CHINA ENERGY INDUSTRY DEVELOPMENT LTD (incorporated under the laws of the British Virgin Islands) v. CHINA PEOPLE (HONG KONG) LTD AND ANOTHER

HCCW 186/2013 and

HCCW 187/2013 and

HCCW 188/2013      

(Heard Together)      

[2019] HKCFI 1101

HCCW 186/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING‑UP) PROCEEDINGS NO 186 OF 2013

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COMPANIES (WINDING UP) PROCEEDINGS NO 187 OF 2013

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COMPANIES (WINDING UP) PROCEEDINGS NO 188 OF 2013

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(Heard Together)

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J U D G M E N T

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A. INTRODUCTION

1.  This is the trial of three petitions taken out in July 2013 under section 168A of the then Companies Ordinance (Cap 32).[1] 

2.  The trial of these petitions, to be heard together, was originally fixed to commence on 15 July 2016 before another Recorder of the High Court.  However, on the first day of the trial, the parties came to an agreement and a consent order was made in each petition (“the Consent Orders”) that, inter alia, on a without admission of liability basis,the 1^st respondent in each petition was to purchase the petitioner’s entire interest in the company concerned, with issues such as purchase price and shareholding percentages etc be adjourned for the parties to seek to resolve their differences, failing which the matters were to be restored. 

3.  As it turned out the parties could not agree and the matters were restored before G Lam J, who questioned whether the Consent Orders were made with jurisdiction as no finding of unfair prejudice had been made. 

4.  In his decision dated 28 March 2018 [2], G Lam J said:

“ 4. It is now accepted, I believe on all hands, that strictly speaking, the court cannot order one shareholder to buy out the interest of another shareholder in the company under s 168A unless the necessary finding has been made that the affairs of the company have been conducted in a manner unfairly prejudicial to the petitioner.

5. The court does not have jurisdiction, even by consent, to make an order for the buy‑out of shares in such a petition until it is satisfied that there has been unfairly prejudicial conduct. See Hollington on Shareholders’ Rights, 8^th edition, at §§8‑01 to 8‑08; Re Bird Precision Bellows Limited [1986] Ch 658.

6. It follows, therefore, that even where the parties have agreed that the respondent is to buy out the petitioner, it is usually necessary for the court to come to a determination on the merits of the petition, to the effect that the petition is well‑founded, before the court can make an order for buy‑out under s 168A. Further, and in any event, a simple, in‑principle agreement for a buy‑out leaves a myriad of matters to be determined which are necessary findings in order to set the parameters and basis of thevaluation, so that very often a trial of the allegations in the petitionmay still be necessary, as recognised by Recorder Patrick Fung SC in Re Astrotech Company Limited (unrep, HCCW 282/2010, 31 January 2013), at §§6 to 10.

7. In the present case, the parties not having been able to agree upon the terms of the buy‑out, it is accepted by all that a trial will in any event be necessary to ascertain whether the petitions are well‑founded and which of the allegations of misconduct are established, which clearly will have a fundamental impact on the value of the shares to be transferred. In these circumstances, I do not think it is essential to have the consent order set aside, whether by this court if there is jurisdiction to do so, or otherwise, provided it is recognised that the jurisdiction of the court to make an order for buy‑out is circumscribed in the way that I have already described.

8. The better course, it seems to me, instead of being boggeddown on questions of jurisdiction for the consent order, is to have the matter set down for trial as expeditiously as possible, so that the issues that require determination can be resolved sooner rather than later.”

5.  By order dated 28 March 2018, G Lam J directed in HCCW 186/2013 inter alia that:

“ The trial on liability in this action, together with HCCW 187/2013and HCCW 188/2013, including the question whether the Petitions were well founded so as to support the Consent Order dated 15^thJuly 2016 and the issues relating to the basis of valuation as set out in the Statements of Valuation, be fixed to be heard …”

Similar orders were made in HCCW 187/2013 and HCCW 188/2013.

6.  This is the trial of the petitions as directed by G Lam J.

B.     THE CONTENTIONS OF THE PARTIES

7.  The companies the subject matter of the three petitions (“the three subject companies”), all of which were incorporated under the laws of Hong Kong, are:

(1)  China People (Hong Kong) Limited (華漢 (香港) 有限公司; “China People”) in HCCW 186/2013;

(2)  China Energy Industry Development Limited (中華能源產業開發有限公司; “China Industry HK”) in HCCW 187/2013; and

(3)  China Energy Utilization Limited (中華能源利用有限公司; “China Utilization HK”) in HCCW 188/2013.

8.  I attach hereto a chart showing the relationships between the three subject companies, the petitioners in the three petitions, and other relevant parties as at 15 May 2013.  As can be seen, the protagonists in these petitions are Mr Chen Huanghao (陳黃豪; “Chen”) and Mr Lai Chi Keung (賴自強; “Lai”) on one side, and Mr Wang Zhihua (王志華; “Wang”) on the other, who between them were the ultimate owners of the three subject companies.[3]  As at 15 May 2013, before the events alleged to have happened on that date, the directors of China People were Lai and Wang, and the directors of China Industry HK and China Utilization HK were Lai, Chen and Wang.

9.  The following are the relevant corporate documents of China People, which on their face show:

(1)  A notice dated 12 March 2013, signed by Lai and Wang, convening a general meeting to be held on 28 April 2013 for the purpose of establishing the board of directors (“成立公司董事會等事宜”);

(2)  A note signed by Lai dated 12 March 3013 [sic] confirming his receipt of the notice at (1) above, and his agreement to attend the general meeting on 28 April 2013;

(3)  A written resolution dated 28 April 2013, signed by Lai and Wang, recording or confirming the resolution at the general meeting held on 28 April 2013, that Mr Pang Guangsheng (龐廣生; “Pang”) be appointed as a director of China People;

(4)  Minutes of the general meeting held on 28 April 2013, signed by Lai and Wang, recording Wang’s proposal to appoint Pang as a director of China People, and Lai’s consent.  (As will be seen, despite the documents referred to in this and the previous sub-paragraphs, it is neither side’s case that Pang was appointed earlier than 15 May 2013.  Lai’s case is that Pang was never validly appointed, and Wang’s case is that Pang was appointed on 15 May 2013 but the documents were backdated to 28 April 2013);

(5)  A notice dated 28 April 2013, signed by Lai, Wang and Pang, convening a board meeting to be held on 15 May 2013, to discuss the question of appointment by China People of directors of China Industry HK and China Utilization HK;

(6)  A note signed by Lai, Wang and Pang dated 28 April 2013 confirming their receipt of the notice at (5) above, and their agreement to attend the board meeting on 15 May 2013;

(7)  A written resolution dated 15 May 2013, signed by Lai, Wang and Pang, recording or confirming the resolution at the board meeting held on 15 May 2013, that in addition to Lai and Wang, China People would appoint two more directors to each of China Industry HK and China Utilization HK.  The additional directors for China Industry HK were Pang and Mr Tu Han (屠寒; “Tu”), and for China Utilization HK were Pang and Mr Dan Zhaobin (但召斌; “Dan”);

(8)  Minutes of the board meeting held on 15 May 2013, signed by Lai, Wang and Pang, recording Wang’s proposal to appoint additional directors to China Industry HK and China Utilization HK, and the consent of Lai and Pang;

(9)  A notice dated 4 June 2013, signed by Wang, convening a board meeting to be held on 11 June 2013 inter alia for the purpose of considering and approving the allotment of shares;

(10)  Minutes of the board meeting held on 11 June 2013, signed byWang, and recording inter alia the resolution to allot and issue eight shares to Wang at $1 each.  It was recorded that Wang,Lai and Pang were present at the meeting;

(11)  A notice dated 25 June 2013, signed by Pang, convening a board meeting to be held on 26 June 2013 inter alia for the allotment of 6,400 shares at HK$10,000 each to existing shareholders in proportion to their shareholding because Yulin Energy[4] requested the injection of registered capital of RMB 50,000,000 by 30 June 2013;

(12)  Minutes of the board meeting held on 26 June 2013, signed by Wang, recording inter alia the resolution to allot and issue6,400 shares at $10,000 each to each shareholder in proportionto their shareholding.  It was recorded that the board meeting was attended by Wang and Pang.

10.  As a result of the resolutions at §9(10) and (12) above, Wang was allotted eight and 5,688 shares of China People.  I note that despite the resolution referred to at §9(10) above, as recorded in a Return of Allotments dated 11 June 2013 and filed on 17 June 2013, and signed by Wang, eight shares were originally allotted to a company called China Energy Global Group Limited (中華能源環球集團有限公司), which was a company owned by Wang.  However, by an amended Return of Allotments dated and filed on 25 June 2013 signed by Pang, stated to replace the “incorrect one filed on 17/06/2013”, Wang was recorded to be the allottee of the eight shares.

11.  Before the allotments referred to above, Lai held two shares, and Wang held eight shares, in China People.  As a result of the allotments, Wang’s shareholding increased to 5,704 shares, while Lai’s remained at two. Thus, from being an 80% owner of China People, Wang became a 99.96% owner.

12.  The following are the relevant corporate documents of China Industry HK, which on their face show:

(1)  A notice dated 12 March 2013, signed by Lai and Wang, convening a general meeting to be held on 28 April 2013 for the purpose of appointing additional directors (“董事會人員增加等事宜”);

(2)  Notes signed by Lai, Wang and Chen dated 12 March 3013 [sic] confirming their receipt of the notice at (1) above, and their agreement to attend the general meeting on 28 April 2013;

(3)  A written resolution dated 28 April 2013, signed by Lai and Wang on behalf of China People, and by Chen on behalf of China Energy Industry Development Limited (“China Industry BVI”), a company incorporated in the British Virgin Islands (“the BVI”) and a shareholder of China Industry HK, recording or confirming the resolution at the general meeting held on 28 April 2013, that Pang and Tu be appointed as additional directors of China Industry HK;

(4)  Minutes of the general meeting held on 28 April 2013, signed by Lai and Wang on behalf of China People, and by Chen on behalf of China Industry BVI, recording Wang’s proposal to appoint Pang and Tu as additional directors of China Industry HK, and the consent of Lai and Chen.  (As will be seen, despite the documents referred to in this and the previous sub-paragraphs, it is neither side’s case that Pang and Tu were appointed earlier than 15 May 2013.  China Industry BVI’s case is that Pang and Tu were never validly appointed, and China People’s case is that Pang and Tu were appointed on 15 May 2013 but the documents were backdated to 28 April 2013);

(5)  A notice dated 28 April 2013, signed by Lai, Wang, Chen and Tu, convening a board meeting to be held on 15 May 2013, to discuss various issues concerning China Industry HK’s investment in 淮南中能天然氣開發利用有限公司 (“Huainan Energy”);

(6)  A note signed by Lai, Wang, Chen, Tu and Pang dated 28 April 2013 confirming their receipt of the notice at (5) above, and their agreement to attend the board meeting on 15 May 2013;

(7)  A written resolution dated 15 May 2013, signed by Lai, Wang, Chen, Tu and Pang, recording or confirming the resolution at the board meeting held on 15 May 2013, inter alia that Lai, Pang and Tu be nominated as directors of Huainan Energy in place of the three incumbents, with Lai to be nominated as chairman of the board;

(8)  Minutes of the board meeting held on 15 May 2013, signed by Lai, Wang, Chen, Tu and Pang, recording Wang’s proposal to inter alia nominate Lai, Pang and Tu as directors of Huainan Energy in place of the three incumbents, with Lai to be nominated as chairman of the board, and the consent of Lai, Chen, Pang and Tu thereto.

13.  The following are the relevant corporate documents of China Utilization HK, which on their face show:

(1)  A notice dated 12 March 2013, signed by Lai and Wang, convening a general meeting to be held on 28 April 2013 for the purpose of appointing additional directors (“董事會人員增加等事宜”);

(2)  Notes signed by Lai, Wang and Chen dated 12 March 3013 [sic] confirming their receipt of the notice at (1) above, and their agreement to attend the general meeting on 28 April 2013;

(3)  A written resolution dated 28 April 2013, signed by Lai and Wang on behalf of China People, and by Chen on behalf of China Energy Utilization Limited (“China Utilization BVI”), a company incorporated in the BVI and a shareholder of China Utilization HK, recording or confirming the resolution at the general meeting held on 28 April 2013, that Pang and Dan be appointed as additional directors of China Utilization HK;

(4)  Minutes of the general meeting held on 28 April 2013, signed by Lai and Wang on behalf of China People, and by Chen on behalf of China Utilization BVI, recording Wang’s proposal to appoint Pang and Dan as additional directors of China Utilization HK, and the consent of Lai and Chen.  (As will beseen, despite the documents referred to in this and the previoussub-paragraphs, it is neither side’s case that Pang and Dan wereappointed earlier than 15 May 2013.  China Utilization BVI’s case is that Pang and Dan were never validly appointed, and China People’s case is that Pang and Dan were appointed on 15 May 2013 but the documents were backdated to 28 April 2013);

(5)  A notice dated 28 April 2013, signed by Lai, Wang, Chen and Dan, convening a board meeting to be held on 15 May 2013, to discuss various issues concerning China Utilization HK’s investment in 榆林中子熱力能源有限公司 (“Yulin Energy”);

(6)  A note signed by Lai, Wang, Chen, Dan and Pang dated 28 April 2013 confirming their receipt of the notice at (5) above, and their agreement to attend the board meeting on 15 May 2013;

(7)  A written resolution dated 15 May 2013, signed by Lai, Wang, Chen, Dan and Pang, recording or confirming the resolution at the board meeting held on 15 May 2013, inter alia that Lai, Dan and one other person be nominated as directors of Yulin Energy in place of the incumbent, with Dan to be nominated as chairman of the board;

(8)  Minutes of the board meeting held on 15 May 2013, signed byLai, Wang, Chen, Dan and Pang, recording Wang’s proposal to inter alia nominate Lai, Dan and one other person as directors of Yulin Energy in place of the incumbent, with Dan to be nominated as chairman of the board, and the consent of Lai, Chen and Pang thereto.  The consent of Tu (instead of Dan) was also recorded but that would appear to be a mistake.  Dan (rather than Tu) did sign the minutes.

14.  It is the petitioners’ case that at a meeting on 15 May 2013 attended by Lai (and his wife, Ms Lau Kin Lai (劉建麗; “Lau”)), Chen and Wang (and Wang’s associates) in a restaurant Xiangyang (襄陽) in Hubei province, Wang’s caused his associates to assault Chen, and threatened and falsely imprisoned Chen and Lai for a few hours.  Wang then coerced Lai and Chen to sign on various documents relating to the three subject companies. They did not have the chance to read the documents before signing, nor were they given copies thereof despite their repeated requests.

15.  It is also the petitioners’ case that Lai and Chen did not receive any notice convening general meetings of the three subject companies to be held on 28 April 2013, nor did they attend any such meetings.  Further,they did not receive any notice convening board meetings of the three subject companies to be held on 15 May 2013, nor did they attend any such meeting.  Apparently, they do not consider the meeting they refer to on that date in Xiangyang as a formal board meeting of any of the three subject companies.

16.  The petitioners’ case is that the documents dated 12 March 2013, 28 April 2013 and 15 May 2013 were either signed by Lai and Chen under duress on 15 May 2013, or bear their forged signatures.

17.  In the premises, it is the petitioners’ case that the purported appointments of Pang as a director of the three subject companies, of Tu as a director of China Industry HK, and of Dan as a director of China Utilization HK, were invalid in law.

18.  Regarding the board meeting of China People purportedly held on 11 June 2013, Lai’s pleaded case is that since he could not attend the same, he instructed Lau, who was then the secretary of China People, to attend on his behalf.  At the meeting, it was inter alia resolved that eight shares were to be allotted to a company held by Wang notwithstanding Lau’s objection.  Further, the secretary of China People was changed to a company associated with Stevenson, Wong & Co (“SW & Co”), the solicitors then acting for Wang.  However, the allotment had not been approved at a general meeting of China People, as required by Article 48 of Table A (being the Articles of Association of China People) and section 57B. 

19.  Regarding the board meeting of China People purportedly held on 26 June 2013, Lai’s case is that that was a meeting by telephone conference convened by a notice issued by Pang on 25 June 2013.  Lai objected to the holding of this meeting because Pang had not been validly appointed and so the notice to convene the meeting was invalid.  His attendance was also impracticable because of the short notice.  Further, the resolution purportedly passed at the meeting, which is described by Lai in his Points of Claim as a resolution to increase share capital, had not been approved at a general meeting of China People, as required by Article 45 of Table A and section 53.

20.  In his Points of Claim, Lai, under the heading “The Unfairly Prejudicial Conducts and Acts of [Wang]”, refers to what he alleges to havehappened on 15 May 2013, 11 June 2013 and 26 June 2013, and concludes:

“ 38. In the premises, the board meeting on or about 15^th May 2013 was not convened at all and the board meetings on or about 11^th and 26^th June 2013 were held improperly, the actions of [Wang] as a director and shareholder of [China People] were notprompted by any business considerations or any solicitude for the welfare of [China People], but were designed to enable [Wang] and Mr. Pang acting in concert to stop [China People] from actingin accordance with the Memorandum and Articles of Association of [China People] and the Companies Ordinance.

39. [China People] has been improperly managed.

40. By reason of the matters aforesaid, the affairs of [China People] have therefore been conducted in a manner unfairly prejudicial to the interests of [Lai] and [Lai] respectfully urge this Honourable Court for just and equitable relief.”

21.  The pleas of China Industry HK and China Utilization HK in their respective Points of Claim are materially the same, but of course they rely on what they allege to have happened on 15 May 2013 only.

22.  In his Amended Points of Defence in HCCW 186/2013, Wang pleads as follows:

(1)  He and Lai did meet in a hotel in Xiangyang on 15 May 2013 to discuss the affairs of China People, and it was agreed that Pang be appointed a director thereof, and additional directors be appointed to China Industry HK and China Utilization HK. To effect the appointments, documents referred to at §9(2)–(4)and (7)–(8) above were signed by Lai and Wang.  Lai signedout of his own free will.  The date of appointment of Pang wasbackdated to 28 April 2013 on legal advice, and it is accepted that no meeting took place on that date.

(2)  The alleged threats, assaults and false imprisonment of Lai and Chen on 15 May 2013 were denied.

(3)  As for the meetings purportedly held on 11 and 26 June 2013,save that it is asserted that Pang’s appointment was valid, and it is specifically denied that Lau raised objections at the meeting on 11 June 2013, Wang’s pleaded case consists of bare denials. 

(4)  Lai did have access to China People’s documents through Lau,who was China People’s secretary from 21 February 2013 to 11 June 2013.  The documents had also been provided in these proceedings on 24 September 2013 and 13 January 2014.

23.  The Points of Defence of China People in HCCW 187/2013 and HCCW 188/2013 are largely the same.  Lai, Wang and Chen met on 15 May 2013 to discuss the affairs of China Industry HK and China Utilization HK and it was agreed that additional directors be appointed to those companies.  Lai and Chen signed all the documents out of their own free will.  The alleged assault, threats and false imprisonment on 15 May 2013 are denied.  It is admitted that no meeting was held on 28 April 2013, and the appointments of Pang and Tu were backdated to 28 April 2013 on legal advice.  The documents had been provided in these proceedings on 24 September 2013 and 13 January 2014.

C.     FINDINGS OF FACT

24.  Apart from Lai, Chen and Lau, Mr Hu Delong (呼德龍; “Hu”) and Ms Wong Yin Wah (王燕華; “Wong”)[5] also give evidence at the trial.  Hu was, in 2013, the general manager of Yulin Energy.  He was also in Xiangyang on 15 May 2013 and he gives evidence mainly on what happened on that date.  Wong worked, and still works, for SW & Co, in company secretarial matters.  She gives evidence as to what happened at the office of SW & Co on 11 June 2013, when Lau attended on behalf of Lai at the purported board meeting called by Wang.

25.  The respondents in each petition do not appear and are not represented.

26.  It is clear that the most crucial factual issue in these petitions is what happened on 15 May 2013 in Xiangyang.  There are, of course, other relevant issues.  Because the petitioners’ case of what happened on 15 May 2013 is not otherwise supported by independent objective evidence, but only by the words of the witnesses, and as the respondents do not appearto cross-examine them, I direct at the trial that the witnesses are to give their evidence-in-chief orally, and not simply adopting their witness statements,so that I can better assess the credibility of their evidence.

27.  I have listened to the oral testimony of the witnesses carefully.  The evidence of each of Lai, Chen, Hu and Lau is consistent, and each of them gives evidence in a clear, straightforward and convincing manner. As between Lau and Wong, while their respective evidence on what happened on 11 June 2013 may have differences, I do not see any crucial inconsistencies either, and I shall also make my findings as to what happened on 11 June 2013 below.  I accept all five of them as truthful and credible witnesses.

28.  I do not propose to set out the evidence of each witness in full.  Having considered their evidence carefully, as well as the documentary evidence adduced, I make the following findings of fact.

C1.     Before 15 May 2013

29.  From about 2010, Chen was the sole beneficial owner of a company called China Energy World Holdings Limited (中華能源環球控股有限公司; “China Energy Holdings”), a company incorporated in Samoa.  China Energy Holdings wholly owned China Utilization BVI andChina Industry BVI, which in turn wholly owned China Utilization HK andChina Industry HK respectively.  China Industry HK had a 75% interest inHuainan Energy, and China Utilization HK had a 84.33% interest in Yulin Energy.  Through China Energy Holdings and another company called 深圳市低碳星投資有限公司 (“低碳星”), Chen held another 15% of Huainan Energy.  Both Huainan Energy and Yulin Energy were and are in the energy business.

30.  In about 2012, Chen needed the injection of funds into the two energy projects at Huainan and Yulin.  He was introduced to Lai, who, after inspecting the two projects, told Chen that he could find investors for him.

31.  Lai approached Wang, whom he had met while he worked in Xiangyang (then known as Xiangfan (襄樊)) a few years earlier.  After discussion, Lai and Wang (through Lai) agreed to invest in the two projects,resulting in the structure shown in the chart attached hereto.  Wang and Chen did not meet at this time. 

32.  The following agreements were signed:

(1)  A co-operation agreement (合作協議) dated 26 February 2013 between China People (signed by Lai) and China Energy Holdings (signed by Chen).  Under this agreement, China People would invest RMB 45,000,000 for 90% ownership of China Industry HK, and RMB 126,500,000 for 75% ownershipof China Utilization HK,[6] and China People was to inject RMB 45,000,000 within 20 working days.  One of the provisions in the agreement was that after all the injection of capital for Huainan had completed, 低碳星 would borrow RMB 5,000,000 from Huainan Energy as its operating expenses;

(2)  A supplemental agreement (補充協議) dated 27 February 2013 between China People (signed by Lai) and China Energy Holdings (signed by Chen) supplementing the co-operation agreement of 26 February 2013;

(3)  A co-operation agreement (合作協議) dated 28 February 2013between Wang and Lai.  Under this agreement, Wang and Laiwere to invest in Huainan Energy and Yulin Energy via ChinaPeople, with Wang holding 80% and Lai holding 20% of ChinaPeople.  Wang agreed to inject a total of RMB 50,000,000 into the two energy companies.

33.  On 10 May 2013, Chen issued a notice to Wang and Lai convening a board meeting of China Utilization HK on 15 May 2013 in Shenzhen or Hong Kong.

34.  On 12 May 2013, Wang told Lai that he would like the meeting to be held in Xiangyang, his hometown.  Lai accordingly informed Chen. 

35.  On 13 May 2013, Wang asked Lai to go to Xiangyang a day early for discussion.  Lai and Lau therefore arrived in Xiangyang in the early evening of 14 May 2013.

C2.     15 May 2013

36.  Chen, Hu and Mr Zhao Qi (趙琦; “Zhao”), the chairman of theboard of Yulin Energy, travelled from Shenzhen to Nanyang (南陽) in themorning of 15 May 2013.  They were picked up at the airport of Nanyangby people sent by Pang, and were taken to a restaurant in Xiangyang by car,arriving sometime after 11 am on 15 May 2013.

37.  In the meantime, Lai and Lau were taken from their hotel to the same restaurant by Wang.  Wang, however, told Lai that he would not be joining them for lunch as he had other matters to attend to. 

38.  At the restaurant, Lai, Lau, Pang, Mr Shi Tao (石韜) (who wasan associate of Wang), and three mainland lawyers acting for Wang (Mr Du Wei (杜偉), Mr Liu Xinhua (劉新華) and Ms Chen Yanling (陳彥玲)), joined Chen, Hu and Zhao in a room, where they had lunch. 

39.  Sometime after 1 pm, Tu walked into the room where Lai, Chen and others were having lunch, followed by Wang and four other men. Those in the room stood up to greet them, with Chen saying “王總” (meaning “Chief Wang”).  Tu then asked, “誰是陳黃豪？” [7] (“Who is Chen Huanghao?”).  Chen said “我是” (“I am”).  Tu then went up to Chen, grabbed his clothing and started to punch and kick him.  Chen fell to the floor.  Tu and three of the men who came in with him continued to assault Chen.  Chen was made to kneel down, facing Wang, who was sitting on a sofa.

40.  In the meantime, Lai asked Wang not to assault Chen but was told to shut up.  Zhao also tried to intervene.  Tu tried to assault Zhao but was stopped by Wang, who said “不要打他，他不是老闆” (“Do not beat him, he is not the boss”).  Someone also threatened Hu but Lai said,“他是搞技術的” (“He is a technician”), and Hu was spared as a result.

41.  Wang said to Chen angrily:

(1)  “ 誰讓你們這麼大膽？誰給錢你們買車？誰同意你們買車的？……子洲[8]公司買車的事你知不知道？淮南公司買車的事你知不知道？你們亂花我的錢。”

(“ Who allowed you to be so bold?  Who gave you money to buy vehicles?  Who agreed that you could buy vehicles? … Do you know about Yulin Energy’s purchase of vehicles?  Do you know about Huainan Energy’s purchase of vehicles?  You spent my money recklessly.”) 

This was a reference to the fact that Huainan Energy and Yulin Energy had purchased two vehicles each recently. 

(2)  “ 陳黃豪，你知道我是甚麼人嗎？你知道我是幹甚麼的嗎？你深圳的家住哪裡，你攸縣的母親住哪裡，你哥住哪裡我都知道。現在中國的法律講證據，我殺了你也沒有證據。”  

(“ Chen Huanghao, do you know who I am?  Do you know what I do?  I know where you live in Shenzhen.  I know where your mother lives in You County.  I know where your brother lives.  Nowadays Chinese law requires evidence.  If I kill you there will be no evidence.”)

42.  Chen replied: “我不知道你是幹甚麼的，也不知道你是甚麼人，我不知道淮南和子洲買車的事，我沒花你一分錢。”  (“I do not know what you do.  I also do not know who you are.  I do not know about the purchase of vehicles by Huainan Energy and Yulin Energy. I did not spend a cent of yours.”)  He then said a few times: “人在做，天在看。” (“Man does things, and the heaven watches.”)

43.  Wang then asked Chen to sit down on a chair.  After a while,Wang asked everyone, except Lai and Chen, to leave. 

44.  Wang then told Lai and Chen that if he wanted to do something, he would not fail.  If he could not do something he wanted, no one else could either.  He also told them his success in kicking out a partner in a project in Inner Mongolia, and that he was so strong willed that he was able to kick off a drug addiction.  The effect of this was to show Lai and Chen that Wang was a very determined person who would do anything to achieve his objectives.

45.  After further discussions on the affairs of the three subject companies, and Lai and Chen further explaining why there was nothing wrong about the Huainan Energy and Yulin Energy purchasing vehicles for their uses, at about 4 pm, the three of them moved to another room in the restaurant.

46.  In the new room, Wang asked inter alios Pang and Hu to join the three of them.  Issues concerning Yulin Energy were raised by Pang, and Hu gave explanations.

47.  At about 5 pm, Pang left the room and came back with a pile of documents.  He went up to Lai and asked him to sign them.  Lai was given one document at a time and asked to sign.  After Lai had signed, Pang immediately took back the signed document, and gave Lai another one to sign.  Lai was not given any opportunity to read the documents before he signed them, nor was he told what they were.  When Lai signed the documents, they did not have any signatures on them.

48.  After Lai finished signing, Chen was asked by Pang to sign thedocuments.  Like Lai, Chen was given one document at a time to sign, and Pang immediately took back the signed document and gave Chen another one to sign.  Chen was not given any opportunity to read the documents before he signed them, nor was he told what they were.  When Chen signed the documents, they did not have any signatures on them save for Lai’s, which had just been put on.

49.  When Lai and Chen signed the documents as told by Pang, Wang was sitting on a sofa in the room watching them.  No other persons signed any documents in that room on 15 May 2013 in front of Lai and Chen.

50.  After they had signed, Lai asked for copies of the signed documents, and Chen asked for the originals.  They repeated their requests a few times throughout 15 and 16 May 2013.  Each time, however, Wang just said that Pang would arrange that later.  However, the originals or copies had not been provided by Wang or his associates to Lai or Chen at any time (save in the course of these petitions).

51.  After signing, Wang, Lai and Chen remained in the room.  They were joined by others and they had dinner together.  During the dinner, Wang said to Chen that he might have been too rash (衝動), and apologised a few times.  Wang said he would make it up to Chen by lending him RMB 5,000,000 as agreed in the agreement between China People and China Energy Holdings.

52.  Both Lai and Chen confirm before me that they did not sign any of the documents referred to in §§9, 12 and 13 above at any time other than in the afternoon of 15 May 2013.  When they signed the documents, both of them were fearful for their own safety in the light of the events that had unfolded earlier that day.  I accept their evidence and so find.

53.  In the light of the above findings of fact, I also find that when Lai and Chen signed the documents on 15 May 2013 in the restaurant in Xiangyang, they were under illegitimate pressure, being a fear for their personal safety, and the pressure amounted to a compulsion or coercion oftheir will, so that when they signed the documents they did so on the basis they had no real or practical choice.  Their agreement or consent to the resolutions contained in those documents was obtained by illegitimate means,which amounted to duress.[9]

54.  I find that either the signatures on the documents referred to at §§9(3), (4), (7) and (8), 12(3), (4), (7) and (8), and 13(3), (4), (7) and (8) above were not Lai or Chen’s, or that they signed under duress.  I also find that there were no actual or valid general meetings of any of the three subject companies on 28 April 2013, and there were no actual or valid board meetings of any of the three subject companies on 15 May 2013. 

55.  In the premises, the resolutions recorded on the documents referred to at §§9(3), (4), (7) and (8), 12(3), (4), (7) and (8), and 13(3), (4), (7) and (8) were liable to be revoked by Lai and Chen (or by China Industry BVI or China Utilization BVI), unless they affirmed the resolutions after the pressure ceased.[10]  However, I fail to see how any of them could have been said to have affirmed anything without knowing exactly what they signed before each of them presented the petitions herein on 8 or 9 July 2013.  By issuing these petitions Lai, and Chen via China Industry BVI and China Utilization BVI, have clearly revoked whatever they signed on 15 May 2013.

56.  By reason of my findings above, the purported appointments of additional directors of China People, China Industry HK and China Utilization HK, as well as to Huainan Energy and Yulin Energy, on 15 May 2013 were all invalid.  I so find.

C3.     After 15 May 2013

57.  Evidence is given on behalf of the petitioners as to what happened in Xiangyang on 16 May 2013, and of other acts of Wang at various times (some of which concern Huainan Energy or Yulin Energy).  Since they are not acts relied on (save for the two purported allotments which I deal with below) as the unfairly prejudicial conducts, in the light of my findings here, there is no need for me to deal with such evidence. 

58.  Regarding what happened on the meeting on 11 June 2013, I note that this took place at a time when the relationship between Lai and Wang had already broken down because of what happened on 15 May 2013.  It is only natural that in such circumstances Lau would remember clearly what happened on 11 June 2013 while to Wong such a meeting was her routine, daily work, and there is no reason why she would particularly recall the details more than five years later.   

59.  I find the following to have happened on 11 June 2013.

60.  Lau attended the office of SW & Co on 11 June 2013 on behalf of Lai, as per the notice dated 4 June 2013 signed by Wang convening a board meeting of China People.  Only Lau and Wong were present at the meeting initially.

61.  Wang then called in by telephone.  Wang and Wong referred to the three items on the agenda, namely to allot shares (two to Lai and eight to Wang), to change the company secretary (who was at the time Lau) and tochange the address of the registered office.  After Wang talked in a manneras if he was reading out something, the line was cut.  Lau asked Wong thereason for the proposed allotment and Wong said she did not know.  Wong then took out two forms, one being an attendance record, the other being a resignation as company secretary, and asked Lau to sign.  Lau refused.

62.  A partner of SW & Co, Mr Eric Lui (“Lui”), then came in.  Lui told Lau that if she did not sign the documents, he could not guarantee that Lai would be allotted the two shares as proposed.  Lau asked for the reason for the allotment, and Lui just said that since the allotment was to be pro rata, Lai’s interest would not be affected.  Since Lau did not consider Lui to have answered her question, she did not sign.  After further arguments between Lui and Lau, she left.

63.  There was no voting or resolution on any matters at the meeting.  I find that the allotment of the eight shares to Wang was not properly authorised and is invalid.

64.  I note that in his points of claim, Lai appears to accept that the 11 June 2013 board meeting did resolve to allot “despite Ms.Lau’s objection”.  He also pleaded that the resolution was to allot the shares to a company held by Wang when the resolution produced before me recorded that the allottee as to be Wang.  However, the validity of a resolution is a question of law for me and I am not bound by the pleadings in this regard.  Lai did plead, and has proved,that Lau, as his representative, did object, and on that basis I do not see how there could have been any legally valid resolution for the allotment of shares to anyone.

65.  In so far as the document signed by Wang purporting to be the minutes of the meeting held on 11 June 2013 (§9(10) above) contains anything contrary to my findings above, I find them to be untrue.

66.  As for the purported telephone conference on 26 June 2013, I accept Lai’s evidence that he did not participate.  I note the minutes signed by Wang also do not suggest that Lai did, but was only attended by Wang and Pang.  Since the articles of China People set the quorum of a board meeting at two, and since Pang was never validly appointed as a director, the said board meeting was not quorate and was invalid, and so are all resolutions purportedly passed thereat.  The purported allotment of shares to Wang is invalid.

67.  According to the latest annual returns of the three subject companies adduced before me:

(1)  The shareholders of China People were (as at 14 February 2018) Wang (5,704 shares) and Lai (two shares).

(2)  The shareholders of China Utilization HK were (as at 18 June 2018) an entity called 湖北瑞博恩能源科技有限公司 (“瑞博恩”) (9,900 shares), China People (75 shares) and China Utilization BVI (25 shares).  瑞博恩 were allotted the shares on or about 13 May 2016.

(3)  The shareholders of China Industry HK were (as at 1 April 2018) China People (90 shares) and China Industry BVI (10 shares). 

There is no evidence before me that the shareholding of any of the three subject companies has since changed.

D.     DISCUSSION

68.  In Re Home and Office Fire Extinguishers Ltd[11], the subject company was owned equally by two brothers, and it was found that one of them attacked the other with a hammer at the company’s premises, concerning a dispute over the victim’s remuneration.  Deputy High Court Judge Nicholas Strauss QC said[12] :

“ So far as I am aware, there is no authority on facts which are similar to the present case, but I have no doubt that Simon’s conduct related to the affairs of the Company, and Mr. Sinclair has not argued the contrary, if I found against Simon on the facts. Simon’s conduct was a breach of the implied understanding that he and Guy, would act properly and in good faith towards each other, and it was also a single event which made it impossible forthem to continue their association as directors of, and shareholders in, the Company. The position was aggravated by the fact that Simon, far from apologising for his conduct, asserted that Guy’s account of it was untrue. Simon’s conduct was also related to the Company’s affairs, in that it was essentially a reaction to a decision taken by Guy concerning the Company’s finances, whichwas his sphere of responsibility. While Guy has not established that the Company suffered financial loss as a result of Simon’s conduct, there can be no doubt that it caused prejudice, in that Guy was left to carry on the Company’s affairs as its sole director, with a cloud hanging over the Company until the litigation was resolved. Also, of course, the Company was deprived of Simon’sservices, which I have found were real, even if not all they shouldhave been, and in any case it would be impossible for the Company to continue with both as shareholders.”

69.  I find what was said about the conduct in that case to be applicable to the acts of Wang and his associates on 15 May 2013.  Such acts, in the context of an occasion purporting to a board meeting of each of the three subject companies, and where directors were coerced into resolutions concerning the affairs of the companies, after one was assaultedand the other intimidated, are clearly acts concerning the affairs of each ofthe three subject companies, and are all unfairly prejudicial to the petitioner concerned.  In so far as China Industry HK and China Utilization HK are concerned, the acts of Wang as a director and majority shareholder of China People, and his associates, have to be considered unfairly prejudicial to those two petitioners.

70.  The acts regarding the purported allotment by Wang on 11 June2013 and 26 June 2013 are also acts concerning the affairs of China People and unfairly prejudicial to Lai.  An improper exercise by the directors of their power to allot shares is capable of amounting to unfair prejudice, particularly when the allotment is in bad faith or for an ulterior purpose[13].  The purported allotment of the shares, each time only to Wang, in the faceof Lau’s objections on 11 June 2013 and of Lai’s absence on 26 June 2013, and notwithstanding the original proposal each time to allot pro rata, is in my judgment blatant attempts by Wang to dilute Lai’s interest in China People, and are acts unfairly prejudicial to Lai.

71.  I find that the petitioner in each petition has made out his, or its, case of unfair prejudice.

E.     RELIEF

72.  The first question on relief is, what is the status of the Consent Orders? 

73.  As found by G Lam J, the court does not have the jurisdiction to make a buy-out order under section 168A: 

“ until it is satisfied that there has been unfairly prejudicial conduct” [emphasis added].

74.  This is borne out by the words of section 168A(2):

“ If on any petition under subsection (1) the court is of opinion that the specified corporation’s affairs are being or have been conducted in a manner unfairly prejudicial to the interests of the members generally or of some part of the members (including the member who presented the petition), whether or not such conduct consists of an isolated act or a series of acts—

(a) the court may, with a view to bringing to an end the matters complained of—

…”      [emphasis added]

75.  Thus, a finding of unfair prejudice is a necessary condition precedent to the arising of jurisdiction in the court. Unless and until it does so find, there is no jurisdiction.  In the premises, I find the Consent Orders to be have been made without jurisdiction and are of no effect, and I should exercise my own discretion as to what relief I should grant.  If and in so far as it is necessary, I set them aside.

76.  It is obvious that a buy-out order is necessary and appropriatein each case, and in my judgment the buy-out should be on the basis of the shareholding in each company as they were as at the date of the petition, with invalid or subsequent acts of allotment to be ignored.

77.  Regarding China Utilization HK, Ms Karen Cheung, appearing for the petitioner, China Utilization BVI, submits that since the latter’s shareholding has since been diluted by the allotment of shares to 瑞博恩, the buy-order should be by China People of China Utilization BVI’s shares in China Utilization HK.  As regards the other two petitions, in each case the petitioner asks for an order that it is to buy-out the shares held by the respective 1^st respondent in the subject company.

78.  Even though at the hearing Lai objects to an order requiring China People to purchase China Utilization BVI’s shares in China Utilization HK, I note that Lai is not representing China People in these proceedings and, although the three petitions are heard together, Lai in fact has no right to represent China People or to object to anything on its behalf. 

79.  In any event, if I understand correctly, regarding China Utilization HK, Lai’s objection is that that because of the allotment to 瑞博恩, China People’s shareholding in China Utilization HK has been diluted to 0.25%, and it is unfair that China People is to purchase the shares in China Utilization HK now held by China Utilization BVI on the basis that latter is a 25% shareholder.

80.  In my judgment, regarding China Utilization HK, the basis on which China Utilization BVI is to be bought out should not be affected by the subsequent allotment to 瑞博恩.  Even though Lai and Chen have both questioned the propriety of the allotment, since this is not a pleaded issue, and not an act relied on as constituting unfair prejudice, in my judgment I should not make any findings thereon in the absence of pleadings, properdiscovery or witness statements, which would otherwise have given parties that might be affected by this allegation notice of, and the opportunity to deal with, this issue.  As Ms Cheung says, if there is any impropriety in the allotment, it is for China People to take whatever legal action it sees fit. But if there is no impropriety, then there is no unfairness to China People.

81.  In HCCW 186/2013, I make the following orders:

(1)  The petitioner do purchase the eight ordinary shares of $1 each in the capital of the 2^ndrespondent registered in the name of the 1^st respondent (“Shares”) at a price to be fixed by such valuer (“Valuer”) being a certified public accountant, as may be appointed by the president for the time being of the Hong Kong Institute of Certified Public Accountants upon the application of any of the parties with or without the consent of any of the other.

(2)  The Valuer is directed to value the Shares of the 2^ndrespondent by reference to the assets, profitability and future prospects of the 2^ndrespondent as at 8 July 2013, on the basis that the Shares constituted 80% of all the issued share capital of the 2^ndrespondent and provide reasons for the valuation.  In valuing the Shares, the Valuer is directed to take into account the 2^ndrespondent’s interests in China Energy Industry Development Limited (HK) and China Energy Utilization Limited (HK).

(3)  The petitioner and the 1^st respondent do provide to the Valuer all books, accounts and documents of and relating to the 2^ndrespondent, China Energy Industry Development Limited (HK) and China Energy Utilization Limited (HK), their dealings, affairs or property in their respective possession, custody or control relevant to the valuation of the Shares within 28 days of the appointment of the Valuer.

(4)  Each of the parties is entitled, at his own costs and expenses, to inspect and take copies of the books, accounts and documents provided to the Valuer under paragraph (3) above for the purpose of making representations to the Valuer.

(5)  The petitioner and the 1^strespondent may make representations in writing to the Valuer on the valuation of the Shares within 56 days of the appointment of the Valuer and serve a copy of his their representation on the other parties at the same time.

(6)  The petitioner and the 1^st respondent may respond to the other party’s representation to the Valuer within 14 days of the service of the other party’s representations.

(7)  The petitioner and the 1^st respondent shall respond to any reasonable question put to them by the Valuer.

(8)  The petitioner shall deposit into Court the value of the Shares as valued by the Valuer without interest within 14 days from the publication of the valuation by the Valuer.

(9)  Upon full deposit of the value of the Shares under paragraph (8) above, the 1^st respondent shall transfer the Shares to the petitioner absolutely free from all encumbrances or claims of whatsoever nature but together with all rights benefits entitlements or interest attached thereto on a clean break basis forthwith.

(10)  If the 1^strespondent shall fail to transfer the Shares as directed under paragraph (9) above within 14 days of the date of the full deposit referred to in paragraph (8) above, the Registrar shall, upon request by the petitioner, execute an instrument of transfer of the Shares to the petitioner under section 25A of the High Court Ordinance (Cap 4).

(11)  It is hereby declared that the purported allotments of the eight shares and the 5,688 shares in the 2^nd respondent to the 1^strespondent on 11 June 2013 and 26 June 2013 respectively to be invalid and of no effect whatsoever and the 2^nd respondent is at liberty to amend its register of shares accordingly.

(12)  The costs of the valuation of the Shares shall be borne by the 1^st respondent.

(13)  The 1^st respondent do pay the costs of the petitioner in this petition, such costs to be taxed if not agreed.

(14)  There be liberty to the parties to apply for further directions or order generally.

82.  In HCCW 187/2013, I make the following orders:

(1)  The petitioner do purchase the 90 ordinary shares of $1 each in the capital of the 2^ndrespondent registered in the name of the 1^strespondent (“Shares”) at a price to be fixed by such valuer (“Valuer”) being a certified public accountant, as may be appointed by the president for the time being of theHong Kong Institute of Certified Public Accountants upon the application of any of the parties with or without the consent of any of the other.

(2)  The Valuer is directed to value the Shares of the 2^ndrespondentby reference to the assets, profitability and future prospects of the 2^ndrespondent as at 9 July 2013, and provide reasons for the valuation.  In valuing the Shares, the Valuer is directed to take into account the 2^ndrespondent’s interests in淮南中能天然氣開發利用有限公司.

(3)  The petitioner and the 1^st respondent do provide to the Valuer all books, accounts and documents of and relating to the 2^ndrespondent and 淮南中能天然氣開發利用有限公司, their dealings, affairs or property in their respective possession, custody or control relevant to the valuation of the Shares within 28 days of the appointment of the Valuer.

(4)  Each of the parties is entitled, at its own costs and expenses, toinspect and take copies of the books, accounts and documents provided to the Valuer under paragraph (3) above for the purpose of making representations to the Valuer.

(5)  The petitioner and the 1^strespondent may make representations in writing to the Valuer on the valuation of the Shares within 56 days of the appointment of the Valuer and serve a copy of its representation on the other parties at the same time.

(6)  The petitioner and the 1^st respondent may respond to the other party’s representation to the Valuer within 14 days of the service of the other party’s representations.

(7)  The petitioner and the 1^st respondent shall respond to any reasonable question put to them by the Valuer.

(8)  Subject to paragraph (9) below, the petitioner shall pay to the 1^st respondent the value of the Shares as valued by the Valuer without interest within 14 days from the publication of the valuation by the Valuer.

(9)  The petitioner do have leave to apply the sum China Energy Utilization Limited (BVI) is entitled to receive from the 1^st respondent for China Energy Utilization Limited (BVI)’s sale of its shareholding in China Energy Utilization Limited (Hong Kong) to the 1^st respondent together with the interest of such sale price in HCCW 188 of 2013 as a set off to the sum it is to pay the 1^strespondent under paragraph (8) above.

(10)  Upon full payment under paragraphs (8) and (9) above, the 1^st respondent shall transfer the Shares to the petitioner absolutely free from all encumbrances or claims of whatsoever nature but together with all rights benefits entitlements or interest attached thereto on a clean break basis forthwith.

(11)  If the 1^strespondent shall fail to transfer the Shares as directed under paragraph (10) above within 14 days of the date of the full payment referred to in paragraphs (8) and (9) above, the Registrar shall, upon request by the petitioner, execute an instrument of transfer of the Shares to the petitioner under section 25A of the High Court Ordinance (Cap 4).

(12)  The costs of the valuation of the Shares shall be borne by the 1^st respondent.

(13)  The 1^st respondent do pay the costs of the petitioner in this petition, such costs to be taxed if not agreed.

(14)  There be liberty to the parties to apply for further directions or order generally.

83.  In HCCW 188/2013, I make the following orders:

(1)  The 1^st respondent do purchase the 25 ordinary shares of $1 each in the capital of the 2^ndrespondent registered in the name of the petitioner (“Shares”) at a price to be fixed by such valuer (“Valuer”) being a certified public accountant, as may be appointed by the president for the time being of the Hong Kong Institute of Certified Public Accountants upon the application of any of the parties with or without the consent of any of the other.

(2)  The Valuer is directed to value the Shares of the 2^nd respondent by reference to the assets, profitability and future prospects of the 2^ndrespondent as at 9 July 2013, on the basis that the Shares constituted 25% of all issued share capital of the 2^ndrespondent, without discount for the fact that the petitioner’s shareholding is a minority shareholding, and provide reasons for the valuation.  In valuing the Shares, the Valuer is directed to take into account the 2^nd respondent’s interests in 榆林中子熱力能源有限公司.

(3)  The petitioner and the 1^st respondent do provide to the Valuer all books, accounts and documents of and relating to the 2^ndrespondent and 榆林中子熱力能源有限公司, their dealings, affairs or property in their respective possession, custody or control relevant to the valuation of the Shares within 28 days of the appointment of the Valuer.

(4)  Each of the parties is entitled, at its own costs and expenses, to inspect and take copies of the books, accounts and documents provided to the Valuer under paragraph (3) above for the purpose of making representations to the Valuer.

(5)  The petitioner and the 1^strespondent may make representations in writing to the Valuer on the valuation of the Shares within 56 days of the appointment of the Valuer and serve a copy of its representation on the other parties at the same time.

(6)  The petitioner and the 1^st respondent may respond to the other party’s representation to the Valuer within 14 days of the service of the other party’s representations.

(7)  The petitioner and the 1^st respondent shall respond to any reasonable question put to them by the Valuer.

(8)  Subject to paragraph (9) below, the 1^strespondent shall pay to the petitioner the value of the Shares as valued by the Valuer with interest accruing as from 9 July 2013 (at the rate of 1% above the prime lending rate of the Hongkong and Shanghai Banking Corporation from time to time) within 14 days from the publication of the valuation by the Valuer.

(9)  The petitioner do have leave to apply the sum it is entitled to receive from the 1^strespondent under paragraph (8) above as a set off to the purchase price China Energy Industry Development Limited (BVI) is obliged to pay the 1^st respondent for China Energy Industry Development Limited (BVI)’s purchase of the 1^st respondent’s shareholding in China Energy Industry Development Limited (Hong Kong) in HCCW 187 of 2013.

(10)  Upon full payment under paragraphs (8) and (9) above, the petitioner shall transfer the Shares to the 1^strespondent absolutely free from all encumbrances or claims of whatsoever nature but together with all rights benefits entitlements or interest attached thereto on a clean break basis forthwith.

(11)  The costs of the valuation of the Shares shall be borne by the 1^st respondent.

(12)  The 1^st respondent do pay the costs of the petitioner in this Petition, such costs to be taxed if not agreed.

(13)  There be liberty to the parties to apply for further directions or order generally.

Annex

HCCW 186/2013

[2018] HKCFI 867

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 186 OF 2013

____________________

____________________

____________________

HCCW 187/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 187 OF 2013

____________________

____________________

____________________

HCCW 188/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 188 OF 2013

____________________

____________________

____________________

____________________

D E C I S I O N

____________________

1.  This is a directions hearing of the three petitions in these three conjoined cases issued pursuant to s 168A and 177(1)(f) of the previous Companies Ordinance, Cap 32.

2.  The petitions had come on for trial in July 2016, before Recorder Pow SC.  On the first day of trial, by consent, an order was made as follows:

“Subject to the terms hereinbelow and on a without admission of liability basis, the 1^st Respondent shall purchase the Petitioner’s entire interest in the 2^nd Respondent.”

3.  The order then continued to provide that all the other issues, including, inter alia, the purchase price, the number of shares involved, the percentages of shareholding, and other ancillary matters, be adjourned for further argument. 

4.  It is now accepted, I believe on all hands, that strictly speaking, the court cannot order one shareholder to buy out the interest of another shareholder in the company under s 168A unless the necessary finding has been made that the affairs of the company have been conducted in a manner unfairly prejudicial to the petitioner. 

5.  The court does not have jurisdiction, even by consent, to make an order for the buy‑out of shares in such a petition until it is satisfied that there has been unfairly prejudicial conduct.  See Hollington on Shareholders’ Rights, 8^th edition, at §§ 8‑01 to 8‑08; Re Bird Precision Bellows Limited [1986] Ch 658.

6.  It follows, therefore, that even where the parties have agreed that the respondent is to buy out the petitioner, it is usually necessary for the court to come to a determination on the merits of the petition, to the effect that the petition is well‑founded, before the court can make an order for buy‑out under s 168A.  Further, and in any event, a simple, in‑principle agreement for a buy‑out leaves a myriad of matters to be determined which are necessary findings in order to set the parameters and basis of the valuation, so that very often a trial of the allegations in the petition may still be necessary, as recognised by Recorder Patrick Fung SC in Re Astrotech Company Limited (unrep, HCCW 282/2010, 31 January 2013), at §§ 6 to 10. 

7.  In the present case, the parties not having been able to agree upon the terms of the buy‑out, it is accepted by all that a trial will in any event be necessary to ascertain whether the petitions are well‑founded and which of the allegations of misconduct are established, which clearly will have a fundamental impact on the value of the shares to be transferred.  In these circumstances, I do not think it is essential to have the consent order set aside, whether by this court if there is jurisdiction to do so, or otherwise, provided it is recognised that the jurisdiction of the court to make an order for buy‑out is circumscribed in the way that I have already described. 

8.  The better course, it seems to me, instead of being bogged down on questions of jurisdiction for the consent order, is to have the matter set down for trial as expeditiously as possible, so that the issues that require determination can be resolved sooner rather than later. 

HCCW 186/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 186 OF 2013

____________________

____________________

_______________

R U L I N G

_______________

1.  I have before me summonses to strike out three petitions issued under section 168A and section 177(1)(f) of the Companies Ordinance on the grounds that those petitions are scandalous, frivolous or vexatious.

2.  The petitioner in HCCW 186/2013 was represented by Miss Cathy Chan.  The petitioner in HCCW 187 & 188/2013 was represented by Mr Tim Wong.  The 1st respondents in each of the petitions were represented by Mr Victor Dawes and Mr Ken Lee. 

3.  The petitioner in HCCW 186/2013 is Mr Lai Chi Keung.  The company has two shareholders: Mr Lai Chi-keung and Mr Wang Zhihua.  They own 20 and 80 per cent respectively of the company.

4.  The petitioner in HCCW 187/2013 is China Energy Industry Development Limited, which is incorporated in the BVI.  The ultimate beneficial owner of that company is Dr Chen Huanghao.  The respondent shareholder in that petition is China People and the subject company is China Energy Industry Development Limited.

5.  The petitioner in HCCW 188/2013 is China Energy Utilization Limited, which is also incorporated in the BVI and ultimately owned by Dr Chen.  The respondent shareholder is China People and the subject company is China Energy Utilization Limited. 

6.  The complaints in the petitions in HCCW 187/2013 and HCCW 188/2013 are, for all practical purposes, identical.  The petition in HCCW 186/2013 contains the same complaints, but adds to them.  All the petitions are very short.  The common complaints are as follows:

“9. While the Petitioner and the 1^st Respondent were at a restaurant in Hubei, the 1^st Respondent brought several men to the restaurant, instructed them to physically assault Chen Huanghao and demanded Chen Huanghao to get down on his knees. The Petitioner tried to intervene and stop the men of the 1^st Respondent but in vain. The Petitioner was ordered by the 1^st Respondent to stay away.

10. Chen Huanghao and the Petitioner were falsely imprisoned for more than 6 hours and the 1^st Respondent then handed to the Petitioner various documents as follows:-

(1) A notice of the board meeting of the Company dated 28 April 2013 for a meeting to be held on 15 May 2013.

(2) A director’s acknowledgement of receipt of the said notice of the board meeting.

(3) A minutes of the board meeting dated 15 May 2013.

(4) A resolution of the board meeting dated 15 May 2013 to appoint Pang Guang Sheng as the new director of the Company.

11. The Petitioner was forced to sign on the said documents under the duress of the 1^st Respondent.

12. The Petitioner was not served with the said notice of board meeting dated 28 April 2013 and did not sign the acknowledgement of receipt of the said notice until on or about 15 May 2013.

13. Further, there was no meeting conducted for the Company on 15 May 2013 between the Petitioner and the 1^st Respondent. The Petitioner did not vote and pass the resolution to appoint Pang Guang Sheng as a new director of the Company at all.

14. In the premises, all the said documents referred to hereinabove were signed by the Petitioner under duress.

15. Further, the 1^st Respondent has, up to this date, refused to produce the said documents which the Petitioner signed under duress on 15 May 2013 despite the Petitioner’s repeated requests and demands, contrary to section 120 of the Companies Ordinance Cap. 32.

16. In the premises, the passing of the resolution dated 15 May 2013 to appoint Pang Guang Sheng was unlawful, improper and not by majority vote, contrary to Article 15 of the Company’s Memorandum and Articles of Association, and thus became invalid.

17. Moreover, the 1^st Respondent had registered Pang Guang Sheng’s appointment as a new director with the Company’s Registry on 4 June 2013 and falsely and wrongfully stated the effective date of appointment to be 28 April 2013.”

7.  HCCW 186 adds complaints about the purported allotment of shares at the instigation of Mr Wang on or about 11 June 2013 and on or about 26 June 2013 without proper authorisation by the company in general meeting or by its board of directors.

8.  The basis on which the respondents seek to strike out the entire petition can be put shortly. 

9.  The case in respect of duress is not credible and vexatious.  Mr Dawes made various forensic points in support of this application: the lack of particularity in the petition, which is repeated in the evidence, which does no more than repeat the petition; the absence of the type of circumstantial evidence one would expect, such as reports to the police or records of medical treatment; and the absence of any commercial need for such behaviour, given Mr Wang’s controlling interest in the companies.

10.  There is no dispute about the relevant principles by reference to which the court assesses applications to strike out a petition.  They are summarised in my judgment in Re Sun Light Elastic Ltd[1] in paragraph 4:

“4. The principles by reference to which such applications are assessed is not in issue and are as follows:

(1) It is assumed that the particulars and allegations in the petition and the supporting affidavits of the petitioner would be established and the conflicts resolved in favour of the petitioner;[2]

(2) The application should be approached with the greatest circumspection and it is only in a plain and obvious case that the court should exercise its discretion to strike out the petition for winding-up or the parts complained of;[3]

(3) The burden is on the applicant to show that it is plain and obvious that the petition for winding-up would fail on the ground there is an alternative remedy available to the petitioner and that the petitioner is acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy;[4]and

(4) Where proposed amendments are put forward in an application to strike out, the court should have regard not only to the allegations in the existing petition but also to matters in the proposed amendments.[5]^”

11.  Bingham LJ in Re Copeland & Craddock Ltd states this:[6]

“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. The reason for this practice is clear. Although a court may at a preliminary stage regard a claim as tenuous and having a negligible chance of success, the claimant is nonetheless entitled to the court’s adjudication on it on the merits unless it is a claim which the court is satisfied cannot succeed. In this case the judge clearly regarded the plaintiff’s claim to wind up this company as one which was unlikely to succeed, but he did not feel that the claim was so manifestly unarguable as to justify him in striking it out … I share the judge’s view that this claim is unlikely to succeed. I am indeed persuaded that the case is very close to the borderline where striking out would be appropriate. But I am not quite persuaded that the claim is unarguable whatever comes out relevant to the petition on discovery and in the course of oral evidence.”

12.  I accept that there is force in the point made by Mr Dawes and the claim looks weak and begs many questions; however, I am not satisfied on the basis of the evidence before me, that I can now decide that it cannot succeed.  This is a conclusion, I think, that could only be reached after trial.

13.  I therefore refuse the application to strike out all three petitions in their entirety. 

14.  Mr Dawes advanced an alternative claim that the prayers for relief for winding-up should be struck out.  He very fairly accepted at the outset that such an application was not expressly included in the respondents’ summonses or their evidence filed in support of them.  He felt able to make the application for the following reason.  In my decision in Re Sun Light Elastic Ltd supra I said this:[7]

“9. In my view what is clear from the authorities is that the court will only grant a winding-up order rather than relief under s.168A if there is good reason to do so. In my view if a winding-up order is to be sought, particularly in the alternative it should only be because the petitioner has a particular reason for doing so. It is not enough simply to say “well one never knows what will transpire”. This would be no criteria at all. The petitioner must be able to point to particular matters he is concerned might make a winding-up order the appropriate or only practical relief. It is for this reason that in Re Health & Care Group Ltd[8]I said:

[21] I think it is appropriate to end with the salutary reminder of Madam Justice Yuen in Re Wong To Yick Wood Lock Ointment Limited [2001] 2 HKC 618, 623F. There is a Practice Direction in England, (No 1 of 1990) [1990] 1 WLR 490 reminding practitioners of the undesirability of including as a matter of course a prayer for winding up as an alternative to an order under section 459 of the Companies Act (1985) (equivalent to section 168A of the Companies Ordinance) that:

‘It should be included only if that is the relief that the petitioner prefers or if it is considered that it may be the only relief to which he is entitled.’

[22] It is clear that the prayer for a winding-up order has been included in this case without sufficient thought as to whether or not it is necessary. Practitioners should not automatically include as an alternative relief in a petition presented primarily for relief under section 168A of a prayer for winding up. They should only do so if there is reason to believe that this may be the relief that will be sought at trial, and the facts relied on in forming this view should be set out in the petition and amplified as necessary in the petitioner’s evidence filed in support of that petition.”

15.  In the present case there is no fact or matter identified in any of the petitions which explain why, in the alternative to the relief sought under section 168A, a winding-up order is sought.

16.  Mr Dawes argued that inclusion of this relief looks to have been done without any proper consideration and there is simply no justification for it.  The petitioners, he argued, have had enough notice of this objection to address it by formulating an amendment, if possible, and they have not done so; all the court has received is written submissions which suggest vague reasons for its inclusion which clearly have no substance.

17.  During oral submissions by Mr Wong and Ms Chan, it became apparent that the reason for the inclusion of the prayer, or at least the reason for trying to maintain it, is this: both parties wish to acquire control of the companies. 

18.  It may be easier, it is suggested, to appoint a liquidator who can sell the companies’ assets to the highest bidder.  This is practical, because the companies are holding companies and liquidating them will not cause commercial problems, but it will avoid the commonly encountered difficulties in valuing shares in private companies, problems that are likely to be all the greater in the present case because the underlying businesses are projects which are not yet fully developed or profitable.

19.  There is force in this argument as far as it goes, but it overlooks section 168A(2)(a)(iv) of the Companies Ordinance:

“make such other order as it thinks fit, whether for regulating the conduct of the specified corporation’s affairs in future, or for the purchase of the shares of any members of the specified corporation by other members of the specified corporation or by the specified corporation and, in the case of a purchase by the specified corporation, for the reduction accordingly of the specified corporation’s capital, or otherwise; and …”

20.  It seems to me that if the petitioners are successful and decide that rather than seek an order that the respondents sell their shares, they would prefer to take a commercial risk and bid against them for the companies’ assets an appropriate order can be formulated under this subsection.

21.  In my view, no good reason has been identified for including the prayer for a winding-up order.  Rather than give the petitioners the opportunity to try and formulate amendments to save the prayer, I will strike it out. 

22.  That brings us to costs.  My inclination is, taking into account the fact that the principal application has been unsuccessful, but the subsidiary application has been successful and taking into account the fact that it was not clearly flagged at the outset, an appropriate order would be that the respondents pay 80 per cent of the petitioners’ costs.

(Discussion re costs order)

23.  So far as the applications to file additional evidence are concerned, that I have rejected, it follows that the respective applicants should pay the other party’s costs.  So far as the substantive application is concerned the respondents shall pay 80 per cent of the petitioners’ costs.