Waychong Enterprises Limited and Another v. Yick Fung Estates Limited and Others

HCA004298/1983

IN THE HIGH COURT OF JUSTICE

HONG KONG

___________

BETWEEN

___________

IN THE HIGH COURT OF JUSTICE

COMPANIES (WINDING-UP)

-----------------

IN THE HIGH COURT OF JUSTICE

COMPANIES (WINDING-UP)

-----------------

Coram: Mortimer, J.

Dates of Hearing: 10th & 11th October 1985

Date of delivery of Judgment: 14th October 1985

__________

JUDGMENT

__________

1. There are two applications with which I have to deal. The first is an application by the Petitioners who seek a number of amendments to the petition and the second relates to the Statement of Claim and the defence. I am asked to consider an application first for an amendment to the re-re-amended Statement of Claim which is not in dispute and amendments to the defence.

2. I will deal, first with the application made by Mr. Ching on behalf of the Petitioners for amendments to the petition. He says that the matters the Petitioners wish to raise by way of amendment are examples of the way in which the Petitioners say the Wangs ran the company so as to forfeit the confidence of the Petitioners in a number of ways by running it with a lack of probity and good faith and by excluding them from such participation as was contemplated in the joint venture. It is important to remember that those are broad issues. The evidence in the case will obviously take some time and matters will be raised in the course of hearing these petitions which will have to be dealt with from tine to time by argument between counsel.

3. By way of amendments the main allegations are these:

The first allegation is that the Petitioners say that the Wange unjustly enriched themselves in certain ways; first by failing to put out to tender and to properly contract at a reasonable fee so that the companies paid too much for the contracting or building work; secondly they say that they called for contributions which were not required by the costs which had been incurred and were not in appropriate proportion to the original agreement for the joint venture; finally they say that in the course of the dispute a further $30,000,000 was added into the account by way of a prior year adjustment and the consequence of that is that there was less money in the company than there should have been.

Secondly, the allegation is that they were putting the assets of the company at some risk by playing fast and loose with them.

Thirdly, they say that they were excluded from such participation in the company's affairs by way of information and so forth which they were entitled to and they wish to add some particulars of excluding or an attempt to exclude.

4. I hope I will not do violence to the detailed and very helpful submissions which I have had from counsel on both sides if I summarise their submissions. Mr. Ching says, in effect, that the applications are admittedly very late, and apart from one instance which was simply an oversight of his own, the burdens which have arisen during discovery and inspection and the late preparation of the case for trial is one reason why these applications are made late. He says the general allegations are already made in the petition and these are properly to be regarded as further particularization of them and indicate the matters upon which the Petitioners will seek to rely in the course of the trial. He says it is not necessary for him to allege fraud as such in relation to this conduct in order for him to succeed. Total loss of confidence in the Wangs and in their probity acid good faith towards the Petitioners is enough and therefore the comparison which is made with the allegations in the derivative action where fraud is alleged is not appropriate or may not be appropriate.

5. He says then that it is unrealistic to conduct a trial which involves an investigation of the way in which the Wangs have run the company and to shut out from that investigation those matters which are known to everyone from the documents if he wants to rely on them as most of those matters are in front of the court, anyway. Most of the factual matters, that is the basis of the allegations, will not be in dispute and he submits that the real issues will be whether the Wangs had the authority to do what they did. Did they do what they did with probity and good faith? Did the Petitioners properly lose confidence in them? That, of course, excludes loss of confidence simply as businessmen. In other words what are the proper inferences to be drawn from all those facts?

6. Finally he says that even if the Petitioners are wholly at fault in seeking these amendments late, any injustice that may otherwise arise can be cured by the terms on which such amendments are allowed. He has pointed to a number of matters which he says show that an adjournment (if required) will not cause significant injustice in the particular circumstances of this case.

7. On the other hand, it submitted by Mr. Millet and Mr. Sherrard that the leave to make these amendments must be rejected. They say that the allegations of lack of probity and good faith amount to allegations of misconduct to which the principles in relation to late allegations of fraud ought to be applied. Secondly, that some of the allegations are vague and unparticularised and that if the allegations are to be equated with fraud, as is well known, those allegations must be unequivocally pleaded and, of course, clearly proved. They say the application is now too late and such amendments at this stage should not be allowed without very good reason, careful scrutiny, and if necessary, evidence by way of affidavit to show the truth of the allegations; there is no such evidence here and there are no good reasons advanced for making late amendments of this kind. They say then that these proceedings, which involve allegations of fraud and lack of good faith must be brought to trial as quickly as possible; these serious allegations should not be allowed to hang over the heads of those against whom they are made any longer. It is pointed out that these proceedings, the petitions and the Statement of claim, the derivative action, are so bound up that they must be tried together. Therefore, a delay involving one inevitably means a delay in the other. Finally, they say, in any event, these applications are not made in good faith, that they are part of a pattern of forensic tactics to put the pressure on the Wangs in order to achieve what they failed to achieve in an earlier application in front of me to vacate the dates of the trial until some date, well in the future, next year.

8. Mr. Sherrard, borrowing the words of Lord Wilberforce in Westbourne Galleries, said that it is proper to indict the application as part of a "paradigm of obscure forensic tactics" and the application cannot be allowed without injustice.

9. Now bearing all those submissions in mind, the approach of the court to applications to amend to allege behaviour which amounts to misconduct(I use that word advisely because it is the conduct, as I think all counsel agree, which I must look at and make my own assess-ment without labelling it) and the matters upon which I must exercise my discretion in making my decision are clearly and well set out in Associated Leisure Ltd. v. Associated Newspapers Ltd. [1970] 2 Q.B. at p.450. In that case, a party wished to amend to allege in the defence justification in a libel action but the principles are similar. The two sides of the coin were referred to by Lord Justice Edmund Davies, as he then was, when he said this on p.457 just below D: -

"The defendants rightly accept that the words here complained of mane grave charges. They also accept that their application for leave drastically to amend their defence is very belatedly make. So it is. Even so, should it be granted?"

He then refers, with approval, to what was said by Lord Justice Bowen in Cropper v. Smith (1884) 26 Ch. D. 700, 710-711: -

"I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the court ought not to correct, if it can be done without injustice to the other party. Courts do not exist for the sake of discipline, but for the sake of deciding matters in controversay, and I do not regard such amendment as a matter of favour or of grace...... It seems to me that as soon as it appears that the way in which a party has framed his case will not lead to a decision of the real matter in controversy, it is as much a matter or right on his part to have it corrected if it can be done without injustice, as anything else in the case is a matter of right."

Lord Justice Edmund Davies continued: -

"To that approach all other considerations must be subordinate. Applying it here, the machinery of the law having been set in motion by the institution of these proceedings, the issues involved are of great importance to the community, and it is in the public interest that they should be properly ventilated notwithstanding the delay which will in consequence arise in bringing the matter to trial."

That was putting one side of the matter. The Master of the Rolls at p. 456 dealt with another view. He said at E: -

"I have always understood such to be the duty of counsel."

He then refers to Gatley "A defendant should never place a plea of justification on the record unless he has clear and sufficient evidence of the truth of the imputation" and continues: -

"Like a charge of fraud, he must not put a plea of justification on the record unless he has clear and sufficient evidence to support it. The defendants in their case have observed that duty.''

Then at G: -

10. In passing, I have been asked to consider other cases in which examples of that principle have been put forward.

11. Inevitably in considering the instant case one consideration which has arisen in the course of argument is what do the Petitioners have to establish for the court to order a winding-up under the just and equitable principle. Apart from exclusion cases, do the Petitioners have to prove something in the nature of fraud or will some lesser misconduct, perhaps even fairly minor misconduct, suffice if it has the requisite results? Quite rightly counsel have not fully argued this but have merely indicated what legal issues may arise. I have been invited by Mr.Ching to consider Daniels v. Daniels [1978] 1 Ch. 406. This was an interlocutory matter, it was not a petition for winding-up but it has inferential relevance and being a decision of Mr. Justice Templeman, as he then was, must carry certain weight. The Headnote is sufficient. It indicates in that case that relief was possible even though fraud had not been actually alleged. I was pointed out by Mr. Sherrard, I think rightly, that fraud could well have been alleged in that case.

12. Inevitably one has to turn to Ibrahimi v. Westbourne Galleries [1973] A.C. 360 to find the possible limitations of the just and equitable principle for on the face of it the principle is very wide indeed. Lord Cross said (at p. 387 G): -

"A petitioner who relies on the 'just and equitable' clause must come to court with clean hands, and if the breakdown in confidence between him and the other parties to the dispute appears to have been due to his misconduct he cannot insist on the company being wound up if they wish it to continue. But the judge dealt with the case on the footing that the respondents' loss of confidence in the petitioner might have been due to a tragic and inexplicable misunderstanding. If it was right in the light of the evidence to deal with the case on that basis then I would have thought that a winding-up order should have been made."

Now I accept for present purposes that no relief would be given for loss of confidence in someone in a joint venture because of him simply being a bad businessman. I have been asked to look at a Canadian case, Chetal Enterprises, 39 D.L.R. 116 and the strict view expressed by Lord Shaw in Loch v. John Blackwood Ltd. [1924] A.C. 783. The particular passage is on p.788. I have been invited to look at passages in Gore Brown. Dealing with Westbourne Galleries in Chapter 31 paragraph 13, (2nd supplement November 1980): -

"That the application of the above principles to situations not involving expulsion remains to some degree uncertain ..... Any course of dealing which produces a breakdown in mutual confidence may well suffice to justify the making of a winding-up order under section 222 unless that breakdown in mutual confidence is referable to the conduct to the complaining shareholders."

Now, the only point of my referring to those matters is that inevitably there will be argument at the end of this case as to what may or may not be properly relied upon. This is a factor I have to bear in mind in considering this application. It is possible to exclude allegations from the court's consideration after argument but it is not possible to consider matters that have not been dealt with in the course of the trial.

13. Turning to considerations which arise in this case. The first is lack of bona fides in the application. Lack of bona fides may, of course, become very clear in the course of submissions, it is unlikely to do so, but it may. However, without the matter being tested in evidence on both sides I must be very slow to come to the conclusion that applications are made without good faith. It is usually impossible to decide such an issue on applications of this nature and it is certainly not possible for me to decide whether this application is or is not made in good faith. By the end of the trial it may become absolutely clear but it is not something I am able to take into account now.

14. It is necessary for me to consider the whole of the circumstances. A party ought to be allowed to present all matters which maybe relevant and fault in not making proper applications to amend, one has to bear in mind, can rarely be put at the door of the parties themselves. Secondly, there may be practical considerations to be taken into account. It is artificial if there are documents in front of the court setting out facts which may be open to cross examination on credit and nothing else. It is very difficult for the court to blind itself to something which is already in the documents about which amendments have been refused and it may not be correct to do so. And then, if there are basic facts which which are not really in dispute and what is in dispute is (a) the relevance of them and (b) more likely, the proper inference that is to be drawn from them, in such circumstances, it seems to me amendments can be more readily allowed, on terms if necessary. Then sometimes it occurs, and I believe it has in this case, that one party may provoke an issue by his conduct or by some act taken prior to trial and that act will inevitably feature in the evidence and argument. It may, in those circumstances, be necessary or advisable to allow an amendment to deal with issues that have been provoked in that way and also any associated amendments. Of course, where a party seeks to add particulars to issues already before the court and which are in the documents then, of course, those would be allowed more easily still.

15. The court's approach has to be a practical one and one in which it seeks to have the proper issues tried and not to approach pleadings in too technical a manner. If matters properly arise in the course of the trial, they can usually be put right.

16. Now turning to the particular amendments sought. (If I omit to deal with any paragraph about which there was some minor dispute then of course counsel will draw it to my attention and I will deal with it.) The paragraph 66 is the first one about which there was a dispute. I am simply going to say that the amendment in that paragraph will be allowed subject to particulars being given of the agreement alleged.

17. Of the more fully disputed amendments, it is convenient to consider first the amendment sought in paragraph 96A. This relates to an allegation which the Petitioners wish to make in relation to a matter to which I have already adverted. It is the prior year adjustment. As everyone here knows only too well by now, it arose when the Petitioners raised the question about the cost of the construction works to the company, (paraphrasing counsel), the Wangs took the view "Well if you want to play it that way we'll play it that way as well" and therefore they took their own quantity surveyor's report, decided that the costs which had been asked of the company were too low and then put it right by this sum of $30,000,000. It was, to say the least of it, carrying the fight right into the enemy camp. I am bound to ask what on earth did the Wangs expect to happen as a result of that? It is a matter which inevitably will be raised in evidence. The report has been disclosed and at an early stage the Wangs invited the other side to obtain, (if not satisfied) their own independent report. They can say with some justification "Well you knew about this years ago and you ought to have made appropriate amendments there and then", but looking at this from a practical point of view and considering what is inevitably going to be considered at trial, the Wangs must have known this was going to be raised. They must have known that this would raise questions of confidence and probity. To cut the matter short, I think in spite of everything, that this is a perfectly proper and practical amendment to allow. Indeed, it would be unjust to the Petitioners not to allow it.

18. That has inevitable results. Having been invited so long ago to take independent advice and that independent advice having been obtained, I turn to the application in relation to paragraph 67A. Mr. Ching says that amendment is only particularizing the words in paragraph 67 where the petition alleges, among other things, that in breach of good faith the Wangs failed to employ contractors at a reasonable fee. I should read the earlier part: -

"They failed to invite competitive bidding for the carrying out of construction works from other contractors or employ contractors at a reasonable fee."

Mr. Ching says that amounts to an allegation that they employed contractors at an unreasonable fee. Well, it would be quite wrong for me to say that I understood that as being the basis of the plea in paragraph 67 as originally made, I think it was a rolled-up allegation of failure to employ independent contractors. So it would not be right for me to allow this amendment on the basis that this is simply particularizing an allegation already made. However, having made the decision under 96A, an issue provoked it seems to me, by the Wangs, this is an associated matter and it is one which will inevitably arise in the course of the trial. It is therefore an amendment which I am prepared to allow. I should say in passing that it seems to me that no cost to the actual construction company can be relevant. It is a question of what is reasonable and there is a fairly high onus on the Petitioners. Of course, no assessment of damages in this case falls to be made. It is a general allegation here of the results of not doing as the Petitioners say the Wangs ought to have done.  It is only related to the question of how the joint venture should have been run. If the Wangs succeed in showing that there was never any intention, never any contemplation that anyone should do the work other than Chinachem companies that will be an end of the matter.

19. Let me turn now to the application in relation to 76A. This allegation is that in calling for the loans the Wangs produced totally false, dishonest notices for money that was not and could not, under any contemplation, be required and particulars are given. The particulars are given on the basis that they relate one document, the contribution notice, with another, the ledger. The allegation relies upon the comparison of those documents. Whether or not those documents can properly be compared, I know not but it is an entirely new allegation made after the date on which the trial was due to begin. It raises extremely complicated matters. Matters which, as one sees from Paragraph 76A the dates alleged are from time to time between the 18th May 1978 until September 1980. This seems to me to be a wholly dangerous allegation to make at this stage. After this length of time, it may not even be possible to make the proper answer, whatever happened may have been done by employees. The reasons for particular sums being called for may now have disappeared into history and it seems to me to be quite unjust to make such a serious allegation based simply (as it is) on a comparison of documents at this stage. The court should not allow there to be a risk of injustice of this nature. I do not think it can be put right by adjournment or by costs and, therefore, I in my discretion disallow it.

20. In paragraph 79 there was no real dispute about the amendment there say for the word "assuming" and as I understand it, the matter was dealt with in the course of argument by agreement between counsel. Instead of the word "assuming" about 5 lines from the bottom of P.33 the words "if it is not admitted" are going to be substituted. Subject to that correction, that amendment will be allowed.

21. The next proposed amendment can be dealt with in this way. Paragraphs 83C - 83E are allegations the Petitioners wish to make in relation to a book entry which has been found of $65,000,000. The accounts in which this figure appears are, as I understand it, in court and will be part of the evidence in the case. The Petitioners wish to make a number of points and they are set out in these paragraphs. It is very difficult indeed for me at this stage to say whether or not those matters are in point. It is a very large sum. There cannot be any difficulty, in dealing with the matter subject perhaps to one allegation which is whether the Chinachem Finance Ltd. was or was not a deposit taking company. I propose to allow this amendment but I say this: Mr. Sherrard said that allowing this is going to mean that there is going to be trial by ambush. Now I can say with some confidence there will be no trial in front of me that will be trial by ambush. However, as these matters are in the accounts and the Petitioners wish to raise some matter about them I think they ought to be allowed to do so and the decision will fall to be made in the course of the trial as to whether these allegations mean something or in the end mean nothing. So I allow that amendment.

22. Similarly, turning to paragraph 97A the Petitioners wish, following an allegation that the Wangs have further excluded Waychong and Cheng from participating in all major decision making or consultation process in relation to the affairs of Yick Fung and Shui Hing, to allege certain particulars (that are set out) in relation to meetings which were said to be held on the 6th September 1980 and the 14th November 1980. Those documents relating to those meetings are in evidence. It may be, as the Wangs say, that those allegations lead nowhere, it said that they are evidence of exclusion but it cannot be so because the allegations do not lead to the final allegation "and they were excluded because ....." and then a further particular. The point sought to be made, as I understand it, is that there was exclusion in the way alleged earlier in the petition and this is a particular on two documents, upon which they wish to rely, as being an indication of the attitude and perhaps preparation for doing something which was not done. Now, of course, those documents may mean something, they may mean absolutely nothing and may be simply a proper way of the Wangs dealing with this joint venture as was always intended. They say they were intended to do it and Waychong and Mr. Chang were not going to be involved in it at all, save at the end, to take the profit. Now if they are right about that then that allegation falls the ground. As the documents are in front of the court, it would be unrealistic to say that they cannot be relied on because of a pleading point. I am going to allow that amendment and the matter will fall to be dealt with in the course of the trial.

23. I think those are all the matters that were in dispute. Those matters which were not in dispute will be allowed. I am not going to say anything at this moment about any terms because having made my mind up about the principle of the matter, I will hear counsel about any terms which they say follow from those decisions.

24. I turn now to the proposed amendments of the defence. That has been in the hands of the Plaintiffs since the 20th September. I am not going to deal with them in detail because it seems to me those amendments are a clarification of the issues and that such clarification is as much for the benefit of the Plaintiffs as for anyone. They relate to issues which have been raised at earlier times and the particular amendment relates to the Defendants' answers about the Wing Wong and Ripple affair, if I can put it that way. It seems to me that it is as useful to the Plaintiffs as to anyone else to have the Defendants' case about that set out with particularity and clarity. The point which Mr. Ching sought to raise that the pre sales were not known and that was something new to the Plaintiffs on the documents where it was disclosed, in my judgment at this stage does not hold water. So I am going to allow those amendments to be made. Of course, so far as the amendments to the re-re-amended Statement of Claim there was no dispute and I give leave for those amendments to be made as well.

Representation:

Charles Ching, Q.C., Winston Poon & Miss Gladys Li instructed by Philip K.H. Wong & Co. for joint Petitioners & Plaintiffs.

Michael Sherrard, Q.C. & Benjamin Cheng instructed by Ip, Ku & Stopper for D3 & D4/opposing contributories.

Peter Millet, Q.C. & R.K. Sujanani instructed by Ip, Ku & Stopper for D5 to D9.