SECURITIES AND FUTURES COMMISSION v. MANDARIN RESOURCES CORPORATION LTD.

1996 CWU No. 348

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H E A D N O T E

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A petition was presented by the Securities and Futures Commission seeking to wind up the company under Section 45 of the of the Securities and Futures Commission Ordinance and for various relief under Section 37A of the Ordinance including an order that the 2nd Respondent be ordered to purchase the shares of the minority shareholders. The 2nd Respondent was not and never had been a shareholder of the Company although it was not in dispute that the majority shareholding was held on behalf of the 2nd Respondent. On an application to strike out the petition on a number of general grounds as well as to strike out specific paragraphs it was held that :-

1. The paragraphs of the Petition which referred to matters which took place prior to the coming into effect of Section 37A would not be struck out.

2. The power to present a petition to wind up a company under Section 45 was not confined to those companies which were registered persons.

3. The powers under Section 37A included a power to bar a person from acting as a director of the Company and did not conflict with the powers of disqualification of directors under the Companies Ordinance.

4. The prayer asking for the purchase of shares by the 2nd Respondent would not be struck since for purposes of an application to strike out it should be taken that it was possible to make such an order under Section 37A.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT COMPANIES WINDING UP NO. CWU 348 OF 1996

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D E C I S I O N

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1. There are four applications in these proceedings. The first in time is an application by the Petitioner to amend the Petition. Next follow two summonses by the 2nd Respondent. One is an application to strike out the whole of the Petition on general grounds. The other seeks to strike out specific paragraphs of the Petition. Finally there is an application by the 1st Respondent seeking to strike out the Petition in its present form and in the alternative specific paragraphs of the Petition.

2. The Petition is presented by the Securities and Futures Commission. In broad terms, it seeks relief under section 37A of the Securities and Futures Commission Ordinance on the grounds that, the affairs of the 1st Respondent, Mandarin Resources Corporation Limited ("Mandarin Resources") have been conducted in a manner unfairly prejudicial to the interests of some of its shareholders and in particular the independent minority. The Petition also seeks an order that Mandarin Resources be wound up on the just and equitable grounds under the provisions of section 45 of the Securities and Futures Commission Ordinance and section 177(1)(f) of the Companies Ordinance.

3. Although no agreement was forthcoming as to the proposed amendments, the hearing was conducted on the basis of the Petition as amended with objection being taken to various parts of the amendments. Before going to the objections raised and for the avoidance of doubt I mention that in accordance with the authorities, a pleading or proceedings should only be struck out in cases where it is plain and obvious that that should happen. It is unnecessary for me to recite any authority for such proposition since, not unnaturally this was common ground between the parties and there was no dissent from it. The corollary of that proposition is, of course, that any decision not to strike out the Petition, or section of it or an allegation in it, is not finally determinative of the issue argued. Very often, matters need mature consideration in the light of the full evidence at trial.

4. The Petition is a lengthy document by any standard. It deals with a number of complaints and allegations about the running of Mandarin Resources. There are four core matters which are summarised early in the Petition. However, at the risk of over-simplification it can be said, perhaps, that at the root of the complaint is the allegation that the major asset of the 1st Respondent was extracted at an undervalue. This was done through the medium of Lucky Man Properties Limited. The 2nd Respondent was responsible for this. He used the power and position afforded by his predominant shareholding in the 2 companies to achieve this. His involvement in the transactions was to a significant extent surreptitious. To a large extent, his interest in the shares in Lucky Man was acquired without the knowledge of the shareholders of Mandarin Resources but using Mandarin Resources' funds. As a result of his involvement in Lucky Man the 2nd Respondent stood to gain and did benefit from the transfer of Mandarin Resources' assets. In accomplishing these matters the 2nd Respondent has been guilty of breaches of fiduciary duties owed to the 1st Respondent and of breaching various codes and practices. As a result the 2nd Respondent holds the shares in Lucky Man or the proceeds of them on trust for Mandarin Resources. The 2nd Respondent has never accounted for any gain.

5. There are four substantive prayers for relief. As I have indicated, the first is an order for winding up. Next are different orders which are sought under the aegis of section 37A of the Securities and Futures Commission Ordinance. These involve a prayer that the 2nd Respondent be ordered to make a general offer to purchase all the shares of Mandarin Resources, a prayer that a Receiver be appointed to take such steps including bringing proceedings on behalf of Mandarin Resources as he may be advised, and lastly an order that the 2nd Respondent be disqualified from acting as a Director of Mandarin Resources.

6. I will deal with the general points on the strike out first.

Retrospective Effect of the Ordinance

Section 37A

7. The 2nd Respondent's complaint in this respect might be said to be hidden in the phraseology of its application. Nevertheless, it emerged in the skeleton argument, most importantly in the reply.

8. By amendment in 1994, inter alia, the following provision was included in the Securities and Futures Commission Ordinance: -

"37A. Alternative remedy in cases of unfair prejudice

(1) If it appears to the Commission from any information, record or other document obtained under section 29A, or under section 36 in relation to section 29A, that the affairs of a listed company are being or have been conducted in a manner unfairly prejudicial to the interests of its members generally or of some part of the members, the Commission, after onsultation with the Financial Secretary, may make an application to the High Court by Petition for an order under this section.

(2) If on a Petition under this section the court is of the opinion that the company's affairs are being or have been conducted in a manner unfairly prejudicial to the interests of its members generally or of some part of the members, whether or not the 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) make an order restraining the commission of the act or conduct;

(b) order that such proceedings as it may think fit shall be brought in the name of the company against the persons, and on the terms, that it orders;

(c) appoint a receiver or manager of the whole or a part of the company's property or business and may specify the powers and duties of the receiver or manager and fix his remuneration;

(d) make any other order 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, for the reduction accordingly of the company's capital, or otherwise."

9. I should also mention section 29A. There is no need for me to set it out here. It gives the Commission power of investigation. To this must be added reference to section 36 of the Ordinance which empowers search and seizure in circumstances related to section 29A.

10. Relying upon the presumption against retrospective operation of statute as exemplified in such cases as Young v. Adams [1898] A.C. 469 and Yew Bon Tew v. Kenderan Bas Mara [1983] A.C. 553, Mr. Barlow counsel for the 2nd Respondent, submitted that the effect of the Petition was to seek to give retrospective effect to the sections to which I have referred. It was pointed out, quite rightly, that prior to 1994 there was no equivalent to section 37A of the Ordinance. Hence it was said that, the proceedings in so far as they related to conduct which took place prior to the amendments, related to acts which had been completed and to interests which had vested prior to the coming into force of section 37A and the etition should not be permitted to proceed. Attractive though this argument is, in my view, it fails in respect of a striking out application. The very wording of sub-section (1) makes clear that the section applies when the affairs of a listed company "... or have been conducted ..." in a particular way. In those circumstances, it seems clear that the legislature must have intended that matters prior to the coming into force of the 1994 amendments could be taken into account. If that were not so, it would be very difficult to see how the section could have been applicable on the day it came into force.

11. Even giving the Section a slightly narrow construction, it seems to me that in view of the fact that the claim is made that, inter alia, the 2nd Respondent has constituted himself a constructive trustee and no steps have been taken to transfer to Mandarin Resources the benefits and proceeds which it is alleged that the 2nd Respondent has gained, the effect of this arguably must be that, if the facts are proved, the affairs of the company are being conducted in a manner unfairly prejudicial to the members or at least the minority. That is a continuing matter. Hence proceedings under section 37A must be a viable mode of redress. I do not ose sight of the fact that to show that a continuing state of affairs needs redress it is necessary to know what the underlying facts are which gave rise to that state of affairs.

12. Mr. Heslop Q.C. went further. He drew attention to the fact that section 168A of the Companies Ordinance is in almost identical terms to section 37A. In particular, the important part of the section is that a right of action lay if the affairs of the company were being conducted in a manner unfairly prejudicial to the members or some part of the members. ence, since 1978 when section 168A was introduced into the Companies Ordinance, the obligation not to act in such a manner has existed. The 2nd Respondent therefore lost no vested right and no further obligation was put upon him by the introduction of section 37A of the Securities and Futures Commission Ordinance.

13. It is unnecessary, and in view of the ability of the 2nd Respondent to raise the same point at the trial it is undesirable, to reach a concluded view on the matter. Nevertheless, in my view, the arguments hich have been raised in support of the proposition that in respect of complaints under section 37A no regard may be had to matters which took place prior to 1994 are likely to fail. In any event, for the purposes of striking out the position of the Petitioner is clearly arguable and I could not strike this matter out at this stage.

14. It was strongly submitted on behalf of the 2nd Respondent that a Petition can only be presented under section 37A upon the basis of information obtained under section 29A or under section 36 of the same rdinance. Of course prior to 1994, no investigation could have been carried out under section 29A since that section did not exist. It was submitted that prior to 1994 everybody had the right not to be subject to powers, for example, of search and seizure which are contained in section 29A and section 36. Arguing on a parallel with the case of Ocean Timber Transportation Limited v. the Attorney General [1979] HKLR 298 Mr. Barlow submitted that the 2nd Respondent had a right not to be subject to the powers of search, seizure and obligatory interview which are now conferred by section 29A and section 36. I find it unnecessary to examine the validity of that argument. Even assuming that that be right and that the Commission in exercising its powers under those sections would not be entitled to have access to the documents and information relating to events which took place prior to 1994, this still would not alter, in my view, the proper construction of section 37A.

Section 45

15. On the corresponding argument in relation to section 45 it was submitted that section 45 must be construed as applying only in respect of companies which would be regarded as registered persons. It was pointed out that section 45 comes within Part V of the Ordinance. That commences now with section 29A and is headed "Regulation of Registered Persons' Business etc." It was pointed out that prior to the amendments in 1994, there was no provision in Part V of the Ordinance which specifically dealt with matters other than those relating to registered persons.

16. In my view, however, the provisions of section 45, which have remained unchanged, are general in their wording and general in their application. Section 45 relates to a company which may be wound up by the High Court under the Companies Ordinance. There is no restriction in that section to registered persons. Nor is there a restriction in that section to companies which, for example, deal in securities or otherwise. The provision is general. That has to be contrasted with section 46 which deals with the presentation of a Petition for a receiving order in accordance with the Bankruptcy Ordinance. That section is specifically limited to the presentation of Petitions against registered persons.

17. Nor do I consider that the argument can derive any help from a consideration of section 4 of the Ordinance. This section specifies the functions which the Commission shall have. Amongst those, was (1)(e) "to take all reasonable steps to safeguard the interests of persons dealing in securities or trading in futures contracts or entering into property investment arrangements". Again, these words seem to me to be of general application. Again, at the very minimum at this stage, I could not consider it right to halt the proceedings in respect of this Petition because the winding up Petition is based on events which took place prior to the coming into force of the amendments to the Ordinance in 1994.

Other Objections by the 2nd Respondent

18. There were a number of other objections taken on behalf of the 2nd Respondent which went to the root of the whole Petition.

19. In the first place, objection was taken on the ground that there was no lis, or relevance, in respect of the 2nd Respondent in relation to prayers under prayer (1) and (3) of the Petition. But there was no difference between the parties on this. It was the Petitioner's case that the relief under those paragraphs of the Petition related only to the company. In respect of the prayer for winding up, I would add that although it was suggested on behalf of the 2nd Respondent that the appropriate Respondent to a prayer for winding up would be the majority shareholder, in my view, the correct approach has been taken to join the company as a Respondent. This is a public interest petition and prima facie it must be the Directors who should answer it. If some shareholders were to be joined then it appears to me that all shareholders should be joined. As it is, the company has been joined and it is for the Directors themselves to decide what steps if any should be taken to defend the Petition.

Disqualification as Director

20. The next major point which was taken in respect of the Petition was that prayer (4) sought a declaration that the 2nd Respondent was unfit to hold any position of management in the 1st Respondent and that he be disqualified from acting as a Director thereof. It was said that this relief was not something which fell within section 37A of the Ordinance and that as formulated it was an attempt to circumvent the provisions in the Companies Ordinance with regard to disqualification of Directors.

21. I consider that section 37A clearly gives power to the Court to make orders such as have been sought by prayer (4) of the Petition, or at any rate, the matter is so clearly arguable that there cannot be a striking out at this stage. Section 37A(2) provides that in circumstances where the Court wishes to bring to an end the matters complained of, it may, inter alia, make any order it thinks fit, whether for regulating the conduct of the company's affairs in future, or otherwise. It has been said in a number of cases on similar wording of corresponding provisions that these words are general and should be given their wide import. In my view, if it be shown that a Director has mismanaged a company and should not be a Director thereof, one of the most natural steps which could be taken would be to prevent that person from being a Director of that company. I see nothing in the wording of section 37A which would lead me to believe otherwise than that an order preventing a person from being a Director, in appropriate circumstances, was specifically an order which could be made under that section.

22. My attention was also drawn to the case of Re Harmer Limited [1959] 1WLR 62. That case, no doubt peculiar on its own facts, resulted in the making of an order which gave the founder of the company a title within the company but excluded him from exercising any powers. This decision, based upon s.210 of the Companies Act 1948, is of some persuasive authority as to the breadth of the Court's power under similar wording.

23. I do not consider that making an order in this way would in any way circumvent the provisions of Part IVA of the Companies Ordinance. Those provisions are directed to preventing persons being Directors of any company. In contrast, the order sought in this case is an order which relates only to directorship of the 1st Respondent.

24. In my view, I cannot say, at this stage, otherwise than that the relief sought in prayer (4) of the Petition is proper relief. In so far as the 2nd Respondent would be clearly and materially affected by any such order he is properly joined as a Respondent to the Petition.

Prayer for Relief under Prayer (2)

25. Objection was taken to the prayer for relief under prayer (2) which sought an order for the purchase by the 2nd Respondent of the shares of the 1st Respondent, which were not already held by him, at a price to be assessed. It was said that in view of the provisions of section 37A(2)(d) there was no provision for the purchase of shares other than by members of the company or by the company itself. For present purposes, there is no dispute between the parties that the 2nd Respondent is not and never has been a member of the 1st Respondent. Shares of the 1st Respondent have never been held by the 2nd Respondent. It is to be noted, however, that it is the Petitioner's case that the majority shareholding of the 1st Respondent is held by nominees or in any event companies controlled by the 2nd Respondent. In view of public statements by the 2nd Respondent which are relied upon by the Petitioner, it would be difficult for present purposes to proceed other than on that basis.

26. Turning to the wording of that subsection, it is clear that the specific provisions do relate to the purchase of the shares by members of the company or the company itself. However, the wording of the subsection is broad. It commences, as I have already referred, with the words 'make any other order it thinks fit' and it concludes with the words 'or otherwise'.

27. A similar point fell to be considered by Hoffmann J. in the case of Re a Company (No. 005287 of 1985) [1986] 1WLR 281. In that case, Hoffmann J. was considering the construction of sections 459 to 461 of the Companies Act 1985. Although the wording is slightly different, for present purposes I see no material distinction between the effect which should be given in this respect to those sections and section 37A of the present Ordinance. In that case, Hoffmann J. refused to strike out a Petition which sought the purchase by a former member of the company concerned, since he considered that the wording of the section on its construction was broad enough to permit such relief. It is true that in exercising his discretion he appears to have also taken into account the consideration that by permitting the Petition to continue, it avoided the necessity of bringing separate derivative action proceedings. Without deciding whether the same conditions would prevail here, I do not consider that this detracts in any way from the overall construction of the section to which Hoffmann J. came.

28. Hoffmann J. also considered the possibility of using the section, even given a narrower interpretation, on the basis that the interest of the shareholder could be equated with the interest of the Respondent. There is also such a possibility here, but in my view, it is unnecessary to proceed upon that ground.

29. Hoffmann J.'s decision appears to have been followed in the case of Re Little Olympian Each-Ways Limited [1994] 2BCLC 420. In that decision, Lindsay J. refused to strike out a Petition which sought the purchase by, inter alia, a Respondent who had never been a shareholder of the company concerned and was not alleged to have been a wrongdoer. It appears that by the time the matter came for trial the Petitioner had settled its differences with that particular Respondent and an order for purchase was made against a former shareholder of the company, see Re Little Olympian Each-Ways Limited (3) [1995] 1BCLC 636.

30. In my view, the statute should be construed as being broad enough to give jurisdiction to make the order sought. Whether such order would be granted would, of course, depend on all facts of the case and it is not appropriate at this stage to comment further.

Fair Offer

31. The next general point taken was under paragraph (2) of the summons of the 1st November 1996 that a fair offer had been made by the majority shareholders which had been unreasonably rejected. This ground was not pursued at the hearing since, of course, it would require that determination of whether any such offer had been fair and that, the Court could and should not do at this stage.

32. The point that was argued under this head, was rather different from that set out in paragraph (2) of the Summons. It was said that "There is no public interest in winding up this solvent company, whose listing had been suspended for over 10 years, beyond the interests of the members of the company." As to that I agree with Mr. Heslop Q.C. who appeared on behalf of the Petitioner that it would be remarkable if solvent companies were immune from public interest petitions. That is not what the Ordinance indicates. In so far as the points which are combined in this "rolled-up" submission have validity it seems to me that it is a matter which must be decided at the hearing of the Petition.

33. The case of Charles Forte Investments Ltd. v Amanda [1964] 1 Ch. 240 was cited. But that seems to me far from the present case. I could derive no principles from the decision in that case that dictated that the present Petition should be struck out. It was a case which turned on its own facts. They revealed that the Defendant had no valid cause for complaint. The articles of the company had given the directors a right to refuse to register a transfer of shares and there was no possibility of establishing that the Directors had not been acting bona fide in the interests of the company.

Requirement to re-plead

34. The argument of the 2nd Respondent under paragraph (3) of the summons of the 1st November was summarised "Submerged within the prolix morass of irrelevant and inconsequential allegations and complaints are the 4 key allegations (which themselves are pleaded atrociously)." The 1st Respondent aligned itself with these submissions as regards paragraph 1 of its own summons.

35. No doubt the Court could make an order in terms of paragraph (3). It could only be done in cases where the complaints are obvious. To make such an order in other cases is merely to invite confusion.

36. Whilst in some circumstances it might be said of some pleadings that general complaints of this nature are justified, in the present circumstances I do not consider that this is so. It is true that the Petition is long. It extends in the draft amended form to more than 220 pages. It is true that there is repetition. But the difficulties in comprehension come nowhere near the scenario of cases such as Davy v Garrett (1878) 7 Ch.D 473. I will go through the complaints made against specific paragraphs, but the Petition is comprehensible. Obviously when paragraphs are taken out of context and in the course of argument, difficulties may be encountered and allegations might seem irrelevant. Since the hearing I have made a point of again reading through the Petition cover to cover like a book. I have done it more than once. When the difficulties and obscurities propounded by the Respondents are considered in the light of the whole pleading, the criticisms lose their force. The repetition which is encountered does not make the Petition difficult to read or understand. It might make the Petition as a whole longer. However, stylistically I, for one, prefer the repetition to cross-referencing. In those parts where there was a cross-reference I found that the very act of having to refer back disturbed one's train of thought in respect of the passage being read; it necessitated reminding oneself of the point made in the earlier (or later section) and then going back to the section being read to refer to the facts there.

37. It is said that the Petition, if left in the present form, may take months to be heard. If that is necessary then so be it. However, I am yet to be convinced that the hearing of this Petition should be unduly lengthy. There is undoubtedly a great deal of intricate factual evidence which will have to examined. The transactions referred to in the Petition are complex in themselves and in their inter-relationship. I am all too conscious of the risk of oversimplification, but I have given above a thumbnail summary of the allegations in the Petition. I do not see that this Petition is either incomprehensible or unmanageable.

38. As I will examine below, given the overall context in which the allegations are made, the relevance of Lucky Man cannot be gainsaid. When individually examined and taken out of context it might be argued that it is difficult to see the relevance of allegations about something which took place outside the narrow confines of the acts of the 1st Respondent. In the context of this Petition it is, in my view, necessary to look at matters which otherwise might fall outside those narrow confines. At this stage the facts pleaded in the Petition have to be taken as accurate. It remains to be seen at a later stage whether that is so and whether and what relief should be granted on the basis of those allegations.

Complaints in respect of Particular Paragraphs

39. For want of a better method of approach I will deal with the paragraphs of which complaint is made in order. With a pleading as long and involved as this Petition, it would be surprising that criticisms could not be made. What is important is to see for example whether an alleged defect causes the pleading to be unintelligible or a real embarrassment. It is trite that the parties should not be overly concerned to find themselves in difficulties caused by pleadings. The function of pleadings is to set the parameters for the enquiry at trial. When a pleading is challenged at the root of the enquiry should be a consideration as to whether the pleading fulfils that function in an acceptable manner. A practical approach should in my view be adopted in relation to pleadings. A Petition is in a slightly different position to other pleadings because the Petitioner is not allowed to "travel outside the Petition". It is not the function of the Court to tell parties how to plead. All the Court can do is to stop parties pleading in a manner which is unacceptable.

Para 16

40. The allegation in this paragraph is that Lucky Man paid no dividends during the crucial period. The criticism is that the payment or otherwise of dividends by Lucky Man has no relevance to the 1st Respondent. That criticism is illustrative of what I consider is too narrow an approach taken by the objectors to the pleading. Taken in isolation it may be possible to argue that what happened within Lucky Man had no relevance as to whether Mandarin Resources was being mismanaged. That however, is not the real issue. It is said on behalf of the Petitioner that the point is relevant in the overall context of what took place with regard to the assets of Mandarin Resources. It is said that it may be relevant to the constructive trust claim.

41. The allegation on this paragraph may or may not be relevant at the trial. As a point on its own it is probably not relevant. In the overall context of assessing the benefit that the 2nd Respondent is alleged to have derived it probably is relevant. In those circumstances I can only leave that pleading. Given the difficulty in relying on material not in the Petition that conclusion must be confirmed. I only add that the time devoted to arguing this point far outweighs any difficulty presented by an investigation of the underlying facts.

Paras 21-35

42. The 2nd Respondent, but not the 1st, takes exception to the whole of the summary contained in Part B of the Petition. It is said to be unnecessary repetition. The facts are all contained later in the pleading. Whether such a summary is included in a pleading is a matter of style and depends on the circumstances. When I read through the Petition for the first time last July and at and after this hearing I found the summary convenient. I cannot see it causes any difficulty.

43. Objection was also made to certain parts of these paragraphs. For example the word "emerges" in paragraph 21 was said to be imprecise. It seems to me that the meaning is clear enough. What is being said is that when the facts are reviewed it is plain that a particular conclusion is inevitable. That conclusion is one which is made by the reader. Since this is a Petition, the relevant reader must be the Court.

44. Another similarly pedantic objection is taken to paragraph 23(b). It is said that it is not clear whether it is being alleged that the 2nd Respondent was the only party to benefit. No doubt pleaders' caution has dictated that the alternative be covered. Again I cannot see what difficulty this will cause to those who have to deal with the allegation It is said in respect of, for example, paragraphs 22 and 24 that the statements therein are broad generalised rhetoric and an attempt to smear the 2nd Respondent with irrelevant allegations. In my view it must be remembered that this is a Petition some of the objects of which are to show that the company must be wound up in the public interest. It is also a function of this Petition to show that the 2nd Respondent should not be allowed to be involved in running the 1st Respondent. It is important in those circumstances for the Petitioner to spell out why it is said that the facts disclosed in the Petition show that the consequences which it seeks should follow. The fact that for example it is said that the 2nd Respondent has attempted to conceal matters may, taken in isolation, be something which might have no bearing on the type of relief sought. But if it be the case that the concealment was from regulators in the circumstances alleged it seems to me that it must be part of the facts which the Court must take into consideration in deciding whether it is necessary to wind up the Company or debar the 2nd Respondent from management. Business in Hong Kong is in some instances regulated by statutory authority. In other instances the codes are voluntary. Nevertheless the codes must, at least arguably, be a yard stick for measuring the standards of acceptable behaviour of company management. When it comes to a consideration of unfair prejudice that position is reinforced.

Paras 36-39

45. The 2nd Respondent objects to the inclusion of paragraphs 36 to 39 of the Petition. The objection is partly that this part is a repetition of other parts and partly that it goes into details that are unnecessary. Both objections cannot be right. Clearly the allegations in this part are more detailed than in other passages. The fact that the 2nd Respondent may not dispute one of the overall conclusions from an analysis of the underlying facts does not make those paragraphs improper. It seems to me that the manner of control may be just as important as the admitted fact of control. I do not consider that the 2nd Respondent should be inconvenienced by any of these allegations. It is interesting that the 1st Respondent does not object to them.

46. Separate objection is taken to paragraph 37 of the Petition. It is said that the Petitioner's 4 major complaints relate to the period after November 1991 and therefore anything that took place before that time is irrelevant. Firstly one only has to read the Petition in its entirety and as a whole to see that this attempted dissection of the facts is illegitimate. Clearly the facts are relevant to the overall allegations even on the mini thumbnail sketch of the overall allegations which I have made above. It is also the case that a large number of the allegations are also contained in other paragraphs in the Petition to which no objection is taken.

47. Again paragraph 38 is not challenged by the 1st Respondent but is by the 2nd Respondent. It is said to be an "irrelevant non-sequitur". Again, I cannot concur with the objection here. What is being is alleged relates to the public knowledge of the 1st Respondent and its management. It is part of the background. Taken in isolation it might be said it does not amount to anything. But it has to be seen in the overall context.

48. The objections taken against paragraph 39 are of similar nature to those dealt with above. For example it is asked of sub-paragraph (d) "Who believes Mr. Ricky Chim to be 26?" One would have thought the answer is "The person who drafted the Petition."

49. I had more difficulty in determining whether to allow sub-paragraph (h) to remain in its present state. Not because of the use of the expression "little or no justification". In its context I see no difficulty in comprehending that. Difficulty seemed to me to arise more because of the reference to the censure by the British Columbia Securities Commission of the former director. As was pointed out by Mr. Barlow the events to which that censure relates all took place some time before it is alleged that the 2nd Respondent had any dealings with the 1st Respondent. However, that in itself cannot be a ground for striking out the allegation in the context of this Petition. Although the 2nd Respondent may be innocent of any wrong doing in this respect, this Petition seeks relief not only against the 2nd Respondent but of course in relation to the 1st Respondent simpliciter. The facts alleged are clearly relevant to the conduct of the 1st Respondent's affairs.

Paras 40-46

50. These paragraphs are sought to be struck out by both Respondents. The 1st Respondent relies upon a more general ground which affects the other paragraphs it seeks to attack. The 2nd Respondent relies upon points of detail.

51. Mr. Chan Q.C. cited the case of Loch v John Blackwood Ltd. [1924] A.C. 783. The point made was that in a winding up petition on the just and equitable grounds there must be a justifiable lack of confidence in the conduct and management of the company's affairs. Importantly that lack of confidence had to be grounded in conduct in relation to the company's business. So it is said that even if the 2nd Respondent had behaved reprehensibly in relation to other companies' affairs that did not give rise to a justifiable lack of confidence in relation to the 1st Respondent's affairs. Following on that, it is said, the fact the 2nd Respondent may have misled Lucky Man shareholders is irrelevant. What might perhaps be relevant was if the shareholders of 1st Respondent were misled as to the 2nd Respondent's other shareholdings, but that was not the point here.

52. Again this argument seems to me to result from too isolated a view of individual allegations in the Petition. Even on the basis of the thumbnail sketch of the burden of the Petition that I have given above it can be seen that the control of Lucky Man and the extent to which it was disguised is highly relevant. Lucky Man was the vehicle which it is alleged the 2nd Respondent used to extract the major asset from the 1st Respondent. Lucky Man is pivotal or at the very least important in each of the 4 transactions which form important allegations in the Petition.

53. It is the alleged control and disguise of it which was important to the accomplishment of what has been alleged to have been done. This is so in respect of the acquisition of Markle Land at an undervalue by Lucky Man. It is so in respect of the alleged passing of the purchase money for Markle Land to Silver Mountain and the eventual use of it for the purchase of the rights issue. The allegations in respect of the Idmiston transaction are not confined simply to the reimbursement of the $18 million but again include the procurement of the appointment of the provisional liquidators of, and the acquisition of the Lucky Man shares held by, Asian Master, Asiatic Fortune and Crownhall.

54. Mr. Chan sought to argue that the basis of the Petition did not include the overall allegations which I have summarised above. His objection was that the Petition could and should be confined to the 4 transactions which have been summarised in sub-paragraph (a) to (d) of paragraph 25. He went on to add that the Petition should not be concerned in any way with allegations that the 2nd Respondent realised or attempt to realise part of the benefit of the transfer from the 1st Respondent to Lucky Man of the assets at an undervalue. Apart from the fact such an allegation was clearly always there by implication on the bare outline that I have given, it was always there explicitly even in the summary in for example 26, 27 and 32, not to say the later substantive paragraphs of the Petition. Whether there was truly some overall plan or a series of interconnected transactions which are linked together by result is a narrow distinction. To say, as it has been, that it comes as some surprise that it can be argued on the basis of the Petition that there was an overall plan demonstrates that the individual paragraphs have been concentrated on rather than the Petition as a whole. The Petition is not embarrassing as has been said by the Respondents, rather a concentration on the trees has taken the wood out of focus.

55. In my view this and the other allegations in respect of Lucky Man cannot be struck out on the basis put forward by the 1st Respondent. To do so would be to take a blinkered view of the allegations in the Petition.

56. Paragraph 43 is long. It contains a number of allegations. Some of the subparagraphs contain evidence. I have in mind for example (e), (q) much of (r). Whereas it is undesirable to include evidence in pleadings the question which I consider is important to ask in a Petition of this nature, is whether the allegation is truly embarrassing or in any other way is likely to impede the proper progress of the Petition. In my view it is not. These matters will have to dealt with in any event. The meaning and the reason for their presence is clear. I am therefore not disposed to strike them out solely for reasons of purity of the pleading as there is no real purpose for it.

57. Some attempt was made to show a discrepancy between the allegations relating to Day & Day's shareholding in Lucky Man in 1991 and the pleading which was founded upon the basis that the 2nd Respondent had effective ownership of Lucky Man. The attempt by the 2nd Respondent to show embarrassment highlights the failure to read the Petition as a document as opposed to discrete allegations. The point evaporates once it is realised that the allegations relate to different times.

Paras. 61-63, 69, 75-77, 80-82, 84, 120, 144, 146, 147-152

58. These paragraphs are attacked by both Respondents on the basis that they relate solely to the conduct of the affairs of Lucky Man and are therefore irrelevant to anything to do with the 1st Respondent. For the reason which I have already given that suggestion is myopic and for present purposes untenable. The way in which Lucky Man was conducted particularly in matters relating to its dealings with the 1st Respondent and the acquisition by Lucky Man of the 1st Respondent's major asset at an undervalue, seem to me to be highly relevant. These paragraphs deal with the whole picture and appear to me to be part of what is the alleged subterfuge. The subsequent fate of that asset and any benefit derived by the 2nd Respondent by reason of that asset is likewise something which appears to be relevant on the basis of the present allegations. The objections to these paragraphs therefore fail.

59. Whereas I consider it is appropriate for the Petition to state, if it be the case, that the Petitioner has been unable to confirm the veracity of certain facts, I consider that there may be potential for difficulty to arise from a statement such as is contained in the last sentence of paragraph 75(c):

"In the circumstances, the Petitioner considers that this requires further investigation either by the Court or by a liquidator."

60. If and in so far as the Petitioner can put forward a positive case that there is a state of affairs that needs redress then I consider that form of pleading might be acceptable. In other words the Petitioner would be saying that a state of affairs existed which prima facie required the liquidator to take action, but of course, the liquidator should not take any action without himself investigating the matter. Here, however, what seems to be said is that the Petitioner does not know or even have reasonable grounds to suspect that a state of affairs exists which would found the basis for an action by the liquidator. I therefore propose to strike out that sentence in paragraph 75(c).

Para. 72(q)

61. Objection is taken by the 2nd Respondent to the reference to the source of the Petitioner's information as to the agreement. I am not convinced that the Petition would suffer from its absence, but even on the basis that the objection were technically correct, I see no point, in a pleading of this nature, in striking out a sentence such as that which can in any event cause no difficulty or embarrassment.

Para 79, 83, 85-87

62. I do not see that it can be right to strike out these paragraphs based on the present attack. Again the challenge seems to be predicated on a reading of the allegations out of context. For example the fact the Petitioner may have been misled is not of course a ground for relief on its own. But if as part of the other events the Petitioner was misled it becomes relevant to see whether that was so as part of the scheme of things or at the very least whether there was any culpability in respect of it.

Paras 88-109

63. The 2nd Respondent seeks to strike the whole of the section dealing with the circular flow of funds. The nature of the attack is set out in the Summons. In my view the pleading is perfectly clear and I can find no difficulty in understanding it. The only discrepancy which I have found is that the words "at least" in paragraph 107(b) seem to be overstating the case, I would permit an amendment to change those to "ep to" or some similar expression.

Paras 113, 115, 146

64. The attacks against these paragraphs raise matters which in my view can only be dealt with at trial. In so far as they relate to whether the 2nd Respondent can shelter behind the power of the Court to control a liquidator as a basis for showing that he has no responsibility, the argument appears slightly unrealistic but again cannot be resolved at this stage.

Para 143

65. It is objected that this is superfluous repetition. Again when read in the context of the Petition as a whole I cannot see that an objection of this nature comes anywhere near a ground for striking out.

Paras 161-180

66. These paragraphs are objected to by the 2nd Respondent on the basis that the are superfluous repetition. I regard them as a convenient catalogue of the alleged misconduct.

Paras 181-194

67. These paragraphs are objected to on the grounds that breaches of Ordinances and regulations do not give rise to relief and that in some instances the provisions are out of date. Again, this highlights the fact that the paragraphs are being taken out of context. The alleged breaches have to viewed in the light of the subject matter of the complaint.

Para 195

68. I consider that the words "if not defrauded" should be struck out of this paragraph. I say so because if fraud is to be relied upon it must be very clearly pleaded. I have no doubt that a suitable acceptable amendment might be formulated if the Petitioner chooses to apply to do so. This use of the word fraud is in my view too loose an expression to be permitted in the context of what has always been regarded as an allegation which must be very carefully pleaded.

Paras 196-207

69. I see no valid ground for striking out these paragraphs.

Paras 208-231

70. These paragraphs are objected on the same ground that they relate to Lucky Man. For the reasons given above that is not a good ground in itself. Indeed the early paragraphs are relevant to show inter alia the 2nd Respondent's alleged attempt to increase his interest in Lucky Man and conceal it. The later paragraphs relate to allegations that the 2nd Respondent attempted to use his control of Lucky Man to gain what is on the face of the pleading a substantial benefit for himself. Strong objection was taken on behalf of the 1st Respondent to any attempt by the Petitioner to rely on what was referred to as the "exit plan". "Exit plan" was the expression used to connote the alleged attempt by the 2nd Respondent to capitalise on the benefit that had been put into Lucky Man. As I have indicated above the "exit plan" was in any event implicit in the overall summary, but allegations of conduct alleged to amount to it have been in the Petition throughout and I consider that this is something which will have to be dealt with by the Respondents.

Para 222

71. It seems to me that the word "to" in the first line should read "by" and I give leave to make that amendment.

Paras 232-136

72. Although objection was taken to these paragraphs. At best that amounted to one of repetition which was disputed by the Petitioner. I see no point in any event in striking out these paragraphs.

Paras 240-249

73. I do not consider it right to strike-out these paragraphs which were not, in any event, specifically objected to by the 1st Respondent.

74. In addition objection was taken by the 2nd Respondent to references to "the investing public". That was done on the basis that the shares in the 1st Respondent have been suspended for 10 years and hence the investing public can have no interest in them. In my view that must be wrong. The 1st Respondent is a public company the trading in whose shares has been suspended. Attempts are on the face of the matter continually being made to have the shares re-listed. The conduct complained relates to manipulation of, and to the assets of, public companies. I cannot see that it would be right in those circumstances to strike out these references.

Objections to the Proposed Amendments

75. A number of the proposed new paragraphs related to allegations that admissions had been made by the 2nd Respondent during the course of a previous hearing. Objection was taken to them on the basis that the proposed pleading constituted evidence. The pleading as such is not bad. An admission made can constitute a fact which can be pleaded. In any event I can hardly see that those allegations would cause any difficulty.

76. I do not see that there is any difficulty caused by the proposed amendment to paragraph 83(c).

77. What appears to have been a typographical omission in the proposed amendments to paragraph 225 seems to have enabled a great of confusion to have been generated. From paragraph 115 of the second Affidavit of Judy Vas it can be seen that the following was omitted from the end of the draft:-

") of the purchase price of 17.75 million shares in Lucky Man beneficially owned by Mr. Chim".

78. Once that is appreciated, what would appear to be an inadequately formulated pleading and a 6th Schedule which includes a great of deal transactions that need further explanation to reveal their relevance, becomes far clearer. Complicated and involved though the web of transactions is, I consider that the amendment can be allowed with the missing words.

79. The second sentence of the proposed amendment to paragraph 226 suffers from the same objection to which I have referred above in respect of paragraph 75(c).

80. Paragraph 231A (a) should refer to 24th February 1993.

81. The allegations contained in the particulars to paragraph 231B appear to me to be serious. However, I consider that it would cause embarrassment to include them within the Petition if all that is going to be said is that they are something which should be investigated by the liquidator. I would therefore not permit any amendment to include the 3rd sentence of the paragraph. If the Petitioner wishes to reformulate the amendment in a way that includes the remainder of the proposed amendment to the paragraph then that should be done and the further amendments put forward.

82. The same applies in respect in proposed paragraph 231C. as in respect of 231B.

83. Again a similar objection seems to lie in respect of proposed paragraph 231D.

84. Until amendments are reformulated to the above 3 paragraphs 231B, C and D those amendments will not be allowed.

85. As a matter of style I prefer abbreviations such as EGM should be in capitals rather than in lower case lettering.

86. It was agreed at the hearing that paragraph (4) of the prayer for relief should read "...that he be disqualified form acting as a director thereof;"

87. When the parties have considered this Decision I will hear them as to the appropriate form of Order and as to costs.