Re The Prudential Enterprise Ltd.

HCCW000594B/1999

HCCW594/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 594 OF 1999

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Coram: Hon. Chu J. in Chambers

Date of hearing: 25 & 26 April 2001

Date of handing down of Decision: 3 May 2001

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Decision

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1. In these proceedings, the petitioners seek a winding-up order on just and equitable ground and alternatively relief under section 168A of the Companies Ordinance, cap. 32, including an order that their shares in The Prudential Enterprise, Limited ("the Company") be purchased at a price to be determined. The petition was presented on 3 July 1999 and amended on 26 July 2000. Trial dates have yet to be fixed. In the meantime, a number of interlocutory applications had been taken out. The petitioners' applications for appointment of provisional liquidator and for specific discovery are scheduled to be heard on 21 May and in July 2001. The present hearing concerns the 1st respondent's summons to strike out or stay the petition and the petitioners' summons for re-amendment of the petition, joinder of parties and for leave to use the documents disclosed in these proceedings for other related proceedings.

Background

2. Briefly stated, the Company was formed in 1958 by Mr Lee Man Wa ("MW Lee"), the late father of the 1st to 4th petitioners and the 1st respondent, and Mr Lee Chai Cheong ("CC Lee"), the uncle of the 1st to 4th petitioners and the 1st respondent. Until his recent death, CC Lee was one of the petitioners herein. The Company is essentially a family company. Its shareholding can be divided into six groups:

(1) the 1st to 4th petitioners, who are the brother and sisters of the 1st respondent,

(2) the estates of MW Lee and his wife,

(3) the estate of CC Lee and the children and brothers of CC Lee,

(4) HY & HT Company Ltd ("HYHT"), another family company founded in 1929 by the late father of MW Lee and the late father of CC Lee,

(5) Former employees and other relatives, and

(6) The 1st respondent, his children and his nominee company, N & L Investment Ltd.

Prior to a settlement agreement dated 26 September 1995, the respective shareholdings of the six groups are 21.25%, 12.17%, 38.24%, 9.56%, 13% and 5.78%. By October 1998, the shareholding of the 1st respondent, his children and nominee company increased to 68.75% whereas those of the other 5 groups were reduced to 7.05%, 4.04%, 12.68%, 3.17% and 4.31% respectively. Since 1978, the 1st respondent has been a director of the Company. After the resignations of the 1st petitioner and CC Lee as directors in 1985, the Company is effectively managed and controlled by the 1st respondent. Currently, he and his children and nominee company constitute the board of directors.

3. Between 1990 and 1995, the 1st respondent and his children on the one hand and CC Lee and his family members on the other hand were involved in a number of litigation which cumulated in the settlement agreement of September 1995. As a result of this settlement agreement, the shareholding of the 1st respondent and his children and nominee company increased from 5.78% to 26.86%. The circumstances surrounding the settlement agreement and the allotment of shares thereunder form part of the petitioners' complaints herein.

4. In the petition as amended, the petitioners raise a number of allegations of impropriety against the 1st respondent. Principally, they relate to the valuation and allotment of shares under the 1995 settlement agreement, the decision to change the domicile of the Company to BVI, manoeuvres by the 1st respondent to acquire majority shareholding in the Company through the allotment of 8,126 shares to himself in October 1998 ("the Rights Issue Exercise"), misappropriation of company funds through an offshore company called Interstitial Holdings Limited ("the Interstitial Scheme") and improper use of company funds to finance the Rights Issue Exercise.

5. The Interstitial Scheme and the use of company funds to finance the Rights Issue Exercise are also subject matter of a derivative action commenced by the petitioners and HYHT on 19 March 2001 against the 1st respondent, his children and his nominee company and also Interstitial Holdings Limited in HCA No. 1240 of 2001 ("the Derivative Action").

6. By the proposed re-amendment, the petitioners sought to introduce further complaints relating to the Interstitial Scheme and concerning improper lending to a Wyatt Estates Limited at a time when it was wholly owned by the 1st respondent.

The Application to Strike out or Stay the Amended Petition

7. The 1st respondent's application to strike out or stay the Amended petition is made on the basis that the continued pursuit of the petition is an abuse of the process of the court in view of the open offer made by the 1st respondent to settle the matter.

8. The 1st respondent's open offer was first set out in a letter dated 14 February 2001 from his solicitors ("JDRP") to the petitioners' solicitors ("LCC") in which the 1st respondent offered to purchase the petitioners' shares in the Company at a price to be valued by an independent chartered accountant and subject to the terms stated therein. Certain amendments to the offer were made by a letter dated 1 March 2001 from JDRP. By letter dated 14 March 2001, LCC replied by making various comments on the offer and indicated that the petitioners were prepared to discuss further on the matter of settlement. On 15 March 2001, JDRP replied and offered to make 2 amendments to the offer relating to the identity of the valuer and to costs. By a letter dated 19 March 2001, LCC pointed out that the offer as amended did not address the comments previously made and highlighted certain areas of concern. There were further exchanges of correspondence. Eventually, a revised offer was made by the 1st respondent, the terms of which were set out in the Appendix to a letter dated 30 March 2001 from JDRP ("the Revised Offer"). For the purpose of the present application, we need only be concerned with the terms of the Revised Offer.

9. The principal features of the Revised Offer and which are relevant to the determination of the application to strike out or stay the Amended petition are as follows:

(1) The 1st respondent offers to purchase or procure the purchase of the petitioners' shares at a value to be determined by an independent valuer from a chartered accountant firm of international standing: paragraph 1.

(2) The valuer is to act as an expert and not as arbitrator, and his decision and valuation are final and binding: paragraphs 7, 13 and 19.

(3) The valuer shall not give reasons for his determination on the valuation: paragraphs 12 and 18.

(4) The method of valuation is for the valuer to determine in his discretion: paragraph 15.

(5) The parties are entitled to make submissions to the valuer as required by the valuer: paragraph 8.

(6) The valuer will have free access to every book and record of the Company. If the valuer requires submissions from the parties on any point affecting the value of the petitioners' shares, the Company shall provide to the parties the information relevant to the point. An independent committee of the Company is responsible for giving effect to this arrangement: paragraph 9.

(7) The valuation is on the basis that the 8126 shares allotted pursuant to the Rights Issue Exercise have not been allotted: paragraph 6.

(8) The valuer is to take account of the liability of the Company to the 1st respondent for $257.8 million paid by the 1st respondent to the Company as subscription money for the 8,126 shares, if he considers appropriate: paragraph 10. The Revised Offer initially also provides for the valuer to give credit to the 1st respondent for the interest and other financing return on the said sum of $257.8 million, but that was "waived" by leading counsel for the 1st respondent in the course of his reply submission.

(9) In the event the final determination of the Derivative Action is in favour of the petitioners and results in an increase in the value of the Company, the 1st respondent agrees to pay the petitioners the proportion of the increase which the petitioners' shares bear to the aggregate issued capital of the Company (on the basis that the Rights Issue Exercise had not taken place) ("the Adjustment"): paragraph 2. And the valuer will be asked to value the Adjustment: paragraph 17.

(10) The sale of the petitioners' shares are to be in 2 tranches. The first tranche covers all the shares of the petitioners save as to one share for each of the petitioners. The purchase of the first tranche of shares is to take place within 60 days after the decision of the valuer is delivered, and therefore does not take account of the Adjustment. The second tranche covers the remaining one share of each of the petitioners with the Adjustment as the price for the shares. Completion shall take place within 90 days after the valuer's determination on the Adjustment is sent to the parties: paragraphs 14 and 20.

(11) In the event the purchase of the shares is not completed due to a failure on the 1st respondent's part to act in good faith to carry out his obligations under the agreement, the 1st respondent agrees not to oppose the making of a winding-up order. If the petitioners fail to make free and unencumbered title to any of their shares or have acted to prevent completion of the purchase, the 1st respondent reserves the right to oppose a winding-up order: paragraph 25.

10. The Revised Offer was stipulated to be open for acceptance until 12 noon on 24 April 2001, being the day prior to the hearing of the 1st respondent's summons. At the hearing, leading counsel for the 1st respondent indicated that it is open for acceptance until 48 hours after the decision on the application is given.

11. It is common ground that in determining the 1st respondent's application, the Court should have regard not only to the allegations in the Amended petition, but also the matter pleaded in the proposed re-amendment. It is also common ground that for the purpose of the striking out or stay application, it is to be assumed that the pleaded allegations would be established and the conflicts are resolved in favour of the petitioners: North Holdings Ltd v. Southern Tropics Ltd [1999] 2BCLC 625, 633d & 635e.

12. The basic principle and approach adopted by the Court towards application of the kind has been stated by Judge Weeks QC (sitting as a deputy judge of the High Court) in Re a Company (No. 00836 of 1995) [1996] 2BCLC 192, at p.197f-g to be as follows:

"The basis on which the courts have exercised their jurisdiction to stay such petitions is ... that an offer has been made which gives the petitioner all the relief he could realistically expect to obtain on his petition, and that it would therefore be an abuse of the process to continue to litigate matters just for the sake of having a day in court."

13. The rationale for this approach is explained by Hoffmann J in Re a Company (No. 006834 of 1988) (1989) 5BCC 218, at p.221C to be that:

"... fairness requires that the minority shareholder should not have to maintain his investment in a company managed by the majority with whom he has fallen out. But the unfairness disappears if the minority shareholder is offered a fair price for his shares. In such a case, s. 459 was not intended to enable the court to preside over a protracted and expensive contest of virtue between the shareholders and to award the company to the winner."

See also the judgment of Lord Hoffmann in O'Neill v. Phillips [1999]1WLR 1072, at p.1107C.

14. At the same time, section 180(1A) of the Companies Ordinance provides that:

"Where the petition is presented by members of the company as contributories on the ground that it is just and equitable that the company should be wound up, the court shall not refuse to make a winding-up order on the ground only that some other remedy is available to the petitioners, unless it is also of the opinion that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy."

15. The important questions to be asked are therefore whether a suitable or reasonable offer has been made by the 1st respondent, and whether the petitioners have acted unreasonably in refusing to accept the offer. In making the application, the 1st respondent assumes the burden of showing that it is plain and obvious that the Revised Offer is a suitable and reasonable offer and that the petitioners have been acting unreasonably in rejecting it. In this connection, the 1st respondent has argued that the "plain and obvious" test is only relevant to striking out applications per se and not to the kind of striking out application under consideration. For my part, I do not see a distinction between the present type of striking out applications and other striking out applications. A common thread that runs through the cases cited by counsel in this application is that the court should only strike out a petition where a plain and obvious case for striking out has been made out: see O'Neill v. Phillips, supra, per Lord Hoffmann at p.1107C, Re Copeland & Craddock Ltd [1997] BCC 294, at pp. 297 & 300 and Re Fan Ling Theatre Limited [1991] 1HKC 362 at p.369b.

16. As to what counts as a reasonable offer, in O'Neill v. Phillips, supra, at pp.1107D-1108B, Lord Hoffmann observes that a reasonable offer should possess the following features:

(1) The offer must be to purchase the shares at a fair value.

(2) The offer should provide for the value, if not agreed, to be determined by a competent expert.

(3) The offer should be to have the value determined by the expert as an expert. The objective should be economy and expedition, even if this carries the possibility of a rough edge for one side or the other compared with a more elaborate procedure.

(4) The offer should provide for the equality of arms between the parties. Both sides should have the same right of access to information about the company which bears upon the value of the shares, and both sides should have the right to make submissions to the expert.

(5) The offer should make suitable provisions for the question of costs.

17. The 1st respondent's case is that the Revised Offer is a reasonable one in that it gives to the petitioners all the relief that they can reasonably expect to obtain on the Re-amended petition. Mr Thomas SC summed up the advantages of the Revised Offer to be consisting of savings in terms of the court's time and legal costs, dispensing with the need to investigate into the 1998 Rights Issue Exercise, removing from the Company the threat of a winding-up order and delivering to the petitioners within weeks the relief they seek, namely, the cash for the purchase of their shares.

18. For the petitioners, it is argued that the Revised Offer does not give them all that they can reasonably expect to get on the Re-amended petition, that it does not provide for "equality of arms", that there is insufficient safeguard against the failure to complete the purchase and that the present case is not an appropriate case to be dealt with by a straightforward valuation by an expert.

19. It is more convenient to begin with the last of the objections of the petitioners. There are two central complaints in this case. The first is the Rights Issue Exercise and the second is the Interstitial Scheme. Both of them have an effect on the value of the petitioners' shares. On the Rights Issue Exercise, the petitioners' case is that the 1st respondent presented and carried out the exercise in such a way that he managed to have the shareholding of his group increased from 26.86% to 68.75% by the allotment of 8,126 shares at gross under-value. It is also the petitioners' case that the subscription money, the sum of $257.8 million, was either funds of the Company or funds attributable to the Company and generated from the Interstitial Scheme. As for the Interstitial Scheme, the petitioners' complaint is that funds of the Company in the sum of $789 million had been channelled through Interstitial Holdings Limited into other offshore companies beneficially owned by the 1st respondent and his family. These offshore companies currently hold very substantial assets, including various properties in London. The petitioners say that the 1st respondent and his children have acted in breach of their fiduciary duties as directors and hold the fruit of the breaches in constructive trust for the Company.

20. In meeting these allegations, the Revised Offer provides for the valuation to be on the basis as if the Rights Issue Exercise had not taken place. Consequently, the 8,126 shares allotted as a result of the Rights Issue Exercise will be disregarded in reckoning and valuing the shareholdings of the parties. At the same time, however, the Revised Offer provides that the valuer may, if he considers appropriate, take account of the liability of the Company to the 1st respondent for the $257.8 million subscription money. In relation to the Interstitial Scheme, the 1st respondent acknowledges that it is not a matter for the expert valuer to decide. The Revised Offer is made on the basis that the disputes relating to the Interstitial Scheme are to be resolved in the Derivative Action. The petitioners' shares are to be valued on their present value. As and when the petitioners succeed in the Derivative Action, the valuer will be asked to adjust the valuation to reflect any increase in the value of the Company, and a further payment based on the adjustment will be paid to the petitioners.

21. It is common ground that not all petitions for section 168A relief can be suitably dealt with by referring the matter to an expert for valuation of the share price and by having the petitioner's shares bought out at the value determined by the valuer. There might be cases where the impropriety on the part of the respondent had so affected the value of the shares in the Company that it is inappropriate for the matter to be dealt with by a straightforward valuation: per Hoffmann J in Re a Company (No. 006834 of 1988), supra, at p.221G-H, see also North Holdings Ltd v. Southern Tropics Ltd, supra, at pp. 635c-d & 639c.

22. In my judgment, the present case is clearly one of those cases which cannot be resolved by a straightforward valuation of the shares. Both the Rights Issue Exercise and the Interstitial Scheme involve complicated issues of facts and law which an expert valuer lacks the proper machinery to adjudicate upon. In recognition of this fundamental obstacle, the Revised Offer takes the form of a hybrid solution by having the valuation to be undertaken by an expert valuer while leaving he resolution of the disputes to the court. This gives rise to a number of unsatisfactory features, despite that the Revised Offer was obviously carefully thought out and structured.

23. Firstly, in terms of case management, the Revised Offer does not present any comfort to the court. The court is not relieved of the task of a trial on the complaints raised by the petitioners. The Derivative Action will go on. Judicial resources remain to be spent and the parties will still have to incur costs on investigations of the finance of the Company and on examinations of the complicated and elaborated transactions concerning the Interstitial Scheme. The rejection of the Revised Offer does not bring about unnecessary proceedings. A trial will not be avoided by the acceptance of the Revised Offer. The argument that it is an abuse of the court process to insist on pursuing the petition therefore has no application here. There is no question of an abuse of process by insisting on having a day in court. The petitioners will have their day in court whether they reject or accept the Revised Offer. There is likewise no question of the 1st respondent being oppressed in being dragged to the court.

24. Leading counsel for the 1st respondent has submitted that the Revised Offer, if accepted, will dispense with the hearing on the application to appoint provisional liquidator to the Company, due to be heard in 3 weeks' time, and will also close down the other complaints raised in the Amended petition and the proposed re-amendment. I cannot agree. The other complaints pleaded by the petitioners are not so separate and distinct from the issues of misappropriation of funds and the Interstitial Scheme that they are irrelevant to the Derivative Action. It is highly probable that they will be alluded to in the trial of the Derivative Action as affording the background to the disputes therein. There will also not be any substantial savings of judicial time and legal costs by dispensing with the hearing on the appointment of provisional liquidator. Leading counsel for the 1st respondent has further pointed out the undesirability of subjecting the Company, which is a successful and thriving one, to the threat of a winding-up petition. This, however, is not a relevant factor for considering whether efficient administration of justice requires that the petition be struck out or stayed where the petition is not otherwise an abuse of the process.

25. Secondly, it is inappropriate to leave it to the valuer to decide on whether to take the $257.8 million subscription money into account in determining the value of the Company and of the petitioners' shares. In as much as an expert valuer is not equipped to resolve the complicated issues involved in the Interstitial Scheme, an expert valuer is in no position to adjudicate on the source of the funding for the subscription money and to decide whether the $257.8 million originated from the Company or from the 1st respondent. This issue is also closely intertwined with the Interstitial Scheme, such that there is no good reason for leaving it to the valuer when the 1st respondent has accepted that the Derivative Action is the best forum for resolving the disputes relating to the Interstitial Scheme. It has been suggested that the valuer can leave out the $257.8 million if he is unable to form a view on it, and that the matter will be referred to him again after the determination of the Derivative Action for the purpose of making adjustment to the valuation. This is not a satisfactory answer. It does not remove the fundamental objection of leaving a dispute of this nature to the valuer. Further, the valuation process is rendered unduly cumbersome and does not achieve the objectives of economy and expedition. It is also to be noted that given that the method, basis and reasons for the valuation will not be made known, the parties will not know whether the valuer has taken the subscription money into account in arriving at the valuation for the first tranche of shares. In my view, the problems associated with the subscription money and paragraph 10 of the Revised Offer highlight the impracticable and unsatisfactory nature of having an expert valuation before a court adjudication on the factual and legal disputes, and in turn the hybrid approach adopted by the Revised Offer.

26. Thirdly, the Revised Offer contains a major shortcoming in that it does not provide for "equality of arms" between the parties. In O'Neill v. Phillips, supra, Lord Hoffmann observed that both sides should have the same right of access to information about the company which bears upon the value of the shares, and that both sides should have the right to make submissions to the valuer. The terms of the Revised Offer, however, only enables the petitioners to have information relevant to any point on which the valuer requires submissions from the parties. Also, the petitioners can only make submissions to the valuer when required and called upon by the valuer. The 1st respondent argues that the Revised Offer does not fall short of the requirement of "equality of arms". It is submitted that "equality of arms" does not mean that the petitioners are to be given full and unlimited access to the books and records of the Company. If the "equality of arms" is to be understood as affording the petitioners unlimited access to company documents and records, then there will be an inherent tension between this requirement and the objectives of economy and expedition as stated by Lord Hoffmann in O'Neill v. Phillips, supra. In addition, ordinarily members of a company have no right to access company books and records. Accordingly, the 1st respondent says that the only way to go about the question of information relating to the Company is to accept that the valuer is an expert and assumes an inquisitorial role, so that it is for him to go through whatever books and records of the Company as he sees fit. As and when he requires assistance from the parties, there will be equality of arms in that both sides will be provided with the relevant information.

27. The submissions of the 1st respondent have taken a very restricted view of the judgment of Lord Hoffmann in O'Neill v. Phillips, supra, and is plainly contrary to the views expressed in other cases. In Re a Company (No. 003843 of 1986) (1987) 3 BCC 624, Lord Millett considered that the offer before the court was a sufficient one in that it ensures that "both sides will have an opportunity to have access to all the company's books and papers and to make whatever representations they wish to make to the independent accountants". This part of Lord Millett's judgment was cited and adopted by Hoffmann J in Re a Company (No. 00834 of 1998), supra, at pp.221H-222C. See also the case of Re a Company (No. 00836 of 1995), supra, at p.202h in which the open offer, considered suitable by the court, clearly enables the petitioner to have full access to the books and records and documents of the company for the purpose of enabling the petitioners' accountants to make such representations as to value as they consider appropriate.

28. In the present case, the mechanism envisaged by the Revised Offer only affords the petitioners a limited opportunity to make representations on the value of the Company and also limited access to company information. That is hardly fair and sufficient given the petitioners' complaint that the 1st respondent has been practising a scheme of manipulating the company funds and assets. With the limited right to make representations, the petitioners will not be able to draw to the valuer's attention matters or areas of concern. On the other hand, it has throughout been the petitioners' complaint that the 1st respondent has withheld and suppressed information relating to the Company so that the picture of the Company in terms of finance and movements of assets is far from clear. Without free access to the books and accounts of the Company, the petitioners will not be able to make meaningful representations to the valuer on matters or areas of concern. The limited rights to access company information and to make representations are therefore insufficient to address the unfairness and prejudice complained of by the petitioners or to ensure that the petitioners will be given a fair price for their shares.

29. Leading counsel for the 1st respondent argues that observation of Lord Hoffmann on equality of arms is no more than a guidance to practitioners. Reference was made to Re Taipao Resins Chemical Company Limited (unreported) HCCW 590/1998 in which le Pichon J. (as she then was) only ordered that the valuer be given full access to the company books accounts and documents. There are however significant differences between the two cases. The order in Re Taipao Resins Chemical Company Limited was made after a full trial, so that discovery would have been completed. The order was also made after the court had made findings and determinations on the disputes between the parties, including whether a brand name or trademark forms part of the company asset. In the present case, not only had discovery not been completed, but also there have been allegations of suppression of information and documents on the 1st respondent's part. In addition, the central complaints had yet to been determined.

30. In the circumstances, it cannot be said that the Revised Offer is plainly a suitable and reasonable one. It follows that it is not unreasonable for the petitioners to refuse to accept it. There is in addition another objection to the Revised Offer, namely, that it is not available to HYHT. The 1st respondent has argued, and I agree, that when the initial offer to buy-out was made, HYHT was not a party to the proceedings and there was no application to join it as a party. Accordingly, the 1st respondent cannot be criticised for not including HYHT in the initial offer. The 1st respondent, however, further argues that the Revised Offer should not be made available to HYHT for the reason that HYHT had no real cause for complaint and that the application to join as a petitioner is a tactical move to try to obtain a benefit out of the 1st respondent's offer to buy-out. In my view, the question to be asked is whether HYHT has a genuine cause for complaint. Although it was not a party to the petition as amended, HYHT had been referred to in the petition as amended as having raised objections to the Rights Issue Exercise: paragraphs 78, 91-92 of the Amended Petition. Given the background of this case, including the 1st respondent's previous unsuccessful attempt to wind up HYHT, it is not a case where one can say confidently that HYHT has or can have no genuine cause for complaint, so that the petitioners' desire to include HYHT in the Revised Offer is merely attempt to enable HYHT to gain a benefit which it has no prospect of achieving under section 168A. This case is therefore to be distinguished from Re Astec (BSR) plc [1998] 2 BCLC 556, at p.592a-c where the petitioners were seeking advantages for other shareholders who had not even sought to be joined as petitioners. While I appreciate the submission that to extend the Revised Offer to HYHT will involve adding a substantial financial burden on the 1st respondent, I do not accept that the petitioners have been acting unreasonably in seeking to have the Revised Offer made available to HYHT.

31. A further objection raised by the petitioners is that there is insufficient safeguard against the failure to complete the purchase. One of the petitioners' concern is that the Revised Offer only provides that the 1st respondent will not oppose a winding-up order if the purchase is not completed due to a failure on his part to act in good faith to carry out his obligations under the agreement, and does not cover the situation where the third party procured by the 1st respondent fails to complete the purchase. Indeed the plain wording of the Revised Offer does not make provision for such eventuality. However, Mr Todd QC in his submission indicated that the 1st respondent accepts that he will be obliged to complete the purchase where the third party fails to complete. This clarification, although not apparent from the terms of the Revised Offer, sufficiently addresses the concern of the petitioners in this regard. The other concern of the petitioners relates to the part of the Revised Offer which provides that the 1st respondent reserves his right to oppose to a winding-up order in the event that the petitioners fail to give free and unencumbered title to any of their shares. The petitioners' worry is that this will pave way for the 1st respondent to renege on the agreement to purchase the shares by challenging the ownership of the petitioners' shares in that the 1st respondent has only undertaken not to challenge the shares of his 3 sisters, but not that of HYHT. The 1st respondent had in the past challenged the rights of his sisters to the shares in the Company as well as the 450 shares held by HYHT. Although I do not necessarily agree with the petitioners that the Revised Offer presents a "trap" in this regard, I will not dismiss the petitioners' concern and worry as being fanciful. Having regard to the many tedious litigation between the parties that preceded these proceedings, I do not consider that it is unreasonable for the petitioners to adopt such a cautious attitude and to look for more safeguards.

32. For the above reasons, I do not agree that the 1st respondent has made out a plain and obvious case that it is an abuse of the court process for the petitioners to pursue the winding-up petition, having regard to the terms of the Revised Offer. Accordingly, the 1st respondent's summons for an order striking out or staying the Amended petition is dismissed.

The Petitioners' Summons

33. The 1st respondent has indicated that if he is unsuccessful on his summons, he will not oppose the petitioners' summons insofar as it relates to joinder of respondents and leave to use the documents disclosed herein for the Derivative Action and other related proceedings. The 1st respondent also does not oppose the re-amendment save in relation to paragraphs 121A to 121H. The only objections to the petitioners' summons are on the application to join HYHT as a petitioner and paragraphs 121A to 121H of the proposed re-amendment.

34. On the application to join HYHT, the 1st respondent's objections are that the application was made too late and it was made with an ulterior motive of benefiting from the 1st respondent's offer to buy-out. The pertinent question to be asked in determining the application is whether HYHT is a proper party to the petition. I have in the earlier part of this Decision observes that HYHT it cannot be concluded with certainty that HYHT has no real cause for complaint. The complaints of HYHT have further been expanded and elaborated under paragraphs 121I to 121K of the proposed re-amendment. It follows that it cannot be said that HYHT has no genuine cause of action and is not a proper party to the petition. Although HYHT was not made a petitioner at the initial or earlier stages of the proceedings, it is not suggested that the 1st respondent suffers any irreparable prejudice occasioned by the late joinder of HYHT as a petitioner. I am of the view that the application to join HYHT as a petitioner should be granted.

35. As to paragraphs 121A to 121H of the proposed re-amendment, the 1st respondent's objection is that they are not matters of unfair conduct in the operation of the Company. I agree. The petitioners' allegations in these paragraphs relate to the 1st respondent's failure and refusal to make full discovery herein of documents concerning the Interstitial Scheme. They are not proper allegations to be included in a petition. Paragraphs 121A to 121H of the proposed re-amendment are therefore disallowed.

Conclusions

36. To sum up, the orders that I make are as follows:

(1) The 1st respondent's summons to strike out or stay the Amended petition is dismissed with costs to the petitioners together with certificate for 2 counsel.

(2) There be an order in terms of paragraphs 1 and 2 of the Petitioners' summons filed on 26 March 2001.

(3) The Petitioners do have leave to re-amend the petition in the manner as shown in green in the draft Re-amended petition annexed to the Petitioners' said summons save and except paragraphs 121A to 121H thereof.

(4) The Re-amended petition be filed and served on the 3rd to 7th respondents within 7 days from the date of this Order. Service on the 1st and 2nd respondents is dispensed with.

(5) There be an order in terms of paragraph 4 of the petitioners' said summons.

(6) The costs of the petitioners' said summons and the costs of and occasioned by the Re-amended petition be to the 1st respondent against the petitioners in any event.

Representation:

Mr Patrick Fung SC and Mr Johnny Mok instructed by Messrs. Liu Choi & Chan for the petitioners.

Mr Michael Thomas SC, Mr Michael Todd QC and Mr Paul Shieh instructed by Messrs. Jones Day Reavis & Pogue for the 1st Respondent.

Messrs. Herbert Smith & Co. for the 2nd respondent absent.

Official Receiver not attending.