CHAN WOON FUI v. CHAN WING SUEN AND OTHERS

HCCW350/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 350 OF 2004

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D E C I S I O N

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1. This is an application by the petitioner in these proceedings to amend his petition.  The petition is brought under section 168(a) and 177(1)(f) of the Companies Ordinance.

2. There have been two previous contested applications between the petitioner and the respondent in relation to these proceedings.  The first was an application by the respondents to strike out certain passages in affirmations filed by the petitioner in support of his claim, and that was disposed of when I made an order directing that certain parts of the petitioner’s affirmations be struck out.  And thereafter, there was an application by the respondents to strike out certain parts of the petition on the grounds either that they disclosed no reasonable cause of action or because they were embarrassing and lacking in particulars.

3. That application was responded to by the petitioner by proffering an amended petition at the hearing, shortly before the hearing of the application to strike out in October last year.  In my judgment in relation to the application to strike out, and first application to amend, which was handed down, I think, on 7 December 2005, I indicated that while a limited number of the amendments were generally acceptable, there were sufficient deficiencies in the other parts of the petition or proposed amendments to it, that the appropriate course would be to refuse leave to amend, to strike out certain parts of the existing petition and to leave it to the petitioner to formulate an amended petition in suitably particularised terms in due course.  Within the time that was provided for the petitioner to take out such an application, this application was taken out.

4. The application before me, therefore, is to consider whether or not leave should be granted to the petitioner to amend his petition in the manner shown in the draft amended petition annexed to the petitioner’s summons which is now before me.  The respondent objects to a number, but not all, of the opposed amendments.  Mr Remedios has helpfully filed a skeleton argument setting out the basis on which objection is taken to those parts which are objected to, and he has expanded on those grounds in the course of today’s hearing. 

5. Mr Chung, who appears for the petitioner, has contended that the petition, as it now stands, is substantially adequately particularised and that the amendments should be permitted to be made in the form in which they are now drafted. 

6. It will probably be most convenient to deal with this matter by reference to each set of amendments in relation to each of the allegations in respect of which amendments are sought to be made, and that is the course that I shall adopt in this decision. 

7. The first set of amendments sought to be made consist of the introduction of new paragraphs 12A, 12B, 12C and 12D of the petition.  These will be found at page 6 of the petition.  These paragraphs are put forward in substitution for an earlier version of these paragraphs that was put forward on the first amendment application.  In relation to the earlier version of paragraphs 12A to 12D, a number of complaints had been made.  In particular it was said by Mr Remedios that the paragraphs as formulated were far from clear and were somewhat incoherent.  There were also questions as to the nature of the allegation being made in relation to the allegation that certain funds paid into an account with the HongKong and Shanghai Banking Corporation, in the name of a Madam Choi, who is, I think, an employee of the company, were in fact assets of the company and represented rebates or return of payments from suppliers which were intended to be used for the benefit of the company’s staff.

8. The allegation appeared to have been that those funds were in fact moneys belonging to the company and the upshot of the allegations was that the 2nd respondent had caused the moneys to be paid to himself and that he appeared to have taken them without regard to the company’s entitlement to those funds. 

9. In my previous judgment I observed that the explanation that had been put forward in the course of submissions by Mr Chung as to what the set of allegations was intended to allege was intelligible.  But the explanation given in the course of argument was much clearer than the paragraphs themselves.  There were some other slightly more minor problems with the paragraphs, and I took the view that it would be desirable for the petitioner to reformulate the paragraphs so as to make more clear the allegation that was intended to be advanced. 

10. In my view, this has substantially been done by the new paragraph 12A.  Paragraph 12A alleges that in about 1990 the petitioner and the 1st respondent or his brother, agreed to continue with the policy of the company that rebates received from suppliers should be paid into a separate bank account in the name of Madam Choi for the benefit of the company’s staff.  It is alleged that the bank account in Madam Choi’s name was opened with the 1st respondent and/or his brother’s consent and approval and that of the petitioner.  It is further alleged that the 2nd respondent subsequently knew of and approved the use of this account for the benefit of employees, either in relation to reimbursement of out of pocket expenses incurred by them, or in order to pay special bonuses from time to time to employees of the company.

11. Today Mr Remedios’s principal complaints are that the allegation as to the alleged agreement to continue the alleged policy or practice of the company is insufficiently particularised and also that the allegation of approval and consent, or approval and knowledge on the part of the 2nd respondent is also unparticularised.  He says that there is no real information given as to how the agreement in the case of the 1st respondent, or the knowledge and approval in the case of the 2nd respondent, is said to have come about. 

12. In my view, the position in relation to the 1st and 2nd respondent’s is slightly different.  In the case of the 1st respondent the allegation is that he personally agreed to set up this account for the purposes that are stated.  That, I think, is something that the 1st respondent can address, even though it may be that precise details of when and where such agreement was made are not given. 

13. The position in relation to the 2nd respondent, however, is slightly different in that the allegation is that he knew and approved of the use of the account in a particular way.  No indication is given in paragraph 12A as to how it is said that he either knew of these matters, or approved of them, and in his case, given that it is not alleged that he was initially a party to the setting up of this account, and the setting up of the practice or its continuation, it seems to me that the 2nd respondent is entitled to be told what it is that his going to be relied upon against him in establishing such knowledge and approval on his part.

14. In the course of his reply submissions Mr Chung pointed to paragraph 12C of the petition in which it was alleged that Madam Choi had on about 30 April 2004 informed the 2nd respondent of the existence of the account and its nature and the purpose for which the funds in it were to be held.  It seems to me that that is adequate particularisation of the basis on which it is said that the 2nd respondent knew or approved of the use of the account for the purpose stated.  That said, however, Mr Chung was not content to stop there.  He also sought to rely on documents annexed to the petition as annexure 15, which were copies of the passbook, or more than one passbook,  passbooks, relating to this account in  Madam Choi’s name. 

15. It is said in paragraph 12A of the petition that those copies of the bank passbooks show payments in of the rebates received by the company and payments out to the staff and employees of the company including, it is said, the 1st respondent and the 2nd respondent and the petitioner.  It is said that on the basis of this material, it is clear that the 2nd respondent must have known that the account was used for the purpose alleged.  That might well have been the case, if it were in fact the position that the documents annexed did disclose unequivocally payments to the 2nd respondent.  Although it might be said even then that that would not necessarily indicate that the 2nd respondent knew of the purpose of the account, unless he was involved somehow in the making of the payments to himself.  But it is not necessary to go into that particular complication, because it is quite clear from the annexure that all that it consists of is copies of the passbooks in question, from which it is not possible to see anything other than the dates of and amount.

16. No information is provided by the passbook as to the destination of the payments, or the origin of the payments in.  There is nothing to link the passbook with the 2nd respondent.  Mr Chung suggested that it might be possible to call evidence on this matter.  That may well be so.  But that does not mean that the allegation is at present one which the 2nd respondent is in a position to, or should be required to respond to.  So long as the allegation is limited to the matters pleaded in paragraph 12C it is unobjectionable.  However, if it is desired to travel beyond the limits of paragraph 12C, then it will be necessary for a further amendment to be made to this allegation in order to provide particulars of the way in which it is said that the 2nd respondent was said to have known of or approved of the use of the account in question for the purposes alleged, so that he had the chance to comment on and meet those allegations. 

17. For the moment,  I am prepared to allow the allegations to stand but only on the basis that the allegations as to the knowledge and approval of the 2nd defendant is limited to knowledge and approval to be inferred from the matters pleaded in paragraph 12C.  On that basis and that basis only, I am prepared to accept that the allegation for present purposes is adequate to enable the 2nd respondent to meet that case.   In those circumstances I would accept that the allegation is adequately particularised.  It might be desirable for express cross-reference to be made in the body of paragraph 12A to paragraph 12C.  I will leave that to Mr Chung to decide whether or not he wishes to do.  But even if he does not choose to amend the pleading that way, it will, I think, be quite clear to the parties that it is to be read as limited in that way, in the light of the observations which I have just made.  On that basis, it seems to me, that the allegation may stay in place.

18. I turn now to the next allegation, the next amendment which is objected to.  This relates to paragraph 16.  Paragraph 16 of the petition sets out allegations as to the procurement by the 1st respondent of certain payments to be made to himself and the 2nd respondent at a time when he was resident in Australia. 

19. The complaint on the last occasion was principally,  there were two complaints made, two principal complaints made by Mr Remedios.  The first one, the allegation of procurement was a bare allegation without any information as to the nature of, or manner of the alleged procurement so as to enable the respondents to deal with them.  The second complaint was in the light of the fact that it was no longer alleged that the payments were wrongful and that there was no longer any claim for repayment of the payments that had been made to the 1st and 2nd respondents, it was difficult to see what relevance these allegations had to the underlying dispute between the parties.

20. As I observed in my judgment on the last occasion, the second of those complaints was met by Mr Chung when he submitted that the point of this allegation, even if there was no wrongdoing alleged, or no claim based on it, was to show that contrary to a case that was apparently made by the respondents, the 1st respondent retained a degree of control over the financial affairs of the company, even during the time that he was resident in Australia.  This had some relationship also to certain allegations made by the respondent to the effect that the petitioner had been guilty of diversion of, or misuse of the company’s funds during the time that the respondent was away in Australia.

21. In my previous judgment, I think  I accepted broadly that on that basis the allegations might be relevant, although the relevance was not spelt out in the pleading as it then stood.  That aspect of the matter has now I think been addressed by the last sentence of the proposed amendment.  In those circumstances I am not inclined to disallow this amendment on the grounds of irrelevance. 

22. So far as the complaint as to procurement being unparticularised is concerned, the matters introduced by way of the amendment do, in my view, amount to an amplification and particularisation of  the petitioner’s case as to what is meant by the procurement of such payments by the 1st respondent.  Although there might be room for debate as to whether procurement is necessarily the right words to be used to describe the acts that were done, it seems to me that at the end of the day, the allegation as to what it is that the 1st respondent is said to have done, which it is said demonstrates that he remained in control, or continued to exercise a degree of control over the financial affairs of the company, notwithstanding his absence in Australia, matters that are relied upon are now spelt out.  The petitioner will not be permitted to go beyond the matters that have been spelt out in this paragraph and on that basis it seems to me that it would be in order to allow the proposed amendment to be made.

23. The next set of amendments to which exception is taken are those two paragraphs, 24 and 25 of the petition.  Paragraphs 24 and 25 of the petition previously alleged a wrongful change in the method of operation and financing of transactions entered into by the company with other factories in China which provided services in the manufacture and assembly of garments manufactured by the company for supply to its customers.   At the last hearing the allegation was that whereas the company had previously subcontracted work to factories in China to carry out on its behalf in relation to orders which it had received from its customers, a method of operation in which it was said generated a margin of profit of about 8 per cent for the company.  This means of operation was changed by the 1st respondent in about the late 1990’s when he embarked on a course of dealing with a different factory in China on what are described as FOB terms .  The gist of which seemed to involve payment in full by the company for the work done by the supplier, I am sorry, by the sub-contractor effectively, as if it were buying the goods from the sub-contractor in question.  This was not withstanding that the raw materials were purchased by the company and provided to the factory in China and that washing and dyeing works in relation to the materials were carried out at the expense of the company before the goods were supplied to the factories for assembly.

24. It is said that one consequence of adopting this mode of operation is that the company made a smaller profit margin of some 5 per cent, rather than 8 per cent as previously, and that the factory was enabled to earn the 3 per cent that was foregone by the company.  There was also a complaint as to the failure on the part of the company to seek payment from the factory of moneys which it is said that the factory should have paid it in respect of the raw material supplied by it to the company and the washing and dyeing services in  respect of such raw materials for which the company had paid prior to the goods being supplied to the factory.

25. On the last occasion the principal complaint related to the fact that while it was said that there had been delay in demanding payment from the factory of the amounts in respect of the raw materials and dyeing services which had been provided on its behalf, the company nonetheless paid the factory apparently in full for the materials that it was effectively, I suppose, repurchasing from the factory in their finished form.  The difficulty on the previous occasion was that there was no information as to the actual terms on which the factory was supposed to pay the company for the materials that had been supplied to the factory. 

26. On the previous occasion it was suggested that this was not a matter within the knowledge of the petitioner.  However, I held that that was not an excuse for not providing the particulars that were required.  The amendment therefore had now sought to deal with these matters.  First of all in paragraph 24 it has sought to add by way of amendment an allegation that the change in the business operation method, or the financing method, as it were, whereby the company was left with a smaller margin of profit and the factory was enabled to earn a part of the profit that had previously been earned by the company, is now pleaded to be a breach of fiduciary duty on the part of the 1st respondent, on the basis that, as is alleged in paragraph 25 as amended, the factory was in fact owned beneficially by the 1st respondent.

27. It is also alleged that the terms on which the factory was intending to deal with the company in respect of materials and services supplied by the company to the factory, were basically cash on terms that involved immediate payment on delivery.  It is then alleged that notwithstanding that the company has not demanded payment from the factory in the timeliest manner and has moreover paid the factory for the charges that the factory had invoiced to it, notwithstanding that it was owed substantial sums by the factory.  The upshot of it would appear to be that the company has instead of setting off certain amounts, which amount to, according to the petitioner, some HK$1.882 million-odd, against amounts due to the factory, has instead paid an amount of well in excess of $3 million to the factory while it remains a creditor of the factory for the $1.882 million which the factory should have paid it.  The complaint is made that this could have been recouped by way of set off on the part of the company, but that this has not been done.  It is alleged that this is a wrongful act on the part of the 1st respond in that he thereby preferred his own interest as owner of the factory to those of the company in which he and the petitioner both had an interest.

28. Now, it seems to me that in these circumstances, given the way in which the matter is now put, that the allegation is sufficiently particularised and is sufficiently comprehensible for the respondent to be able to deal with them.  In those circumstances I would be minded, subject to what I have to say about a legal point that was advanced by Mr Remedios, to allow the amendments substantially to stand.

29. The legal point that Mr Remedios takes is that this claim would appear, in fact, to be a claim of wrongdoing and misconduct rather than mismanagement.  And this is fortified by the fact that there is sought to be introduced a prayer for relief, which involves a claiming of the sum of 1.882 million to be paid to the company by the 1st respondent.  This was an issue that was considered in my previous judgment, and on the basis of the Chime Corporation case I adopted the approach that one had to look first to see whether the allegation was properly an allegation of misconduct, or an allegation of mismanagement or whether the same facts could be said to give rise to allegations of both types.  If it was possible to regard the allegation as one of mismanagement, then it was, prima facie, a matter that was suitable to be included in the section 168(a) or 177(1)(f) petition. 

30. If in addition to amounting to mismanagement it also amounted to misconduct for which there might be a claim on the company’s part, then provided that the claim was one that was readily quantifiable and the quantification and the amount of the claim was readily ascertainable from the petition, then in accordance with the views expressed by the Court of Final Appeal in the Chime Corporation case, it might be appropriate to permit the claim to remain in the section 168(a) proceedings, notwithstanding that conceptually the more appropriate form of claim to be brought in respect of such misconduct would be an action by the company or a derivative action on its behalf.  I think it should also be indicated that in the original version of the pleading the amount of the claim was not limited to the 1.882 million that was pleaded but also to include a general claim to for damages or general claim for compensation that clearly went beyond that amount. 

31. However, as the claim is now formulated in the present amendment it is limited to the specific sum pleaded and it therefore seems to me that so long as it is properly to be understood as an allegation of mismanagement as well as misconduct, it would be appropriate to allow the matter to remain in the petition as it has been included at present. In my view, while the allegation clearly involves allegations of misconduct, it seems to me that they can also be regarded as allegations of mismanagement that are unfair and prejudicial to the interests of the petitioner, in that the respondent was, it is said, effectively to have been preferring his own interests to those of the company. 

32. In those circumstances it seems to me that it would be in order to permit the amendments that are sought to be made to be made.  One matter, however, that I should aver to is that there has been in this paragraph, as in later paragraphs to which I shall refer, an allegation that the payment, that is the failure to set off, and making of payments to the factory had been done without the benefit of a validation order, despite the fact that the petition in this case had been presented.  I said in my previous judgment that the fact of the presentation of a petition did not mean that a company could not carry on business if it was able to do so.  It will often be for practical reasons impossible for a company to do so as a result of the freezing of its banking facilities that typically happens when the petition is advertised, because the effect of section 182 of the Companies Ordinance is to render void all dispositions of a company’s property after the presentation of a winding up petition, that being the date on which the winding up order is deemed to be made, if a winding up order is eventually made. 

33. That said, however, if the company is in a position to dispose of its property without having to involve its bankers, of if its bankers for some reasons fail to stop it from doing so, then the company is in a position to carry on, although the risk remains that in the event of a winding-up order being made those transactions will subsequently be held to be void unless validated.  The company then has an option of whether or not to apply for a validation order prospectively, or if it prefers to take its chances and take the risk in the hope that no winding up order will be made, or alternatively to take the risk that it will not subsequently obtain a retrospective validation order so as to sanction the transactions which have been undertaken. 

34. That said, however, it seems to me that where in the course of the new paragraph 25 it is said that the 1st and 2nd respondents wrongfully and unlawfully, without a validation order, paid in preference to the factory a total sum of in excess of $3 million.  This seems to me that the gravamen of the allegation is on the payment being wrongful in the sense that it is a payment that was made in breach of duty, in the sense that it was a payment to a factory owned by the 1st respondent rather than that he thereby preferred his own interest to those of the company, and in that respect was also guilty of mismanagement in a way that was unfair and prejudicial to the interests of the petitioner. 

35. I do not think that the addition of the words “wrongfully, unlawfully and without validation order” necessarily mean that the only basis on which the allegation can be made that the acts complained of were wrongful, is on the basis that there was no validation order sought.  Whether or not a validation order was sought or obtained, if the petitioner’s allegation is right then it would seem to me that there may well be a case for saying that there has been wrongful conduct on the part of the 1st respondent in the form of conduct which involves the preferring of his own interest to those of the company.  That said, however, there is pleaded towards the end of paragraph 26

36. That said, however, there is pleaded towards the end of paragraph 25 three letters to which reference is made in the petition.  These letters involve correspondence between the solicitors acting for the parties at the relevant time in relation to the possibility of the making of a validation order.  As I have indicated, whether or not a validation order is made is not of critical importance to this allegation and for that reason it seems to me that it would be preferable for those sentences to be omitted from this part of the petition.  I would therefore permit the amendments that are sought to be made in relation to paragraphs 24 and 25 of the petition, except for the last three sentences of paragraph 25.

37. The area of complaint related to paragraph 32A to 32E, which are sought to be introduced as new allegations in the petition.  These relate to the setting up of a bank account in the name of the company with the Wing Lung Bank Limited, which was operated on the basis of signatures by the 1st and 2nd respondents.  As I understand the allegation it is said there are two aspects to it.  The first relates to the setting up of the account in the first place, in that it is said that this was a breach of the mutual agreement between the 1st respondent and the petitioner that all bank accounts of the company should be operated by their joint signatures. 

38. In this sense, this is clearly a matter which can properly be raised in the context of the section 168(a) petition.  It is also alleged in paragraph 32C, D and E that having set up this account as long ago as seen in 1999, paragraph 32C alleges that on dates unknown to the petitioner after January 1999, without his prior knowledge and consent, that the 1st and 2nd respondents have siphoned funds belonging to the company into the said secret bank account.  Paragraphs 32D and 32E then go on to assert various payments out of the account which are said to be not for the benefit of the company, but for the benefit of the 1st and/or 2nd respondents personally.  Paragraph 32D sets out a total of 25 withdrawals between February 1999 and January 2004, providing details of the date, the cheque number, in some cases a payee, and the amount of the cheque in question.  This involves a total of some HK$9.2 million.

39. Paragraph 32E sets out seven payments to the factory in China which is the subject of the complaint in paragraphs 24 and 25, totalling some $3.1 million and ten other payments totalling slightly over $600,000, which are said to have been for the benefit of the 1st and 2nd respondents, providing broadly similar particulars to those provided in paragraph 32D.  It is alleged that these payments were wrongful and were made for the use and benefit of the 1st and/or 2nd respondents rather than the company.  In relation to paragraph 32E it is again asserted that these payments which were made after March or April 2004 were made after the presentation of the petition and were made without the benefit of a validation order having been obtained. 

40. Mr Remedios objected in particular to paragraphs 32C and 32E.  He also had an objection to the prayer for relief that is founded on the basis of paragraph 32D and E.  The complaint in relation to paragraph 32C is that it is wholly unparticularised.  In my view, that is a valid complaint.  Paragraph 32C simply alleges that on unknown dates funds belonging to the company had been allegedly siphoned into this bank account at Wing Lung Bank, which is described as a secret bank account.  There is no information at all as to what payments are said to have been made, where they are said to have been taken from, from other bank accounts of the company or in some other way diverted into the secret bank account.

41. Now, it may be that given that the account was an account apparently in the name of the company, it will be said that whatever funds stood to the credit of the account must have been paid into it and that were paid into it must have been funds of the company.  That may be so, but that does not amount to some form of siphoning off secretly of funds from other sources that were clearly belonging to the company into this account.  It may be that this paragraph is not strictly necessary.  Whether or not it is is a matter for the petitioner to consider. 

42. However, if the petitioner wishes to allege that there has been some form of wrongful moving around of funds belonging to the company from other accounts over which he had some control into this account over which it is alleged he had none, it seems to me that it is necessary for the petitioner to provide at least the basis nature of the allegation which had been made in order to establish that there had been such movement or such siphoning.  I would therefore not be prepared to allow the amendment in relation to paragraph 32C on the basis that it is clearly inadequately particularised.  However, so far as paragraphs 32D and E are concerned, those allegations it seems to me, like the allegation in relation to paragraph 24 and 25, are matters that would appear to involve both allegations of misconduct and potentially of mismanagement and unfair or prejudicial behaviour.  On that basis it seems to me that there is no real reason why paragraphs 32D and E should not be permitted to remain in place.

43. Again, in relation to paragraph 32E there is a point that the petition makes reference to the fact that those payments were made without a validation order.  However, for the reasons which I have already given, it seems to me that whether or not a validation order is in place is not really material in that the essence of the complaint is or should be in relation to the misuse of funds belonging to the company for the benefit of the 1st and/or 2nd respondent.  That allegation has been made and particulars have  been given of the payments in question and it seems to me that the 1st respondent and 2nd respondent are in a position to respond to them in the same say as they are in a position to respond to the allegation in paragraph 32D, to which no objection was taken by Mr Remedios.  That being the question of whether or not the prayer for relief, seeking repayment to the company of the amount of the allegedly misapplied moneys should be permitted to remain.

44. It seems to me that given than it will almost certainly be necessary to go into the transactions in question and to consider whether or not they do in fact amount to a wrongful payment, that was also unfair and prejudicial, as between the petitioner and the 1st respondent, that those underlying facts are matters that will have to be investigated at the trial in any event.  That being the case, given that the amount in question had been identified with fairly precisely in the petition, adopting the approach that I did on the last occasion, it would I think on balance be an order for this prayer to be allowed to stand for present purposes.

45. The next set of amendments in question is paragraph 33.  In paragraph 33 there was previously the bare allegation that a sum of $500,000 was an amount which the respondents have wrongfully procured the company to transfer from its own account to a bank account held by the factory, which is the subject of complaint in other paragraphs of the petition, which was allegedly controlled by the 1st and 2nd respondents.  The complaint on the previous occasion was that although there was some doubt as to the meaning of one or two of the terms that had been pleaded, being complaint related to the failure to give particulars of the manner in which the payment was allegedly procured.  It was on that basis that I ordered that paragraph to be struck out and declined to permit an amendment to it on the last occasion.

46. In the present version of the proposed amendment, however, there have been given details of what it is that is complained of.  The complaint is, in essence, that the petitioner says that he had in reliance on his trust of the 1st respondent, from time to time provided the 1st respondent with cheques and remittances forms signed in blank.  And it is said that the 1st respondent used one of such remittance forms to effect the transfer in question.  Mr Remedios submitted that this didn’t really amount to procuring a transfer by the company, as so much an out and out withdrawal from the company’s account of funds belonging to the company.  That may be a more accurate way of formulating the claim, however, it seems to me that the substance of the allegation is now clearly stated, and in those circumstances it is adequately particularised in that the respondents know what it is the case is that is being made against them.  I will therefore allow the amendment to paragraph 33 in the form that it presently stands.

47. The next set of amendments that are objected to are paragraphs 34 and 34A.  Again, the complaint in the previous hearing was broadly similar to that in relation to paragraph 33.  There is now provided details of the dates of the claim in question and, in paragraph 34A, the nature of the petitioner’s case as to why it is said that the funds in question belonged to the company has been spelt out.  It is fair to say that there may be questions that can be asked about the nature of the arrangements which are said to have existed which resulted in the payments in question being said to be rebates that were paid to the company by subcontractors who had done work for it.  But it seems to me, again, that the essence of the allegation has been made clear to the 1st and 2nd respondents and the respondents are in a position to deal with it.  For that reason, I would permit the amendments sought to be made to paragraphs 34 and 34A. 

48. The final aspect of the proposed amended pleading in respect of which objection has been taken is to the proposed paragraph 35A.  Paragraph 35A seeks to introduce a new matter which was not raised in the previous amended petition although it was a matter that had been referred to in the affirmation of the petitioner but had been struck out by me on the grounds of its irrelevance.  The allegation is that the 1st respondent put before the petitioner a document representing it to be for his personal tax purposes and, on the basis of that representation, persuaded the petitioner to sign it.  The document, it is said, consisted of various statements which were false in various respects and it is said that the 1st respondent irresponsibly and unlawfully misled the petitioner to sign this document in abuse of the petitioner’s trust in the 1st respondent as a business partner. 

49. This does not appear to be anything to do with the affairs of the company.  Mr Chung frankly accepted that it had nothing to do with the say in which the company was run.  He also accepted that it was not, whatever was said in the paragraph itself, an allegation of wrongdoing in relation to the company’s affairs.  It was neither misconduct nor mismanagement of the company’s affairs.  He said, however, that it was arguably relevant on the basis that it tended to show that the 1st respondent was in the habit of putting documents before the petitioner and asking him to sign them either without explanation or with an inadequate or misleading explanation and that the petition had, on a number of occasions, signed such documents at the request or behest of the 1st respondent. 

50. In my view, this matter has no relevance at all to the present proceedings.  It is clearly purely prejudicial and its prejudicial effect clearly outweighs any slight probative value that it may have.  I have great doubts as to whether there is any.  In those circumstances, it seems to me that it would not be appropriate to permit paragraph 35A to be included in any proposed amended petition and I would disallow the amendment in so far as paragraph 35A is concerned. 

51. There are a number of other amendments that are sought to be made to which no objection has been taken and in relation to them therefore, I shall give leave to amend also.  The upshot therefore is that the last three sentences of paragraph 25, the entirety of paragraph 35A are disallowed.  The other amendments are allowed, although in so far as paragraph 12A is concerned, it is allowed on the basis that the only allegation of knowledge or approval on the part of the 2nd respondent is as pleaded in paragraph 12C. 

52. The question then arises as to the appropriate order for costs to be made in respect of this application.  Mr Chung has already indicated that he will be seeking an order for costs in his favour if he were successful. 

(Submissions on Costs)

53. I think in relation to the costs, there are two aspects to the matter.  The first is in relation to the costs of the application to amend itself.  The application to amend involves the application by the petitioner for indulgence in being permitted to amend its pleading.  The normal order on an application to amend is that costs of the application and costs thrown away by the amendment should be paid by the party seeking leave to amend to the other party, in any event. 

54. I leave aside for the moment the costs of the hearing today.  So it seems to me in relation to that, the costs of taking out the application and any costs thrown away as a result of the amendments being made - and that may be minimal - should, I think, be paid by the petitioner respondents in any event at the end of the day.  However, in relation to the costs of today’s hearing, it seems to me that the position is slightly different and that as the matter was contested, the outcome of this hearing constitutes a relevant event for costs purposes which can and probably should be dealt with on its own merits. 

55. Having regard to the outcome of the proceedings, while the respondents have successfully resisted part of the proposed amendments made, I think it is fair to say that the balance of the outcome is in the petitioner’s favour in that rather more of the aspects that were argued about were permitted to stay in than were disallowed. 

56. Doing the best that I can in all the circumstances, I do not think that the degree of the petitioner’s success can fairly be said to be as great as that of the respondent’s on the last hearing but it seems to me, nonetheless, that on balance the petitioner had been more successful than the respondent.  Doing the best that I can, I think that 50 per cent of the costs of today should be paid by the 1st respondent to the petitioner and such costs will costs to be taxed on a party-and-party basis if not agreed. 

HCCW 350/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 350 OF 2004

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BETWEEN

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J U D G M E N T

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Introduction

1.  This was an application by the 1st, 2nd and 4th Respondents to the petition presented by Mr Chan Woon Fui (“the Petitioner”) in respect of Linea Trading Company Limited (“the Company”) seeking to strike out certain paragraphs of the petition and certain paragraphs in the prayer for relief contained in it, primarily on the grounds that such paragraphs are embarrassing.

2.  The application was made by summons dated 28 April 2005, and was preceded by a letter from the Respondent’s solicitors to the Petitioner’s solicitors in March 2005, indicating that such an application would be made and inviting the Petitioner to consider making amendments to the petition to avoid such an application.  On 18 October 2005, Mr Remedios, representing these Respondents, served on the petitioner and the court a copy of a skeleton argument, setting out the reasons why it was said that the paragraphs complained of were embarrassing – in essence, the complaint was that they were lacking in particulars to such an extent that the Respondents were unable to know what the case against them was, and thus were unable to deal with it.  The skeleton indicated in some detail the sort of particulars that the Respondents suggested should have been included in the petition.

3.  A few days later, on 21 October 2005, the Petitioner issued a summons seeking leave to amend the Petition, in which a number of the paragraphs and prayers complained of were either amended or deleted.  The proposed amended petition also contained a number of new allegations which had not previously been made in the petition, although some of them had been made in the Petitioner’s third affirmation in these proceedings, parts of which I struck out on an earlier application by the Respondents.  The Respondents resist the application to amend, principally on the grounds that the amendments to the existing paragraphs do not cure the defects, and the new allegations are themselves objectionable for lack of particularity.

4.  The background to these proceedings, and a summary of the allegations made in the petition will be found in my judgment dated 11 July 2005 dealing with that application.  I do not propose to repeat them here.  It is, however, pertinent to note that in addition to seeking relief in the form of a winding up order or a buy out order, which is commonly seen in petitions brought under sections 177(1)(f) and 168A of the Companies Ordinance (Cap. 32), a number of the prayers in the petition seek monetary relief or the taking of accounts in favour of the Company (a form of relief more commonly found in actions by the Company, or, where the complaining shareholder is a minority shareholder or there is a deadlock, a derivative action brought on behalf of the Company).  Many of the prayers which are the subject of the striking out application are of this nature.  There is also one prayer seeking an order requiring the Company to repay to the Petitioner a sum of money.  That prayer, too, is the subject of the striking out application.

The striking out application

5.  The parts of the petition which it is sought to strike out are:-

(1)     Paragraph 16 and prayer (1);

(2)     Paragraphs 24 and 25 and prayer (6);

(3)     Paragraph 33 and prayer (2);

(4)     Paragraph 34 and prayer (3);

(5)     Paragraph 35 and prayer (15);

(6)     Paragraph 36; and

(7)     Prayer (10).

The Respondents’ position

6.  The Respondents contend that each of these parts of the petition should be struck out because they are embarrassing.  In addition, it is contended that paragraph 16 and prayer 1 should be struck out on the alternative basis that they are statute barred, relating, as they appear to do, to matters which took place more than six years prior to the presentation of the petition, and that paragraphs 24, 25 and prayer 6 (which claims payment by the Respondents of an amount including but not limited to HK$1,882,421.52) should be struck out on the alternative basis that it is clear that the determination of the amount, if any, of the Respondents’ liability to the Company cannot conveniently be dealt with at the hearing of the petition.

The applicable legal principles and practice

7.  Before considering the various parts of the petition which the Respondents say are objectionable, it will be convenient first to deal with a number of arguments that were made as to the law and the correct approach to this application as a matter of practice.

Embarrassment due to lack of particularity

8.  The principal attack on the paragraphs and prayers complained of was that they were embarrassing.  In most cases, the prayer was associated with the allegedly defective paragraphs, so that if those paragraphs were to be struck out, the prayer would fall away with them.  The source of the embarrassment to the Respondents was said to be a lack of particularity and clarity in the allegations, which left the Respondents unable to know how to respond to those parts of the petition.

9.  The importance of clarity and particularity in the allegations contained in a petition seeking relief under section 168A of the Ordinance, or the winding up of a company on the just and equitable ground should not be understated.  The petition is the document in which the allegations that form the basis for asking for the relief sought are to be found.  In considering whether or not to grant the relief prayed for, the court will have regard to the allegations in the petition, and will not travel beyond them.  It is therefore the principal document from which the court will take the issues requiring to be determined in the proceedings before it.  It is the document which tells the respondents what the allegations against them are, which they will have to meet.  If the petition does not contain the necessary particulars of the allegations that are made, the respondents will be placed at a disadvantage, as they may well be unable to respond satisfactorily to the claims and complaints that are made against them.

The Petitioner’s position

10.  I do not think that Mr Chung, who represented the Petitioner at this hearing, seriously disputed this.  He suggested, however, that many of the Respondents’ complaints were overstated, in that while some paragraphs of the petition might be lacking in particularity to some extent, that lack of particularity was cured by the evidence filed by the Petitioner, as it provided the details which the Respondents said they required, and exhibited documents from which the information said to be needed could be located.  Mr Chung also submitted that in many cases, the Petitioner was not in a position to take matters much further, as he was not in control of the Company and did not have the information available from which to provide the particulars sought.  Finally, he suggested that it was wrong for the Respondents to have taken out a striking out application, when it would have been good enough for them to have asked for particulars of the allegations, and failing a satisfactory response, to have made an application to the court for further and better particulars, or for directions designed to produce a similar result as such an application.

Particulars provided in supporting affirmations

11.  So far as the first point is concerned, I do not think that the fact that material may be contained in the supporting affirmations filed by a petitioner is a sufficient answer to the complaint.  As I have noted, in proceedings such as these, the petition is the document which defines the issues and thus the scope of the proceedings.  As Chu J said in Re Tourmaline Ltd [2000] 4 HKC 348 at 354C-D:-

“Although a petition does not constitute a formal pleading, it serves to define the scope of the matters in issue and the disputes that the court has to resolve.  Accordingly a petition must set out with precision and sufficient particulars the matters complained of or relied on by the petitioner in justifying a winding-up order on just and equitable ground, and the court will not travel beyond the allegations contained in the petition in adjudicating the matter: In re Fildes Bros Ltd [1970] 1 WLR 592 at pp. 597G-598C.  It follows that a sufficient case must be stated on the petition and defect or omissions in the petition cannot be cured by supporting affidavit: see Derek French, Applications to Wind Up Companies, pp 86-88; Re Wear Engine Works Co. (1875) LR 10 Ch App 188 at p.191.”

12.  I bear in mind that in Golden Screen Ltd v Village Cinemas Australia Ltd (unreported, CFI, Kwan J, 12 October 2005), Kwan J directed that amendments be made to a petition so as to incorporate material contained in supporting affidavits.  In my view, this approach confirms that it is necessary to set out the matters complained with sufficient particularity of in the petition, as distinct from the evidence in support of it.  In that case, it would appear that Kwan J considered that the material in the affirmations was sufficiently particularised and so was suitable for inclusion in the petition.  As will become apparent, I do not consider that that is the position here.

Inability to provide particulars at this stage

13.  As to the suggestion that the Petitioner ought not be required to provide particulars as he might not be in possession of the necessary information to enable him to do this, I do not think that this provides the Petitioner with any excuse.  A petitioner who is not in a position properly to make an allegation should not in general be permitted to make it in the hope that something might turn up on discovery.  That is particularly so where, as here, many of the allegations concern conduct that is said to be unfair or improper.  In such cases, fairness to the respondent requires that a petitioner make his allegation clearly and with proper particularity so as to enable the respondent to deal with it.  If the petitioner’s case is that certain matters should be inferred on the basis of the allegations, he should state the factual allegations and make it clear that what inferences he seeks to draw from them.  Where this is done, the respondent will be in a position to respond to the case against him, either substantively, or perhaps (where he thinks that the inferences cannot be justified) by making an application to strike out.

14.  In this case, Mr Remedios submitted that the Petitioner had been given complete access to all documents of the Company.  Mr Chung disputed this.  It is not possible for me to determine this question on the material before me.  However, for the reasons given in the preceding paragraph, I do not think that the Petitioner is excused from having to give the best particulars that he can when putting forward his petition.

Whether particulars can be ordered of a petition

15.  Finally, as to Mr Chung’s suggestion that the Respondents should have taken out an application for particulars, in accordance with the normal practice, I have to say that it is not the practice of the court to order that particulars be given of a petition.  RHC Order 18 rule 12 provides that the court may order a party to serve particulars of any matter in his pleading (see rule 12(3)).  However, a petition is not a pleading – see RHC Order 1 rule 4.  I am also unaware of the existence of a practice (which would be contrary to the provisions of the rules to which I have just referred) of ordering particulars of a petition.  Mr Chung also relied on the decision of Harman J in Re Unisoft Group Ltd (No. 3) [1994] 1 BCLC 609 to suggest that it was possible to obtain particulars in the context of proceedings under section 459 of the Companies Act 1985 (which is the equivalent of our section 168A).  However, it is clear from the judgment that the basis on which Harman J ordered particulars in that case was that there had been an order for the service of points of claim and of defence (in accordance with the practice in England on unfair prejudice petitions), and that such points of claim and defence were pleadings with the meaning of the rules.  No such direction has been sought or given in this case.  Indeed, it is clear that Harman J was of the view that particulars cannot be sought of a petition - see his judgment at p.613c-d, where he said:-

“... from that Mr Davies derived the proposition which is unanswerable and which I entirely accept, that a petition is not a pleading.  One cannot get further and better particulars of a petition, and a petition cannot be dealt with under the ordinary rules of pleading and it is not intended to be in the form of an ordinary pleading.”

16.  By contrast, when it comes to applications to strike out, Order 18 rule 19(3) makes it clear that a petition is susceptible to such applications, since it provides that Order 18 rule 19(1) shall apply to a petition as if it were a pleading.

17.  I therefore consider that it is necessary for a petitioner to set out in his petition all material averments relied upon in support of his claim for relief with proper particularity, and that in the absence of such particularity, it is not possible to order that particulars should be given, but an application to strike out can be made in an appropriate case.

Inclusion of Company’s claims in a section 168A petition

18.  There is one further issue of law which it would be convenient to deal with at this point.  This arises out of the fact that many of the prayers for relief complained of seek orders for the payment of money by the Respondents to the Company.  As I have observed, such claims are more usually to be found in actions by a company against its directors, whether brought by the Company itself, or derivatively on its behalf by a shareholder.

19.  Mr Remedios did not dispute that a court hearing a section 168A petition had jurisdiction to grant relief in favour of the company.  However, he suggests that although the court has such jurisdiction in the strict sense, it will not necessarily be appropriate for it to exercise that jurisdiction in every case.  He submitted that whether or not the court dealt with such claims in a section 168A petition was a matter of discretion, which should be guided by the following considerations:-

(1)     the order sought under the section 168A petition must be the same as the order to which the company would be entitled if the allegations had been successfully prosecuted in an action by the company (or in a derivative action on its behalf);

(2)     it is clear, at the pleading stage, that the amount claimed from the director can be easily determined at the hearing of the petition;

(3)     it should be borne in mind that there could be unfairness in allowing such a course to be taken in that a director who successfully resisted such a claim in a section 168A petition might later find himself faced with an action by the company, or a derivative action, founded on substantially the same facts.

20.  I accept these propositions, which derive from the judgment of the Court of Final Appeal in Re Chime Corporation Ltd (2004) 7 HKCFAR 546.

21.  These propositions go to the question of whether particular relief should be allowed to be claimed in proceedings such as these.  Whether the allegations themselves should be allowed to stand is a different question.  As to that, the approach endorsed by the Court of Final Appeal is to enquire whether the allegations involve complaints as to mismanagement, or are purely complaints of misconduct, bearing in mind that certain allegations might give rise to both types of complaint.  If the allegations give rise only to the latter type of complaint (misconduct) it will be appropriate for them to be dealt with in an action by the Company, and not in section 168A proceedings.

22.  I should note that Mr Remedios made it clear that he was not seeking to shut the Petitioner out of his complaints altogether.  His concern was that given the difficulties in ascertaining the amount to be claimed, it was more appropriate that this should be done in proceedings by the Company.

23.  I turn now to consider the parts of the petition complained of.

Paragraph 16 and prayer (1)

24.  Paragraph 16 was originally in the following terms:-

“16.   During the period from 1986 to 1997 whilst 1^st Respondent was in Australia as immigrant and engaged himself full-time in his washing and dyeing factory there, wrongfully and without approval and authority of the Company, 1^st Respondent procured payments by the Company to him in a total sum of HK$1,392,000.00.  In or about October 1996, 1^st Respondent also procured the Company to remit Australian $350,000.00 to him and/or to his son, the 1^st Respondent in Australia.  Annexure 4 hereof is a copy of Application for Telegraphic Remittance Form.”

25.  Prayer (1) sought an order “that the 1^st, 2^nd 3^rd and 4^th Respondents return to the Company the sum of HK$1,392,000.00 and A$350,000.00 with interest thereon as pleaded in paragraph 16 herein”.

26.  These allegations were responded to in the evidence filed by the 1^st Respondent, in which he said that these sums were in fact dividends payable to him, and that the payments were in fact effected by instructions given to the Company’s bankers by the Petitioner himself.  It was also pointed out that the payments complained of were in any case made more than 6 years prior to the presentation of the petition, so that any claim by the Company to recover them would be statute barred.

27.  Perhaps in response to these points, the Petitioner now proposes to amend paragraph 16 by deleting the words “wrongfully and without approval and authority of the Company”.  He also seeks to delete the last five words of the paragraph, which appear to be surplusage.  The original prayer (1) is also to be deleted.  The limitation point therefore no longer arises.

28.  However, Mr Remedios says that as a result of the deletion of the allegation of wrongfulness and of the associated prayer for relief, the Respondents are left wondering as to what the purpose of the allegation is.  More importantly, he says, it is quite unclear what the 1^st Respondent is said to have done to “procure” the payments which were made.

29.  Mr Chung responded that the point of this allegation was to demonstrate that the 1^st Respondent retained control over the affairs of the Company even while he was away in Australia for a period of some 10 years.  I must say that this is not readily apparent from the paragraph itself.  But be that as it may, this was also the position taken on behalf of the Petitioner during the course of the previous hearing in relation to the striking out of parts of the Petitioner’s 3^rd Affirmation, so that the Respondents would (at least now) be aware of this.

30.  To my mind the more substantial difficulty is posed by the allegation that the 1^st Respondent “procured” the making of the payments.  Nothing in paragraph 16 gives the 1^st Respondent any means of knowing what acts he is said to have done by way of such procurement.  Nor (leaving aside the point that it is not good enough to provide particulars in the supporting affidavits) is any help to be found in the evidence filed by the Petitioner.

31.  Mr Chung submitted that the use of the word “procured” was itself sufficient particularisation, since it told the 1^st Respondent that the complaint was that he had got someone else to effect the transfers at his bidding.  He said that the 1^st Respondent had, in any case, responded to the point by putting in his evidence in response.  He also said that this was the best that the Petitioner could do at this point.

32.  I do not think that these submissions provide any answer to the complaint.  While the use of the word “procured” may indeed convey the point which Mr Chung said it did, that tells the 1^st Respondent nothing about what it is that he has done that is said to constitute the “procurement” complained of.  He is left wholly unable to answer the allegation, because he cannot tell from the petition what the alleged factual basis for it is.  I have considered the relevant parts of the 1^st Respondent’s affirmations, and there is nothing there that responds to the allegation of procurement.  It is therefore not the case that the 1^st Respondent has been able to respond to this allegation.  As to the submission that this is the best that the Petitioner can do, that is no answer to the complaint for the reasons that I have given in paragraph 13 above.

33.  In my view, it is clearly necessary for particulars of the alleged acts of procurement to be provided, or at the very least, for the Petitioner to state the nature of his case as to this, by setting out the factual basis on which he will invite the court to draw an inference of such procurement.  I therefore consider that paragraph 16 requires amendment to provide such information in order to prevent it being embarrassing.

34.  As prayer (1) is to be deleted, it is not necessary for me to deal with it.

Paragraphs 24 & 25 and prayer (6)

35.  Paragraphs 24 and 25 are in the following terms:-

“24.   Notwithstanding that, it was further discovered by the Petitioner that the mode of operation of the Company as pleaded in paragraph 11 hereof had been drastically changed to FOB method as required by the said Factory and agreed by the 1^st, 2^nd, 3^rd and 4^th Respondents scarifying (sic) the interests of the Company to the advantage of the said Factory.  Under the FOB method, the Company accepts orders from its customers for supply of garments, the Company, in return, shall place orders on the said Factory.  The Company still provides raw materials to the said Factory.  After the manufacture of the products are finished, the finished products are delivered to the Company ONLY UPON PAYMENT ON FREIGHT ON BOARD (FOB) by the Company.  This requires full payment of all costs of labour, raw materials (even though the latter are already and previously provided to the said Factory by the Company) and costs for washing or dyeing (even though these costs are part of the FOB price quoted by the said Factory).  The Company then delivers the finished goods to its customers to get payment.  The said Factory is supposed to refund the costs of raw materials and washing or dyeing expenses to the Company on an agreed length of time but the 1^st, 2^nd, 3^rd and 4^th Respondents have generously allowed the said Factory to keep the refunds indefinitely but any payment payable for reimbursements of the said Factory on behalf of the Company are made immediately.  The 1^st, 2^nd, 3^rd and 4^th Respondents also procure the Company to pay the suppliers of washing and dying services which are supposed to be paid by the said Factory resulting double over payments thereof.  Such change of the operation and payment method is detrimental the Company.  Further, by this FOB method the Company’s effective profit margin will be reduced to 5% on Company’s orders but the said Factory will earn a profit margin of about 3% higher than the said four factories.

25.    The 1^st, 2^nd, 3^rd and 4^th Respondents have failed or refused for and on behalf of the Company to issue to the said Factory debit notes for refund of moneys due to the Company for a total sum of HK$1,882,421.52 and the said Factory has failed or refused to settle the same.  Annexure 7 are two letters dated 15^th and 18^th March 2004 respectively by the Petitioner’s solicitors.  The Company suffers loss and damages as a result thereof as well as a reduction of profit margin.”

36.  Prayer (6) seeks an order that “1^st, 2^nd, 3^rd and 4^th Respondents are personably (sic) liable for all loss and damages including but not limited to the said sum of HK$1,882,421.52 suffered by the Company as a result of and incidental to placing the Company’s orders on the said Factory and other transactions with the said Factory”.

37.  Although some amendments were put forward in relation to paragraph 24, they do not have any impact on the argument in relation to these parts of the petition.

38.  At the hearing Mr Remedios contended that particulars should have been provided of the alleged arrangements with the factory under which such refunds should have been made, setting out the Petitioner’s case as to the terms thereof so as to give rise to the complaint which is made.  He also contended that particulars should be given of the alleged failure by the Respondents to act promptly.  Finally, he said that as there were no particulars of the extent of the alleged personal liability beyond a statement that it included but was not limited to the sum of HK$1,882,421.52, and might extend beyond losses arising from placing orders with the Factory, the amount of the claim was obviously uncertain, and as such was not one which should be brought in these proceedings.

39.  Mr Chung’s response was essentially that the Petitioner was not able to particularise the nature of such arrangements, as he was not aware of them, the Company and the factory referred to being both under the control of the Respondents.  He referred me to various allegations and evidence as to this.  The Respondents’ position is that the factory in question was set up with the agreement of the Petitioner and that it is either beneficially owned by the Company, or by the Petitioner and 4^th Respondent in the same proportions as their interest in the Company.

40.  However, it does not seem to me that the question of the ownership of the factory bears on the Respondents’ complaint in any material way.  This is because the complaint is that the Respondents are unable to perceive the nature of the Petitioner’s case as to the arrangements which are said to have given rise to the obligation on the part of the factory to make repayments to the Company, and the terms of that arrangement in relation to the timing of such repayment which the Respondents are said to have ignored, to the benefit of the factory and detriment of the Company.  Even if the Respondents are proven to be wrong in claiming that the factory belongs to the Company or the Petitioner and 4^th Respondent, it will still be necessary to show that there has been some conduct which constitutes a breach of duty on the part of the Respondents before relief in favour of the Company could be granted.  It is to that breach of duty that the information sought goes.

41.  As I have already held, it is incumbent on a Petitioner making allegations of wrongdoing to put forward a properly particularised case in his petition.  I therefore do not consider that the alleged lack of information or knowledge on the part of the Petitioner as to such arrangements excuses the failure to provide such particulars as he can.  If there is material showing that some arrangement existed which was not enforced by the Petitioners, that can be distilled into the necessary allegations.  If there was no such arrangement, the Petitioners would not appear to have acted unfairly in failing to enforce it, although it may be that the failure to provide for such repayments to be made on a timeous basis may itself provide some justification for complaint (which is not, as I understand it, the complaint presently made).

42.  Further, even if there were a properly particularised basis for this complaint, I do not think that it is one which should properly be brought in the context of a section 168A petition.  The question of the losses (if any) suffered by the Company as a result of any alleged breach of duty will not be a straightforward matter to determine.  It may not be the case that the Company is entitled to claim the entire amount of the alleged debt of the factory to the Company from the Respondents.  It may be that the correct measure of compensation, if compensation is to be ordered, is different.  It is clear from the terms of the prayer itself that the amount of any such claim is not presently capable of precise quantification.  That being so, it seems to me that the relief should not be permitted to be pursued in section 168A proceedings, having regard to the guidance given by the Court of Final Appeal in the Chime Corporation case.

43.  While I would accept that a properly particularised complaint (whether of failing to enforce arrangements which had been agreed, in which case particulars of the arrangements should be given, or of failing to agree the necessary arrangements at all) might go beyond a complaint of misconduct, and amount to a complaint of mismanagement which can properly be the subject of a section 168A petition, the complaint here is not sufficiently particularised, for the reasons I have given.

44.  I am therefore satisfied that paragraphs 24 and 25, and prayer (6) are defective as being embarrassing.

Paragraph 33 and prayer (2)

45.  Paragraph 33 is in the following terms:-

“33.   On or about 16 June 2003, the 1^st, 2^nd, 3^rd and 4^th Respondents, wrongfully and unlawful (sic) procured the Company to transfer and/or designate a sum of HK$500,000.00 from the Company’s HSBC Account No. 588-396622-001 to a sole name bank account held by the said Factory with [a named bank] No 04021000615195, which Chan Senior, the 1^st and/or 2^nd Respondents and/or their associates or relatives have control therewith and interest therein.  See Annexure 5.”

46.  Prayer (2) seeks recovery of such sum of HK$500,000 for the Company.

47.  Leaving aside what is meant by “designating” a sum of money, which I have difficulty in understanding, the transaction complained of would appear to be adequately identified.  However, the problem with this paragraph is (as in the case of paragraph 16) with the allegation that this payment was “procured” by the Respondents.  No particulars are given which would enable the Respondents to know the case that they have to meet in this regard.  The arguments on this paragraph and prayer were substantially the same as those in relation to paragraph 16, and for the same reasons as I gave in relation to that paragraph, I consider that this allegation is at present embarrassing in this respect.  If paragraph 33 cannot stand, it follows that prayer (2) must fall along with it.  If, however, proper particulars are given of paragraph 33, I did not understand Mr Remedios to suggest that this was not a matter which could be dealt with in these proceedings, since the sum involved was readily identifiable.

Paragraph 34 and prayer (3)

48.  Paragraph 34 reads:-

“In or about October and November 2003, 1^st, 2^nd, 3^rd and 4^th Respondents, wrongfully and unlawfully and without the board approval and authority, banked in transferred and/or designated respective sums of HK$142,210.00, HK$100,313.00, HK$113,562.50 and HK$37,898.00 totalling HK$393,983.50 being moneys belonging to the Company to a sole name bank account held by 1^st Respondent with [a named bank] No. 1000397957101, for the personal use and benefit of the 1^st, 2^nd, 3^rd and 4^th Respondents.  See Annexure 5.”

49.  Prayer (3) seeks to recover the said amounts for the benefit of the Company.

50.  Mr Remedios complains that this allegation suffers from the following defects:-

(1)     There is no information as to when these payments are said to have been made; and

(2)     It is not clear what the Petitioner’s case is as to why these amounts are said to belong to the Company.

51.  Mr Chung said in response that the information was contained in the exhibits to his client’s affirmation, which included the paying in slips or banking documents in relation to each payment.  If that is the case, it should be simple enough for the Petitioner to provide particulars to deal with the first complaint made by Mr Remedios.  However, he was unable to point to any material that threw light on the second complaint.  He suggested that it was easy enough for the Respondents, if they said that such funds did not belong to the Company, to put forward their case as to why that was so.  However, this is to put things the wrong way round.  A respondent is required to meet the case against him.  But if that case is not properly put, he should not have to be troubled by it.  I therefore consider that the Petitioner must provide particulars in the petition of his case as to when such transfers were made (which he would seem to be able to do) and why he says that such funds belonged to the Company.  Failing that, I agree with Mr Remedios that the Respondents are unable to deal with this aspect of the allegation, which is accordingly embarrassing.

52.  As to prayer (3), it stands in the same relationship to paragraph 34 as prayer (2) does to paragraph 33.  Accordingly, if paragraph 34 is struck out, prayer (3) should be as well.  Again, the amounts involved are specific, and I do not understand Mr Remedios to be suggesting that the prayer should be struck out if the allegation can be particularised.

Paragraph 35 and prayer (15)

53.  Paragraph 35 was in the following terms:-

“The 1^st Respondent in breach of the Shareholders’ Agreement and without board resolutions authority by misrepresentation, inducement, coercion, unwarranted threats, manipulation wrongfully and unlawfully procured the appointments of 2^nd, 3^rd and 4^th Respondents as directors and the transfer 100 shares too to 2^nd Respondent and 3,800 shares to 4^th Respondent”.

54.  Prayer (15) seeks an order (presumably for a declaration) that “the appointment of 2^nd, 3^rd and 4h Respondents as directors and the transfer of shares to the 2^nd and 4^th Respondents are null and void”.

55.  It is scarcely surprising that this paragraph should have been objected to.  In an attempt to meet the striking out application, the proposed amendment to the paragraph deletes the reference to inducement, coercion, unwarranted threats and manipulation, and the suggestion of wrongfulness and unlawfulness.  However, that leaves an allegation that the matters complained of were brought about by misrepresentation.  Nowhere in the petition (or elsewhere) can one discern any details about such alleged misrepresentations – what they were, to whom and by whom they were made, or when they were made.

56.  Mr Chung accepted that this allegation required particulars to be given, and said that the Petitioner could do so.  That may or may not be the case, but it is quite clear that absent any particulars, the allegation is embarrassing.

57.  If this allegation goes, so too does prayer (15).

Paragraph 36 and prayer (19)

58.  Paragraph 36 is in the following terms:-

“36.   Since about February to March 2003, the 1^st, 2^nd, 3^rd and 4^th Respondents have started to wrongfully and unlawful persecute, harass, intimidate, coerce the Petitioner by distorting the truth of past remuneration of the Petitioner.  On or about 3^rd March 2003, on the inducement and in consideration of the promise made by 1^st, 2^nd, 3^rd and 4^th Respondents to buy out the Petitioner at a fair price to be valued, the Petitioner paid the Company a sum of HK$866,000.00 which was part of the past hard earned legitimate and taxed remuneration of the Petitioner.  After further negotiation broke down and notwithstanding repeated demand of 1^st, 2^nd, 3^rd and 4^th Respondents to procure the Company to return the said sum of HK$866,000.00, the 1^st, 2^nd, 3^rd and 4^th Respondents have failed or refused to do so.  Annexure 11 is the copy of demand letter by the Petitioner’s solicitors.”

59.  Although prayer (19) is not the subject of the striking out summons, in my view it should have been.  It seeks the repayment by the Company to the Petitioner of the sum of HK$866,000 referred to in paragraph 36 of the petition.  At the hearing, Mr Remedios complained of this prayer as well.

60.  Mr Remedios’ contention was that it was wholly inappropriate for such relief to be sought in a section 168A petition, seeking, as it did, relief against the Company.  I agree.  In a section 168A petition, or a petition for winding up on the just and equitable ground, the Company is made a respondent as a necessary party, to enable it to be bound by the relief claimed.  It has a very limited role to play in the proceedings.  It does not take an active or partisan part in them, and generally will only participate to the extent of giving discovery, and taking judgment and perhaps making submissions as to the appropriate form of relief to be granted (for example where it is suggested that such relief should include an order requiring the Company to buy out one or other party, or for orders to be made requiring it to do or refrain from doing particular things).  To have a prayer claiming damages or a debt from the Company defeats this, since the Company will then be forced to take an active role in the proceedings.

61.  At the hearing, Mr Chung accepted this.  He indicated that the Petitioner would reconsider its position in relation to this claim, and consider either withdrawing it altogether, or making it in separate proceedings against the Company.  He therefore accepted that prayer (19) should not remain.

62.  Mr Remedios went on to submit that if prayer (19) went, paragraph 36 became irrelevant, and so should be struck out on that ground.  That apart, he complained of the lack of particularity in the first sentence of the paragraph, and that it was not clear how the sum of HK$866,000 was arrived at.

63.  Mr Chung, however, submitted that the allegation was relevant, since it tended to show unfair conduct on the part of the Respondents.  The complaint about lack of particularity in the first sentence was met by proposing its deletion in the amendments which were put forward.  As to the complaint about the manner in which the sum complained of was arrived at, Mr Chung said that this was made clear in the Petitioner’s affirmation.

64.  I am inclined to accept that the allegation could be said to be relevant for the reason given by Mr Chung, and that the deletion of the first sentence of paragraph 36 cures the worst of the embarrassment caused by this paragraph.  I think that there is less force in Mr Remedios’ submission as to the need to particularise the way in which the sum of HK$866,000 was arrived at, when compared with his criticisms of other parts of the petition.  It is tolerably clear that the complaint is that the sum was paid to the Company by the Petitioner on the strength of his belief that a fair and reasonable offer to buy him out would be made.  If no relief involving payment of this sum is to be claimed, the precise figure involved would appear to be of no particular relevance.  As the claim for relief in prayer (19) is to go, this would appear to be the position now.  The position might be different if relief of some similar nature were to be sought against the Respondents.

65.  So far as paragraph 36 is concerned, therefore, I am of the view that with the proposed deletion of the first sentence, it is no longer embarrassing, and the Respondents are or should be able to deal with the allegations contained in it.

Prayer (10)

66.  Prayer (10) seeks an order that the “1^st, 2^nd, 3^rd and 4^th Respondents account to the Company for all monies misappropriated and/or misapplied by them”.  This paragraph does not appear to relate to any allegation in the body of the petition.  It is wholly vague, and provides no information whatsoever as to what such allegedly misappropriated and/or misapplied monies might be, and on what basis it is alleged that they were misappropriated and/or misapplied.  That being so, the prayer is clearly embarrassing, and should not be permitted to remain as part of this petition.

Conclusions in relation to application to strike out

67.  It will be apparent from the foregoing that despite the amendments proposed, there remain difficulties in relation to all of the parts of the petition and the prayer that are the subject of the application to strike out, with the exception of paragraph 36 (in the form of the proposed amendment to it).  The question therefore arises as to what ought to be done in relation to these paragraphs.  Mr Chung submitted that it was not necessary or appropriate to make an order for striking out, and that it would suffice to direct that amendments be put forward, or that particulars be given.  For his part, Mr Remedios did not suggest that the parts complained of should be struck out altogether, with no opportunity to offer satisfactory amendments (assuming these can be formulated).

68.  In my view, the appropriate course would be to make an order that the parts of the petition complained of should be struck out unless a further application for leave to amend is made within a specified period of time, and is ultimately successful.  If this is not done, there will be no effective sanction if the Petitioner fails or is unable to offer a satisfactory amendment to the petition.  The effect will be that if no further application to amend is taken out within the time specified, the paragraphs of the petition and prayer referred to in the Respondents’ summons of 28 April 2005 and prayer (19) will be struck out.  In the light of the fact that I will dismiss the present application to amend, for the reasons which I give below, this will apply to all of the paragraphs and prayers mentioned in the Respondents’ summons.  Having considered the matter, it seems to me that it would be appropriate to allow the Petitioner a reasonable time to formulate his proposed amendments, and I shall allow 56 days for this purpose.  A summons seeking leave to amend the petition should therefore be issued within 56 days of today, failing which those paragraphs and prayers will be struck out without further order.

69.  In his skeleton argument, Mr Remedios posed, in relation to each part of the petition complained of, the sort of questions which he says should be answered by way of particularisation.  Mr Chung did not address me on these matters, and they were not expanded on by Mr Remedios, who concentrated on what he perceived to be his strongest points.  In the circumstances, I do not propose to express any views as to whether or not all of those questions require to be addressed in the proposed amendments beyond what I have already said in this judgment.  This is a matter that can be considered by the Petitioner’s legal advisers, who will no doubt advance a proposed amendment that gives those particulars to which they consider the Respondents are entitled, and which they are able to provide.

The application for leave to amend

70.  I turn now to the application for leave to amend.  I have already dealt above with those parts of the proposed amendments which relate to paragraphs which are the subject of the striking out application.  In addition to these, there are a number of additional amendments put forward to raise new matters.  Each of these was objected to by Mr Remedios, also on the ground that the amendments put forward were not sufficiently particularised and were thus embarrassing and should not be permitted.

New paragraphs 12A to 12D and new prayer (1D)

71.  These paragraphs are in the following terms:-

“12A.    Since about 1990, to continue the Company’s policy and practice that the Company allowed 0.5% to 2% of the purchase price of materials etc from the Company’s suppliers be set aside or received from the company’s suppliers be paid in a separate bank account no. 588-7-000866 of HSBC (“the said HSBC account”) in the name of a Madam Choi Siu Lan (“the said Madam Choi”).  The said HSBC account was opened with approval and consent of 1^st Respondent, Chan Hak Kin (person hereinafter described) and the Petitioner and with subsequent approval and consent of the 2^nd Respondent to be used to reimburse expenses spent by the employees and staffs on the Company’s behalf and/or to be treated and used as the fringe benefits or bonus of the employees and staffs of the Company whether in cash and/or in kind at Chinese year end.  They money kept in the said HSBC account was known as “炮金” in Chinese.  The Petitioner, the 1^st, 2^nd, 3^rd and 4^th Respondents were well aware of the said HSBC account and familiar with the trade customs in garment industry in setting up and reserving funds as “炮金” for the general welfare of or as bonus of the staff and employees of the Company.  Annexure 15 hereof are copies of bank passbook of the said HSBC account showing the said payments received from suppliers or the Company’s set aside sums and various payments made to the staff and employees as well as to the 1^st Respondent, 2^nd Respondent and the Petitioner as bonus or reimbursements.

“12B.     Initially, Chan Han Kin (sic) and the said Madam Choi, a bookkeeper of the Company, were responsible for the management and keeping of the said HSBC account but such responsibility had been taken over by the 1^st Respondent subsequently.

“12C.    On or about 30^th April 2004, the said Madam Choi told the 2^nd Respondent that the “炮金” was then kept in the said HSBC account with the closing balance of HK$84,425.57.  On 29^th May 2004, the 2^nd Respondent instructed and accompanied the said Madam Choi to the HSBC branch to close the said HSBC account and to hand over in cash all monies therein (after deductions of reimbursement) to the 2^nd Respondent.

“12D.    After the withdrawal of the balance monies from the said HSBC account and the closing of the said HSBC account, as instructed and directed by the 2^nd Respondent on the spot, the said Madam Choi handed over to the 2^nd Respondent the balance monies in the sum of HK$76,139.62 which in fact was the Company’s funds by reasons of the facts stated in paragraphs 12A to 12C above.”

72.  Associated with these allegations is new paragraph (1D) of the prayer, which seeks an order against the 2^nd Respondent for the return of the sum of HK$76,139.62 mentioned in paragraph 12D of the petition.  At the hearing, Mr Remedios complained that these paragraphs were lacking in particulars, in that it was not made clear who was supposed to pay the 0.5% to 2% referred to in paragraph 12A – whether this was to be paid by the supplier or the Company, and that it was unclear what was meant by “taking over the management” of the HSBC account, as pleaded in paragraph 12B.

73.  In his submissions, Mr Chung explained that what was intended to be alleged was that it was a custom in the garment trade for a portion of payments to suppliers to be returned to the Company, either by a refund by the supplier or a withholding by the Company.  Such sums were regarded as being for the benefit of the Company’s staff.  It was therefore improper for the 2^nd Respondent to have taken such monies for himself as alleged in paragraphs 12C and 12D.  On hearing this explanation, Mr Remedios suggested that it left unclear whether the monies were trust monies, in which case the Company was not entitled to complain, or whether they were simply to be regarded as Company funds, which were intended to be used for a particular purpose at the Company’s discretion.

74.  It seems to me that the explanation put forward by Mr Chung is at least intelligible.  However, it is also much clearer than paragraphs 12A and 12B themselves.  I cannot see why the matter could not have been set out in a much clearer fashion, that would not be susceptible to the complaints made by Mr Remedios.  So far as the question of what “taking over the management” of the account means, I confess that I too have some difficulty in understanding what is intended to be conveyed.  As for the final point made by Mr Remedios, it seems to me to be fairly clear from paragraph 12D that the Petitioner’s case is that these were funds belonging to the Company.

75.  In all the circumstances, it seems to me that it would be desirable for the allegations (particularly those in paragraphs 12A and 12B) to be set out in a more coherent fashion.

New paragraph 32 and new prayer (1B)

76.  This paragraph alleges in effect that the 2^nd Respondent misappropriated a vehicle registration number (or licence plate) that had been registered in the name of the Company by having it transferred to a vehicle owned by him without proper authority or approvals.  The prayer seeks an order for the return (or re-registration) of the vehicle registration number, so that it will once more be registered in the name of the Company.

77.  Mr Remedios accepted that this allegation was probably sufficiently particularised.  In my view it is.  However, he submitted that I should not allow this amendment to go through on a piecemeal basis, and that it would be more appropriate to refuse leave to amend in relation to this allegation for the time being, given the other deficiencies in the existing petition and the proposed amendments.

78.  In my view, having regard to the fact that fairly extensive amendments, going well beyond those which have been proposed, will be required to the petition as a result of the striking out application, and will also be needed in respect of some at least of the proposed new allegations, the more convenient course would be to require all proposed amendments to be put forward in a single application to amend.  I therefore think that this amendment, too, should be refused at this stage, but without prejudice to the Petitioner’s ability to put it forward again when making the application to amend which will be required as a result of my decision on the striking out application.  Proposed prayer (1B) stands in the same position.

New paragraphs 32A to 32D and new prayers (1), (1A), (1C) and (1E)

79.  Paragraphs 32A to 32D are in the following terms:-

“32A.  On or about 22^nd July 2004 after this Petition was first presented on 22^nd March 2004, the Petitioner subsequently discovered for the first time that on unknown date(s), a bank account number no. 020-606-000-7688-6 (“the said secret bank account”) had been opened in the name of the Company with Wing Lung Bank Limited in the absence of the Petitioner’s knowledge and consent and such act was in breach of the Shareholders’ Agreement.

“32B.  The 1^st , 2^nd, 3^rd and/or 4^th Respondents had always hidden the said secret bank account from the Petitioner and the Court.

“32C.  Sometimes after this Petition was first presented on 22^nd March 2004, the Petitioner subsequently discovered that notwithstanding the presentation of this Petition, the 1^st, 2^nd, 3^rd and/or 4^th Respondents continued to trade an receive payments from the Company’s customer(s), in the name of the Company and/or to deposit money into the said secret bank account and other banks accounts.  Annexure 17 hereof are bank statements of the said secret account showing payments in by Company’s customers.

“32D.  The 1^st, 2^nd, 3^rd and/or 4^th Respondents misappropriated the Company’s funds kept in the said secret bank account and other bank accounts and knowingly and unlawfully paid out the Company’s funds for the benefit and interest of the 1^st, 2^nd, 3^rd and/or 4^th Respondents.  Annexure 18 hereof are copies payments for the said secret account, inter alia, 1^st, 2^nd, 3^rd and/or 4^th Respondents themselves and to two firms of solicitors, Messrs. Wong Fung & Co., and Messrs. S.H. Chan & Co., acting on their behalves previously.”

80.  The associated prayers for relief that are proposed to be added in relation to these paragraphs would appear to be the following:-

“(1)        That the 1^st, 2^nd, 3^rd and 4^th Respondents be ordered to disclose all those bank accounts of the Company and to produce all statements, passbooks and reports in relation to all those bank accounts of the Company, including but not limited to the said secret bank account no. 020-606-000-7688-6 with Wing Lung Bank Ltd. referred to in paragraph 32A above;

“(1A)     That 1^st, 2^nd, 3^rd and or 4^th Respondents account for and repay all monies misappropriated by them the Company’s funds paid in or kept in or paid out the said secret bank account or elsewhere;

“(1C)     That a declaration that all transactions, payments to creditors whosoever, purchases and sales done in the name of the Company after this Petition was presented in March 2004 are ultra vires and the 1^st, 2^nd, 3^rd and/or 4^th Respondents account for any loss and/or damages suffered by the Company as a result thereof; and

“(1E)     That the said secret bank account be closed with balance of monies therein be paid to the Company.”

81.  Mr Remedios complained that there were no details of the allegation of continued trading in paragraph 32C.  He also complained of the reference to other, unspecified, bank accounts in paragraph 32D and prayers (1) and (1A).

82.  In my view the allegations as presently framed are objectionable for a number of reasons.  First, the reference to other unspecified bank accounts is clearly unsatisfactory, as it leaves the Respondents wholly in the dark as to the nature of the allegations against them.  Second, I have considerable difficulty in understanding why the setting up of a bank account in the Company’s name should be thought to be harmful to the Company.  Third, there appears to have been a mistaken belief that because this petition has been presented, the Company is not entitled to carry on business at all.  It may be that if a winding up order is made, transactions entered into after the presentation of the petition will be void unless validated, but this does not prevent a company from carrying on business if it chooses and is able to do so.

83.  As for the proposed prayers, prayer (1C) is clearly unsuitable, having regard to its vagueness and open-ended nature, to be included in an unfair prejudice petition such as this.  Prayer (1) and (1A) are also unsatisfactory in referring to other unspecified accounts.

Conclusions in relation to application for leave to amend

84.  Having regard to these problems, it seems to me that the appropriate course would be to decline to allow the amendments, but without prejudice to an application to introduce properly formulated amendments in due course.

85.  Thus, for the reasons which I have set out above, I am of the view that the application to amend should be refused, although I shall leave it open to the Petitioner to put forward adequately formulated amendments at the same time as the amendments that are required in relation to the existing paragraphs of the petition which are the subject of the striking out application are put forward.

Disposition and costs

86.  I shall therefore make an order in relation to the Respondents’ summons in the terms indicated in paragraph 68 above, and shall dismiss the Petitioner’s summons for leave to amend the petition.

87.  Having regard to the outcome of the applications, it is clear that the Respondents’ have been substantially successful in their application, and I accordingly make an order nisi as to costs that the Petitioner is to pay the Respondents’ costs of both summonses, such costs to be taxed on the party and party basis if not agreed.

Mr Raymond Chung of Messrs Chung, Fong & Co. for the Petitioner

Mr Leo Remedios instructed by Messrs Bernard Wong & Co. for the 1^st, 2^nd & 4^th Respondents

Attendance excused for Official Receiver

HCCW 350/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 350 OF 2004

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________________

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J U D G M E N T

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1.  By these proceedings, the Petitioner, Mr Chan Woon Fui (“the Petitioner”), seeks either to wind up Linea Trading Company Limited (“the Company”) on the just and equitable ground pursuant to section 177(1)(f) of the Companies Ordinance (Cap. 32) (“the Ordinance”) or to obtain relief pursuant to section 168A of the Ordinance.  The respondents to the petition are Mr Chan Wing Suen (“the 1^st Respondent”), his son, Mr Chan Lap Koon (“the 2^nd Respondent”), his father in law, Mr Ng Chau Kwan (“the 3^rd Respondent”), a company beneficially owned by him, River Hill Company Limited (“the 4^th Respondent”), and the Company.  The 3^rd Respondent has passed away since the commencement of the proceedings, and is no longer represented.

2.  A number of the allegations and items of relief sought in the petition are the subject of a striking out application taken out by the 1^st, 2^nd and 4^th Respondents on 28 April 2005.  This application was adjourned for argument, and is now due to be heard on 26 October 2005.  The present application concerns various parts of the 3^rd Affirmation of the Petitioner, filed on 23 August 2004 in reply to the 3^rd Affirmation of the 1^st Respondent, which was filed on 3 July 2004 and which represented the response of the 1^st, 2^nd and 4^th Respondents to the allegations in the petition.  It is said that the Petitioner’s 3^rd Affirmation contains numerous passages which are irrelevant, scandalous, oppressive and/or embarrassing, and that such passages should be struck out from that affirmation pursuant to the provisions of RHC Order 41 rule 6.

3.  That rule provides as follows:-

“The Court may order to be struck out of any affidavit any matter which is scandalous, irrelevant or otherwise oppressive.”

4.  The principles on which the court acts when considering whether or not to strike out matters in an affidavit pursuant to the rule were not, I think, seriously in dispute.   For present purposes, I summarise them as follows:-

(1)	Scandalous has the same meaning in Order 41 rule 6 as it does in Order 18 rule 19 dealing with the striking out of pleadings.  Thus, degrading, indecent and offensive charges made in an affidavit will be regarded as scandalous if they are irrelevant or inadmissible in evidence to prove any material allegation in the petition (see e.g. Cashin v Cradock (1877) 3 Ch 376; Christie v Christie (1873) LR 8 Ch App 499, in the context of striking out a pleading);
(2)	Matters which are material will not generally be struck out even if they are offensive, although where unnecessary detail is given, that may be susceptible to being struck out (see e.g. Blake v Albion Assurance Society (1846) 45 LJCP 663, also in the context of striking out of pleadings).
(3)	Irrelevant matter may be struck out even if not scandalous (Re J (An Infant) [1960] 1 All ER 603).
(4)	It is wrong to include argumentative material in affidavits and such material may be struck out (see e.g. Deak v Deak Perera Far East Limited [1991] 1 HKLR 551).
(5)	The court may take one of three approaches to an affidavit in which there is scandalous, irrelevant or oppressive matter:-
	(a)	It may decline to strike the matter out, on the basis that it is capable of excluding such material from its mind when deciding the issues which arise for decision; or
	(b)	It may think it appropriate to strike out some or all of the material complained of; or
	(c)	It may, in an extreme case, order the entire affidavit to be taken off the court file.
	Which of these courses is adopted will depend on the circumstances of the case, regard being had to the nature and extent of the objectionable material.

5.  As relevance of the material complained of is a key criterion, it will be helpful briefly to summarise the complaints which are made in the petition.

6.  According to the petition, the Petitioner and the 1^st Respondent were the initial shareholders and only directors of the Company, with the Petitioner holding 2,100 shares, or 35% of the Company’s issued capital, and the 1^st Respondent holding 3,900 shares, or 65%.  However, the present position is that the 1^st Respondent is no longer a shareholder or a director, his shares now being held as to 100 shares by the 2^nd Respondent and 3,800 shares by the 4^th Respondent, both of whom are now directors of the Company.  The Petitioner alleges that at the time of incorporation of the Company it was orally agreed between himself and the 1^st Respondent that the Company was to be a partnership business, that they should be the Company’s only shareholders and directors, and that all decisions relating to the Company and its business should be made jointly by them.  It is said that it was also agreed that the Company’s only business would be garment trading, with the Petitioner responsible for production and operations and the 1^st Respondent responsible for financial matters.  According to the Petitioner, the Company originally carried on its business by obtaining orders for garments from customers, and sub-contracting the manufacturing of such garments to one of four factories on the Mainland, supplying the factories with the raw materials, absorbing the costs of washing and dyeing services and paying the factories for their services in manufacturing the garments.  This method of operation was said to produce margins of some 8% for the Company.

7.  It is then said that the 1^st Respondent emigrated to Australia in about 1985 or 1986, but retained control over the affairs of the Company through his brother, Chan Ha Kin, who was made an authorised signatory of the Company’s bank accounts.  The 1^st Respondent remained in Australia until about 1997.

8.  While the 1^st Respondent was in Australia, the first matters complained of took place.  These involved what are said to have been payments that he wrongfully procured the Company to make to himself and his son in the amounts of HK$1,392,000 and A$350,000 respectively.

9.  The Petitioner then says that there were discussions about closing the Company down in about 2002, but that the 1^st Respondent later proposed that their sons should take over the business, and their sons subsequently began working for the Company.

10.  The next complaint appears to relate to a factory in Shenzhen.  It is said that in about June 2003, the 1^st to 4^th Respondents represented to the Petitioner and staff, employees, suppliers and customers of the Company that the Company owned the Shenzhen factory.  The 1^st Respondent says that this is indeed the case.  The Petitioner says, however, that this was not the case, and that he believes the Shenzhen factory to be owned by persons under the control of the 1^st to 4^th Respondents, and that despite requests, no documentation or other evidence of the ownership of the Shenzhen factory has been provided.  The Petitioner then complains that he was excluded from his role in relation to the production and operations side of the Company’s business, as instructions were given for substantially all orders received by the Company to be referred to the Shenzhen factory, on terms less favourable to the Company than had previously been obtained from the factories which it had previously dealt with.  It is said that as a result of this, the Company’s margins have been reduced to some 5%, and also that the Shenzhen factory has been permitted to build up a substantial debt of some HK$1,882,000 odd to the Company.  It is said that notwithstanding the existence of this debt, the Company has been continuing to make payments to the Shenzhen factory for its services instead of seeking to offset or recover the amounts due to it, and that when the Petitioner sought to query this, a board meeting was called with a view to adding the 2^nd Respondent as a signatory of the Company’s bank accounts, passing a resolution for the bank mandates to be amended to permit accounts to be operated by any two signatories, and passing a resolution for the termination of the Petitioner’s son’s employment with the Company.

11.  There is then a complaint about allegedly wrongful transfers of funds or diversion of monies due to the Company to the Shenzhen factory in amounts totalling some HK$893,000 odd.

12.  This is followed by an allegation that the transfer by the 1^st Respondent of his shareholding in the Company to the 2^nd and 4^th Respondents, and the appointment of the 2^nd to 4^th Respondents as directors of the Company was procured wrongfully.

13.  There is next an allegation that the Petitioner has been harassed by the 1^st to 4^th Respondents since early 2003, and that, the Petitioner having been induced to pay some HK$866,000 to the Company by representations by the 1^st to 4^th Respondents that he would be bought out at a fair price, the 1^st to 4^th Respondents have neither bought out his interest in the Company, nor procured the return of the sum paid by his to the Company.

14.  There is then a complaint that the Petitioner has been denied access to the books and records of the Company.

15.  Finally, complaint is made as to the engagement by the Company of solicitors to write to the Petitioner, making various allegations against him, on the apparent instructions of the 1^st to 4^th Respondents.

16.  These matters are said to have led to a loss of trust and confidence in the 1^st to 4^th Respondents on the part of the Petitioner, such that it would be appropriate for the Company to be wound up, or the other relief sought granted.  The relief sought, apart from the winding up of the Company and the alternative of the purchase by the 1^st to 4^th Respondents of the Petitioner’s shares at a fair value includes a variety of other relief, the nature of which is not of particular relevance at this stage, although certain items are, as I have said, together with various paragraphs in the petition, the subject of a separate striking out summons which is to be dealt with later this year.

17.  I now turn to consider the passages in the Petitioner’s 3^rd Affirmation of which complaint is made.  Mr Remedios, appearing for the 1^st, 2^nd and 4^th Respondents contended that each of the passages in question was irrelevant, since they did not relate to any of the issues raised in the Petition, which serves the purpose of defining the scope of the matters in issue and the disputes which the court is to resolve (see Re Tourmaline Ltd [2000] 4 HKC 348).  Ms Lam, appearing for the Petitioner, sought to respond to the criticisms made in a number of ways, which I shall consider in the context of the various passages under attack.  However, I can at this stage dispose of a general submission which she made, to the effect that the court should not at this stage seek to dispose of disputes of fact that existed between the parties.  As to this, I do not consider that anything in what I am about to say involves me in trying to resolve disputes of fact on the basis of the affidavit evidence alone, as the question is not whose version of the facts is to be believed, but whether the matters raised are relevant to the proceedings, regardless of which parties’ version is to be preferred, and if not relevant, whether they should be permitted to remain in the affirmation.

18.  Paragraph 3.  The 1^st, 2^nd and 4^th Respondents seek to strike out the whole of this paragraph, which reads as follows:-

“CWS [i.e. the 1^st Respondent] and I are now old men of 63 and 61 years of age respectively.  I came to know CWS in my native village in Chiu Chow, Mainland China when we were teenagers.  His parents were dirt peasants in Chiu Chow.  CWS does not have to lie in paragraph 2 of 3^rd Affirmation of CWS about his family being labeled as “capitalists” and persecuted politically in order to falsely boost he was from bloodline of a successful family of business.  There is no sense for this unnecessarly lie for this petty matter except CWS is a habitual liar.  In any event, CWS obviously does not seem to have inherited the DNA of his alleged successful business parents manifested by his repeated total failure in business ventures and interaction with peoples.  Perhaps these failures were contributed by his bad character of the worst type of being conceited, incompetent, dishonest, paranoiac, lazy and greedy.  I am no perfection either, but I am at least hard working, humble, harmonious, loyal, honest, forgiving and tolerant.”

19.  It is not difficult to see why this paragraph is objected to.  Although the first two sentences are unobjectionable, the rest of it is highly offensive.  It is impossible to see how material such as this could be said to be in any way relevant to the matters in issue in these proceedings.  They certainly do not in any way bear on the allegations in the petition which I have summarised above.

20.  Ms Lam at first suggested that this paragraph was no more than a response to the 1^st Respondent’s version of the background of his relationship with the Petitioner, which he set out in paragraph 2 of his 3^rd Affirmation, in which he described how he first came to know the Petitioner when both were children or teenagers in China.  This may be so in relation to the first two sentences, and perhaps the third, but it clearly is not the case in relation to the rest of the paragraph.

21.  Ms Lam eventually accepted that this was the position, and did not resist the striking out of the third and subsequent sentences.  In my view, these sentences must be struck out from the affirmation.  They are clearly both irrelevant and scandalous, consisting of what can only be described as mere abuse.  While I can appreciate that relations between the Petitioner and the 1^st Respondent may be very strained as a result of their differences which have resulted in the bringing of this petition (and, I am told, other proceedings as well), I do not see that this can justify the inclusion of such material in an affidavit, which is intended to be the means by which the Petitioner places his evidence before the court.

22.  I have set out the entirety of this paragraph in this judgment because it seems to me that its content has, in my view unfortunately, set the tone for several other passages in the affirmation.  It does not reflect well on whoever was responsible for drafting this affirmation that material such as this should have been permitted to remain in it.

23.  Paragraphs 6 and 8.  In these paragraphs, which respond to the 1^st Respondent’s account of how he met the Petitioner again after they had both come to Hong Kong and how they worked together for a time for a common employer and later left to set up a business in partnership, there are passages (part of the first sentence of paragraph 6, part of the second sentence of paragraph 8 and the third sentence of paragraph 8) in which it is sought to suggest that the 1^st Respondent was dismissed from such employment for insubordination, and that the Petitioner resigned out of loyalty to him, and to allege that the 1^st Respondent has twisted the truth to conceal that he was a difficult person to get along with.

24.  Again, Ms Lam contended that this was responsive to the 1^st Respondent’s account of the background.  Although she eventually accepted that the third sentence of paragraph 8 should be struck out, consisting as it did of a mere argument that the 1^st Respondent had twisted the true version of events, she submitted that , notwithstanding that the allegations as to the 1^st Respondent’s dismissal were at best matters of background only and did not bear directly on any of the matters complained of, the Petitioner was entitled to set the record straight where he considered that the 1^st Respondent’s version of events was not strictly correct.

25.  While there could be some situations where a respondent introduces matters which do not strictly arise from the allegations in the petition which it would be appropriate to allow the petitioner to comment on or to investigate at trial, in my view, this is not one of them.  The fact that the 1^st Respondent and the Petitioner were at one time co-employees and subsequently set up a business together is simply a matter of background.  There does not appear to be any dispute as to this, other than in relation to the circumstances in which the 1^st Respondent left such employment.  However, those circumstances form no part of the issues arising on the petition, and that dispute is therefore irrelevant, so far as these proceedings are concerned.  I cannot imagine that much, if any, time at trial would be occupied (or allowed to be taken up) in relation to this matter.  In these circumstances, it seems to me that the objection to the passages identified is well founded, in that they are irrelevant, and they should therefore be struck out.

26.  Paragraphs 9, 11, 12 and 13.  Objection is taken to the whole of paragraph 9, the second, fourth and fifth sentences of paragraph 11, the whole of paragraph 12 and part of the first sentence and the whole of the last two sentences of paragraph 13.  All of the passages complained of relate again to matters of background, this time in relation to the circumstances in which other persons who had formerly been partners of the Petitioner and 1^st Respondent, or co-shareholders with them in a predecessor company of the Company, terminated their relationships with them.  Again, the Petitioner seeks to suggest that the 1^st Respondent was responsible in some way for the other partners’ departure, as he was unreasonable and difficult to get on with.  There are also rather vague suggestions of impropriety in respect of the way in which the 1^st Respondent (and on one occasion the Petitioner himself) acquired the interests of such persons, it being suggested without any details being given that funds of the company concerned may have been used or misused for that purpose.

27.  These passages stand in much the same position as those complained of in paragraphs 6 and 8, although the complaint here would seem to me to be one which has even greater justification.  These matters took place over 20 years ago, in relation to a different company.  They were raised by the Petitioner simply as a matter of general background, and there appears to be no dispute as to the fact that the persons mentioned were at one time involved in a business venture with the Petitioner and 1^st Respondent, but ceased to be so involved.  The reasons for their ceasing to be so involved are not in any way relevant to the matters alleged in the petition.  Ms Lam did not seek to suggest that there was any complaint that could or would be advanced in these proceedings in relation to the circumstances or manner in which their shares were acquired by the 1^st Respondent and the Petitioner.  I cannot see that time would (or would be permitted to) be spent at trial on these matters.  I am satisfied that they are quite irrelevant, and should be struck out from the Petitioner’s 3^rd Affirmation, particularly as they hint at impropriety and wrongdoing without making it clear what, if any, complaint there is in relation to the matters they refer to.

28.  Paragraph 17.  Mr Remedios objected to part of the first and second sentences of this paragraph.  The passages objected to appear to be merely abusive comment on the character of the 1^st Respondent, of a similar nature to the comments in paragraph 3 of the Petitioner’s 3^rd Affirmation.  Ms Lam accepted that these passages could be struck out, and I am satisfied that they should be.

29.  Paragraphs 19 to 21.  These paragraphs set out certain dealings in the shareholding of the 1^st Respondent, by which part of his shareholding was transferred to two of his brothers, and subsequently transferred back to him, and changes in the directorship of the Company, by which his brothers were (at least for a time) made directors of the Company.  These matters took place between about 1989 and 1996, when the 1^st Respondent was in Australia.  However, unlike several other paragraphs of which complaint was made, with the exception of the last part of the second sentence of paragraph 19(1), there does not appear to be anything particularly objectionable in the way in which these paragraphs are framed, as they set out for the most part matters of fact.

30.  At first sight, these paragraphs appeared to have little relevance to the matters complained of in the petition.  No complaint appears in the petition as to the fact that these brothers of the 1^st Respondent became shareholders and directors of the Company during this period, and Ms Lam did not suggest at the hearing that there was any complaint about these matters per se.  However, she submitted that the matters deposed to in these paragraphs were relevant to the following issues:-

(1)	She pointed out that there was an allegation in paragraph 13 of the petition that the 1st Respondent retained control of the Company while in Australia through the appointment of one of his brothers as an additional signatory on the Company’s bank accounts, and suggested that these matters also went to the issue of control of the Company by the 1st Respondent during this period.
(2)	This issue of control was (according to Ms Lam) relevant to the complaint about the setting up of the Shenzhen factory.
(3)	It was also relevant to the allegations in paragraph 35 of the petition concerning manipulation of the Company’s affairs by the 1st Respondent.
(4)	Apart from the matters raised in the petition, the 1st Respondent had in paragraph 52 of his 3rd Affirmation made allegations of wrongful transfers of funds by the Petitioner and one of his brothers during the time when he was in Australia, and it was therefore necessary for the Petitioner to respond to this allegation.  The matters mentioned in these paragraphs 19 to 21 went to show that the 1st Respondent remained in control of the affairs of the Company during this period, and that he would have known of such alleged transfers through his brothers.  Ms Lam drew my attention to paragraph 56 of the Petitioner’s 3rd Affirmation in which reference is made to paragraph 20 and the matters stated there are relied on in answer to these allegations by the 1st Respondent.

31.  Ms Lam also said that these changes in shareholding and directorship only came to the attention of the Petitioner after the filing of the petition, and that this was the reason why they were not mentioned in the petition.  As to this last point, it must be pointed out that the changes in question would appear all to have been matters of public record in the Companies Registry.  No explanation was provided as to why these matters could not have been ascertained before the commencement of proceedings, and I do not place any weight on this excuse for failing to deal with these matters in the petition.

32.  I have great difficulty in seeing how the matters referred to in these paragraphs have any relevance to the complaints mentioned in paragraphs 30(2) and (3) above.  The matters there complained of are said to have taken place after 2002, many years after the changes in question.  I would not have regarded these matters as relevant on this basis.

33.  So far as the suggestion that these matters are relevant to paragraph 13 of the petition is concerned, the short answer is that they are not, since none of the material facts are mentioned in the petition.  If it is desired to rely on them in respect of any matter raised in the petition, an application should be made to amend the petition to make specific reference to them.  Until that is done, I do not regard them as being of relevance to the complaints in the Petition.

34.  However, I am prepared to accept that, although it was not immediately apparent from the Petitioner’s 3^rd Affirmation, these matters may be of relevance in relation to the 1^st Respondent’s allegations of wrongdoing on the Petitioner’s part.  For this reason, I am not prepared to strike out these paragraphs in their entirety.  That said, however, I cannot see that the last part of paragraph 19(1), from the words “which with hindsight” down to the end of the sentence, is of any relevance to these proceedings.  Given their offensive and abusive tone, they must in my view be struck out.

35.  Paragraph 22.  Objection is taken to sub-paragraphs (1) and (3) to (6).  This paragraph relates to changes in directors and shareholders since 1997.  Sub-paragraph (1) is simply an assertion as to the 1^st Respondent being untruthful.  I do not see that it adds anything to the other matters stated in this paragraph, and accordingly, having regard to the offensive way in which it is put, I shall order it to be struck out.  Sub-paragraphs (3) and (4) seem to me to be unobjectionable, and may be relevant to one or more of the matters referred to in paragraph 30 above.  Mr Remedios did not, I think, particularly press the point that these should be struck out, and I am disinclined to do so.

36.  So far as sub-paragraph (5) is concerned, this puts forward the Petitioner’s views as to the reasons for the changes.  The first two reasons given are that they were made to give the 1^st Respondent control of the board of directors, and to oust the Petitioner from management of the Company.  Although Mr Remedios complained that there was no detail given as to how these matters would have afforded the 1^st Respondent control as alleged, or served to oust the Petitioner from management, it is tolerably clear that these are matters complained of in the petition, at least in relation to the later period.  That being so, I do not think that either of sub-paragraphs (a) or (b) should be struck out.  Sub-paragraphs (c) to (e), however, stand on a different footing.  They assert as reasons for the changes of directors and shareholders a desire on the 1^st Respondent’s part to evade liability for an unspecified fraud committed in relation to unspecified investments in Mainland China during 1993 and 1994, to cover up an alleged tax fraud against Hong Kong and Australian tax authorities, of which no particulars are given, and an alleged fraud on the Housing Society in Hong Kong.  I shall have more to say about the last of these allegations later, in the context of paragraph 27 of the Petitioner’s 3^rd Affirmation.  However, at this stage, it is sufficient to say that none of these are matters which appear to have the remotest relevance to the allegations in the Petition.  Nor is there anything to suggest that these matters in any way impinged on the affairs of the Company.  In these circumstances, the allegations in these sub-paragraphs, which are in wholly general and unparticularised terms, should be struck out as being irrelevant and scandalous.  In my view, it would also be oppressive on the 1^st Respondent to have to attempt to deal with them, given their utter lack of detail, and they should be struck out on this ground also.

37.  Paragraph 22(6) alleges that the 1^st Respondent has sought, since 1997 to hide his identity by the use of a different name and signature, and to hide the fact that he is a Hong Kong resident from the Mainland authorities.  I am quite unable to see what relevance this has to any matters in issue in these proceedings.  Ms Lam suggested that this was no more than a statement of fact, by which the court was informed that certain documents, although signed under a different name, were in fact documents signed by the 1^st Respondent.  If that were the point, it could have been made simply enough, by reference to the documents concerned, but that has not been done here.  In the circumstances, I am satisfied that this sub-paragraph, too, should be struck out from the Petitioner’s 3^rd Affirmation.

38.  Paragraph 23.  This paragraph ties in the transfers of the 1^st Respondent’s shares to the 2^nd and 4^th Respondents and the appointment of the 4^th Respondent as a director of the Company to the reasons put forward in paragraph 22(5).  Having regard to the fact that the objectionable parts of paragraph 22(5) have been struck out, I do not see any remaining problem with this paragraph, and therefore decline to strike it out.

39.  Paragraph 24.  The second sentence of this paragraph contains speculation by the Petitioner as to the reason for the appointment of the 3^rd Respondent as a director.  It does not appear to me to be admissible evidence, and is accordingly irrelevant.  Ms Lam accepted that this sentence should go, and I accordingly strike it out.

40.  Paragraph 27.  This paragraph purports to give details of an alleged fraud by the 1^st Respondent on the Housing Society, in connection with an application for residential premises and a related loan from the Housing Society.  According to Ms Lam, this arose out of the 1^st Respondent’s contention that the sum of A$350,000 transferred to his son while he was in Australia represented a dividend from the Company payable to him.  As I understood the point, it was suggested that the failure to disclose the receipt of this dividend in the salary certificate provided to the Housing Society cast doubt on this explanation.

41.  The difficulty with this attempt to justify the contents of paragraph 27 is that nowhere in the paragraph is this point made.  Instead, it is alleged that there has been a fraud on the Housing Society, which would appear to have nothing to do with the Company’s affairs, or with the allegations in the petition.  In the circumstances, I have no doubt that the contents of this paragraph are both irrelevant and scandalous, and the entire paragraph must be struck out.

42.  Paragraph 32.  The second, third and fourth sentences of this paragraph are objected to.  Ms Lam did not resist the striking out of the second and third sentences, which simply set out the Petitioner’s views as to the motivation behind the retention of documentary records by the 1^st Respondent, and I shall strike out those sentences.  She suggested, however, that the last sentence, which accused the 1^st Respondent of selective disclosure of documents was relevant to the complaint that the Petitioner had been deprived of access to the Company’s books and records.  This sentence was in the following terms:-

“Although CWS can produce the information and full sets of documents, books and accounts in his possession, for his own convenience and benefit he has only produced piecemeal of documents and accounts and has withdrawn many documents, books and accounts adverse to his case on incredible excuses.”

43.  I have considerable difficulty in seeing how this statement relates to the complaint in question, and therefore order that it be struck out as irrelevant and scandalous, having regard to its terms.

44.  Paragraph 33.  Objection was taken to the last two words in this paragraph, as they contained an insinuation to the same effect as what was stated in paragraph 22(6).  Ms Lam accepted that this stood or fell with the earlier paragraph, and, having decided that paragraph 22(6) is to be struck out, I shall order that these words be similarly struck out for the same reasons.

45.  Paragraph 36.  The fifth and subsequent sentences of this paragraph are objected to.  The fifth sentence is again simply abusive of the Petitioner, and Ms Lam did not resist its being struck out.  As to the balance of the paragraph however, Ms Lam said that this contradicted the 1^st Respondent’s statement that he had been replaced as a signatory on the Company’s bank accounts while he was in Australia, since there was documentary evidence (which was exhibited) indicating that he remained a signatory throughout, with his brothers simply being added as signatories, rather than being made signatories in his place.  Although the point would seem to be a rather narrow one, I am prepared to accept that this might be of some relevance to the matters in issue, and thus do not propose to strike out the remainder of this paragraph.

46.  Paragraphs 38 and 39.  These two paragraphs are objected to on the basis that they appear to make allegations of wrongdoing against the 1^st Respondent in relation to the proceeds of a loan of which the Company was borrower, which was secured by a mortgage over property owned by the 1^st Respondent and his wife.  This was mentioned in the 3^rd Affirmation of the 1^st Respondent as an example of support provided by him for the Company.  The Petitioner in essence disputes that this was truly support for the Company, and suggests that this was really a means for the 1^st Respondent to obtain funds from the Company.  Ms Lam said that this was not a matter of which complaint was made, but as it appeared to be relied upon by the 1^st Respondent, it was something to which the Petitioner was entitled to reply.  She indicated that if the 1^st Respondent did not wish to rely on this matter, the Petitioner would not either.

47.  Although this is not a matter of which complaint was made in the petition, it seems to me to be a matter on which some reliance is intended to be placed by the 1^st Respondent.  In this respect it would appear to stand on a different footing to the matters purportedly responded to by paragraphs 6, 8, 9, 11, 12 and 13, which were clearly matters of background only.  If the 1^st Respondent wishes to place reliance on the matters in paragraph 21 of his 3^rd Affirmation, it seems to me that the Petitioner should not be debarred from putting forward his version of these events, and I accordingly decline to strike out these paragraphs.  Although there are some phrases in these two paragraphs which are unsatisfactory, I do not think that they are such as to require them to be struck out, as the court will be able to shut them out of its mind when coming to its decision on these proceedings.  Further, if it transpires at trial that this issue is not a live one, it can be set on one side without affecting the court’s consideration of the matters in issue.

48.  Paragraph 40.  Complaint is made of the last sentence of this paragraph.  This is again an example of the Petitioner simply disparaging the 1^st Respondent, which is of no relevance to the issues in the proceedings.  Ms Lam did not suggest that it should be permitted to remain, and I therefore strike it out.

49.  Paragraph 43.  This paragraph states that the Petitioner was advised by his accountants that the conduct of the 1^st and 2^nd Respondents in relation to the payment of A$350,000, said by the 1^st Respondent to be in the nature of a dividend from the Company, was “quite improper and irregular”.  No explanation of the basis of this comment was proferred, although it was qualified by the statement that the advice was preliminary.  Ms Lam said that this was tied in to paragraph 42, which stated that the 2^nd Respondent was not entitled to any dividend, as he was not a shareholder at the time.  In my view, unless the basis on which it is sought to suggest that there was impropriety or irregularity is explained, it would be impossible and hence oppressive to expect the 1^st Respondent to respond to this statement.   I therefore propose to strike out this paragraph, although the Petitioner may, if he is able to do so, introduce this contention at a subsequent stage with proper justification for the allegations made.

50.  Paragraph 48.  Ms Lam did not resist the striking out of the passage complained of in this paragraph (i.e. the third sentence).  It is similar in tone and content to the passages complained of in paragraphs 36 and 40 which have been struck out, and I therefore strike out this sentence also.

51.  Paragraph 49(1).  The fifth and last sentences of this paragraph are objected to.  Ms Lam did not seek to defend the last sentence, which is objectionable for reasons similar to those given in relation to paragraph 48, and I therefore strike it out.  As to the fifth sentence, which states that the 1^st Respondent planned to steal the assets of the Company by the expedient of moving its pattern production room to Shenzhen on the pretext of cutting costs, Ms Lam submitted that this was part of the complaint that the Petitioner was misled into agreeing to shift this facility to Shenzhen, which is made in the balance of paragraphs 49 to 53, in answer to the 1^st Respondent’s case that the Shenzhen factory was set up by agreement between himself and the Petitioner.  I think that this is arguably so, and therefore do not propose to strike out the fifth sentence of this paragraph.

52.  Paragraph 51(3).  This subparagraph comments on the expenses incurred on the setting up of the pattern production facility in Shenzhen, and complains about the extent of such expenses.  I do not see that there is anything particularly objectionable in this paragraph, which appears to be relevant to the question of the circumstances of the setting up of the Shenzhen factory.  I do not regard the reference to various items of equipment having been taken by the 1^st Respondent so much as an allegation of misappropriation of such items, but more of a comment on the sum of money spent when these items did not have to be paid for.  I therefore decline to strike out this sub-paragraph.

53.  Paragraph 53(2).  Ms Lam accepted that sub-clauses (a) and (b) should be struck out, but suggested that the introductory part of this sub-paragraph should be permitted to remain in the affirmation.  However, if that were done, the introductory words would make no sense.  They are in any event at best a matter of submission, couched in offensive terms, which are thus irrelevant, and in my view should be struck out.

54.  Paragraph 53(4).  The complaint here was in relation to the first sentence of the sub-paragraph.  This is in similar terms to the passages complained of in relation to paragraph 32, and I strike this sentence out for the same reasons.

55.  Paragraph 60(3).  In his 3^rd Affirmation, the 1^st Respondent stated that he had been informed that the Petitioner had been arrested and released on bail in connection with the affairs of the Company.  It seems that there was a complaint by the 1^st Respondent to the police, and that there was a counter-complaint against him by the Petitioner, and this is mentioned in paragraph 60(3).  Exception was taken to the third sentence in this paragraph.  However, it seems to me that this is a relatively minor matter which does not call for the passage in question to be struck out, and I decline to do so.

56.  Paragraphs 63 to 65.  In these paragraphs, three further complaints, which do not appear in the petition, are made.  These relate to the alleged theft of a vehicle registration mark belonging to the Company, the diversion of the Company’s business to businesses alleged to be controlled by the 1^st Respondent, and the alleged theft of moneys belonging to the Company.  Ms Lam acknowledged that these were not matters of which complaint was presently made in the petition, but indicated that it was the intention of the Petitioner to amend the petition to include them.  It is, however, to be noted that notwithstanding the fact that the Petitioner’s 3^rd Affirmation was filed as long ago as 23 August 2004, the present application made by summons issued on 17 September 2004, and an application to strike out parts of the petition made on 28 April 2005, no application for leave to amend the petition has yet been made.  The allegations in these paragraphs are also in vague and general terms.  As things stand, the matters mentioned are irrelevant to the issues arising on the petition.  In these circumstances, I am satisfied that the correct course would be to strike out the parts of these paragraphs of which complaint is made, and to leave it to the Petitioner to make such application for amendment of the petition as it wishes to, and to file evidence in support of the petition as amended in due course, assuming that it is successful in such an application.

57.  I therefore order that the passages in the Petitioner’s 3^rd Affirmation which I have identified above as being objectionable should be struck out.  Although fairly extensive parts of the affirmation will therefore be excluded, I do not think it necessary in the circumstances to order the removal of the entire affirmation from the court file.  So far as the costs of this application are concerned, while the 1^st, 2^nd and 4^th Respondents have not been entirely successful in their application, it seems to me that they have been substantially successful and should have the costs of this application against the Petitioner.  As for the basis of taxation if such costs cannot be agreed, I have given serious consideration to whether or not it would be appropriate to order such costs to be taxed on a higher basis than a normal party and party taxation.  Although I consider that there are aspects of the Petitioner’s 3^rd Affirmation which are highly objectionable, for the reasons which I have given, I have also borne in mind that the application has not been wholly successful.  Taking these matters into account, I have come to the conclusion that the appropriate order for costs would be that the Petitioner should pay the 1^st, 2^nd and 4^th Respondents their costs of this application, such costs to be taxed on the party and party basis in default of agreement, and I make an order nisi to this effect.