LAI CHI KEUNG v. WANG ZHIHUA AND ANOTHER

HCCW 186/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 186 OF 2013

____________________

____________________

_______________

R U L I N G

_______________

1.  I have before me summonses to strike out three petitions issued under section 168A and section 177(1)(f) of the Companies Ordinance on the grounds that those petitions are scandalous, frivolous or vexatious.

2.  The petitioner in HCCW 186/2013 was represented by Miss Cathy Chan.  The petitioner in HCCW 187 & 188/2013 was represented by Mr Tim Wong.  The 1st respondents in each of the petitions were represented by Mr Victor Dawes and Mr Ken Lee. 

3.  The petitioner in HCCW 186/2013 is Mr Lai Chi Keung.  The company has two shareholders: Mr Lai Chi-keung and Mr Wang Zhihua.  They own 20 and 80 per cent respectively of the company.

4.  The petitioner in HCCW 187/2013 is China Energy Industry Development Limited, which is incorporated in the BVI.  The ultimate beneficial owner of that company is Dr Chen Huanghao.  The respondent shareholder in that petition is China People and the subject company is China Energy Industry Development Limited.

5.  The petitioner in HCCW 188/2013 is China Energy Utilization Limited, which is also incorporated in the BVI and ultimately owned by Dr Chen.  The respondent shareholder is China People and the subject company is China Energy Utilization Limited. 

6.  The complaints in the petitions in HCCW 187/2013 and HCCW 188/2013 are, for all practical purposes, identical.  The petition in HCCW 186/2013 contains the same complaints, but adds to them.  All the petitions are very short.  The common complaints are as follows:

“9. While the Petitioner and the 1^st Respondent were at a restaurant in Hubei, the 1^st Respondent brought several men to the restaurant, instructed them to physically assault Chen Huanghao and demanded Chen Huanghao to get down on his knees. The Petitioner tried to intervene and stop the men of the 1^st Respondent but in vain. The Petitioner was ordered by the 1^st Respondent to stay away.

10. Chen Huanghao and the Petitioner were falsely imprisoned for more than 6 hours and the 1^st Respondent then handed to the Petitioner various documents as follows:-

(1) A notice of the board meeting of the Company dated 28 April 2013 for a meeting to be held on 15 May 2013.

(2) A director’s acknowledgement of receipt of the said notice of the board meeting.

(3) A minutes of the board meeting dated 15 May 2013.

(4) A resolution of the board meeting dated 15 May 2013 to appoint Pang Guang Sheng as the new director of the Company.

11. The Petitioner was forced to sign on the said documents under the duress of the 1^st Respondent.

12. The Petitioner was not served with the said notice of board meeting dated 28 April 2013 and did not sign the acknowledgement of receipt of the said notice until on or about 15 May 2013.

13. Further, there was no meeting conducted for the Company on 15 May 2013 between the Petitioner and the 1^st Respondent. The Petitioner did not vote and pass the resolution to appoint Pang Guang Sheng as a new director of the Company at all.

14. In the premises, all the said documents referred to hereinabove were signed by the Petitioner under duress.

15. Further, the 1^st Respondent has, up to this date, refused to produce the said documents which the Petitioner signed under duress on 15 May 2013 despite the Petitioner’s repeated requests and demands, contrary to section 120 of the Companies Ordinance Cap. 32.

16. In the premises, the passing of the resolution dated 15 May 2013 to appoint Pang Guang Sheng was unlawful, improper and not by majority vote, contrary to Article 15 of the Company’s Memorandum and Articles of Association, and thus became invalid.

17. Moreover, the 1^st Respondent had registered Pang Guang Sheng’s appointment as a new director with the Company’s Registry on 4 June 2013 and falsely and wrongfully stated the effective date of appointment to be 28 April 2013.”

7.  HCCW 186 adds complaints about the purported allotment of shares at the instigation of Mr Wang on or about 11 June 2013 and on or about 26 June 2013 without proper authorisation by the company in general meeting or by its board of directors.

8.  The basis on which the respondents seek to strike out the entire petition can be put shortly. 

9.  The case in respect of duress is not credible and vexatious.  Mr Dawes made various forensic points in support of this application: the lack of particularity in the petition, which is repeated in the evidence, which does no more than repeat the petition; the absence of the type of circumstantial evidence one would expect, such as reports to the police or records of medical treatment; and the absence of any commercial need for such behaviour, given Mr Wang’s controlling interest in the companies.

10.  There is no dispute about the relevant principles by reference to which the court assesses applications to strike out a petition.  They are summarised in my judgment in Re Sun Light Elastic Ltd [1] in paragraph 4:

“4. The principles by reference to which such applications are assessed is not in issue and are as follows:

(1) It is assumed that the particulars and allegations in the petition and the supporting affidavits of the petitioner would be established and the conflicts resolved in favour of the petitioner;[2]

(2) The application should be approached with the greatest circumspection and it is only in a plain and obvious case that the court should exercise its discretion to strike out the petition for winding-up or the parts complained of;[3]

(3) The burden is on the applicant to show that it is plain and obvious that the petition for winding-up would fail on the ground there is an alternative remedy available to the petitioner and that the petitioner is acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy;[4]and

(4) Where proposed amendments are put forward in an application to strike out, the court should have regard not only to the allegations in the existing petition but also to matters in the proposed amendments.[5] ^”

11.  Bingham LJ in Re Copeland & Craddock Ltd states this:[6]

“It has been often and rightly said that the court’s jurisdiction to strike out a claim advanced by a plaintiff or a claimant or a petitioner is to be exercised very sparingly and only where the clearest grounds are shown for doing so. The reason for this practice is clear. Although a court may at a preliminary stage regard a claim as tenuous and having a negligible chance of success, the claimant is nonetheless entitled to the court’s adjudication on it on the merits unless it is a claim which the court is satisfied cannot succeed. In this case the judge clearly regarded the plaintiff’s claim to wind up this company as one which was unlikely to succeed, but he did not feel that the claim was so manifestly unarguable as to justify him in striking it out … I share the judge’s view that this claim is unlikely to succeed. I am indeed persuaded that the case is very close to the borderline where striking out would be appropriate. But I am not quite persuaded that the claim is unarguable whatever comes out relevant to the petition on discovery and in the course of oral evidence.”

12.  I accept that there is force in the point made by Mr Dawes and the claim looks weak and begs many questions; however, I am not satisfied on the basis of the evidence before me, that I can now decide that it cannot succeed.  This is a conclusion, I think, that could only be reached after trial.

13.  I therefore refuse the application to strike out all three petitions in their entirety. 

14.  Mr Dawes advanced an alternative claim that the prayers for relief for winding-up should be struck out.  He very fairly accepted at the outset that such an application was not expressly included in the respondents’ summonses or their evidence filed in support of them.  He felt able to make the application for the following reason.  In my decision in Re Sun Light Elastic Ltd supra I said this:[7]

“9. In my view what is clear from the authorities is that the court will only grant a winding-up order rather than relief under s.168A if there is good reason to do so. In my view if a winding-up order is to be sought, particularly in the alternative it should only be because the petitioner has a particular reason for doing so. It is not enough simply to say “well one never knows what will transpire”. This would be no criteria at all. The petitioner must be able to point to particular matters he is concerned might make a winding-up order the appropriate or only practical relief. It is for this reason that in Re Health & Care Group Ltd [8]I said:

[21] I think it is appropriate to end with the salutary reminder of Madam Justice Yuen in Re Wong To Yick Wood Lock Ointment Limited [2001] 2 HKC 618, 623F. There is a Practice Direction in England, (No 1 of 1990) [1990] 1 WLR 490 reminding practitioners of the undesirability of including as a matter of course a prayer for winding up as an alternative to an order under section 459 of the Companies Act (1985) (equivalent to section 168A of the Companies Ordinance) that:

‘It should be included only if that is the relief that the petitioner prefers or if it is considered that it may be the only relief to which he is entitled.’

[22] It is clear that the prayer for a winding-up order has been included in this case without sufficient thought as to whether or not it is necessary. Practitioners should not automatically include as an alternative relief in a petition presented primarily for relief under section 168A of a prayer for winding up. They should only do so if there is reason to believe that this may be the relief that will be sought at trial, and the facts relied on in forming this view should be set out in the petition and amplified as necessary in the petitioner’s evidence filed in support of that petition.”

15.  In the present case there is no fact or matter identified in any of the petitions which explain why, in the alternative to the relief sought under section 168A, a winding-up order is sought.

16.  Mr Dawes argued that inclusion of this relief looks to have been done without any proper consideration and there is simply no justification for it.  The petitioners, he argued, have had enough notice of this objection to address it by formulating an amendment, if possible, and they have not done so; all the court has received is written submissions which suggest vague reasons for its inclusion which clearly have no substance.

17.  During oral submissions by Mr Wong and Ms Chan, it became apparent that the reason for the inclusion of the prayer, or at least the reason for trying to maintain it, is this: both parties wish to acquire control of the companies. 

18.  It may be easier, it is suggested, to appoint a liquidator who can sell the companies’ assets to the highest bidder.  This is practical, because the companies are holding companies and liquidating them will not cause commercial problems, but it will avoid the commonly encountered difficulties in valuing shares in private companies, problems that are likely to be all the greater in the present case because the underlying businesses are projects which are not yet fully developed or profitable.

19.  There is force in this argument as far as it goes, but it overlooks section 168A(2)(a)(iv) of the Companies Ordinance:

“make such other order as it thinks fit, whether for regulating the conduct of the specified corporation’s affairs in future, or for the purchase of the shares of any members of the specified corporation by other members of the specified corporation or by the specified corporation and, in the case of a purchase by the specified corporation, for the reduction accordingly of the specified corporation’s capital, or otherwise; and …”

20.  It seems to me that if the petitioners are successful and decide that rather than seek an order that the respondents sell their shares, they would prefer to take a commercial risk and bid against them for the companies’ assets an appropriate order can be formulated under this subsection.

21.  In my view, no good reason has been identified for including the prayer for a winding-up order.  Rather than give the petitioners the opportunity to try and formulate amendments to save the prayer, I will strike it out. 

22.  That brings us to costs.  My inclination is, taking into account the fact that the principal application has been unsuccessful, but the subsidiary application has been successful and taking into account the fact that it was not clearly flagged at the outset, an appropriate order would be that the respondents pay 80 per cent of the petitioners’ costs.

(Discussion re costs order)

23.  So far as the applications to file additional evidence are concerned, that I have rejected, it follows that the respective applicants should pay the other party’s costs.  So far as the substantive application is concerned the respondents shall pay 80 per cent of the petitioners’ costs.