Re Yick Fung Estates Ltd
Read the full judgment text of on BabelCite. was delivered on 15 June 1984.
1. On the 19th March 1984 petitions were presented by two contributories Waychong Estates Limited (1st petitioner) and Cheng Kwei Sheng (2nd petitioner) to wind up Yick Fung Estates Limited (1st respondent) and Shui Hing Investment Limited (2nd respondent) on the just and eguitable ground under Section 177(f) of the Companies Ordinance. An order for consolidation of the two petitions was made on the 27th April 1984.
|
HCCW000100A/1984
COMPANIES (WINDING UP)
_________
_________ (CONSOLIDATED BY THE ORDER OF ___________________ Coram: The Honourable Mr. Justice Jones in Court. Dates of hearing: 17 - 18, 21 - 25 & 28 - 30 May 1984 Date of delivery of judgment: 15 June 1984 __________ JUDGMENT __________ 1. On the 19th March 1984 petitions were presented by two contributories Waychong Estates Limited (1st petitioner) and Cheng Kwei Sheng (2nd petitioner) to wind up Yick Fung Estates Limited (1st respondent) and Shui Hing Investment Limited (2nd respondent) on the just and eguitable ground under Section 177(f) of the Companies Ordinance. An order for consolidation of the two petitions was made on the 27th April 1984. 2. I have before me motions to strike out the petitions on the grounds that they are vexatious, prejudicial or embarrassing to the fair trial of the derivative action between the petitioners and the respondents and their associates or as an abuse of the process of the court. In the alternative an order is sought for a stay until after judgment in the action. FACTS 3. T.H. Wang and his wife Nina Wang (the Wangs) control a group of private companies known as the Chinachem group. The group includes the two respondent companies, Hop Kay Company Limited (Hop Kay), On Lee Investment Company Limited (On Lee), Wing Wong Company Limited (Wing Wong) and Ripple Corporation Limited (Ripple). The first petitioner and the two respondent companies were incorporated for the purpose of real estate development. The Wangs control 80% of the issued share capital of the respondents whilst the 1st and 2nd petitioners each hold 10%. The Wangs, Tai Ching Ping (Tai) an employee of the Wangs, the 2nd petitioner, and Ho Chew who represents the interests of the 1st petitioner are directors of both the respondent companies. Another company under the control of the Wangs Sunday Investment Limited is also a director of the 2nd respondent. 4. Prior to 1976 the Wangs representing the Chinachem group ant the 1st petitioner represented by Ho Chew or other companies carried out certain real estate developments as joint ventures. The 2nd petitioner had also been engaged in joint ventures with the Wangs. 5. In May 1976 a joint venture agreement was entered into between the Wangs on the one hand and the 1st and 2nd petitioners on the other for the development of Shatin Town Lot No. 11 as a residential and commercial complex. For this purpose the two respondent companies acquired land as tenants in common in equal undivided shares from the Hong Kong Government by public tender for $66,500,000. Completion of the development was to be on or before the 31st December 1982. It is common ground that the management of the project has throughout been under the control of the Wangs. 6. Disputes arose between the parties at an early stage in the development, but were resolved by correspondence in September 1977. 7. In December 1979 four residential blocks that were in the course of erection on the land were sold by the respondent companies at an alleged under value to Wing Wong and Ripple. The petitioners claim that they had no knowledge of these transactions. 8. On the 22nd December 1982 the petitioners' solicitors wrote to the Wangs requesting explanations on various documents and accounts. Further correspondence ensued until April 1983 when the writ in the derivative action was issued. It is clear that the petitioners had contemplated filing a winding up petition in May 1983, but a petition in draft form was not ready until October 1983. ,Negotiations held without prejudice to try to achieve a settlement were conducted between the solicitors for the parties in December 1983 and January 1984, but were unsuccessful. Of the 14 tower blocks that were originally contracted to be built 8 have so far been completed and some progress has been made on the other 6. 9. By reason of the failure to complete the project within the stipulated period Government re-entered the undeveloped portion of the land on the 20th January 1984. However, the re-entry was subsequently cancelled on the 15th May 1984. 10. On the 15th April 1983 the petitioners as minority shareholders commenced a derivative action against the respondent companies and their associates on behalf of the respondent companies and their shareholders for damages for fraud and conspiracy. A defence was filed on the 4th July 1983, a request for further and better particulars of the defence was delivered on the 30th September 1983, and particulars were filed on the 21st November 1983. A reply was filed on the 10th April 1984 and a request for further and better particulars of the reply was delivered on the 15th May 1984. 11. The statement of claim includes a number of allegations of fraud, breach of fiduciary duty and lack of bona fides. The petitions contain a series of allegations of breaches of duty by the Wangs which the petitioners claim resulted in their exclusion from consultation and decision making. In particular the petitioners rely on paragraph 21 of the petition which reads:-
Specific allegations are made that construction costs were high, architectural fees excessive, funds were improperly diverted, failure to disclose accounts, and that the Wangs were guilty of mala fides. 12. By virtue of the conduct alleged the petitioners contend that the joint venture has been prejudicially affected by putting the assets of the companies in jeopardy. The petitioners also claim that they have lost confidence in the Wangs because of an abuse of their power as directors and controlling shareholders of the companies with a view to benefiting themselves at the expense and to the detriment of the petitioners and the companies. LACK OF GOOD FAITH 13. A petition presented to put pressure on a company in order to achieve a collateral purpose is not properly presented See In re a Company (1894) 2 Ch. 349, In re Bellador Silk Ltd. (1965) 1 All E.R. 667, In re a Company (No. 001573 of 1983) The Times 12th May 1983. 14. Mr. Bromley who appeared for the applicants gave several illustrations of conduct by the petitioners which he contended was oppressive. First without prejudice negotiations between the parties solicitors were held under the threat of the petitioners to file winding up petitions if a satisfactory settlement was not reached. Secondly the petitions were advertised despite a request to delay publication until after the hearing of the motions to strike out. Thirdly the prosecution of the derivative action has been delayed by the petitions which has caused further harassment to the Wangs. Fourthly the petitions are not bona fide and contain paragraphs that are tricky. Fifthly the oaths of the deponents in support of the petitions areunreliable. Sixthly the petitioners have filed the petitions in disregard of the class rights of creditors. 15. It is clear that the petitioners have instituted these proceedings in order to extricate their investments from the respondents. Negotiations conducted with a view to settling the proceedings do not in my opinion amount to imposing pressure. In fact the respondents at one stage expressly requested the petitioners to defer instituting proceedings so that negotiations could continue Having regard to these facts I am unable to agree that the petitions are stale although the petitioners did not proceed as expeditiously as they might have done. 16. The petitions were served three weeks before the respondents made their request to delay the advertisement of the petitions. During that time the respondents had ample time to apply for an interlocutory injunction to restrain the publication of the advertisements but chose to take no action. Having taken no steps to do so it ill behoves the respondents to complain that the petitioners were guilty of more than a solecism when they did not accede to their request. 17. Sinister motives have been suggested for delay in the action by the petitioners despite extensions granted by both sides for the filing of pleadings. No summonses were issued by the respondents for orders to compel filing of pleadings within a specified period. I do not consider that the delay amounted to oppressive conduct. 18. It is conceded that the petitions reveal a good cause of action. However, whether or not they are bona fide and contain paragraphs that are tricky cannot be tested without viva voce evidence. Again for the same reason it is premature to express any opinion on the reliability of the oaths of the respective deponents. The assertion that the petitioners have acted in disregard of the class rights of creditors was without foundation for no creditors have announced an intention either to support or to oppose the petitions. EXCLUSION 19. Mr. Bromley submitted that although exclusion is fundamental to the petitioners case it is untenable upon the evidence. On the other hand Mr. Ching who appeared for the petitioners asserts that whereas it was agreed that the day to day management of the project was to be in the hands of the Wangs, it.was still their duty to keep the petitioners informed of all policy matters and to consult them on all major decision making. 20. The petitioners' main complaints relate to the lack of knowledge of the transactions with Wing Wong and Ripple, the monies drawn down from Citibank, the failure of the Wangs to contribute towards the joint venture up to their proportion of 80% and the failure to inform them of the possibility of re-entry by Government. Mr. Bromley says that the petitioners did not accept the applicant's invitation to attend board meetings where they could have acted as watchdogs. Having lost confidence in the Wangs, the rejection of this offer does not appear to be unreasonable. 21. Whilst there is a great deal of common ground on the facts there are substantial disputes with regard to the actual or implied authority of the Wangs. The contention that exclusion is untenable is much too ambitious without hearing and seeing the witnesses. DUALITY OF PROCEEDINGS 22. The main thrust of Mr. Bromley's argument is that it is an abuse of the process of the court for the petitioners to elect to litigate substantially the same matters in two sets of concurrent proceedings. It is therefore necessary to examine the circumstances of the two sets of proceedings See Metropolitan Bank v. Pooley (1885) 10 A.C. 210. In Wright v. Bennett (1948) 1 All E. R. 227 it was held that where the facts in a second action between the same parties were substantially the same as in the first action, the proceedings were an abuse of the process of the court and were struck out. In principle the court discourages multiplicity of litigation in any form, see Thames Launches Ltd. v. Trinity House Corporation (1961) 1 Ch. 197, Royal Bank of Scotland Ltd. v. Citrusdal Investments Ltd. (1971) 1 W.L.R. 1469. 23. The petitioners are also the plaintiffs in the action whilst apart from Tai who is a defendant in the action the Wangs and their associates are the other parties to both sets of proceedings. Many issues are included in the two proceedings, and some matters are raised in one proceedings, but not the other. Fraud is alleged in the action, but not in the petitions. However Mr. Bromley complains that the allegations in the petitions have been deliberately pleaded to cloak what in reality are allegations of fraud. Mr. Ching maintains that it was not necessary to plead fraud in the petitions. 24. There is a clear distinction between the two sets of proceedings. The derivative action has been brought by the petitioners on behalf of the companies and their shareholdersbecause the Wangs have refused to allow the companies to be sued. The action is brought for damages done to the companies in the past in respect of breaches of duty which the Wangs as directors owed to the companies. The companies are joined in the proceedings as a matter of procedure. No damages however can be awarded on the hearing of the petitions which are proceedings for the benefit of the contributories to extricate their investments. 25. Mr. Bromley maintains that the companies in reality are quasi-partnerships. He submits that the petitioners should prove their case for damages for fraud first and then if successful prove afterwards in the winding up. If the petitioners are allowed to proceed he says that there is a danger that res judicata will arise at the hearing of whichever Proceeding is heard last. Accordingly the court should not encourage the likelihood of this happening. He therefore urges me to strike out or stay the petitions on the grounds that the petitioners by instituting the action ab initio should be bound by that election. 26. In Re San Imperial Corporation Limited (1980) H. K. L. R. 649 it was held that it was not oppressive to allow a minority shareholders' action and a winding up petition to be brought since both the action and the petition were required to remedy the situation that had arisen and what could be foreseen as to the future-In his judgment at p. 650 O'Connor J. said:-
27. Mr. Bromley sought to distinguish that case because no evidence had been filed to effectively challenge the allegations in the petition. At that stage O'Connor J. was only in a position to determine whether the evidence adduced on affidavit was sufficient to justify the grounds held by the petitioners for their lack of confidence in those in control of the company. Indeed although no evidence in opposition had been filed the petition was opposed by the company. Upon analysis there is no distinction on that ground between that case and the instant case. SUITABLE ALTERNATIVE REMEDIES 28. Having argued that the petitions should be struck out on the grounds of duality of proceedings Mr. Bromley went on to submit that the petitioners should have availed themselves of alternative remedies to winding up. He suggested that a receiver or manager could be appointed under Section 19 of the Supreme Court Ordinance or that a petition be filed pursuant to Section 168A of the Companies Ordinance which enables a 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 to apply to the court for an order inter alia for the purchase of his shares. The argument against duality was therefore confined to the applicant's fear of a winding up order. 29. However, Section 180(1A) of the Companies Ordinance provides that a winding up order will not be refused where it is just and equitable on the ground that some other remedy is available unless the petitioners have acted unreasonably. The onus is upon the applicants to establish that the petitioners have acted unreasonably. 30. A contention for the applicants that there was no evidence to show that the petitioners were not in a position to transfer their shares was on the facts unrealistic. There was no evidence that there is a potential buyer in the offing. 31. Mr. Bromley asserted that it was necessary to prove that there will be a surplus available for distribution to shareholders on the making of a winding up order. At the hearing it will be necessary to prove that the petitioners will have a tangible share of the surplus to receive, see In re Rica Gold Washing Company (1879) 11 Ch. D. 36. However, at this stare such an allegation need only be pleaded. In Lenka Investments Ltd. and Another v. Cheung Kong (Holdings) Ltd. and Another (1983) H. K. L. R. 258 it was held:-
32. It is unfortunate that the project may not come to fruition as a result of a winding up order. Nevertheless the applicants have failed to persuade me that the petitioners have acted unreasonably in filing the petitions. The evidence if accepted supports the petitioners' allegation that they have no confidence in the continued management of the companies by the Wangs. I do hot consider that the petitioners have commenced procaedings for an improper motive or for a collateral purpose. Both sets of proceedings are necessary to resolve the matters in issue. 33. As a result the motions will be dismissed.
Representation: Mr. L. J. Bromley, Q.C., Mr. K. Bokhary, Q.C. & Mr. A. Ismail (Woo, Kwan, Lee & Lo) for Applicants (Respondents). Mr. Charles Ching, Q.C. & Mr. Winston Poon (Philip K. H. Wong & Co.) for Petitioners. Mr. E. J. Davison for Official Receiver. |