Evershine Corporation Ltd and Another v. Samuel & Investors Ltd and Others

Case No.CACV 42/1991

Court

Court of Appeal

Date09 Jul 1991

Judge—

Case Document

100%Judiciary

CACV000042/1991

IN THE COURT OF APPEAL

1991, No. 41
(Civil)

BETWEEN

	GALA LAND INVESTMENT CO. LTD.	Petitioner (Respondent)
	AND
	CG&L INVESTMENT LTD.	1st Respondent (Appellant)
	N&L INVESTMENT LTD	2nd Respondent (Appellant)
	SAMUEL & INVESTORS LTD.	3rd Respondent (Appellant)

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1991, No. 42
(Civil)

BETWEEN

	EVERSHINE CORPORATION LTD.	1st Petitioner (Respondent)
	INTERCONTINENTAL ENTERPRISES LTD	2nd Petitioner (Respondent)
	AND
	SAMUEL & INVESTORS LTD.	1st Respondent (Appellant)
	N&L INVESTMENT LTD	2nd Respondent (Appellant)
	OCTALAND HOLDINGS LTD.	3rd Respondent (Appellant)
	THE PRUDENTIAL, ENTERPRISE LTD.	4th Respondent (Appellant)

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Coram: Hon. Sir Derek Cons, V.P., Clough & Macdougall, JJ.A

Date of hearing: 25 & 26 June 1991

Date of handing down judgment: 9 July 1991

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JUDGMENT

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Sir Derek Cons, V.P.:

1. This is the judgment of the court.

2. These are appeals against the refusal of Barnett, J. to exercise his discretion to strike out, for want of prosecution, two petitions to wind up respectively Samuel and Investors Ltd. ("SIL") and CG&L Investment Ltd. ("CG&L"). The common factor between the two companies is that in each one Samuel Tak Lee has a majority and controlling interest. He is a qualified accountant and engineer and is said to be a man of considerable expertise in the field of real estate.

3. The principles upon which a judge should exercise his discretion to strike out for want of prosecution are well-known and to be found in the speech of Lord Diplock in Birkett v. James [1978] AC 297 at 318:

"The power should be exercised only where the court is satisfied either (1) that the default has been intentional and contumelious, e.g., disobedience to a peremptory order of the court or conduct amounting to an abuse of the process of the court; or (2) (a) that there has been inordinate and inexcusable delay on the part of the plaintiff or his lawyers, and (b) that such delay will give rise to a substantial risk that it is not possible to have a fair trial of the issues in the action or is such as is likely to cause or to have caused serious prejudice to the defendants either as between themselves and the plaintiff or between each other or between them and a third party."

4. We are concerned here only with the second alternative. The judge held that although there had been inordinate and inexcusable delay in each case, there was no substantial risk to the possibility of a fair trial and that no serious prejudice had been caused to either of the companies or to Mr. Lee personally. The judge indicated further that, had it been necessary, he would have held that there was no real or sufficient advantage to be gained by striking out, having regard to the fact that the petitioners could immediately file further petitions. A careful and conscientious judgment, setting out all the salient facts and the relevant law, has greatly assisted this court in its task of deciding whether it should or should not interfere. It is convenient to deal with the appeals separately.

SIL

5. SIL was incorporated in May 1970. It embodied a joint venture between Mr. Lee on the one hand and the late Mr. S.C. Gaw and his family on the other. Initially it was concerned with the purchase and re-development of industrial land in Kwai Chung, which was then sold in July 1972. In the meantime, and later, the company undertook other joint ventures, either directly or through subsidiaries, which have left it now a company whose assets are almost entirely shares held in other companies. It has done no active business since 1976.

6. In August 1983 a joint petition to wind up the company was presented by Evershine Corporation Ltd., a company controlled by Susan Gaw, the daughter of Mr. S.C. Gaw, and Intercontinental Enterprises Ltd., a company incorporated in Liberia and controlled by Anthony Gaw, her brother. It was in the names of these two companies that the Gaw family had taken their shares in SIL. Intercontinental took no part in the proceedings below and its name has since been ordered to be struck out from the petition.

7. The petition claims that it is just and equitable that the company should be wound up. The reasons given in support are neatly summarised by the judge:

"The thrust of the complaints made against Mr. Lee is first that he is in breach of an oral pre-incorporation agreement as to the purpose of the company and the composition of the board; second, that he has used or managed SIL for his own benefit or the benefit of other companies under his control; and third that he has denied Susan Gaw access to the books, records and information."

Susan Gaw was then, and still is, a director of the company.

8. The company opposing the petition, Jones, J., on 29th December 1983, gave directions for mutual discovery and inspection, and for the petition to be set down within 28 days thereafter. The directions were not complied with, indeed no step at all in the petition was taken until 20th December six years later, i.e. 1989, when the Official Receiver gave notice to bring the petition on for hearing. It is not surprising that it was conceded before Barnett, J. that this constituted inordinate and inexcusable delay, a concession not resiled from in this court. The Official Receiver's motion was due to be heard on 15th January 1990. However on 11th January the company filed its application to strike out the petition. The application was not heard until December, the judge dismissing it on 8th January this year.

9. In his submission in support of the appeal Mr. Lightman, who appears as he did below for both companies, has concentrated primarily on three aspects which may be headed:

(1)	a fair trial,
(2)	prejudice to the company, and
(3)	prejudice to Mr. Lee.

Fair trial

10. The submission on this aspect was, at least before this court, restricted to the first limb of the petition, i.e. the suggested pre-incorporation agreement. This is to be found in paragraph 11 of the petition, principally in sub-paragraphs (4), (5) and (6):

"	(4)	That because of the matters set forth in sub-paragraphs (2) and (3) above and for the purpose of protecting the interests of the Gaws in the company, it was fundamental in order to balance the control of the company that their interests should be represented by a majority number of directors on the board, although Tan was also to be a director;
	(5)	That in order to protect the interests of any shareholder against that of any other, any shareholder might upon serving on the Managing Director at any time a 3 months written notice to (sic) demand the sale of all shareholdings of the company to an existing shareholder offering the highest price; and
	(6)	That not less than 50 percent of the annual profit of the company should be distributed to the shareholders by way of dividends."

11. Whether or not there were such agreements will fall to be determined at the hearing upon the affidavits already filed, i.e. of Susan and Anthony Gaw (the latter only if he is then available for cross-examination) and of Mr. Lee (Mr. S.C. Gaw having died in the October following the presentation of the petition) and upon their viva voce evidence. They will then have to recall conversations that took place 20 or more years ago and meetings which took place in many and different parts of the world. They may also have to deal with more recent occasions, but which still go back a long time.

12. The lapse of time, and its natural effect upon the witnesses, was strongly urged upon us, as it was upon the judge below. He expressed his conclusion in these words:

" It would be idle to pretend that memories do not fade with time. If this petition comes to a hearing, witnesses will be cross-examined about events, some of which occurred upwards of 20 years ago. Precise details, however, of what were said or done will not be required. The gist, it seems to me, will be sufficient to indicate the terms and understanding upon which the parties caused SIL to be incorporated.

The position, it seems to me, falls between that of a commercial action which depends largely on contemporaneous documentary evidence and a personal injury or other claim where such crucial evidence will involve recollection of past events. Here, SIL's documents will no doubt assist with the complaints that Mr. Lee ran the company for his benefit. Mr. Lee's affidavit, however, is hardly a contemporaneous record of events leading to the formation of the company. Nonetheless, Mr. Lee was able to deal with pre-incorporation events in some detail and has the affidavit available to jog or refresh his memory."

13. The first error said to have been made by the judge is that he assumed the case to be one that "turned on the documents", as did City General Insurance Co. Ltd. v. Robert Bradford & Co. Ltd. [1970] 1 Lloyds LR 520, to which Mr. Hamilton for the petitioners had referred him, whereas in fact it did not, the documents in the present instance being affidavits having no life independent from that of the witnesses who made them. We are unable to agree. The judge's comment clearly distinguishes between the commercial documents discovered by the company, which he felt would assist with the second limb of the petition, and the affidavits sworn in 1983 which, like the proof of the witness Mr. Chipping in the same case, would assist their giving evidence. The fact that both Susan and Anthony Gaw, when challenged as to particular details in 1983, admitted each a mistake in their affidavits, is a fact that goes only to their credibility.

14. Then it is said that by his reference to "the gist" the judge overlooked the need for the petitioners to prove the specific and individual requirements of the alleged agreements. With respect we see little substance in this argument. The terms sought to established, although specific and individual, are hardly complicated.

15. Thirdly it is said that by accepting the analogy suggested by Mr. Hamilton of a divorce petition based on the irretrievable breakdown of a marriage, the judge indicated that his decision had been influenced by the erroneous assumption that a winding up order was in any event inevitable. We do not think he did. In the passage complained of the judge was dealing with the, in the circumstances, academic question of whether there was a real possibility that, had he been minded to strike out either petition, there would be sufficient advantage to the opposing contributories to counter what would otherwise be futile orders. He was concerned with the question of time and anxious that the petitions, like that suggested in the divorce analogy, should be heard without further delay. We see no reason to assume that either in that respect or with regard to any of his other decisions, he took the view that that the petitions must necessarily result in orders for winding up.

16. The effect of the tremendous lapse of time upon the possibility of a fair trial is a matter of assessment for the judge of first instance. We are not persuaded that Barnett, J. in his assessment of the effect in the,. particular circumstances of this case went in any way wrong in principle; nor that his conclusion was, in the words of Lord Diplock in Hadmor Productions Ltd. v. Hamilton [1983] AC 191 at 220,

"so aberrant ... that no reasonable judge regardful of his duty to act judicially could have reached it".

Prejudice to the company

17. Section 182 of the Companies Ordinance, Cap. 32 provides that in the event a company is wound up by the court, any disposition of its property subsequent to the commencement of the winding up, i.e. the presentation of the petition, shall, unless the court orders otherwise, be void. As a result the company's bank account has been frozen since 1983. In order to meet day-to-day requirements the company has been forced to borrow money, from another of Mr. Lee's companies. Furthermore, the mere presentation of a petition is a discredit to the company: see the comments of Brett, M.R. and Bowen, L.J. at respectively pp. 685 and 693 of Quartz Hill Consolidated Gold Mining Company v. Eyre (1883) 11 QBD 674. Mention of the petition has appeared in the audited accounts of the company ever since.

18. The reasons for the judge's conclusion that the company had in no way suffered serious prejudice may, we think, be fairly summarised as:

	(1)	the company had not in fact been doing any business since 1976, other than holding shares;
	(2)	it had made no application for leave of the court under s. 182;
	(3)	the accounts were heavily qualified by the auditors in several other respects and indeed were in such a thoroughly unsatisfactory state that no prudent banker or investor would have wished to become involved; and
	(4)	there was no evidence of any particular lost opportunity.

19. The complaint that the judge was mistaken as to the last factor, - it being suggested that it is no answer to the enforced inactivity of the company that the company in fact had contemplated no specific activity, - is difficult to sustain in the light of Lord Griffiths' remarks in Eagil Trust Co. Ltd. v. Pigott-Brown [1985] 3 All ER 119 at 124:

"Any action is bound to cause anxiety, but it would as a general rule be an exceptional case where that sort of anxiety alone would found a sufficient ground for striking out in the absence of evidence of any particular prejudice. Biss's case is an example of such an exceptional case, the action hanging over for eleven-and-a-half years, with professional reputations at stake."

repeated by him in Department of Transport v. Chris Smaller (Transport) Ltd. [1989] 1 AC 1209.

20. In relying on factor (2) it would seem that the judge may have overlooked the comments of Lord Salmon at p. 329B-E of Birkett v. James, but in the light of factors (1) and (3) we find ourselves in full agreement with his conclusion.

Prejudice to Mr. Lee

21. The petitioners complaints against Mr. Lee personally appear in exhaustive detail throughout the petition. We think they may be fairly summarised in the suggestion that, by utilising his majority shareholding, he packed the boards of the company and its subsidiaries and so managed their affairs with complete and utter disregard to the convenience or duties of Susan and Anthony Gaw as directors or to the interests of the Gaw family (through the petitioning companies) as shareholders. Further he used the funds of the company for the private benefit of other of his own companies in which the Gaws had no interest, and in particular lent some $7 million of its monies to Wyatt Estates Ltd. at a time when he knew the assets of that company were insufficient to meet its liabilities. These are serious allegations and if made good would certainly justify the complaint in paragraph 92 of the petition that "the Gaws have completely lost all confidence in Samuel Tak Lee and in his probity and good faith towards them".

22. When pressed with what must have been similar arguments to those advanced before us the judge below said:

"Finally, Mr. Lightman argued that the most serious allegations are made against Mr. Lee and it is seriously prejudicial that these should remain hanging over his head for a long period. I do not consider that there is anything in this. The allegations are not against Mr. Lee in his professional capacity as an engineer or architect. There is no evidence from Mr. Lee himself, or from Mr. Bartlett, to suggest that Mr. Lee is suffering anything more than the usual anxiety attendant upon anyone involved in litigation. This is no more than a domestic dispute which has had no overt effect on Mr. Lee's professional activities. It is not the sort of exceptional case which Lord Griffiths had in mind in Smaller."

Admittedly a brusque dismissal of Mr. Lightman's submissions, but considering the allegations against Mr. Lee's in their overall context we are unable to say that no reasonable judge could have come to the same conclusion.

CG&L

23. We turn then to the position of CG&L, which in many respects is similar to that of SIL. The company was incorporated in August 1972, to give effect to a joint venture between Mr. Lee and a Mr. W.H. Chou, who operated through his own company, Gala Land Investment Co. Ltd. Mr. Lee had a majority shareholding, and eventually a controlling presence on the board.

24. The petition was presented by Gala Land in May 1983. Based, like that of SIL, upon the just and equitable provision it likewise alleges breach of a pre-incorporation agreement, albeit the allegations appear to be more implied than express; likewise management by Mr. Lee of the company's affairs and finances for the benefit of his own and associated companies; and likewise denial to Mr. Chou of access to the company's books and records. Similar directions were given by Jones, J. on 29th December, but thereafter the paths of the two petitions diverged. This petition did not go to sleep, at least not quite. Eventually it was ready for setting down on 16th March 1989. It would seem that both sides bear some responsibility for the delay, the judge concluding that the opposing contributories are slightly the worse offenders. However he was satisfied that the delay of nine months thereafter, the petition being subject also to a notice by the Official Receiver in December, was both inordinate and inexcusable.

25. Mr. Lightman's submissions were again concentrated on the same three aspects. As regards the questions of fair trial and prejudice to Mr. Lee the arguments are much the same and our conclusions are identical. We do not need to repeat them.

26. There is however one further factor that must be mentioned with regard to the company itself. On 29th July 1983 an application by the petitioner for the appointment of a provisional liquidator was, by consent, adjourned sine die upon an undertaking by the company to deposit a sum of just over $15 million into an account in the joint names of the solicitors for the company and for the petitioner. This represented monies due to the company from the Crown under the Crown Lands Resumption Ordinance, Cap. 124, which the petitioner feared might be invested by the company in Wyatt Estates Ltd., of which we have earlier made mention. Mr. Lightman relies strongly upon this "freezing" of the money as particular prejudice above that which would flow naturally from the fact of the petition. It is possible of course that the money could in the intervening years have been employed to better advantage than earning the interest which has in fact accrued upon it, and which we understand to be in the region of $8 million; but no particular lost opportunity was brought to the attention of the judge. There was also qualification by the auditors of the company's accounts, although not so serious as in the case of SIL. We see no reason to disagree with the judge's . conclusion that in all the circumstances no serious prejudice has been shown.

27. The appeals being dismissed for these reasons it is not necessary to consider whether the judge can be faulted in his conclusion that there would have been no real or sufficient advantage to the opposing contributories in striking out, or to deal with the Respondent's Notice which challenges his finding that the nine months' delay in the CG&L petition was inordinate and inexcusable.

28. In handing down this judgment we make an order nisi that the petitioners shall have their costs of the appeals, although we understand that there may be an application under Order 42 Rule 5B(6).

(Sir Derek Cons)
Vice President

(P.G. Clough)
Justice of Appeal

(N. Macdougall)
Justice of Appeal

Representation:

Ebsen Hamilton, Q.C. & .W. Poon (M/s. J.S.M.) for petitioners/respondents

Gavin Lightman, Q.C. & J. Bleach (M/s. Herbert Smith) for respondents/appellants