FOO TSING also known as NELSON FOO v. ROEDERS GESCHAEFTSFUEHRUNGS GMBH also known as RӦDERS GESCHӒFTSFÜHRUNGS GMBH AND ANOTHER

HCCW 68/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 68 OF 2016

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D E C I S I O N

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1.  On 3 March 2016 the petitioner issued a petition which in the prayer seeks an order that the 1^st respondent buys his shares in the company, the 2^nd respondent, alternatively the company does so or failing that the company be wound‑up.

2.  By a summons issued on 3 March 2016 the petitioner seeks an injunction to prevent his removal as a director of Roeders (HK) Ltd, which is a subsidiary of the company at a general meeting.

3.  The company was incorporated on 2 June 2003 in Hong Kong.  The petitioner holds 20% of its issued shares; the remaining 80% are held by the 1^st respondent. The petitioner was a director of the company until he was removed on 12 February 2016 by an ordinary resolution of the company in general meeting.

4.  It is the petitioner’s case that the company was formed in circumstances that engage equitable considerations in determining the rights of the parties as shareholders.

5.  The relevant parts of the petition are as follows:

“17. ...

(c) an understanding among the abovementioned parties (the ‘Understanding’) that:-

(i)    the Petitioner and Jürgen, directly or indirectly through Roeders Germany on his behalf would be entitled to equal participation in the management of the Joint Venture;

(ii)   Ling would not actively participate in the business management;

(iii)  Roeders HK and/or subsequently the Company as the holding company of Roeders HK would be the business vehicles of the Joint Venture between the Petitioner, Jürgen, directly or indirectly through Roeders Germany on his behalf, and Ling; and

(iv)  the Petitioner, Jürgen, directly or indirectly through Roeders Germany on his behalf, and Ling would be the directors in Roeders HK and/or the Company; and

...”

6.  Particulars of how the “Undertaking” arose are contained in the following paragraphs:

“18. During a dinner at a restaurant (香辣屋) at Prince Gateway Hotel, Tsimshatsui, Kowloon in or about 2003 after Ling’s Withdrawal, Man Ching (the ‘Wife’), the Petitioner’s wife, expressed her worries to Jürgen that after the Petitioner had laid the foundation for the Joint Venture which had later become prosperous, the Petitioner would be discarded. Jürgen reassured the Wife and the Petitioner with words to the effect that no director would be removed by anybody (which was understood by the Petitioner as Jürgen would not remove or cause the removal of the Petitioner from directorship of the business vehicles of the Joint Venture) (the ‘Representation’). Jürgen further agreed that the Petitioner would be entitled to annually draw 5% of the net profit from the Joint Venture as bonus (the ‘Bonus’).

19. Based on the Mutual Trust and Confidence, the Understanding and the Representation which originated from the joint enterprise among Jürgen, the Petitioner and Ling, the Petitioner:

a. had since then been responsible for managing the business of the Group with the result that the Group had become profitable since 2006 (except 2009);

b. has been the Managing Director of both Roeders HK and Ronel as his full time job, drawing a salary from the Group. He had devoted all his time in developing the business of the Group;

c. all major decisions of the Group were made together with Jürgen.  There were frequent exchange of views through emails and telephone conversations between the Petitioner and Jürgen.”

7.  The evidence in support of the “Representation” which is the foundation of the relevant part of the “Undertaking” is contained in an affirmation filed by the petitioner’s wife Madam Man Ching.  In paragraphs 4 to 7of her affirmation she gives the following evidence:

“4.  I do not understand English. Thus my husband always helps me as my interpreter/translator whenever there is conversation with foreigners and/or there are documents in English.

5.  I recall that I joined a dinner with my husband and Jürgen at a restaurant [香辣屋] of Prince Gateway Hotel, Tsimshatsui, Kowloon in or about 2003 after Ling’s Withdrawal as I was concerned about the future of my husband. It was their first face-to-face gathering since Ling’s Withdrawal.

6.  During the aforesaid dinner, my husband and Jürgen discussed the ongoing business of their joint venture after Ling’s Withdrawal. I expressed my concern to Jürgen. I told him that I was worried that once my husband had laid the foundation of their business and the business had prospered as a result, he would be discarded as he was only a minority shareholder.

7.  Jürgen orally reassured me and my husband with words to the effect that no director would be removed by anyone.  I took it to mean that Jürgen and my husband would continue partnership even the business had become successful in the future.  Jürgen further promised that my husband would be entitled to 5% of the net profit of their joint venture as bonus.”

8.  How Madam Man Ching was able to communicate with Mr Jürgen if she did not speak English is not entirely clear.  But putting that difficulty to one side, it appears to me that her evidence amounts to no more than a general statement made to a concerned wife in a social context.  It does not seem to me that it can fairly or sensibly be suggested that this amounted to a binding agreement that if at some time in the future, differences arose between the parties, the majority shareholder could not remove the petitioner as a director of the company or one of its subsidiaries.

9.  Unfortunately prior to the hearing Mr Kenneth Chan, who appeared for the petitioner, was not aware of my decision in Mandarin Capital Advisory Limited [2011] 2 HKLRD 1003.[1]

10.  In paragraphs 20 to 23 of my judgment I say as follows:

“20.  It seems to me that in order for a minority shareholder to contest successfully an application for an order under section 114B, which will enable the applicant to convene a general meeting to remove him as a director, on the grounds that a company is in the nature of a quasi partnership, it would be necessary for the respondent to demonstrate that, assuming that the meeting called could be convened and conducted without the intervention of the court, he would be entitled to an injunction to prevent the applicant tabling a resolution to remove him as a director. In considering whether or not such an injunction should be granted regard would need to be had to the clear implication of section 157B, namely, that a majority shareholder has a right to remove directors, which is not easily restricted. Strong evidence would be required of an unqualified right on the part of a respondent to participate in the management of a company all the time that he remained a shareholder. In my view this requires something more than allegations that, if made out at trial, might establish that it is unfairly prejudicial for the respondent to be excluded from management of a company. What I anticipate will normally be required is a written agreement between shareholders, to which a company is not a party, which contains an express prohibition against removal of a director all the time he remains a shareholder, which can be enforced by injunction.

21.  In the present case the 1^st Defendant’s evidence is limited to paragraph 6 of his 1^st affirmation in which he says this:

‘The Plaintiff and I have equal status in the Company, both of us were directors and from the beginning it was agreed we would run the business together as partners. This structure was envisaged so that there would be a balance of power and checks and balance between the Plaintiff and I. This would safeguard my investment (as a 44% shareholder of the Company) as well as reassure third parties the Company was dealing with that there would be checks and balance at the Company.’

22.  In my view this does not demonstrate anymore than an initial understanding about how the business was to be managed. It does not demonstrate an agreement that if the Parties fell out the Plaintiff could not exercise his statutory right to remove the 1^st Defendant as a director, which is not the same as saying that the 1^st Defendant’s removal might not be capable, either independently or in conjunction with other relevant factors, of constituting unfair prejudice for the purposes of section 168A of the Companies Ordinance. I do not think this conclusion is affected by the point emphasised by Mr. Maurellet, namely, that all the Plaintiff says in response to the 1^st Defendant’s evidence is this, which is contained in paragraph 7 of his 2^nd affirmation: ‘However, I cannot currently recall whether there was any discussion or an agreement of a partnership. It is unhelpful that the 1^st Defendant makes assertion of partnership without giving any particulars.’

23.  In conclusion, I find that the allegation of a quasi‑partnership is not a ground for refusing the Plaintiff’s application.”

11.  It seems to me that the petitioner’s evidence falls far short of evidencing an agreement that the majority shareholder would not exercise its statutory right under section 462 of the Companies Ordinance, Cap 622 (or its predecessor section 157(B), Cap 32 ) to remove a director by ordinary resolution.

12.  As Mr Victor Joffe who appeared for the 1^st respondent argued, the authorities[2] demonstrate that where a petitioner seeks a buy‑out order, the courts are reluctant to make orders that keep a petitioner involved in management against the wishes of the majority shareholder and prospective purchaser of the petitioner’s shares.  This also serves to emphasise that it will only be in a case in which there is a very clear agreement that the director, who is proposed should be removed, will be able to obtain an order restricting his removal.

13.  I will therefore dismiss the application.