Re Playmates Investments Ltd
Read the full judgment text of HCCW 270/1994 on BabelCite. This High Court CFI judgment was delivered on 5 July 1996 before The Hon Mrs Justice Le Pichon.
Company law – winding-up petition – application for leave to re-amend the Petition – addition of two allegations: (1) breach of s.80 of the International Business Companies Ordinance of the British Virgin Islands in respect of transfers forming the final phase of the restructuring of the group; and (2) disposal of eight houses at 52 Plantation Road at an undervalue with alleged non-disclosure by Thomas Chan to the Petitioner – whether the allegations were abandoned by omission from the original Petition despite being raised in pre-petition correspondence – whether reinstatement of an abandoned claim is permissible – the Cargill v. Bower line of authority considered and held not to be an absolute bar to reinstatement of a deliberately omitted claim, the court retaining a discretion – winding-up petition having no equivalent of a writ and statement of claim, so pre-petition correspondence cannot be equated with pleadings – Woomera Co. Ltd. v. Provident Centre Development Ltd. applied – whether allowing the amendments would cause prejudice to the Respondent and Opposing Contributories – principles in Ketteman v. Hansel Properties Ltd. applied – burden on opposing party to show non-compensable prejudice (Kwan Shiu Cheong Charles v. Ferrari SpA) – submissions based on lack of draft affidavit, need for extensive factual and expert evidence on BVI law, open-ended discovery, Mr Chan Tai Ho's health, and Mr Thomas Chan's management burden rejected – s.80 issue substantially a question of law and Plantation Road issue a narrow non-disclosure complaint – leave to re-amend granted – discovery – O.24, r.3 of the Rules of the Supreme Court – whether an order for discovery of minute books of group companies, loan documents, and dividend records can be made without the supporting affidavit required by O.24, r.7(3) – r.3 and r.7 held to overlap – broad and flexible construction of r.3 justified in winding-up proceedings where there is no general discovery – requests related to 'matters in question' between the parties – form not to prevail over substance – discovery ordered with lists of documents to be served by 2 August 1996 – ancillary orders made for filing of reply affirmations, exchange of trial documents by 9 August 1996, merger of lists of issues, and provision of Chinese translations by 2 August 1996 – costs of 1 July hearing to be costs in the cause, costs of 4 and 5 July hearing to the Petitioner (Lessy S.A.R.L. and Pacific Star Development Ltd. applied).
Legal issues: Whether proposed amendments to winding-up petition were abandoned by omission from the Petition · Whether allowing the proposed amendments would cause prejudice to the Respondent and Opposing Contributories · Whether an order for discovery against the Respondent and Opposing Contributories could be made under O.24, r.3 without a supporting affidavit
Outcome: Petitioner granted leave to re-amend the Petition; discovery ordered against the Respondent and the Opposing Contributories; ancillary orders made for filing of evidence, exchange of documents, list of issues, and Chinese translations. Costs of the 1 July hearing to be costs in the cause; costs of the 4 and 5 July hearing to the Petitioner.
Cites 1 case
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HCCW000270/1994 IN THE SUPREME COURT OF HONG KONG HIGH COURT COMPANIES WINDING UP NO.270 OF 1994 ----------------- In the matter of Playmates Investments Ltd. and In the matter of the Companies Ordinance (Cap.32) ----------------- Coram: The Hon Mrs Justice Le Pichon in Chambers Dates of Hearing: 4 and 5 July 1996 Date of Decision: 5 July 1996 Date of Handing Down Reasons: 12 July 1996 --------------------------------------------------- REASONS FOR DECISION --------------------------------------------------- 1. This Summons was taken out by the Petitioner on 27 June 1996 in s.168A proceedings which is set down for hearing on 2 September 1996. It seeks leave to re-amend the Petition, discovery and orders relating to certain ancillary matters. At the pre-trial review held on 1 July 1996, the Petitioner informed the Court that he was not proceeding with para.6 of the Summons at this time. Nevertheless, it was not possible to deal with the other matters raised in the Summons as the other orders sought were opposed by the Respondent and it was estimated that 1 1/2 days would be required. At the adjourned hearing which took place on 4 and 5 July, of the six matters remaining to be dealt with, only one, namely para.3 of the Summons (which sought leave to file affirmations/affidavits in reply to the issues raised in Lam Yip's second affirmation dated 17 October 1995) was not opposed. 2. At the end of the hearing, I granted the Petitioner leave to re-amend the Petition with consequential directions, ordered discovery against the Respondent and the Opposing Contributories, made an order dealing with the exchange of any further documents apart from those referred to in the Petition and the affidavits/affirmations already filed in addition to a formal order in relation to para.3 of the Summons. The reasons for the orders made appear below. Re-amendment of the Petition 3. The proposed amendments are self-contained. They seek to add two complaints to the Petition:
4. These two matters were first raised in the Petitioner's letters of 9 and 13 December 1993. Section 80 of the IBCO required that certain procedures be followed where assets to be transferred exceed 50% of the Company's assets. The allegation is that although the assets actually transferred exceeded the 50% limit, the procedures required had not been followed. The Respondent denies that the 50% limit was exceeded. This issue was ventilated in correspondence passing between the solicitors for the respective parties in January and February 1994 and it is to be noted that the letters from the Respondent's solicitors are the subject of hearsay notices served by the Respondent pursuant to O.38, r.22(2) of the Rules of the Supreme Court and s.47 of the Evidence Ordinance. The Petitioner's affirmation dated 24 July 1995 (at para.149) also made reference to it. As regards the Plantation Road allegation, that was also referred to in the Petitioner's affirmation of 24 July 1995 (at paras.138, 143, 146 and 148) as well as in Thomas Chan's affirmation of 26 January 1995 (at para.150). 5. The Respondent based its objection on two grounds: abandonment and prejudice. Abandonment 6. The Respondent's submission was that as the two allegations had been raised in correspondence some six months before the date of the Petition, their omission from the Petition was deliberate and constituted an abandonment of those claims. Counsel for the Respondent relied on a line of cases commencing with Cargill v. Bower [1878] 10 Ch. D. 502. In that case, one of the reliefs claimed in the writ was omitted from the statement of claim. Leave to amend the statement of claim was refused. It is clear from the judgment that the ground for refusing leave to amend was that by his conduct the plaintiff had elected to claim recission of the contract not in the action but in separate winding up proceedings. 7. Cargill was considered and followed in Harries v. Ashford [1950] 1 AER 427 which was also a case where relief claimed in the writ was omitted from the statement of claim. The Court of Appeal considered that having regard, inter alia, to Cargill, leave to amend should be refused and if they were not bound by authority, then in the exercise of their discretion, they should refuse the application to amend because of the long delay (three years) that had elapsed in that case. The third case in that line of authority is Cellular Clothing Co. Ltd. v. G. White & Co. Ltd. [1952] 70 RPC 9 where the applicant acknowledged that when the statement of claim was issued, he abandoned the infringement claim made in the writ because he felt he had no case for it. Harman J. refused leave to amend because he was of the view that the claim once abandoned remains abandoned and that it would be quite wrong to allow the plaintiffs who had deliberately taken the course they did and announced to the world and to the defendant the particulars they were going to rely on to substitute for those particulars other particulars that either were or ought to have been within their knowledge before they issued their writ. 8. Mr Yu Q. C. for the Petitioner submitted that the principle of Cargill is that relief claimed in the writ but not repeated in the statement of claim is treated as having been abandoned. It is not the ratio of that case that in such cases, leave to amend to reinstate the omitted claim must be refused. This is consistent with the Court of Appeal's approach to the question of abandonment in Woomera Co. Ltd. v. Provident Centre Development Ltd. [1985] HKLR 263. The alleged express abandonment was made by counsel at the hearing of an application for leave to amend the counterclaim. Yet it was held that that abandonment was not irreversible. It is clear from the judgment of Kempster J. A. (at p.267) that abandonment notwithstanding, the Court retained a discretion whether or not to grant leave to amend. 9. The present case concerns a winding up petition. There is not the equivalent of a writ and statement of claim. The allegations made in correspondence exchanged between the parties prior to the presentation of the Petition cannot be equated with reliefs claimed in a writ. Even if one were to do so, in my judgment, there remains a discretion in the court whether or not to allow the amendment. It is not the law that once a claim has been abandoned, it can never be reinstated. Whether or not it should would depend on the facts of the case. In the exercise of its discretion, the court is to have regard to well-established principles which are considered below. Prejudice 10. A convenient statement of the applicable principles is to be found in the House of Lords' decision in Ketteman v. Hansel Properties Ltd. [1987] 1 AC 189 in the speech of Lord Brandon at 212 F - H:
11. Mr Sujanani for the Respondent submitted that if leave were granted to re-amend the Petition to raise these two allegations, it would be grossly oppressive to the Opposing Contributories for which no order as to costs could possibly hope to compensate. First, it was submitted that because no draft affidavit or affirmation has been produced, the Respondent does not know what evidence it has to meet. Whilst I agree that it would have been of assistance had a draft been available, the parameters of the evidence to be adduced are not at large. Rather, they are defined by the nature of the proposed amendments. Having regard to their nature, I am not persuaded that the Respondent is being put at a disadvantage. 12. Second, it was submitted that the Opposing Contributories would need to file "factual evidence of the most extensive kind (some from overseas) and possibly expert evidence" in relation to the Plantation Road allegation. I do not accept that the effect of allowing the amendments sought means (as Counsel for the Respondent submitted) that the Opposing Contributories will now have to trace relevant officers of their then financial advisors, the Stock Exchange, the SFC, and the Respondent's Solicitors who were dealing with this transaction in 1993 and obtain from them now as to whether it was possible to change, in November 1993, the valuation date of 30 September 1993 as well as the consequences of such change. The complaint is simply that Thomas Chan knew prior to the reorganisation that occurred on 29 November 1993 of the increase in value of the Plantation Road properties by November and that he was under a duty to inform the Petitioner but failed to do so. The simple question is whether the Petitioner was informed about the change in the value of the properties prior to the restructuring. In short, the complaint here is about non-disclosure of material information. It is an allegation pertaining to the manner in which Thomas Chan was allegedly conducting the Company's affairs which the Petitioner claims makes it just and equitable that the Company be wound up. There is no question of putting the clock back and unwinding the restructuring that took place in 1993 nor is there an issue as to whether it was possible to do so prior to 29 November 1993. 13. Third, it was submitted that in relation to the s.80 point, the Opposing Contributories would have "to file factual evidence as to whether the 50% ratio was allegedly breached as well as to find and file expert evidence on BVI law" regarding that allegation, particularly as to the consequences of the alleged breach. As to the s.80 point, the transfers are a matter of record. The only question is one of law, namely, whether the 50% threshold was exceeded. It is difficult to see what factual evidence can be adduced on that issue. 14. Fourth, Mr Sujanani was at pains to emphasize that when I heard the application on 4 July, there were only 44 working days before the commencement of the trial. He submitted that the amendments should be refused on the ground of lateness. 15. As both matters have already been ventilated (it being evident from the correspondence that the Respondent obtained legal advice long ago not only from BVI lawyers but from leading counsel in London regarding the alleged breach), and since it is not at all apparent that there is factual evidence that can be filed to rebut the allegations, I reject the submission that it would be oppressive to the Opposing Contributories to require them to deal with the proposed amendments now. 16. Although the health of Mr Chan Tai Ho was raised as a factor, it is difficult to see what evidence Mr Chan Tai Ho could possibly file with regard to the allegations since it was Mr Thomas Chan who had dealt with the matters that give rise to the allegations. Whilst Mr Thomas Chan has the burden of managing two public companies, I do not accept that the evidence that he has to file is such as would materially impede him from discharging those duties. 17. Where prejudice is alleged, the burden is on the party opposing the amendment of showing prejudice: Kwan Shiu Cheong Charles v. Ferrari SpA [1994] 2 HKC 179 at 185 D - F. In the present case, I am not satisfied that the proposed amendments would cause prejudice to the Respondent or the Opposing Contributories that cannot be compensated for by appropriate orders for costs. I therefore grant leave to re-amend the Petition in terms of para.1 of the Summons. As to the filing of evidence, I make an order in terms of para.2 of the Summons save that the Respondent and the Opposing Contributories have leave to file affirmations/affidavits in answer to the Petitioner's affirmations/affidavits within 28 days rather than 14 days after service of the same on them. Discovery 18. Paragraph 4 of the Summons is in the following terms:
19. Paragraph 5 is in identical terms to para.4 save that it is the Opposing Contributories who have to serve the list of documents. 20. The order for discovery was opposed on the ground that the application falls within O.24, r.7(3) which requires an affidavit in support and no affidavit has been filed in the present case. It was submitted that this is a mandatory requirement which the Court has no power to waive. More specifically, the objection to paras. (a), (c), and (f) was that the request was open-ended, seeking as it does documents going back 20 to 30 years. The Respondent also challenged the relevance of the documents and submitted that relevance had not been made out. 21. On the question of relevance, the minute books sought are those of the major companies within the Group which would reveal the extent of the Petitioner's participation in decisions made by those companies. They would establish whether or not, as is the Petitioner's case, the Petitioner participated in executive decisions until his ouster in late 1993. Although the time span is relatively long, the discovery sought cannot be said to be particularly onerous since what is sought are minute books which are self-contained and not documents that have to be individually located in different files requiring extensive searches. Whether any particular minute book is now missing is a matter which I would have thought can readily be ascertained. 22. Order 24, rule 3 is in the following terms:
It is plain that paras. (a) to (d) of the discovery request is directed at establishing the Petitioner's participation in the management of these companies which lies at the heart of these proceedings. As to the requests made in paras. (e) and (f), these undoubtedly relate to specific issues raised in the Amended Petition. The requests plainly relate to "matters in question" between the parties: "matter in question" means a question or issue in dispute in the action: see 13 Halsbury's Laws of England, 4th Ed. para.38. 23. Counsel for the Respondent referred to the commentary at 24/3/1 of the Supreme Court Practice and submitted that the present application did not come within the three categories therein discussed so that rule 3 can have no application. I do not read the commentary as purporting to be an exhaustive statement of the objects of the rule. In any event, the scope of the rule is a matter of interpretation for the court and should not be constrained by artificial strictures appearing in the commentary. 24. Order 24, r.3 is of particular relevance in the context of winding up proceedings since in such cases, unlike ordinary High Court actions, there is no general discovery. Moreover, in such proceedings, lengthy affidavits are filed by the parties. Prima facie, therefore, a broad and flexible approach to the construction of O.24, r.3 is justified. In my judgment, the requests in paras.4 and 5 of the Summons, relating as they do to "matters in question" between the parties, are requests under O.24, r.3 for which no supporting affidavit is required. 25. Reference was made to the commentary to the effect that a party seeking an order for further discovery should consider carefully whether he should proceed under r.3 or r.7 or whether he should rely on both rules. Therefore to the extent that he resorts, or can only resort, to r.7 he must comply with the requirements of para. (3) of that rule or his application must fail. It is implicit in this commentary that r.3 and r.7 overlap. 26. But unless the request in question cannot fall within r.3, so that the requesting party can only resort to r.7, there is no reason for disallowing a request that can properly fall within r.3 particularly in cases such as winding-up proceedings where there is no general discovery to begin with. Nor should it necessarily be fatal that the request on its face does not actually specify the "matter in question". Form should not prevail over substance. Having reached this conclusion, it is unnecessary to consider whether or not r.7 has also been satisfied. 27. Accordingly, I order that the Respondent and the Opposing Contributories have until 2 August 1996 to serve on the Petitioner the lists of documents under paras.4 and 5 respectively of the Summons. Other relief sought in the Summons (a) Paragraph (3) 28. The Petitioner seeks leave to file affirmations/affidavits in reply to issues raised in Lam Yip's second affirmation dated 17 October 1995 relating to the making of her first affirmation dated 17 July 1995 within 14 days of the Order. This application was not opposed and I made an order in terms. (b) Paragraph (7) 29. The order sought in para.7 of the Summons is intended to avoid surprises at trial. The proposal (which is unquestionably sensible) is that each side should produce to the other documents that it may use at the trial, e.g. in cross-examination, which have not been referred to in the Petition and the affidavits/affirmations. The Petitioner served copies of those documents on the Respondent on 27 June 1996. The objection raised appeared to be based on the lack of time rather than on the lack of merit. 30. In these circumstances, I ordered that the exchange take place on or before 9 August 1996 and in the event of disagreement, further affirmations/affidavits referring to any further documents a party wishes to rely on at the trial be filed within 14 days from 9 August 1996. List of issues 31. Each of the Petitioner and Respondent has submitted a list of issues. Given that the lists do not appear to overlap, the two documents should be merged into one. Chinese translations of affirmations 32. It is agreed that as the record is in English, such translations do not form part of the record and are meant to assist a witness to refer to his own statement in his own language. Unless the translations are exchanged in sufficient time before the commencement of the hearing on 2 September 1996, there would be little point in the exercise. Accordingly, I direct that to the extent that a party wish to avail himself of the benefit of such translations, they be provided to the other party on or before 2 August 1996. Costs 33. In Lessy S. A. R .L. and Pacific Star Development Ltd., 1993 No.A11705, it was held that where an application to amend is resisted, the usual order is that the costs of and occasioned by the amendment shall be to the other side which, in this case, is the Respondent, in any event, but that the costs of the hearing shall be to the party who is successful in the argument, i.e. the party who was successful in obtaining leave to amend. I see no reason to depart from the usual order as the hearing of almost two days was the result of the Respondent's opposition to the amendment and discovery orders. 34. Accordingly, I order that the costs of the hearing on 1 July be costs in the cause whereas the costs of the hearing on 4 and 5 July be to the Petitioner.
Representation: Mr Benjamin Yu, Q. C., inst'd by M/s Allen and Overy, for the Petitioner Mr R. Sujanani, inst'd by M/s Johnson Stokes & Master, for the Respondent and Opposing Contributories |
Cases cited in this judgment