WONG OI KWAN v. KINGLAND CONCRETE DRILLING CO. LTD. AND OTHERS

HCCW1392/2001 &
HCCW1393/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO.1392 OF 2001

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J U D G M E N T

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1. On 24 December 2001, the petitioner commenced proceedings under HCCW 1392 and 1393 of 2001 against the same respondents. The companies involved are Kingland Holdings (Hong Kong) Limited ("KH") and its subsidiary, Kingland Concrete Drilling Company Limited ("KDC"). The petitioner seeks similar relief in both petitions : a buy out order of his share or alternatively a winding up order. By summonses dated 11 January 2002, the respondents apply to strike out the petitions on the ground that it is an abuse of process.

Basis for petition

2. KDC was incorporated on 9 July 1985 with a nominal capital of HK$1.2 million divided into 12,000 shares of HK$100 each. The amount of capital paid up or credited as paid up is HK$1.2 million. The 12,000 issued shares are divided thus: 100 shares held by each of the petitioner, the 3rd and the 4th respondents, the balance of 11,700 shares by KH. KH was incorporated on 13 November 1998 with a nominal and paid up capital of HK$30,000 divided into 30,000 shares of HK$1 each. Prior to 18 August 2000, each of the petitioner, the 3rd and 4th respondents held 10,000 out of the 30,000 issued shares. They were also directors of both KDC and KH.

3. It is the petitioner's case that KDC was established as a corporate vehicle to run the concrete drilling business then carried on by him, the 3rd and 4th respondents and other four partners under the partnership business Kingland Concrete Drilling Company; that it was the common intention of the petitioner, the 3rd and 4th respondents; that KH and KDC should be so constituted so as to give each of them an equal share in the management of the companies and that none of them should be excluded from the management and operation thereof.

4. On 18 August 2000, resolutions were passed in the respective board meeting and general meting of KDC and KH, which formed the subject matter of complaint of these petitions. The effect of these resolutions was :

(1) 2,600 shares of each of the director of KH were transferred to KDC;

(2) the 3rd and 4th respondents were elected as directors of KH and KDC while the petitioner was not so elected;

(3) KDC was elected as director of KH.

5. The petitioner alleges that he was misrepresented on the true effect of the purported transfer of shares in KH. He was told that the purported transfer was for the purpose of gaining substantial tax advantage when in fact it was to exclude him from the management and operation of KH. He further contends that since his removal as a director, the 3rd and 4th respondents controlled the companies and he has been excluded from the management and operation. Finally, he complains about the wrongful use of two companies' vehicles by the 3rd and 4th respondents. In the petitions, he avers, inter alia, that the affairs of KDC and KH had been conducted in an unfair and prejudicial way against his interest and that the mutual trust and confidence between him on the one hand and the 3rd and 4th respondents on the other had been destroyed by the latter's conduct.

The respondents' case on abuse of process

6. The respondents contend that it is an abuse of process to present the petitions. A number of grounds are put forward. First, the petitioner was removed as a director because he had converted business to his own company. His removal was therefore justified and reasonable in the circumstances. The petitioner however points out that he formed his own company only after he had been wrongfully removed from the board. As I understand from Mr Chan, counsel for the respondents, he is not taking this point seriously. It must be right as these factual disputes can only be determined at the hearing of the petitions and not on affidavit now. Second, it is the practice of KDC to allow its directors to use its company vehicles. And the two companies vehicles were in fact heavily financed by loans from the Hong Kong Bank. Again, Mr Chan is not seriously relying on this point for present purpose for the same reason that the dispute can only be resolved at the hearing of the petitions. This brings me to the respondents' third and foremost complaint.

7. The respondents contend that the petitioner has improperly use the machinery of the court in a mala fide manner to achieve his ulterior motive to hinder the proper and smooth operation of KH and KDC to his benefit. Their contention in summary runs as follows.

8. Subsequent to the board meetings and general meetings in August 2000, the petitioner instituted proceedings (HCA9433/2000) in October 2000 against the respondents, seeking (1) a declaration that the said meeting were null and void and (2) an order under Section 114B of the Companies Ordinance that a general meeting of KH be convened. However, he took no further step in the action after the filing of the defence by the respondents on 22 December 2000. On the other hand, the respondents have since August 2000 made continuous attempts to amicably resolve the dispute with the petitioner. But the petitioner has so far failed to make any response.

9. In particular, the respondents refer to the following matters :

(1) A proposed extraordinary general meeting of KH in which the resolutions complained of would be set aside without prejudice to their validity such that the respective shareholdings of all members and directorship of all directors of KH as of 18 August 2000 were to remain the same. Despite proper notice having been served on the petitioner on 20 and 21 December 2000, he did not attend the meeting. Consequently, the meeting was aborted because of insufficient quorum.

(2) On 13 January 2001, an extraordinary general meeting of KDC was duly convened and it was resolved, inter alia, that (1) all resolutions passed in the general meeting of KDC on 18 August 2000 were revoked and (2) the petitioner was not to be elected as director for the ensuring year.

(3) By a letter dated 29 January 2001, the respondent's solicitors notified the petitioner that the proposed extraordinary general meeting of KH was aborted and that the respondents offered to re-transfer back to the petitioner the shares of KH to which he was entitled prior to 18 August 2000. Yet, there was no reply from the petitioner.

(4) By a letter dated 10 August 2001, the respondents proposed to hold another extraordinary general meeting of KH in order to revoke all resolutions passed in the board meeting and general meeting on 18 August 2000 so as to end the dispute between the parties. The respondents also notified the petitioner of their intention to apply to the Court for an order to convene such extraordinary general meeting should the petitioner choose not to attend the meeting. Again, there was no reply from the petitioner.

10. In view of the petitioner's attitude, the 3rd and 4th respondents instituted proceedings on 24 October 2001 (HCMP5695/2001) against the petitioner for an order of the Court under Section 114B of the Companies Ordinance that notwithstanding the quorum requirement of three members under Article 10 of the Articles of Association of KH, and extraordinary general meeting of KH should be convened. The originating summons and an affirmation of the 3rd respondent were filed on 24 October 2001. It was scheduled to be heard on 11 January 2002. In the meantime, without any prior notice, the petitioner presented the present petitions on 24 December 2001 and served the same on the respondents' solicitors on 8 January 2002. The petitioner only faxed his affirmation in opposition to the originating summons to the solicitors of the 3rd and 4th respondents at 6:40 p.m. on 10 January 2002.

11. On 11 January 2002, the originating summons came before Hartmann J. It was ordered that an extraordinary general meeting of KH be held. Due notices were then given to the petitioner for the general meeting to be held on 22 February 2002. But the petitioner did not attend the meeting.

12. Mr Chan first submitted (by adopting the written submissions of his predecessor) that the petitioner had by his delay and inaction chosen not to take part in the management in KH and KDC; that there is no question of the petitioner being ousted by the respondents as alleged at all; that it would be unjust and inequitable for the petitioner to deliberately choose to absent himself from the meetings of KH and KDC on the one hand and to wrongfully accuse the respondents of having calculated to exclude him from the management of the same on the other.

13. Mr Chan next submitted that the repeated failure by the petitioner to attend the extraordinary general meetings shows that he has an ulterior motive in using the petitions to obstruct the proper operations of KH and KDC, especially, when he has already started and is running his own rival business.

Approach

14. The court's approach in dealing with a striking out application is succinctly stated by Le Pichon J (as she then was) in Re Forecast Nominee Limited [1996] 4 HKC 12 at p.18B-E :

"It is common ground that for the purposes of an application to strike out, all the facts alleged in the petition and in the affidavits in support are assumed to be true.

"The burden is on the applicant to show that it is 'plain and obvious' that the petition is bound to fail. This is so because the exercise of the power to strike out would summarily drive the petitioner from the judgment seat when otherwise it would be entitled to have a full hearing after discovery of documents and with oral evidence : see Ringtower (supra) at 84F. The fact that the court might consider the case weak is not sufficient nor would it be appropriate to strike out a petition based on pleading points if such deficiencies are capable of being cured by amendment."

15. With this approach in mind, I now consider if the respondents have made out their case for striking out.

Abuse of process?

16. In essence, Mr Chan made two points : (1) the petitioner did not suffer the unfair prejudice as alleged ("the merit point"); (2) he has an ulterior motive in bringing the present proceedings ("the motive point").

17. I first deal with the merit point. It should be borne in mind that the petitioner's case on the petition is premised on a breach of mutual trust and confidence between him and the 3rd and 4th respondents, which formed the very substratum of the existence and operation of KH and KDC. An equal share in participation in the management and operations is the cornerstone of his case. It is his major complaint that since August 2000 he had been wrongfully stripped of his directorship in both companies. As the petitioner's case must be assumed to be true for present purposes, I am not convinced that it is not arguable that he had not suffered any unfair prejudice. Indeed, according to how I understand Mr Chan's submission, he is not asking me to determine the merits of the petitioner's case on affidavit at this stage. His main submission is on the motive point. To this, I now turn.

18. It is important to note, as Mr Lin for the petitioner did, that the 3rd and 4th respondents have never offered to reinstate the petitioner as director in the companies. He might well be able to have his shares retransferred to him. But given the events, it is not unreasonable for the petitioner to have a legitimate concern that the 3rd and 4th respondents being in control of the companies will still be able to oust him from the management and operation of the companies. In a way, that concern is supported by the resolution passed in the extraordinary general meeting of KDC on 13 January 2001 not to elect the petitioner as director for the ensuing year. Mr Chan submitted that there is no way for the 3rd and 4th respondents to elect the petitioner as director as he is running a rival business. But it begs the question why he was removed in the first place in August 2000. The so-called rival company was formed one month after his removal. Thus, in my view, the petitioner's repeated failure to attend the general meeting or respond to the 3rd and 4th respondents' proposal to resolve the dispute may be explained in a less sinister way than that advocated by the respondents. Rather than having an ulterior motive of hindering the operations of the companies, he conducted himself in such a manner because it would be futile to attend any general meeting or respond to the 3rd and 4th respondents' proposal when his major concern is unlikely to be satisfactorily addressed after the breakdown in trust and confidence with the 3rd and 4th respondents.

19. For the above reasons, I am not satisfied that the respondents has shown a plain and obvious case for striking out.

20. Mr Chan went on to submit that at least the remedy for a winding up order should be struck out as the court is most unlikely to grant a winding up order when the petitioner is now running a rival business. In this connection, he relies on Re a Company [1997] 1 BCLC 479. For my part, I do not think it is proper at this stage to take a definitive view on what relief the court may grant if at the end of the day, the petitioner's case is made out. All the circumstances of the case need to be considered and before a final determination of the factual disputes is made, it is premature to suggest that the court is most unlikely to make a winding up order.

Conclusion

For the above reasons, these applications are dismissed.

I see no reason why costs should not follow the event. I will therefore make an order nisi that the petitioner shall have the costs of these applications, to be taxed if not agreed.