RE GREATER BEIJING REGION EXPRESSWAYS LTD

HCCW399/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING UP PROCEEDINGS NO.399 OF 1999

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D E C I S I O N

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1. There are three summonses before me. The first two are applications both dated 2 December 1999 to discharge an order, inter alia, for discovery made on 24 November 1999 against Greater Beijing Expressway Limited ("the Company") and each of its directors. The third is a summons dated 10 January 2000 taken out by Always Win Developments Limited ("Always Win") seeking discovery broadly similar to that granted on 24 November 1999.

BACKGROUND

2. A winding-up petition was presented by Miracle Chance Limited ("Miracle Chance") on 7 May 1999 for the Company to be wound up on the just and equitable ground. On 23 November 1999, a summons (the November summons) was taken out by Asia Pacific Growth Fund II, L.P., BeN Offshore Investments Limited, Fantasia Venture Limited, Onfem Holdings Limited and Quantum Emerging Growth Partners CV ("the Applicants") in the petition for injunctive relief and in the alternative, for the appointment of a provisional liquidator. That application was supported by Always Win which was separately represented.

3. The November summons was precipitated by the discovery that on 5 November 1999 David Yuk Wah Ho ("Mr Ho") a director and indirect shareholder (via companies controlled by him) caused the Company to allot to a company controlled by him, i.e. Bright Avenue Inc., sufficient shares to give him a majority shareholding in the Company ("the Allotment") and so defeat a resolution passed by the Applicants, Always Win as well as China Securities (International) Limited ("China Securities") on 5 November 1999 to remove him and his associates from the Board. The resolution would have taken effect as from 20 November 1999. A copy was sent to Mr Ho as a matter of courtesy. It prompted the Allotment and the effective dilution of a majority holding into a minority holding. It is common ground that prior to the Allotment, those seven shareholders together held 62.2% of the issued capital of the Company as follows :

	Minimum % of shares before Allotment
Always Win Developments Limited	5.7%
Asia Pacific Growth Fund II, L.P.	9.5%
Ben Offshore Investments Ltd	6.2%
China Securities (International) Limited	15.2%
Fantasia Venture Limited	8.2%
ONFEM Holdings Limited	11.2%
Quantum Emerging Growth Partners C.V.	6.2%
	62.2%

Though party to the resolution to remove Mr Ho from the Board, China Securities is not party to the November summons.

4. The November summons sought injunctive relief as well as discovery in aid of that relief. During the course of that hearing, it emerged that Greater Beijing First Expressways Limited ("GBFE"), a wholly owned subsidiary of the Company had issued bonds in the United States with a principal value of US$288 million. An injunction against the Company could conceivably give rise to an event of default under the bond issue. Faced with this potential problem, the Applicants sought a revised order which did not include injunctive relief so as to eliminate the need for any cross-undertaking as to damages.

5. The order made (the November Order) provided inter alia as follows :

"4. The Company the Directors and each of them shall by 5.00 p.m. on 3rd December 1999 serve on the solicitors for the Applicants, Always Win Developments Limited and the Petitioner a list of all documents, which they have in their possession, custody or power in whatsoever capacity:-

(1) which is relevant to any transaction between the Company and/or the Subsidiaries, on the one hand, and, David Yuk Wah Ho and/or any company of which David Yuk Wah Ho is the ultimate beneficial owner (directly or indirectly) of any of its issued share capital, on the other (in so far as such transactions are not already disclosed to the Applicants);

(2) which pertains to or relates to the transaction referred to in the said affidavit of Christopher John Walker (except in so far as already disclosed to the Applicants);

(3) which is relevant to the capital structure and rights of the members of the Company and the Subsidiaries including (without limitation) the memorandum and articles of association of each of the Company and the Subsidiaries any amendments made thereto at any time;

(4) all minutes and other records of meetings of the directors of the Company and the Subsidiaries and all resolutions or decisions taken at any such meetings in so far as pertaining or relevant to any transaction such as is referred to in sub-paragraphs (1) and (2) above.

in each such case, save in so far as a privileged from production under the laws of Hong Kong.

5. The Company shall by 5.00 p.m. on 6th December 1999 serve on the solicitors for the Applicants copies of documents referred to in the list served by the Company."

The order sought and made was against the Company and each of its directors. In his 5th affirmation dated 13 September 1999 filed in the petition Mr Ho identified the directors of the Company. That information could not be verified by the Applicants for the purposes of the November Order since it is not possible to carry out a search in the BVI to establish the identity of the Company's directors.

6. On 2 December 1999, a summons was taken out by Mr Ho, Raymond Tam, Allan Tak Chak Lau and Symond Kwong Shu Lam (collectively the Respondents) returnable the following day to discharge the November Order, for the November Order to be stayed pending the disposal at first instance of the hearing of that application, and for directions. The Respondents were the directors identified in Mr Ho's 5th affirmation and were believed to be the directors at the date of the November Order. On the same day, the Company took out a similar summons to discharge the November Order.

7. The applications were heard on 3 December 1999 being the date by which the Company and its directors had to comply with paragraph 4 of the November Order. At that hearing, the court made an order substantially identical to paragraph 4 of the November Order save that it was upon certain undertakings of the Applicants, Always Win and the Petitioner, and the time for providing the list was extended to 7 December 1999. Production of copies of the documents which would have taken place on 6 December was stayed pending the determination of the application to discharge the November Order. Directions were also given for the filing of evidence. The issue between the Company and the Respondents on the one hand and the Applicants on the other relates to the order requiring production of the documents identified in the list.

8. As the earlier orders did not in terms confer on Always Win the right to inspect the statutory books and records and to be served with copies of the documents, on 10 January 2000, Always Win served its summons for inspection and for discovery. That summons is opposed by the Company and its directors.

9. In that connection, it is to be noted that the Respondents are the directors identified in the 5th affirmation of Mr Ho dated 13 September 1999. Unbeknown to the Applicants, Always Win and the court, well before the date of the November Order, on 8 November 1999, Mr Ho caused a resolution of the Board to be passed appointing four new corporate directors all owned and controlled by him "to prevent the six shareholders from overturning the existing Board". Characteristically, Mr Ho did not see fit to disclose this fact to the court whether when the November Order was made or in his subsequent application to have the November Order discharged.

The petition

10. Miracle Chance is the joint venture vehicle through which Mr Ho and Gao Jia Ren ("Mr Gao") hold their interests of 35% and 65% respectively in toll road projects in China. The petition in which the present summonses have been taken out was presented in May 1999 by Miracle Chance and seeks a winding-up order on the just and equitable ground. Miracle Chance complained of dilution by Mr Ho of Miracle Chance's shareholding in the Company through various transactions from a 100% controlling interest to a non-controlling interest of 42.24%. The petition was amended after the evidence in opposition was filed. It would appear that without the knowledge or consent of Mr Gao, the only independent director of Miracle Chance, further transactions had taken place prior to the presentation of the petition. In fact, by 28 October 1998, Miracle Chance's shareholding had been diluted down to zero. Other than dilution, complaint was made of "unconscionable transactions" through which Mr Ho and entities associated or controlled by him allegedly benefitted at the expense of the Company and of Mr Gao's exclusion from management. Conduct relied on included amendments to the Articles of the Company which entrenched Mr Ho's control of the Company.

11. The issues which arise in the present case need to be seen against the relevant factual matrix. In this connection, it is necessary to set out what is known as the Bright Avenue transaction.

The Bright Avenue transaction

12. The transaction is of some complexity and to facilitate its understanding, the Applicants' chart which summarizes the transaction is attached as an appendix. (Please see at the end of this document)

Acquisition of the toll roads

13. Mr Ho acquired through Miu Yuan Limited ("Miu Yuan") and Xin Lian Limited ("Xin Lian") interests in two toll road projects in Guangxi at a time when the Company was operational. Miu Yuan and Xin Lian are owned by Multi-Progress Group Limited ("Multi-Progress") and Momentum Limited ("Momentum") respectively, both of which are owned by Paradiso Limited, a company controlled by Mr Ho.

14. Miu Yuan and Xin Lian financed their working capital commitments in the toll roads by loans from Multi-Progress and Momentum. Such loans were obtained from another company controlled by Mr Ho, namely, Insulate Agents Limited ("Insulate") under a letter agreement executed on 18 May 1999. Insulate was also granted a charge over the entire share capital of Miu Yuan and Xin Lian and debentures were issued by them over their assets. The charge is enforceable in the event of any default under the loan agreement. As at 19 May 1999, the amount of the loan stood at approximately $73 million. The terms of the loan were amended on 19 May 1999 and 5 November 1999 such that instead of the loan becoming repayable on three days' written notice, it would become repayable immediately on the occurrence of certain events (including the winding up of any member of the Group and a reasonable belief that Insulate's interests are in jeopardy) and, significantly, Insulate could subscribe for shares in the Company (rather than Multi-Progress/ Momentum) in lieu of repayment when the Insulate loans were not even made to the Company.

Sale of interests in toll roads

15. By an agreement executed on 18 May 1999 ("the May Agreement"), Paradiso agreed to sell its interest in Multi-Progress and Momentum to Greater Beijing Third Expressway Limited ("GBTE") another wholly owned subsidiary of the Company. $31,835,206 was to be paid on completion, the price stated being $385,486,891. On 5 November 1999, the May Agreement was re-executed. The total consideration was $480,238,029. The balance of the purchase price was to be made by two deferred instalments on 5 November 2002 and 5 November 2004 of $118,164,794 and $285,378,216 respectively. Like the Insulate loan, there is a conversion option which allowed Paradiso at its option to subscribe for shares in the Company in lieu of payment. The deferred consideration agreement also provided by way of security a charge in favour of Paradiso over the share capital of Multi-Progress and Momentum. Paradiso is entitled to enforce its security on the occurrence of an event of default which includes a winding-up of the Company and a change of control.

The Allotment

16. On 5 November 1999, Mr Ho caused the Company to allot 1,072,791 shares to Bright Avenue, a company controlled by him. This increased Mr Ho's interest in the Company (via entities controlled by him) from 37.8% to 51.06%. It is not disputed that the reason why the Allotment took place is because Mr Ho wanted to retain control of the Company. As noted above, it was timed to frustrate the resolution to remove him and his associates from the Board.

Effect of the Bright Avenue transaction

17. It will have become apparent that the effect of the Bright Avenue transaction is that by deferring payment for the purchase of the shares in Multi-Progress and Momentum and the loans by Insulate, Mr Ho gave himself the option to allot shares if it became necessary to take control of the Company. By providing for deferred payment, Mr Ho was able to avoid having to allot shares to himself unless it became essential so to do.

18. In this context, it has already been noted that on 8 November 1999, Mr Ho caused companies owned and controlled by him to become corporate directors of the Company to entrench his control. Since the hearing on 3 December 1999, it has come to light that on 18 November 1999 Mr Ho also caused the Memorandum and Articles of various companies in the Greater Beijing Group to be changed to further entrench his control. The changes provide that only the directors can change the members of the Board. They were also given greater rights to dispose of the assets of the Company.

The independent shareholders' complaints

19. These may be summarized as follows.

(1) By acquiring an interest in the toll roads himself rather than procuring that the Company do so, Mr Ho put in place the mechanism which allowed him to gain control of the Company at a far smaller cost than he would otherwise have had to pay. He appears to have paid approximately $73 million to acquire that interest. As at May 1999, it appears to have been intended that this be financed by the Insulate loan of $73.3 million. According to Mr Ho, only approximately $22.5 million of this loan was drawn down, the balance being financed by loans from Paradiso to Momentum and Multi-Progress totalling approximately $50.7 million.

(2) Sixteen months after Mr Ho acquired his interest in the toll roads for $73 million, but it seems probably only five months after he paid any money to the joint ventures, he sold his interest in the Company for approximately $480 million. Whilst Mr Ho acknowledges that the toll roads have "obvious synergies with the Company's existing asset base", no explanation has been proffered as to why these attractive investments were acquired by him rather than by the Company in the first place.

(3) In addition to direct financial benefit, the transactions enabled Mr Ho to finance the purchase of further shares in the Company at a discount. Seemingly, Mr Ho has acquired 1,072,791 shares in the Company assumed to be worth approximately $358.7 million for an outlay of no more than $73.18 million. He was able to increase his interest in the Company from 37.8% to 51.05% without paying any premium for the control thus gained.

(4) Mr Ho did not seek the shareholders' approval of the transaction despite the apparent conflict of interest. Further, it would appear that no independent law firm was retained to advise the Company.

(5) Irrespective of the question whether or not the original transaction was entered into in the best interests of the Company, the allotment would be objectionable if it was made for another purpose which was improper. If the principal reason for the allotment was to allow Mr Ho to retain control of the Company, that would not be a proper use of his powers as a director. See Hogg v. Cramphorn [1967] 1 Ch 254.

(6) Finally, the transactions had been structured in such a way that if the Company were wound up, Insulate and Paradiso will be able to exercise their rights under the securities they hold and this will result in Mr Ho taking back the toll roads and retaining the $31.8 million Paradiso has already received.

THE ISSUES

20. The issues which arise are :

(1) whether there is jurisdiction to grant discovery and if there is,

(2) whether the court's discretion should be exercised to grant discovery.

21. As a preliminary matter, it is to be noted, first, that the Applicants and Always Win no longer seek any injunctive relief. Secondly, no issue as to entitlement to discovery under BVI law arises since it is not suggested that as shareholders in a BVI company, they are so entitled. Thirdly, discovery is not sought in relation to an issue in the petition under O.24. Rather, it is sought on the basis that the Applicants and Always Win being parties to the petition need the information before they are able to make an informed decision whether or not to support the petition.

JURISDICTION

Locus

22. The Respondents and the Company submitted that the independent shareholders have no locus. Although it now transpires that the Applicants and Always Win had filed notices of intention to appear, objection was taken to the validity of those notices inasmuch as they failed to state whether the Applicants and Always Win intend to support or oppose the petition. Rule 30 provides in pertinent part as follows :

"Every person who intends to appear on the hearing of a petition shall serve on ... the petitioner ... notice of his intention ... The notice shall be in Form 10  with such variations as circumstances may require. A person who has failed to comply with this rule shall not, without the special leave of the court, be allowed to appear on the hearing of the petition. (emphasis added)

Form 10

Take notice that A.B., of ^(a) a creditor for $ ___of (or contributory holding ^(b)__ shares in) the above company intends to appear on the hearing of the petition advertised to be heard on the day of , 19__ , and to support ( or oppose ) such petition."

The question which arises is whether any deviation from Form 10 is necessarily fatal.

23. In my judgment, the answer is in the negative. First, rule 30 itself contemplates "such variations [to Form 10] as circumstances may require". Whilst leading counsel for the Respondents submitted that this only meant the choice of one of the two options stated, namely, to support or to oppose, had that been the case, there would have been no need in rule 30 to mention "variations" : the choice if that be restricted to what is contained in Form 10 would have been all too obvious. Further, a wide rather than a restrictive construction would appear appropriate in view of the last sentence in rule 30 which empowers the court to grant leave to appear even where the rule has not been complied with. For these reasons, on this issue I agree with the submission of the Applicants and Always Win and hold that they are parties to the petition.

Relevance to the petition

24. It is common ground that the Applicants and Always Win do not seek discovery in relation to an issue raised in the petition. It is further common ground that a winding-up petition is not a true lis but a class remedy sought in the interests of the class whom the petitioner represents : see Re Esal (Commodities) Ltd [1985] BCLC 450,459 b. The petitioner in this case seeks to wind up the Company on the just and equitable ground. In so doing, it seeks to exercise a class right arising from statute. The Applicants submitted that any person with locus to be heard on the petition may apply for an order that something be done, which is necessary to ensure the proper determination of a class right which the petitioner seeks to exercise. It is their case that they need the discovery sought in order to be able to decide whether or not to support or to oppose the petition.

25. The Respondents contended that the Applicants' stance that they need the discovery in order to decide whether or not to support or oppose the petition is unsustainable because if the Applicants were to support the petition, they would be saying that they are not the shareholders of shares that they say they own since the disposition of shares about which the petitioner complains were to the Applicants. For that reason, the Respondents submitted that the only stance that the Applicants can possibly take in the petition is to oppose it. Pausing here, I would observe that the conduct complained of is not restricted to Mr Ho's dealings with the shares registered in the name of Miracle Chance and include matters about which any contributory (whether Miracle Chance or the Applicants, not to mention also Always Win) could legitimately be concerned and maintain a stance given his stake in the Company.

26. In any event, the point taken by leading counsel for the Respondents as to the Applicants' only possible stance vis-à-vis the allegations in the petition (assuming it to be valid for present purposes) cannot apply to Always Win. It is not disputed that Always Win acquired 81,675 shares on 18 November 1997, and 142,932 shares on 18 February 1998 for an aggregate consideration of US$80.7 million which as at 18 February 1998 represented 18.97% of the then issued capital of the Company. As a result of the Bright Avenue transaction, Always Win's interest in the Company has fallen from 18.9% to 4.46%. Always Win is a contributory who plainly would be affected by a winding-up order made on the petition.

27. Leading counsel for Always Win submitted that Always Win's substantive and procedural rights include the right to support or oppose the petition, to apply for winding-up on a separate petition to be heard together with the present petition, or to be substituted as petitioner, or to apply for a stay of the petition pending the resolution of other proceedings, or to apply for interim relief in the protection of its rights as a contributory. Prima facie, this reasoning would apply, mutatis mutandis, to the Applicants (notwithstanding the ownership issue) since they too have invested significant sums in the Company and accordingly have a significant interest in the Company to protect.

28. That the information is relevant to the decision whether or not to support the petition is obvious. This is particularly so since the wrongs claimed by the petitioner to have occurred and the nature of the allegations are wrongs by those in control of the Company. These are matters which cannot be said to be of no concern to the other contributories such as Always Win and the Applicants. When deciding the relief (if any) to be granted, the court would have regard to their views.

29. Both the Applicants and Always Win relied on the equitable principles stated in Norwich Pharmacal v. Customs & Excise Commissioners [1974] AC 133 as the basis for the discovery order sought. The real issue between the parties is whether Norwich Pharmacal applies in the present case.

Norwich Pharmacal

30. The principle is summarized by Lord Reid (at p.175) as follows :

"[The cases] seem to me to point to a very reasonable principle that if through no fault of his own a person gets mixed up in the tortious acts of others so as to facilitate their wrongdoing he may incur no personal liability but he comes under a duty to assist the person who has been wronged by giving him full information and disclosing the identity of the wrongdoers. I do not think that it matters whether he became so mixed up by voluntary action on his part or because it was his duty to do what he did. It may be that if this causes him expense a person seeking the information ought to reimburse him. But justice requires he should co-operate in righting the wrong if he unwittingly facilitated its perpetration."

31. That principle has been extended : Norwich Pharmacal is not limited to pure identity : information may be obtained and used in appropriate cases. See per Cons JA in Yew Seng Computer (HK) Limited v. Computerland Corporation [1986] HKLR 283 at 286 D-E. So the fact that the identity of the wrong-doer is known is not necessarily a bar to the application of the principle.

32. Leading counsel for the Respondents submitted that although the Norwich Pharmacal principle has been extended, the information sought to be obtained from the innocent party must be relevant to an issue in existing proceedings. But that proposition would not appear to be supported by the authorities. See, for example, P v. T Ltd [1997] 1 WLR 1309 (where the court exercised its discretionary power to order discovery so that the plaintiff might be enabled to bring proceedings to clear his name against the person(s) who supplied the information, which he contended to be false, to the defendant) and British Steel Corporation v. Granada Television Ltd [1981] AC 1096. In the latter case, Granada broadcasted a programme quoting from a number of secret or confidential documents, the property of BSC. BSC sought disclosure of the names of those who supplied the documents to Granada. Granada opposed the application and one of the arguments was that the relief, being in the nature of discovery, can only be granted in aid of some existing proceedings, or at the most in aid of intended proceedings. Granada claimed that BSC's purpose to discover the identity of the source was not for any actual proceedings nor for any intended proceedings, but it was said was only "to be able to dismiss the employee and/or to deprive him of his pension". This submission was rejected by Lord Wilberforce who stated at 1174 D as follows :

"...Now I would be prepared if necessary to hold that, given a cause of action, an intention to seek redress-by court action or otherwise-would be enough, and there is support for this: see  Norwich Pharmacal Co. v. Customs and Excise Commissioners [1974] A.C.133, 188,  per Viscount Dilhorne and Post v. Toledo, Cincinnati and St. Louis Railroad Co. (1887) 11 N.E.Rep.540."

To similar effect is the following passage from the speech of Lord Fraser (at 1200 D-F) :

"...It is true that in most of the cases referred to in the speeches in the Norwich Pharmacal case [1974] A.C.133 the plaintiff intended to bring proceedings against the source, but no authority was cited to us showing that such an intention was essential to obtain discovery. In  Cardale v. Watkins, 5 Madd.18, Sir John Leach V.-C. did indeed say that discovery would not be given for the mere gratification of curiosity but in aid of some other proceedings either pending or intended. In the present case discovery is certainly not sought for the mere gratification of curiosity; it is sought for the vindication of B.S.C.'s rights, and I do not think it matters whether separate proceedings are required for that purpose or not. That view is supported by  American authority in Post v. Toledo, Cincinnati and St. Louis Railroad Co., 11 N.E.Rep.540, where Field J. said at p.547 that a plaintiff can obtain discovery if he has a cause of action against the informant whether or not he intended to raise proceedings. In the present case it is clear that B.S.C. do have a cause of action against the informant who has disclosed confidential information of theirs."

33. Leading counsel for the Respondents submitted that reliance on  British Steel was misconceived because what was involved in that case was the disclosure of the identity of an unknown wrongdoer and without such disclosure, the applicant would be unable to seek redress whether that redress was the commencement of court proceedings or the dismissal of the unknown wrongdoer. He also sought to distinguish  P v. T Ltd on the basis that it was a wholly exceptional case.

34. It appears to me that the differing views turn on the interpretation of 'necessity'. It has been held that the jurisdiction to grant discovery under Norwich Pharmacal, being a remedy in equity, "is to be exercised only if it is just and necessary to do so" : see   per Patrick Chan J in Sham v. Eastweek Publisher Limited [1994] 1 HKC 687 at 693 B-C; that "the information must be necessary for justice to be done" : see  per Sir Alan Huggins VP in Yew Seng at 285 G. As stated by Millett J in Lonrho Plc v. Fayed (No.2) [1992] 1 WLR 1 at 14 A :

"The jurisdiction is founded on judicial necessity : its justification lies in the fact that the information will not otherwise become available, so that to withhold relief would amongst a denial of justice."

35. In the present case, the Applicants and Always Win are contributories and, having regard to my holding as to rule 30 and Form 10 above, they are parties to the petition which was presented in May 1999. They have much at stake by way of significant investments in the Company sought to be wound up. The contributories' stance in the petition is plainly a matter that the court has to take into account when considering how its discretion in terms of relief is to be exercised. The situation that has arisen is that the Applicants and Always Win are not in a position to make an informed decision. There are the allegations in the petition of dilution, reduction or extinction of Mr Gao's indirect interests in the Company. It would now appear that there has been a dilution of the shareholding interests of the Applicants and Always Win as a result of the Bright Avenue transaction. There would appear to be a discernible pattern of conduct. The dealings of Mr Ho who is in control has caused considerable disquiet to the independent shareholders. Whilst it is true that Always Win has already instituted proceedings against Mr Ho and Asia-Pac Expressways Investment Management Ltd (another company controlled by Mr Ho) in respect of the Bright Avenue transaction, that is an action based on a contract between the parties, and does not involve the Company. To suggest that the discovery can be obtained from the Company in such separate proceedings is a little disingenuous since the Company is not a party to it and leading counsel for the Respondents is unable to confirm that such application would not be resisted. All he was able to concede was that the jurisdiction point would not be taken.

36. It has to be borne in mind that the information sought cannot be obtained from any other source. Only Mr Ho is in a position to provide it and in the several applications that have come before me in relation to the Company and Miracle Chance, it is evident that Mr Ho is not disposed to divulging any information unless compelled to do so. At every turn, BVI law is invoked and the court is reminded that under BVI law, minority shareholders have no right to any information. The change in directorship of the Company and of its articles to entrench Mr Ho's control over the management of the Company referred to above is but one example.

37. Whilst the information sought, if ordered to be provided, may enable the Applicants and Always Win to mount other proceedings, this does not deflect from the fact that it is necessary to the making of an informed decision regarding the petition. The information sought is directly relevant to the decision-making process now confronting the independent shareholders. They have a legitimate interest to protect and that can be done through taking a stance on the petition to which they are parties. Justice would be denied if contributories who have invested significant sums into the Company are forced to make an uninformed decision. In my judgment, under Norwich Pharmacal principles the court has jurisdiction in the circumstances of this case to grant the discovery sought.

38. I now turn to the question of how the court's discretion is to be exercised.

EXERCISE OF THE DISCRETION

39. For the Company and the Respondents, it was submitted that even if the court has jurisdiction to grant discovery, it should not exercise its discretion because

(a) the petition is liable to be struck out;

(b) of the lack of substance in the complaints regarding the Bright Avenue transaction; and

(c) there was non-material disclosure.

The petition

40. There is pending an application to strike out the petition. That application is due to be heard in June based, inter alia, on the fact that the petitioner has no locus to petition not being a contributory of the Company. Reliance was placed on  In re J.N. 2 Ltd [1978] 1 WLR 183 for the proposition that the status of the petitioner as a contributory must be resolved not in the petition but in separate proceedings.

41. Generally speaking, it would not be appropriate for this court to pre-empt applications that are pending. It would not be fair to the petitioner for the court to form a preliminary view on merits without the benefit of full submissions and to proceed as if that preliminary view were bound to prevail.

42. In this connection, it is to be noted that in  Alipour v. Ary & Another [1997] 1 WLR 534 the English Court of Appeal did not follow  In re J.N. 2 Ltd.. It was held by Peter Gibson LJ (at 546C) that :

"...(3) On a contributory's petition where the locus standi of the petitioner is disputed, the court will consider all the circumstances, including the likelihood of damage to the company if the petition is not dismissed, in determining whether to require the petitioner to seek the determination of the dispute outside the petition."

43. It was submitted by the Company and the Respondents that there is evidence of prejudice to the Company resulting from the filing of the petition. The court was referred to the downgrading of notes issued by GBFE by Moody's on 6 December 1999 and by Standard and Poor's on 22 December 1999. However, Moody's press release which dealt with the reasons for the downgrading made no mention of the petition. Even in Standard and Poor's press release, "on-going litigation" is but one of many reasons cited, such as the continuing financial difficulties of the Company, minimal collateral security, low or negative growth in toll revenues, delays in toll increases as well as the possibility that GBFE's relationships with its Chinese joint venture partners may be poor. The on-going litigation which embraces more than just the petition would not appear to have been a major factor much less the major factor in bringing about the downgrading. In these circumstances, the evidence of damage presented can hardly be said to be compelling. Moreover, the time for considering the circumstances must be when the striking out application comes on for hearing which is some months away. In my judgment, it is by no means a foregone conclusion that the striking out application is bound to succeed and in the circumstances, it would be wrong for the court to speculate on the prospects of success and to exercise its discretion on that basis.

Lack of substance in the complaints

44. The Respondents' position is that there is no substance in the complaints made regarding the Bright Avenue transaction because first, the purchase of Paradiso's interests was in the Company's best interests; second, the purchase price was fair, being based on an independent valuation carried out by Sallmans which, in turn, was based on a road study conducted by Parsons Brinckerhoff (Asia) Limited, both dated August 1999; third, it was in the Company's best interests that Mr Ho remained in control of the Company and the Allotment which enabled that control to be preserved was therefore in the best interests of the Company; and fourth, that the Company was under no legal obligation to provide any information about the Allotment to the Applicants and Always Win or seek their approval. It will be noted that some of these considerations are at best circular.

45. As a result of the November hearing, the Respondents (no doubt considering that it would advance their cause) disclosed an independent professional opinion as to the fairness and reasonableness to the Company of the terms of the Company's agreement with Paradiso dated 5 November 1999 about which the independents shareholders were previously unaware. The opinion, prepared by Somerley Limited, is dated 1 December 1999 which postdates the Bright Avenue Transaction by several weeks. According to Mr Ho, identical advice was given by Somerley in May 1999 "although due to the cancellation of the completion of that transaction, no written report was produced". When attention was drawn to the fact that the reports by Sallmans and Parsons were made in August 1999, the court was informed that draft valuations were available in May when Somerley gave its advice although draft valuations are nowhere in evidence. It is therefore not possible to ascertain whether or not there are material differences between the draft and final valuations. But it must have been different in at least one material respect since the December report refers to Mr Ho being the beneficial controlling shareholder in the Company. That clearly was not the case prior to 5 November 1999. Further, it would not appear that Somerley paid any regard to the fact that the conversion rights allowed Mr Ho to obtain a controlling interest in the Company. These matters apart, no independent legal advice appears to have been taken to address the conflict of interest issue.

46. What is also not addressed anywhere is the apparent usurpation of corporate opportunities by Mr Ho in acquiring for himself the interests in the toll roads in the first place without offering them to the Company. The Respondents' submission that the complaints have no substance is therefore to be rejected at least for the purposes of the exercise of the court's discretion to grant discovery.

Material non-disclosure

47. The complaint here is that the Applicants failed to disclose to the court when it applied for the November Order of -

(1) the existence of two confidential reports setting out the concerns of the Company and Mr Ho as regards the actions of COSCO and Bechtel, the beneficial owners of Always Win and BeN Offshore respectively;

(2) the valuation report of Mr Ho's interest in the toll roads prepared by Sallmans; and

(3) BVI law.

48. I will first deal with a preliminary matter. A great deal of evidence has been filed by both sides as to whether the hearing on 24 November 1999 was  ex parte or inter partes. It is common ground that the papers were served on the Respondents and the Company less than 24 hours before the hearing. Although counsel was instructed to appear on behalf of the Respondents and the Company, he had had no opportunity to take instructions to deal with the matters raised in the application within the short space of time available. Clearly the presence of counsel for the Respondents on 24 November did not of itself render the hearing  inter partes. So far as a ruling on this issue is material, I have no doubt that the hearing was  ex parte albeit on notice.

49. So far as the confidential reports are concerned, whilst it may be material to Mr Ho's unwillingness to provide information to those two shareholders, they do not begin to explain how the remaining Applicants are to be tainted by the suspicions which he entertains for Bechtel and COSCO or how the reports can in any way justify the Allotment. So far as Sallmans' report is concerned, the fact that the consideration was based on this valuation is neither here nor there for the purposes of the November Order since the complaints made were not directed at the adequacy of the consideration but rather the structure of the Bright Avenue transaction, in particular, the conversion option and the security given to Mr Ho in respect of the deferred consideration and loans. As regards BVI law, discovery was never sought on the basis of any entitlement under BVI law.

50. For the reasons stated, none of the matters relied on as constituting material non-disclosure would have affected the exercise of the court's discretion. Such omission neither justifies the setting aside of the November Order nor a refusal to grant the discovery sought.

ORDER

The summonses dated 2 December 1999

51. The applications to discharge the November Order are dismissed. The stay imposed by paragraph 4 of the Order dated 3 December 1999 is lifted and the time for producing the documents ordered to be produced under paragraph 5 of the November Order is extended to 5 p.m. on 11 February 2000.

The summons dated 10 January 2000

52. I will make an order in terms of paragraphs 1, 2, 3 and 4 of the summons save that -

(1) paragraph 2 is to be amended

(a) by deleting "etc. of whatsoever" in subparagraph (1) thereof and substituting in its place "assignments, transfers or documents of a similar" and

(b) so as to exclude listed companies in which Mr Ho holds shares;

(2) in paragraphs 2 and 3 "19 January 2000" is to be deleted and replaced by "9 February 2000"; and

(3) in paragraph 4, "21 January 2000" is to be deleted and replaced by "11 February 2000".

There is to be liberty to apply.