Zhi, Charles v. Sandmartin International Holdings Ltd and Others

HCCW 90/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 90 OF 2017

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D E C I S I O N

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1.The Petitioner (Zhi) is well-known to the court. In this Petition, Zhi seeks to have the 1^st Respondent (SIH), whose shares are traded on the Main Board of the Stock Exchange of Hong Kong Ltd, wound up (as a primary relief) on the ground of unfairly prejudicial conducts. With the exception of the 10^th Respondent, the other Respondents are the members of the Board of Directors of SIH, including both executive and non-executive directors. The 10^th Respondent is the son of the 2^nd Respondent, who is the Chairman of the Board.

2.This is SIH’s application to strike out the Petition on the grounds of lack of reasonable cause of action; it is scandalous, frivolous, vexatious or embarrassing; and it is an abuse of process.  There is an alternative ground that the winding up relief be struck out because Zhi has no standing to seek such an order against SIH.

3.There is urgency in resolving these matters because SIH is in financial trouble and is seeking fresh funding with a proposed issuance of new shares.  This involves the approval of the independent shareholders at a Special General Meeting.  The announcement for this issuance of new shares was published on 20 March 2017.  The Petition was filed 3 days after the announcement resulting in delay in the fund raising exercise. 

4.The applicable legal principles are trite.  A Petition must contain sufficient particulars of the matters complained of (see Re Tourmaline Ltd [2000] 4 HKC 348, per Chu J (as Chu JA then was) at 354C-D).  An allegation of fraud must be pleaded distinctly and with the utmost particularity (see ADS v Wheelock Marden & Co Ltd [1994] 2 HKC 264, per Bokhary JA (as Bokhary NPJ then was) at 270D-E).  The court will only strike out a petition (or parts of it) when it is plain and obvious that it is inadequate, untenable or embarrassing (see Re Bestwell Fareast Ltd, HCCW 1213/2002, unrep, 15 July 2003, per Chu J at §10).

5.Before I deal with the complaints made in the Petition (Complaints), it should be noted that the Petition is not supported by any affidavit verifying the truth of its contents in accordance with Rule 26 of the Companies (Winding Up) Rules, Cap 32H.  For that reason alone, I would strike out the Petition in light of the very serious nature of the Complaints. 

6.With respect, I agree with Mr Siu, appearing for SIH, that the Complaints are nothing more than bare assertions.  I am unable to see how they can be properly addressed by the Respondents in the absence of any proper particulars. 

7.There are 5 Complaints. The first is an allegation that there are “trustee and warehouse arrangements of more than 300 million shares (about 22.80%) [in SIH], besides the 202,875,437 shares held by the 2^nd Respondent, thus deliberately evaded the Mandatory General Offer obligation of the Code”.  This Complaint is made against “the Respondents”, and it is asserted that “during the course of the Petition hearings, [Zhi] will produce most of nominee accounts for the 2^nd Respondent”.

8.This Complaint is plainly defective, and it is indeed embarrassing for the Respondents to have to answer such lacking but serious allegations. 

9.The second Complaint is that “the Respondents have engaged in many share pledge borrowing activities, without making proper and required disclosures, in which they utilized the 2^nd Respondents (sic) and warehoused shares of [SIH]”.  Apart from alleging that most of these shares are kept at 2 identified brokers, there is no further particulars.  This Complaint is self-evidently defective.

10.The third Complaint alleges that “from the initial public offering, the accounting results [of SIH] have been falsified. … [SIH] has been borrowing at 10 to 12% per annum and making loans to dubious clients at 1 to 2%.  In addition, some of these loans have been written off, … and the money has been channelled to entities in which the 10^th Respondent is a director”.  Such grave allegations are fundamentally lacking in proper particulars and, in the absence of which, cannot be allowed to be advanced further.   

11.By the fourth Complaint, Zhi alleges that the 2^nd to 10^th Respondents have committed the offence of dealing with the proceeds of an indictable offence, contrary to s.25(1) of the Organized and Serious Crimes Ordinance, Cap 455.  There is no particulars whatsoever of the alleged crime.

12.Finally, it is alleged that there has been “constant siphoning of massive money from [SIH] by the 2^nd to 10^th Respondents over the years”, causing liquidity problems to SIH.  The quality of this Complaint is no different to the others.

13.The deficiency of these very serious Complaints is obvious and self-evident.  I have no hesitation in striking out the Petition.  It must follow that the proceedings herein be dismissed.

14.As regards Zhi’s submission that he would like to have an opportunity to amend the Petition, it is not supported by any evidence or any draft particulars to explain the Complaints.  Serious consequences follow the presentation of a winding up petition.  Hence the requirements that the petition be properly particularized and supported by a verifying affidavit filed within 4 days after the petition is presented.

15.Further, the inability to provide particulars due to the lack of necessary information is not a valid reason for failing to meet the requirements in question (see Re Linea Trading Co Ltd, HCCW 350/2004, unrep, 7 December 2005, per Barma J (as Barma JA then was), §13)

16.There is no reason to delay the disposal of these matters.

17.For completeness, firstly, I also agree with Mr Siu that in view of the undisputed evidence of SIH that Zhi has failed to meet the requirement of s.179(1)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, namely, he has not been a registered member of SIH for at least 6 months during the 18 months before the commencement of these proceedings, the winding up relief must be struck out in any case. 

18.Secondly, given the termination of these proceedings by way of strike out, the Summons taken out by Zhi on 18 April 2017 does not call for consideration.  It must also be dismissed. 

19.Finally, there is evidence from SIH that Zhi has gained a reputation for actively instituting legal proceedings before this court against listed companies of Hong Kong.  Since 2014, he has instituted proceedings against no less than 10 such companies.  A sophisticated person like Zhi would not have invested his energy and resources for no reason. Perhaps that is a matter which will be explored in one of the many cases to come before this court. 

20.I shall hear the parties on costs.

The Petitioner appeared in person

Mr Patrick Siu, instructed by ONC Lawyers, for the 1^st – 10^th Respondents

Kim Sungho, a contributor to the above company, was not represented and did not appear

Joung Jong Hyun, a contributor to the above company, was not represented and did not appear

Kim Kyungsoo, a contributor to the above company, was not represented and did not appear

Lim Hang Young, a contributor to the above company, was not represented and did not appear