GOLDEN SCREEN LTD v. VILLAGE CINEMAS AUSTRALIA PTY LTD AND ANOTHER

HCCW 368/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 368 OF 2005

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D E C I S I O N

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1.      This is an application by the petitioner for further and better particulars of the amended points of defence of the 1^st respondent.  A number of requests in the summons have been withdrawn by the letter of the petitioner’s solicitors yesterday afternoon.

2.      I am going to dismiss the application.  Firstly, it is hopelessly late; secondly, it is without merit.

3.      The amended points of the defence were filed on 21 September 2007, the request for particulars was served on 30 November 2007, the 1^st respondent provided answers to the request on 21 December 2007, and this summons was issued on 31 December 2007.  The trial of petition is to commence 2 days from today.  It is set down for 15 days.  The petition was amended 3 times, points of pleadings have been ordered and filed.  The amended points of reply were served on 22 October 2007.  Many rounds of evidence have been filed in this case, the documents disclosed took up 14 volumes.  Leading counsel of both parties have served lengthy and comprehensive opening submissions.

4.      Given that background, I would be sceptical if any party says he does not know or understand any aspect of the case of the other side.  And with pleadings amended and re-amended and numerous rounds of evidence filed, the parties would be bound by the affidavits served.  Their hands are tied, they would not be allowed to depart from the pleadings or the evidence, and there should be no surprise to anyone at all.  Last but not least, the necessary discovery of documents has been completed.  In these circumstances, I would have thought that further and better particulars of pleadings would hardly be necessary.

5.      No good reason has been given why the request for particulars was not made before 30 November 2007, when the petitioner knew of the trial dates in January 2008.  The application was made far too late.  Everyone’s time would be better spent in preparing for the trial than in engaging in this application, which is a pointless distraction.

6.      On the ground of delay alone, I would have dismissed the application.

7.      I would say a few words on the merits.

8.      The petitioner says the particulars should be provided to enable the petitioner to know the 1^st respondent’s basis for its assertion to “management control” and what “management control” is to encompass.  The 1^st respondent’s alleged “management control” is the subject of comment in the opening submission of the petitioner’s counsel.

9.      On a fair reading of the amended points of defence, I do not consider there should be difficulty in understanding the 1^st respondent’s case for assertion to management control.  It is pleaded in the amended points of defence that from 1992 to 2000, the joint venture was operated strictly in accordance with 1988 written agreement, and that this was replaced by the shareholders’ agreement in 2000 and that the company and its principal subsidiary are to be managed strictly in accordance with this shareholders’ agreement.  How the agreements should be interpreted, in the relevant factual matrix, would be a matter for submission at the trial.  It is not the function of the particulars to address matters which are to be dealt with and have been dealt with in submissions.

10.      The other broad matter the petitioner says it should have particulars of is to enable the petitioner to understand the basis on which the 1^st respondent would argue for an order for the 1^st respondent to purchase the petitioner’s shares in the company.  I cannot see how the request for particulars would assist in such understanding.  In any event, the 1^st respondent would be confined to the evidence it has filed.  No useful purpose would be served by ordering particulars in that regard.

11.      It seems to me that of the requests still pursued by the petitioner, a large number of them relate to assertions or averments which the 1^st respondent has simply not made in the pleading.  These are requests no. 6, 14, 25, 29, 33 and 36.  As for the requests relating to Mr Tan’s authority in respect of various complaints made by the petitioner, these are matters that have been covered in the evidence filed by the 1^st respondent and in the opening submission of the 1^st respondent’s counsel.

12.      For the above reasons, and in the exercise of my discretion, I dismiss the application for further and better particulars.

13.      I order costs of the application to the 1^st respondent in any event.

HCCW 368/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 368 OF 2005

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Before: Hon Kwan J in Chambers

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D E C I S I O N

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1.  This is a summons for an interlocutory injunction issued by Village Cinemas Australia Pty Limited, the 1^st respondent in a petition for winding up on the just and equitable ground and for relief under section 168A of the Companies Ordinance, Cap. 32.

2.  The company concerned is Dartina Development Limited (“the Company”), and the petition was brought by Golden Screen Limited.  The petitioner and the 1^st respondent are equal shareholders of the Company.  The 1^st respondent seeks dismissal of the petition.  In the event that the court should find complaints in the petition established, it will ask for an order to buy out the petitioner, as it wishes to continue running the Company.

3.  For the background of the petition, I refer to the decision I gave in dismissing the application to strike out the petition on 12 October 2005, paragraphs 1 to 9.  The petition has been set down for trial, with 15 days reserved.  The trial is to commence on 11 January 2008.

4.  The Company operated its cinema development business in Singapore through Golden Village Multiplex Pte Limited (“GVM”).  GVM is a wholly owned subsidiary of Golden Village Holdings Pte Limited (“GVH”), and GVH is in turn wholly owned by the Company.  Pursuant to a shareholders agreement, each of the petitioner and the 1^st respondent has nominated three directors to the board of directors of the Company and of GVM.

5.  The petitioner’s complaints in the re-amended petition are founded to a large extent on allegations concerning Kenneth Tan Chih-Sien (“Mr Tan”).  I have summarised the original complaints in paragraph 10 of my earlier decision.  The petitioner has contended that Mr Tan was in breach of his employment contract with GVM and should have been dismissed summarily, and that the 1^st respondent was in breach of the shareholders agreement by condoning Mr Tan’s conduct.

6.  Mr Tan was employed as the managing director of GVM for a term of four years commencing on 1 September 2003.  So his term is due to expire on 31 August 2007, less than five months before the trial of the petition.

7.  Under clause 4 of the employment contract, GVM has the option to extend Mr Tan’s employment for a further four years or such other period as agreed between them.

8.  The 1^st respondent proposed to the petitioner to extend Mr Tan’s employment until 30 days after the final ruling, including appeal, on the issues in the petition.  Mr Tan is agreeable to this proposal.  A resolution to this effect was proposed at a board meeting of GVM on 18 May 2007.  It was not passed as the three directors nominated by the 1^st respondent voted in favour and the three directors nominated by the petitioner voted against it.

9.  On 4 June 2007, the 1^st respondent issued the present summons seeking an interlocutory injunction.  The terms of the injunction sought have been modified in a draft order submitted to the court this morning.  I have given leave to amend the summons and the injunction sought is as follows:

“The petitioner whether acting by its directors or employees or by any other agent, including its agents who are directors appointed by or on behalf of the Petitioner herein to be directors of Golden Village Multiplex Pte Limited (“GVM”) or otherwise howsoever be restrained from disputing or challenging or otherwise calling into question, outside of the trial of the Re-Amended Petition herein, which is fixed to take place in January 2008, any exercise by the Chief Executive of the 1^st Respondent pursuant to Clause 20.1 of the Shareholders Agreement dated 24 February 2000 to which the petitioner, the 1^st Respondent, the 2^nd Respondent and GVM are parties, of GVM’s option to extend the employment of Mr Kenneth Tan as the Managing Director of GVM until 30 days after the final determination (including appeal) of the Re-Amended Petition herein or until further order of the Court.”

10.  The material change in the terms of the injunction sought is to change this from a mandatory injunction to a prohibitive injunction.  Further, the manner in which GVM is to be procured to exercise the option to extend Mr Tan’s employment is specifically spelt out in that the procedure under clause 20.1 of the shareholders agreement is to be invoked.

11.  The case for seeking an interlocutory injunction to extend Mr Tan’s employment has been put in this way:

(1)     GVM needs to have a managing director to take care of day-to-day business and lead its staff.  The business cannot be properly run by the board of directors, not least because the GVM directors generally reside outside Singapore and travel extensively.

(2)     The performance of the business of GVM has been positive under Mr Tan.  According to the monthly managing director’s report for April 2007, the business has consistently hit budget.  The opening of the new cinema at Vivo City has exceeded expectations.  Corporate sales are up, and GVM’s box office market share has increased to almost 50%.  Staff turnover is almost zero.

(3)     It would be impracticable to find a suitable candidate to replace Mr Tan while the present litigation subsists, in view of the uncertainty regarding the future ownership of the business and the current widely publicised shareholders’ dispute.

(4)     Without a leader to guide the staff, there would be disruption to the operation of the business of GVM which could cause under-performance of the business and a diminution in value of GVM.  Possible adverse publicity and loss of goodwill would be difficult to reverse and not easily quantifiable in financial terms.  The 1^st respondent does not want GVM’s business to be damaged with a change in management which might be proved to be totally unnecessary.

(5)     If Mr Tan’s employment is not extended, the reality is that GVM will lose his services as he would most likely move on to another role.  It may not be possible to re-employ him after the determination of the petition.

(6)     The business of the Company and GVM and the value of the shares should be preserved pending trial.  Depending on the evidence that emerges at trial, the court may order the 1^st respondent to buy out the petitioner’s shares in the Company or the petitioner to buy out the 1^st respondent’s shares.  Even if the petitioner’s complaints are made out, the 1^st respondent may end up with all the shares in the Company.

(7)     If Mr Tan is to remain in place pending trial, in light of the positive business performance of GVM, it is unlikely that the petitioner would suffer prejudice.

(8)     The 1^st respondent is willing to provide the usual undertaking as to damages.  It is a wholly owned subsidiary of Village Roadshow Limited and has the financial means to satisfy an order for damages.

12.  Before I consider the legal arguments raised by the petitioner in opposing the application, it is pertinent to note these matters in the evidence filed by the petitioner:

(1)     The petitioner has invoked the shareholders agreement, which provided that for the appointment or dismissal of the chief executive officer or general manager of GVM (this is the post occupied by Mr Tan as managing director), which is a “unanimous issue” as defined, this must be approved by both the nominated directors of the 1^st respondent and the petitioner.  I will come back to the question of unanimous consent in view of the terms of the injunction sought as modified.

(2)     The petitioner does not wish to extend Mr Tan’s employment because he has lost the petitioner’s trust and confidence.  The petitioner alleges that the 1^st respondent wishes to retain Mr Tan as a puppet through which the 1^st respondent can continue to control GVM to the exclusion of the petitioner.

(3)     The petitioner has not adduced contrary evidence regarding the business performance of GVM, claiming that it has not verified the managing director’s report for April 2007, but asserts that business could perform better than it has under Mr Tan.

(4)     At the board meeting of GVM on 18 May 2007, the petitioner proposed a resolution that GVM was to identify and engage a head hunter or recruitment agency to commence recruitment of the general manager.  That resolution was not passed as the petitioner’s nominated directors voted in favour and the 1^st respondent’s nominated directors voted against it.  So the 1^st respondent has blocked the petitioner’s attempts to find a replacement general manager.

(5)     In any event, the petitioner does not believe that a replacement general manager is required pending the determination of the petition, as the heads of department in GVM could report directly to the board of directors.

13.  Insofar as the petitioner has raised allegations that Mr Tan did not perform well in his job and the petitioner is concerned there is lack of integrity on the part of both Mr Tan and the 1^st respondent, these are matters that go to the merits of the substantive issues in the petition.  I am satisfied there are serious issues to be tried and they should be dealt with at the trial.  It is no part of the function of this court at the present stage to resolve the conflicts of evidence on affidavit as to such disputes.  This is accepted by Mr Westbrook, SC for the petitioner.

14.  The test I apply is the test in American Cyanamid v Ethicon Limited [1975] AC 396, with necessary adjustments, as I should not be asking whether damages would be an adequate remedy to the 1^st respondent in the context of this petition, but whether the 1^st respondent can be adequately compensated by an order for financial compensation or if this can be adequately reflected in the valuation of the Company’s shares in the event of a buy-out (Re Posgate & Denby (Agencies) Ltd. [1987] BCLC 8 at 15d to e).

15.  I first ask whether there is any jurisdictional bar to this application.

16.  Mr Barlow, SC for the 1^st respondent submitted there is none.  By the petitioner’s petition, the petitioner has sought to invoke class remedies which, should the court after trial decide to grant them, whether or not in the form sought by the petitioner, would alter the existing legal rights of all members of the class.  By the 1^st respondent’s summons for an interlocutory injunction, the 1^st respondent seeks interim protection of its class rights pending the trial of the petition.  Mr Barlow acknowledged that unusually here, the court is asked to provide interim injunctive relief by a party who has not expressly applied for substantive or final relief in the petition.  He pointed out that there is no procedural provision for the bringing of a counterclaim to a petition.  In any event, no such provision is needed in the case of a petition of this kind, because upon the presentation of a petition by a member of the class concerned, the substantive rights of all members of the class are put in issue.  If those substantive rights may be detrimentally affected by actions or omissions of any other party to the substantive litigation, jurisdiction exists for the court to provide interlocutory protection by an interim injunction (Re Ravenhart Service (Holdings) Limited [2004] 2 BCLC 376 at 395g to h).

17.  I agree with those submissions.  Here, the right to an interlocutory injunction is incidental to and dependant on the enforcement of a substantive right, being the substantive right of each of the shareholders placed in issue by the presentation of the petition.  Mr Barlow says that the 1^st respondent has a cause of action as defined in Letang v Cooper [1965] 1 QB 232 at 242, being simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another.  In any event, the substantive right for the purpose of seeking an interim injunction may not invariably take the shape of a cause of action although it usually does (Channel Tunnel Group Limited v Balfour Beatty Construction Limited [1993] AC 334 at 362C, per Lord Mustill).

18.  Before the summons was amended, Mr Westbrook argued for the petitioner that the injunction sought should be refused, because according to the express provisions of the shareholders agreement, the petitioner is entitled to block the resolution to extend the employment of Mr Tan, this being a unanimous issue which would require unanimous consent.  The powers given to the court under section 168A enables the court to give full effect to the terms and understandings on which members of a company became associated, it does not enable the court to rewrite them (Re Posgate & Denby, supra. at 14f).

19.  In the light of that objection, the 1^st respondent has modified the terms of the injunction in its amended summons.  The 1^st respondent now seeks to rely on clause 20.1 of the shareholders agreement, which provides that in the event the shareholders are in dispute regarding any matter relating to GVM, any shareholder may by notice in writing refer the dispute to the chief executive of each shareholder who shall consult with each other in good faith and use their best endeavours to resolve the dispute, and if the matter relates to a “management issue”, that is other than a unanimous issue, the chief executive of the 1^st respondent may decide the matter.

20.  The 1^st respondent contended that the exercise of GVM’s option to extend the employment of Mr Tan under his contract is not a unanimous issue but a management issue, as this is not an appointment but an extension of the appointment of an existing chief executive officer/general manager.  So the issue on the dispute may be decided by the chief executive of the 1^st respondent.  The 1^st respondent now seeks an interlocutory injunction to restrain the petitioner from disputing or challenging any exercise of GVM’s option by the chief executive of the 1^st respondent pursuant to clause 20.1.

21.  The 1^st respondent may or may not be right about its interpretation of management issue and other relevant provisions in the shareholders agreement.  I think that is a respectable argument and in any event it could be decided at the trial if the petitioner wishes to argue the matter.

22.  Mr Westbrook submitted that the application for this injunction should be refused as this is premature.  There are a number of prerequisites for the procedure in clause 20.1 to be invoked, they are a dispute arising, a notice in writing to be given by one shareholder to the other, consultation between the chief executives of the petitioner and the 1^st respondent, before the chief executive of the 1^st respondent may decide the matter.  Mr Westbrook contended that these prerequisites have not been met.  Mr Barlow has taken me to the correspondence between the parties in May 2007 and the minutes of the board meeting of 18 May 2007.  He submitted the prerequisites have in effect been met.  In any event, the court has jurisdiction to grant a quia timet injunction in an appropriate situation.  I do not think the argument that the application is premature is a valid one.  Nor do I think there is substance in Mr Westbrook’s technical objection that the injunction should not be granted as GVM is not before this court.

23.  Mr Westbrook has referred the court to the decision of Ma J, as he then was, in Music Advance Ltd & Another v The Incorporated Owners of Argyle Centre Phase I, HCA No. 2574 of 2002, 30 August 2002, in which Ma J gave a useful and comprehensive analysis of the applicable principles for granting a mandatory interlocutory injunction in paragraphs 12(1) to (9).  I do not propose to set out the relevant extract.  As Ma J has explained, properly understood, the basic approach to interlocutory injunctions, whether mandatory or prohibitory, is the same.  Applying those principles, the approach I take in carrying out the balancing exercise is that I should take the course which appears to carry the lower risk of injustice if it should turn out that I may make the wrong decision on this application, in the sense that the party to whom an interlocutory injunction has been granted may lose at the trial, or the party who has been refused an injunction may win.

24.  Here, I am persuaded that the course which would carry the lower risk of injustice is to grant the injunction sought.  If Mr Tan’s employment were not extended, the disruption to the operations of GVM, the adverse publicity, and the loss of goodwill are losses not easily quantifiable, and are matters which the 1^st respondent may not be adequately compensated by the relief that may be granted on the hearing of the petition.  If the injunction was wrongly granted, any possible damage to the petitioner or the Company can be taken into account in assessing the fair price for the Company’s shares.  I find that the balance of convenience is firmly in favour of granting the injunction, to preserve the status quo pending trial.

25.  I will therefore make an order in terms of the injunction as sought.

26.  Mr Westbrook has sought the costs of this application up to yesterday in view of the amendment to the summons.  I am persuaded that the change from seeking a mandatory injunction to a prohibitive one does not alter substantially the merits of that application.  The fair order to make in the circumstances is that costs of the application be in the cause of the petition.

HCCW 368/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 368 OF 2005

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Before: Hon. Kwan J. in Chambers

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D E C I S I O N

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1.  This is an application of the petitioner, Golden Screen Limited, under Order 41 rule 6 of the Rules of the High Court.  The petitioner asks the court to strike out certain parts of two of the affidavits filed by the 1^st respondent, Village Cinemas Australia Pty Limited, pursuant to an order I made on 6 November 2006, on the grounds that such evidence is of without prejudice communications, and/or it is irrelevant to the proceedings.

2.  The company that is the subject of these proceedings, Dartina Development Limited, is a joint venture formed between the petitioner and the 1^st respondent.  The petitioner is a subsidiary of Golden Harvest Entertainment (Holdings) Limited (“Golden Harvest”), a listed company on the Hong Kong Stock Exchange.  The 1^st respondent is a subsidiary of Village Roadshow Limited (“Village Roadshow”), a listed company on the Australian Stock Exchange.

3.  The parts of the affidavits complained of are as follows:

(1)     the 2^nd affidavit of Robert Kirby dated 17 November 2006 – paragraph 10, the 2^nd and 3^rd sentences; paragraph 11, the last sentence; the exhibit marked “RGK-1”, pages 11, 12, 13 (in part), 14 (in part), 15 (in part) and 17 (in part); and

(2)     the 6^th affidavit of Kirk Senior dated 20 November 2006 – the exhibit marked “KS-18”, page 9 (in part).

The parts of the evidence the petitioner wishes to redact are annexed to the skeleton submission of the petitioner. 

4.  I would like to say first of all that I do not accept the ground of irrelevance advanced by the petitioner.  The communications in question are relevant for the purpose that they would appear to demonstrate that the parties were still trying to work together in 2006 and so the Company should not be wound up on the just and equitable ground.  That leaves the ground of the without prejudice privilege.

5.  Affidavits dealing with negotiations for settlement may be struck out under Order 41 rule 6 as inadmissible in evidence.  There are two jurisdictional bases for this without prejudice privilege, as stated by Hoffmann LJ in Muller v Linsley & Mortimer [1996] 1 PNLR 74 at 77B to C:

“Firstly, the public policy of encouraging parties to negotiate and settle their disputes out of court and, secondly, an implied agreement arising out of what is commonly understood to be the consequences of offering or agreeing to negotiate without prejudice.  In some cases both of these justifications are present, in others, only one or the other.”

6.  Miss Chow submitted for the 1^st respondent that in this case, neither of the jurisdictional bases is present, so there is no justification to exclude the evidence.  Mr Hassell for the petitioner contended that both jurisdictional bases are found.

7.  The relevant exhibits in Mr Kirby’s affidavit are a series of e-mail exchanges between him and Mr Raymond Chow of Golden Harvest from 16 August 2006 to 8 September 2006.

8.  The relevant exhibit to Mr Senior’s affidavit is an internal e-mail of Village Roadshow dated 16 March 2005 from Mr Senior to Mr Kirby.

9.  For the e-mail exchanges in August and September 2006, Mr Hassell submitted that they should be viewed as part of an ongoing chain of correspondence between Mr Kirby, Mr Chow and in some cases Phoon Chiong Kit, also of Golden Harvest, which began on 29 June 2006.  To make good his point, he exhibited the full chain of the e-mail correspondence to his affidavit for the purpose of this application.  This full chain of e-mail should also be read in the light of the without prejudice mediation on 11 and 12 May 2006, in which representatives of the ultimate parent companies of the petitioner and the 1^st respondent, namely Golden Harvest and Village Roadshow, and lawyers for the parties, took part.  On that occasion, they discussed global resolutions of the proceedings in Hong Kong and of two proceedings in Singapore, which are called “the Imax writ” and “the GVM writ”.  Further, at or about the time of these e-mail exchanges, both parties’ lawyers took part in three days of without prejudice meetings in September 2006, again in an attempt to achieve a global settlement of all these disputes.  So the e-mail exchanges should also be read in the light of the subsequent attempts at global settlement.

10.  I agree with Mr Hassell that the e-mail exchanges exhibited to Mr Kirby’s affidavit should be read in this light.  I do not accept Miss Chow’s submission that I should view the e-email exchanges merely as attempts to resolve the Singapore proceedings and had nothing to do with the Hong Kong petition; or that Mr Kirby was wearing a different hat in those exchanges, that he was not acting for Village Roadshow or for the 1^st respondent, but merely for the entity that was the plaintiff in the Singapore proceedings; or that there is a cut or break in the chain when the e-mail exchanges carried on in August 2006, in that the parties had abandoned the idea of a global resolution and focused on settlement of the Singapore proceedings.

11.  I do not think the court should dissect and identify the communications to sort out which part of the communications relates to which particular dispute, when it is apparent that the parties taking part in the settlement discussions did so with the objective of bringing about a global solution.  It is important to bear in mind that two camps are involved in these disputes, Golden Harvest and Village Roadshow.  That a particular entity in the many companies in which one or both of the camps hold an interest is not a party to a particular dispute does not detract from the overall picture that the settlement discussions were between these two camps, and that an objective of the discussions was to resolve disputes on an overall basis.  Nor do I think it should be approached on the basis whether certain individuals taking part in the communications did or did not hold a position in a particular entity.  This case is distinguishable from the situation involving two parties to the settlement discussion and a wholly unrelated third party, as in Rush & Tompkins Limited v Greater London Council [1989] 1 AC 1280, where the settlement discussion was between the employer and the contractor, and the sub-contractor took no part in the communication.

12.  For the above reasons, I do not think it right to approach the question of implied agreement for the jurisdictional basis of without prejudice privilege in a mechanical fashion and hold that there was no implied agreement between the parties seeking the documents (i.e. the party against whom the privilege is claimed) and the parties to the correspondence in question.

13.  Miss Chow has drawn my attention to the dicta of Oliver LJ in Cutts v Head [1984] Ch 290 at 306C to G, which was approved by Lord Griffiths in Rush & Tompkins at 1299D, on the rationale for public policy justification for without prejudice communication, which read as follows: “The public policy justification, in truth, essentially rests on the desirability of preventing statements or offers made in the course of the negotiations for settlement being brought before the court of trial as admissions on the question of liability.”  She submitted that the public policy justification cannot be invoked here, as there was no admission of liability in respect of the Singapore proceedings in the e-mail exchanges, leaving aside the question that the Singapore proceedings are distinct from the Hong Kong petition.

14.  Mr Hassell submitted that the tenor of these e-mail exchanges may indicate that the relationship between the parties has not broken down, so to that extent there was an admission from Mr Raymond Chow on the petitioner’s behalf and for that reason it might be contended that the Company should not be wound up.

15.  Miss Chow may well be right that there was no admission of liability in the e-mail exchanges, but it is not necessary to establish both bases for without prejudice privilege, one would be sufficient.  I find that the basis of implied agreement is established, that the e-mail exchanges were part of the communications between the two camps, Golden Harvest and Village Roadshow, to achieve a global resolution and that exchanges were made on the express or implied agreement that the communications would remain without prejudice and should not be admitted into evidence.  In the earlier part of the chain of communications, several e-mails were marked “without prejudice”.

16.  As for the e-mail in the exhibit to Mr Senior’s affidavit, this was in relation to communication on the Imax dispute and that dispute is part of the global settlement, so I will also uphold the without prejudice privilege on the implied agreement justification.

17.  I make the following orders on the summons:

(1)     the 1^st respondent does have leave to rely at the hearing on the 2^nd affidavit of Mr Kenneth Tan Chih Sien dated 24 November 2006;

(2)     the time for filing a summons seeking an order in paragraph 3 of the summons be extended to 19 December 2006;

(3)     the evidence as redacted in the 2^nd affidavit of Mr Kirby and the exhibits thereto, and the exhibit to the 6^th affidavit of Mr Senior, annexed to the petitioner’s skeleton submission be struck out on the basis it is scandalous and/or oppressive pursuant to Order 41 rule 6.

18.  Subject to what the parties have to say on costs, I would address the costs in respect of the earlier orders I make on an overall basis.  I further give leave to the petitioner to file and serve evidence within 42 days hereof, and direct that draft directions are to be submitted by the parties 3 days before the restored hearing of the petition. 

19.  Costs should follow the event, the petitioner is to have the costs of this summons and of the hearing today in any event.

Mr Cameron Hassell, of Messrs Clifford Chance, for the Petitioner

Miss Grace Chow, instructed by Messrs Lovells, for the 1^st Respondent

HCCW 368/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 368 OF 2005

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D E C I S I O N

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The application for striking out

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

The background

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

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

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

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

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

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

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

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

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

The complaints in the petition

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

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

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

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

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

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

The 1^st respondent’s contentions

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

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

The principles for striking out

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

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

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

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

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

The deficiency of the petition

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

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

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

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

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

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

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

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

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

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

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

Conduct of the affairs of the Company

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

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

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

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

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

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

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

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

Legitimate expectation and the Shareholders Agreement

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

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

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

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

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

General attacks on the complaints in the petition

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

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

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

Increase in ticket prices

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

Termination of the lease of GHE

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

Termination of Ms. Koh’s employment

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

Conflict of interest of Mr. Tan as chairman of SFS

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

Failure to acknowledge there was a problem with Mr. Tan

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

Conclusion and orders

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

51.  I make the following orders on this summons:

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

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

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