Lee Jong Rong and Another v. Great Choice Consultants Ltd and Others

HCCW 316/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO.316 OF 2013

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DECISION

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INTRODUCTION

Introduction

1.There are two applications before the court, namely:-

(1)   the 1^st and 2^nd Petitioners’ application by way of summons dated 5 May 2014 seeking to amend the winding up petition against the 1^st Respondent (the “Company”) dated 11 November 2013 (the “Amendment Application”) as per the draft annexed thereto (the “Draft Amended Petition”); and

(2)   the 2^nd to 5^th Respondents’ application by way of summons dated 12 May 2014 seeking to strike out the petition herein, pursuant to Order 18 rule 19 of the Rules of the High Court (the “Striking Out Application).

2.The Company is a foreign unregistered company.  It was incorporated under the laws of the British Virgin Islands (“BVI”) in or about 1995 as a private company limited by shares.  It is not registered in Hong Kong in accordance with section 326 of the Companies Ordinance.  At present, there are six shareholders in the Company, who are the 1^st and 2^nd Petitioners and the 2^nd to 5^th Respondents (“the Present Shareholders”).  They are also directors of the Company.

3.By their petition, the Petitioners seek to wind up the Company on the just and equitable ground under section 327(3)(c); and alternatively, an order that the Respondents buy out the Petitioners’ shareholding in the Company pursuant to section 168A, on the ground that the affairs of the Company are being or have been conducted in a manner unfairly prejudicial to the interests of the Petitioners.

4.By their Striking Out Application, the 2^nd to 5^th Respondents seek to strike out the petition on the following grounds:

(a)   the court has no jurisdiction under section 168A of the Companies Ordinance (Cap 32) to entertain the petition as the Company has not established any place of business in Hong Kong; and

(b)   as to the winding up relief sought, there is insufficient connection between the Company and Hong Kong to justify the Hong Kong Companies court exercising its discretion and accepting jurisdiction under section 327(3)(c) of the Companies Ordinance.

5.The amendment sought under the Amendment Application is to rectify the defect in the petition in failing to plead an established place of business in Hong Kong, which failure is relied on by the 2^nd to 5^th Respondents as their first ground for their Striking Out Application. 

6.It is the common consensus of the parties that the Striking Out Application should be dealt with first.  If the Striking Out Application succeeds, there is no need to consider the Amendment Application which should also be dismissed along with the Striking Out Application.  If it fails, Mr Lee, counsel for the 2^nd to 5^th Respondents has no objection to the Amendment Application being allowed.

The principles applicable to a striking out application

7.It is common ground that the Striking Out Application should be dealt with on the basis of the facts as pleaded in the Draft Amended Petition. 

8.It is also trite law that it is only in plain and obvious cases that the court should exercise its summary powers to strike out the indorsement on any writ or any pleading under Order 18 rule 19.  The following is a summary of the applicable principles for striking out applications extracted from Hong Kong Civil Procedure 2015[1]. There should be no trial upon affidavit.  Disputed facts are to be taken in favour of the party sought to be struck out, ie the Petitioners in the present case.  Nor should the court decide difficult points of law in striking out proceedings.  The claim must be obviously unsustainable, the pleading unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out.  If the court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious, then, there should be no striking out.  One must be careful not to drive a plaintiff from the judgment seat nor should the court decide difficult points of law.  Where the legal viability of a cause of action is sensitive to the facts, an order to strike out should not be made.

SECTION 327(3)(C) – SUFFICIENT CONNECTION

The legal principles

9.Shortly before the hearing, the Court of Appeal handed down its judgment in Kam Leung Sui Kwan, personal representative of the estate of Kam Kwan Sing, the Deceased v Kam Kwan Lai and Others, Re Yung Kee Holdings Ltd[2].  The company which was sought to be wound up in that case was also a foreign unregistered company.  Counsel agree that Re Yung Kee Holdings Ltd is the latest authority containing statement of the legal principles which are applicable to the applications now before me.  Their dispute is as to how those principles apply to the facts of this case.

10.The Petitioners are seeking to invoke the court’s jurisdiction to wind up a foreign non-registered company under section 327(3)(c).  The 2^nd to 5^th Respondents’ case for striking out is that the jurisdiction is a discretionary one and the court does not regard section 327 as giving it carte blanche to wind up a foreign company.  One of the core requirements to be satisfied before the court would exercise its discretion to wind up a foreign company under that section is that the foreign company must have a sufficient connection with Hong Kong.  The major thrust of Mr Lee’s argument is that on the pleading the Company does not have a sufficient connection with Hong Kong to invoke the court’s exercise of this discretionary jurisdiction.  He relies on the following legal principles in the context of a winding up petition by shareholders, which are extracted from the Court of Appeal decision in Re Yung Kee Holdings Ltd. 

11.The purpose of requiring a sufficient connection is to ensure that the court would not exercise this prima facie “exorbitant” jurisdiction except where it is appropriate to do so.  Prima facie, the appropriate forum to wind up a company is the court of its place of incorporation.  Hence, it is generally considered “exorbitant” for a local court to wind up a foreign company.  To justify the jurisdiction to set in motion its winding-up procedures over a body which was prima facie beyond its territorial limits, a sufficient connection between the foreign company and the local jurisdiction must be shown.  No single criteria or any prescribed combination of criteria would supply an essential precondition for meeting this requirement.  It is a matter of judgment in the light of the evidence in a particular case: see Re Yung Kee Holdings Ltd[3].

12.This jurisdiction is only exercised in very exceptional cases.  In practice, it is seldom exercised in isolation, but has tended to furnish an additional basis for doing so in conjunction with one of the other grounds for winding up.  This is explained by Fletcher[4] on the basis that assuming jurisdiction to wind up a foreign company represents a direct exception to the general rule and is only to be undertaken when the court is satisfied that, in the circumstances, this is defensible in terms of justice and expediency.  Particularly in the case of a solvent company sought to be wound up, it would have to be a very exceptional case for the court to exercise this jurisdiction: see Hollington on Shareholders’ Rights[5].  These observations were adopted and applied in Re Yung Kee Holdings Ltd[6].

13.The Court of Appeal in Re Yung Kee Holdings Ltd[7] also makes a clear distinction between a creditors’ winding-up petition on insolvency ground and a shareholders’ petition on the just and equitable ground.  More stringent requirements in terms of connection are required for the court to assume jurisdiction in the latter case than in the former for two obvious reasons.  First, creditors are not personally attached to the state of incorporation of a foreign company and they might suffer prejudice if their fate were subjected exclusively to the law and processes of the state of incorporation.  Second, there is much less justification for a shareholder to seek to circumvent the law of the state of incorporation, which was the law of their choice, and resort to another jurisdiction to wind up the company, especially where its assets are located in the place of incorporation and the law of the state of incorporation is able to provide the same remedy.

14.In the context of a shareholders’ petition on just and equitable ground, the court further draws another clear distinction between the affairs or business of the company sought to be wound up and the affairs or business of its subsidiaries.  The court is expected to adhere to the principle of Salomon v Salomon[8] and to treat each company in a group of companies as a separate legal entity: See Re Yung Kee Holdings Ltd[9]. The affairs or business of the subsidiaries are not to be treated as those of their holding company which is sought to be wound up.

15.The Court of Appeal in Re Yung Kee Holdings Ltd[10] also held that in the context of a foreign investment holding company as contrasted with an active trading company, the mere presence of all shareholders and directors making internal administrative decisions in Hong Kong, such as changing the constitution of the board and declaring dividends, is not sufficient to establish substantial connection between the company and Hong Kong.

16.Similarly, the mere fact that a foreign company holding shares in a Hong Kong company is, without more, insufficient to establish the sufficient connection: see Re Real Estate Development Co[11].

17.With these principles in mind, I now turn to examine the sufficiency of the Company’s connection with Hong Kong.

The connection via K&A

18.The basic theme of the 2^nd to 5^th Respondents’ case for striking out is that the Company does not have sufficient connection with Hong Kong to justify the court to exercise jurisdiction.  The Petitioners’ answers are: that the Present Shareholders formed an agreement (the “Agreement”) to carry on the business of trading of gifts and home decoration items (the “Business”); they incorporated K&A for that purpose; the Company was then deliberately acquired pursuant to that Agreement for the Business which was carried out by its operating subsidiary K&A; the Company continued to operate on the basis of quasi-partnership with all parties concerned as partners in the Company; it holds virtually all the shares in K&A; the change in the shareholdings in the Company was commensurate with the shareholdings in K&A; accordingly, the Company has a place of business in Hong Kong by virtue of its subsidiary K&A.  Mr Ngan, counsel for the Petitioners, therefore argues that the Company has sufficient connection with Hong Kong to justify the court’s exercise of its winding-up jurisdiction.

19.Mr Lee accepts that the striking out application should be dealt with on the basis of the facts as pleaded in the Draft Amended Petition, but submits that even on that basis sufficient connection has not been established by the pleading.  He refers to paragraphs 10C to 33 of the Draft Amended Petition in which the Petitioners pleaded the facts leading to the incorporation of the Company. These amendments are proposed to be introduced to deal specifically with the point about the Company establishing a business in Hong Kong.  In these paragraphs, the Petitioners plead as follows:

“10C. For the purpose of

1. better define their respective interests under the Agreement, in particular after the admission of Jerry [the 3^rd Respondent], Wilson [the 5^th Respondent], Lee and Lin, and

2. hide their identities from the public as much as possible so as to avoid any potential conflicts with their previous employers,

the Present shareholders [the 1^st and 2^nd Petitioners and the 2^nd to 5^th Respondents], Lee and Lin agreed that:-

3. a company incorporated under the laws of BVI should be acquired as the holding company of K&A (“the Holding Company”), although K&A would remain the main vehicle carrying out the Business;

4. further companies might be incorporated or acquired if circumstances required for the purpose of the Business and agreed to by all of them; and

5. the Agreement should apply to all such companies.

10D. In late 1994 or early 1995, the Present Shareholders, Lin and Lee contributed capital into K&A as follows:-

…

10E. It was agreed between and/or the common intention of the Present Shareholders, Lee and Lin, and it was the basis of their contributions pleaded in §10D hereinabove, that:-

1. The shares in K&A should begin to be held on trust for the Present Shareholders, Lee and Lin; and

2. The extent of their interests in such shares should correspond to and/or reflect their contributions.

11. Pursuant to the Agreement and the matters pleaded hereinabove:-

In early 1995, [the 4^th Respondent], for and on behalf of the other 7 members to the Agreement, caused to incorporate/ acquire the Company.

12.    Accordingly, the Business, K&A and the Company had since been operating as a quasi-partnership and the Present Shareholders, Lee and Lin had all along regarded themselves as partners in the Business, K&A and the Company.”

20.In summary, the Petitioners’ pleaded case is that they together with the 2^nd and 4^th Respondents formed the Agreement in 1994 to start and operate the Business.  Pursuant to that Agreement, they incorporated K&A to carry out the Business.  The Business and hence K&A had since been operating as a quasi-partnership.  Later on, the 3^rd and 5^th Respondents, Lin Chi Yuan (“Lin”) and Lee Yung Hsiang (“Lee”) were brought into the Business and contributed capital to K&A.  Then for the purpose of better defining their interest under the Agreement and to conceal their identities from their previous employers, the Present Shareholders, Lin and Lee acquired the Company in early 1995 as the holding company of K&A.  The Petitioners transferred all, except one, of their shares in K&A to the Company.  The remaining one share is still being held by the 2^nd Petitioner.  The shares in the Company were allotted to the Present Shareholders, Lin and Lee according to their capital contribution to K&A.

21.There were subsequent increases in the share capital of K&A with new shares allotted to the Company.  In 1996, the Company holds 29,999 out of 30,000 issued shares in K&A with one share held by the 2^nd Petitioner. Subsequently Lee and Lin left the Company and sold their shareholdings to the Present Shareholders.   These facts have no impact on the corporate structure of the Company and the Petitioners’ case.

22.Mr Lee relies heavily on the distinction between the company’s business and that of its subsidiaries.  He argues that on the above pleading the Business was being carried on by K&A and the sole business of the Company was to hold the shares of K&A.  The purposes of the Company, according to the pleading, were to better define the interest of the Present Shareholders under the Agreement and to conceal their identities.  Thus, there can be no dispute that the Company has no real business in Hong Kong other than as a passive investment holding company. It has not been carrying on any business in Hong Kong.

23.In paragraph 15B of the Draft Amended Petition, the Petitioners pleaded that despite the change in shareholding, the operation of K&A remained the same.  While on record, the Company is the sole shareholders of K&A, the Present Shareholders of the Company are the real shareholders and de facto directors of K&A. They received notices of shareholders’ meetings and directors’ meeting of K&A and attended directors’ meetings as its de facto directors. They received dividends from K&A through the 4^th Respondent’s personal bank account and not through the Company which never distributed any dividend (see also clauses 20B, 20B.1, 20B.2 and 20C). 

24.The 2^nd Petitioner argued that the activities of the Present Shareholders in managing the Business of K&A are the activities of the Company and the Business of K&A is also the business of the Company.  The Petitioners seemed to have ignored the basic principle of separate corporate personality and that the affairs and business of a subsidiary are not those of its holding company’s.  A similar argument was rejected by Harris J at first instance in Re Yung Kee Holdings Ltd[12] for the simple reason that the directors of the holding company did not deliberate upon and direct, as directors of the holding company, the business of the operating subsidiaries.  Mr Ngan seeks to distinguish Re Yung Kee Holdings Ltd from the present case on the basis that in that case there was another subsidiary interposing between the company and the operating subsidiary.  In my view, that is a distinction without difference.  The test is simply whether the directors of the holding company were directing the affairs of the operating subsidiary as directors of the holding company. In the present case, there is neither plea nor evidence that the Present Shareholders have been appointed or authorised by the Company to act as directors of K&A, attended meetings of K&A in such capacity or as representatives or directors of the Company, or deliberated upon and directed the affairs of K&A in their capacity as directors of the Company.   On the other hand, the pleaded case that notices of meetings were not given to the Company, but to the Present Shareholders and that the Present Shareholders received dividends direct from K&A and not through the Company is consistent with their attending to the affairs and business of K&A in their personal capacity rather than as directors of the Company.  This plea does not help the Petitioners in establishing the Company’s connection with Hong Kong at all.

25.The 2^nd Petitioner exhibited notes of record of “directors’ meeting of K&A” and a partly signed Memorandum of Understanding agreeing to cease all business of the group of companies, comprising of the Company, K&A, Floral Group Limited (“Floral Group”), Senaka Limited (“Senaka”) and Top Trend Investment Limited (“Top Trend”) (collectively referred to as the “Group”).  The notes show that they were records of meetings of K&A, that the matters discussed were the business of K&A and that the business which was agreed to cease was also the business of K&A.  When the matter of any of the companies in the Group was discussed, its name was specifically mentioned in the notes.  But the Company’s name was not mentioned at all.  Consistently with that practice, while the names of the other companies within the Group were referred to in the Memorandum of Understanding, the Company’s name was not referred to at all.  I do not think those documents support the existence of any business activities carried on by the Company through K&A.

26.More importantly, it is the Petitioners’ pleaded case that the Company has no real interest in K&A and is no more than a bare trustee of the shares in K&A held by it for the Present Shareholders (paragraph 10E of the Draft Amended Petition).  This trust plea is the central plank of the Petitioners’ case and is repeated several times in the Draft Amended Petition, see for example, paragraphs 15A, 17A, 18A and 20A.  Coupled with the absence of a plea that the Present Shareholders deliberated upon or directed the affairs and Business of K&A as directors of the Company, there can be no room for the Petitioners to turn around and argue that the Business of K&A is the business of the Company and that the Company has a business in Hong Kong and hence sufficient connection to invoke the court’s jurisdiction.

Connection via activities of associated companies

27.It is also the Petitioners’ case that the Group including the Company operates as a group.  It is the Group which in its entirety carried out the Business contemplated under the Agreement and that K&A was merely an operative arm of the Group and a subsidiary of the Company.  The Petitioners therefore argue that the Company was not merely a holding company of the Group but also carried on business activities in Hong Kong.

28.The Petitioners’ argument is clearly misconceived in law.  As submitted by Mr Lee, it ignores the much emphasised fundamental principle that each company in a group of companies is a separate legal entity.  A similar argument made by the petitioner in Re Yung Kee Holdings Ltd was rejected by the Court of Appeal[13].

29.Further, the argument cannot be sustained on the pleaded facts.  The genesis of the other members of the Group is as follows.  At about the same time as the incorporation of K&A, the Present Shareholders incorporated Floral Group in November 1994.  It is a BVI company incorporated pursuant to the Agreement to carry on the same business as K&A but with a specific German client.  Floral Group became inactive since about 2011 when the German client closed down.  On 31 July 2013, all the shares in Floral Group held by the Present Shareholders were transferred to Chen Wen Fu.  The Company never held any shares in Floral Group.  It was not a subsidiary of the Company but an associated company.  It had no activities since 2011 and has left the Group before the petition was presented.

30.In March 2002, pursuant to the Agreement, the Present Shareholders incorporated Senaka under the laws of BVI.  K&A and the 2^nd Petitioner are the sole shareholders, each holding one share in the company.  It was formed for the purpose of carrying on the same business as K&A but with another group of clients introduced by the German client.  It became dormant when the German client closed down since 2011.  Technically, it is a joint venture company of K&A but not a subsidiary of the Company.  In any event, it had no business activities since 2011, well before the petition was presented.

31.Top Trend was incorporated by the 4^th Respondent in 2006 unbeknown to the other Present Shareholders.  It is a property holding company, holding one landed properties in Ningbo China and one in Hong Kong.  In 2012, upon discovery of the 2^nd to 5^th Respondents’ fraud, the Company was issued 450,000 shares in Top Trend, while another other 50,000 shares are held by one of the employees and an information and technology consultant of K&A.  The 2^nd Petitioner argued that the issue of shares in Top Trend to the Company was intended to protect the interest of K&A and itself.  Be that as it may, technically, Top Trend is not a wholly-owned subsidiary of the Company, though the Company is its majority shareholder.  Its sole business is property holding.  It has no other business.  It is a passive investment holding company with no business activity.  The Company could not have been intended or “agreed” to carry out the business of Top Trend. 

32.From the perspective of the corporate structure of the Group, only K&A is a truly wholly-owned subsidiary of the Company with active business.  The other members of the Group has either left the Group, or is dormant or has no active business other than property holding.  Thus, as a matter of fact, the Group has no business other than that of K&A’s.  As a matter of law, K&A’s affairs and business cannot be treated as that of the Company’s.

33.The 2^nd Petitioner also relied on the mere mention of the Company’s name in a facility letter from Standard Chartered Bank to K&A as evidence of the Company’s business activities in Hong Kong.  Under the facility letter, K&A was the borrower, Top Trend and Floral Group were the parties providing the bank security for the loan.  The Company’s name was mentioned only because of the undertaking and warranty/ representation given by K&A and the other natural persons.  The said undertaking and warranty/representation was not even given by the Company.  The 2^nd Petitioner’s argument is just hopeless.

Connection through the Company’s activities

34.The 2^nd Petitioner relied on the issue of shares in Top Trend to the Company as business activities of the Company in Hong Kong.  It is trite that a foreign company having acquired or owning shares in a company in Hong Kong per se would not found sufficient connection: see Re Real Estate Development Co[14].

35.The 2^nd Petitioner relied on the keeping of statutory registers and books and removal of directors of the Company as business activities of the Company.  These activities are at best acts of internal administration of the Company, which neither qualify as “business” within the paramount or subsidiary objects of the Company nor would be sufficient to bring the office at which such activities took place within the meaning of a “place of business”.  A similar argument was dismissed by the Court of Appeal in Re Yung Kee Holdings Ltd[15].  The Court of Appeal also held that in the context of a foreign investment holding company, the mere presence of all shareholders and directors making internal administrative decisions in Hong Kong, such as changing the constitution of the board and declaring dividends, is not sufficient to establish substantial connection between the company and Hong Kong[16].

36.The 2^nd Petitioner also relied on the Company’s shareholders’ meeting held in Hong Kong for passing a resolution to remove the Petitioners as directors of the Company.  This in fact arose out of the discord between the shareholders of the Company and was not the normal or regular business of the Company: see Re Yung Kee Holdings Ltd[17].

Jurisdiction under section 327(c) - conclusion

37.Looked at in the round, the only business which the Petitioners sought to assert as the Company’s business is the Business of its wholly owned subsidiary K&A.  This case is hardly distinguishable from Re Yung Kee Holdings Ltd.  In the context of a shareholders’ petition on just and equitable ground, the affairs or business of its subsidiary is not to be treated as that of the holding company.  On the Draft Amended Petition, the Company carried on no business of its own other than holding the shares in K&A as a bare trustee for the Present Shareholders.  It has no real interest in K&A.  It does not participate in the business of K&A.  It did not attend shareholders’ meetings or directors’ meetings of K&A.  There is neither plea nor evidence that the Present Shareholders who attended did so as authorised representatives of the Company. The Company received no dividends from K&A.  Though the Present Shareholders are within the jurisdiction, it has been held in Re Yung Kee Holdings Ltd[18] that the mere presence of all shareholders and directors making internal administrative decisions in Hong Kong is not sufficient to establish substantial connection between the company and Hong Kong.

38.The Petitioners are seeking to invoke the court’s jurisdiction to wind up a solvent foreign company on the just and equitable ground in the context of a shareholders’ dispute. The authorities have shown that they have to show an exceptional case by establishing substantial connection between the Company and Hong Kong before the court would exercise this “exorbitant” jurisdiction.  On the basis of their Draft Amended Petition, they have not even begun to show any such exceptional case.

SECTION 168A: ESTABLISHED PLACE OF BUSINESS

The legal principles

39.The repealed section 168A, which is applicable to this petition, gives a member of a specified corporation the right to petition to court for the winding up of the corporation or for other alternative relief, if the affairs of the specified corporation are being conducted in a manner unfairly prejudicial to the interests of the members generally or to the interests of some part of the members.   

40.A “specified corporation” is defined in section 2 to mean “a company or a non-Hong Kong company”. Being a BVI company, the Company does not fall within the meaning of a “company” as defined in section 2.  A “non-Hong Kong company” is defined in section 2 to have the meaning assigned to it under section 332, which in the present context includes BVI companies “which have before the commencement of the Companies Ordinance, established a place of business in Hong Kong at the commencement of the Ordinance”.  Thus, to invoke the court’s jurisdiction under section 168A, the Petitioners have to prove that the Company has “established a place of business” in Hong Kong.  In Re Yung Kee Holdings Limited, the Court of Appeal lay down the following criteria about the meaning of “establishing a place of business”.

41.First, “establishing a place of business” means much more than the mere carrying on of business in the jurisdiction.  It points to the company having “a local habitation of its own”. The word “established” connotes not only the setting up of a place of business at a specific location, but a degree of permanence or recognisability as being a location of the company’s business.  The concept is of some more or less permanent location, not necessarily owned or even leased by the company, but at least associated with the company and from which habitually or with some degree of regularity business is conducted. 

42.Second, “business carried on” in the present context means there must be activities connected with the company’s paramount or subsidiary objects: see Re Yung Kee Holdings Ltd[19].  As stated in Elsinct (Asia Pacific) Ltd v Commercial Bank of Korea Ltd[20], “the establishment of an office within the jurisdiction where activities connected with its subsidiary object and incidental to the main business are conducted would be sufficient to constitute the office a ‘place of business’ within that provision.”   It is necessary to consider the office’s main activities in the light of the company’s paramount and subsidiary objects, in order to ascertain if the activities would bring the office within the meaning of a “place of business” in section 332.

43.Third, the internal corporate activities of an investment company would not be sufficient to constitute “business” for the purpose of section 168A.  In respect of an investment holding company, the paramount and subsidiary objects would not include administrative activities such as the declaration of dividends and other internal activities.  The conduct of such administrative activities alone would not be sufficient to establish a place of business within the meaning of section 332: see Re Yung Kee Holdings Ltd[21].

44.Fourth, in determining whether a place of business has been established in Hong Kong, like the determination of “sufficient connection” with Hong Kong, the same distinction between the activities of a holding company and those of its subsidiaries applies: see Re Yung Kee Holdings Ltd[22].

Whether the Company has established a place of business in Hong Kong

45.While the Draft Amended Petition would cure the defect in the petition for failing to plead the Company has established a business in Hong Kong, Mr Lee argues that despite the proposed amendment, on the facts as pleaded, the Petitioners would still fail to prove that the Company has a business in Hong Kong, let alone has established a place of business in Hong Kong.

46.The 2^nd Petitioner argued that all along the Company had been using the business address of K&A as its own business address.  She also referred to a directors’ meeting on 31 July 2013 in which it was resolved that the “operating/trading address” of the Company should be changed to the second floor of Southeast Industrial Building which is actually the place of business of K&A.

47.Even if a company maintains on a regular basis an office address in Hong Kong, it is far from having established a place of business in Hong Kong unless in maintaining that address it also meets the four criteria set out above.  Basically, it must carry on a business at an address in Hong Kong which is more or less permanent. On the basis of the Draft Amended Petition, it is beyond argument that the Company could not meet the above four criteria.  The affairs and Business of K&A are not to be treated as those of the Company.  The “operating/trading address” of the Company is the business address of K&A. The Company is just the holding company of K&A, it has no real interest in K&A or in its Business.  It has no business activities other than its internal corporate activities as a holding company.  The Petitioners cannot point to any other business being carried out by the Company.  Even if the Company maintains an office in Hong Kong and calls it the “operating/trading address” of the Company, it cannot be a place of business or evidence of having established a place of business.

Conclusion

48.In conclusion, I am satisfied on the basis of the facts pleaded in the Draft Amended Petition, that the Company has not established a place of business in Hong Kong as to justify the court’s exercise of the jurisdiction under section 168A.

OTHER NON-JURISDICTIONAL ISSUES

49.Apart from the jurisdictional issues which the Petitioners fail to meet, the misconduct pleaded in the Draft Amended Petition which formed the basis of the petition is not misconduct in the management or operation of the Company.  They concerned the affairs of K&A and Top Trend, such as registering the two properties purchased by K&A under the name of Top Trend, unauthorised investment of the funds of K&A, misappropriation of profits of K&A, misrepresentations in the financial accounts of K&A, the 4^th Respondent’s charging excessive interest against K&A, the 4^th Respondent’s charging excessive rent paid by K&A for its staff quarters, wrongful actions by the 4^th Respondent’s and his sister’s company, unauthorised payment of salary by K&A to the 4^th Respondent’s sister, unauthorised deployment of staff of K&A for the business of the 4^th Respondent’s own company.  There is simply no plea connecting the Company to the misconduct alleged.  These alleged misconducts have no bearing on the issue of the Company’s connection with Hong Kong.  These allegations ought to be struck out as frivolous, vexatious or otherwise abuse of process of the court.

CONCLUSION

50.On the basis of the facts as pleaded in the Draft Amended Petition, there is insufficient connection between the Company and Hong Kong as to justify the court to exercise its discretion to accept jurisdiction under section 327(3)(c) of the Companies Ordinance.  On the pleaded facts, the Petitioners have also failed to show that the Company has established any place of business in Hong Kong as to justify the court’s exercise of jurisdiction under 168A.  Besides, part of the Draft Amended Petition contains allegations of misconduct unrelated to the Company which ought to be struck out.  Accordingly, I allow the 2^nd to 5^th Respondents’ application to strike out the petition and dismiss it with costs to the 2^nd to 5^thRespondents. 

51.Having so struck out the petition, there is no need to consider the Petitioner’s application to amend the petition.  That application is therefore dismissed also with costs to the 2^nd to 5^th Respondents.

Mr Francis Ngan, instructed by Messrs Wong Poon Chan Law & Co, for the Petitioners

Mr Lee Tung Ming and Mr Jeremy Kwong, instructed by Messrs Winston Chu & Co, for the 2^nd to 5^th Respondents