GENG HUA ZHONG AND OTHERS v. LI SHU HON AND ANOTHER

HCCW 403/2017 and HCCW 431/2021

(HEARD TOGETHER)

[2023] HKCFI 3118

HCCW 403/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 403 OF 2017

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 431 OF 2021

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(HEARD TOGETHER)

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REASONS FOR JUDGMENT

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Introduction

1.  On the 4 October 2023 I dismissed the Petitions to wind up T-Hero Industrial Company Limited (“Company”) having accepted a no case to answer submission from the 1^st Respondent, Li Shu Hon (also known as “William”) on the second day of what was scheduled to be a 19-day trial. Before I explain why I agreed with the 1^st Respondent’s submissions in support of the application I will explain developments in the proceedings during the course of this year as they explain the rather unsatisfactory state of affairs when the trial commenced and, which led to it ending suddenly and probably to the confusion of the Petitioners, Geng Hua Zhong (also known as “Paul”), Li Jin Hu (also known as “Tiger”) and Li Jin Wen (also known as “Vito”).

2.  The Petition in HCCW 403 was issued on 29 December 2017 and HCCW 431 18 November 2021. HCCW 431 was issued to rely on events that took place after HCCW 403. They both have the same three Petitioners, who are all from the Mainland. The Petitioners were until about June of this year legally represented and the Petitions were set down for trial in April 2022 with six days reserved. As I explain in my decision dated 31 July 2023 the trial was adjourned at a case management conference (“CMC”) that took place on 25 April 2022 at least partly in the light of a late application which the petitioners wished to make to amend the Petitions introducing what the Respondents say were significant new matters. However, the amendment application was not determined because of comments made by me at the CMC and the Petitioners asking for the opportunity to give further thought to the ambit of the amendments that were required.

3.  As I have explained the trial was refixed to commence before me on 3 October of this year with 19 days allowed. Unfortunately, the application that was eventually issued for the amendments was not listed for substantive argument before me until 31 July 2023, two months before the commencement of the trial, by which time the Petitioners were acting for themselves. I allowed certain amendments and the pre-trial review (“PTR”) was on the following Thursday. At the PTR, Vito, the 3^rd Petitioner, who again appeared for himself and the other two Petitioners, explained that the only relief that was now sought was a compulsory winding up order and that what had previously been a major component of the Petitioners’ case, namely, a claim in respect of what was alleged to be a wrongful allotment of shares to William in August 2012, thus making him the majority shareholder, was abandoned. I explained to Vito that I had concerns about the viability of the Petitioners’ claims particularly since on 29 June 2023 William had made an open offer to settle the case on the basis of one of three options: William buys the Petitioners’ shares at a price to be determined by one of the big four accounting firms without a minority discount; there be a voluntary winding up; or finally that only the allotment issue be tried. As the claim in respect of the allotment had been expressly abandoned by the time of the PTR it was no longer relevant. Given this offer I had difficulty seeing why the trial was necessary. I would say that at the outset of trial it remained unclear to me why the Petitioners were not prepared to agree to a voluntary winding up. I explained to Vito that it seemed to me that even if I accepted the Petitioners’ version of events it was quite possible that they would still not obtain any order in their favour. However, the Petitioners did not want to accept William’s offer, they and William wanted the trial to proceed before me, despite some misgivings on my part as the Petitioners were going to conduct the trial in Putonghua, and the matter proceeded to trial.

4.  I think it is fair to say that it was clear from the Petitioners’ written opening that they had no real understanding of what they needed to establish to obtain a winding up order. After a short oral opening, they each gave evidence in the form of witness statements, were cross-examined quite briefly by Mr Ho, who appeared for William and, told me that the 1^st Respondent would make a no case to answer submission. I am fairly confident that despite me trying to explain the procedure the Petitioners did not understand the nature of the application or why it resulted in the immediate dismissal of both Petitions. However, it was clear to me that the Petitioners had no prospect of success for the reasons I explain in more detail later in this judgment and to allow the trial to continue would have been a waste of court time and unfair to William, who would have faced unnecessarily escalating legal costs.

The Company and the claims

5.  The Company and the Group of which it is the holding company are primarily engaged in the trading of electronic and medical devices in the Mainland. It was set up in the following circumstances.

6.  Vito and William came to know each other in around 1992. At the time:

(1)  Vito was running a business with his brother trading communication and electronic products from Taiwan in Shenzhen via a company known as Techo Communication Development Co. Ltd.

(2)  William operated his own business as a trader and would import goods from Hong Kong to the Mainland. William did so through his own company known as Zheng Da Trading Co. At the time William was already the import agent of Medtronic plc, an international medical devices company.

7.  Vito left Techo Communication Development Co. Ltd in around 1998 and set up Shenzhen THL. Paul and Tiger began working for Vito when Vito was operating Shenzhen THL.

8.  In around 1998, Vito and William began cooperating with each other. Vito would help William collect the receivables of his business from sales of goods in the Mainland; and William would help pay Vito’s suppliers in Hong Kong.

9.  On 7 February 2001, Vito incorporated T-Hero Industrial Co., Ltd (“T-Hero SZ”) to facilitate his business. Although William was not a registered shareholder of T-Hero SZ, it is not in dispute that Vito and William shared the profits of T-Hero SZ equally.

10.  On 28 February 2001, in order to assist T-Hero SZ’s in arranging shipments and payments in Hong Kong, the Company was set up. Vito held 60% shares in the Company, and William held the other 40%. At the time, the Company was not the shareholder of T-Hero SZ.

11.  Vito and William established two further companies:

(1)  T-Bon Medical Technologies Company Limited, which was incorporated on 15 September 2003. T-Bon took over William’s business of importing medical devices, extending it to the Mainland. Again Vito and William agreed to shares T-Bon’s profits equally.

(2)  T-Hero Industrial (Shanghai) Co Ltd (“T-Hero SH”), which was a joint venture company between the Company and Numata Hong Kong Limited in 2006. The Company acquired Numata’s interest in T-Hero SH in around 2009.

12.  Eventually, T-Hero SZ, T-Bon, and T-Hero SH were all injected into the Company and became its wholly owned subsidiaries (“Subsidiaries”, collectively the “T-Hero Group”).

13.  On around 29 March 2007, the Petitioners and William agreed on the management structure of the T-Hero Group. The agreement was recorded in two emails circulated by Vito and William respectively (“2007 Shareholders’ Agreement”):

(1)  The Petitioners (in particular Vito) agreed that their discussion would ensure that their understandings “will be reflected in the legal documents of the Hong Kong company after restructuring and protected by the laws of Hong Kong”.

(2)  In response, William described the agreed items as constituting “the first formal articles of association among our shareholder”, and which “clearly stipulates everyone’s rights, relationship and status in the company in a legal sense to a certain extent”.

14.  The email chain recorded the following agreement between the shareholders:

(1)  First, the Petitioners and William would own shares in a Hong Kong Company. Recording his agreement with Vito’s email sent out on 28 March 2007, the shareholding percentage of the Company would be Vito 40.5% / William 39.5% / Paul 15% / Tiger 5%.

(2)  Second, shareholders were allowed to withdraw their shares for various reasons in the future. However, existing shareholders had priority to purchase such shares at market value. If shares were to be sold to a new shareholder, all shareholders must agree.

(3)  Third, dividends were to be distributed according to the Company’s profit for each year. The profits distributable to each shareholder would be proportionate to their shareholding in the Company.

15.  Prior to the Allotment the division of roles appears to have been in line with that suggested by the Petitioners:

(1)  Vito was the Chairman of the T-Hero Group.

(2)  William was the Managing Director of the T-Hero Group and Director of the Company. William’s wife Rose was also a director of the Company.

(3)  Paul was the CEO of T-Hero Group’s Electronics Devices Business (carried on by T-Hero SZ and T-Hero SH).

(4)  Tiger was the CEO of T-Hero Group’s Medical Devices Business (carried on by T-Bon Medical).

16.  The T-Hero Group’s actual business operations were based in the Mainland. The Petitioners, who were based in the Mainland, had control over the T-Hero Group’s business operations, in particular that of the operating subsidiaries—a fact that the Petitioners acknowledged. The Petitioners’ control is also reflected in the fact that they together held 60.5% of the Company’s shares prior to the Allotment.

17.  As a result of the Allotment, the legitimacy of which is no longer in dispute, the 1^st Respondent currently owns 51.6% of the shares. The 1^st Petitioner holds 12% of the shares and the 2^nd and 3^rd Petitioners hold 4% and 32.4% respectively. The Petition, which I agree with Mr Ho is not helpfully drafted, advances three grounds for making a winding up order:

(1)  First, there is a breakdown in mutual trust and confidence.

(2)  Secondly, there is a deadlock; and

(3)  Thirdly, there is a need for investigation of certain of the Company’s affairs.

Quasi-Partnership

18.  The first ground is based on the common assertion that the Company was formed based on mutual trust and confidence and this engages equitable considerations, which restrict how the shareholders can exercise their strict legal rights; what is commonly referred to by the short-hand expression “quasi partnership”. To demonstrate that a company was formed in circumstances, which justify the imposition of equitable considerations, which mediate the shareholders’ strict legal rights it is necessary to show that the association represented by the company is not a purely commercial one[1]. In some circumstances this may be straightforward. The obvious example being a company formed by family members to carry out a business, with which it is clear all were anticipated to have a significant involvement. If a “quasi partnership” can be demonstrated what is then required, as Lord Briggs explains in Lau v Chu[2], is essentially the same grounds “as would justify the dissolution of a true partnership”, which serves to emphasise that what has to be demonstrated is a relationship with characteristics analogous to a true partnership.

19.  In re Westbourne Galleries[3] Lord Wilberforce identifies a partnership, which is incorporated as the axiomatic example of a situation in which the court may treat the shareholders’ legal rights as subject to the understandings that existed between them as true partners. In cases in which the company is commencing a new business it is necessary to show that agreements were reached at the time the company was formed about the way its affairs were to be conducted that were not reflected in the articles of association, but which were sufficiently clear and intended to govern the shareholders’ relationship that they justify the court treating them as engaging equitable considerations that may support ordering a winding up on the just and equitable ground despite the petitioner not being able to demonstrate a breach of the articles of association or their rights under the Companies Ordinance, Cap. 622. It is not sufficient to assert, or prove, that the petitioner became a shareholder because he trusted the other shareholders. As I have explained in various authorities[4] nearly all private companies must be assumed to be formed by shareholders who trust one another, have had preliminary discussions and reached understandings and agreements about how the company’s management and business is to be conducted. Unless good reason can be demonstrated to think that whatever was agreed was intended to be more than a managerial decision of the sort that all companies constantly have to make to operate the business and revise as the company evolves, in my view such agreements cannot properly be treated as a restriction on a shareholder exercising their legal rights conferred by the articles of the company and the Companies Ordinance, Cap. 622 (“Ordinance”).

20.  The Petition does not recite matters or understandings, which existed at the time the Company was set up in 2001 that justify subjecting the shareholders to any restrictions in the way they exercise their legal rights. The Petitioners do not rely on a breach of their rights under the articles of association or provisions of the Ordinance.

21.  It appears to be the Petitioners’ case after re-re-amendment of the Petitions in July of this year as a result of the concerns I expressed about the Petitioners’ case on “quasi partnership” at the case management conference on 25 April 2022 that that the rights of the shareholders were circumscribed in late March 2007 by what is described in the Petitions as a Shareholders Agreement recorded in an email dated 29 March 2007. It is pleaded as follows in [25] of the Re-re-Amended Petition in HCCW 403:

“25. By the Shareholders’ Agreement, the Shareholders agreed that:-

(1) Should any shareholder wish to dispose of his shareholding or any part thereof in the Company, the other shareholders would have the first option to purchase the shares intended to be disposed of at a price to be valued by an independent accounting firm;

(2) Unanimous consents from all existing shareholders would have to be obtained before a shareholder could sell his shareholding to a third party;

(3) William shall continue to manage the operation and affairs of the Company, and to be in charge of arranging shipments and payments for T-Hero SZ in Hong Kong;

(4) Paul and Vito shall continue to manage and operate T-Hero SZ, T-Hero SH, and T-Hero SZ, BJ Branch in the PRC, whereas Tiger and Vito shall continue to manage T-Bon in the PRC; and

(5) The Company would acquire an office space in Hong Kong, which was later known to be Units 2801A and 2801B, Tower 2, Metroplaza, 223 Hing Fong Road, Kwai Chung, N.T., Hong Kong (‘the Hong Kong Office’).”

22.  It cannot possibly be that every agreement made after a company is formed about some aspect of the management of its affairs binds shareholders thereafter regardless of how circumstances change. Shareholders of small companies who also act as their directors will frequently agree aspects of its management as its business develops. In nearly all cases they will be intended to regulate the management of the company until such time as circumstances require them to be modified. They cannot sensibly be understood as restrictions on the way a shareholder is to exercise his rights for an indefinite period. A very clear agreement would be required to achieve that result and the email of 29 March 2007 falls far short of what is required.

23.  The claim that the legal rights of the shareholders were subject to restrictions becomes even harder to justify when regard is had to the Petitioners’ concession that the allotment in 2012, which made the 1^st Respondent the majority shareholder was lawful and unobjectionable. As Mr Ho argued it is difficult to see why the 1^st Respondent should be restricted in exercising the right he acquired to pass ordinary resolutions of the Company after he subscribed for additional shares giving him a majority interest in the Company. It cannot sensibly be inferred that such a change was not intended to have its natural consequence. On the contrary it seems to me consistent with the shareholders understanding that the management of the Company and its business would evolve over time. In any event the matters complained of by the Petitioners did not be the time the matter came on for trial concern the 1^st Respondent’s exercising his voting rights.

The Petitioners’ Complaints

24.  Essentially the Petitioners’ case is that various matters have occurred, which justify a winding up order being made, and a liquidator appointed to investigate them. I will briefly explain each of them.

25.  First, that the Petitioners have been unfairly excluded from management. This I deal with later. Suffice it to say, this is plainly incorrect. In short, differences of opinion arose about various management and commercial matters and the Petitioners resigned.

26.  Secondly, that they have been denied information. This complaint as pleaded is that the 1^st Respondent had in some way initially prevented audits of the Company and its subsidiaries, then facilitated audits, which resulted in qualified opinions of the Company’s financial statements for the period 1 April 2014 to 31 December 2014 and that the Petitioners did not know whether the financial position of the Company’s subsidiaries had been taken into account. As I explain later contrary to the position pleaded in the Petition the Company and its subsidiaries do have audited financial statements up to and including the 2019 financial year. The Petitioners have no pleaded case or evidence that these are wrong; partly because I declined to allow amendment of the Petition to introduce the off record transactions, which appear to make up a substantial proportion of the inventory which the auditors would not include in the financial statements because the Mainland subsidiaries, which the Petitioners had been operating could not produce the necessary documents to satisfy the auditors that the subsidiaries owned the assets.

27.  Thirdly, there has been serious mismanagement. This consists of a number of complaints: the 1^st Respondent failed to procure finance for the Company’s business and attend meetings in Shenzhen, the 1^st Respondent caused a strike at the factory in August 2012 and finally that the 1^st Respondent delayed the holding of an extraordinary general meeting in 2015.

28.  The complaints are not tied to breaches of identifiable duties and, as I will briefly demonstrate later were not supported by the case advanced by the Petitioners at the trial. I now turn to address directly the no case to answer application.

No case to answer

29.  It is well-established that in the context of a civil trial, a submission of no case to answer can be made on two grounds, namely (a) where the plaintiff’s case, even accepting it at its face value, does not disclose a sustainable cause of action in law; or (b) the quality of the evidence given by the Plaintiff is such that there is not even a prima facie case for the Defendant to answer: Ever-long Securities Co Ltd v Wong Sio Po[5]:

“No case to answer

27. Although there is no express rule in the Rules of the High Court (Cap.4, Sub.Leg.) it is well-established that in civil proceedings a defendant may make a submission of no case to answer at the conclusion of the plaintiff’s case.

28. Such a submission can be made either if no case has been established in law or the evidence led is so unsatisfactory or unreliable that the court should hold that the burden has not been discharged, but the defendant must elect not to give evidence before he can make a submission of no case to answer (see Hong Kong Civil Procedure 2002, Vol.1, pp.553-554 para.35/7/2).

29. The first basis of such a submission is concerned with whether ‘accepting the plaintiff's case at its face value’ (per Ormerod LJ in Storey v Storey [1960] 3 WLR 653 at p.656) there is a sustainable cause of action in law.

30. The second basis is concerned with the quality of the evidence.

31. The issue at a submission of no case to answer is whether the plaintiff has established a prima facie case for the defendant to meet. The test in deciding whether there is a prima facie case is to see if there is evidence which, if uncontradicted, would justify men of ordinary reason and fairness in affirming the proposition which the proponent is bound to maintain, having regard to the degree of proof demanded by the law with regard to that particular issue: Cross & Tapper on Evidence (9^th ed., 1999) pp.171-172.”

30.  An application of no case to answer is appropriate if it is clear that the claim has no prospect of success and it would be a waste of time and costs to hear the defendant’s (or, here, the 1^st Respondent’s) evidence. Such an application gives effect to, and furthers the modern policy considerations in the Rules of the High Court. As Latham LJ explained in Bentley v Jones Harris & Company[6]:

“…if a judge concludes at the end of a claimant’s evidence, whether on the application of the defendant or of his own motion, that the claimant has no real prospect of success or, in other words, is bound to fail, on his assessment of the evidence before him at that stage, he is in my view entitled to give judgment for the defendant, in the same way as if there had been an application at an earlier stage in the proceedings for summary judgment under CPR Part 24.2. In that way he will be giving effect, in the circumstances of a trial, to the overriding objective and in particular to the need to contain within limits the expenditure of time and costs on the particular case before him.”

31.  In the very recent authority of the Privy Council in Roopnarine v Attorney General of Trinidad and Tobago[7], Lord Hamblen at [27] made the following observations (in upholding the lower court’s acceptance of a no case to answer submission):

“27. If such an election to call no evidence is made, then the judge decides the case on the balance of probabilities on the evidence before the court as in any other trial. As Mance LJ explained in Boyce:

‘… where a defendant is put to his election, that is the end of the matter as regards evidence. The judge will not hear any further evidence which might give cause to reconsider findings made on the basis of the claimant’s case alone. The case either fails or succeeds…’”

32.  A Defendant who elects to make a no case to answer submission by doing so elects to call no evidence. When such a submission is made the court first considers whether the Plaintiff (the Petitioners in the present case) have put forward a sustainable case for the Defendant (in this case the 1^st Respondent) to answer. If, however, the court finds there is a case to answer, it will proceed to rule, on a balance of probabilities, whether the Plaintiff’s case is made out, having regard to (a) the Plaintiff’s evidence (including that given under cross-examination); and (b) the available documentary evidence, but without regard to the Defendant’s witness statement.

33.  In the present case, it is the 1^st Respondent’s submission that the Petition is demurrable and there is no prospect of success even if the averments pleaded are proved.

Petitioners are confined to their pleaded complaints in the Petition

34.  In considering the viability of the Petitioners’ complaints, the parties are only entitled to succeed on their pleaded case; in particular, “[i]t is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round”: Kwok Chin Wing v 21 Holdings Ltd[8]. The same approach applies to winding up petitions presented whether for insolvency petitions or those presented on the just and equitable ground. The Court will not travel beyond the allegations contained in the petition in adjudicating on the matter: In re Fildes Bros Ltd[9].

35.  These principles have been repeatedly endorsed and applied in Hong Kong, including by this Court: see e.g. Re Pioneer Iron and Steel Group Company Ltd[10]:

“31. Mr Poon submitted that in assessing whether sufficient connection has been demonstrated regard can only be had to the matters stated in the Petition. An order will not be made if a sufficient case is not stated on the petition, even if such a case is proved in evidence. If a petitioner wishes to rely on matters not stated in his petition he must first amend his petition. I accept that these are correct statements of principle and they were not disputed by Mr Manzoni.”

See also Re China Oceanwide Group Ltd[11].

36.  Mr Ho advanced this submission because of the Petitioners’ indication during the opening submissions of their desire to rely on the so-called “off record transactions” to justify a winding up petition. I agree that this is impermissible for two reasons. First, this is an unpleaded complaint. By my decision dated 31 July 2023[12], I expressly ruled at [6] that:

“…I will allow the amendments other than those which seek to introduce new complaints concerning the off-record transactions.”

Given my decision plainly it would be wrong to allow the Petitioners to rely on the off-record transactions.

37.  Secondly, as the Petitioners fairly acknowledged in answer to questions from me, they do not have any evidence to support their claim that the latest audited financial opinions of the Mainland subsidiaries (which are all unqualified) are incorrect or inaccurate. The Court will not go behind audited financial statements unless there is an evidential basis to suggest that the accounts may be inaccurate: Re Joy Rich Development Ltd[13]; B v B[14]:

“The wife normally puts the husband to proof of his financial resources, and it is then for the husband to make full disclosure, including disclosure of all documents relating thereto. If his initial discovery is manifestly incomplete the wife may apply for further discovery. In many, perhaps most, cases audited accounts of companies of which the husband is a shareholder will be sufficient, together with full disclosure of all the husband's personal financial records. But there are cases when the court will go behind company accounts and order discovery of company books and documents, if it has the power within the law and within the Rules to do so. It is not usual, however, for the court to take this course unless there is evidence before it from accountants or other experts that the published accounts of the company cannot be relied upon.”

38.  I have already addressed the problems with the formulation of the “quasi partnership” case. I have also already explained that in my view the 1^st Respondent has made perfectly sensible proposals for the dispute between the parties to be resolved by agreement. It is well-established that winding up on a contributory’s petition is a remedy of last resort and will not be granted if the petitioner is acting unreasonably in insisting upon it instead of pursuing an available alternative remedy: Re Wong To Yick Wood Lock Ointment Ltd[15].

39.  In this case the Company is solvent and has business operations. By the Open Offer, William has offered to buy out the Petitioners’ shares at market value to be determined by an expert without any minority discount. As I have explained above, an investigation of the Company’s affairs does not justify a winding up order. The Petitioners’ insistence on seeking winding up relief is in my view unreasonable. William has offered to either: (a) buy out the Petitioners’ shareholding at market value without minority discount; or (b) until close to trial, consented to the Company being placed in voluntary liquidation. A voluntary winding up would have been commercially advantageous as it avoided payment of an ad valorem fee to the Official Receiver.

40.  In O’Neil v Phillips[16], Lord Hoffmann explained as follows (proceeding on the basis that some unfairly prejudicial conduct was initially established):

“But the unfairness does not lie in the exclusion alone but in exclusion without a reasonable offer. If the respondent to a petition has plainly made a reasonable offer, then the exclusion as such will not be unfairly prejudicial and he will be entitled to have the petition struck out.”

41.  The Court of Final Appeal has endorsed this proposition, in Re Prudential Enterprises Ltd[17]:

“Clearly, if the court is persuaded that the 1^st respondent’s offer plainly and obviously delivers to the petitioner all the relief that he could reasonably expect to obtain if he were to succeed at trial, the proceedings should be stayed, avoiding unnecessary costs and expenditure of judicial resources.”

42.  In deciding what constitutes a “reasonable offer”, the Court will have regard to the criteria outlined by Lord Hoffmann in O’Neil v Phillips[18], which were succinctly summarised by the Court of Appeal in Re Prudential Enterprise Ltd[19]:

(1)  The offer must be to purchase the shares at a fair value.

(2)  The offer should provide for the value, if not agreed, to be determined by a competent expert.

(3)  The offer should be to have the value determined by the expert as an expert. The objective should be economy and expeditious, even if this carries the possibility of a rough edge for one side or the other, compared with a more elaborate procedure.

(4)  The offer should provide for the equality of arms between the parties. Both sides should have the same right of access to information about the company, which bears upon the value of the shares, and both sides should have the right to make submissions to the expert.

(5)  The offer should make suitable provisions for the question of costs.

43.  As noted in Re Top E Trading (HK) Company Limited[20]:

(1)  A buyout offer is a possible way out even if the parties do not agree on all issues. The offer is only unavailable where the parties are not able to agree on the terms and the basis of the valuation, such as where there are allegations which, if established, will have financial ramifications for the company.

(2)  Once the parties agree on the basis of valuation, the Court can give directions as to the appointment of an expert, and arrange a hearing for an examination of the expert report and the submissions of parties.

44.  The Open Offer goes beyond these criteria:

(1)  Two main options were made available to the Petitioners, namely a choice between: (a) buy out at market price; or (b) a voluntary winding up.

(2)  Insofar as the share buyout (i.e. Option 1) is concerned:

(a)  There will be no minority discount;

(b)  An independent valuer (from one of the Big Four accounting firms) would be appointed;

(c)  The valuer may, if he/she sees fit, apply any control premium by reason of William acquiring absolute control and ownership over the Company, but no minority discount will be applied.

(d)  The costs of the valuer would be equally shared, and each party will bear their own legal costs in these proceedings.

(3)  Insofar as voluntary winding up (i.e. Option 2) is concerned:

(a)  The parties would have jointly put the Company in liquidation.

(b)  It was also expressly pointed out that this course of action would avoid the significant ad valorem fees chargeable in the case of a compulsory winding up.

(4)  At that time the offer was made, the Petitioners had not yet indicated that they would abandon the Allotment issue. To cater for that argument (which impacts on the legal shareholding of the Company), William further proposed an Option 3, which was for the Allotment issue alone to be tried by this Court, and the parties would implement which ever of Option 1 or 2 the Petitioners chose.

45.  The Open Offer was in my view fair and sensible. It is well-established that it is an abuse of process for a petitioner who fails to accept a reasonable offer to insist on a full trial of the Petition: Minority Shareholders, 6^th ed, [8.115]. On the facts of this case, the Petitioners’ insistence on seeking a compulsory winding up order, as opposed to buyout order or an agreement between the parties to have the Company wound up voluntarily, was clearly unreasonable.

46.  As to the second ground for the no case submission (i.e. taking into consideration the quality of the evidence as presented), Mr Ho made the following submissions. First, it is the Petitioners’ case that there is a written shareholders’ agreement between the parties. Thus, there is no room to import any equitable constraints above and beyond what is found in that shareholders’ agreement, the articles of association, and the Ordinance.

47.  Secondly, insofar as Vito complains that he was “excluded” from management, putting aside the fact that there are no applicable equitable constraints in this regard, the documentary evidence shows that it was Vito’s own conscious decision to leave the T-Hero Group, notwithstanding William’s repeated invitations for Vito to stay. This can be seen from his witness statement and Vito’s email to William dated 16 August 2012 and Vito’s emails to all shareholders dated 11 October 2012, 22 January 2013, 24 January 2013 and 26 February 2013.

48.  Third, the latest audited financial statements of the Mainland subsidiaries are all unqualified. There is no basis for the Petitioners to invite the Court to go behind the audited financial statements, let alone use this as a ground to seek a winding up order in order that the accounts of the Mainland subsidiaries can be examined by another accountant. This is particularly so as the financial statements identify inventory which the subsidiaries (which have largely been managed by the Petitioners) are said to have, but of which the auditors could find insufficient evidence to justify treating as genuine.

49.  In his no case to answer submission Mr Ho drew my attention to the following concessions or acknowledgements made by Vito and Paul under cross-examination.

50.  In respect of Vito:

(1)  Vito agreed that the shareholders’ agreement as embodied in the emails exchanged on 28 March 2007 constituted the entirety of what was agreed between the shareholders in 2007. Hence argued Mr Ho, even on Vito’s evidence, there can be no equitable constraints above and beyond what was agreed between the shareholders.

(2)  Vito accepted that the credit lines obtained by the Company in Hong Kong were all secured by personal guarantees of William and his wife. Accordingly, whether or not William was right in refusing to cause the Company to borrow for the T-Hero Group must necessarily be a commercial decision of the type in which the Court does not intervene.

(3)  Vito agreed that whether to implement the Group Financial Management Committee proposal and the 525 project as devised by him were both “management decisions”. Irrespective of whether William was “right” in opposing those proposals of Vito, business disagreements plainly could not constitute a basis for winding up.

(4)  Vito agreed that he harboured thoughts of leaving T-Hero since August 2012, and that his eventual decision to leave was a “conscious one”.

51.  In respect of Paul:

(1)  Paul agreed that he was never told that he would remain indefinitely as part of the management of T-Hero SZ. Excluding him from management therefore could not have violated any of his rights or expectations.

(2)  Paul frankly admitted to leading a dubious group of men to T-Hero’s Shenzhen Office on 16 May 2016 (less than 10 days before his eventual resignation on 25 May 2016), and that in the process he had caused damage to the office, knowing full well that he might have to pay damages for it. Accordingly, putting aside the lack of equitable constraints, there is no factual basis for Paul to complain that he was forced to leave the management of the T-Hero Group.

Conclusion

52.  In my view it is plain that the Petitioners had no prospect of success with claims, which fall far short of satisfying the criteria necessary to justify the Court ordering a winding up of the Company on the just and equitable ground and for these reasons I determined that the Petitioners at the closing of their case had failed to demonstrate that there was a case to answer. I, therefore, ordered that the Petitions be dismissed and the Petitioners pay the 1^st Respondent’s costs in both proceedings, such costs to be taxed if not agreed with a certificate for one counsel.