Winbless Inc v. Silver Shadow Co Ltd and Others

HCCW 369/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 369 OF 2011

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AND

HCCW 370/2011

COMPANIES WINDING-UP PROCEEDINGS NO 370 OF 2011

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AND

HCCW 375/2011

COMPANIES WINDING-UP PROCEEDINGS NO 375 OF 2011

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(HEARD TOGETHER)

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D E C I S I O N

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1.In this decision, I adopt the definitions set out in my earlier decision of 24 February 2014 (“Decision”).

2.On 24 February 2014, I handed down my Decision not to strike out the petitions for the winding up of the 3 BVI Companies.  The petitions were made under s 327 of the Ordinance, for winding up the Companies on the just and equitable ground.  On 6 March 2014, the Court of Appeal handed down its decision in Re Yung Kee Holdings Limited, CACV 266/2012 (“Judgment”). On 10 March 2014, the respondents in these proceedings applied for leave to appeal against my Decision, on the ground that the Decision is inconsistent with the Judgment, such that it is reasonably arguable that wrong legal principles had been applied in the Decision.  Specifically, the respondents argued that, contrary to the principles made clear in the Judgment, I had failed to apply the doctrine of separate legal entities, and had adopted a broad and liberal construction of s 327 of the Ordinance, in determining that there is a sufficiently strong connection between the Companies and Hong Kong for the purpose of invoking the extra- territorial jurisdiction of the court. 

3.I am not persuaded that the application of the Judgmentwould have resulted in the striking out of the petitions in these proceedings, on the ground that there is no sufficient connection between the Companies and Hong Kong to justify the court invoking its jurisdiction to wind up the Companies under s 327 of the Ordinance.  The Yung Kee Judgment does not in any way alter the principles summarized in paragraph 8 of my Decision. 

4.The conclusion reached in paragraph 64 of my Decision is that having considered all the circumstances of the case, including the presence of the Companies’ assets in Hong Kong, and their activities in Hong Kong, I was satisfied that there was a sufficiently strong connection between the Companies and Hong Kong to justify the court invoking its jurisdiction to wind up the Companies, and that, for striking out purposes, this is not a clear and obvious case that the court must ignore the Siblings’ connection with Hong Kong for the purpose of establishing jurisdictional connection (paragraph 57 of the Decision).

5.The respondents seek to argue, on appeal against the court’s exercise of its discretion, that the Decision was made under a mistake of law, in disregard of the principle of separate legal entities emphasized in the Judgment, and in wrongfully applying cases decided under section 168A, which the Court of Appeal rejected in the Yung Kee case.

6.It is pertinent that the facts in these proceedings involving the Companies are very different, and totally distinguishable, from Yung Kee.  In Yung Kee, the subject company held no assets in Hong Kong, and did not conduct any business in Hong Kong in its own right.  It had no activities in Hong Kong.  A BVI company was interposed between the subject company and the sub-subsidiaries actually operating or holding properties in Hong Kong (paragraph 58 of the Judgment).  Here, the Companies directly held assets in Hong Kong, in the form of substantial cash and securities in Hong Kong, shareholding in Hong Kong companies, which in turn held substantial properties in Hong Kong (paragraphs 13 and 46 of the Decision).  There is also evidence (to be taken in favor of the Companies on the striking out application) of the Companies engaging in various forms of activities in Hong Kong in the normal course of their dealings over the years (paragraphs 10 to 12 of the Decision).  The Companies’ connection with Hong Kong, in terms of asset holding and activities, is not through or by virtue of some other Group Company’s connection.  Paragraph 39 of the Decision also shows that the Group Companies were considered in the context of the degree of interaction between the companies.

7.As the Court of Appeal pointed out in paragraph 63 of the Judgment, “no single criterion is to be considered as supplying an essential condition for meeting the requirement of sufficient connection”.  An investment holding company would not have a sufficient degree of connection with Hong Kong “solely on the basis of indirectly held interest in Hong Kong”. However, the Court of Appeal did not decide in Yung Kee that an investment holding company with no trading or business activities can never have a sufficient connection with Hong Kong, when all relevant circumstances constituting adequate connecting factors are considered.  There is nothing in the Judgment which suggests that the carrying on of a business in Hong Kong should be the focus when the court determines the question of the adequacy of a subject company’s connection with Hong Kong.

8.Nor did the Court of Appeal decide in Yung Kee that acts of administration and management of the company, of the type referred to in paragraphs 48 and 49 of the Decision, are irrelevant to the determination of the company’s connection with Hong Kong by reference to the nature and extent of its activities in Hong Kong. 

9.The respondents rely on paragraphs 54 and 55 of the Judgment, to argue that the Decision is wrong, on the construction of s 327 of the Ordinance by reference to s 168A, for the consideration given to the connection between the Group Companies, and the Siblings’ connection with Hong Kong, as opposed to the connection of the BVI Sibling Companies with Hong Kong.

10.As highlighted by the petitioners, the Decision reflects the court’s conclusion that in all the circumstances of the case, it is not clear and obvious that the court should ignore the Siblings’ connection with Hong Kong, or that the petitions should be struck out for lack of jurisdiction.  In an appeal against the exercise of the court’s discretion, it has to be shown that the Decision is plainly wrong.

11.Bearing in mind that the threshold for granting leave to appeal is that the appeal has reasonable prospects, without the need to show that such prospects have to be probable, I can only say that the respondents’ prospects are more than “not fanciful”, so far as Grounds 1 to 3 of the intended appeal are concerned (“doctrine of separate legal entities” and construction of the scope of s 327 (3)).

12.It is clear from the authorities, and this remains unchanged by the Court of Appeal’s Judgment in Yung Kee, that what is required is a sufficient connection with Hong Kong, and not the carrying on of a business in Hong Kong.  I therefore consider it unarguable that it is erroneous in law to consider either (1) the activities of the Companies, even if they may fall short of the carrying on of any business in Hong Kong; or (2) the assets of the Companies in Hong Kong.  This is the substance or basis of Grounds 4 to 6, and 8 of the proposed appeal.  What weight should be given to a particular factor (including any allegation of abuse of process) in the balancing exercise of the discretion is plainly a matter for the judge at first instance.  Bearing in mind the nature of the intended appeal, being one against the exercise of the court’s discretion not to strike out, I consider that the grounds of appeal, on whether sufficient weight had been given to various matters, are not reasonably arguable.

13.There is in fact no finding made in paragraph 14 of the Decision, as the respondents suggest for Ground 6 of the intended Notice of Appeal.

14.The pleading point was dealt with in paragraphs 37 and 38 of the Decision, and I see no reasonable prospect of success for Ground 9 of the intended Appeal.

Conclusion

15.For all the above reasons, I grant leave to appeal only on Grounds 1 to 3 of the intended Appeal, and refuse leave for Grounds 4 to 9, which have no reasonable prospect of success.

16.The appropriate order of costs would be for the costs of the application for leave to appeal to be in the cause of the appeal, and I will make such an order nisi.  Having granted leave to appeal, there is no necessity to grant separate leave to file the Notice of Appeal as sought in the summons of 12 March 2014 and I will not make any costs order thereon.

17.For the purpose of the application for leave to appeal, I consider that it is inappropriate to consider the new evidence sought to be produced by the petitioners, and I have not referred to them in reaching my decision.  The petitioners’ summons of 2 May 2014 is dismissed, with costs.

Mr Wong Yan Lung SC and Mr Justin Ho, instructed by Pang &Associates, for the petitioner (in all cases)

Mr Victor Joffe and Mr Gary Lam, instructed by Vincent TK Cheung, Yap & Co, for the 1^st to 3^rd respondents (in HCCW 369/2011 and in HCCW 370/2011) and for the 3^rd to 5^th respondents (in HCCW 375/2011)