Yuen Sau Fai and Others v. Yun Jip Auto Services Ltd and Others

HCMP002245/1989

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Hon. Jones J. in Chambers

Date of hearing: 19 December 1989

Date of handing down judgment: 4 January 1990

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JUDGMENT

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1. I have before me a summons issued under Order 18, rule 19 of the Rules of the Supreme Court and the inherent jurisdiction of the court on behalf of the 2nd to 8th respondents to strike out a petition presented on the 30th August 1989 by four contributories.

2. For the purposes of the present summons, argument has been confined to the issue that the petition discloses no reasonable cause of action under Order 18, rule 19(1)(a) with the result that I am only concerned with the allegations contained in the petition which, for the purposes of this application, I must assume are true and can be proved at the trial.

3. The petition reveals that the 1st respondent, Yun Jip Auto Services Limited (the company), was incorporated on the 23rd April 1980 with a nominal capital of $2 million divided into 20,000 shares of $100 each. The amount of capital paid up or credited as paid up is $1,910,000. The four petitioners hold 7,400 shares and the 2nd - 8th respondents 10,900 shares whilst there is one other shareholder who is not a party to the proceedings.

4. The company was originally formed mainly for the purpose of operating bus services in the People's Republic of China (PRC) but the business was later expanded to bus services plying between the PRC and Hong Kong.

5. The petition seeks relief under section 168A of the Companies Ordinance on the grounds that the affairs of the company are being conducted in a manner unfairly prejudicial to a part of the members of the company including the petitioners. Section 168A reads as follows:-

"168A.  (1) Any member of a company who complains that the affairs of the company are being conducted in a manner unfairly prejudicial to the interests of some part of the members (including himself) ........., may make an application to the court by petition for an order under this section."

6. Seven complaints have been alleged in the petition which are as follows :-

7. On the grounds that the conduct alleged is unfairly prejudicial the petitioners seek inter alia, the following relief :-

8. Mr Poon, counsel for the 2nd - 8th respondents referred me to a number of English authorities under section 210 of the Companies Act 1948 from which section 168A is derived and to the later sections, section 75 of the Companies Act 1980, and section 461 of the Companies Act 1985 that improved the wording of the earlier section. Although the wording is different from section 168A, the principles to be gleaned from those authorities are clearly applicable to an interpretation of our section.

9. Buckley J. explained the scope of section 210 which deals with oppressive conduct in In re Five Minute Car Wash Service Ltd. [1966]1 W.L.R. 745 at 751 where he had this to say :-

"To succeed in obtaining relief under the section a member of a company must have established that at the time when his petition was presented, the affairs of the company were being conducted in a manner oppressive of himself, or of a part of the members including himself, and unless a petitioner in his petition alleges facts capable of establishing that the company's affairs are being conducted in such a manner, the petition will disclose no ground for granting any relief and will be dismissed in limine as being demurrable.

First, the matters complained of must affect the person or persons alleged to have been oppressed in his or their character as a member or members of the company. Harsh or unfair treatment of the petitioner in some other capacity, as, for instance, a director or a creditor of the company, or as a person doing business or having dealings with the company, or in relation to his personal affairs apart from the company, cannot entitle him to any relief under section 210.

Secondly, the matters complained of must relate to the conduct of the affairs of the company,

Thirdly, they must be such as not only to make the winding up of the company just and equitable, but also to lead to the conclusion that the affairs of the company are being conducted in a manner which can properly be described as 'oppressive' of the petitioner, and, it may be, other members. The mere fact that a member of a company has lost confidence in the manner in which the company's affairs are conducted does not lead to the conclusion that he is oppressed; nor can resentment at being outvoted; nor mere dissatisfaction with or disapproval of the conduct of the company's affairs, whether on grounds relating to policy or to efficiency, however well founded."

On page 752, Buckley J. referred to two earlier authorities under section 210 which were also cited to me by Mr Poon when he said :-

"In Elder v. Elder & Watson Ltd. (1952 S.C. 49), also a case under section 210, the Lord President, Lord Cooper, said (55):

'... the essence of the matter seems to be that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely;'

and Lord Keith said (60):

'... oppression involves, I think, at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder.'

These observations of Lord Cooper and Lord Keith have been cited with approval by the Court of Appeal in In re Harmer (H.R.) Ltd. ([1959] 1 W.L.R. 62; [1958] 3 All E.R. 689, C.A.)."

10. In our legislation the words unfairly prejudicial should be substituted for oppressive.

11. From the authorities cited it is clear that relief under section 168A can only be sought as a result of conduct of the affairs of the company which is unfairly prejudicial to the petitioners in their capacity as members of the company and not with regard to any other interests they may have such as a creditor or director.  Further, the conduct in respect of which complaint is made must involve a lack of probity or fair dealing and justify the making of a winding up order on the just and-equitable ground. Mr Poon submitted that the conduct complained of merely affected the rights of the petitioners in their capacity as directors of the company and not in their capacity as members. Nevertheless the company in this case was clearly a quasi. partnership company within the principles enunciated in In re Westbourne Galleries Ltd [1973] A.C. 360 where Lord Wilberforce said at 379:-

"......a limited company is more than a mere legal entity, with a personality in law of its own. that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights; expectations and obligations inter se which are not necessarily submerged in the company structure."

12. The dismissal or attempted dismissal of two of the petitioners as directors of the company, the withdrawal of funds by three of the respondents without authority and the removal of the books of account and the chop and the continued presence of the 2nd respondent on the Board following his lawful dismissal are acts that clearly amount to a lack of probity. The acts relate to the conduct of the affairs of the company which would, if proved and I must assume that they will be proved, amount to unfair and prejudicial conduct that would justify the making of a winding up order on the just and equitable ground. The rights of the petitioners have not only been affected in their capacity as directors, but also in their capacity qua members with the result that they are entitled to seek relief under section 168A.

13. Accordingly, the application to strike out the petition on the Bounds that there is no reasonable cause of action will be refused. There will be an order nisi for costs to the petitioners.

14. There will be liberty to restore the summons if the 2nd - 8th respondents wish to argue any of the other grounds relied upon.

Representation:

Mr Francis Eddis, Q.C. and Mr Rimsky Yuen (Raymond Hung & Co.) for the Petitioners.

Mr Winston Poon and Mr Tim Kwok (Woo & Woo) for the 2nd - 8th Respondents.