RCB v Thai Asia Fund Ltd

• Jurisdiction: Cayman Islands
• Judge: (Smellie, J.)
• Judgment Date: 01 January 1996
• Court: Grand Court (Cayman Islands)
• Date: 01 January 1996

Grand Court

(Smellie, J.)

RCB and SIX OTHERS

and

THAI ASIA FUND LIMITED

A. Turner for the petitioners;

T. Mowschenson, Q.C. for the respondent.

Cases cited:

(1) -Anglo-Greek Steam Co., In reELR(1886), L.R. 2 Eq. 1; 35 Beav. 399; 55 E.R. 950, followed.

(2) -Ashmore v. British Coal Corp., [1990] 2 Q.B. 338; [1990] 2 All E.R. 981, followed.

(3) -Bolton (H.L.) Engr. Co. Ltd., In re, [1956] 1 Ch. 577; [1956] 1 All E.R. 799.

(4) -Company, In re a (No. 004475 of 1982), [1983] Ch. 178; [1983] 2 All E.R. 36.

(5) -Ebrahimi v. Westbourne Galleries Ltd., [1973] A.C. 360; [1972] 2 All E.R. 492, applied.

(6) -Foss v. HarbottleENR(1843), 2 Hare 461; 67 E.R. 189, followed.

(7) -Harrison (Saul D.) & Sons PLC, In re, [1994] BCC 475, applied.

(8) -Haven Gold Mining Co., In reELR(1882), 20 Ch. D. 151; [1881–5] All E.R. Rep. 585.

(9) -Loch v. John Blackwood Ltd., [1924] A.C. 783; [1924] All E.R. Rep. 200.

(10) -McKay v. Essex Area Health Auth., [1982] Q.B. 1166; [1982] 2 All E.R. 771, followed.

(11) -Metropolitan Bank Ltd. v. PooleyELR(1885), 10 App. Cas. 210; 54 L.J.Q.B. 449.

(12) -Reichel v. MagrathELR(1889), 14 App. Cas. 665; 59 L.J.Q.B. 159.

(13) -Ringtower Holdings PLC, In reUNK(1988), 5 BCC 82.

(14) -Tay Bok Choon v. Tahansan Sdn. Bhd., [1987] 1 W.L.R. 413; [1987] BCLC 472.

(15) -Wenlock v. Maloney, [1965] 2 All E.R. 871; [1965] 1 W.L.R. 1238, followed.

(16) -Wondoflex Textiles Pty. Ltd., In re, [1951] V.L.R. 458.

Legislation construed:

Companies Law (1995 Revision) (Laws of the Cayman Islands, 1963, cap. 22, revised 1995), s.93:

‘A company may be wound up by the Court if-

. . .

(d) -the Court is of opinion that it is just and equitable that the company should be would up.’

Grand Court Rules 1995, O.1, r.2(5): The relevant terms of this rule are set out at page 28, lines 6–7.

O.18, r.19: ‘(1) The Court may at any stage of the proceedings order to be struck out or amended any pleading . . . on the ground that-

(a) -it discloses no reasonable cause of action or defence, as the case may be; or

(b) -it is scandalous, frivolous or vexatious; or

(c) -it may prejudice, embarrass or delay the fair trial of the action; or

(d) -it is otherwise an abuse of the process of the court. . . .

(2) No evidence shall be admissible on an application under subparagraph (a).

(3) This rule shall, so far as applicable, apply to an originating summons and a petition as if the summons or petition, as the case may be, were a pleading.’

O.102, r.4: ‘The following applications under the [Companies] law must be made by petition, namely-

. . .

(d) -under Section 93 of the Law, for an order that a company be wound up.’

Companies-compulsory winding up-petition-striking out-may strike out either under Grand Court Rules, 1995, O.18, r.19 or under inherent jurisdiction to prevent abuse of process-apparent contradictions in Rules make precise application uncertain

Companies-compulsory winding up-petition-striking out-evidence-if serious allegations of bad faith and oppression against company directors, court may examine undisputed evidence and strike out if petition obviously unsustainable

Companies-compulsory winding up-grounds for winding up-‘just and equitable’-no winding up for directors” perceived bad faith and oppression if ratified in general meeting as in best interests of company

Companies-compulsory winding up-grounds for winding up-‘just and equitable’-shareholders” legitimate expectations-no winding up if directors” acts valid under articles unless entirely outside legitimate expectations-no such expectations if directors” powers clearly discretionary and acts ratified by general meeting

Companies-compulsory winding up-grounds for winding up-‘just and equitable’-loss of confidence-no winding up for mere subjective disagreement with directors” domestic policy-loss of confidence to be directed at conduct of company”s business

Companies-compulsory winding up-petition-striking out-petition vexatious and abuse of process if petitioners following clear policy of harassing profitable companies for personal gain

The respondent company applied to strike out a petition for its winding up.

The respondent was a closed-end mutual fund company in which the petitioners were shareholders. Although it was incorporated in the Cayman Islands, it was by virtue of its investments treated as a Thai national company and was obliged to retain its investments in Thailand until at least 1999. An attempt to change that status by an application to the Thai Government was unsuccessful.

The respondent”s shares had traded on the open market at significant and widening discounts and, to be able to narrow the margin, the

company amended its articles to give the board of directors the power to repurchase the company”s shares. The repurchasing programme was, however, unsuccessful and was suspended. At the time of the suspension, the company”s largest shareholder, Heung, held 24.5% of the issued share capital and eight months later his holding had risen to 34.99%. Had the repurchasing programme been resumed, his proportional shareholding would presumably have risen to the extent that he would have been obliged, under the Rules of the Hong Kong Stock Exchange where the shares were traded, to bid for the company. The directors chose not to resume the programme and this decision was endorsed by two general meetings of the company over the objections of the petitioners.

In addition, Heung”s son-in-law was employed by the respondent”s investment managers and, following his transfer to another company, the respondent instead employed that company as its investment manager.

The petitioners, whose own investment manager followed an established policy of harassing fund companies with a view to asset-stripping, then sought to wind up the respondent company on the ‘just and equitable’ ground in the Companies Law (1995 Revision), s.93(d). They claimed that (a) the directors had acted in bad faith both by seeking to prefer the interests of their largest shareholder, Heung, over those of the minority shareholders such as the petitioners, and in changing the company”s investment managers in the way they had, causing a loss of confidence in the management of the company; and (b) by suspending the repurchasing programme, the directors had acted in a manner oppressive to the minority shareholders who had a legitimate expectation that the programme would continue and that the directors would act in the best interests of the company as a whole. The respondent sought to strike out the petition as disclosing no cause of action, as being vexatious and an abuse of process.

The respondent submitted that (a) the petition should be struck out since on any reasonable examination of the undisputed facts it could not succeed; (b) the petitioners could not establish that it had acted in bad faith by suspending the repurchasing programme to prefer Heung”s interests because (i) they had not showed that it was in Heung”s interest for it to do so; (ii) the decision to suspend the programme was made long before Heung acquired his substantial shareholding; (iii) the options open to Heung meant that in any case he would not necessarily have been obliged to bid for the company; (iv) the decision had been ratified at general meetings of the company; and (v) they could not establish that the company”s decision to change its investment manager was made in bad faith since no actual prejudice could be shown; (c) the petitioners could establish neither a legitimate expectation that the repurchasing programme would be resumed (since the power to do so was discretionary and to be exercised in the best interests of the company), nor could they establish a loss of confidence in the directors justifying the winding up of the company; and (d) the petition was vexatious and an abuse of process since the petitioners” investment manager, which had

instituted the proceedings, had an established policy of harassing fund companies for profit.

The petitioners, in reply, submitted that (a) it was sufficient that the petition raised charges of bad faith and oppression in order that it should be allowed to proceed to trial; (b) the respondent had acted in bad faith by suspending the repurchasing programme to prefer Heung”s interests and by changing its investment manager following Heung”s son-in-law”s transfer from its previous investment manager to its present one; and (c) they had a legitimate expectation that the programme would be resumed and therefore they had suffered a loss of confidence which justified the winding up of the company.

The court also considered whether its jurisdiction to strike out the petition derived from its inherent jurisdiction or from the Grand Court Rules, O.18, r.19.

Held, striking out the petition:

(1) The court was entitled to strike out the petition either under the Grand Court Rules, O.18, r.19 or under its inherent jurisdiction to prevent abuse of process. Its powers under the inherent jurisdiction were not diminished but expanded by the Grand Court Rules, although because of apparent contradictions in the Rules themselves, it was not clear that they applied to proceedings under Part V of the Companies Law (1995 Revision) (page 28, lines 17–34).

(2) It was clear that the petition did not have to go to trial merely because it made serious allegations of bad faith and oppression against the directors. As the consequences of going to trial would be serious to the company, the court should be prepared to scrutinize the available undisputed evidence supporting the allegations and to strike out the petition if it was obviously unsustainable (page 18, lines 30–42; page 19, lines 4–17).

(3) The petitioners had failed, on the basis of the undisputed facts, to establish that the directors had acted in bad faith by suspending the repurchasing programme in order to prefer Heung”s interests since (a) they could not...