A R EVANS CAPITAL PARTNERS LTD v. GEN2 PARTNERS INC

HCMP1255/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1255 OF 2011

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AND

HCMP1991/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1991 OF 2011

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(HEARD TOGETHER)

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J U D G M E N T

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1. The two sets of proceedings before the court concern a BVI company called Gen2 Partners Inc (“the Company”). The Company was incorporated on 28 August 2009, and has at all material times had three shareholders – Novel Alternative Investment Ltd (“Novel”), Mr Barry Lau Wang-Chi (“Mr Lau”) and A R Evans Capital Partners Limited (“AR Evans”), holding respectively 50%, 10% and 40% of its issued shares. Novel is a BVI company owned by Mr Paul Lincoln Heffner (“Mr Heffner”), while AR Evans is a Bahamas company owned by Mr Raymond Lai. The Company has three directors – Mr Heffner, Mr Lau and Mr Raymond Lai.

2. The applications now before the court are:-

(1)  AR Evans’ application in HCMP 1255 of 2011 seeking leave (pursuant to section 168BC of the Companies Ordinance (Cap 32)) to intervene in HCA 357/2011 on behalf of the Company, and to bring certain claims on behalf of the Company against Novel, Mr Heffner, Mr Lau and two companies in which they are interested.

(2)  Novel and Mr Lau’s application to intervene in that application for the purpose of opposing it.

(3)  An application by Novel, Mr Heffner and Mr Lau to strike out AR Evans’ petition (under section 168A of the Companies Ordinance) in HCMP 1991/2011.

3. The disputes between the parties can be briefly summarised as follows.  In essence, AR Evans contends that the Company was set up following discussions in early 2009 between Mr Heffner, Mr Lau, Mr Raymond Lai and his brother, Mr Arthur Lai, with a view to their cooperating in the development of an investment and fund management platform which would solicit investments from sovereign wealth funds and other substantial investors.  According to AR Evans, Mr Heffner and Mr Lau were to provide fund management skills and services, while the Lais’ (and in particular, Mr Arthur Lai’s) main role would be to effect introductions of potential investors.  By the beginning of September 2009, just after the Company was incorporated, Novel, Lau and AR Evans had entered into a shareholders’ agreement (“the Shareholders’ Agreement”) in respect of the Company.  AR Evans claims that although the Lais did their part by making a considerable number of introductions, there was little development of the Company’s business.  Instead, it is alleged, Mr Heffner and Mr Lau acted in breach of the Shareholders’ Agreement, and in breach of the fiduciary duties they owed to the Company (as its directors), by setting up their own group of companies, operating a similar business, into which they channelled investments which should have been placed with the Company.  The companies said to have been used by Mr Heffner and Mr Lau for this purpose had very similar names to the Company, being a Hong Kong company called Gen2 Partners Limited (“Gen2 Limited”) and a Cayman Islands company called Gen2 Partners Investment Management Limited (“Gen 2 Investment”).

4. On 24 January 2011, AR Evans’ advisers, Anglo Chinese Corporate Finance Ltd, wrote to Gen2 Limited, setting out AR Evans’ complaints.  These were responded to on 18 February 2011 by Messrs Decherts, solicitors for Gen2 Limited, who now also represent Novel, Mr Heffner and Mr Lau.

5. On 3 March 2011, Novel, Mr Heffner, Mr Lau, Gen2 Limited and Gen2 Investment, together with a company called Explorers Investment Management Inc, issued proceedings (HCA 357/2011) against Mr Arthur Lai, AR Evans, three other companies associated with AR Evans, and the Company (“the High Court Action”).

6. For present purposes, the relevant claims are those against the Company – these consist of:-

(1)  a claim by Gen2 Investment that the Company should account to it for a sum of some HK$1.1 million allegedly paid by Gen2 Investment on its behalf in respect of rent for premises that were to be occupied by the Company – this is the only monetary claim;

(2)  a declaration to the effect that the Shareholders’ Agreement (to which it is alleged the Company was also a party) was invalid and/or unenforceable;

(3)  alternatively, a declaration that the Shareholders’ Agreement had been validly terminated by Novel and Lau;

(4)  a declaration that Mr Heffner and Mr Lau have not committed any breaches of fiduciary duty owed by them to the Company;

(5)  a declaration that Novel, Gen2 Limited and Gen2 Investment have not conspired with, assisted or procured Mr Heffner and Mr Lau to breach their fiduciary duties owed to the Company;

(6)  a declaration that none of the Plaintiffs have interfered with the Company’s business or diverted any corporate business opportunities to the detriment of the Company.

7. Thus, apart from a relatively small monetary claim, all of the relief sought against the Company in the High Court Action consists of declarations of non-liability towards the Company (I regard the first two declarations sought in relation to the Shareholders’ Agreement as being just as much declarations of non-liability as the others, as they seek to establish that the Shareholders’ Agreement is, for various reasons, ineffective to give rise to any liability on the part of Novel and Mr Lau). A substantial purpose of the High Court Action would therefore appear to be to seek to obtain a determination in favour of Mr Heffner, Mr Lau, Novel, Gen2 Limited and Gen2 Investment in respect of the allegations made against them in the Anglo Chinese letter of 24 January 2011.

8. I was told at the hearing by Mr Yu SC (who appeared for Novel, Mr Heffner and Mr Lau) that the High Court Action had not yet been served on the Company.  However, in order for it to serve its purpose, it would seem that will have to happen in due course.

9. Faced with the High Court Action, AR Evans’ first response was to issue the Originating Summons in HCMP 1255 of 2011 on 6 July 2011, seeking leave under section 168BC of the Companies Ordinance to intervene in the High Court Action in order to defend it on behalf of the Company, and also to bring proceedings on behalf of the company in respect of the various complaints against Novel, Mr Heffner and Mr Lau.

10. So far as the proceedings sought to be brought against Novel, Mr Heffner and (Mr) Lau are concerned, these have not been formally set out in a draft pleading (whether as a counterclaim to the High Court Action, or as a statement of claim in a separate action).  However, Mr Raymond Lai’s affirmation in support of the section 168BC application describes such proposed claims as consisting of:-

(1)  An alleged breach by Novel and Lau of clause 2.1 of the shareholders’ agreement by failing to pay capital contributions to the Company;

(2)  An alleged breach by Novel and Lau of clause 3.3 of the shareholders’ agreement by failing to implement steps and measures set out in a business plan attached to the shareholders’ agreement;

(3)  A claim against Novel and Lau for specific performance of clause 2.1 of the Shareholders’ Agreement;

(4)  A claim against Heffner for aiding or procuring the alleged breaches by Novel of the shareholders’ agreement, and wrongfully interfering with its performance;

(5)  A claim against Heffner and Lau for breach of their fiduciary and director’s duties owed to the Company by diverting corporate opportunities and making use of information of the Company for their own business (three examples of such conduct being given);

(6)  A claim against Heffner and Lau for breach of trust, arising out of the facts said to amount to breaches of fiduciary and director’s duties;

(7)  A claim against Heffner, Lau, Gen2 Limited and Gen2 Investment for conversion and money had and received, apparently in respect of the investments made with Gen2 Limited and Gen2 Investment which should, according to AR Evans, have been made with the Company; and

(8)  A claim against Heffner, Lau, Novel, Gen2 Limited and Gen2 Investment for various accounts and enquiries and payment of sums found due, or equitable damages arising from the claims mentioned in sub-paragraphs (5) to (7) above.

11. Of these claims, those mentioned in paragraphs 10(1), (2) and (4) to (7) above essentially amount to the obverse of the claims asserted by the plaintiffs in the High Court Action, while those mentioned in paragraphs 10(3) and (8) represent the relief to be claimed or counterclaimed, if those claims are established.

12. On 2 August 2011, Novel and Mr Lau issued a summons seeking leave to intervene in HCMP 1255/2011 by being added as defendants, with a view to opposing AR Evans’ applications under section 168BC.

13. Thereafter, on 10 October 2011, AR Evans presented its petition in HCMP 1991/2011 seeking relief under section 168A of the Companies Ordinance in respect of the Company.  The petition makes the following main allegations:-

(1)  Complaints against Novel and Lau in respect of alleged breaches of the Shareholders’ Agreement – in particular clauses 2.1 and 3.3 (mentioned above), and also clauses 4.1 (relating to alleged failures to advise the Company of notices, documents and information), 8.1 (relating to alleged wrongful disclosure or use of the Company’s confidential information) and 10.10 (alleged failure to ensure that nominated directors (i.e. Mr Heffner) took steps to ensure that the Shareholders’ Agreement was complied with);

(2)  A complaint that Heffner aided or procured Novel’s breach of the Shareholders’ Agreement, and wrongfully interfered with its performance;

(3)  Complaints that Heffner and Lau breached their fiduciary and director’s duties by making use of the Company’s information and corporate opportunities for their own benefit through Gen2 Limited and Gen2 Investment;

(4)  Complaints that Heffner and Lau acted in breach of trust as a result of such breaches of fiduciary and director’s duties;

(5)  Allegations that Heffner, Lau, Gen2 Limited and Gen2 Investment were liable for money had and received, as a result of receiving funds from investors that should have gone to the Company;

(6)  Allegations of misrepresentation against Heffner and Lau, to the effect that they had untruthfully represented that all Gen2 entities would be owned or controlled by the Company, which was not the case in relation to Gen2 Limited and Gen2 Investment;

(7)  A claim that Heffner, Lau, Gen2 Limited and Gen2 Investment should make good interest and dividends which should have been available to the Company and/or AR Evans from the allegedly wrongfully diverted investment funds; and

(8)  A claim for costs.

14. On the basis of these allegations, AR Evans sought the following relief – on its own behalf, and/or on behalf of the Company:-

(1)  Damages for breach of the Shareholders’ Agreement and the business plan attached to it (against Novel, Heffner and Lau);

(2)  Specific performance of clause 2.1 of the Shareholders’ Agreement (also against Novel, Heffner and Lau);

(3)  A claim against Heffner, Lau, Novel, Gen2 Limited and Gen2 Investment for various accounts and enquiries and payment of sums found due, or equitable damages, arising out of the claims for breach of duty and breach of trust;

(4)  An order requiring Novel, Heffner and Lau to buy out AR Evans’ 40% shareholding in the Company; and

(5)  Interest, ancillary relief and costs.

15. It will be apparent from this summary that there is a very substantial overlap between the allegations and claims advanced in the section 168A petition, and those in respect of which leave to bring derivative proceedings is sought by the section 168BC application.  The only new claims made in the petition would appear to be in relation to the additional breaches of the Shareholders’ Agreement mentioned in paragraph 14(1) above (clauses 4.1, 8.1 and 10.10), the allegations of misrepresentation and the point relating to interest.  The only additional relief of substance sought relates to the buy-out order in relation to AR Evans’ shareholding in the Company.

16. On 25 November 2011, Novel, Heffner, Lau and Gen2 Limited applied to strike out the petition in HCMP 1991/2011 and to have the claims thereunder dismissed.

17. The three applications were directed to be heard together, by an order of Au J dated 5 August 2011 (dealing with AR Evans’ section 168BC application and Novel, Mr Heffner and Mr Lau’s application to intervene therein), and by my order of 16 December 2011 (dealing with those applications and the striking out application in respect of the petition).

18. At the hearing, AR Evans was represented by Mr Sussex SC and Mr Maurellet, while Novel, Mr Heffner, Mr Lau and Gen2 Partners were represented by Mr Yu SC and Ms Tong.

19. Mr Sussex contended that leave should be given to AR Evans to intervene in the High Court Action on behalf of the Company, as without such leave being given, the Company (which was controlled by Novel and Mr Lau, holding 60% of its shares between them) would be unlikely to defend the proceedings, there having been no suggestion by Novel, Mr Heffner or Mr Lau that they would cause the Company to defend them.  Moreover, having regard to the interests of Novel, Mr Heffner and Mr Lau in the High Court Action, it could not seriously be suggested that they would have any desire to see that this was done.  He went on to suggest that if this were accepted, leave should, almost as a matter of course, be granted for AR Evans to assert, derivatively on behalf of the Company, the claims which it sought to bring forward, whether by way of a counterclaim in the High Court Action, or in separate proceedings which could be directed to be heard together with it, as the claims were simply the obverse of those directed against the Company in the High Court Action, and should be dealt with at the same time.

20. So far as Novel and Mr Lau’s application to intervene was concerned, he suggested that the court should not be concerned with the position of putative defendants (which was what Novel and Mr Lau were), as the only relevant consideration should be what was in the interests of the Company in respect of which leave was sought.  He suggested that Novel and Mr Lau’s representations as to AR Evans’ application were clearly made qua putative defendants, and not qua shareholders in the Company.

21. So far as the section 168BC application was concerned, Mr Yu indicated that his clients’ position was that:-

(1)  As shareholders, Novel and Lau were entitled to be heard on the section 168BC application, notwithstanding that they were proposed defendants to the derivative counterclaims or claims that AR Evans sought to advance and they were in any event entitled to be heard as putative defendants;

(2)  Section 168BC did not apply to the Company because it was not a “specified corporation” within the meaning of the Ordinance, and thus leave should not be given, whether to intervene in the High Court Action or to bring the proposed claims against Novel, Mr Heffner, Mr Lau, Gen2 Limited and Gen2 Investment;

(3)  If, however, the court considered that the Company was a “specified corporation”, then so long as AR Evans did not, at this stage, press for an order that it should be indemnified in respect of the costs of any proceedings for which leave might be given for it to conduct on behalf of the Company, Novel and Mr Lau would take a neutral stance on the application for leave to intervene in and defend the High Court Action;

(4)  However, Novel and Mr Lau opposed the granting of leave to AR Evans’ to bring proceedings on behalf of the Company as the proposed claims did not raise a serious question to be tried (or at least some such claims (in particular those relating to the Shareholders’ Agreement) did not do so);

(5)  If, notwithstanding the foregoing submissions, leave was granted for claims to be pursued by AR Evans on behalf of the Company, it should be granted on terms that AR Evans provide security for the proposed defendants’ costs of defending such claims.

22. Mr Sussex responded that:-

(1)  The Company was indeed a “specified corporation”, so that section 168BC (and, in the context of the striking out application, section 168A) did apply to it, so as to give the court jurisdiction in relation to both sets of proceedings.

(2)  In the light of the fact that the Company did not have any funds of its own, AR Evans accepted that it would have to, at least for the present, fund the defence of the High Court Action, and any counterclaim or separate derivative action on behalf of the Company, from its own resources, although it reserved the right to seek such an indemnity if appropriate in future.

(3)  Apart from the submission that it would be appropriate to allow the positive claims to be advanced if leave were granted to intervene for the purpose of defending the High Court Action, there was clearly a serious question to be tried in relation to the claims advanced, the threshold as to this being quite a low one.

(4)  While the court might have jurisdiction to require a shareholder seeking leave under section 168BC to bring or defend proceedings on behalf of a company to provide security for the costs of the opposing party, this should not be made a condition of the grant of leave in this case, and Mr Yu’s clients should be required to make an application for security in the normal way if they felt they were entitled to it.

23. So far as the striking out application was concerned, the grounds advanced by Mr Yu in support of it were as follows:-

(1)  Section 168A relief was not available in respect of the Company, as it was not a “specified corporation”.

(2)  The allegations in the petition substantially overlapped with the issues intended to be raised in the proposed derivative proceedings, giving rise to a multiplicity of proceedings, and therefore an abuse of process.

(3)  The complaints raised by AR Evans in the petition were not the proper subject of a section 168A petition, in that many of the complaints were not complaints of mismanagement of the Company’s affairs such as might found a claim to relief under section 168A, but should properly be regarded as claims in respect of misconduct by Mr Heffner and Mr Lau, which should be addressed in a claim by the Company against them, while other claims did not concern the company or its affairs at all, and did not relate to AR Evans’ interests as a member of the Company.

24. Mr Sussex’s response was:-

(1)  The Company was a “specified corporation” within the meaning of the Ordinance.

(2)  The overlap between the proposed derivative claims and the petition was acknowledged, but this did not constitute an abuse of process, and could be dealt with by means of appropriate case management to ensure that there was no duplication or waste of time or costs.

(3)  While Mr Sussex acknowledged that a number of the complaints might equally, or possibly even more suitably, be ventilated in the derivative proceedings, and the petition (which he had not drafted) might benefit from some redrafting, it should not be dismissed altogether, particularly as the buy‑out relief sought was not available to AR Evans in any other proceedings.

25. I shall deal first with the section 168BC application.  Within this, the first question for consideration is whether or not Novel and Mr Lau should be permitted to intervene so as to make submissions in opposition to the grant of the leave sought.

26. As to this, I indicated that I would hear Mr Yu in opposition to the section 168BC application de bene esse, and would deal with the question of whether or not his clients should be allowed to intervene when giving judgment.  Mr Yu submitted that Novel and Mr Lau should be permitted to intervene under the ordinary principles applicable to the joinder of parties to proceedings, as they would be directly affected by any order that would be made – as plaintiffs in the High Court Action, putative defendants to a counterclaim or separate action, and as shareholders of the Company against which an indemnity was sought in respect of any costs incurred by AR Evans on its behalf.  Mr Yu also pointed out that it was common for the court to receive and consider evidence and submissions from shareholders and directors of a company in opposition to applications for leave under section 168BC – see e.g. Re Lucky Money Ltd (unreported, HCMP 505/2006, 18 July 2006), and for proposed defendants in the derivative action to be given standing to oppose the leave application (see e.g. Company Law in Hong Kong: Practice and Procedure, at para 8.043l; Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313).

27. I accept these submissions.  I do not think that the authorities support Mr Sussex’s suggestion that permission should only be granted to a putative defendant to take part in a section 168BC application for the purpose of opposing the grant of leave in “exceptional” cases.  It seems to me that in order to carry out its function under section 168BC, the court is likely, in general, to be assisted by submissions that bear on such questions as the jurisdiction to make an order under the section, or indeed as to the merits of the proposed claim.  The court would, I think, be quite capable of weighing for itself the strength of the arguments advanced on either side, and would not lose sight of the fact that a putative defendant will have an interest in belittling the aspiring derivative plaintiff’s prospects of success.  I therefore think that Novel and Mr Lau, whether in their capacity as shareholders or as potential defendants, are entitled to be heard in opposition to the section 168BC application.

28. It is therefore not necessary for me to consider a fall back argument by Mr Yu, to the effect that given that notice of the section 168BC application was served on the Company at a registered address which had been registered by Mr Raymond Lai, and which was the same as AR Evans’ address, the Company could not realistically have been expected to deal with the application itself, since no one other than the Lais would have known about it.  However, it seems to me that there is force in this argument also.

29. I turn therefore to consider the merits of Mr Yu’s arguments against the grant of the leave sought.  Before doing so, I set out below the relevant parts of section 168BC:-

“168BC. Bringing or intervening in proceedings on behalf of specified corporation.

(1) A member of a specified corporation or of a related company of a specified corporation may, with the leave of the court granted under subsection (3) –

(a) bring proceedings before the court on behalf of the specified corporation; or

(b) intervene in any proceedings before the court to which the specified corporation is a party for the purposes of continuing, discontinuing or defending those proceedings on behalf of the specified corporation.

…

(3) The court may, on the application of a member of a specified corporation … grant leave for the purpose of subsection (1) if the court is satisfied that –

(a) it appears to be prima facie in the interest of the specified corporation that leave be granted to the applicant;

(b) if the applicant is applying for leave to bring proceedings under subsection (1)(a), there is a serious question to be tried and the specified corporation has not itself brought the proceedings;

(c) if the applicant is applying for leave to intervene in proceedings under subsection (1)(b), the specified corporation has not diligently continued, discontinued or defended those proceedings; and

(d)  except where leave is granted by the court under section 168BD(4), the member has served a written notice on the specified corporation in accordance with section 168BD.”

30. Section 168BD requires a notice of intention to apply for leave under section 168BC to be served on the company concerned 14 days in advance of the application, such notice to be served at its registered office (in the case of a Hong Kong company) or at the address of its authorised representative registered under section 333.  However, by section 168BD(4), the court may give leave to dispense with the service of such written notice.

31. The first point taken by Mr Yu is that the Company is not a “specified corporation” within the meaning of the Companies Ordinance.  The starting point as to this is section 2 of the Companies Ordinance, subsection (1) of which defines a “specified corporation” as “a company or a non-Hong Kong company”.

32. “Company” is defined as meaning “a company formed and registered under this Ordinance or an existing company”.  An “existing company” in turn means a company formed and registered under the Companies Ordinance 1865 or the Companies Ordinance 1911.  Being incorporated in the BVI, the Company is clearly not a “company” for the purposes of the Companies Ordinance.

33. Is it, however, a “non-Hong Kong company”? Section 2(1) states that a “non-Hong Kong company” has the meaning assigned to it by section 332, which is in the following terms:-

“332. Application of Part XI

This Part shall apply to all non-Hong Kong companies, that is to say, companies incorporated outside Hong Kong which, after the commencement of this Ordinance, establish a place of business in Hong Kong, and companies incorporated outside Hong Kong which have, before the commencement of this Ordinance, established a place of business in Hong Kong and continue to have a place of business in Hong Kong at the commencement of this Ordinance.”

34. By section 333 of the Companies Ordinance, a non‑Hong Kong company that establishes a place of business in Hong Kong after 14 December 2007 is required to apply to the Registrar of Companies for registration within one month of the establishment of that place of business.  The information that is required to be supplied in connection with such application for registration includes the name of the company, its place of incorporation, the date on which it established its place of business in Hong Kong, particulars of its directors and secretary, the name and address and particulars of an authorized representative on whom service of process or notices may be effected, and the addresses of the company’s principal place of business in Hong Kong, its principal place of business (if any, other than that in Hong Kong) and its registered office (or equivalent) in its place of incorporation.

35. Section 338 is also relevant.  It deals with service of documents on non-Hong Kong companies.  It is, so far as relevant, in the following terms:-

“(1) Subject to subsection (2), any process or notice required to be served on a non-Hong Kong company shall be sufficiently served if –

(a) it is addressed to a person whose name has been delivered to the Registrar under this Part as the authorized representative of the company; and

(b) it is left at his last known address or sent to him by post.

(2) Where any non-Hong Kong company makes default in delivering to the Registrar the name and address of a person resident in Hong Kong authorized to accept on behalf of the company service of process or notices … a document may be served on the company –

(a) by leaving it at or sending it by post to any place of business established by the company in Hong Kong; or

(b) if the company no longer has a place of business in Hong Kong –

(i)  by sending it by registered post to its registered office, and a copy thereof by registered post to its principal place of business (if any), in its place of incorporation at the respective addresses thereof registered under section 333(2)(f); or

(ii)  if no such addresses have been registered, by leaving it at or sending it by post to any place of business in Hong Kong at which the company has had a place of business within the previous 12 months.”

36. Finally, section 341 defines “place of business” as including a share transfer or share registration office, but not including an office specified in the Twenty-fourth Schedule (a local representative office of a foreign bank).  It is to be noted that section 341 was formerly more restrictive, in that it provided that a place of business “does not include a place not used by the company to transact any business which creates legal obligations”, a provision that was removed by an amendment under the Companies (Amendment) Ordinance 2004, which came into effect on 14 December 2007 (see Singamas Management Services Ltd v Axis Intermodal (UK) Ltd [2011] 5 HKLRD 145, per Sakhrani J at paras 30-31 of the judgment).

37. Mr Yu contended that the Company was not a “specified corporation” because it could not be regarded as a “non-Hong Kong company”, in that:-

(1)  It did not have any place of business in Hong Kong at the time when the section 168BC application was brought, this being (Mr Yu submitted) the relevant time at which it was necessary for the Company to have a place of business in Hong Kong in order to be covered by section 168BC.  In support of this argument, Mr Yu suggested that a useful analogy could be found in the authorities on service on a foreign company in Hong Kong, and relied on observations of Patrick Chan J (as he then was) in Elsinct (Asia Pacific) Ltd v Commercial Bank of Korea Ltd [1994] 3 HKC 365.

(2)  The registration of the Company under section 333 of the Companies Ordinance by Mr Raymond Lai on 15 May 2011 could not give it a place of business in Hong Kong if in fact it had none at the time.

(3)  Insofar as necessary, Mr Yu contended that the Company never had, at any time, a place of business in Hong Kong, as it had never actually carried out any business, whatever might have been the original intentions of its shareholders at the time when the Company was formed and the Shareholders’ Agreement entered into – it was said that the Company had no staff of its own, never transacted any business, and never paid any rent for the office premises that it was ostensibly sharing (this forming the basis of the money claim in the High Court Action).

38. Mr Sussex contended that this analysis was flawed, because:-

(1)  It was not necessary for the Company to have a place of business in Hong Kong at the time that the section 168BC application was brought.  Under section 332 of the Companies Ordinance, it sufficed that the Company had in fact established a place of business in Hong Kong prior to that time, whether or not it still maintained it.

(2)  The registration by Mr Raymond Lai was irrelevant to the question of whether or not the Company was a specified corporation.  A company did not require to be registered in order to become a specified corporation.  Rather, it was the fact that a company had established a place of business (and had thereby become a non-Hong Kong company) that triggered the obligation to register under section 333.  The failure to register would be a breach of section 333, but the Company would not thereby cease to be a non-Hong Kong company within the meaning of the Ordinance, and would therefore still be a “specified corporation” for the purposes of section 168BC.

(3)  On the evidence available, the Company clearly had established a place of business in Hong Kong.  This should be inferred from the following matters:-

(a)  It was clearly the intention of all the Company’s shareholders from the outset that the Company should carry on business in Hong Kong, and establish a place of business here.  This, he said, was demonstrated by:-

(i)  the fact that the business plan annexed to the Shareholders’ Agreement stated that the Company’s management team would comprise Mr Heffner, Mr Lau and Mr Raymond Lai, all of whom were Hong Kong residents;

(ii)  all of the Company’s directors (Mr Heffner, Mr Lau and Mr Raymond Lai) were Hong Kong residents;

(iii)  Schedule 1 of the business plan described the location of the Company as “Hong Kong”;

(iv)  The Company’s operating headquarters was stated in the business plan to be at 1704 Alexandra House, Hong Kong.

  (b)  The Company in fact took up premises in Hong Kong, entering into agreements to share offices at 1704 Alexandra House dated 22 April 2009 (which was in fact prior to its incorporation) and 1 October 2009 (just over a month after its incorporation).

  (c)  Mr Raymond Lai’s evidence that the Company conducted all of its business from the Alexandra House address until about November 2010.

  (d)  Various documents suggesting that it had a place of business in Hong Kong, namely:-

(i)  a shareholders’ agreement relating to New Sun Bio Limited in which the Company is described as being incorporated in the BVI, but with its registered office at the Alexandra House address;

(ii)   a letter dated 25 January 2010 from a potential investor (the Public Institution for Social Security, Kuwait) was sent to the Company at the Alexandra House address; and

(iii)   a joint venture agreement with a PRC based real estate group dated 2009 gave the Alexandra House address as the Company’s office address.

(4)  Even though the Company did not have any staff of its own, it had a management team and directors (Mr Heffner, Mr Lau and Mr Raymond Lai).

39. I agree with Mr Sussex that it is not necessary for the Company to have a place of business in Hong Kong at the time when section 168BC is invoked.  This is for the following reasons:-

(1)  Section 332, which sets out the criteria for determining whether or not a company is a non-Hong Kong company (and thus a specified corporation) requires only that it should have established a place of business in Hong Kong.  Nothing in the section suggests that (with the exception of companies which established a place of business in Hong Kong prior to the commencement of the Companies Ordinance) the continued existence of such place of business is necessary for such status to continue. Even in the case of companies which established their place of business in Hong Kong prior to the commencement of the Companies Ordinance, the place of business need only be maintained up until the commencement of the Companies Ordinance, but not thereafter.  This also suggests that once a company becomes a non-Hong Kong company, it remains one, and does not thereafter lose that status.

(2)  Section 338(2)(b) which provides for service of legal process and other documents on non-Hong Kong companies which no longer have a place of business in Hong Kong clearly implies that notwithstanding that there is no longer such a place of business, the company is nonetheless still a non‑Hong Kong company.

(3)  In the context of section 168BC, it would not seem to be of particular importance whether or not a company which had previously established a place of business in Hong Kong continues to have such a place of business.  Indeed, in the present case, assuming that the Company had established a place of business in Hong Kong, from which it intended to carry on business, but was prevented from doing so by the diversion of its intended business to other entities controlled by the alleged wrongdoers, it would hardly seem inappropriate to permit a derivative action to be brought in Hong Kong in respect of it.

(4)  The suggested analogy with the situation in respect of service of proceedings on a foreign company is not an exact one.  In any case, section 338(2)(b) of the Companies Ordinance makes it clear that service of such process on a non‑Hong Kong company is possible even in the absence of a place of business here – in such a case, service may be effected at a former place of business for up to 12 months after.

40. I also agree that the question of whether or not the Company has registered under section 333 is not relevant to the question of whether or not it is a non-Hong Kong company within the meaning of section 332.  The obligation to register clearly arises upon a company establishing a place of business in Hong Kong.  Thus, it arises after the company in question has become a non-Hong Kong company.  The failure to register, while involving a breach of the requirements of the Companies Ordinance, would not therefore deprive the company of its status as a non-Hong Kong company.  That this is so is also recognised by section 338(2), which makes it clear that a default in proper registration (by failing to nominate a person authorized to accept service in Hong Kong) does not make the company any the less a non-Hong Kong company within the meaning of the Ordinance.

41. As to whether the Company had established a place of business in Hong Kong, I am satisfied, on the basis of the matters identified by Mr Sussex, that it had, regardless of whether or not it ultimately transacted any of the business that it was intended to transact from there.  It seems clear from the documents referred to that the Alexandra House address was, for a period of time, held out by the Company as its place of business.  Just as a company might carry on business without establishing a place of business in a particular place, it seems to me that it is possible for a place of business to be established in anticipation of the carrying on of business, even though, for some reason, such business might not ultimately come to anything.  In the present case, the Lais allege that they made a substantial number of introductions of potential investors to Mr Heffner and Mr Lau with a view to enabling the Company to develop its business.  Even if these ultimately came to nothing, this would not mean that the Company had not established a place of business in Hong Kong.  This conclusion is, I think supported by the amendment to the definition of place of business in section 341 of the Ordinance to which I have referred in paragraph 36 above, which suggests that a company may (following the amendment) have a place of business in Hong Kong notwithstanding that no legally binding obligations are entered into there.

42. I am therefore satisfied that the Company had established a place of business in Hong Kong prior to the making of the section 168BC application, and having done so, it was and remained a non-Hong Kong company and thus a “specified corporation” for the purposes of section 168BC.

43. That being so, as AR Evans is a member of the Company, it is entitled to make the application pursuant to section 168BC.  As to whether or not the application should be granted, it is necessary to consider whether or not the requirements of section 168BC(3) are satisfied.

44. I shall consider first AR Evans’ application for leave to intervene in the High Court Action for the purpose of defending it on behalf of the Company.  As to this, I do not think that it can be seriously doubted that it would be prima facie in the interest of the Company for such leave to be granted.  At present, there is no indication that the Company is likely to defend the High Court Action effectively.  The fact that Novel and Mr Lau, who own 60% of the issued shares in the Company, and that Mr Heffner and Mr Lau, who make up two-thirds of its board of directors are plaintiffs in the High Court Action, who clearly stand to benefit by the Company’s failure to effectively defend it, suggests that this is unlikely to happen.  To be fair, I did not understand Mr Yu to seriously suggest that it was not prima facie in the Company’s interest for AR Evans to be permitted to defend the action on its behalf.

45. Further, it would appear clear that the company has not (and, in the absence of a grant of leave to AR Evans, is unlikely to) diligently defended the proceedings, so that the requirement under section 168BC(3)(c) is also satisfied.

46. Mr Yu’s main concern on this part of the application, as I have indicated earlier, was as to the suggestion in the Originating Summons in HCMP 1255/2011 that AR Evans should be indemnified by the Company in respect of the costs that it might incur in defending the High Court Action on behalf of the Company.  However, as Mr Sussex realistically acknowledged, given that the Company appeared to have no funds of its own, this was a matter that could be left over for later consideration at the end of the day, and that AR Evans would have to fund the proceedings in the meantime. Further, while not conceding that AR Evans should necessarily pay the plaintiffs costs if the plaintiffs were ultimately successful, Mr Sussex also acknowledged that given that AR Evans would be funding the proceedings and conducting the defence of them on behalf of the Company, it would in principle be open to the court to order that AR Evans should pay the costs of the plaintiffs in the High Court Action in the event that the plaintiffs succeeded at the end of the day.  In these circumstances, I am satisfied that, in principle, leave should be granted to AR Evans to intervene in the High Court Action in order to defend it on behalf of the Company.

47. I shall deal with the question of whether or not section 168BC(3)(d) has been complied with later, after considering whether or not leave should similarly be granted to enable AR Evans to advance the claims that it wishes to on behalf of the Company.

48. Although it would have been helpful (both for the court and for Mr Yu’s clients) for the precise claims sought to be advanced to have been set out in a draft pleading, it is possible to identify the broad shape of such claims from the information provided in AR Evans’ evidence in support of the application under section 168BC.  I shall therefore deal with this aspect of the matter broadly, and give directions at the end of this judgment with a view to enabling the matter to proceed hereafter.

49. As to this, it seems to me that, just as it is prima facie in the Company’s interests for the High Court Action to be defended on its behalf, it is equally prima facie in the Company’s interests for such viable claims as it may have to be brought on its behalf by AR Evans.  As Mr Sussex pointed out, the claims which the Company wishes to advance are broadly speaking the other side of the claims for negative declarations being sought by the plaintiffs in the High Court Action.  If the High Court Action goes ahead without the Company litigating in it such claims as it may have against the plaintiffs (or have them pursued by AR Evans on its behalf), there must be a risk that the Company would thereby lose the opportunity to seek redress for any wrongful acts that the plaintiffs might have committed against it, on the basis that such claims should properly have been litigated in the High Court Action, and that it would be an abuse of process for the Company to seek to raise them subsequently in other proceedings (see e.g. Henderson v Henderson (1843) 3 Hare 100 and Yat Tung Co v Dao Heng Bank [1975] AC 581).  Even if it were possible for the Company to litigate such claims as it might have in separate proceedings after the High Court Action is dealt with (assuming it to be resolved in favour of the Company), this would involve substantial duplication and waste of costs.  Given that the terms of the negative declarations sought by the plaintiffs in the High Court Action appear to have been drawn by reference to the complaints raised in the Anglo Chinese Letter, it would be sensible for the Company’s claims to be dealt with at the same time.

50. Mr Yu suggested, however, that the Company’s claims as set out in AR Evans’ evidence did not disclose a serious question to be tried, so that leave to bring them on behalf of the Company should be refused.

51. So far as the group of claims relating to alleged breaches of the Shareholders’ Agreement or the procuring of such breaches are concerned, Mr Yu submitted that it was clear that the Company was not a party to the Shareholders’ Agreement, as it was not a signatory to it. The Company therefore could not be entitled to sue on the Shareholders’ Agreement, and the suggestion that it could do so was wholly without merit, and raised no serious question to be tried.  Mr Yu therefore suggested that even if leave were given to AR Evans to bring proceedings on behalf of the Company, it should be made clear that such proceedings could not include any claims by the Company based on the Shareholders’ Agreement.

52. In response, AR Evans’ relied on a legal opinion of BVI lawyers, Messrs Harneys, expressing the view that as the Company issued shares to Novel and Lau, it should be regarded as having accepted the terms of the agreement by conduct, and thus be entitled to enforce it for its own benefit.  Mr Yu, however, pointed out that there was no evidence that the Company was intended to be a party to the Shareholders’ Agreement, and that the signature page (which did not provide for execution by the Company) suggested that it was not.  There was no evidence of any resolution by the Company to enter into the Shareholders’ Agreement, which dealt mainly with the relationship of the shareholders inter se.  There was also no evidence from the Lais to suggest that it was in the contemplation of the parties that the Company should also be a party to the Shareholders’ Agreement.  Mr Yu submitted that it could not be inferred, on the basis of the allotment of shares by the Company, that it was intended that the Company should be a party to the agreement, as an implied contract could only arise from conduct where the conduct relied on was unequivocally referable to the contract sought to be inferred (see Shanghai Tongji Science & Technology Industrial Company Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, per Ribeiro PJ at para 38 of the judgment), and the allotment of shares was not unequivocally referable to a contract to which the Company was a party – rather, it was equally referable to a contract between the shareholders alone, to which the Company was not a party.

53. There is much force in these submissions, and it may well be that at the end of the day, the Company will be unable to establish that it was in fact a party to the Shareholders’ Agreement.  However, there are two matters that seem to suggest that it might have been (or might have been intended to have been).  First, the cover page of the Shareholders’ Agreement includes the Company as a party, and the Company is one of the four named parties to the Shareholder’s Agreement whose names and descriptions are set out at the top of its first page.  Second, the Shareholders’ Agreement is in fact described as a Subscription and Shareholders’ Agreement on the cover page, and it would be usual (or at least not uncommon) for a company to be a party to an agreement to subscribe for shares in it.  Further, I note that in the High Court Action, the plaintiffs themselves allege that the Company is a party to the Shareholders’ Agreement, and seek relief against the Company in respect of it.

54. In these circumstances, while the Company’s claims based on the Shareholders’ Agreement may not appear to be particularly strong, I do not think that it can be said that they are so weak as to disclose no serious question to be tried – a standard which has been described as a “relatively low threshold to surmount” in the context of section 168BC (see Re F&S Express Ltd [2005] 4 HKLRD 743, per Kwan J at para 31 of the judgment).

55. So far as the claims based on alleged breaches of fiduciary and director’s duties are concerned, Mr Yu pointed out various matters which, he submitted, cast serious doubt on the viability of the proposed claims.  In particular, it was suggested that it was all along the intention and understanding of the parties that the Company should only deal with investments introduced by Mr Arthur Lai, and that Mr Heffner and Mr Lau should be entitled to continue to deal with their existing customers through their own, separate companies.  It was further suggested that these companies had already existed under the Gen2 name for some time – in particular, Gen2 Investment was incorporated under that name some months before the Company was ever incorporated.  Reliance was also placed on an email in which Mr Arthur Lai confirmed AR Evans’ interest in “working with its partners in Gen2” as evidence to show that Mr Heffner and Mr Lau were already using the Gen2 name in respect of their own businesses.

56. This is disputed by AR Evans, and in my view, the evidence relied on by Mr Yu is not so strong as to show that there is no serious question to be tried in relation to these complaints.  Although Gen2 Investment was incorporated before the Company, AR Evans’ case is that discussions as to the potential cooperation had commenced earlier, prior to the incorporation of Gen2 Investment, and that the use of the Gen2 name had already been discussed.  The email relied upon is at best equivocal, as it might, I think, equally well be read as a desire to work together with Mr Heffner and Mr Lau in developing a Gen2 business, rather than an acceptance that Mr Heffner and Mr Lau already had a business under that name.

57. Mr Yu also complained that the allegations of breach of fiduciary duty were general and unparticularised, and that there was no evidence that any of the investors allegedly introduced by Arthur Lai actually ever made any investment.  There is some force to this complaint, but it seems to me that it is not one that is determinative against the grant of leave – rather, it is a matter that can be dealt with by requiring AR Evans to produce a draft defence and counterclaim to the High Court Action on behalf of the Company, in which the claims sought to be advanced on behalf of the Company should be clearly specified and properly particularised.

58. To be fair, Mr Yu recognised that the threshold for the grant of leave was a relatively low one, and did not appear to press the suggestion that there was no serious question to be tried in relation to the breach of fiduciary duty allegations very hard.  Given that these claims are very much fact sensitive, I would accept that AR Evans should be permitted to formulate and advance them on behalf of the Company.  It will, of course, remain open to the parties against whom such claims are brought to deal with them as they think fit, including by making such interlocutory applications as they may think advisable in relation to them.

59. The position is different in relation to the suggested claim for money had and received.  Given that any investment funds received would not become the Company’s own funds to deal with for its own account, but would be held on behalf of their customers, there would not appear to be any viable claim for such funds, but at best for the loss of income that the Company might have suffered as a result of the diversion away from it of investments which should have been channelled through it.

60. In these circumstances, it seems to me that the requirement of section 168BC(3)(b) are met in relation to both the claims based on the Shareholders’ Agreement and on fiduciary and similar duties, but not in relation to the suggested claim for money had and received, and the leave granted is limited accordingly.

61. There was some discussion of whether or not section 168BC permitted the bringing of a derivative counterclaim on behalf of a company.  I see no reason why it should not – the section deals with the bringing of claims on behalf of a specified corporation, and claims may be advanced in proceedings either as original claims in actions brought by the company concerned, or by way of counterclaim to existing proceedings.  Where a counterclaim is raised, the position is that the defendant is asserting a claim against the plaintiff.  I see no reason why the expression “claim” as used in section 168BC should be limited to claims by original action and not by counterclaim.  Where there are existing proceedings in which claims may be asserted by a counterclaim, there would seem to be little point in requiring that separate proceedings be commenced, only for them to be consolidated with or heard together with the existing action.

62. Turning to the question of whether the requirements of section 168BD have been complied with, Mr Yu submitted that the purported service of the notice of intention to apply for leave to bring derivative proceedings on the Company at the address notified as its place of business in an application for registration under section 333 of the Ordinance presented by Mr Raymond Lai on about 15 May 2011 was of no effect, since he lacked the authority of the Company to apply for such registration.  I would accept that there must be real doubt as to whether or not Mr Raymond Lai’s actions in this respect were authorised by the Company, but having regard to the circumstances of this case, and the fact that it would appear to be in the interests of the Company to defend and bring such counterclaims as it properly can in the High Court Action, I would exercise my discretion to dispense with the need for the service of the relevant notice.

63. Finally, Mr Yu submitted that the court should impose a condition that AR Evans should be required to provide security for the costs of his clients in respect of the High Court Action.  He suggested that this was possible under section 168BI of the Companies Ordinance.

64. Mr Yu suggested that in this case, given that the Company had no funds of its own, and AR Evans was a foreign corporation, which did not appear to have substantial assets in Hong Kong, it would be appropriate to require the provision of security as a condition of AR Evans being permitted to act derivatively on behalf of the Company.  Mr Yu referred me to three Australian cases in which security was so ordered: Charlton v Baber (2004) 47 ACSR 31; Fiduciary Ltd v Morningstary Research Pty Ltd (2005) 53 ACSR 732 and Roach v Winnote Pty Ltd (2006) 57 ACSR 138.

65. While Mr Sussex did not appear to dispute that the court had power to impose such a condition, he suggested that no such condition should be imposed and that Mr Yu’s clients should be left to make an application for security for costs in the normal way.

66. I have come to the conclusion that I should not make the provision of security a condition of the grant of leave under section 168BC in the present case.  This is for the following reasons, which in my view make it more appropriate for an application for security to be made in the usual way:-

(1)  Although I think that, as the Company is a foreign company, and AR Evans would be both a nominal and foreign claimant in respect of the counterclaims that it brings derivatively on behalf of the Company, there may well be an in principle obligation to provide security, there may nonetheless be an argument open to AR Evans that in the context of the High Court Action (unlike the section 168A petition) it (acting on behalf of the Company) is a counterclaiming defendant in respect of a counterclaim which broadly covers the same ground as would have to be covered as a result of the claims of the plaintiffs in the High Court Action for negative declarations, so as to make it inappropriate to order security to be provided, given that the plaintiffs chose to bring the High Court Action against the Company in the first place.  In saying this, I am not saying that the argument would necessarily succeed.  However, it was not really gone into at the hearing, and it is therefore one which would, I think, benefit from fuller argument in the context of an application for security for costs.

(2)  Further, there was no indication as to the amount of security that it might be appropriate to award, and for this reason too, it would seem preferable to deal with the question of whether or not security should be provided separately, in an application made for that purpose.

67. I shall therefore give leave to AR Evans to defend the High Court Action on behalf of the Company, and to bring derivative counterclaims on behalf of the Company as indicated in paragraph 60 above.

68. Turning to the application to strike out the petition, the first point taken by Mr Yu, that the Company was not a specified corporation and that section 168A was therefore not applicable to it, has already been resolved in favour of AR Evans.  This leaves for consideration Mr Yu’s second and third complaints in respect of the petition.

69. Mr Yu’s second complaint was that it was an abuse of process for the claims sought to be raised in the petition to be litigated in the petition proceedings as well as in the High Court Action, where virtually identical claims were sought to be advanced by way of a derivative counterclaim on behalf of the Company.  At the hearing, however, Mr Sussex made it clear that his position was not that the claims should be ventilated in both sets of proceedings so as to result in duplication and waste of time and costs.  He suggested that the appropriate way to deal with questions of duplication was by ensuring that the court used its case management powers to see to it that the litigation was conducted effectively. In the light of the views which I shall express below in respect of Mr Yu’s third point, I think that this is the appropriate approach to take.  I see no reason why, given suitable case management, there should be any real risk of duplication or waste arising.

70. This brings me to Mr Yu’s third point, which I regard as being of greatest substance.  This was that the claims advanced in the petition are not properly claims that should be made in section 168A proceedings at all, as they either did not relate to the affairs of the Company, or (where they might arguably so relate) were not concerned with mismanagement of the Company, but with misconduct towards it, which was more properly the province of a derivative action.

71. Mr Yu submitted that the complaints in relation to the Shareholder’s Agreement did not relate to any of the Company’s affairs, given that the Company was not a party to it.  For the reasons which I have given above in the context of the section 168BC application, I would not go so far as to say that it is unarguable that the Company may have been intended to be a party to the Shareholders’ Agreement and so is not entitled to make claims pursuant to it.  However, even so, Mr Yu may still be entitled to object to the inclusion of this claim in the petition on the basis that it is a claim that does not involve mismanagement of the company’s affairs, but misconduct as against the company, and as such should be raised in proceedings by the Company, or brought derivatively on its behalf.

72. Mr Yu also suggested that so far as the complaint based on allegations of breach of trust and breach of duties of confidence on the part of Mr Heffner and Mr Lau were based on their relationship with AR Evans arising out of their common venture, these were not matters which related to the affairs of the Company.  I think that this is right so far as it goes, but it seems to me that the complaint under this head is really based on the fiduciary and director’s duties allegedly owed by Mr Heffner and Mr Lau to the Company and to be a different way of putting those claims.  However, as with the claims based on the Shareholders’ Agreement, these claims may still be susceptible to the complaint that they should not be made in a section 168A petition as they relate to allegations of misconduct rather than mismanagement.

73. However, in relation to the allegations of misrepresentation, these are allegations of misrepresentations by Mr Heffner and Mr Lau to Mr Raymond Lai, and would appear neither to relate to the Company’s affairs, or even to amount to misconduct of which complaint might be made by the Company.  I therefore consider that this claim is one that has no place in a section 168A petition, and should be struck out.

74. Mr Yu’s other, and (in my view) well founded, complaint was that most of the allegations and claims made in the petition were not properly the subject of section 168A proceedings.  In support of this argument, Mr Yu relied on observations of Millett J (as he then was) in Re Charnley Davis Ltd (No. 2) [1990] BCLC 760, where Millett J concluded that where the essence of the claim was not mismanagement of a company, but consisted of complaints of breaches of duty owed to the company or other misconduct actionable by the company itself, the proper vehicle for relief was not an unfair prejudice petition, but a derivative claim.  This approach was adopted by the Court of Final Appeal in Re Chime Corporation (2004) 7 HKCFAR 546, although it was accepted that in rare cases, the court might exercise its jurisdiction to order payment of compensation or damages to the company itself in a section 168A petition.  However, if it was not clear that the order sought corresponded with one which would be made in a derivative claim on behalf of the company, or that it was a claim which could conveniently be dealt with at the hearing of the petition, the court would decline to deal with the claims in a section 168A petition. These views have subsequently been reiterated by the Court of Final Appeal in Waddington Ltd v Chan (2008) 11 HKCFAR 370 and by Kwan J (as she then was) in Re Shun Tak Holdings Ltd [2009] 5 HKLRD 743.

75. Applying this approach, Mr Yu submitted that all of the other complaints in the petition (i.e. those for breach of fiduciary and director’s duties, for breach of trust, and for money had and received or diversion of corporate opportunities and for loss of interest) were properly claims for misconduct against the Company, which should not be advanced under a section 168A petition, but in derivative proceedings (for which leave has now been given).  No doubt he would have made the same submission in respect of the claims arising from the Shareholders’ Agreement, insofar as the Company might be entitled to advance such claims.  He also pointed out, in my view rightly, that virtually all of the relief claimed was relief that was claimed on behalf of the Company, and not for AR Evans in its capacity as a shareholder.

76. Mr Sussex accepted, I think, that the bulk of the complaints and the relief sought might more appropriately be raised in derivative proceedings brought on behalf of the Company.  However, he pointed out that there was also a claim for a buy-out by Novel and Mr Lau of AR Evans’ shareholding in the Company, which could not be obtained in other proceedings. He therefore submitted that the petition should not be dismissed.

77. While I would accept that the buy-out relief would not be available otherwise than under the petition, and am also prepared to accept that some aspects of the misconduct alleged might also be characterised as mismanagement of the affairs of the Company on the part of Mr Lau and Novel/Mr Heffner, as persistent misconduct and breach of duty on the part of management towards a company might properly be regarded as also amounting to mismanagement that would support a claim for relief such as a buy-out order, it does seem to me that several aspects of the complaints put forward in the petition, such as the claims based on the Shareholder’s Agreement and for alleged misrepresentation, cannot be regarded as mismanagement at all.  Further, it is far from clear from the petition as presently drafted how the other complaints as to misconduct on the part of Novel, Mr Heffner and Mr Lau are said to amount to mismanagement as well.  In addition, insofar as the relief claimed seeks orders to be made in favour of the Company, it is also far from clear that these can conveniently be dealt with in a shareholder’s petition under section 168A.  In these circumstances, given the extent of the objectionable allegations (which make up almost the whole of the petition) I think that the appropriate course would be to strike out the petition in its entirety, but not to dismiss it altogether, instead allowing AR Evans an opportunity to put forward an amended petition which can stand as points of claim, setting out the basis on which it contends that the affairs of the Company have been conducted in a manner unfairly prejudicial to it, so as to justify the making of a buy-out order in its favour.  The allegations in such amended petition should, of course, be limited to those relied on to support that relief, as any relief sought on behalf of the Company can be sought in the derivative counterclaim which I have given AR Evans leave to bring in the High Court Action.

78. In the light of the views and decisions that I have expressed above, I think that it would be desirable to give directions to enable the proceedings to progress as smoothly as possible.  With that in mind, the parties are requested to fix a hearing before me at the earliest date convenient to the court and one of their counsel for the purpose of finalising the terms of the orders and directions to be made and given, and to deal with the costs of these applications.  In principle, however, I would envisage orders and directions being made along the following lines:-

(1)  AR Evans is to be given leave to intervene in the High Court Action and defend it on behalf of the Company.

(2)  AR Evans is to be given leave to bring derivative claims on behalf of the Company as indicated in paragraph 60 above.

(3)  AR Evans should, within (say) 56 days, deliver a defence and counterclaim to the High Court Action on behalf of the Company.

(4)  The allegations and relief set out in the petition in the section 168A proceedings are to be struck out.

(5)  AR Evans are to be at liberty, within (say) 56 days, to take out a summons seeking leave to amend such petition, with an amended petition to be annexed to such summons.

(6)  Any application by the Plaintiffs in the High Court Action for security for costs to be provided by AR Evans or the Company in respect of the derivative claims to be advanced by way of counterclaim in the High Court Action should also be issued within (say) 56 days.

79. If it is possible for agreement to be reached on any of the above orders or directions, or as to any part of the costs of these applications of costs, the parties may submit a draft consent order for the court’s consideration.