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

HCMP 3231/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3231 OF 2003

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D E C I S I O N

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1. On 25 July 2003, I granted an injunction on an ex parte application of the plaintiffs, Core Pacific-Yamaichi International (HK) Limited ("CPY") and Core Pacific Investment Holdings (BVI) Limited ("CPIH"), to restrain the defendant herein, Yuanta Securities Asia Financial Services Limited ("YSAF"), until after the hearing of an inter partes summons returnable on 1 August 2003 or further order, from presenting and/or issuing a petition with or from the High Court against CPY for the winding up of CPY on the just and equitable ground, pursuant to the draft petition annexed to the order or any other draft petition to similar affect. The order was made some time after 4 p.m.

2. Unknown to the plaintiffs, YSAF had issued a petition against CPY at about 11 a.m. This is HCCW No. 804 of 2003. The petition seeks relief under section 168A of the Companies Ordinance, Cap. 32, alternatively winding up of CPY. The petition is essentially a dispute between 2 camps of shareholders - I shall refer to them as the Core Pacific group (they are the plaintiffs herein) and the Yuanta group (they are the group of companies to which YSAF belongs).

3. As the petition has already been issued, in the inter partes summons taken out by the plaintiffs on 29 July 2003, they seek to amend the injunction to restrain YSAF from prosecuting and/or proceeding with and/or advertising the winding-up petition presented on 25 July 2003. In the further affirmations filed by the plaintiffs on 31 July 2003 in support of their inter partes summons, they seek an injunction to restrain YSAF from proceeding with the entire petition, not just the winding-up relief.

4. Miss Eu, SC who appears for the plaintiffs today, seeks an interim injunction to restrain YSAF from proceeding with the petition until after the determination of a summons issued by CPY and CPIH in HCCW No. 804 of 2003 for striking out of the whole petition, alternatively for stay of the petition pending arbitration in Taiwan, and in the further alternative for striking out of part of the petition relating to winding-up relief.

5. Mr Peter Graham, who appears for YSAF, opposes the application for the interim injunction and seeks to discharge the ex parte injunction on 25 July 2003.

6. Miss Eu has raised a number of grounds in support of the summons for striking out or stay of the petition in the winding-up proceedings. I do not propose to deal with them all. The most material ground appears as follows. It is the case of the plaintiffs that there is an alternative and more suitable remedy by proceeding to arbitration in Taipei pursuant to two Chinese agreements called the Merger Agreement and the Strategic Alliance Agreement, and it is unreasonable and an abuse of the process of the court for YSAF to proceed under the petition for winding-up or for relief under section 168A. On 31 July 2003, CPY, CPIH and Mr Sheen Ching Jing (who controls the Core Pacific group) have commenced proceedings for arbitration in Taipei against YSAF, the ultimate holding company of YSAF being Yuanta Core Pacific Securities Company Limited ("YCP"), and Mr Ma Chi Ling, the person who controls the Yuanta group.

7. What I need to rule on at this stage is whether there is a serious question to be tried that the petition should be struck out or stayed on the above ground. This threshold onus is not a high one.

8. Mr Graham made a number of points to show that this is a wholly specious argument and should be dismissed out of hand.

9. Firstly, he submitted that the Merger Agreement was a personal agreement between Mr Sheen and Mr Ma, as they are the parties described as A and B in the Merger Agreement and this agreement would have no binding effect on any of the companies, such as YSAF. The Merger Agreement is governed by Taiwanese law. There is exhibited a legal opinion from a Taiwanese lawyer that in the light of the "group theory" applied by arbitration in international commercial arbitration, the claimants in the arbitration can "make a good argument that the [Merger Agreement] and the [Strategic Alliance Agreement] were entered into for the benefit of all the companies in the Core Pacific group and Yuanta group and therefore all related companies in the Yuanta group can be named as parties (claimants or respondents) in the arbitration". I am not prepared to reject this proposition out of hand. I would also point out that the Strategic Alliance Agreement was stated to be made between CPY and YCP.

10. Next, Mr Graham has referred to two decisions, Re Greater Beijing Region Expressways Limited [1999] 4 HKC 807 and Re Mech-Power Hong Kong-China Limited, HCCW No. 281 of 1995, a decision of Rogers J, as he then was, on 4 July 1996. Mr Graham referred to these two decisions in support of his proposition that the arbitration agreement cannot deprive YSAF of its statutory right of recourse to seek winding up of CPY in that the winding-up relief cannot be the subject of an arbitration. Whilst the Court of Appeal in Greater Beijing held that the statutory right of contributories to present a petition for winding up under section 177 and for relief under section 168A cannot be deprived of by the terms of the articles of association or any private agreement between shareholders, the court there was not concerned with an arbitration clause in an agreement, or whether there was alternative remedy of some kind in an arbitration. As for Mech-Power, it was held that the arbitration agreement did not relate to the operation of the company in question, so the dispute in the winding-up petition, which was a deadlock situation, could not have been referred to arbitration. It was submitted by Miss Eu that this was not the position under the Merger Agreement or the Strategic Alliance Agreement. She has taken me through salient provisions in those agreements governing the operation and management of CPY, the termination of the Agreements, and the buying out of the interest of the other party upon termination. Miss Eu submitted that unlike Mech-Power, the disputes relating to such matters can and should be referred to arbitration. If it is alleged by the Yuanta group that the Core Pacific group is in breach of the Agreements, the Yuanta group can ask for termination of the Agreements in the arbitration and seek compensation in damages. I am not prepared to say at this stage that this argument cannot get off ground.

11. A subsidiary ground was advanced by the plaintiffs in support of their case that the petition for winding-up relief is an abuse of the process of the court. This is based on the case of Re Wong To Yick Wood Lock Ointment Limited [2003] 1 HKC 484. I will deal with this very shortly. On the evidence before the court, CPY is a solvent company with very substantial assets. The court would be reluctant to wind up a company like this if there is an alternative remedy available to YSAF. Relief under section 168A is sought in the petition, although it is not pleaded specifically what kind of relief is sought, and who is to buy out whom. There is evidence that the plaintiffs do not have the means to buy out YSAF. At this stage, I am not prepared to say that the buying out of the interest of YSAF by CPY itself, with a reduction of capital, is not a viable option. I do not think there is no serious question to be tried in this respect.

12. I have considered other points raised by Mr Graham in his written and oral submissions. Having come to the view that there is a serious question to be tried, I have no difficulty in holding that the balance of convenience does lie in favour of granting an injunction pending the determination of the summons for striking out or stay in HCCW No. 804 of 2003. I do not think the conduct of the Core Pacific group in holding a press conference and making accusations against the Yuanta group, which the latter says are unfounded, is such that the plaintiffs should be deprived of the protection of injunctive relief, although it is hoped that the officers of the plaintiffs would conduct themselves with greater circumspection in future.

13. I will hear counsel on the wording of the injunction to be granted.