Golden Screen Ltd v. Golden Screen Ltd and Another

HCCW 368/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 368 OF 2005

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BETWEEN

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Before : Hon Kwan J in Chambers

Date of Hearing : 29 August 2005

Date of Handing Down of Decision : 12 October 2005

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D E C I S I O N

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The application for striking out

1.On 17 May 2005, Golden Screen Limited (“the petitioner”) presented a petition to wind up Dartina Development Limited (“the Company”) under the just and equitable ground and seeking relief under section 168A of the Companies Ordinance, Cap. 32.  Village Cinemas Australia Pty. Ltd., the 1^st respondent herein, issued a summons on 3 June 2005 to strike out the petition on the broad grounds that the petition discloses no reasonable cause of action, it is frivolous and vexatious, and/or it is an abuse of the process of the court.

The background

2.I will first set out the relevant background matters.

3.The petitioner, which was incorporated in Hong Kong, is an indirect wholly owned subsidiary of Golden Harvest Entertainment (Holdings) Ltd. (“Golden Harvest”).  Golden Harvest was incorporated in Bermuda and its shares are listed in The Stock Exchange of Hong Kong Ltd.

4.The 1^st respondent was incorporated in Australia and is a subsidiary of Village Roadshow Ltd. (“Village Roadshow”).  Village Roadshow was also incorporated in Australia and its shares are listed in the Australian Stock Exchange Ltd.

5.On 8 August 1988, Golden Harvest (H.K.) Ltd. and Village Roadshow entered into a joint venture agreement (“the Joint Venture Agreement”).  They had agreed to participate in a joint venture to be known as “Golden Village” for the purpose of exploiting opportunities for the development of cinemas in Taiwan and certain other countries.  It was acknowledged in the Joint Venture Agreement that its terms reflected their common interests and objectives and embodied “the spirit of mutuality and friendly co-operation which have characterised their dealings with one another to date”.  The joint venture was to come into existence on the day of the agreement and continue in existence for five years or such longer period as the parties might agree.  It was provided that responsibility for the management of the joint venture as a whole should be placed in the hands of a board of management, on which each party should have equal representation.  There were provisions governing voting in the board of management, giving the chairman a deliberative but not a casting vote in the case of an equality of votes.

6.On 7 July 1989, the Company was incorporated in Hong Kong, with the petitioner and the 1^st respondent each holding 50% of the issued shares, as a vehicle of the joint venture.  The Company operated its business in Singapore through its two indirect wholly owned subsidiaries, both of which were incorporated there, Golden Village Multiplex Pte. Ltd. (“GVM”) and Golden Village Pictures Pte. Ltd. (“GVP”).  GVM is in the business of cinema development and operation and has contributed to the majority of the revenues generated by the business of the joint venture in Singapore.  GVP is in the business of film distribution.

7.Throughout the 1990s, Golden Harvest and Village Roadshow worked together to develop cinemas in Asia.  In 2000, Village Roadshow disposed of its investments in cinemas in other countries and regions and the only remaining joint venture between them was in the Company.

8.On 24 February 2000, Golden Harvest and Village Roadshow formalised their joint venture relationship for cinema development in Singapore by entering into a shareholders agreement (“the Shareholders Agreement”).  The parties to the agreement were the 1^st respondent, the petitioner, the Company and GVM.  Although the agreement was made in 2000, it provided that its commencement date was deemed to be 1 January 1992.  The Shareholders Agreement contained these material provisions:

(1)	Each of the petitioner and the 1st respondent is entitled to nominate three directors to the board of directors of the Company and of GVM (clause 5.1(a)). At least one vote in favour is required from a director nominated on each side for a resolution to be passed at a meeting of directors (clause 5.1(k)).
(2)	The chairman of the Company and of GVM is to be appointed by the 1st respondent (clause 5.1(i)).
(3)	The chairman has a second or casting vote over all “Management Issues” (as defined in clause 1.1(v) and schedule 5), but not over matters which are “Unanimous Issues” (as defined in clause 1.1(hh), these include the appointment or dismissal of the Chief Executive Officer/General Manager of GVM) or which are not Management Issues (clause 5.1(j)).
(4)	The Company and GVM are to be managed by their respective boards in accordance with the respective provisions of the articles of association of the Company and GVM, and the provisions of the Shareholders Agreement. In particular, the boards have the day-to-day management control of, inter alia:
	(i)	the preparation of budgets, accounting reports and financial projections;
	(ii)	the development and set up of new cinema complexes;
	(iii)	the appointment of the Chief Executive Officer and all other employees of the Company and GVM; and
	(iv)	the day-to-day management of the Company and GVM by their employees (clause 8.1).
(5)	Each of the petitioner and the 1st respondent owes a fiduciary duty to the other and agrees to be just and faithful in all of its activities and dealings with each other (clause 12.1).
(6)	Each of the petitioner and the 1st respondent is to keep the other fully informed and aware of its respective activities in relation to the Shareholders Agreement (clause 12.2).
(7)	Each of the petitioner and the 1st respondent is to act in good faith to promote the interests of the Company and GVM, and refrain from doing anything to its detriment (clause 13.1).
(8)	Each of the petitioner and the 1st respondent commits an event of default if, inter alia, it commits a material breach of the Shareholders Agreement (clause 15.1).
(9)	Subject to clause 20.1, if a dispute arises as to, inter alia, whether or not an event of default has occurred or whether or not a breach of the Shareholders Agreement has occurred, such a dispute shall be referred for determination at the election of the shareholder alleging the default to either an expert or a court of competent jurisdiction (clause 15.2).
(10)	Should an event of default occur relating to a material breach of the Shareholders Agreement and be continuing, then, without prejudice to the non-defaulting shareholder’s other rights and remedies under the Shareholders Agreement or at general law, the non-defaulting shareholder is entitled to elect to, inter alia, exclude the defaulting shareholder from attending or voting at any meeting of shareholders or the board until the default shall be rectified (clause 15.4).
(11)	Save as allowed by clause 11.2, no shareholder may transfer any of its interest in the Company other than in accordance with clause 16 (clause 16.1).
(12)	The rights to terminate the Shareholders Agreement shall take effect without prejudice to the rights that the non-defaulting shareholder may have had against the shareholder in default arising before the termination (clause 18.3).
(13)	In the event there is dispute regarding any matter relating to the Company or GVM or otherwise arising out of the Shareholders Agreement, any shareholder may by notice in writing to the other shareholder refer the dispute to the chief executive of each shareholder who shall consult with one another in good faith and use their best endeavours to resolve such dispute to the mutual satisfaction of the shareholders. If the matter relates to a Management Issue then the chief executive of the 1st respondent may decide the matter (clause 20.1).
(14)	The Shareholders Agreement is to be construed in accordance with and governed by the laws of Hong Kong (clause 25).
(15)	The Shareholders Agreement supersedes all prior representations, arrangements, understandings and agreements between the parties relating to the subject matter of the agreement and sets forth the entire and exclusive agreement and understanding between the parties relating to the subject matter of the agreement (clause 27.4).
(16)	A provision of or a right created under the Shareholders Agreement may not be waived or varied except in writing signed by the party or parties to be bound by the waiver or variation (clause 27.6).
(17)	The rights, powers or remedies provided in the Shareholders Agreement are cumulative with and not exclusive of any rights, powers or remedies provided independently of the agreement (clause 27.8).

9.Since 1 September 2003, Kenneth Tan (“Mr. Tan”) has been employed as the managing director of GVM for a term of four years.  This position is in effect the Chief Executive Officer/General Manager of GVM referred to in the Shareholders Agreement.  Mr. Tan has not been a director of GVM at any time.

The complaints in the petition

10.A summary of the petitioner’s complaints is given in paragraph 11 of the petition as to why the petitioner would wish to terminate the joint venture and/or wind up the Company and the reasons are as follows:

(1)	Mr. Tan had acted contrary to express decisions of the GVM board in respect of the increase in regular ticket prices and the termination of the tenancy agreement of Golden Harvest Entertainment Co. Ltd. (“GHE”);
(2)	Mr. Tan had failed to consult or seek instructions from the GVM board in relation to the termination of the employment of Maureen Koh (“Ms. Koh”), a key senior manager of GVM, on or about 7 March 2005;
(3)	Mr. Tan’s role as chairman of the Singapore Film Society (“SFS”) was in conflict with his duties to GVM in respect of the renting of venue by SFS for its film festivals and organising the Singapore premiere of the last episode of the Star Wars series;
(4)	the 1st respondent has refused to admit that there is a problem with Mr. Tan;
(5)	when forced by the petitioner to confront the issue of Mr. Tan, the 1st respondent used its powers under the Shareholders Agreement to exclude the petitioner from participating in the management of the joint venture;
(6)	the 1st respondent has failed to provide any reasons to the petitioner for the decisions it has made pursuant to the powers it claims to have under the Shareholders Agreement; and
(7)	the 1st respondent’s conduct in relation to the joint venture has been unfair and prejudicial to the interests of the petitioner.

11.On 11 March 2005, the petitioner gave notice to the 1^st respondent that it had committed an event of default under the Shareholders Agreement by permitting and condoning, and failing to revoke or rectify, inter alia, the termination by Mr. Tan of Ms. Koh’s employment on the alleged ground of a restructuring of GVM’s business.  On 17 March 2005, the 1^st respondent notified the petitioner that it rejected the allegation it had committed an event of default.  On 23 March 2005, the petitioner notified the 1^st respondent that as a dispute had arisen as to whether an event of default had occurred, it required the dispute to be referred to an expert for determination under the Shareholders Agreement.  The 1^st respondent did not agree to appoint an expert to resolve the dispute.

12.On 13 April 2005, the petitioner requested a board meeting of GVM be convened to consider its proposed resolution that Mr. Tan’s employment be terminated summarily without compensation.  The board meeting was held on 27 April 2005 and attended by three directors appointed by the petitioner and three directors appointed by the 1^st respondent.  The directors appointed by the petitioner voted in favour of the resolution to terminate Mr. Tan’s employment forthwith, whereas those appointed by the 1^st respondent voted against.  As this matter came within a Unanimous Issue in the Shareholders Agreement and there was no majority, this resolution was not passed.  The petitioner then proposed a further resolution that the termination of Ms. Koh’s employment was unauthorised and invalid.  The voting followed the same pattern save that as this was a Management Issue as defined in the Shareholders Agreement, the chairman nominated by the 1^st respondent exercised a casting vote and the resolution was defeated.  The chairman declined to explain why the directors appointed by the 1^st respondent had voted in the way they did.

13.The case of the petitioner that its interests in the Company have been unfairly prejudiced is encapsulated in paragraph 39 of the petition in this way:

(1)	the 1st respondent is in dereliction of its duty to the petitioner to manage the affairs of the Company in good faith in refusing to acknowledge the serious corporate governance failures that have arisen as a result of Mr. Tan’s conduct as managing director of GVM;
(2)	the 1st respondent has failed to seek and consider the views of the petitioner and has refused to include the petitioner in the management of the Company as is its right under the Shareholders Agreement; and
(3)	the 1st respondent has failed to explain the decisions it has made in relation to its support of Mr. Tan and his ongoing involvement with the Company’s business and the dismissal of Ms. Koh by Mr. Tan.

The 1^st respondent’s contentions

14.Mr. Bartlett, who appeared for the 1^st respondent, advanced these main contentions in support of the strike out application:

(1)	the petition is founded on complaints of alleged mismanagement and a relatively confined allegation of exclusion from management;
(2)	each of the complaints concerned not the actions of the 1st respondent but the actions of Mr. Tan, the Chief Executive Officer/General Manager of GVM, made in the course of managing GVM and within his authority;
(3)	the alleged mismanagement concerned another company, GVM, not the Company itself, thus taking the matter outside the wording of section 168A. No proper nexus is asserted or particularised in the petition or indeed exists;
(4)	even assuming that the mismanagement complaints were made out concerning the Company being the subject of the petition, they were too trivial or not of a nature to support the serious consequence of the statutory procedure invoked;
(5)	there was no unfairness, still less prejudice, as the shareholders of the Company, both being part of large commercial enterprises headed by listed companies and highly experienced in the field in question, had protected their positions by formalising and structuring their relationship in a very detailed Shareholders Agreement. There is no substance to the complaints directed to the 1st respondent’s acts.

The principles for striking out

15.Order 18 rule 19 of the Rules of the High Court applies to a petition as if it were a pleading by virtue of rule 19(3).  Rule 19(1) provides that the court may order to be struck out or amended any pleading on any of the grounds stated.  The burden is on the 1^st respondent to show that it is plain and obvious the petition is bound to fail.  “The fact that the court might consider the case weak is not sufficient nor would it be appropriate to strike out a petition based on pleading points if such deficiencies are capable of being cured by amendment” (Re Forecast Nominees Ltd. [1996] 4 HKC 12 at 18D, per Le Pichon J).  “It has been often and rightly said that the court’s jurisdiction to strike out a claim advanced by a plaintiff or a claimant or a petitioner is to be exercised very sparingly and only where the clearest grounds are shown for doing so. … Although a court may at a preliminary stage regard a claim as tenuous and having a negligible chance of success, the claimant is none the less entitled to the court’s adjudication on it on the merits unless it is a claim which the court is satisfied cannot succeed” (Re Copeland & Craddock Ltd. [1997] BCC 294 at 300C to D, per Bingham LJ).

16.It is not in dispute that in Hong Kong, the test for striking out remains that as stated above, regardless of whether any change might have been brought about in England due to the introduction of the Civil Procedure Rules, as to which see Shareholders’ Rights, by Robin Hollington QC, 4^th ed., paras. 9-33 and 9-34. Under CPR 24.2, the court has an additional power to order summary judgment in favour of the respondent where it is satisfied that the petition has no real prospect of success, whilst retaining its existing jurisdiction to strike out under CPR 3.4(2).  The author expressed the view that the courts may be “marginally more willing” to grant summary judgment under CPR 24.2 than they are under the existing strike-out jurisdiction.

17.Mr. Scott, SC submitted on behalf of the petitioner that in this kind of application, the facts alleged in the petition and in the supporting affidavits are assumed in the petitioner’s favour.  The court will not embark on a minute and protracted examination of disputed facts; disputed points of law or of construction are not dealt with unless they are capable of a crisp and speedy resolution and not after a prolonged and serious argument.

18.Mr. Bartlett did not entirely agree with the above.  He pointed out that in this application, there are two broad bases for striking out the petition.  The first basis is that there is no reasonable cause of action, these are the contentions set out in paragraphs 14 (1), (2) and (3) above, and for such purpose the facts alleged are to be assumed in the petitioner’s favour.  The second basis is that there is no viable case on the evidence, these are the contentions in paragraphs 14 (4) and (5), and for such purpose the court can and should examine the allegations and the evidence adduced in support to see if the petitioner really does have an arguable case.  In support of the latter situation, he prayed in aid Re Saul D Harrison & Sons plc [1995] 1 BCLC 14 at 22 d to h, per Hoffmann LJ.

19.Whilst I bear in mind that petitions of this kind are capable of being oppressive and in appropriate cases the petitioner’s allegations should be examined carefully to see if they are really arguable, it is still no part of the function of the court in a strike-out application to resolve factual disputes on a summary basis where both sides have deposed to different versions on affidavits, as they have done in the present case.  The court should not embark on a mini-trial on the documents without discovery and cross-examination.  And even in the situation where it is sought to strike out on the basis of no viable case on the evidence, the power to strike out will only be exercised where it is “possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance”, or that it is “clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based” (Three Rivers District Council v. Bank of England (No. 3) [2003] 2 AC 1, at para. [95], per Lord Hope).

The deficiency of the petition

20.I would first deal with the attack mounted by Mr. Bartlett on the deficiency in the petition.

21.I have set out earlier a summary of the petitioner’s complaints in the petition and how its case that its interests have been unfairly prejudiced was put in the petition.  In the 2^nd affirmation of Phoon Chiong Kit (“Mr. Phoon”) filed on behalf of the petitioner on 5 July 2005, Mr. Phoon further deposed to these matters:

(1)	The petitioner had a legitimate expectation that (a) it would have been consulted in respect of each of the decisions that it complained of in the petition; (b) its views would have been acknowledged, carefully and fully considered; and (c) a joint decision would be made, save for the most extreme circumstances. In accordance with such legitimate expectation, the Company and GVM were run in accordance with principles referred to by Mr. Phoon as “Fundamental Principles of Partnership Management” and “Fundamental Principles of GVM Management”.
(2)	The following matters gave rise to the legitimate expectation of the petitioner: (a) the mutual understanding that had developed as a result of the joint venture relationship that prevailed between the parties at the time the Shareholders Agreement was signed, as well as the personal relationships between various senior executives of the Golden Harvest Group and the Village Roadshow Group; (b) the verbal assurances, agreements and representations made by Graham Burke on behalf of Village Roadshow to Raymond Chow and Mr. Phoon on behalf of Golden Harvest, at the time the Shareholders Agreement was signed; (c) the terms of the Shareholders Agreement; and (d) the conduct of the parties to the Shareholders Agreement since it was executed until about September 2004, when the matters complained of by the petitioner first arose.
(3)	The verbal assurances, agreements and representations at the time the Shareholders Agreement was signed were to this effect: (a) the casting vote of the chairman of the Company and of GVM under the Shareholders Agreement would not be used arbitrarily, and the 1st respondent would exhaust all reasonable efforts to reach a consensus on all issues in dispute before exercising this power; (b) the petitioner’s views would be acknowledged and carefully, fully and properly considered in the spirit of equal partnership; and (c) Mr. Phoon would have a significant role in the management of GVM as the only resident or semi-resident director of GVM, given his contacts and knowledge of Singapore.
(4)	Critical to the “Fundamental Principles of Partnership Management” was the “Triangle of Decision Making Mechanism”, again a term coined by Mr. Phoon in his affirmation. By this mechanism, the managing director of GVM would report directly to the representative of the 1st respondent in GVM, the latter would then consult with the petitioner’s representative in respect of the issue in question, and only after acknowledging the petitioner’s input and discussing how to deal with the issue in question would a consensus be reached and a decision made on how to proceed.
(5)	It was through the “Triangle of Decision Making Mechanism”, the GVM board meetings and Mr. Phoon’s role as the resident or semi-resident GVM director that GVM was managed prior to September 2004. These processes were critical to the “Fundamental Principles of GVM Management”, which are themselves critical to the “Fundamental Principles of Partnership Management”.

22.Mr. Bartlett pointed out that the petition does not contain averments or particulars of the above matters.  He submitted that petitions under section 177(1)(f) or 168A should contain all the allegations of the petitioner on which his case is founded and the court will not go beyond what is stated in the petition (In re Wear Engine Works Co. (1875) 10 Ch App 188 at 191; In re Fildes Bros. Ltd. [1970] 1 WLR 592 at 597G to 598C; In re Tecnion Investments [1985] BCLC 434 at 441a to c; Re Tourmaline Ltd. [2000] 4 HKC 348 at 354B to D).  Where there are defects or omissions in the petition, they cannot be cured by the evidence, the petition must be amended.

23.Mr. Scott did not dispute this principle.  He contended that the “Principles” alleged in Mr. Phoon’s affirmation were just an expansion of an existing plea in the petition that before the Shareholders Agreement was made, there was a relationship of a joint venture partnership and personal relationships between the senior executives of the two groups.  I do not agree with this.

24.“Where a petition alleges that there were agreements or understandings which subjected the exercise of legal rights to equitable considerations, the petition has to state how such considerations arose and give particulars of the agreements or understandings” (Shareholders’ Rights, op. cit., para. 9-37; Re a Company (No. 007936 of 1994) [1995] BCC 705 at 709C to H, 714B to 716G).  Here, the petition does not contain averments of legitimate expectations beyond the legal rights conferred on the petitioner by the Shareholders Agreement, what such legitimate expectations were or how they were alleged to arise.  It is clearly defective.

25.Mr. Bartlett submitted that for this striking out application, the court should disregard the evidence in Mr. Phoon’s 2^nd affirmation that does not form any part of the case as put in the petition.  There is no application to amend or any draft amendment for the court to consider.  Despite the invitation of the court, he chose to make no submissions on any of the matters in Mr. Phoon’s 2^nd affirmation as summarised above, whether the petition should still be struck out if the petitioner were allowed to rely on the matters in Mr. Phoon’s 2^nd affirmation as part of its case.  I note that the 1^st respondent has filed evidence in reply denying that the “Principles” alleged by Mr. Phoon had ever formed any part of the relationship between the petitioner and the 1^st respondent, although no details were gone into.

26.For his part, Mr. Scott submitted that if the alleged “Principles” in Mr. Phoon’s evidence were not contained in the petition, the court could direct that the petition be amended in an application to strike out the petition.

27.A similar point was taken by the respondents in Re Forecast Nominee Ltd., supra. at 19E to F.  In that case, particulars of how the legitimate expectation to take part in management arose were not pleaded.  There was just an averment that joint control was exercised by both parties through experienced managers on the understanding that both would have equal rights of management and control (at 19I to 20A).  Nevertheless, the court had regard to the factual background and the history of the management, and considered it was at least arguable that it was a case of the shareholders exercising joint control by jointly appointing the general manager and declined to strike out the petition.

28.It does not seem to me the approach of Mr. Bartlett, that the court should confine itself to the allegations made in the petition and no more, is satisfactory.  If the deficiency in the petition is such that it can be cured by amendment, and if it is tolerably clear on the evidence what amendments ought to be made, there is no reason why on an application for striking out the power to direct an amendment should not be exercised.  How this discretionary power is to be exercised would depend on the circumstances in each case.  In Re Forecast Nominee Ltd., the court took the view that the factual matters contained in the petition were adequate to substantiate an averment of legitimate expectation without an amendment.  In Re Ringtower Holdings plc (1989) 5 BCC 82, leave to amend the petition was refused and the petition was ordered to be struck out as the claimed legitimate expectation was manifestly unsustainable, but the court had nevertheless considered the petition in the form it would have, if leave for the draft amendments were granted (at 90B to C).

29.In the present case, it seems to me that the averments that should have been contained in the petition, but were not, have been stated with sufficient particularity in the 2^nd affirmation of Mr. Phoon as summarised earlier.  These additional averments should be taken into account when I consider if the petition should be struck out on any of the grounds advanced by the 1^st respondent.  If I should then conclude that the petition should not be struck out, I will give directions for the petition to be amended to incorporate these averments.  If I should form the view that the petition is bound to fail notwithstanding these averments, the petition will be struck out.

Conduct of the affairs of the Company

30.Mr. Bartlett submitted that the grievances complained of must constitute conduct of the affairs of the very company in respect of which the petition is presented, to found a petition under section 168A (Re a Company (No. 001761 of 1986) [1987] BCLC 141, at 143g, 144e to h; Re Unisoft Group Ltd. (No. 3) [1994] 1 BCLC 609, at 611b to i, 622g to 623f; Re Ka Ka Realty Ltd., HCMP No. 4751 of 2002, 3 September 2003, Kwan J).  There are essential legal distinctions between corporate entities in a group, and the rights of shareholders and the assets or affairs of the company of which they are members.  Here, each of the complaints concerned the conduct of the affairs of GVM, an indirect wholly owned subsidiary of the Company, not of the Company.

31.Further, he submitted that whilst the phrase “the affairs of the company” in section 168A(1) has been given a wide interpretation so far as that very company is concerned, the mere relationship of parent and subsidiary is insufficient in itself to automatically constitute the conduct of one company being a member of a group of companies as conduct in the affairs of another company in the same group.  What is required are allegation and evidence of a special degree of actual involvement of a company in the group in the affairs of another member of the group.  Without this, the statutory requirement is not met.  In support of this, he cited Nicholas v. Soundcraft Electronics Ltd. & Anr. [1993] BCLC 360.  In that case, the parent company had exercised a substantial degree of financial control over the subsidiary, which was the subject company, and was in effect treating the financial affairs of the two as that of a single enterprise.  It was held that when the parent company withheld payments from the subsidiary, it was conducting the affairs of the subsidiary (at 364d to i).

32.In the present case, Mr. Bartlett submitted that there are no proper averments in the petition of such matters which are alleged to render the conduct of GVM as conduct in the affairs of the Company and no supporting evidence of such averments.  There is no proper nexus asserted or particularised.  Insofar as it might be contended that the appointment of directors to GVM could provide the nexus, this would not be sufficient.  As stated in Morgan v. 45 Flers Avenue Pty Ltd. (1986) 10 ACLR 692 at 705:  “In general where a person is serving on a board of directors he is dealing with the affairs of the company that is being controlled by the board and whilst he is so acting, he is not, and should not, be also involved in the affairs of some other entity”; and the mere fact that a nominee director is taking part in a board meeting and exercising his votes is not sufficient for one to conclude that he is acting in the affairs of the company that appointed him.

33.Mr. Scott relied on the more recent decision of the English Court of Appeal in Re City Branch Group Ltd. [2004] EWCA Civ 815, in which the court considered in an application to strike out a petition under section 459(1) of the Companies Act 1985 (equivalent to our section 168A(1)), whether an order may be made under that provision in relation to a holding company where, firstly, it is the affairs of its wholly owned subsidiary that are being or have been conducted in an unfairly prejudicial manner and, secondly, the directors of the holding company are also directors of the subsidiary.

34.The group of companies in that case could all be regarded as quasi-partnership companies.  The decision of the judge in refusing to strike out the petition was upheld.  It was held arguable that causing an irrevocable breakdown in the relationship of trust and confidence is capable of being considered conduct of the company’s affairs against the background of a quasi-partnership association through the company and other companies in the group and an agreement that both should co-operate in the conduct of the affairs (at para. 16).  The court also rejected the submission that the conduct complained of was incapable of prejudicing the petitioner’s interests in their capacity as members of the company, as the conduct was capable of prejudicing the interests of the subsidiary concerned, on which footing there would be a risk of a diminution in value of the company’s investment in the subsidiary, which in turn would mean actual or potential prejudice to the interests of the shareholders in the company (at para. 19).

35.Turning to the main question if the court does have power to grant relief under section 459 in this situation, the court pointed out that there is no English authority which directly answers this question and the nearest case appears to be Nicholas v. Soundcraft Electronics Ltd.  Reference was made to two Australian authorities, Re Norvabron Pty Ltd. (No. 2) (1986) 11 ACLR 279 and Re Dernacourt Investments Pty Ltd. (1990) 2 ACSR 553, in which the court gave a liberal construction to the words “the affairs of the company” in determining the ambit of the affairs of a parent company for the purpose of the provision.  Thus, conduct of the affairs of a parent company includes “refraining from procuring a subsidiary to do something or condoning by inaction an act of a subsidiary, particularly when the directors of the parent and the subsidiary are the same” (Dernacourt, supra. at 556, para. 8).  There would appear to be three other Australian caseswhich adopted a different approach to the construction of the provision: Morgan v. 45 Flers Avenue, supra. (which was decided before Norvabron and Dernacourt); Reid v. Bagot Well Pastoral Co. Pty Ltd. [1993] 12 ACSR 197 (in which neither Norvabron nor Dernacourt was mentioned); and Michael Guerinoni v. Argyle Concrete & Quarry Supplies Pty Ltd., 22 April 1999, Master Sanderson, sitting in the Supreme Court of Western Australia (in which Dernacourt was not referred to).

36.The English Court of Appeal did not think these other three cases would have diminished the persuasive value of Norvabron and Dernacourt.  It declined to strike out the petition under section 459, as there is realistic prospect of success that the court may reach the conclusion that the acts complained of were also acts in the conduct of the parent company’s affairs.

37.In view of Re City Branch Group, it seems to me that this ground relied on to strike out the petition must fail.  It cannot be said it is manifestly unarguable that the acts complained of in the affairs of GVM were not also acts in the conduct of the affairs of the Company.  Notwithstanding Mr. Bartlett’s submissions, I am of the view that the petition has set out sufficient facts to support an argument that the Company was in full control of GVM so that the affairs of GVM can also be regarded as the affairs of the Company.

Legitimate expectation and the Shareholders Agreement

38.It would be convenient to deal with one other argument on a point of law before I turn to the specific complaints in the petition.

39.Mr. Bartlett submitted that there is no room for incorporating any understanding, representation or agreement from the prior relationship of the petitioner and the 1^st respondent and that the relationship of the parties has been governed exclusively by the Shareholders Agreement as from 1 January 1992, the date that the Shareholders Agreement was deemed to commence.  His submissions ran as follows:

(1)	Clause 27.4 of the Shareholders Agreement provides that the agreement supersedes all prior representations, arrangements, understandings and agreements between the parties and sets forth their entire and exclusive agreement and understanding. Further, clause 27.6 provides that a provision of or a right created under the agreement may not be waived or varied except in writing.
(2)	The Shareholders Agreement is a thorough, exhaustive and comprehensive agreement arrived at by the parties as governing their commercial relationship after arm’s length negotiation. The existence of such a document would tend to exclude or militate strongly against legitimate expectation alleged to extend beyond the contents of the Shareholders Agreement (Re Ringtower Holdings plc, supra. at 92G to 94D). There is therefore no basis for any alleged legitimate expectation that the board or the company in general meeting will not exercise whatever powers they are given by the articles of association and the Shareholders Agreement (Re Saul D Harrison & Sons plc, supra. 19a to 20b). There is no question here of an oppressed minority shareholder being locked in to an inequitable arrangement and calling for the court’s protection and application of equitable principles.
(3)	The pre-requisite to an equitable fetter based on legitimate expectation is a personal relationship or personal dealing of some kind between the party seeking to exercise the legal right and the party seeking to fetter it, such as would affect the conscience of the former. The concept of legitimate expectation can have no place in the context of large or public listed companies (Re Astec (BSR) plc [1998] 2 BCLC 556 at 588e to 589c). Although neither the Company nor GVM is a public listed company, the shareholders of the Company are part of large commercial enterprises, headed by listed companies and highly experienced in the field in question. They were both well able to protect their legal and commercial interests when entering into the Shareholders Agreement.
(4)	It cannot be right, fair, just or equitable for the petitioner to ask the court to make orders which disregard the petitioner’s contractual obligations under the Shareholders Agreement, which provided that the chairman should have a second or casting vote over all “Management Issues”.

40.I acknowledge the force of these submissions, but the argument is not all one way.  Mr. Scott contended that clauses 18.3 and 27.8 of the Shareholders Agreement expressly leave open the rights of the parties to pursue other remedies outside the dispute resolution procedure in the Shareholders Agreement, and that there are matters on which the Shareholders Agreement is silent, such as the circumstances in which the casting vote of the chairman is to be exercised.  He also placed reliance on the fiduciary duty owed to one another in clause 12.1, the duty to keep each other fully informed in clause 12.2, the duty to act in good faith to promote the interests of the Company and GVM in clause 13.1, and to consult with each other in good faith in the event of a dispute in clause 20.1.  He submitted that the above provisions should impact on the court’s ability to grant relief.

41.It is a question of construction of the relevant provisions in the Shareholders Agreement if any superimposed legitimate expectation can arguably arise (Re Elgindata Ltd. [1991] BCLC 959 at 985d).  I do not think the disputed point of law as to the effect of clauses 27.4 and 27.6 in this context is capable of a speedy resolution in this application.  Besides, the matters urged upon the court in paragraphs 39 (2) and (3) above are fact sensitive and would require mature consideration.  It is not plain and obvious that a case for the claimed legitimate expectation is manifestly unsustainable.  I would also decline to strike out the petition on this ground.

General attacks on the complaints in the petition

42.Mr. Bartlett mounted two general attacks on the complaints.  Firstly, each of the complaints concerned not the actions of the 1^st respondent but the actions of Mr. Tan and was a management decision within his authority.  Secondly, the complaints were too trivial in nature.  Mere disagreements on matters of commercial judgment do not constitute misconduct and cannot be the basis of such a petition (Re Elgindata, supra. at 994c to f, 995b).  They should be resolved by the agreed mechanism under the Shareholders Agreement.

43.When the complaints are considered with regard to the petitioner’s legitimate expectation that the Company and GVM would be run in accordance with the “Principles” as alleged by Mr. Phoon, I am inclined to think that they could be said to concern the actions of the 1^st respondent, in that the 1^st respondent had failed to ensure that Mr. Tan would adhere to such principles in his management of GVM.  Viewed in that light, it is arguable that the complaints had gone beyond mere disagreement on matters of commercial judgment, as they were contrary to the legitimate expectation of the petitioner and damaging to the relationship of trust and confidence.  It cannot be resolved at this stage whether such disagreements should be resolved by the voting mechanism provided in the Shareholders Agreement as contended by the 1^st respondent or in accordance with the alleged “Principles”.  The petitioner categorised the complaints as “serious corporate governance failures”, whether that is so could only be determined with regard to all relevant circumstances, after findings have been made to the facts in dispute.

44.I do not think the general attacks would provide a sufficient basis to strike out the petition.  I turn to consider the specific complaints in the petition.  I do not propose to analyse in detail the evidence adduced by both sides on each of the complaints except to highlight some of the conflicting evidence.

Increase in ticket prices

45.Mr. Bartlett submitted that the decision to raise ticket prices was solely a “Management Issue” and within the limits of authority of Mr. Tan.  There is dispute on the evidence if that was so or whether this was a matter subject to the consideration and approval of the board of GVM or the shareholders in accordance with the “Principles” alleged by Mr. Phoon.  There is also dispute if the increase in ticket prices was in the best interests of GVM and the Company.

Termination of the lease of GHE

46.GHE is a subsidiary of Golden Harvest and is unrelated to the Company or GVM.  Mr. Bartlett submitted that in terminating the lease of GHE, there was no unfair prejudice to the Company, GVM or the petitioner.  The petitioner contended that the issue here is that Mr. Tan did not adhere to his undertaking to the board of GVM that if there should be a need to expand GVM’s office space, he would look at all options and consult the board.  The complaint is that the petitioner was not consulted in accordance with the alleged “Principles” and the petitioner’s interest was affected in that Mr. Phoon would be evicted from an office near to the GVM head offices and such an office was necessary for him to carry out his duties as the resident or semi-resident director of GVM.

Termination of Ms. Koh’s employment

47.A similar argument was raised by the 1^st respondent that this was purely a management decision within Mr. Tan’s authority.  There is dispute on the evidence if that was the case, whether there was breakdown in the relationship between Mr. Tan and Ms. Koh in the six months leading to her dismissal, and whether the reinstatement of Ms. Koh was warranted.

Conflict of interest of Mr. Tan as chairman of SFS

48.There is dispute on the evidence whether the interest of SFS was preferred to the detriment of GVM in respect of the change of venue of SFS film festivals, the change of charging from “full house capacity” basis to 60% of SFS film sales, and in organising the premiere for Star Wars.

Failure to acknowledge there was a problem with Mr. Tan

49.There is dispute on the evidence whether it was justified to terminate Mr. Tan’s employment summarily and whether the petitioner’s concerns regarding his performance had been adequately addressed by the 1^st respondent in accordance with the “Principles” alleged by Mr. Phoon.

Conclusion and orders

50.It does not appear to me it is plain and obvious that the petition is bound to fail.  It is not necessary for present purpose to go into the allegations regarding the petitioner’s ulterior motive in bringing this petition.

51.I make the following orders on this summons:

(1)	the summons to strike out the petition is dismissed; and
(2)	the petitioner is to file and serve a summons within 14 days hereof seeking leave to amend the petition to set out the facts and matters relied on in support of its allegations of legitimate expectation deposed to in the 2nd affirmation of Phoon Chiong Kit filed on 5 July 2005 and summarised in paragraphs 21 (1) to (5) above.

52.I vary the direction I gave earlier on 29 August 2005 regarding the hearing of the petition.  This is to be restored for hearing in the call-over list on 31 October 2005, when the summons for amendment of the petition should be heard.  The parties should submit any other directions they wish to seek regarding the petition three days before the hearing.

53.The petitioner has not succeeded entirely in this application, as amendments are required to be made to the petition.  It would not be appropriate to award costs of the application to the petitioner in any event.  Much of the evidence filed in this application would seem to be of use in the hearing of the petition, so the work done would not be wasted.  In the circumstances, I make an order nisi that the costs of this application are to be in the cause of the petition.

Mr John Scott, SC, instructed by Clifford Chance, for the Petitioner

Mr Jeremy Bartlett, instructed by Lovells, for the 1^st Respondent

The Official Receiver, attendance excused