Paul Murray-jones v. Hongkong and Shanghai Banking and Others

CACV000024/1982

Practice & procedure - application under 0.15 r.6(2)(a) to strike out parties - suit under s.168A of Companies Ordinance alleging unfairly prejudicial conduct - some of respondents not shareholders-a respondent should not be struck out unless no possible benefit could be gained by joining him, so that it could be said that to join him was an abuse of process.

BETWEEN

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Coram: Sir Alan Huggins, V.-P., Yang & Barker, JJ.A.

Date of hearing: 10 March 1982

Date of Judgment handed down on: 18 March 1982

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JUDGMENT

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Sir Alan Huggins, V.-P. :

1. The Petitioner was the founder of Guardforce Limited (Guardforce) and originally owned the majority of its shares. The Hongkong and Shanghai Banking Corporation ( the Bank) subsequently acquired a majority of the shares and entered into an agreement with Guardforce and the other shareholders of Guardforce, including the Petitioner. The Bank's shares were registered in the name of Oroton Investments Limited ("Oroton"), a wholly-owned subsidiary of the Bank, and we are told that those shares were the sole assets of Oroton.

2. The Petitioner entered into a service agreement with Guardforce as Managing Director for a minimum period of five years, which has not yet expired.

3. The Board of Guardforce includes four nominees of the Bank, one of them being Chairman with a casting vote, and all four are employees of the Bank. They are not shareholders. In addition to the Petitioner there are three other directors, who are the only other shareholders.

4. Guardforce has summarily dismissed the Petitioner from the post of Managing Director and threatens to remove him from the office of Director.  Under the shareholders' agreement the Petitioner would then be obliged to tender his shares for sale to the other shareholders.

5. The Petitioner complains that this situation has been brought about by the wrongful acts of the Bank, of it subsidiary (Oroton) and of its employees who are the four nominee directors of the Board of Guardfore. He accordingly sought relief under s.168A of the Companies Ordinance. In substance he asked for his reinstatement as Managing Director, injunctions against removing him from his office as Director, or an order that Oroton either sell its shares to the Petitioner or purchase the Petitioner's shares. He joined all the alleged wrong-doers as respondents.

6. Before the judge in chambers application was made by the Bank, Oroton and the four nominee directors to have themselves struck off the record on the ground that they were not properly joined as respondents. Indeed it was there contended that there could not be any "respondent" in proceedings under s.168A, this view being supported by a passage from the judgment of Chief Justice Jackson in Caratti Holdig Co. Pty. Ltd. v. Zampatti [1975] I.A.C.L.R. 63, 67. This wide contention was rejected by the judge and it has not been pursued before us.

7. The conclusion reached by the judge was that the Bank and Oroton were proper respondents but that the four directors were not necessary parties and ought to be struck out. The Petitioner by his Notice of Appeal sought to have the four directors restored and, by Notice of Cross Appeal, the Bank and Oroton renewed their contention that they, too, ought to be struck out. However, at the hearing it was conceded that Oroton had been properly joined.

8. On behalf of the Petitioner it was submitted that unless it could be shown that a petition disclosed no cause of action against a respondent, so that joining him was an abuse of the process, there was no ground upon which he could be struck out. Here, it was said, all the persons joined were persons against whom the Court had power to make orders and therefore there was a cause of action against them. Counsel for the Petitioner pressed for a wide and liberal interpretation of s.168A and relied not only upon s.19 of the Interpretation and General Clauses Ordinance but also upon a dictum of Lord Denning in Scottish Co-operative Wholesale Ltd v. Meyer 1959 A.C. 324, 369, where the House of Lords was considering the comparable (though not identical) English provision, namely s.210 of the Companies Act 1948. Counsel submitted that it was just to join the Bank because it was the Bank which nominated the four directors and which owned Oroton and because, if anyone were to be ordered to buy the Petitioner's shares, it was the Bank which would have to put up the purchase price. Mr. Beveridge was even prepared to go so far as to say that, if the Court found that the Petitioner's complaints were justified but did not see fit to order one side to purchase the other's shares, it would not be improper, with a view to bringing to an end the matters complained of , for an order to be made which would, in effect, grant specific performance of the Petitioner's service agreement.

9. What appears to have weighed with the judge in striking out the four nominee directors was the fact that they were not shareholders - and therefore, as I take it, were not members of the company who could be ordered to buy or sell shares: his view was that:

"If the relevant prayers were suitably amended by substituting "the Company" for the respondets, all the reliefs sought including the removal of the four respondents as directors) could be obtained without the necessity of making them parties to the petition. Orders would not need to be made again them personally." (sic)

He did not suggest that the nominee directors could be allowed to continue what, ex hypothesi, had been found to be wrongful conduct but that if an injunction were granted against the company it would bind the directors in the sense that, if they allowed the company to do something which it had been enjoined not to do, they would be in contempt and equally punishable as if an order had been made against them persoally. I think the reasoning amounts to this, that it would be an abuse of the process to make a person a party if the claimant would not thereby gain any real benefit.

10. Mr. Beveridge submits that even the first limb of this reasoning is not acceptable and he refers to a case which was not cited to the learned judge. Bader v. Weston [1967] I C.P.D. 134 was a case where the Petitioner sought relief under a provision similar to s.210 of the English Act of 1948. Weston was not a shareholder in the company ("Bagmeni Holdings"), the affairs of which were alleged to have been conducted in a manner oppressive to the petitioners, but was one of only two shareholders in a company which wholly owned a second company ("Gavelkind" ) which was a shareholder in Bagmeni Holdings. Objection was made that no order could be made against Weston because he was not a member of Bagmeni Holdings. At p.148B Mr. Justice Corbett said:

"As I have said, the wording of the section indicates the conferment of a wide discretion upon the Court. Prima facie an order for the purchase of the oppressed minority's shares by someone in the position of Heston would appear to be within that discretionary power. It would certainly achieve the object of the grant of relief under the section by bringing an end to the matters complained of. The argument is, however, that because the section mentions only orders for the purchase of shares by other members of the company or by the company itself an order for the purchase of shares by some other person is precluded and that the Court's discretion is limited in this direction. I am unable to agree with this argument. It would mean that the words ... or for the purchase of the shares of any members of the company by other members of the company or by the company ..." must beread as exhaustively defining the types of order for the compulsory purchase of shares which the Court may make. Had these words stood alone there would have been much to be said for this argument. But they do not. They stand in association with words, both preceding and succeeding, which confer a wide discretionary power upon the Court. As I see it, they represent mere examples of the type of order which may be made and are not intended in an exhaustive sense at all."

The judge there concluded that as Weston was the real oppressor it was open to the Court to make an order that he and Gavelkind should purchase the shares of the petitioners and those of a company which was their nominees.   If that case was correctly decided, it supports the liberal interpretation contended for by the Petitioner, but Mr. Fung submits that it went too far and emphasizes that the decision is not binding upon us.

11. I am persuaded that the reasoning of the Justice Corbett is sound and would adopt it. It is true that in that case the respondent Weston, although twice removed from Gavelkind, was indirectly a shareholder, whereas none of the four nominee directors here is. The case is, however, directly in point in relation to the Bank, which is only once removed from Oroton. It is not necessary for us to decide whether the nominee directors could properly be ordered to buy the Petitioner's shares: the Petitioner has, perhaps sensibly, not asked that they should. Nevertheless it may appear at the trial that some other order could properly be made against them personally. The fact that an order against the company might indirectly have the same effect does not seem to me to be a bar to the making of a direct order. It is for the Petitioner to decide whom he will join and only if it were clear that no possible benefit could accrue to him from the joinder of the nominee directors could it fairly be held that the proceedings against them were an abuse of the process. The powers of the Court under s.168A are so wide that I am not prepared to say that no possible benefit might result from the joinder.

12. It was urged on behalf of the nominee directors that the Petitioner had not joined the other minority shareholders, although they might be affected by an order made in the action. I think that is immaterial - again for the reason that, within limits, he is the master of his own proceedings. It is possible that some point could have been made had he discriminated by omitting from his writ some person who was alleged to be at least as guilty of unfairly prejudicial conduct as the present Respondents, but no complaint is made against the other minority shareholders. They could have applied to be joined if they felt threatened, but they have not done so. It was also suggested that there might be difficulty in drawing the line between those who could properly be joined and those who could not, and Mr. Fung asked rhetorically whether there was any reason why the directors of the Bank, for example, could not be joined. It has often been said that whilst it may be difficult to draw a line of distinction it is usually less difficult to say on which side of the line a particular case would fall. I shall not attempt to answer the question posed, but content myself with saying that in every case one must decide whether the joinder of a party has been shown to be an abuse.

13. For these reasons I was of opinion that the appeal should be allowed and the cross appeal dismissed.

Yang, J.A.:

14. For the reasons given by the learned Vice President, I would also allow the appeal and dismiss the cross-appeal.

Barker, J.A. :

15. I agree.

18th March 1982.

Representation:

J. Beveridge, Q.C. & W. Poon (Deacons) for Appellant.

P. Fung (Johnson, Stokes & Master) for Respondents.