FRIENDSHIP INVESTMENTS LTD v. TO CHUN FAN AND OTHERS

bjbj spondent YU CHUI MAN YVONNE 2nd Respondent CHAN CHAK SANG SIMON 3rd Respondent LI KAM MING 4th Respondent NUEVOPAK MANUFACTURING LIMITED 5th Respondent GENERAL APPLIANCE (HOLDINGS) LIMITED 6th Respondent GENERAL APPLIANCE (HONG KONG) LIMITED 7th Respondent ________________ Before: Deputy High Court Judge Alexander Stock SC in Chambers Date of Hearing: 19 June 2019 Date of Decision: 8 July 2019 _____________ DECISION _____________ By summonses dated 9 final resolution of the Petition or further order: the Respondents be restrained from disposing of or dealing with the Properties or their proceeds of sale, without the Petitioner s prior written consent (the Prohibitory Injunction alternatively the Respondents notify the Petitioner in writing of any intention to sell or deal with the Properties at least 14 ion for the Prohibitory Injunction was not formally abandoned, his submissions would focus on asking for the Notification Injunction . At the conclusion of the hearing I reserved my decision, which I now give. The Petition The Petition seeks the winding up of the 6th he husbands of Yu and To respectively. Nuevopak is a company wholly owned by Simon Chan. I will refer to the 1st to 5th Respondents, who effectively control 70% of the voting shares in the Company, as the Majority Group . The shareholders of the Petitioner are Chan Yuk Ying ( Eliza Chan ) and Chan Hon Hung ( William Chan ), with some shares held on trust for Leung Siu Kung ( Leung ). I will refer to these three individuals collectively as the Minority Group . The Company is a corporate vehicle which wholly owns the Subsidiary . The Subsidiary has been engaged in the business of importing and selling domestic electrical appliances. The Subsidiary is the registered owner of the Properties and has conducted its business from the Properties . The current shareholding structure is summarised in the chart annexed to this Decision. The Petition relates to a shareholders dispute between the Minority Group (through the Petitioner) and the Majority Group, the facts underlying which have also given rise to other litigation. The key allegations in the Petition include the following: Before the incorporation of the Company in 2001, the Minority Group were responsible for the management of General Appliance Company Limited (the Old Company ), which was the predecessor of the Company and the Subsidiary. Around May 2001, with a view to rescuing the Old Company from financial difficulties, the Minority Group invited Simon Chan (the 3rd pose of acquiring and continuing the Old Company s business. It was a term of the agreement/understanding that the Minority Group and/or the Petitioner would be entitled to participate in the management and affairs of the Company/Subsidiary and would be vested with powers to handle the day-to-day business. Accordingly, the Company was incorporated as holding vehicle of the Subsidiary. The Minority Group held a 30% interest in the Company through the Petitioner, and the CHL Group held a 70% interest through CHL Enterprises Limited ( ). This gave rise to a quasi-partnership between the two groups of shareholders founded on mutual trust and confidence. In 2008, CHL s shares in the Company were transferred to Hau, To and Yu. The agreement/understanding survived this change in shareholding structure. In 2017, unbeknown to the Petitioner/Minority Group, Hau transferred his shareholding in the Company to Nuevopak (wholly owned by Simon Chan), with the result that To, Yu, Simon Chan and Li held 70% of the ps are said to have caused prejudice to the Company and the Subsidiary since the Majority Group lack the skills/experience required for operating the Company s business as well as relationships with wholesalers, traders and agents, leading to a drop in profits of the Subsidiary and the Company. The Petitioner pleads loss of substratum, loss of confidence due to mismanagement, breakdown of trust and confidence, unfair prejudice, and breaches of its rights/legitimate expectation to participate in the manageme greement/understanding between the two groups of shareholders. The Majority Group claims, amongst other things, that both groups of shareholders were entitled and/or had a legitimate expectation to participate in management and operation of the business. This was subject to caveats that such powers must be exercised in the best interests of the Company, the Subsidiary and the shareholders, and that if the performance of the Company/Subsidiary was oner s management has been deteriorating, and that there have been conflicts of interest and breaches of fiduciary duty by the Minority Group. Eliza Chan was aware of the transfer of Hau s shareholding to Nuevopak, after which the Majority Group took steps to regain control of the Company and Subsidiary in iary, at the time it was under the control of the Minority Group. Also in May 2018, the Subsidiary s solicitors sought the return from the Petitioner and Eliza Chan of the title deeds and documents (the Title Documents ) in respect of the Properties, but these were not provided. On 11 s of the High Court, that the Subsidiary not dispose of the Properties without their consent pending resolution of the Petition. The Petitioner/Minority Group relied (inter alia) on evidence similar or the same to that relied on before me, that potential purchasers had visited the Properties and that officers of the Bank of China (Hong Kong) Limited ( ) had been invited to provide a valuation. The Petitioner/Minority Group feared that the once the Title Documents were returned to the Subsidiary, the Majority Group would sell the Properties at gross undervalue or take the proceeds for their own benefit. ( 29) The learned Judge declined to impose the condition sought by the Petitioner/Minority Group, and ordered them to deliver up the Title Documents to the Subsidiary. The learned Judge s reasoning included that: (i) tion, and the balance of convenience favoured injunctive relief. He placed great emphasis on argument that the Notification Injunction, if granted, would cause little or no prejudice to the Respondents, since it only required notification of any intention to sell. The correct approach was to adopt the nsofar as the balance of convenience was engaged, the pertinent question was whether the remedies sought in the Petition might be frustrated by the acts sought to be injuncted. That was not the case, since any wrongdoing which might occur could be remedied in the Petition by an adjusted price on any buy-out order. In addition, the Petitioner could not hope to show a real risk of dissipation of assets for the purposes of freezing-type relief. Mr ace of complaints of misappropriation. At 22, the learned Judge noted that in cases of that type the relevant factors include whether the relief sought would occasion irremediable prejudice, how expensive it would be to implement the injunctive relief, whether it would pre-judge the outcome of the trial, and whether the status quo should be continued. 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< :%EM WV6: zXRR VB{`u CSj{ :%EM CSj{ d(L} Voo$ lJnsw Windows User Normal.dotm Windows User Microsoft Office Word High Court Title Source Erica <?xml version="1.0" encoding="UTF-8" standalone="no"?><b:Sources SelectedStyle="\APA.XSL" StyleName="APA" xmlns:b="http://schemas.openxmlformats.org/officeDocument/2006/bibliography" xmlns="http://schemas.openxmlformats.org/officeDocument/2006/bibliography"></b:Sources> <?xml version="1.0" encoding="UTF-8" standalone="no"?> <ds:datastoreItem ds:itemID="{C7E13A0E-07A5-401B-A8C1-A24BE6DF9AE6}" xmlns:ds="http://schemas.openxmlformats.org/officeDocument/2006/customXml"><ds:schemaRefs><ds:schemaRef ds:uri="http://schemas.openxmlformats.org/officeDocument/2006/bibliography"/></ds:schemaRefs></ds:datastoreItem> Microsoft Word 97-2003 Document MSWordDoc Word.Document.8