Ng, Christina v. Capella Capital Ltd and Another

HCCW 325/2018 &
HCCW 326/2018

[2020] HKCFI 442

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 325 OF 2018

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 326 OF 2018

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(Heard together)

Before:  Deputy High Court Judge William Wong, SC in Chambers

Date of Hearing:  5 November 2019

Date of Decision:  19 March 2020

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D E C I S I O N

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Applications

1.This is the substantive hearing of two summonses taken out by the 1^st Respondent companies and the 2^nd Respondent, Poon Ho Man (“the Respondent Husband”) in both sets of winding petitions, namely, HCCW 325 of 2018 and HCCW 326 of 2018 (“the Petitions”) for an order that the said Petition be struck out, alternatively, be stayed on terms (“the Strike Out Summonses”).

2.On 18 February 2019, the 1^st Respondent in the Petitions, namely, Capella Capital Limited (“Capella”) and Friedmann Asset Management Limited (“Friedmann”) took out two summonses in the Petitions seeking almost identical relief. In HCCW 325 of 2018, the 1^st Respondent applied for an order that:

“1. The Petition filed herein dated 13 November 2018 be struck out.

2. Alternatively, paragraphs 86 to 89 of the Petition and the prayer for winding up of the 1^st Respondent be struck out and this action be stayed until after the final determination of the matrimonial proceedings between the Petitioner and the 2^nd Respondent in the Family Court of the Hong Kong Special Administrative Region, Wanchai Tower, 12 Harbour Road, Hong Kong with the case number FCMC No.15518/2017 (the ‘Matrimonial Proceedings’), including any appeals therefrom.

3. Alternatively, this action be stayed until after the final determination of the Matrimonial Proceedings, including any appeals therefrom.”

3.On 18 March 2019, the 2^nd Respondent, the Respondent Husband also took out two summonses under the two Petitions praying for the following orders:

“1. An Order that the Petitioner’s claims in this action against the 1^st and 2^nd Respondents be struck out and the action be dismissed as against the 1^st and 2^nd Respondents under Order 18, rule 19 of the Rules of the High Court and/or under the inherent jurisdiction of the Court upon the grounds that:-

(a) It is scandalous, frivolous and vexatious; and/or

(b) It is an abuse of the process of the Court.

2. In the alternative that the Petition be stayed pending the determination of the claims in the ancillary relief proceedings in HCMC 2/2019.”

4.It is common ground that the Petitioner Christina Ng (the “Petitioner Wife”) and the Respondent Husband are undergoing divorce proceedings in FCMC 15518/2017 in the Family Court in this jurisdiction (the “Divorce Proceedings”), and the subject companies, Capella and Friedmann are family companies of the Petitioner Wife and the Respondent Husband.

5.On 9 July2019, the Petitioner Wife took out summonses (“Directions Summonses”) in each of the Petitions seeking directions that the Strike Out Summonses and the Petitions be adjourned to the judge seized of the Divorce Proceedings, so as to create an occasion where both sets of proceedings can be managed together. This Court dismissed the Directions Summons but indicated that it would duly consider whether the Petitions should be adjourned to Madam Justice B Chu in the event that the Petitions survive the strike out applications.

The Petitions

6.The Petitions set out the grounds which the Petitioner Wife relies upon to seek the relief as set out in the prayer of each petition. However, it is pertinent to note two important features. First, the Petitioner Wife does not seek winding-up as her primary relief. Instead, her primary relief appears to be a buy-out order. Paragraphs 81-83 of the Capella Petition read as follows:

“81. These proceedings are instituted by Christina as she has no other means of knowing the true state of affairs of Capella and FPAM or remedying the oppressive and unfairly prejudicial manner in which its business has been and continues to be conducted and for the purpose of protecting her interests in the companies and the Group.

82. Christina is willing to sell all her interest in Capella to Poon or Capella at its fair market value as may be determined by the Court.

83. Alternatively, should she be financially enabled by the result in the Divorce Proceedings to do so, Christina is willing to buy out Poon’s interests in Capella on the same basis.” 

7.Secondly, the Petitioner Wife seeks to justify the praying of a winding up on the grounds that:-

“89. Insofar as it may be necessary, it is averred that the winding up of Capella can be justified on the following additional grounds:-

89.1 In the event of the winding up of Capella, it is believed that there will be a surplus for distribution to its shareholders. More particularly, an open sale of the directly and indirectly held assets of the companies may result in a price higher than a sale of the shares in Capella to Poon, or Capella itself.

89.2 Any winding up order made in respect of Capella (which is a holding company) will not have any impact on its business or value or any third party.

89.3 It is unclear whether Poon has the financial means to acquire all the shares in Capella held by Christina. There is no reason why Christina has to assume the risk that she cannot receive full payment of her shares, or why Christine has to receive anything less than full payment of her shares in Capella in the event of a buy-out.

89.4 In the division of assets between Christina and Poon in the Divorce Proceedings or otherwise, Christina should not be deprived of the right to liquidate her shares and receive a fair and reasonable portion representing the market value of her shares out from the assets of Capella, or to have to remain as a shareholder in that company because the Family Court does not have the power to break up or monetise Christina and/or Poon’s interest in Capella.

89.5 The case for winding up is fortified if Christina’s prayer for relief under status for unfair prejudice is refused for whatever reason.

89.6 By reason of Poon’s refusal to allow Christina to inspect Capella’s books and records, the facts of this case call for an independent investigation of the business and affairs of Capella under the winding-up process.” (Emphasis added.)

8.In relation to the jurisdiction challenge, the Petitioner Wife’s case is that:

“87. There is a sufficient connection between Capella and Hong Kong:-

87.1 The most valuable asset indirectly held by Capella is the 26.92% shareholding in CALC, a listed company in Hong Kong.

87.2 Distribution of dividends from CALC to FRAM and then to Capella has been the sole source of Capella’s income.

87.3 All of Capella’s shareholders and directors are and always have been resident in Hong Kong.

87.4 All board meetings of Capella are held in Hong Kong. All administrative matters relating to them are discussed and decided in Hong Kong.

87.5     The dispute arises from a family dispute as reflected in the Divorce Proceedings, i.e. proceedings before a Hong Kong Court. Both Christina and Poon are and always have been resident in Hong Kong. The events giving rise to the unfairly prejudicial conduct on Poon’s part took place in Hong Kong.”

9.Similar averments were set out in the Friedmann Petition and I should not repeat the same here.

10.The registered shareholders of Capella are the Petitioner Wife (10%) and the Respondent Husband (90%); and the registered shareholders of Friedmann are the Petitioner Wife (0.000001%) and Capella (99.999999%).

11.It is the Petitioner Wife’s case that the Respondent Husband holds 40% of his 90% shares in Capella on trust for her, i.e., they are each a 50% beneficial owner in Capella. The trust arrangement was to ensure that the Petitioner Wife would not be required to provide personal guarantees in the event that Capella took out bank loans. It is alleged that the Petitioner Wife has been receiving dividends from Capella on the premise that she is a 50% beneficial owner.

12.The corporate group includes a number of subsidiaries in the aviation business. The most valuable asset of Friedmann is a 26.92% shareholding in a Hong Kong listed company, namely, China Aircraft Leasing Group Holdings Limited (stock code: 1848) (“CALG”).

Grounds for Striking Out

13.In the striking out applications, the Respondents rely on five specific grounds:-

(1)  It is an abuse of process for the Petitioner Wife to present the Petitions when she is already seeking ancillary relief in the Divorce Proceedings (“Abuse of Process Ground”);

(2)  The Petitioner Wife is acting unreasonably in seeking winding up relief when there is alternative relief available (the “Alternative Relief Ground”);

(3)  The Court has no jurisdiction to grant relief under section 274 of the Companies Ordinance, Cap.622 (the “Ordinance”). It should also refuse to exercise its jurisdiction to wind up the Companies pursuant to section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap.32 (“CWUO”) (the “Jurisdiction Ground”);

(4)  The Petitioner Wife’s allegations against the Respondent Husband are unsustainable (the “Unsustainable Allegations Ground”);

(5)  The Petitions were brought with the object of exerting pressure to achieve a collateral purpose (the “Collateral Purpose Ground”).

14.The parties sensibly concentrated on the first three grounds.

Legal Principles on Striking Out

15.The legal principles in relation to striking out petitions are well established. In Re Four Twenty Company Limited,HCCW 278/2004, unreported, 6 January 2005, Kwan J (as she then was) at §5 said:

“5. There is no dispute as to the approach and principles to be adopted in the strike out application and they may be summarised 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 (Re Forecast Nominee Limited [1996] 4 HKC 12 at 18C; Re Prudential Enterprises Limited [2001] 2 HKC 687 at 692D-E).

(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 (Re Wong To Yick Wood Lock Ointment Limited [2001] 2 HKC 618 at 623I).

(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 would up instead of pursuing that other remedy (section 180(1A) of Cap.32; Re Wong To Yick Wood Lock Ointment Limited, supra at 622I to 623F and 623H and on appeal at [2003] 1 HKC 484 at 487H to 488B).”

16.Where the company concerned carries on an ongoing and profitable business, is solvent, and has valuable goodwill and know-how, the Court may strike out the winding-up relief in a contributory petition if it considers that there is no prospect of the Court making a winding up order against the company. Yuen J (as she then was) in Re Wong To Yick Wood Lock Ointment Ltd [2001] 2 HKLRD 683 at 686H-688B insightfully and correctly said:

“I shall set out briefly the law to be applied. First, a contributory petitioner’s claim for a winding-up order is not doomed to fail by reason only that alternative relief has been sought in the petition. However, the court would at the hearing: (a) take into account the fact that there is alternative relief; and (b) assess the reasonableness or otherwise of the petitioner’s action in seeking an order for winding-up instead of the alternative remedy....

Notwithstanding the difference in wording, the principle behind both sections is the same – ie that the remedy of winding-up on a contributory’s petition is a remedy of last resort (Re San Imperial Corp Ltd (No 2) [1980] HKC 463 at p.466; Re A Company (No 004415 of 1996) [1997] 1 BCLC 479 at p.487) and would not be granted if the petitioner was acting unreasonably in insisting upon it instead of pursuing an available alternative remedy.

The onus is however on the parties opposing the petition to show that there was an available alternative remedy and that the petitioner was acting unreasonably in not pursuing it.

That is the position at the hearing of the petition. However, there is a Practice Direction in England ([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 s.459 of the Companies Act 1985 (equivalent to s.168A of the Companies Ordinance) and 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.”

The question in the application before me is whether even at the present stage, assuming that the petitioners prove all the facts in the amended petition, there is no real possibility or prospect of a winding-up order being made such that the court should exercise its discretion to strike out the claim for a winding-up order.

As with all applications to strike-out, this application must be approached with the greatest circumspection. It is only in a plain and obvious case that the court should exercise its discretion to strike-out a claim before it has gone to a full hearing. Further, in the present case, the same facts are relied upon by the petitioners to justify the claims for a winding-up order and for the relief under s.168A, so there will be little saving in cost or time should the application succeed.

Having said that, if it is clear that there is no real possibility or prospect of a winding-up order being made at the hearing by a court applying s.180(1A), it cannot be just for a company to have the threat of a winding-up order hanging over its head like the Sword of Damocles.” (Emphasis added.)

17.Where a prima facie case has been shown that the ability of the respondent to finance any buyout is seriously in doubt, it is hardly “plain and obvious” that winding up relief should be struck out at this stage or that it is unreasonable to insist on seeking a winding up relief. In Re T‑Hero Industrial Company Limited, HCCW 403/2017, unreported, 29 May 2019, Deputy High Court Judge Le Pichon at §§39-43 said:

“39. Courts may be prepared to order winding up despite the possibility of a buyout, for example, where there is no evidence of the respondents’ financial ability to buyout the petitioners’ shares. In Re Perfect Trade Limited, HCCW 1147/1999 (unreported, 1 June 2001), Chu J (as she then was) considered (at §59) that there is no room for making a buyout order in the absence of evidence as to the respondents’ financial ability.

40. West v Blanchet [2001] 1 BCLC 795 concerned an unfair prejudice petition where a buyout order was sought. The practicality of the offer has to be considered in order to judge whether it is ‘reasonable’. Peter Leaver QC observed (at 803c-d) that:

“It would...be too easy for a party to make an offer...which it had little or no realistic possibility of satisfying. In order to be a reasonable offer, there must be a realistic prospect, a reasonable likelihood, that the offeror will be able to pay the price likely to be decided upon by the independent expert appointed to value the shareholding.”

41. Thus, an offer is not reasonable if the offeror cannot finance it: see French, Applications to Wind Up Companies, 3^rd Edition at §8.234. Where a prima facie case has been shown that the ability of the 1^st respondent to finance any buyout is seriously in doubt, it is hardly “plain and obvious” that winding up relief should be struck out at this stage or that the petitioners are acting unreasonably in seeking winding up.

42. In Re M Kirpalani (HK) Ltd, HCCW 618/2009 (unreported, 23 June 2010), Barma J (as he then was) considered that any uncertainty regarding the question whether or not the respondents would be able to comply with a buy out order depended on the evidence. In the present case, the evidence renders it doubtful whether or not that a buyout, if ordered, could be complied with: see Kirpalani at §§37-38.

43. In my view, it would be invidious to pre-emptively exclude the option of a winding up order that would otherwise be available in the circumstances of this case.” (Emphasis added.)

See also: Re Yung Kee Holdings Limited, HCCW 154/2010, unreported, 21 July2010 per Chung J at §21-24.

18.In Re Sun Light Elastic Ltd [2013] 5 HKLRD 1 at §§8-9, Harris J comprehensively set out the relevant considerations as follows:

“8. However, the authorities in Hong Kong have shown some difference of approach in practice with some decisions placing more weight on the undesirability of having an unnecessary winding-up petition hanging over a company on the one hand, and on the other on the difficulty of concluding with sufficient certainty at the early stage of proceedings that a winding-up order would never be the appropriate remedy for the court to grant. In Re Mahr China Ltd I explained how this divergence of approach should be resolved:

[14] It seems to me that there is a difference between the decisions in Re Ranson Motor Manufacturing Co Ltd and Re Wong To Yick Wood Lock Ointment Ltd on the one hand and Re Prudential Enterprise Ltd, Kinong Group Ltd and Re Company on the other. The former places more emphasis on the generally recognised undesirability of having a winding‑up petition hanging over the head of an ongoing business and the court’s reluctance to wind up companies if some other remedy is available. The latter recognises the possibility that although at the time an application to strike out is made it may appear that a purchase of shares is the inevitable result of the proceedings, unforeseen events may intervene and lead the court ultimately to be persuaded that a winding-up order is the appropriate remedy. For this reason the correct approach is to stay rather than strike out the claim for a winding-up.

[15] In my view the way to resolve this difference is to return to the accepted test by which a strike-out application is determined. This was explained as follows by Bingham LJ in Re Copeland & Craddock Ltd [1997] BCC 294, 300:

“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 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.”

[16] I, therefore, ask this question: am I satisfied at this stage of the proceedings and on the evidence before me that the claim for a winding-up cannot succeed? I am not. I cannot rule out the possibility that it will prove impossible to require the first respondent to purchase the petitioner’s shares at a price and on terms that the Court considers reasonable.

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....” (Emphasis added).

19.Every case depends on its own facts. There might well be cases where there are advantages to the Petitioner in seeking a winding up order. In Re Tai-Ao Aluminium Group Limited,CACV 391/2005, unreported, 22 June 2006, the Court of Appeal at §§15-16 said:

“15. In the present case although the judge had started the consideration on the basis that he followed the approach prescribed in section 180(1A) of the Companies Ordinance by considering (assuming the allegations made in the petition to be true) whether there was any real possibility or prospect of a winding-up order being made, he, in effect, tried to decide the matter then and there. That should only be done when the prayer for a winding-up will clearly not succeed. So long as it may succeed, as in any other type of claim, the petitioner is clearly entitled to pursue his claim.

16. Whilst it might be said that the petitioner was not apparently opposed to a buyout, it is not possible, at the moment, to say that he would be acting unreasonably to insist instead on a winding-up of the Company. Indeed, winding-up the Company might well be to his advantage. The Company itself is a holding company. Taishan is quite obviously a going concern and any liquidator of the Company would be in a position to dispose of Taishan. Indeed the petitioner may well wish to buy Taishan from the liquidator. That would be a different proposition than buying out the shareholders of the Company. Again the judge took the view that there would be a significant risk that a sale by a liquidator would produce a less satisfactory price. That may well be a legitimate consideration when it comes to the final order to be made on the hearing of the petition but, again, at least so far as this case is concerned it is far too early a stage on a strike out to take such a view. It cannot be said that the petitioner’s claim for a winding-up order is clearly unsustainable or that he is unreasonable in making such a claim.” (Emphasis added.)

See also Re Yung Kee Holdings Limited HCCW 154/2010, unreported, 21 July2010 per Chung J at §§18-20.

20.Where the petitioner had commenced separate proceedings prior to the presentation of the petition, such that “if the petitioner succeeded in those proceedings, the petition could serve no purpose and it would fail if those proceedings were to fail”, the petition should be struck out by the Court. In Re a Company (No 003028 of 1987) [1988] BCLC 282, Scott J at 296e-f said:

“If that is so, what then, I must ask myself, is the point of the petition? Counsel for the company would answer that the point of the petition from Mr A’s point of view was to bring unreasonable and improper pressure on the company, and through the company on the Es. It may be that is a motive of Mr A’s; I know not. But I must ask myself what other legitimate purpose the petition can serve. If Mr A succeeds in the Queen’s Bench action, it can serve none. If he fails in the Queen’s Bench action I think his petition is bound to fail; and for reasons which I have given, I cannot at the moment see any viable intermediate position.” (Emphasis added.)

No real prospect of court making winding-up order

21.The critical issue is whether this Court can be satisfied at this stage and on the evidence before it that the relief for a winding-up cannot succeed. Having considered the allegations in the Amended Petitions and the affirmations, it is clear to me that in the particular circumstances of the present case, it is plain and obvious that a court would not make a winding‑up order.

22.First, there is no dispute that both Capella and Friedmann are solvent and indeed very profitable. Substantial dividends were paid to their shareholders over a long period of time. In the year 2017 alone, the Respondent Husband received HK$81 million as dividends from Capella. The Petitioner Wife also alleges that she has been receiving dividends from Capella on the premise that she is a 50% beneficial owner.

23.As set out above, the most valuable asset of Friedmann is a 26.92% shareholding in CALG. There is no dispute that the shares of CALG are freely tradable in the Hong Kong Stock Exchange. It is up to Friedmann to decide whether and if so when and at what price it would liquidate those shares. It is of importance that the essential assets under dispute have a very high degree of liquidity.

24.Secondly, as can be seen from the Amended Petition, winding up is the third alternative relief sought by the Petitioner Wife. Take the Capella Petition as an example, the Petitioner Wife seeks:

“(3) An order that Poon do purchase the 5,000 shares held by Christina in Capella, and the 20,000 shares held by Poon on trust for Christina, at such value as assessed in accordance with paragraph (2) above or otherwise as assessed by the Court.

(4) Alternative to (3), an order that should the result of the Divorce Proceedings financially enable her to do so, Christina do purchase the 25,000 shares held by Poon in Capella at such rate as assessed in accordance with paragraph (2) above without taking into account the amounts Poon is liable to account to FPAM as pleaded in paragraph 84.1 above and any interest thereon, or otherwise as assessed by the Court.

(5) Alternative to (3) and (4), an order that Capella do purchase the 5,000 shares held by Christina in Capella, and the 20,000 shares held by Poon on trust for Christina, at such value as in paragraph 84 above or otherwise as assessed by the Court.

(6) ...

(7) Alternatively, that Capella be wound up by the Court under the provisions of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32).”

25.I note that there is no averment that the Petitioner Wife would like to buy any subsidiaries of Capella from the liquidators. In her affirmations, there is no discussion or evidence as to why liquidation would be more advantageous to her as shareholder of Capella or Friedmann.

26.Thirdly, I am satisfied that, on the evidence, the Respondent Husband has demonstrated that he has the financial ability to purchase the Petitioner Wife’s shares if so ordered by the Court. Paragraphs 17 to 20 of the Respondent Husband’s affirmation dated 21 March 2019 stated:

“17. I estimate the value of my net assets to be approximately HK$1.015 billion; this does not include assets which are held by the Petitioner in her name. The Petitioner claims that the value of my assets is at least double this figure.

18. I have no liabilities save that I have given personal guarantees in respect of certain of FPAM’s bank loans. The Petitioner is fully aware that the filing of her winding up Petition is technically an event of default under the terms of FPAM’s bank loans for which the banks could call in the loans and seek to enforce my personal guarantees. Thus, it is only the actions of the Petitioner that have given rise to any issue that the personal guarantees could be enforced. The Petitioner is fully aware of this and I regret to say that I believe the Petitioner has deliberately contrived a basis to bring a winding up Petition in the hope that it will create financial pressure on me to settle the Matrimonial Proceedings on whatever terms she requires.

19. I am the chief executive officer of China Aircraft CALC Management Limited, ARI Management (HK) Limited, and China Airport Synergy Management Limited. I receive salary and bonuses. My annual gross income from these sources for 2016/17 was HK$17,849,699. However, my main source of income and indeed our family’s main source of income historically, is dividend income from Capella Capital Limited, one of the companies which the Petitioner seeks to have wound up. In 2017, the dividend income received by me was HK$81 million.

20. Accordingly, I am a man of financial substance both in terms of my assets and income and also my ability to raise finance should that be necessary in due course. It is yet to be determined what is a fair division of the martial assets in this case and what sum (if any) I may have to pay to the Petitioner. There is no basis beyond pure speculation to state that I may not have the means to pay any theoretical sum to the Petitioner at the conclusion of the Matrimonial Proceedings, which in any event I understand is likely to be quite some time hence.” (Emphasis added.)

27.The Petitioner Wife filed her 3^rd affidavit on 30 September 2019. Although she complained that the Respondent Husband has not produced documentary evidence to support the figures the Respondent Husband put forward in his affirmation, Ms Rattigan for the Respondent Husband is quite right that there is no denial that the Petitioner Wife has indeed asserted that the value of the Respondent Husband’s assets is at least double the figure of HK$1.015 billion.

28.If one were to take the Petitioner Wife’s figure that the total value of CACL’s 182,554,586 shares held by Friedmann would amount to over HK$1.632 billion to which she claims 50% of the same (through her asserted 50% interest in Capella), one still comes to the inevitable conclusion that it is unrealistic to expect that the Court would make a winding up order at the end of the day. There is nothing to prevent Friedmann to sell or charge the said lots of shares and distribute the proceeds to its ultimate shareholders, via Capella.

29.The Petitioner Wife has not explained why the Respondent Husband could not buy out her asserted 50% interest in Capella with such resources, other than a vague claim that Capella is of considerable worth and its most valuable asset is about HK$1.632 billion. Putting the Petitioner Wife’s case to its highest, the Respondent Husband has at least 50% beneficial interest in Capella. Given the healthy financial position of Capella, there is nothing to challenge the Respondent Husband’s evidence that if need be, he could raise funds from his unencumbered 50% interest in Capella, together with other assets he has to buy out the Petitioner Wife’s asserted 50% interest in Capella. In Re Chun Yip Holdings, HCCW 463‑470 of 2012 and HCMP 1685, 1686, 2153, 2154, 2567-2569 of 2009, unreported, 26 March 2015, Harris J at §§54-56 and 60 said:

“54. The Respondents say that Tang has gone on oath that he and YWK are able to finance the purchase of YYK’s shares. This cannot be dismissed as an unsubstantiated assertion. The fact is that YWK and Tang hold the majority of the Group’s assets. There is no suggestion that their interest is encumbered. There is thus no reason to think that if ordered to buy YYK out they would not be able to raise the finance necessary to do so.

55. The Respondents contend that the suggested need for an investigation by liquidators is illusory. They say that 2 of the companies are holding companies: Max Smart and Well Joy. It is difficult to see what could usefully be investigated in their case. If there are documents that YYK believes he, as a shareholder, is entitled to see he can, if necessary, apply to Court under section 152FA of the Companies Ordinance, Cap.32, or its equivalent under Cap.622. If he believes the directors have overpaid themselves this is a matter that he can seek the Court to direct a valuer to take it into account.

56. In short, the Respondents say that the Petitioners are not able to point to any substantial reason for concluding that, first, the Court will not, if the complaints in the Petitions are made out at trial, order a buy-out, secondly, that there would be any more difficulty in valuing YYK’s interest than in any other case and, thirdly, YWK and Tang would not be able to pay.

59. So far as payment is concerned, I accept that YWK and Tang have provided no evidence of how they anticipate raising finance to pay YYK in the event that the Court orders them to buy his shares. However, I also accept that given the financial position of the various companies it is likely that they would be able to raise the finance to buy him out. However, in my view a stronger objection is the fact that if the Court orders them to buy YYK’s shares and they do not pay the price once the valuation is complete, YYK will be able to look to their interest in the Group, which will in practice be 100%, to satisfy the judgment. I see no realistic prospect in these circumstances in YYK being left with an empty personal judgment. On the contrary YWK and Tang will have every reason to raise the finance to pay him.” (Emphasis added.)

30.Similarly, I do not see any realistic prospect that the Petitioner Wife would not be paid in full given that she has access or resort to 100% of the HK$1.632 billion worth of freely tradable shares (indirectly through Capella) to satisfy whatever buy-out orders or transfer orders to be made by the Court. The Respondent Husband will also have every reason to raise the finance to pay the Petitioner Wife, where necessary, by procuring Capella/Friedmann to sell these freely tradable shares. There is no indication that the Petitioner Wife would not cooperate in realising such freely tradeable shares so that she would be paid. 

31.Fourthly, Mr Man SC for the Petitioner Wife fairly acknowledges (in paragraph 44 of his Skeleton Submissions) that our Family Court may order one party, for example, the Petitioner Wife, to transfer her shareholding in Capella and Friedmann to the Respondent Husband for a payment as part of its powers to achieve a clean break between the Petitioner Wife and the Respondent Husband.

32.Ms Rattigan is right that such power can be exercised in a flexible manner to cater for the financial situation of the Respondent Husband. For instance, under section 4(2)(b) of the Matrimonial Proceedings and Property Ordinance, Cap.192 (“MPPO”), our Family Court has a discretion to order whether the payments may be made in installments (e.g. to allow time for the Respondent Husband to raise finds or realise his shares, including those transferred to the Respondent Husband from the Petitioner Wife if the Family Court so orders). See LMH v LYC, FCMC 10733/2011, unreported, 8 April at §§111-114 per Deputy District Court Judge I. Wong citing R v. R [2003] EWHC 3197 per Wilson J (as he then was).

33.A charge may also be imposed on the Respondent Husband’s interest in the shares of Capella (including those transferred to the Respondent Husband from the Petitioner Wife if the Family Court so orders) under section 4(2)(b) of the MPPO. Therefore, even if the Respondent Husband may not be able to immediately avail of funds to pay for the Petitioner Wife’s stake, whatever that may be, the Family Court has all the tools to deal with such situation.

34.Fifthly, insofar as the Petitioner Wife’s claim that there is a possibility that the liquidator, by selling Capella’s assets individually (i.e. on a break-up basis), may yield a better return and hence to the benefit of the Petitioner Wife, as opposed to having Capella being valued and sold as a whole entity is concerned, I am of the view that this is red herring. First, it is a mere speculation. The Petitioner Wife did not even seek to adduce any evidence in her affidavits to explain why that could be the case.

35.On the contrary, there is uncontradicted evidence before the Court that a winding up order - the prerequisite for the liquidator to break up Capella's assets - will diminish the aggregate value of Capella's assets since it would trigger an event of default of Friedmann with indemnity obligation under a bank facility of EUR 148 million.

36.Secondly, in Tai-Ao, Rogers VP observed that a petitioner may derive substantial benefit in seeking a winding up order with the possibility that she may buy the subsidiary of the holding company being wound up from the liquidator. It is important to bear in mind that in that case the petitioner had a personal reason in acquiring the subsidiary, being the founder of the subsidiary company with an active business (See: the Court of First Instance's judgment in Re Tai Ao Aluminium Group Ltd HCCW 1116/2004, unreported, 11 November 2005, §§9, 47(1)-(3)). The winding up order was thus justified since the petitioner may not be able to get a minority buy-out order of the majority interest in the holding company (being the alternative remedy sought under unfair prejudice).

37.However, in the present case,

(1)  The benefit identified is only that it is possible to sell Capella's assets for a higher value on a break-up basis rather than the assets of Capella bundled together. The Petitioner Wife only expresses a monetary interest in Capella (as well as Friedmann), which could be well be reflected or adjusted by proper court order. The Petitioner Wife could well adduce evidence to suggest that her shares are to be assessed on a “break-up basis” instead of a “going concern” basis if she could adduce cogent evidence that the former basis can fetch a higher price.

(2)  If the Court orders that the Respondent Husband’s interest in Capella should be transferred to the Petitioner Wife, then the Petitioner Wife is certainly free to break up Capella/Friedmann’s assets and sell them (and realise their assets in whatever ways she deems fit) upon receiving the entire interest in Capella. Conversely, if the Court orders the Petitioner Wife’s interest in Capella should be transferred to the Respondent Husband, then the Petitioner Wife is free to argue before the Court that Capella's value should be assessed on a break-up basis when ascertaining the sum to be paid by the Respondent Husband. The issue is really one of valuation.

38.Sixthly, Mr Nip for Capella and Friedmann is right that a winding-up order would actually jeopardise the value of Capella and Friedmann and hence its shareholders because it would trigger the default provisions in a EUR 148 million banking facility granted by ICBC under which Friedmann owes an indemnity obligations against losses.

39.For all the reasons stated above, I agree with the observation of Yuen J (as she then was) that as it is clear that there is no real possibility or prospect of a winding-up order being made, it cannot be just for a company to have the threat of a winding-up order hanging over its head like the Sword of Damocles.

Abuse of Process – Duplication of Proceedings

40.Once it is clear that the winding-up relief should be struck out, one can then be clear and more focused in the analysis as to whether there is any utility to maintain the unfair prejudice elements of the Petitions. The question is whether the Petitions serve any useful purpose given the ongoing Divorce Proceedings.

41.On 28 November 2017, the Petitioner Wife commenced the Divorce Proceedings in the Family Court in FCMC 15518/2017. The said proceedings were subsequently transferred to the Court of First Instance in HCMC 2/2019.

42.On 7 August 2018, the Petitioner Wife presented a set of petition before the Companies Court, namely in HCMP 1207/2018 against, inter alia, Capella, Friedmann, and the Respondent Husband (“HCMP 1207/2018 Petition”). The Petitioner Wife’s assertions made in the HCMP 1207/2018 Petition were almost identical as those in the current Petitions. The Petitioner Wife then did not include any winding-up relief in the HCMP 1207/2018 Petition. This Court heard the HCMP 1207/2018 Petition. The said petition was eventually discontinued though without prejudice to the Petitioner Wife’s right to present such petition in the future.

43.On 13 November 2018, the Petitioner Wife presented the current Petitions when the Divorce Proceedings had already proceeded for almost an entire year.

44.Ms Rattigan’s primary submission is that all the remedies that the Petitioner Wife could obtain in these Petitions could and should properly be resolved in the Divorce Proceedings and it is an abuse of process to commence these Petitions with the inherent risk of inconsistent findings of fact, duplication of legal costs and wastage of valuable judicial resources.

45.Ms Rattigan submitted that in the context of financial proceedings between spouses in the Family Court, it is immaterial which spouse owns what matrimonial assets, since the Court has wide discretionary power to decide how the assets should be apportioned in accordance with section 7 of the MPPO and the principles set out in LKW v DD (2010) 13 HKCFAR 537.

46.The Court’s wide power to make orders for financial provision can be found in sections 4 to 6A of the MPPO. These orders for ancillary relief, inter alia, comprise (i) periodical payments, secured periodical payments and lump sum payments for a spouse, (ii) property adjustment orders, and (iii) sale of property orders. (See Family Law and Practice in Hong Kong (3^rd Edition) at §5.001.)

47.In particular, in ancillary relief cases involving corporate vehicles, “the court may consider the transfer of shares of business interests between spouses. The court may also consider the transfer between spouse of shares in companies in order to ensure that both parties receive a fair share of the available corporate and non-corporate assets. The court must also bear in mind the commercial realities facing a business.” (See Family Law and Practice in Hong Kong (3^rd Edition) at §5.135.)

48.Further, under section 6(1)(a) of the MPPO, “the court can order property to which either spouse is entitled either in possession or in reversion to be transferred from one spouse to the other, regardless of who holds the title... In many cases, the transfer of property will be real property... although shares and personal items are also the subject of transfer of property orders”. (See Family Law and Practice in Hong Kong (3^rd Edition) at §5.192 to 5.193). Moreover, the Court also has wide powers to order the sale of property under sections 6(1)(e) and 6A of the MPPO.

49.Additionally, the Court also has broad powers under section 17 of the MPPO to, inter alia, restrain a party from disposing of assets, and to set aside a disposal already made with the intention of defeating the other party’s claim for financial provision.

50.As a matter of law, unless there is relief that the petitioner can only obtain in the Companies Court, where a matter should properly be dealt with in the Family Court, the Court will not hesitate to remit the matter to the Family Court so that one court will deal with all the issues between the parties. This makes common sense. In Poon v Poon [1994] 2 FLR 857, a husband and wife were directors and shareholders of a private family company. The wife called an emergency general meeting to resolve to remove the husband as a director. The husband sought an injunction to restrain the wife from putting the resolution forward. Thorpe J (as he then was) rejected the argument of the wife that the matter should be before the Companies Court. Holding that the company was a family business, he granted an injunction in favour of the husband and the matter was dealt with in the Family Court. Thorpe J (as he then was) observed at p.859E-F:

“Mr Irvin on behalf of the wife submits that any dispute regarding the function of the company must be resolved in the Companies Court. He submits that the Family Court has no jurisdiction to invade the proper territory of that Court. I reject that submission which I regard as unrealistic and contrived. This is a family business which the family chose to incorporate. All current disputes within the family should be litigated in this one court.” (Emphasis added.)

51.In Wan Wai Hei v Golden Lake Development Ltd, unreported, CACV 247/2008, 12 November 2008, the matrimonial home was owned by a company, the 1^st defendant, and it was transferred to another company owned by the wife. The husband sued on his own behalf and on behalf of the 1^st defendant. Rogers VP at §§6-8 said:

“6. At the end of the day, this case does not appear to me to be a company case. It is a case about the matrimonial home. How that matrimonial home should be dealt with is a matter which really should be dealt with by the Family Court. The wife says in one of her affirmations that the reason for not including the property in the order of the court was that she considered that the house was not a matrimonial asset, and “Neither the 1^st Plaintiff nor I had any beneficial interest in it.”

7. That is rather taking company law to the extreme. On the other hand, the Plaintiff has himself brought these proceedings on the basis it is all to do with company law and, indeed, we are told that there is another action. We have no idea how far it has gone. It was started in 2006 on the instructions of the Plaintiff’s parents, who own another company, who say, essentially that they are entitled to this house, having provided the finance for it.

8. All these matters really have to be sorted out as quickly as possible. It seems to me that the best way of doing that is to ensure that this matter is brought before the Family Court without any undue delay.”

52.I am of the view that the above observations make perfect commonsense. I do not see there is a real distinction between a matrimonial property and the shares of a family company. They are all matrimonial assets. In Park Young Sook v Chu Dean Yuan Franklin, HCA 2353/2009, unreported, 15 July2010, after the final ancillary relief trial the wife made claims against the husband in the High Court. The wife’s claim was struck out by To J who ruled that as a matter of legal principle, the Court requires the parties to put forward their whole case in one go and the Family Court had the jurisdiction to adjudicate on all civil disputes arising out of family assets between the parties to a marriage as well as non-parties. To J at §19 said:

“...These two cases demonstrate the importance which the law attaches to the principle that the court requires the parties to put forward their whole case in one go whenever possible by the inclusion of all the relevant issues and arguments against all the proper parties and the jealousy with which this principle is guarded so as to ensure the machinery of the court will not be used as a means of vexation and oppression in the process of litigation. They also demonstrate that the Family Court has jurisdiction in distributing the family assets in such a way as could properly reflect the course of the marriage and the parties’ contributions thereto and that jurisdiction include jurisdiction to adjudicate on all civil disputes arising out of family assets between the parties to a marriage as well as non-parties. The Family Court is provided with the powers and jurisdiction to arrive at the most just disposition of financial disputes between spouses over family assets.” (Emphasis added.)

53.I agree with Ms Rattigan’s submission that in substance and reality this is a matrimonial dispute between the Petitioner Wife and the Respondent Husband. There is no dispute that both Capella and Friedmann are part of the matrimonial assets, which could and should be dealt with as between the Petitioner Wife and the Respondent Husband in the Divorce Proceedings.

54.It does appear to this Court, subject to the arguments of the Petitioner Wife which will be addressed below, the Family Court does possess a wide jurisdiction under the MPPO to make various orders for a just financial distribution between the parties. That court has already seized of the Divorce Proceedings, and will have wide powers to grant proper financial relief to the parties, including conducting valuations, investigating allegations of misappropriation, and where appropriate ordering the return of assets found to have been misappropriated to the matrimonial pot under section 17 of the MPPO.

55.Ms Rattigan submitted that the Divorce Proceedings commenced by the Petitioner Wife would be completely determinative of all disputes between the Petitioner Wife and the Respondent Husband. Hence, it is both unnecessary and abusive for the Petitioner Wife to commence these proceedings, since no practical purpose could conceivably be served by the Petitions at all. Mr Man SC for the Petitioner Wife contended otherwise.

56.First, Mr Man SC submitted that there is no explanation as to how determinations in the Divorce Proceedings can be usefully made when both Capella and Friedmann are not parties to the Divorce Proceedings. It is said that this is not a matter of mere technicality because (i) the company is a party to a petition means that it would be bound by the court’s findings, (ii) that the company is a party allows discovery orders to be really made against it and (iii) the Divorce Proceedings are to be held in camera. The Petitions are to be heard in open court. There are complicated issues of how and to what extent the principle of open justice which applies to unfair prejudice or just and equitable winding up petitions can be curtailed if these allegations are to be explored in the Divorce Proceedings which the Respondent Husband has not even begun to explain.

57.I am not persuaded that these submissions demonstrate that there is any relief which the Petitioner Wife can only obtain in the Companies Court which she cannot not obtain in the Family Court. First, it is true that Capella and Friedmann are not parties to the Divorce Proceedings and will not therefore be bound by the determination of the issues therein, but one must not lose sight that the Petitioner Wife and the Respondent Husband together hold 100% of the shareholdings of both Capella and Friedmann. It is unrealistic that a court order promulgated by the Family Court will not in substance be carried out by the family companies, Capella and Friedmann. Secondly, the Petitioner Wife is perfectly entitled to take out discovery applications in the Family Court against the Respondent Husband for whatever documents she can demonstrate to be relevant to the issues to be determined. The Petitioner Wife can even take out discrete discovery application in the Companies Court, if necessary. Thirdly, the fact that proceedings in the Family Court are held in camera and proceedings in the Petitions are normally held in open court does not, in my view, affect the relief the Petitioner Wife is going to obtain in the any of the proceedings. This is not a good enough reason to have parallel proceedings. In any event, even if these Petitions were to be adjourned to the Family Court for directions, the Family Court still have to deal with these sets of proceedings, one set has to be held in camera and one set has to be held in open court. I do not find this satisfactory at all.

58.Secondly, Mr Man SC submitted that there are limitations in the Family Court’s distributive powers. In particular, the Family Court’s distributive powers in ancillary proceedings do not extend to the underlying assets held under the companies. Therefore, winding-up relief is the only way for the Petitioner Wife to monetise her interest in the companies and avoid having to remain as a co-shareholder with the Respondent Husband. Mr Man SC referred this Court to the case of Prest v Petrodel Resources Ltd [2013] 2 AC 415 for the proposition that the Family Court has no jurisdiction to deal with the underlying assets of the companies. Mr Man SC submitted that the upshot is that at best, the Family Court may determine and adjust the Petitioner Wife and the Respondent Husband’s shares in Capella under section 6 of the MPPO, the Family Court cannot order the transfer of assets held by Capella or Friedmann to the Petitioner Wife or the Respondent Husband.

59.Assuming Mr Man SC is right that the Family Court has no power to order the transfer of assets held by Capella or Friedmann to its shareholders, it is clear to me that the Family Court does have a personam jurisdiction over the Petitioner Wife and the Respondent Husband who are the 100% shareholders of the companies. The Family Court could order the shareholders to pass resolutions to dispose of assets and distribute dividends to its shareholders. In any event, Mr Man SC fairly accepted that it is possible for the Family Court to order one party to transfer his or her shareholding to the other party for a payment or equivalent, achieving a de facto buy-out. (See Mimi Kar Yee Wong Hung v Raymond Kin Sang Hung (No.2) (2015) 18 HKCFAR 210.) There is no explanation as to why it is not possible, if so required, for the two shareholders to cause Friedmann to sell off or charge part or all of its CALG shares for the purpose of distributing dividends upstream to the shareholders of Capella, namely, the Petitioner Wife and the Respondent Husband.

60.Thirdly, Mr Man SC referred this Court to the cases of Re Carryman Industrial Ltd [2000] 3 HKLRD 295 and Re Hung Wan Taxi Company Limited,HCCW 576/2004, unreported, 7 March 2005 for the proposition that the issues in the Divorce Proceedings and the issues in the Petitions are not the same.

61.I am of the view that the above cases are distinguishable because they were decided on the special facts of the cases. First and foremost, this Court has come to the view that it is not appropriate to include the winding-up relief in the Petitions, then the real question is whether there are any other relief which the Petitioner Wife can claim in the Petitions but cannot be granted by the Family Court. I am of the view that given the circumstances and evidence of the Petitions, the Petitioner Wife can obtain her relief in the Family Court and it is sensible for one court to determine all the issues.

62.The Family Court is well equipped to deal with the issue of trust and misappropriation in the calculation of matrimonial assets.

63.Secondly, I agree with Ms Rattigan that there is a crucial distinction between the current Petitions and Re Carryman Industrial Ltd (supra) and Re Hung Wan Taxi Company Limited (supra). In those cases, there were contested disputes as to whether the petitioner had any beneficial interests in the subject companies at all.  On the contrary, in the present case, it is common ground that the companies, Capella and Friedmann, are family companies and they form part of the matrimonial assets, in respect of which the Family Court does have the jurisdiction and powers to resolve disputes and issues in relation to those assets. I am of the view that the Family Court is capable of resolving those issues and make a just and equitable distribution.

64.Specifically, in Re Carryman Industrial Ltd (supra), Chung J’s decision was based on the special facts of the case:

(1)  In that case, it was agreed between both parties that “the issues raised herein [i.e. in the Petition] and those raised in the matrimonial proceedings are different” (at p.298J-299A).

(2)  Further, in that case the parties’ disputes would affect the interests of the 3^rd respondent to the petition (i.e., a third-party allottee), and accordingly it was more appropriate for such issues to be dealt with in the petition rather than in the matrimonial proceedings.

(3)  In the present case, there is common ground that there are overlapping issues between the Petitions and the Divorce Proceedings. There is no good reason as to why the Petitioner Wife cannot have her factual issues in the Petitions to be raised and resolved in the Divorce Proceedings. Ms Rattigan is right that in the present case, there are no allegations as to dilution of shareholding, nor are there any issues of third-party interests being affected.

65.In relation to Re Hung Wan Taxi Company Limited (supra), I agree with Ms Rattigan that the Court confirmed that it is “undoubtedly the case that the Family Court has a wide discretion to make orders as to the financial arrangements between the Petitioner and the 2^nd Respondent so as to achieve a fair division of the family’s wealth between them, having regard to a range of factors” (at §23). However, on the particular facts of that case, the Court concluded that it was not an appropriate case for strike out.

66.In that case, given the parties’ dispute as to whether the subject company (and its underlying assets) should be treated as family assets at all, the Court found the issues to be determined in the Family Court might not be the same as the allegations under the subject petition. However, there is no such concern in the present Petitions.

67.In the present Petitions, it is not disputed that both Capella and Friedmann are part of the matrimonial assets, the Court seized of the Divorce Proceedings would no doubt consider all the relevant allegations made by both parties. The said Court could also make all necessary factual findings, and (if necessary) take into account any allegations of wrongdoings in the valuation and/or asset division exercise. If the said Court were to find that certain financial misconduct had depleted the matrimonial assets to detriment of the other spouse, it has the power to “add back” any resulting loss in value into the matrimonial pot. (See Norris v Norris (2003) 1 FLR 1142 at §77 per Bennett J.)

68.Moreover, in that case, both parties accepted that there was no further purpose in maintaining the subject company in existence. In light of that, the Court (i) observed that the making of a winding up order would seem “more likely” to achieve the objective of property disposition (at §36), and (ii) did not regard the continuation of the petition would “result in [the husband] being pressured to reach more favourable terms than he would otherwise have done in the matrimonial proceedings” (at §40).

69.Finally, in relation to the Petitioner Wife’s contention that a liquidator is necessary to conduct investigation of the misdeeds done to the companies, like Mr Justice Harris, I am of the view that there is no good explanation as to why there would be any more difficulty in valuing her interests than in any other case, so as to require the appointment of a liquidator. (See Re Chun Yip Holdings Limited (supra).

70.At the end of the case, every case depends on its own facts and the key question to ask is whether there is any utility in maintaining the present Petitions including whether there are any issues which could only be resolved in the Companies Court, whether there are any relief which could only be granted by the Companies Court. As I set out above, in the circumstances of these Petitions, I do not see any utility in maintaining the present Petitions.

71.I agree with Ms Rattigan that if the Petitioner Wife is successful in obtaining her relief in the Divorce Proceedings, there would be no useful purpose in these Petitions. If the Petitioner Wife is unsuccessful (i.e., if she fails to establish the allegations of wrongdoings against the Respondent Husband), then her Petitions would also be doomed to failure. Moreover, since the Petitioner Wife has commenced and is prosecuting the Divorce Proceedings, she has in a real sense made an election in favour of the relief sought in that set of proceedings.

72.For the reasons stated above, I am of the view that both Petitions should be struck out.

Jurisdictional Challenge

73.Mr Nip on behalf of Capella and Friedmann also submitted that the Petitions should be struck out on the additional ground that the Court has no jurisdiction to grant any relief for unfair prejudice in respect of the companies as neither of them has established a place of business in Hong Kong.

74.In his very comprehensive and helpful skeleton submissions, Mr Nip correctly set out that the Court’s jurisdiction to make an order under ss.724 and 725 of the Ordinance depends on whether Capella and Friedmann have established “a place of business” in Hong Kong. (See Kam Leung Sui Kwan and Kam Kwan Lai(2015) 18 HKCFAR 501 at §11.)

75.The following principles are set out by the Court of Final Appeal:-

(1)  “Business” does not include the carrying on of purely internal activities, such as changes to the composition of its own board of directors, which do not affect outsiders or require the establishment of a particular place where they may be effected (§13).

(2)  “Place of business” connotes a place where or from which the company either carries on or possibly intends to carry on business, and while “business” is not confined to commercial transactions or transactions which create legal obligations, there is no reason to suppose that it covers purely internal organizational changes in the governance of the company itself (§13).

(3)  There is nothing in fact or law which requires a company which does not carry on business at all to have a place of business, and there is nothing strange in finding that such a company has not established one anywhere (§13).

(4)  The fact that a company’s directors discuss its affairs and hold their board meetings in a particular place is not sufficient by itself to make that place the company’s “place of business” (§14).

(5)  The word “establish” indicates that some degree of regularity and permanence of location is required (§15).

76.Mr Nip submitted that since neither of the companies has established a place of business in Hong Kong, they do not fall within the definition of “non-Hong Kong company” for the court to grant orders under ss.724 and 725 of the Ordinance. In particular:

(1)  Capella and Friedmann have no business activities or employees in Hong Kong, and have not established a place of business in Hong Kong to carry on any business.

(2)  The Far East Office is not the principal place of business of Capella or Friedman, but is the registered office of CALG in which Capella (through Friedmann) holds a 26.95% stake.

(3)  The memorandum and articles, register of members and directors, as well as copies of all notices and other documents are filed and updated by Capella and Friedmann through their respective BVI registered agents in accordance with the statutory requirements in the BVI.  Only copies of these documents are stored in the physical company kit updated by Ms Lai Tin Yin Fion who obtains these copies from the Respondent Husband.   

(4)  There is no evidence that any “business” decisions were made at the Far East Office. The only relevant evidence before the Court is that:

(a)   The Board of Directors of Capella had held meetings in the Far East Office for the sole purpose of declaring interim dividends to the Petitioner Wife and the Respondent Husband.

(b)  The Board of Directors of Friedmann had held meetings in the Far East office for the declaration of the first and second interim dividends of 2017 and of interim dividends in 2018.

77.Mr Nip has most helpfully set out in a tabular form, at paragraph 28 of his Skeleton Submissions, the companies’ responses to the Petitioner Wife’s allegation that the subject companies do have a place of business in Hong Kong. I should not repeat the same here.

78.Mr Nip’s submission is that putting the Petitioner Wife’s case at its highest, she might have informally discussed with the Respondent Husband the affairs of the companies either at their matrimonial home or the Far East Office.  However, the fact that a company’s directors discuss its affairs and hold their board meetings in a particular place is not sufficient by itself to make that place the company’s “place of business”. (See Re Oriel Ltd [1986] 1 WLR 180 at 189D per Oliver LJ.) 

79.On the contemporaneous evidence, the only matters ever discussed and recorded in the minutes of the board were the declaration of dividends.  This has been held to be an “internal matter” unrelated to the “business” of a company. (See Kam Leung Sui Kwan (supra) at §15).   

80.Hence, Mr Nip submitted that neither Capella nor Friedmann are “non-Hong Kong companies” which have established a place of business in Hong Kong.  The Court has no jurisdiction to make an order under ss.724 and 725 of the Ordinance in the case of the companies, and the Petitions (insofar as they relate to the unfair prejudice claims) shall be struck out.

81.Whilst I am of view that Mr Nip’s submissions are persuasive, I am convinced that Mr Man SC is correct that given that the evidence pertaining to the Petitioner Wife’s case on the place of business of Capella and Friedmann is disputed, these are triable issues and it is not right that factual disputes should be resolved against the Petitioner Wife at this stage.

82.I also note that there are minutes which show that Capella had appointed the Respondent Husband to “manage all banking and financial matter of the Company including appointment of solicitors, and/or any other professionals (the “Advisors”) to represent and act for the Company in relation to the ICBC Loan and deal with all matters incidental thereto” and “do all such acts, things and matters and to execute all such documents and deeds as he may consider necessary or desirable in connection with the ICBC Loan and the appointment of the Advisors, including but not limited to provide additional securities or sale of assets for and on behalf of the Company”.

83.Further, the audit reports of Capella and Friedmann all describe the Hong Kong Office as their principal “place of business” in Hong Kong. Mr Man SC referred this Court to the case of Ho Tai Kwan v Global Innovative Systems Inc [2008] 1 HKLRD 399 at §§18-27, in which the Court gave weight to the company’s filings which gave its address as being in Mongkok, and the information on its website and the representations that it contained about the location of the company’s corporate headquarters.

84.Hence, I am of the view that, on the facts of the present cases, the Petitions should not be struck out on jurisdictional grounds at this stage.

Unsustainable Allegations Ground

85.As this ground was not pursued, I do not propose to deal with it in detail save to say that I agree with Mr Man SC that this Court is not going to determine any specific issues on a summary basis at this stage.

86.As to Mr Man SC’s submission that the end of a marriage and a relationship of trust and confidence, per se, justifies just and equitable winding up of families companies, without even having to establish any unfairly prejudicial conduct, whilst I agree that this is an interesting point of law, as I have come to the views that there is no realistic prospect that on the evidence of these cases, a winding-up relief would be granted, I do not think this submission carries the analysis any further.

Collateral Purpose

87.Mr Nip for the companies submitted that the Petitioner Wife’s unreasonableness is exacerbated by what credibly appears to be her ulterior motive in commencing these proceedings, i.e. to put pressure on the Respondent Husband and gain advantage in the Divorce Proceedings.  Mr Nip referred this Court to the history of the HCMP Proceedings.  In particular, the evidence shows that the Petitioner Wife was sent an email on 17 September 2018 following a telephone conference in which the issue of default under the ICBC Loan was raised.  On the following day, the Petitioner Wife filed a skeleton for the hearing before this Court in the HCMP Proceedings stating that “in light of recent developments”, the Petitioner Wife intended to amend the petition in the HCMP Proceedings to include an alternative relief to wind-up the companies, and hoped that the Respondent Husband “would have sufficient time to consider his position ahead of the FDR”, noting that the Petitioner Wife “is willing to adopt a holistic approach to settlement”. 

88.Mr Nip submitted that it is telling that the Petitioner Wife intended to engineer an event of default under the ICBC Loan so as to put Friedmann in a perilous financial position and bring pressure on the Respondent Husband, which will result in putting herself in a more favourable position when negotiating a settlement with the Respondent Husband in the Divorce Proceedings.

89.The Petitioner Wife denied the existence of any collateral purpose. Mr Man SC advanced a total of six reasons as to why there was no collateral purpose in his very helpful Skeleton Submissions. For the purpose of the present applications, I am not inclined to make any rulings on collateral purpose. I do not think it appropriate, on the facts of the present case, to determine the issue of collateral purpose, on a summary basis. Hence, the Petitions will not be struck out on this ground.

Stay of Proceedings

90.If I am wrong on the reasons for striking out the Petitions, I have no hesitation to stay the Petitions pending the determination of the Divorce Proceedings. I am of the view that the Court should adopt a principled approach and the Petitions should be struck out. However, in any event, as a matter of case management, the Petitions should be stayed.

91.The applicable principles on case management stays have recently been summarised in Lok Man Sin v Lam Chi Wing, HCMP 735/2018, unreported, 7 January 2019 where Recorder Eugene Fung SC at §20 said:

“The Court’s approach in an application for a temporary stay of proceedings is to consider the balance of convenience and fairness as between the parties. Its discretion should be exercised in such a manner to ensure that its procedures are used in a logical, fair and cost-efficient manner. Whether or not a temporary stay of proceedings should be granted is a question of case management.”

92.Given the inevitable duplication of the facts finding exercise, I am of the view that it will be logical, fair and cost-efficient for a case management stay to be granted in respect of the Petitions. The Family Court has seized the Divorce Proceedings and will make necessary factual determinations as to the parties’ disputes. If after the determinations by the Family Court, there are still residual issues that only the Companies Court can determine, then those issues can be ventilated later with a further case management conference so that the Petitions can be better managed.

93.It is distinctly unattractive that the Petitions should proceed in parallel to the Divorce Proceedings. This would inevitably lead to substantial wastage of unnecessary costs, expenses and valuable judicial resources.

Further Directions

94.As I am of the view that the Petitions should be struck out, alternatively be stayed, there is no need for this Court to deal with the Petitioner Wife’s application for further directions to adjourn the Petitions to Madam Justice B Chu.

Postscript  

95.At the conclusion of the hearing, this Court reserved its judgment and indicated to the parties that its judgment will be handed down in due course. Its judgment was ready for handing down but our courts were then closed due to the Coronavirus. On 9 March 2020, the parties filed a consent summons to have the dismissal of the Petitions pronounced in court. On 11 March 2020, Madam Justice Au-Yeung made an order that attendance of all parties is excused and orders will be pronounced in court.

96.Given the importance of dealing with parallel matrimonial and company proceedings, I am of the view this case does raises issues which are in the public interest to ventilate in a reasoned judgment. Accordingly, applying the principles as set out in Zhang Hong Li & Others v DBS Bank (Hong Kong) Limited and Others FACV No.2 of 2019, [2019] HKCFA 45, unreported, 22 November 2019 at §§1-6 and Barlclays Bank plc v Nylon Capital LLP [2011] EWCA Civ 826; [2012] Bus LR 542 at §§73-77 per Lord Neuberger of Abbotsbury MR (as his Lordship then was), I am of the view that this reasoned judgment should still be handed down for the benefit of future cases including case management decisions.

Disposition

97.By consent of the parties herein, the Petitions are hereby dismissed. Orders are made in terms of the Consent Summonses dated 9 March 2020.

98.Finally, it remains for this Court to express its gratitude to the very able assistance of Mr Man SC, Mr Tang for the Petitioner Wife, Ms Rattigan and Mr Kok for the Respondent Husband and Mr Nip and Mr Phang for the 1^st Respondents.

Mr Bernard Man SC and Mr Danny Tang, instructed by Withers, for the petitioner (in both actions)

Mr Norman Nip and Mr Roger Phang, instructed by Ma Tang & Co, for the 1^st respondent (in both actions)

Ms Mairead Rattigan and Mr Martin Kok, instructed by Howse Williams, for the 2^nd respondent (in both actions)