China Shanshui Cement Group Ltd

• Jurisdiction: Cayman Islands
• Judge: Segal, J.
• Judgment Date: 27 January 2021
• Court: Grand Court (Cayman Islands)

In the Matter of China Shanshui Cement Group Limited

(Segal, J.)

GRAND CT.

Companies — compulsory winding up — parties — where alleged misconduct of certain other shareholders central to petition for winding up on just and equitable ground, those other shareholders joined as respondents to petition

Held, judgment as follows:

(1) Tianrui's application for permission to amend the petition would be granted and an order would be made for the joinder of CNBM and ACC as respondents to the re-amended petition. The re-amended petition (with the re-amended summons for directions) would then need to be served on CNBM and ACC and the company (and notice would need to be given to the other shareholders), and the re-amended summons would need to be listed for a further hearing (para. 33).

(2) CWR O.3, r.11 made it clear that it was open to a petitioner (at least initially) to identify and select the respondents to a petition. The company must be at least a formal or nominal party and respondent to the proceedings. Ordinarily, where a petitioner wished and considered it appropriate to join other shareholders, it would do so when the petition was presented so that those shareholders would be served, even if they were outside the jurisdiction. They would therefore be able to appear at the hearing of the summons for directions and explain their position to the court. They would also be able to make submissions as to the proper characterization of the proceeding and the orders to be made pursuant to CWR O.3, r.12(1)(a) and (b). If, on presentation of a petition, a petitioner failed to join other shareholders, that would presumably usually be the result of a decision that no shareholder needed to be joined and that the case should be conducted as a proceeding against the company. In the present case, Tianrui did not name CNBM and ACC as respondents when the petition was presented and issued but it now sought leave to add them as respondents. There was a power to amend the petition, as acknowledged by CWR O.3, r.2(3), and the power to amend should be taken to include an amendment to the parties by joining additional respondents. The court had jurisdiction to order the joinder of shareholders when hearing a summons for directions, even in a case where the petition was being defended by the company. In such a case the court would need to consider whether joinder was justified even though the petition was to be defended by the company. Joinder (as additional respondents) would, for example, be justified where alternative relief including an order that shareholders purchase the petitioner's shares was sought so as to ensure such shareholders were bound by the court's order. It might also be justified where the petitioner claimed that shareholders were implicated in the misconduct alleged in the petition. Tianrui had not yet pleaded a claim for alternative orders. Before it could rely on claims for alternative relief as a ground for joinder, it must identify the alternative orders it sought and at least apply for permission to amend the petition so as to plead and include them. The fact that a company was a public company and that there were some or indeed a large number of other shareholders who would not be joined did not prevent the joinder of a shareholder who had been active and whose conduct was impugned and challenged. Different approaches might be adopted according to the nature of the company and the number and type of shareholders. In the case of a small private company (including a quasi-partnership) every member would usually be joined but in the case of a large public company whose affairs were under the de facto control of a small group of shareholders and other shareholders were mere investors who had taken no part in the management of the company, it might be unnecessary to make all the members respondents, or to serve the petition on all of them. The alleged misconduct of CNBM and ACC was central to the re-amended petition and, in the circumstances, Tianrui was entitled to join them and it was appropriate that they be made parties to the proceeding. The delay in making the joinder application was not grounds for dismissing the application (para. 33).

(3) The court would not, at this stage, decide or reach a concluded view on the proper characterization of the petition proceeding. Although an order for joinder could properly be made on the hearing of the re-amended summons for directions, it would not be right before CNBM and ACC had been served and given an opportunity to make submissions to give further directions and in particular to reach a concluded view on whether the company was properly able to participate in the proceeding, or whether the proceeding should be treated as a proceeding against the company or as an inter partes proceeding between shareholders. However, the court set out its views on the purpose, interpretation and operation of CWR O.3, r.12(1)(a) and (b), which might narrow the areas for further argument once CNBM and ACC were joined (paras. 34–47).

Cases cited:

(1) A. & B.C. Chewing Gum Ltd., In re, [1975] 1 W.L.R. 579; [1975] 1 All E.R. 1017, referred to.

(2) Baird v. Lees, [1924] SC 83, referred to.

(3) Camulos Partners Offshore Ltd. v. Kathrein & Co., 2010 (1) CILR 303, considered.

(4) Company (No. 007281 of 1986), Re a, [1987] BCLC 593, considered.

(5) Company (No. 004502 of 1988), Re a, ex p. Johnson, [1991] BCC 234; [1992] BCLC 701, considered.

(6) Company (No. 001126 of 1992), Re a, [1993] BCC 325, considered.

(7) Douihech v. Findlay, [1990] 1 W.L.R. 269; [1990] 3 All E.R. 118, referred to.

(8) Ebrahimi v. Westbourne Galleries Ltd., [1973] A.C. 360; [1972] 2 W.L.R. 1289; [1972] 2 All E.R. 492, referred to.

(9) Freerider Ltd., In re, 2009 CILR 604, considered.

(10) Gould v. National Provincial Bank, [1960] 1 Ch. 337, referred to.

(11) Loch v. John Blackwood, [1924] A.C. 783; (1924), 93 L.J.P.C. 257; [1924] B. & C.R. 209; [1924] All E.R. Rep. 200, referred to.

(12) Wyser-Pratte Fund Ltd., In re, 2010 (2) CILR 233, referred to.

A shareholder sought the winding up of a company.

China Shanshui Cement Group Ltd. (“the company”) was a Cayman Islands company. Its significant shareholders included Tianrui (International) Holding Co. Ltd. (“Tianrui”); Asia Cement Corp. (“ACC”); and China National Building Materials Co. Ltd. (“CNBM”). A dispute arose from a battle for control of the company between Tianrui on the one hand and CNBM and ACC on the other. Tianrui alleged that CNBM and ACC had agreed to act together against it to prevent it from obtaining control of the company and to dilute its shareholding. CNBM and ACC alleged in turn that Tianrui, in seeking to obtain control of the company, had acted improperly and unlawfully.

In 2018, Tianrui petitioned in the Cayman Islands for the winding up of the company. In accordance with the Companies Winding Up Rules, Tianrui filed a summons for directions at the same time as it presented the winding up petition. Tianrui now sought leave to amend the petition to add CNBM and ACC as respondents and directions pursuant to CWR O.3, r.12(1)(a) and (b) to the effect that the company was properly able to participate in the winding up proceeding and that the petition should be treated as an inter partes proceeding between Tianrui, the company and CNBM and ACC.

CWR O.3, r.12(1)(a) and (b) provided:

“(1) Upon hearing the summons for directions, the Court shall give such directions as it thinks appropriate in respect of the followings matters—

(a) whether or not the company is properly able to participate in the proceeding or should be treated merely as the subject-matter of the proceeding;

(b) whether the proceeding should be treated as a proceeding against the company or as an inter partes proceeding between one or more members of the company as petitioners and the other member or members of the company as respondents …”

Tianrui submitted in relation to the joinder issue that (a) shareholders could be joined as respondents to a petition where their involvement in the dispute made that appropriate; (b) it was accepted practice to join those shareholders alleged to be implicated in the matters of which a petitioner complained; (c) members of a company whose interests might be affected by the relief sought should be joined as respondents whether or not allegations were made against them; (d) the joinder of CNBM and ACC was clearly desirable so that the real issues could be fully litigated; (e) the court had jurisdiction to join shareholders as additional respondents even after service of a petition against a company; and (f) although CWR O.3, r.12 did not refer to joinder, it should be understood and interpreted as permitting joinder. In relation to the proper characterization issue, Tianrui submitted that (a) it was permissible and in this case appropriate for the court to order both that the petition be treated as an inter partes proceeding to which shareholders were parties (with the company) and that the company be permitted to participate in and defend the proceeding; (b) it was well established that in just and equitable winding up proceedings a company was frequently the object of a dispute between shareholders and should adopt a neutral position; (c) in the present case the real dispute was between Tianrui, CNBM and ACC in respect of the alleged improper takeover agreement; (d) CWR O.3, r.12(1)(a) and (b) should not be understood as meaning that the company could not participate in such a case (i.e. involving a dispute between shareholders); even as a nominal party there might be occasions on which the company must participate, such as a requirement to give discovery; and (e) Tianrui did not intend to join CNBM and ACC to replace the company but to ensure that the company was not required unfairly to incur costs which would more properly be incurred by CNBM and ACC, and that the parties who would be affected by the relief sought in the petition...