declarations that the allotments made to the independent shareholders are void. Nor is the court being asked to set aside those allotments. The acts of dilution resulting in the extinguishment of MCL's holding in GBRE, allegedly contrary to the terms of the JVA, constitute wrongful conduct on the part of Mr David Ho said to cause Mr Gao to lose trust and confidence in him. It is that which lies at the heart of the petition and in respect of which relief is sought. Moreover, the rule of practice is really "a matter of procedural convenience" : see per Warner J in ex parte S-P (supra) at 588 g-h. I cannot see that it would be procedurally convenient to isolate out any part of the petition to be separately tried and to strike out the rest of the petition.

Whether the petition is bound to fail

14. The petition is a contributory's petition seeking to wind up the Company on the just and equitable ground. The nub of GBRE's case is that as the relief sought would only arise if the court can conclude that GBRE is a quasi partnership, the petition is bound to fail because there cannot be a quasi partnership with some partners subject to one constitution and others to another. GBRE has independent shareholders and as it is not suggested that they are parties to any quasi partnership that might have existed between the original joint venturers, namely Mr Gao ("Gao") and Mr David Ho ("Ho"), the just and equitable relief by way of a winding-up order cannot arise.

15. It is common ground that for the purposes of this application, the facts alleged in the petition are assumed to be true. It is necessary first of all to examine what precisely the petition alleges.

16. In 1992, Gao met Ho who was at the time the senior partner of the China Property and Infrastructure Group within Messrs Baker & McKenzie. He was instructed by Gao in relation to a property development in the PRC. In 1994, Ho set up his own firm. Gao assisted Ho in his application to become a China-appointed attesting officer and began instructing Ho's firm. In May 1996, Gao on behalf of a Singaporean company which he controlled (PPC) instructed Ho to acquire 19 BVI companies for the specific purpose of entering into joint ventures with PRC authorities in respect of various toll road projects in the PRC. Such projects were then expected to be secured by Gao on behalf of PPC. On or about 12 August 1996, whilst Gao was seeking finance for the toll road projects, Ho approached him expressing his desire of becoming a joint venture partner of Gao or PPC in such projects. In reliance on Ho's oral representations that he would be able to raise the necessary finance and that he knew a number of potential investors, Gao acceded to his request and offered Ho, without payment, a 35% interest in a joint venture company to be formed for the purpose of taking over PPC's interest in the toll road projects. Ho told Gao he would be responsible for the preparation of the requisite documentation and the setting up of the corporate structure of the joint venture. This comprised, inter alia, MCL as the joint venture vehicle between Ho and Gao (collectively "the Shareholders") and the holding company of their interests in the projects, GBRE as the wholly-owned subsidiary of MCL and in which MCL was intended subsequently to retain a controlling interest for the purpose of holding the toll road projects in the PRC, and a number of companies controlled by Ho to provide engineering, technical, management, project, financial and legal advice and consultancy to infrastructure companies. Then on 16 October 1996, Ho produced to Gao for his execution (1) a Joint Venture Agreement ("the JVA") between Gao, Ho's nominee company and MCL governing the joint venture relationship between the Shareholders and the management of MCL and its assets; and (2) a Promoters' Agreement between Gao and GBRE, then a wholly-owned subsidiary of MCL, imposing upon Gao the obligation to procure on behalf of GBRE in future expressway and bridge projects in the PRC.

17. Turning to the JVA which was drafted by Ho's firm, it was recited, inter alia, as follows :

"WHEREAS [Gao] and [Ho] have agreed to establish a joint venture for the purpose of establishing a group of companies to develop, construct, operate and manage a portfolio of strategic expressway and bridge projects in the northern region of the People's Republic of China (the 'PRC') centred around Beijing, Tianjin and Hebei Province, and possibly also in other parts of the PRC if appropriate, with a view to enjoying the good returns from such infrastructure projects.

...

WHEREAS each party desires that the joint venture be financed, operated and managed according to the terms of this Agreement set out below."

Article 2 then stated the parties' intention :

"(a) That [MCL] shall hold a controlling stake in a British Virgin Islands company called Greater Beijing Region Expressways Limited which is the proposed main holding company of the joint venture ('GBRE') and that GBRE shall have under it various wholly-owned intermediate holding companies and below them various wholly-owned direct investment companies for the purpose of holding the relevant expressway and bridge projects (all such companies under GBRE and GBRE itself herein called the 'GBRE Group'); (emphasis added)

...

(c) That [Gao] shall own 65% of the issued share capital of [MCL] from time to time and that [Ho] shall own the remaining 35% such proportions being each herein called a 'Shareholder's Proportion'), and that the issued share capital of GBRE not held by [MCL] shall be in the hands of private placees or, in the event of the listing of GBRE, by the public investors in the relevant stock exchange."

Chapter 5 of the JVA dealt with the management of MCL and the GBRE Group. The effect of articles 16, 17 and 18 gave the Shareholders control not only over MCL but also GBRE. Certain matters such as any change in capital structure required the approval of at least one director appointed by each of the Shareholders to the board of MCL or GBRE as the case may be. Articles 20 and 21 made it plain that not only MCL but also GBRE were formed on the basis of mutual cooperation, trust and confidence.

18. The gravamen of the petitioner's complaint is that he has lost complete trust and confidence in Ho because of a number of events including, inter alia, the dilution or rather extinguishment of MCL's shareholding in GBRE by a series of transactions so that by 28 October 1998, MCL not only ceased to hold a controlling stake in GBRE, it no longer held any shares in GBRE. Paragraph 46C of the petition summarizes MCL's position :

"In the circumstances, the despoliation by [Ho] of [MCL]'s remaining shareholding in GBRE is unlawful and invalid. In addition to misappropriating the remaining assets of [MCL] to himself and others, the transfers described in the preceding paragraph were procured by [Ho] for the purpose of depriving [MCL] of its standing as a contributory to present a winding-up petition against GBRE or to seek redress against [Ho] for breach of director's duties owed to GBRE. In so acting, [Ho] was in breach of his duties owed to [MCL] as set out in paragraph 19 above and was also in contravention of the provisions of the [JVA] ..."

19. It is clear from the terms of the JVA that the GBRE Group as well as MCL formed part of the same joint venture between Gao and Ho. There is no room for doubt that GBRE's submission that the joint venture was confined to MCL is untenable in view of the very clear wording of the JVA.

20. GBRE readily acknowledged that MCL was itself susceptible to a petition to wind it up under the just and equitable ground. Logically, the same reasoning must apply to the GBRE Group. Leading counsel for GBRE submitted that because independent third parties became shareholders of the Company, there was no room for the operation of the equitable principles encapsulated in Ebrahimi v. Westbourne Galleries [1973] AC 360. It is thus the fact of independent third parties becoming shareholders that GBRE considered as constituting an insuperable impediment to the relief sought.

21. Westbourne Galleries has traditionally been regarded as the seminal authority on "just and equitable" winding-up. The underlying principles are set out in the speech of Lord Wilberforce at 379B-D :

" My Lords, in my opinion these authorities represent a sound and rational development of the law which should be endorsed. The foundation of it all lies in the words 'just and equitable' and, if there is any respect in which some of the cases may be open to criticism, it is that the courts may sometimes have been too timorous in giving them full force. The words are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own : that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. ... The 'just and equitable' provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; consideration, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way."

Pausing here, there is nothing in the principles stated to suggest that they become inapplicable upon the admission of independent shareholders.

22. Lord Wilberforce then went on to state (at 379F-H) that it would be impossible and wholly undesirable to define the circumstances in which equitable considerations might arise :

" ... The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence - this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be 'sleeping' members), of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members' interest in the company - so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere."

GBRE acknowledged that contrary to its earlier submission, the memorandum and articles of association of GBRE do contain a restriction on the transfer of shares. Accordingly, as between Ho and Gao, all three elements mentioned by Lord Wilberforce are present. However, GBRE's submission is that unless there was some sort of "quasi partnership" between all the shareholders including the independent shareholders, the equitable considerations would not arise and relief under the just and equitable ground would not be granted.

23. Leading counsel for GBRE relied on Taylor v. Welkom Theatres [1954(3)] OPD 339 for the proposition that winding-up on the just and equitable ground does not arise where there is more than one constitution governing the relationship of the shareholders inter se. In Taylor, the three directors in control of the company held between them less than 22% of the issued share capital. The balance was held by 42 other shareholders. It was submitted that a "quasi partnership" might exist between persons in control of a company even though there are other shareholders who are not members of, or parties to, such a partnership and that any conduct which would justify the dissolution of the partnership would constitute sufficient ground also for the winding-up of the company. The court appeared to approach the question by considering whether the association was a partnership in the guise of a private company and held that it was not. It did not decide that where there is more than one constitution governing the relationship of the shareholders inter se is fatal to the court exercising its jurisdiction to wind up the company on the just and equitable ground. There is also the fact that this case which was decided some 20 years before Westbourne Galleries where the modern formulation of the principles is to be found, is not binding on this court.

24. But what does quasi-partnership mean? As Lord Wilberforce pointed out (at 379H-380B) :

"... To refer, as so many of the cases do, to 'quasi-partnerships' or 'in substance partnerships' may be convenient but may also be confusing. It may be convenient because it is the law of partnership which has developed the conceptions of probity, good faith and mutual confidence, and the remedies where these are absent, which become relevant once such factors as I have mentioned are found to exist : the words 'just and equitable' sum these up in the law of partnership itself. ... But the expressions may be confusing if they obscure, or deny, the fact that the parties (possibly former partners) are now co-members in a company, who have accepted, in law, new obligations. A company, however small, however domestic, is a company not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in."

25. The question whether the principles in Westbourne Galleries can apply where the equitable considerations govern the relationship of only some of the shareholders inter se i.e. the original or founding shareholders but not investors who subsequently became shareholders remains an open question. Prima facie, there is no obvious legal impediment to those principles being applicable. Of course even where the equitable considerations were held to apply, the making of a winding up order remains discretionary. Parties who would be affected by such an order, e.g. the other contributories whom I have already held in other proceedings to be parties are entitled to be heard and their views will be taken into account in the exercise of the court's discretion.

26. This being a striking out application, the relief sought cannot be granted except in a clear and obvious case. So, unless the court is satisfied that the petition is bound to fail, it would not be a proper exercise of the court's discretion to strike out the petition in limine. As I am not so satisfied, the application to strike out falls to be dismissed. This of course does not preclude GBRE from raising this question for determination at the hearing of the petition itself.

SECURITY FOR COSTS

27. As the petition is not struck out, GBRE's application that MCL be ordered to provide security for costs pursuant to Order 23, rule 1 of the Rules of the High Court must now be considered.

28. The issues which arise are (1) whether MCL is ordinarily resident in Hong Kong and, if not, (2) how the court's discretion ought to be exercised.

"Ordinarily resident"

29. The answer is relevant to the court's jurisdiction to order security for costs. Unless MCL is not ordinarily resident in Hong Kong, there is no jurisdiction to make any such order.

30. The phrase "ordinarily resident" has a connotation of continuity. In In re Little Olympian Each Ways Ltd [1995] Ch.D.560, it was held (at 565G) that :

"The addition of the adverb 'ordinarily' does add something of importance to the word 'resident'. It connotes a degree of continuity being required, a reference to the way in which things are usually or habitually ordered: ..."

In relation to a trading corporation and tax, the test for residence is that laid down by Lord Loreburn LC in De Beers Consolidated Mines v. Howe [1906] AC 455 at 458 :

"... a company resides for purposes of income tax where its real business is carried on ... I regard that as the true rule, and the real business is carried on where the central management and control actually abides."

In commenting on that test, in Unit Construction Co. Ltd v. Bullock [1960] AC 351 at 366, Lord Radcliffe observed (at 566H-567A) that :

"... If the conditions [Lord Loreburn] postulated were present, there was residence; if they were not, other conditions did not suffice to make up residence."

31. As appears from the judgment of the Court of Appeal in Insurance Co. of the State of Pennsylvania v. Grand Union Insurance Co. Ltd and Another [1988] 2 HKLR 541, Hong Kong has adopted Lord Loreburn's test : "ordinarily resident" for the purposes of Order 23, rule 1 is to be determined by reference to the location of the central management and control of the company.

32. For GBRE, it was submitted that MCL is a BVI company, its only function is to carry on litigation in Hong Kong in this petition and other related actions, it has produced no evidence of any assets, either within the jurisdiction, or without from which it could satisfy an adverse costs order, and Gao, who is a Singapore resident, is actually funding this petition. On those facts, the court was invited to conclude that the location of MCL's management and control is in Singapore. It was stressed that for the purposes of an application for security for costs, having regard to the tense used in Order 23, rule 1(1)(a), the relevant time is the date of the application.

33. MCL is of course the joint venture vehicle between Gao and Ho and its assets at the time it was set up were its interests in GBRE. Historically, from incorporation until 28 October 1998 when it ceased to hold any shares in GBRE allegedly as a result of Ho's misconduct, the uncontested evidence is that control and management of MCL was located in Hong Kong. Once the GBRE shares were gone, there was nothing left in MCL for it to manage and control as had been its purpose and "real business". This is abundantly clear from the terms of the JVA. So whilst the current activity of MCL can be said to be this litigation, this was not its raison d'être.

34. The question of MCL's ordinary residence is not as straightforward as it might appear because of the unusual facts of the present case. The difficulty arises from the fact that the issue of MCL not being ordinarily resident in Hong Kong would not have arisen but for the very acts complained of in the petition. In other words, the alleged wrongful conduct which precipitated this petition had the effect of causing a change of 'residence' for MCL, at any rate for the prosecution of this petition. I confess that I have considerable reservations as to whether such a change could have had the effect of rendering MCL 'ordinarily resident' outside of Hong Kong : for one thing the connotation of continuity appears to be lacking since "ordinary residence" is something different from the "more ephemeral 'presence' or 'residence'". See per Lindsay J in In re Little Olympian Each Ways Ltd at 567G.

35. Assuming (contrary to my view) that MCL is currently ordinarily resident outside of Hong Kong, this is not a case where the normal principles readily apply. In the usual case involving a foreign plaintiff, the location of the management and control of the plaintiff is not affected by the very acts complained of. Where, as here, it is, the application of the normal rule may work an injustice. In the usual case, there is no linkage between the wrongful acts constituting the subject matter of the suit and the location of the management and control of the plaintiff. In the present case, but for the alleged wrongful conduct, MCL would be ordinarily resident in Hong Kong, which would have made an order for security for costs out of the question. The change in the location of MCL's management and control can only be attributable to the alleged wrongful acts. To require security for costs from MCL in those circumstances is akin to allowing the alleged wrongdoer to exact a premium from its victim who is seeking redress. In my judgment, that is neither just nor right.

36. So, even if (contrary to my view) the court does have jurisdiction to order security for costs notwithstanding the peculiar facts of the present case, I retain a real discretion. It is no longer an inflexible rule that a foreign plaintiff should provide security for costs. In my judgment, it would not be appropriate to order the payment of any security in the present case. I do so for the reasons already stated and also because of my view of the merits : that there is a high degree of probability of success for the petitioner.

37. For these reasons, the application for security of costs is also dismissed.

38. I make an order nisi that costs be to MCL to be taxed if not agreed with certificate for two counsel.