LOU THIAM SIONG (also known as LOW KWAI CHUAN) AND ANOTHER v. HWA AUN COMPANY (HONG KONG) LIMITED AND OTHERS

IN THE SUPREME COURT OF HONG KONG

COMPANIES (WINDING-UP) No. 170 of 1988

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J U D G M E N T

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1. Lou Thiam Siong (the petitioner) is a minority shareholder in a family company Hwa Aun Company (Hong Kong) Limited ("the company") which is the 1st respondent holding 125 shares in his own right together with 125 shares as administrator of the estate of his late father, the total amounting to 10% of the issued share capital. The majority shareholding is held by Mr Law Kiat Bin ("the 2nd respondent") and his family.

2. A petition was presented by the petitioner on the 24th October 1988 against the company and the majority shareholders seeking inter alia, an order that his shares be purchased by the company or all the respondents under the provisions of section 168A of the Companies Ordinance on the grounds that the affairs of the company have been conducted in a manner which is prejudicial to his interests and those of his late father. There is also a prayer for a winding-up order against the company, but it is not relevant to the present summons.

3. The breakdown in the relationship of the parties that led to the presentation of the petition arose, according to the petitioner, on the 15th September 1988 when at an extraordinary general meeting of the company, the majority shareholders passed a resolution to invest S$3,000,000 in a company in Singapore Advance Die-Casting Pte. Ltd. in respect of which the majority shareholders constitute the 2nd respondent and his family. This resolution was passed, despite the petitioner's opposition that the investment was not commercially justified. Lipton Holdings Inc. (the 3rd respondent) was one of the shareholders that voted in favour of the resolution. The 3rd respondent is a company incorporated in Liberia controlled by the 2nd respondent. At the time of the resolution the 3rd respondent held 677 shares in the company. However, on the following day, the 16th September 1988, the entire shareholding of the 3rd respondent was transferred to the 2nd respondent and members of his family.

4. On the 20th March 1988 Master Chan granted leave to the petitioner r to serve the petition on the 3rd respondent out of the jurisdiction. The 3rd respondent, by the present summons, seeks an order for the discharge of this order and for the petition to be dismissed on the grounds that the petitioner does not have a good arguable case.

5. Mr Waung for the 3rd respondent submitted that as the 3rd respondent was not a member of the company at the date of the presentation of the petition, section 168A does not apply. Section 168A where relevant provides :-

"168A. (1) Any member of a company who complains that the affairs of the company are being conducted in a manner unfairly prejudicial to the interests of some part of the members (including himself) ............, may make an application to the court by petition for an order under this section.

(2) If on any petition under this section the court is of opinion that the company's affairs are being conducted in a manner unfairly prejudicial to the interests of some part of an the members, whether or not such conduct consists of an isolated act or a series of acts, the court may, with a view to bringing to an end the matters complained of -

(a) ........

(b) ........

(c) make such other order as it thinks fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise."

6. Mr Li, counsel for the petitioner made four submissions that can be summarised to the effect that the section should be given a wide and liberal construction in accordance with the provisions of section 19 of the Interpretation and General Clauses Ordinance. He also cited Re Taiwa Land Investment Co. Ltd. [1981] HKLR 297 and Rd Lai Kan Co. Ltd. and Re Safe Steel Furniture Factory Ltd. [1988] HKLR 257 where this approach was adopted in Hong Kong and In re Bird Precision Bellows Ltd. [1986]1 Ch. 658, where at 669 Oliver L.J. in construing the equivalent section in England said :-

"It seems to me that the whole framework of the section, and of such of the authorities as we have seen, which seem to me to support this, is to confer on the court a very wide discretion to do what is considered fair and equitable in all the circumstances of the case......"

Another case of particular relevance is In re A Company [1986]1 WLR 281 where Hoffmann J. held that section 461(1) of the Companies Act 1985 which is in similar terms to s.168A was wide enough to allow the court to grant relief in respect of a complaint that the company's affairs had been conducted by a respondent, who was no longer a member of the company in a manner unfairly prejudicial to the interests of members. Although Mr Waung sought to draw a distinction between the English legislation and that applicable in Hong Kong, there is, in fact in my judgment, no difference in substance.

7. I accept upon the authorities that section 168A should be given a wide discretion to do what is fair and equitable. Further I agree with Mr Li that the restrictive interpretation canvassed by Mr Waung that only members of the company at the date of the presentation of the petition can be made a respondent is not correct. I therefore propose to follow Hoffmann J.'s decision and hold that a former member of the company can be a proper party to the proceedings. The burden upon the petitioner to show that there is a good arguable case against the 3rd respondent has been discharged.

8. Mr Li also raised four subsidiary matters, but having regard to my decision, it is unnecessary for me to consider them. In the event, the summons will be dismissed.