LU JUN v. YU QI AND OTHERS

HCCW 282/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 282 OF 2010

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BETWEEN

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D E C I S I O N

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1.  This is an application by the Petitioner to re-amend the Amended Petition by Summons issued on 28 September 2011. The application is opposed by the 1^st and 3^rd Respondents. I have decided to allow the application and I give my brief reasons below.

2.  The Petition was presented on the 30 June 2010.  It was amended on 19 August 2010.  Thereafter at least three Summonses were issued, one by the Petitioner for the appointment of provisional liquidators issued on 12 October 2010.  The next was a Summons by the 1^st and 3^rd Respondents for a Validation Order which was issued on 31 May 2011.  Then there was a Summons issued by the Petitioner for the appointment of Receivers on 7 July 2011.  These three Summonses led to the filing of many affirmations between the parties.

3.  The Petitioner is a 15% shareholder of the Company.  The 1^st Respondent is a shareholder of about 85% in the Company.  The Petition is presented under section 168A of the Companies Ordinance.  It pleads that the 1^st Respondent tried to get the Petitioner to sell his shares and such attempt was unsuccessful.  Thereafter there were alleged acts of oppression against the Petitioner.

4.  Originally the major complaint was that the 1^st Respondent was trying to pass resolutions at EGMs with a view to diluting the capital of the Company and such alleged acts led to the application for injunctions by the Petitioner which were granted.

5.  There were also alleged dubious debts owed by the Company to others under the control of the 1^st Respondent and there were also alleged some acts of depletion of the assets of the Company.  The Petition prays for the remedy of a buyout of the Petitioner’s shares and alternatively for a winding-up order.  The basis for such claim is that the Petitioner had been unfairly prejudiced by the acts of the majority shareholder, the 1^st Respondent, and it is just and equitable for such relief to be granted.

6.  The amendments sought to be added are almost as long as the Amended Petition itself.  In the proposed amendment, it is alleged that there are many more blatant acts of dissipation of assets on the part of the 1^st Respondent and there has also been acts of exclusion of the Petitioner from the management of the Company.  It is alleged by the Petitioner that such wrongdoings or the seriousness of such wrongdoings were discovered or appreciated only at a late stage.

7.  Mr Brian Wong appearing for the 1^st and 3^rd Respondents have put forward a number of grounds of opposition to the application and I set out his broad grounds which are not exhaustive.

8.  It is said that the application has come too late because the proceedings have been set down for trial and trial days lasting 4 days have been fixed before Mr Justice Au in July 2012.  It is said that the amendments, if allowed, may possibly involve more witnesses having to give evidence and therefore the milestone date of the commencement of the trial will be upset.  Then it is said that the Petitioner has offered no explanation for the lateness of the application.  Mr Brian Wong also submits that the amendments amount to a changing of the goalpost and also amount to the pleading of new causes of action post-petition and he relies on the case of Eshelby v Federated European Bank [1932] 1 KB 254.  Finally it is said by Mr Wong that since the Petitioner has indicated that the primary relief sought is a buyout rather than a winding up of the Company, therefore the new complaints are really not relevant.

9.  I now deal with Mr Brian Wong’s grounds of objection.  So far as the first two objections are concerned,  I agree with Mr Jonathan Wong, counsel for the Petitioner that the setting down of a case does not amount to any sort of estoppel against the Petitioner so far as subsequent procedural steps are concerned. The most important point to note is all the complaints in the proposed re-amendments have been covered by affirmation evidence on both sides. 

10.  Mr Jonathan Wong confirms that the Petitioner will not be calling Borelli and Walshto give evidence about the financial affairs of the Company. In those circumstances, it is unlikely that any experts will have to be called by the parties.  As regards other possible witnesses, Mr Jonathan Wong has pointed out that the 1^st Respondent has produced or referred to unsworn statements and letters from various possible witnesses, but these persons have not been put forward as potential witnesses.  In those circumstances, I do not think that it is likely that there will be any or many additional witnesses, and hence I do not think that the trial will be lengthened to any extent.  Even if the amendments were to necessitate a lengthening of the case, in my view, there is still a lot of time between now and July next year to enable the parties and the court to make arrangements for more days to be reserved for the trial.

11.  As regards the complaint that there is no explanation put forward by the Petitioner for the lateness of the application, as Mr Jonathan Wong has pointed out, there was a flurry of affirmations, in fact something like ten affirmations, filed between the parties during the period from March to October this year.  And I accept the explanation that the amendments really have the effect of consolidating what has come out from those affirmations.  In the circumstances, I do not think that it is unreasonable for the application to have been taken out at the end of September this year.

12.  So far as the complaint about moving the goalpost and the post-Petition new causes of action are concerned, it is to be noted that the Eshelby case was decided a long time ago in 1932 and in fact in subsequent years the principle enunciated in that case had been modified by various courts in England.  In the case of Tilcon Limited v Land and Real Estate Investments Limited [1987] 1 WLR page 46.  The Court of Appeal in England allowed an amendment to the pleadings in a contract case.  At page 30, Lord Justice Dillon after having referred to the Eshelby case, gave some general examples of addition of claims in actions.  Between letters G and H he says:

“It is clear that there are many circumstances in which matters which would ordinarily fall to be pleaded and have happened since the pleading was originally delivered may fall to be put before the court at the trial and may even be dealt with by way of amendment of the pleadings.  One obvious example is in the matter of special damages in an action for damages for personal injuries.  Special damages have to be pleaded, and ordinarily the special damages down to the preparation of the statement of claim would be pleaded in the statement of claim with perhaps some such words as “and continuing,” and further details of the particulars of any additional matters of special damage or changes in the circumstance would have to be disclosed or pleaded – it does not greatly matter which – up to the time of the trial.  Again it would seem that if there was an action against the defendant for breach of contract for failing adequately to repair some article or machinery and further consequential damage was suffered by further defects in the machinery being caused after the issue of the writ and the launching of the claim, it would be possible to amplify the plea by setting out the further damage.”

13.  In the case of Vax Appliances Limited v Hoover Plc [1990] RPC 656, Mummery J. in a patent case also allowed an amendment of pleadings.  At page 661, he dealt with the Eshelby case.  Between lines 25 and 30 he says (having referred to Order 20 r. 5(1) of the Rules of the Supreme Court):

“The court’s power to grant leave to amend a pleading is in the most general terms. I do not find in the rules or in the cases any absolute rule against granting leave to amend to introduce a new cause of action which has arisen since the date of the writ or the relevant pleading.”

And slightly later, after having referred to the Eshelby case he says:

“Since Eshelby, Lord Brandon’s comments in the cases which I had mentioned make it clear that the addition of a new cause of action does not relate back to the writ or pleading in question; it dates only from the time the amendment is made. It is also clear from the provisions of Order 18, rule 9, which are in a different form from the equivalent provisions which were in force at the time when the Eshelby case was decided, that there is power to include in a pleading matters which have arisen since the date of the pleading. Further, in my view, the matters sought to be introduced by the reamendments to the counterclaim are not a wholly new cause of action. The amendments are relevant to the scope of the remedy by way of injunction which is claimed by the plaintiffs.”

14.  Then, in a subsequent case in the Court of Appeal Maridive & Oil Services (SAE) v CNA Insurance Company (Europe) Limited [2002] 2 Lloyd’s Rep. 9, the Court of Appeal also dealt with the Eshelby case.  At page 15, Lord Justice Mance (as he then was) said:

“Referring to the Vax Appliances case, Mr Justice Mummery allowed the amendment.   He distinguished Roban Jig as a case where the original claim was incurably bad, and pointed out that, since the decision in Eshelby, there had been two changes: first, the doctrine of “relator back” had been disapproved in Liff v Peasley, and Ketteman v Hansel Properties Ltd., second, O. 18, r.9 of the R.S.C. gave a more general power to amend to include in a pleading matters arising since the date of the pleading.  I interpose to say that that power was however subject to O. 18 r. 15(2) of the R.S.C. precluding a plaintiff from raising in his statement of claim any cause of action which was not mentioned in the writ or did not arise from the same or related facts.  Mr Justice Mummery pointed out that the matters sought to be introduced were not a wholly new cause of action.”

15.  Further on in paragraph 22, the learned Lord Justice goes on:

“Finally, in Hendry v Chartsearch Ltd., [1998] CLC 1382, this Court was concerned with proceedings begun in April, 1994 claiming breach of an agreement for data processing and computer services, entered into with the defendants by a company interface of which the plaintiff was chairman and with his wife owner. The defendants applied to strike out the claim on the ground that the plaintiff was not party to the agreement. The plaintiff maintained that, shortly before the hearing of the application, he had taken an assignment from his company of his claims against the defendants under the agreement. The defendants resisted leave to amend on the ground that it was not appropriate to add a fresh cause of action unless the plaintiff had some valid cause of action at the date of writ or counterclaim. Lord Justice Evans (with whose judgment Lord Justice Henry and Lord Justice Millett agreed) said that scope of the rules had changed since Eshelby, and that –

… in accordance with modern practice generally, the court has a general discretion which should not be restricted by hard-and-fast rules of practice, if not of law, such as that suggested here.

Lord Justice Evans went on to say that the general discretion should be “exercised in accordance with the justice of the case”. He granted leave to amend, saying that the cause of action (breach of contract) remained the same, and that the amendment merely specified the reason why the plaintiff was entitled to pursue it.

23. We are in my view bound by Hendry v Chartsearch Ltd., which appears to me also to reflect the appropriate modern approach.”

16.  In my judgment, the dictum which I have cited above also applies to the present situation.

17.  Moreover, I think that there is some difference between a petition presented under section 168A and a writ of summons or statement of claim in a common law action. 

18.  Mr Brian Wong has also very properly drawn my attention to the case of Geoglobal Partners LLC v PeakTop Technologies USA (Hong Kong) Limited an unreported decision of Madam Justice Kwan (as she then was) which was delivered on 12 December 2007.  In that case Mr Brian Wong unsuccessfully relied on the Eshelby case in resisting an application for amendment of the winding-up petition on just and equitable ground.

19.  In paragraph 10 of the judgment her Ladyship says:

“In respect of the amendment to deal with the removal of Jeffrey and Gregory as directors of the Company, I am inclined to think this is adding a further fact to the existing complaint, which is to secure “the total exclusion of the petitioner from the management of the Company”, already raised in the petition as mentioned earlier.”

And then later she goes on to say:

“I would not regard this amendment as within the rule in Eshelby.”

20.  In paragraph 11, she goes on:

“For the other amendments to deal with the further development in the originating summons which resulted in the withdrawal of the application, again it appears to me that these matters are to give the updated progress of the application which has been mentioned in the petition and are adding further facts to the existing complaint that the petitioner has been denied access to the books and records of the Company. As was said by Megarry J in the context of a winding-up petition on the just and equitable ground in In re Fildes Brothers Limited [1970] 1 WLR 592 at 597E to G, the question whether it is just and equitable to wind up a company is one which must be answered on the facts which exist at the time of the hearing, a winding-up order under this head must be based on subsisting facts and not upon past history.”

21.  I find her Ladyship’s judgment to be particularly pertinent to the present case.

22.  Finally, regarding the submission by Mr Brian Wong that the major relief or the primary relief claimed is a buyout as opposed to winding-up. 

23.  It is to be noted that both reliefs have been claimed, although in the alternative.  At this stage there is no certainty as to whether at the end of the day, the court, if the Petitioner is to be successful, will make an order for buyout or for winding-up.

24.  In any event, in my view, any alleged act of mismanagement or dissipation of assets or oppression of the minority shareholder would be relevant to both kinds of relief. 

25.  For the above reasons, I allow the application in terms of paragraphs 1, 2 and 3 of the Petitioner’s Summons. 

26.  I order that the costs of and incidental to the amendment be to the 1^st and 3^rd Respondents in any event.  And I also order that the costs of the application be the Petitioner’s costs in the cause of the Petition.

27.  I appreciate that the normal order in such a situation would be that the costs of the application should be to the successful party, but in the present case, I do accept Mr Brian Wong’s submission that the application is a bit late although not so late as to warrant my not acceding to it, and also as no sufficient explanation on affirmation regarding the lateness, and this is also in the light of the fact that as early as April, I think, the Respondents were asking for a draft and it was not provided.