Read the full judgment text of HCMP 1377/2007 on BabelCite. This Court of First Instance judgment was delivered on 7 October 2009 before Kwan J.
Company law – unfair prejudice petition – section 168A, Companies Ordinance (Cap. 32) – strike-out application – abuse of process – distinction between misconduct and mismanagement – inter-relationship between s.168A petitions and derivative actions – rule in Foss v. Harbottle – whether s.168A is the proper vehicle where complaint is director misconduct and only relief sought is that the company bring (or cause a subsidiary to bring) proceedings – whether Interdragon complaint bound to fail by reason of Supplemental Agreement – whether inconsistent position in Macau proceedings is an abuse. Held, allowing the strike-out applications: (1) where the whole gist of the complaint is director misconduct and the objective of the petition is to obtain a remedy for the company for that misconduct, the proper vehicle is a common law or statutory derivative action, and use of a s.168A petition is an abuse of the process of the court; the wide statutory language of s.168A(2) confers theoretical jurisdiction but the court will not, as a matter of proper practice, exercise it. (2) Following Re Chime Corp. Ltd. (2004) 7 HKCFAR 546 and Waddington Ltd v Chan Chun Hoo Thomas (FACV 15/2007), and the Charnley Davies (No. 2) [1990] BCLC 760 distinction (per Millett J), if the essence of the complaint can be adequately redressed by the law's remedy for the wrong, it is misconduct simpliciter and not mismanagement. (3) To permit a s.168A petition to circumvent the rule in Foss v. Harbottle (1843) 2 Hare 461 would bypass the threshold/leave filter applicable to common law and statutory derivative actions (Prudential Assurance Co Ltd v Newman Industries Ltd (No. 2) [1982] Ch 204; Wallersteiner v Moir (No. 2) [1975] QB 373; ss.168BC(3) and Part IVAA of Cap. 32). (4) On the facts, all three complaints (Interdragon, Sleeping Dividends and Article 46) alleged knowing failures by Stanley Ho, Pansy Ho and Ambrose So to cause the Company (or Interdragon) to pursue STDM for proper dividends, and the only relief sought was that the Company bring proceedings, or cause Interdragon to bring proceedings, and that the three directors be sued for breach of duty; once the misconduct and the company-side redress were stripped away, nothing remained. (5) The Interdragon complaint was further struck out because the Supplemental Agreement dated 27 June 2007, governed by Hong Kong law and not challenged, would defeat any preferential-dividend claim by Interdragon against STDM, and because the petitioners' position in this petition was inconsistent with Winnie Ho's challenge in concurrent Macau proceedings to the validity of Interdragon's shareholding in STDM, contrary to Berthier Godown Ltd v E Wah Realty Ltd [1986] HKC 8. Order nisi that the petitioners pay the costs of the 1st to 4th respondents of the application and of the petition, with a certificate for two counsel for the 1st and 3rd respondents and for the 4th respondent.
Legal issues: Abuse of process in s.168A petition where complaint is misconduct rather than mismanagement · Striking out Interdragon complaint on ground of Supplemental Agreement · Striking out Interdragon complaint on ground of inconsistent position in Macau proceedings
Outcome: Strike-out applications allowed; the petition under section 168A of the Companies Ordinance was struck out in its entirety as an abuse of the process of the court.