TAM SHUK YIN ANNY v. CHOI KWOK CHAN AND OTHERS

HCMP 2399/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2399 OF 2004

____________

______________

_____________

D E C I S I O N

_____________

1.  I have before me a consent summons issued on 12 October 2005 to amend a petition presented under section 168A of the Companies Ordinance, Cap. 32.  I have asked the parties to attend, as I am seriously concerned if it is proper to present one petition where reliefs are sought under section 168A in respect of 4 companies.

2.  Mr Brewer, counsel for the petitioner, has provided a lengthy submission before this hearing.  The solicitors for the petitioner have also made an affirmation to explain why the decision was made to present one petition in respect of 4 companies.

3.  According to the explanation given, advice was taken from leading counsel, who agreed with the solicitors, that there should be just one petition for these reasons:

(1) the dispute was a dispute between the petitioner on the one hand and the 1^st and 2^nd respondents on the other hand; the 4 companies are no more than nominal parties to the petition;

(2) there was a substantial overlap of facts and disputes of the 2 camps in relation to the 4 companies, so the court would need to consider all the facts and disputes between the 2 camps in relation to the 4 companies before deciding what appropriate reliefs should be granted;

(3) even if separate petitions were presented, the court would have to deal with them together at the trial;

(4) issuing 4 petitions would mean duplicating 4 sets of papers for every document filed in the proceedings; it would be more convenient and cost effective just to have one petition for 4 companies.

4.  The solicitors claimed on affidavit it was not “unprecedented” that the court had allowed one petition to cover more than one company.  They have not, however, cited a single decision in which there was any discussion in the judgment why this should be allowed.  The only decision they could possibly come up with is the New Zealand case of Vujnovich v. Vujnovich & Another (1988) 4 NZCLC 64,179, in which one action was brought by the petitioner who sought buy-out remedy for the shares in 3 companies under the statutory provision for oppressive conduct, alternatively for a winding-up order against each of the companies on the just and equitable ground.  Winding-up orders were made against each of the companies.  The case was taken up to the Privy Council [1990] BCLC 227.  No point would appear to have been taken whether it was appropriate to bring one action in these circumstances.  There was no discussion on this point in the judgments in this case.  I do not consider Vujnovich as authority for the proposition that it is proper to present one petition where relief is sought in respect of more than one company.

5.  The staring point is that there is no statutory provision against presenting one petition seeking relief under section 168A for more than one company, nor is there any statutory provision requiring separate winding-up petitions to be presented for each company where the winding-up remedy is sought.

6.  Not infrequently, winding-up remedy is sought in the alternative to relief under section 168A.  So in considering if one petition should be presented where relief is sought for more than one company under section 168A, it seems appropriate that regard should be given to the practice regarding winding-up petitions.

7.  In the present case, the petitioner has not asked for winding-up remedy in the alternative.  I have borne this is mind and I will come back to this later.

8.  Regarding winding-up petitions, the practice in the United Kingdom is to have a separate petition for each company.  That would also seem to be the case for petitions under section 459 of the Companies Act 1985.  To my knowledge, this is also the practice in Hong Kong for winding-up petitions and petitions under section 168A.

9.  In Practice and Procedure of the Companies Court by Boyle and Marshall, 1997 edition, the following passage appeared in the chapter on proceedings under section 459 of the Companies Act (at paragraph 6.7.2):

“It is important to note that there must be a separate petition in respect of each company which is the subject-matter of the proceedings.  Accordingly, where a shareholder holds shares in a number of companies which are treated in substance as a single entity, he must issue a separate petition in respect of each of them and then seek directions from the court that the petitions be heard concurrently or consecutively so that they proceed as though they had been consolidated into one document.”

10.  A similar passage appeared in this work in the chapter for winding up on the just and equitable ground (at paragraph 7.6.1).

11.  The authority cited in both passages in support of the proposition that a separate petition should be presented for each company is the decision of Mervyn Davies J in Re a Company [1984] BCLC 307.  In that case, winding-up remedy was sought in the alternative to unfair prejudice reliefs in respect of 4 companies, being companies that whilst having common shareholders, were not included in any group or the subject of any holding company.  The judge refused an application for leave to issue one petition embracing 4 companies.  He was not persuaded that he should depart from the established practice, even though his refusal would have little practical effect, as directions could be given for the 4 petitions, once issued separately, to be brought on together or consecutively, and directions could be given that the evidence filed in respect of one petition could be read in the proceedings as respects the others.

12.  Mr Brewer submitted that in Re a Company, there was not anything to connect the companies in terms of the conduct complained of except that the 4 companies had common shareholders.  I do not think that is a correct way of reading the case, as submissions were made to the court of the benefits that might arise for the petitioners and the respondents in presenting one petition (at 308a), only that it was not set out in the judgment what these benefits were.

13.  The petitioner’s legal advisers sought to distinguish Re a Company on the basis that leave of the court is required before the issue of a petition under section 459.  That is not correct either.  No leave is required for a petitioner to issue a petition under section 459 of the Companies Act.

14.  Mr Brewer also sought to distinguish Re a Company on the basis that a petition under section 168A is different in nature and effect from a winding-up petition.  I am not persuaded that this difference would have any material bearing to the considerations, which I will come to, why it is good practice that separate petitions should be presented where reliefs are sought for more than one company.

15.  Mr Brewer submitted that the passage I quoted earlier in the work by Boyle and Marshall is no longer good law, as there is “decisive contrary authority” in the subsequent decision of Re Ravenhart Service (Holdings) Ltd [2004] 2 BCLC 376.  I do not agree with counsel’s reading of the case.  In Ravenhart, an interim injunction was sought against various subsidiaries of a company.  Although the subsidiaries were respondents to the application for interim injunction, they were not made respondents to the petition under section 459, alternatively for a winding-up order against the company.  It was submitted by the respondents inter alia that it was wrong to grant interim relief against the subsidiaries, as they were non-parties to the proceedings, and that the petition was bound to fail as the unfairly prejudicial conduct alleged was the conduct of the subsidiaries.  With regard to the first point, the petitioner accepted that the interim relief sought would be an order against the company, precluding it from procuring or permitting the subsidiaries to do certain acts.  As to the other objection, it was held that the fact that the petition had concentrated on the conduct of the businesses of the subsidiaries, which were not parties to the petition, was no bar to the success of the petition, as it could have been expressly alleged that the shareholders and directors of the company had permitted or procured or acquiesed in the unfairly prejudicial conduct by the subsidiaries (at 396b to c).

16.  It is important to note that in Ravenhart, no relief under section 168A was sought in respect of any of the subsidiaries.  It was not necessary to establish unfairly prejudicial conduct in the affairs of each of the companies to found relief under section 168A.  There was no need for separate petitions to be presented in respect of each company.

17.  In my judgment, the passage in Boyle and Marshall is still good law and good practice.  I can see two good reasons why there should be separate petitions where relief is sought in respect of more than one company.

18.  Firstly, it is for administrative convenience.  It is the practice of the Registry that a case file is opened for each company that is the subject of a petition for winding up.  For administrative convenience, it is desirable to have a separate petition for each company.  Unlike a petition under section 168A, winding-up proceedings do not come to an end when a winding-up order is made.  The administration of the liquidation of the company would continue under the same case file.  Where a winding-up order is sought as an alternative remedy in a petition under section 168A, I think the established practice in winding-up petitions should be followed, and separate petitions should be presented for each company where relief is sought in respect of each.

19.  Secondly, even though there may be overlapping of facts and evidence in a situation where there are common directors and shareholders of various companies, it must be borne in mind that each company is a separate entity, and allegations of unfair prejudicial conduct must be established in respect of a particular company before the petitioner is entitled to relief under section 168A for that company.  Separate petitions would make it clear to all concerned what are the allegations of unfair prejudice relied on in respect of a particular company.  This is a sufficient benefit to require separate petitions to be presented where reliefs are sought for different companies.  The solicitors for the petitioner said that issuing 4 petitions would mean duplicating 4 sets of papers for the same dispute for every document filed in the proceedings.  I do not agree.  If there is evidence in common, the petitioner could simply rely on and refer to the evidence filed in another petition.  Directions could be given to facilitate the trial of the petitions together or consecutively.  I cannot see how separate petitions would greatly add to costs or inconvenience.

20.  Here, the petition seeks relief under section 168A for 4 companies.  There are common shareholders and directors for 3 of them, Active Team International Limited (“Active Team”), Advance Wise Development Limited (“Advance Wise”) and Wise Apex Enterprises Limited (“Wise Apex”), being the petitioner and the 1^st respondent.  These 3 companies were incorporated for the purpose of operating various schools in Kowloon.  In respect of the 4^th company, Richmond Properties and Trading Company Limited (“Richmond”), the 2^nd respondent who is the wife of the 1^st respondent, is a shareholder, and the 1^st respondent and the petitioner’s husband are directors.  Richmond was used to hold a property from which two schools were operated by Wise Apex and Advance Wise.  As mentioned, no alternative relief to wind up any of the 4 companies is sought in the petition.

21.  Mr Brewer submitted that one petition was presented for 4 companies because the petitioner’s complaints against the 1^st and 2^nd respondents arose in respect of the mismanagement of particular schools, as opposed to companies, and the dispute was in relation to business matters “cutting across the various companies, rather than on the basis of each individual company”.

22.  That may well be so.  But for relief to be granted in respect of any particular company, unfairly prejudicial conduct in respect of the affairs of that company would need to be established.  The draft amended petition placed before me runs to 63 pages with 155 paragraphs.  It would require an effort to sort out what allegation of unfairly prejudicial conduct relates to which of the 4 subject companies.  That is an exercise that would need to be done.  Although a list of issues was ordered to be filed, and the petitioner and the 1^st and 2^nd respondents have filed separate lists of issues, I find them singularly unhelpful.

23.  The petition has been set down for trial on 26 October 2005, the trial is to take place in May 2006.  All the evidence, with the exception of expert reports, has been filed.  But for the fact that trial dates of the petition have been given and a lot of steps have already been taken in the proceedings, I would have ordered and directed that amendments should be made to the existing petition, so that the relief sought is confined to one company and that separate petitions should be presented for the other 3 companies.  What I am going to order and direct in this particular instance is not to be regarded as approval for the practice adopted here of presenting one petition seeking relief for more than one company.

24.  I consider I do have a discretion to exercise to allow one petition to be presented where relief is sought under section 168A for more than one company, there being no statutory provision to restrict my power in this respect.

25.  I will allow the petition to be amended as per the draft in the consent summons.  There will be an order in terms of paragraphs 1 and 2.

26.  I further direct the petitioner to file and serve within 14 days hereof a list of the allegations of unfairly prejudicial conduct in respect of each of the companies, giving the relevant paragraph references in the amended petition and in the supporting evidence filed by the petitioner.

27.  I order the petitioner to pay the costs of the application to amend, including the costs of the hearing today, to the 1^st and 2^nd respondents in any event.