CORE PACIFIC-YAMAICHI INTERNATIONAL (HK) LTD AND ANOTHER v. YUANTA SECURITIES ASIA FINANCIAL SERVICES LTD

HCCW 804/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 804 OF 2003

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(Heard Together)

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J U D G M E N T

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1. This is the adjourned hearing of two summonses dated 25 September 2003, issued by Yuanta Securities Asia Financial Services Ltd. The summonses first came on before me on 2 October 2003, when I directed that they should be adjourned for hearing on 15 October 2003. The first summons is issued in HCCW 804 of 2003 ("the Petition"), in which Yuanta Securities Asia Financial Services Ltd is the Petitioner ("the Petitioner"). The second is issued in HCMP 3231 of 2003 ("the MP Action"), in which the Petitioner is the Defendant. There are three respondents to the Petition - Core Pacific Investment Holdings (BVI) Ltd ("the 1st Respondent"), one Wu Ting, who has taken no part in these proceedings, and Core Pacific-Yamaichi International Company (HK) Ltd ("the Company"). As I have noted, the Petitioner is also the Defendant in the MP Action, which is brought by the Company and the 1st Respondent as Plaintiffs.

2. The Petitioner is a shareholder in the Company, and by the Petition seeks remedies (the precise nature of which are not specified) pursuant to s168A of the Companies Ordinance, Cap. 32 ("the Ordinance"), and/or the winding up of the Company on the just and equitable ground pursuant to s. 177(1)(f) of the Ordinance. The basis on which the Petitioner seeks such remedies is allegedly unfairly prejudicial conduct on the part of the 1st Respondent, which is the majority shareholder of the Company, and which has a substantial majority in terms of representation on the Company's board, saying that as a result of such conduct, there has been a breakdown in the relationship between it and the 1st Respondent.

3. By the MP Action, the Company and the 1st Respondent seek to strike out, or alternatively to stay, the Petition.

4. By the summons in the Petition proceedings, the Petitioner seeks a number of different orders. Of these, the orders on which argument before me has focused have been those sought under paragraphs (3), (4) and (5), which, in general terms, relate to the role that the Company is to play in the further conduct of the Petition. By the summons in the MP Action, the Petitioner seeks to strike out the Company as a Plaintiff. The argument has particularly focused on the conduct of the hearing of an application to strike out or stay the Petition which is fixed to be heard before me on 27 October 2003, at which hearing the MP Action (which seeks the same relief) will also be tried.

5. Effectively, the Petitioner seeks to restrain the Company from participating in, or expending any funds on, the Petition proceedings, other than for the purposes of giving discovery or making applications for validation orders pursuant to section 182 of the Ordinance. If such an injunction is granted, it will mean that the Company will not be permitted to take part in the hearing of the application for the striking out or stay of the Petition, which should (says the Petitioner) be dismissed so far as the Company is concerned. The same result will arise from the striking out of the Company as a Plaintiff in the MP Action.

6. Apart from seeking injunctive relief against the Company, the Petitioner also seeks injunctions to prevent the 1st Respondent from causing or procuring the Company to incur costs or to be represented in relation to the Petition other than for the limited purposes indicated above.

7. In order to better understand the position which has been reached, it is necessary to refer first to the background to and history of these proceedings.

8. The background to the proceedings lies in the execution and implementation of an agreement, which has been referred to as the Ma/Sheen Agreement, entered into on 26 November 1999 between Mr Ma Chih Ling and Mr Sheen Ching Jing. That agreement provided for the merger of Yuanta Securities Co. Ltd ("YSC"), a company said in the recitals to the Ma/Sheen Agreement to be under the influence of Mr Ma, with Core Pacific Securities Co. Ltd ("CPSC"), a company said (also in the recitals) to be under the influence of Mr Sheen.

9. Both YSC and CPSC were Taiwanese companies, engaged in securities trading and related businesses in Taiwan and Hong Kong, either themselves or through subsidiaries. The recitals indicate that the objective of the agreement was to integrate the businesses and assets of the two companies (which businesses and assets included the Company itself).

10. It appears to have been envisaged that YSC would run business operations in Taiwan, while the Company would run the business operations in Hong Kong after the merger. There are provisions in the Ma/Sheen Agreement relating to the number of directors to be appointed to the boards of YSC and the Company which indicate that the Ma interests would have control over YSC and thus the Taiwanese operations, and the Sheen interests would have control over the Company and thus the Hong Kong operations. It is said (and is not, I think, disputed) that CPSC ceased to exist after the merger, being subsumed within YSC, which carried on under the name Yuanta Core Pacific Securities Co. Ltd. That company is the parent company of the Petitioner.

11. The Ma/Sheen Agreement provides that matters not specifically provided for should be worked out in a spirit of cooperation and good faith. It provides for certain fixed sums to be paid in the event of particular breaches of it. It further provides that it is to be governed by Taiwanese law, and that disputes should be resolved through arbitration proceedings in Taiwan. It also required the entry into of six further agreements, being a Merger Agreement between YSC and CPSC, and five Strategic Alliance Agreements, each of which was to be entered into between YSC and a different company.

12. I was told that the Merger Agreement was not entered into precisely in the form of the Annexure to the Ma/Sheen Agreement, in that on execution, it had three parties, YSC, CPSC and an additional party called Da Fa, although its actual terms remained the same. However, I do not think that a great deal turns on that.

13. One of the Strategic Alliance Agreements was to be made between YSC and the Company, and it appears that such an agreement was entered into in due course. The Strategic Alliance Agreements set out certain matters in respect of which the parties to them agreed to cooperate, such as cross referrals of clients and business, and provision of facilities and guarantees. It appears to have been envisaged that affiliated companies might enter into separate Strategic Alliance Agreements. Disputes under such agreements were to be settled by negotiation and discussion, but if that produced no result, were to be referred to arbitration in Taiwan.

14. The Petition is, as I have indicated, a minority shareholder's petition, based on allegedly unfairly prejudicial conduct by the 1st Respondent in its control of the Company's affairs. A perusal of the Petition reveals that the allegations relied upon are of the sort not uncommonly found in such Petitions, and relate to the manner in which the 1st Respondent is said to have managed (or mis-managed) the affairs of the Company, in a manner inconsistent with the alleged understanding between the parties, and to the prejudice of the Petitioner. It is said that the Petitioner can no longer be expected to continue in the relationship of co-shareholder in the Company with the 1st Respondent. As is also to be expected, the Petition makes no allegations against the Company.

15. A draft of the Petition was sent by those acting for the Petitioner to the 1st Respondent, about a week before it was issued, apparently in the hope that it would spur the 1st Respondent into making proposals for the resolution of the dispute between the parties without the need to resort to litigation. This did not happen. Instead, the 1st Respondent and the Company (to whom the Petition and covering letter had been copied) jointly issued the Originating Summons in the MP Action, at that stage seeking an injunction to restrain the presentation of the Petition.

16. Such an injunction was granted by Kwan J on the ex parte application of the 1st Respondent and the Company on 25 July 2003. However, the Petition had in fact been issued earlier that day, so that the injunction did not achieve the desired objective. In the event, the Petitioner agreed to refrain from taking further steps in relation to the Petition (including its advertising) pending the inter partes hearing of the injunction application on 1 August 2003.

17. Shortly before that hearing, on 30 July 2003, the 1st Respondent and the Company applied (by summons in the Petition proceedings) to strike out or stay the Petition. At the inter partes hearing on 1 August 2003, the summons of 30 July 2003 was amended so as to make clear the basis of the application - this was that:-

(1)	the Petition was liable to be struck out as an abuse of process, given the existence of alternative remedies, or because it was brought for an improper purpose;
(2)	there should be a stay pending arbitration in Taiwan, pursuant to what was said to be a binding arbitration agreement between the parties to the Petition arising from the Ma/Sheen Agreement and/or the Strategic Alliance Agreement between YSC and the Company; and
(3)	it was sought to strike out at least the part of the prayer to the Petition which sought a winding up of the Company on the just and equitable ground, on the basis that the claim to such relief was bound to fail.

18. At the same time, the Originating Summons by which the MP Action had been commenced was amended so that instead of claiming injunctive relief to restrain the presentation of the Petition, an order was sought striking out or staying the Petition. Although the grounds for this relief were not stated, it is apparent that such grounds must be the same as those underlying the application by the 30 July 2003 summons. It was no doubt on this basis that Kwan J directed that the Originating Summons and the 30 July Summons should be heard together.

19. Also at the hearing on 1 August 2003, the 1st Respondent and the Company sought an interim stay of all proceedings under the Petition, pending the resolution of the summons to stay or strike out and hearing of the Originating Summons.

20. The application for an interim stay was resisted on the basis that the proposed application to strike out or stay the Petition had no prospects of success. It appears from the judgment of Kwan J dated 1 August 2003 that this submission was based on two principal contentions. The first argument was that the Ma/Sheen Agreement was personal to Mr Ma and Mr Sheen, and that the Petitioner was not a party to it, nor to any of the other agreements entered into pursuant to it. It was also pointed out that the Company was not a party to the Ma/Sheen Agreement, although it was a party to one of the Strategic Alliance Agreements. Mr Graham (who appeared for the Petitioner at that hearing, as he does today) therefore argued that any suggestion that the Petitioner was bound to arbitrate its complaints in Taiwan was specious. The second argument was that it was not possible for the Petitioner to be deprived of its statutory right to a winding up by the arbitration agreement, an argument based on the decisions of the Hong Kong Court of Appeal in Re Greater Beijing Region Expressways Ltd [1999] 4 HKC 807 and of Rogers J (as he then was) in Mech-Power Hong Kong-China Ltd (unreported, High Court, 4 June 1996). A subsidiary argument was that it could not be said that there were alternative remedies to winding-up, given the stated inability and/or unwillingness of the 1st Respondent to buy out the shares of the Petitioner.

21. Kwan J declined to conclude at that stage that the arguments which the 1st Respondent and the Company proposed to advance in support of the application to strike out or stay the Petition were unarguable. She therefore considered the balance of convenience, and concluded that there should be an interim stay of the Petition proceedings, including the advertising of the Petition, pending the determination of the 30 July 2003 summons and the MP Action.

22. At that stage, the 1st Respondent and the Company were jointly represented by a single set of solicitors (then Messrs Simmons & Simmons) and counsel. Those acting for the Petitioner had earlier, prior to the lodging of the Petition, questioned the propriety of Messrs Simmons & Simmons acting for the 1st Respondent, given that they had previously been involved in advising the Company on various matters. Following the hearing, the 1st Respondent and the Company changed solicitors, first jointly instructing Messrs Richards Butler, and then Messrs Johnson Stokes & Master. It appears that as a result of advice given by Messrs Johnson Stokes & Master, the Company obtained separate legal representation, from Messrs Wilkinson & Grist, in early September. Those acting for the Petitioner then sought confirmation from Messrs Wilkinson & Grist that the Company would, as is usual in section 168A and 177(1)(f) petitions, be taking a neutral stance as between the two camps of shareholders. That confirmation was not forthcoming. Instead, in a letter dated 13 September 2003, Messrs Wilkinson & Grist indicated that they had instructions from the Company to continue to pursue the relief sought in the 30 July Summons (as amended) and to oppose the Petition. On 23 September 2003 they sought the Petitioner's consent to a proposed amendment to a validation order which had been made by Kwan J on 29 July 2003, to permit payment to them of their fees out of the Company's funds. This prompted the present applications by the Petitioner.

23. The Petitioner's position is that, having regard to the nature of its claims in the Petition, those proceedings are a dispute between itself and the 1st Respondent in their respective capacities as shareholders of the Company, and that in those proceedings, the Company is joined (as it is required by Rules of Court to be) as a necessary party. However, the Company, although a necessary party, is joined in a nominal capacity only. The Petitioner says that the Company should not take sides in such proceedings, and should not actively participate in them. The Petitioner accepts that the Company has a role to play in the proceedings, principally in the giving of discovery, and perhaps in relation to questions of the precise relief to be granted, after the dispute between the shareholders has been determined by the Court, in the event that the Court finds that there has been unfairly prejudicial conduct that calls for some relief to be granted. The Company is also needed as a party to the proceedings in order that it may be bound by the result of the proceedings, and be required to comply with such orders as may be made that involve it in taking particular action. That apart, says Mr Graham, there is no role for the Company to play in the battle between the respective camps of shareholders. Mr Graham relies on the line of authority starting with Pickering v Stephenson (1872) LR 14 Eq 322 and which culminates in the decision of Lindsay J in Re a Company (No. 1126 of 1992) [1994] 2 BCLC 146. Mr Graham contends that those authorities establish that, save in exceptional circumstances which are not present in this case, it is improper for a company to take an active role in what is essentially a dispute between its shareholders. I shall return to that line of authority later in this judgment.

24. Mr Tong SC, appearing for the Company, contends that it is perfectly in order for the Company to participate in the proceedings as it proposes to do. However, he says first that I should not accede to this application at all, as it is an abuse of process in that it is not open to the Petitioner to make this application, as the matter has been concluded by the decision of Kwan J on 1 August 2003, when she held that the matter was sufficiently arguable that an interim stay of proceedings should be granted. As a subsidiary point, Mr Tong contends that the balance of convenience now, as it did on 1 August 2003, lies in favour of preserving the status quo until the hearing on 27 October 2003. Mr Tong goes on to submit that the Company is entitled, in its own right, to seek a stay of the Petition on the basis of the arbitration agreements contained in the Ma/Sheen Agreement and/or the Strategic Alliance Agreement to which it is a party. Finally, he submits that in the particular circumstances of this case, the Company is justified in taking an active role in the proceedings, particularly when it is not (as the evidence filed for the Company suggests) expending its own funds in doing so, having regard to:-

(1)	its rights under the arbitration agreements referred to above;
(2)	the fact that it considers the Petitioner to be pursuing the Petition for ulterior purposes, namely to advance its own interests in the Hong Kong securities trading field in which it has a renewed presence through a company called Kim Eng Holdings (HK) Ltd;
(3)	the serious implications of the presentation of the petition, which include the possible loss of its or its subsidiaries licenses to carry on various forms of business which are regulated by the Securities and Futures Commission ("SFC"), which may result in its being unable to continue to operate;
(4)	the fact that the relief sought by the Petition includes a winding up order; and
(5)	the fact that there are other remedies open to the Petitioner apart from a winding up, so that at least the part of the relief seeking a winding up should be struck out.

Finally, Mr Tong says that the proper time to determine whether it is right for the Company to participate in the Petition proceedings is at the trial and not in advance of it.

25. I shall consider each of these arguments in turn. I deal first with the suggestion that the present applications are an abuse of process. In my view, they are not.

26. The hearing before Kwan J on 1 August 2003 was, as is apparent from her judgment, of limited scope. It concerned the question of whether or not an interim stay of the Petition should be granted pending the full hearing of the applications (both by the Summons of 30 July 2003 and the Originating Summons in the MP Action) to strike it out or stay it. It is clear from the judgment that no question was raised at that hearing as regards the propriety of the Company being a party to the applications. This issue was not addressed in the judgment at all. That being so, it seems to me that no issue estoppel of the sort considered in the Australian case of Re Martin (1996) 141 ALR 117, where there was a specific determination of an issue relating to an alleged moratorium agreement, arises in this case.

27. I have considered whether or not it might nonetheless be said that the situation here is comparable to that in Chanel Ltd v F W Woolworth & Co. Ltd [1981] 1 WLR 485, where there was a failure to lead evidence on a point which would have given rise to a good defence to a claim to an interlocutory injunction which the defendants in that case did not contest, instead consenting to give an undertaking not to do the acts sought to be enjoined, or in Elegant Jump Ltd v Tribune Bridge Ltd [2000] 3 HKC 133, where it was held, applying Chanel v Woolworth, that in the absence of exceptional circumstances, a party should not be permitted to seek fortification of a cross-undertaking in damages subsequently to the hearing at which an injunction was granted against the cross-undertaking, when no attempt was made to seek fortification at the original hearing. In both of those cases, the question that was not argued appears to have related directly to the issue under consideration. In this case, however, it does not seem to me that the question of the appropriateness of the Company being a separately represented and active party to the application to strike out or stay directly arose for consideration before Kwan J.

28. Even if it did, it seems to me that the failure to raise the point at that stage was excusable. At that stage, both the Company and the 1st Respondent were represented by a single set of legal advisers, and the question of separate representation and active participation would not have been likely to have been present to the minds of the Petitioner or the judge. At most, there might have been occasion to question the funding arrangements for such representation with a view to ascertaining whether or not the Company was involved in funding any part of the costs of the application. It seems to me that it was only when the Company finally obtained separate legal advice and decided that it was appropriate for it to continue to participate in an active manner in opposition to the Petition that the question of whether or not it should be permitted to do so really arose for consideration.

29. Insofar as may be necessary, I am also of the view that there has been a material change in circumstances since the hearing before Kwan J, in that the company's presently intended active and separate opposition to the Petition and active and separately pursued striking out and stay application would not have been apparent to either the Petitioner or Kwan J at the time of the 1 August 2003 hearing.

30. At the end of the day, however, I would question whether anything really turns on this point. It seems to me that all that Kwan J was deciding was that there should be an interim stay of the Petition pending the resolution of the stay and striking out application (and the MP Action, which seeks the same relief). At the hearing of those applications, it would, in any event, be necessary for the Court to take a view as to whether or not the Company was entitled to take an active part therein by separate representation if the Petitioner were to object to such participation by the Company. At that stage, there would be no basis for the Company to take the point now taken by Mr Tong, since the hearing would be the substantive hearing pending which the interim stay had been granted, and the interim stay would not at that stage be of any further effect. In seeking to deal with the point on the present summonses, the Petitioner is doing no more than seeking to bring forward the time at which this part of the substantive hearing is to be argued. I do not see anything objectionable in principle in its seeking to do this. Indeed, at the first hearing of these summonses on 2 October 2003, I directed that they should be heard on 15 October 2003 as it seemed to me that it was desirable to deal with the question of whether or not the Company should be an active participant at the hearings on 27 October 2003 in advance of that hearing, as a decision that the Company should not take part would limit the scope of the representation and the time needed for argument at the hearing on 27 October 2003. There might, although there would not necessarily, also be some savings in terms of costs.

31. It remains my view that it would be desirable to determine the question of the Company's entitlement to participate at the hearing on 27 October 2003 prior to the start of that hearing. That being so, I do not consider that there is any impediment to my doing so now, by reason of the course that was taken at the 1 August 2003 hearing, and I do not consider that there is any abuse of process in the Petitioner seeking to have this point determined now.

32. It follows from this that I would also reject the subsidiary argument that was put forward by Mr Tong, to the effect that the balance of convenience at this stage lies in favour of preserving the status quo at least until the hearing of the stay and striking out applications on 27 October 2003. Given that I take the view that it is appropriate for the question of the participation of the Company at that hearing to be dealt with substantively today, in advance of that hearing, I do not consider that any question concerning the balance of convenience arises in relation to this application.

33. I turn next to consider Mr Tong's argument that the Company is entitled to participate actively at the hearing of the applications on 27 October 2003 because it has a separate "cause of action" to pursue. By this, Mr Tong was referring to what he contended was the Company's entitlement to have the Petition stayed on the basis of the arbitration clauses in the various agreements to which I have referred. It was his contention that this represented a contractual right of the Company itself, which the Company was entitled to assert.

34. It will be remembered that the Petitioner is not a named party to either the Ma/Sheen Agreement or the Strategic Alliance Agreement entered into by YSC and the Company. Neither is the Company a named party to the Ma/Sheen Agreement. However, Mr Tong, relying on two opinions as to Taiwanese law from Mr David Su and Dr Richard Chuang respectively, contends that under Taiwanese law, it would be open to the Company to seek to invoke the arbitration provisions against the Petitioner, on the basis of what has been described as the "group theory" in relation to arbitrations, by which an arbitral tribunal may assert jurisdiction over an entity that is not a party to an arbitration agreement by reason of its relationship with a party to that agreement.

35. Mr Tong suggests that on the basis of that evidence as to Taiwan law, the Company is entitled to assert a right to have the Petition stayed to arbitration, and that such a stay is mandatory, given that the arbitration agreement contained in the Ma/Sheen Agreements is an "international arbitration agreement" within the meaning of the Arbitration Ordinance, Cap. 341, so that the Court has no choice but to stay the matter, once there is, as he submits there is here, a dispute between the parties to the arbitration agreement.

36. The question of whether or not Taiwanese law recognises and would apply the "group theory" in this case is in dispute between the legal experts giving evidence for the Company and 1st Respondent and those giving evidence for the Petitioner. However, this is a matter that will arise for consideration at the hearing of the stay application, and I express no views on it at this stage, particularly as, in my view, it is not necessary to do so for the purposes of this hearing.

37. In my view, Mr Tong's argument is not well founded. It rests on the premise that the Petition involves a dispute between the Petitioner and the Company which is the subject of the arbitration agreement. Assuming, without deciding, that both the Petitioner and the Company are (as the Taiwanese legal experts for the Company and the 1st Respondent say) parties to one or other, or both, the arbitration agreements in question, it nonetheless seems to me clear that the Petition does not involve any dispute between the Petitioner and the Company at all, let alone one that falls within the subject matter of the arbitration agreement. In coming to this view, I do not ignore the fact that questions of the scope of the arbitration agreement are matters for the arbitral tribunal, and that it is no longer possible, as once it was, for a claimant to sidestep an agreement to arbitrate by contending that there is no real dispute between the parties, in situations in which the claim is one in respect of which there is said to be no real defence, since the question of whether or not the claim is genuinely disputed is now regarded as itself being a dispute for resolution by the arbitral tribunal.

38. In my view, however, the key point is that in presenting the Petition, the Petitioner is only bringing a substantive claim against the 1st Respondent. The Company is, for procedural reasons, a necessary party to the proceedings. It is not, however, a party against which any allegations are made. Nor is it a party against which any claims are asserted by the Petitioner. That being so, it does not seem to me that the bringing of a petition such as the Petition in this case involves the Petitioner in any dispute with the Company upon which any arbitration agreement between them could bite.

39. I do not think that this is properly a question on which the arbitral tribunal, applying Taiwanese law, could claim to have jurisdiction, since the characterisation of the proceedings as involving no dispute between the Petitioner and the Company is one which involves Hong Kong's procedural law, which is therefore the relevant law applicable to that question. I note that while the legal experts giving evidence for the Company and the 1st Respondent have expressed the view that the Petition gives rise to disputes that are within the terms of the arbitration agreements in question, they do not appear to differentiate for these purposes between the Company and the 1st Respondent as parties with whom such disputes have arisen. Moreover, it does not appear from their respective opinions that the nature of a section 168A or 177(1)(f) petition, as being, as a matter of Hong Kong procedural law, proceedings which concern a dispute between the shareholders of a company, but involve no dispute between the complaining shareholder and the company itself, was brought to their attention.

40. Thus, I conclude that even if both the Petitioner and the Company were parties to the arbitration agreements in question, this does not provide a basis on which the Company can claim to be entitled to participate in the stay and striking out application.

41. I now consider Mr Tong's argument that, having regard to the established principles relating to the circumstances in which a company can properly participate actively or expend its own funds in proceedings by a shareholder for relief under section 168A or section 177(1)(f) of the Ordinance, this is a case in which it is proper for the Company so to actively participate by pursuing the striking out and stay applications and opposing the Petition. Mr Graham, for the Petitioner, submits that applying such principles, the appropriate course would be for me to grant the injunctions sought and thus debar the Company from such participation.

42. Mr Tong and Mr Graham cited to me all of the principal cases in the line of authority starting with Pickering v Stephenson (supra). Thus, I was taken to the decisions of the English High Court in Re Kenyon Swansea Ltd [1987] BCLC 514, Re Crossmore Electrical and Civil Engineering Ltd [1989] BCLC 137, Re Hydrosan Ltd [1991] BCLC 418, Re Milgate Developments Ltd [1991] BCC 24, Re a Company (No. 004502 of 1988) ex parte Johnson [1991] BCC 234 and Re a Company (No. 1126 of 1992) [1994] 2 BCLC 146. I was also referred to the decision of the Hong Kong Court of Appeal in Re C G & L Investment Ltd and Wyatt Estates Ltd [1992] 1 HKC 78.

43. In all of those cases (with the exception of Pickering v Stephenson, which was decided well before the English equivalent of section 168A of the Ordinance was first enacted) the courts have reiterated that the nature of claims by a shareholder, whether under section 168A, or section 177(1)(f), or their English equivalents, involve only claims against the shareholder said to be in control of the company concerned, and do not involve claims against the company itself, which is a nominal party, and which should not, ordinarily, participate or expend its funds in a partisan way in those proceedings. Where such funds are so expended, that will usually involve a misfeasance on the part of those who authorised such expenditure.

44. Although it is possible to detect differences of emphasis in the approaches of the different judges deciding the cases, I am content to adopt the views expressed by Lindsay J in Re a Company (No. 1126 of 1992) (supra) as an accurate statement of the law in this area. In that case, Lindsay J, having reviewed all of the principal English authorities, concluded in relation to them (at 155h to 156f) that:-

" ... As a body they suggest to me the following.

Firstly, that there may be cases (although it is unlikely nowadays when wide objects clauses are the norm) where a company's active participation in or payment of its own costs in respect of active participation in a s 459 petition as to its own affairs is ultra vires in the strict sense.

Secondly, leaving aside that possible class, there is no rule that necessarily and in all cases such active participation and such expenditure is improper.

Thirdly, that the test of whether such participation and expenditure is proper is whether it is necessary or expendient in the interests of the company as a whole (to borrow from Harman J in ex parte Johnson).

Fourthly, that in considering that test the court's starting point is a sort of rebuttable distaste for such participation and expenditure, initial scepticism as to its necessity or expediency. The chorus of disapproval in the cases puts a heavy onus on a company which has actively participated or has so incurred costs to satisfy the court with evidence of the necessity or expedience in the particular case. What will be necessary to discharge that onus will obviously vary greatly from case to case.

Fifthly, if a company seeks approval by the court of such participation or expenditure in advance then, in the absence of the most compelling circumstances proven by cogent evidence, such advance approval is very unlikely.

Mr Moore would have me add that such participation and expenditure should never be approved in advance, or at all, unless there is a clear demonstrable and unchallenged independence between the company and the protagonists under s 459. Obviously, where that independence is present the task of satisfying the tests I have described is likely to be easier than in those cases where it is absent, but I am reluctant to specify that independence as either a sufficient or a necessary condition. It is not sufficient because even truly independent board members can be swayed by partisan or other considerations they should not have entertained. It is not necessary because even where that independence is lacking, directors, for all their lack of independence, could arrive at a true view of what was necessary or expedient in the interests of the company as a whole and might even arrive at that view for the right reasons.

Finally on the law, I comment that I do not see this analysis as opening floodgates such that the courts will be swamped with applications of the kind before me. In the vast majority of s 459 petitions there will, I think, be no real prospect of satisfying the tests I have mentioned and applications of the kind before me will be so hopeless as not even to be embarked upon."

45. Mr Tong has submitted that in all of the cases under consideration, what the court was concerned with was a situation in which there was threatened or intended expenditure by a company of its own funds on active participation in a partisan way in a minority shareholders action. He points to the evidence filed on behalf of the Company in this case, which is to the effect that none of its funds have so far been spent on these proceedings, and that arrangements have been made for an external source of finance to be made available for the funding of the Company's participation in the proceedings. He asserts that the Company is taking the steps which it has taken and proposes to take independently, on the basis of its own assessment as to what its commercial interests require.

46. Mr Graham responds that while it is true that the cases are, on their facts, cases in which there was a threat or intention to spend the Company's own funds on its participation in the proceedings, that is not a feature that is critical. He suggests that the cases indicate that participation on its own is objectionable, even if it is paid for (initially or otherwise) by some other source, and that the position is a fortiori when coupled with expenditure by the company. He also suggests that, having regard to the relationship between the Company and the 1st Respondent (which appoints some two-thirds of its board of directors), in the light of the common evidence they have put forward in the MP Action, and the similarity and cross-referencing between the evidence they have separately put forward in the Petition proceedings, they cannot be regarded as being independent. He goes on to suggest that, given the absence of any response to a request for information as to the source of the Company's funding, it is to be inferred that such funding is in fact being provided by the 1st Respondent, and that the Company's participation is no more than a second front established by the 1st Respondent.

47. In my judgment, quite apart from questions as to the independence of the Company's board of directors, the source of its funding and its motivation for participating actively in the opposition to the Petition, it will ordinarily be inappropriate for a company which is involved in a section 168A or section 177(1)(f) petition in respect of the conduct of its affairs by a majority shareholder whose actions in that regard are under attack by a petitioner to participate actively in the proceedings either to support or to oppose them, regardless of the source of funding for such participation. I have come to that view because it seems to me to follow from the nature of the company's position as a necessary and nominal party to such proceedings. Given that there are no claims or allegations made against the company itself, and that the proceedings are in reality a contest between the opposing camps of shareholders, it seems to me to follow that the prosecution and defence of the proceedings is a matter that should be left to the respective camps of shareholders alone. In ordinary civil litigation, while a party is entitled to employ as many legal representatives as he likes (in terms of the number of solicitors or counsel engaged upon his litigation), he is only entitled to one set of representation (whatever its size) in the course of the particular proceedings. Where there are several counsel instructed for one party, the court is careful to ensure, so far as it can, that there is no overlap or repetition in the submissions made (or in rare cases, cross-examination of a witness conducted) by different counsel for the same party. That being so, it seems to me in principle to be objectionable to permit the company, a nominal respondent, to participate in the conduct of the petition, and thus support one side or the other, particularly in a manner involving additional and separate representation, unless there are demonstrated good reasons for it to do so.

48. I therefore think that unless the Company is able to point to good reasons for its participation in these proceedings, which render it necessary or expedient for it to participate, it should not do so, even where there is no suggestion that it is expending its own funds on such active participation. In so concluding, I do not lose sight of the fact that there are many cases in which this question will only arise for consideration at the end of the proceedings, and that the principles expounded by Lindsay J were not stated in the context of an application for an injunction to restrain such participation. It is clear from the decision of Lindsay J that he was not faced with such an application - the application before him was for advance approval of the company's intended participation. Such an application would only be acceded to, according to Lindsay J, where the company was able to prove the existence of the most compelling circumstances by cogent evidence. However, even where it is not the company who seeks advance approval, it remains for the company to justify its participation by clear evidence as to necessity or expedience, it being borne in mind that the onus on the company is a heavy one. In my view, there is no significant difference for these purposes between an application for an injunction to restrain intended participation, and an application after trial, for approval of participation which has already taken place - in both cases the onus is on the company to justify its participation, or proposed participation, as the case may be.

49. In this case, there can be no doubt that the Company intends, if permitted, to participate in a partisan way at the hearing of the application to strike out or stay the Petition. So much is clear from the tenor of Mr Tong's submissions, and from the fact that the Company has filed evidence in support of that application. I therefore turn to consider the various factors put forward by the Company as reasons why it is said to be necessary or expedient for it to participate actively in that application and to oppose the Petition.

50. The first factor relied upon by the Company is the contention that it has an independent right, pursuant to the arbitration agreements referred to above, to have the Petition stayed to arbitration. For the reasons which I have already given, I do not consider that this argument is well-founded. It follows that I would not consider the existence of the arbitration agreements (even if they amount to agreements between the Company and the Petitioner) to be a factor which renders it necessary or expedient for the Company to actively participate in these proceedings and to pursue the striking out and stay application.

51. The second factor relied upon is the alleged ulterior motive, or lack of clean hands, on the part of the Petitioner. The argument here is that the Petitioner's involvement and interests in a competitor company of the Company show that the Petition is brought not to redress any wrong that has been done to the Petitioner, but in order to damage the Company and promote the Petitioner's other interests. Mr Graham submitted that the question of clean hands was irrelevant, since the court hearing this petition would be considering the exercise of a statutory discretion, and not a general equitable discretion. In my view, the question of "clean hands" can be relevant where the impropriety or wrongdoing said to constitute a lack of clean hands is said to be causative of the breakdown in the relationship between the parties, or perhaps to render the conduct said to be unfairly prejudicial either not unfair, or not prejudicial. It is not clear whether there is a lack of clean hands in this sense in this case. However, that is not a matter that I need, in my view, to determine now. Whatever the position may be in that regard, I do not see how it is a point which it is either necessary or expedient for the Company, as opposed to the 1st Respondent, to raise. Although it is fair to say that the point is developed in more detail in evidence filed by the Company, the point is clearly raised and referred to by the 1st Respondent in its evidence also. That being so, I can see no necessity for the Company to participate in the proceedings to raise the point. Nor am I convinced that it is expedient for it to do so. In the ordinary course, having regard to the nature of the dispute - that it is one between the two camps of shareholders, I would have thought that points such as this, going, as they do, to the merits of the Petition, are points which are properly to be made by the respondent shareholder, rather than the Company.

52. So far as the third point raised by the Company is concerned, as to the consequences of the presentation of the Petition, this seems at first sight to be one which is more relevant to the application for an injunction restraining the presentation of the petition, and to the application for an interim stay, than to the question of whether or not the Petition should be struck out or stayed. However, I am prepared to accept for present purposes that it might be arguably relevant to the latter question. That said, however, I can again see no necessity for or expedience in the Company to participate in the hearing of that application to argue this point, for it is again one which is raised and addressed, not just by the evidence filed on behalf of the Company, but also by the evidence filed by the 1st Respondent. While it might be said that the material put forward in this respect comes more appropriately from the Company than the 1st Respondent (as to which I propose to keep an open mind), it seems to me that once the material is before the Court, the argument is properly one for the shareholder respondent rather than the Company to run.

53. I would also observe that although it may be that the presentation of the Petition could have serious consequences for the Company, such consequences are to my mind, no different in character to those which are faced by any company faced with a petition to wind up on the just and equitable ground, or for relief under section 168A. Insofar as the SFC regulations referred to are concerned, I note that it is the Company's opinion that there is a risk that the SFC might consider it (or its subsidiaries) to be not fit and proper persons to be licensed by reason of the existence of the winding up petition. There is, however, no evidence of any expression of such a view by the SFC itself in relation to the circumstances of this case, and I would have thought that the SFC would be well able to distinguish between a shareholder's petition such as that filed in this case and a creditor's petition based on unpaid debts and/or insolvency, in considering what, if any action to take in respect of licences held by the Company or its subsidiaries.

54. So far as the fourth consideration referred to by Mr Tong is concerned, I understood him to submit that because a winding up order was among the relief sought under the petition, the Company was inevitably touched in its corporate capacity so as to entitle it to intervene in the proceedings. I do not think that this can be right, for if it were, every company the subject of a petition to wind up on the just and equitable ground would be entitled to participate at its own expense in opposition to the petition, notwithstanding that the petition does not (as was pointed out by Harman J in Re Hydrosan Ltd [1991] BCLC 418 at 421f-g) involve any claim of wrongdoing against the company itself, as opposed to wrongdoing by its controlling shareholders.

55. In relation to Mr Tong's fifth point, which I understood to be based on the principle that where alternative remedies to winding up exist, a claim for winding up will be struck out if no good reason is shown by the petitioner for pursuing such a claim as opposed to some other form of available relief (see Wong To Yick Wood Lock Ointment Ltd [2003] 1 HKC 484), I do not see that this is an argument which should be run by the Company as distinct from the 1st Respondent. I note that in the Wong To Yick Wood Lock Ointment case itself, the point was (as I would expect it to have been) taken by the first respondent shareholder and not the second respondent company. In these circumstances, I consider that this point too, does not render it necessary or expedient for the Company to take part in the Petition proceedings, or the application to stay or strike out.

56. It will be clear from the foregoing that I conclude that there is not demonstrated, in this case, either necessity or expedience such as would justify the Company in participating actively in the striking out and stay application or, on the material available, in relation to general opposition to the Petition.

57. I deal finally with Mr Tong's contention that the appropriate time for determination of the Company's entitlement to participate in the Petition proceedings is at the trial of the Petition itself. Mr Tong suggests that this approach is the correct approach on the authorities. With respect, I disagree. Although there are indications in the judgment of Lindsay J in Re a Company (No. 1126 of 1992) that it is appropriate for the court to consider the question of the propriety of a company's participation in such proceedings at the end of the proceedings, it is pertinent to bear in mind that Lindsay J was not, in that case, dealing with an application for an injunction to restrain such participation. Having decided that it was not appropriate to endorse proposed participation in advance, he simply left the matter there, and did not need to deal with the question of whether or not the company should participate (and if so how) given that there was no attempt by the petitioner in that case to restrain it from doing so. There is nothing in the reports to indicate what course the company eventually took, and with what result. Having regard to the application before me, and the view that I have taken as to the propriety of the Company's participation in an active way in these proceedings, it seems to me that I should at this stage make it clear that I do not consider that the Company should be taking such active role. In so doing, I am conscious of the fact that there may in future arise circumstances or issues not presently addressed which may, exceptionally, justify the Company in seeking to participate actively in the proceedings, but it seems to me that this can be catered for in the terms of the order to be made.

58. For all of these reasons, I conclude that it would be appropriate for me to make an order substantially in terms of the injunction sought under paragraph (4)(b) of the Petitioner's summons of 25 September 2003 in the Petition proceedings, although I would provide for the possibility that leave may be sought and obtained for the Company to be represented at the hearing of the Petition or to be involved in and about the Petition if proper grounds can be made out. This could perhaps be achieved by inserting words such as "without the leave of the Court" at the beginning of sub-paragraph (b).

59. I turn next to consider the injunction sought under sub-paragraph (a) of paragraph (4) of that summons. It seems to me that this injunction is not necessary, having regard to the injunction granted under paragraph (4)(b). Further, in the light of the evidence which has been filed, I do not think a prima facie case that funds of the Company are in fact being or are likely to be expended on the Petition has been made out, although it may not have been unreasonable for the Petitioner to have had concerns about this until such evidence was filed. I therefore decline to make an order in terms of paragraph (4)(a).

60. So far as the injunctions sought against the 1st Respondent under paragraph (3) of the said summons are concerned, Mr Ng, representing the 1st Respondent has submitted that there is no evidence that the 1st Respondent was threatening to commit any of the acts sought to be restrained, and that there was therefore no prima facie case established which would justify the granting of such injunctions against the 1st Respondent. Mr Graham responded to this suggestion by pointing to the apparently close cooperation between the 1st Respondent and the Company in the preparation and filing of their respective evidence, and to their joint representation in the past. He suggested that the clear inference was that the 1st Respondent and the Company were acting together, and that the overwhelming likelihood was that the 1st Respondent was the party funding the Company's participation in these proceedings. While I can see the force of Mr Graham's points, I do not think I need, at this stage, to come to a view as to this, since it seems to me that such injunctions are unnecessary in the light of the injunction granted under paragraph (4)(b) of the said summons. In these circumstances, I decline to grant the injunctions sought under paragraph (3).

61. So far as paragraph (5) of the said summons is concerned, it seems to me that it follows from my making an order in terms of paragraph (4)(b) and the views which I have expressed that the Company will not be permitted to participate at the hearing of the striking out and stay applications, and moreover, that the relief sought by the 30 July summons is not relief which should have been sought by the Company in its own right. For these reasons, it seems to me to be appropriate for me to make an order in terms of paragraph (5) of the summons.

62. So far as paragraph (6) of the 25 September 2003 summons in the Petition proceedings is concerned, having given the matter careful thought, and without expressing a concluded view at this stage as to the costs of the preparation of the evidence filed by the Company, it seems to me that much of the material in the Company's affirmations could either have been contained in evidence to be filed on behalf of the 1st Respondent, or might, possibly, have been material which it would have been proper for the Company to put forward for the Court's consideration in the context of the applications to strike out or stay. In these circumstances, I see no particularly good reason to require such evidence to be excluded from the hearing on 27 October 2003, and I decline to make the order sought.

63. These are, I think, the main matters that arise under the 25 September 2003 summons in the Petition proceedings. However, for completeness, I would add that I will formally make an order in terms of paragraph (1), as this would be required to enable the matter to have been argued before me. I decline to make an order in terms of paragraph (2), as it seems to me that the 30 July summons was in fact issued by the Company, notwithstanding that I have held that the Company should not participate at the hearing of it, and paragraph 1 of Kwan J's order of 1 August 2003 therefore accurately describes that summons. I record also that paragraphs (7) to (9) of the Summons, which seek discovery of various documents relating to the legal advice provided to the Company, were not proceeded with for lack of time at the hearing. Subject to any observations the parties may have, I would propose simply to adjourn those applications sine die with liberty to restore.

64. It is also necessary to dispose of the summons issued by the Petitioner on 25 September 2003 in the MP Action. It seems to me that as the MP Action seeks precisely the same relief as the 30 July summons seeking a strike out or stay of the Petition, it falls to be dealt with in the same way as paragraph (5) of the other summons, and I accordingly make an order in terms of paragraph 1 in respect of it.

65. I shall now hear the parties as to costs.