Alternative Reliefs and Procedural Matters related to Unfair Prejudice Remedy after Hong Kong Limited Company Formation

For the situation after company incorporation HK where court sees that there is better alternative available other than to commence the proceedings of unfair prejudice remedy, then it is possible that court may strike out the petition pertaining to sough remedy as per Section 724 of Cap. 622. However, merely on the grounds that there is an alternative available and that there is no need to grant relief as per the essence of Section 724, does not in fact bar petitioner to get the relief he/she sought against unfair and prejudice conduct. This might be due to the reason that totality and essence of the conduct to be unfair and prejudice depends solely on the circumstances and thus possibility exist that particular circumstances of the case renders remedies such as court’s order to buy out the petitioner, more appropriate.

Purchase of Shares by the Respondent 

For the situation after company incorporation HK where articles of the company or the agreement, under which shareholder became member of the company or on contrary where the respondent make offer to the petitioner to buy out his/her possessed shares, then on the grounds of these arrangement court may or shall strike out the petition of sought unfair and prejudice remedy, of the petitioner, because such alternative gives him or her the same relief what petitioner sought from the court as statutory remedy, as court considers this the abuse of process because where the petitioner has the way to obtain his/her sought remedy but merely to abuse the process, petitioner sought help of court in this matter. But court shall not be allowed to strike out the petition if the available remedy is inadequate to compensate loss of the petitioner or if petitioner is entitled to get relief under Section 725 of Cap. 622 apart from being in the position to avail buy out offer of the respondent.

In the situation where the petitioner holds the legal standing and thus legally bound to follow the buy out mechanism then the court will not even hear such petition pertaining to unfair prejudice remedy and will subsequently leave the matter to be resolved by the strict legal rights of the relevant parties, provided that the equitable consideration does not makes it irrelevant to leave the parties upon their legal bargain. Consider the situation where buy out mechanism is not much appropriate neither relevant or in other words, respondent has made an simple offer to the petitioner related to buy out mechanism, then court shall only strike out the petition of unfair and prejudice remedy where fairness is obvious, and court is satisfied and affirmed that petitioner had unreasonably rejected the offer of respondent. Otherwise offer made by the respondent was much fair and reasonable and clearly addresses the issue of the petitioner.

Relation with the Derivative Action

It has been accepted by the Court of Final Appeal that unfair prejudice remedy for a start up company Hong Kong, does not deems to contravene the rules set out in the case of Foss, especially regarding the rules related to provision of compensation to the victims of the wrong done to the start up company Hong Kong. To determine that whether the complaining conduct falls within the jurisdiction of unfair and prejudice remedy and whether the petitioner holds credentials to brought up the matter related to unfair and prejudice conduct, depends solely on the nature of the complaint, credentials of the member who sought relief and the nature of the sought relief. For the situations where the whole story revolves around wrong done to the company and any unlawfulness occurred to the company and that beneficiary of the sought relief is company itself then it would be more relevant and thus would be appropriate to seek the derivative action rather than the unfair prejudice remedy. Although court has the discretion to award damages to the company but this discretion of the court is applicable in rare cases and in extremely exceptional cases, thus shall be allowed to be exercised only if:

  • For the orders of payments which corresponds with those orders of payments to which company would have been entitled if case had been properly prosecuted either by the company or on the behalf of the company.
  • In the situations where matter regarding determination of the total amount, to which wrongdoer is held liable to the company, is deferred to be discussed and resolved at the later hearings of the petition.

If the primary focus of the petition is in raising allegations pertaining to wrong done to the company and to prove that there was mismanagement occurred in the company which subsequently caused company, a loss, thus pertaining to this loss petitioner is seeking relief. Legal commentators say that for such conditions, petitioner shall be entitled to get relief as per the unfair prejudice remedy for the wrong done to the company.

There is very unique provision of its kind which say that after establish company in Hong Kong if the complaining conduct is petitioned to be fall within the jurisdiction of both unfair prejudice remedy and the derivative action and the facts remains same for both these doctrines then possibility exist that court may order to raise actions related to both derivative actions and unfair prejudice remedy and thus there shall be no irregularity nor any sort of abuse of legal obligations instead it would be treated as being legitimate and legal.

Remedy pertaining to Winding Up

Legal commentators communicate that there exists an overlap between the provisions of Section 724-725 of Cap. 622 and the provisions related to winding up of company on just and equitable grounds. This overlap may be on the grounds of fact which says that determination of act to be unfair and prejudice and winding up of company on just and equitable grounds, proceeds parallel. Factually this does not mean that facts would be same for both these doctrines instead there can be the possibility where one situation favours conduct to be unfair and prejudice but depreciate winding up to be just and on equitable grounds and vice versa. So, there should not be any uncertainty in understanding that it is not obvious that the scenario which is feasible for one remedy shall support other remedy but in fact possibility exist that special situation may occur where it would be fairer to wind up company on just and equitable grounds rather than awarding unfair prejudice remedy. It must be noted that where the situation held petitioner to be eligible for receiving both remedies then just on the basis of the fact that respondent showed consent to avail any one remedy, shall not bar court from ordering remedy under Section 725 of Cap. 622.

Procedural Matters related to Award of Remedy

Now we are done with discussion on pros and cons, whereabouts of unfair prejudice remedy and in this article we discussed about any alternative (if any) so that abuse of power shall be stopped to ease up the post establish company in Hong Kong period. This was necessary as there is no big crime than the abuse of law and in the longer run this can result in negation of rule of law. Now you have been tired of legalities and heard a lot about unfair prejudice remedy now let’s set the horizon of our discussion towards an informative topic. As for every work, scheme of actions there is certain procedures to obtain to showcase the professionalism and refinement. Now we shall discuss the procedural matters related to the unfair and prejudice remedy because this is the last available remedy and thus it would be permanent harm to the victim if petition will be rejected merely on the basis of some procedural irregularity. So, let’s kick out the discussion related to procedural matters.

Generally, applications related to Section 724 of Cap. 622 are put forward before the court in the form of a petition the subject of which contains formal defect of any kind or any wrong done to the company. Proceedings of unfair prejudice remedy are proceeded in well legal manner and merely on the grounds of court’s discretion, application would not be struck out.

There are the separate proceedings rules for the unfair prejudice remedy and these procedural rules are legally referred as Cap. 622L. The script of Cap. 622L contains general rules applicable on all petitions related to sought remedies under Section 724-725 of Cap. 622. In addition to this, rules which High Court of Hong Kong made, to be adopted in the case of a civil procedures can also be adopted, provided that they do not contradicts with the provisions of Cap. 622L. consider the situation where petition seeks relief under both unfair prejudice remedy and the winding up of company on just and equitable grounds then for this special case rules related to Cap. 32H (Companies Winding up rules) shall be held applicable while for the application of Cap. 622L procedures and rules of Cap. 622L shall be held applicable as long as they do not contravenes the rules and procedures of Cap. 32H.

For the petitions which are filed before the inception and enforcement of Cap. 622, the rules of Section 168A of predecessor companies ordinance and that of Cap. 32H shall be held applicable because the time petition was filed there was no ground reality in support of provisions of Cap. 622 and these were the provisions, in action so the proceedings shall be continued in light of these provisions.

For the reference purpose, Practice Direction 3.4 can be referred for the purpose of case management while Practice Direction 3.3 can be referred for the provisions related to voluntary mediation.

Who shall be the proper respondent?

Being a petitioner is an easy task because you just need to be victim and that’s all, while addressing true respondent is very vital for the prospect of the case. So, now we shall discuss that who shall hold the proper eligibility to be the respondent in the case? Normally as per the classic definition any member of the company or any related person can join the proceedings of unfair prejudice remedy as the respondent to the petition but as we have just analysed that there can be a harm to the prospect of the petition if proper respondent is not there in the case and thus classic definition just takes one step ahead and considers this as the “abuse of process” if right respondent is not present in the case. There is no restriction in making company as the nominal respondent in the case merely for the purpose of discovery and also on the grounds that company may have been affected by the relief sought by the petitioner. However, precautionary perspective restrains the company to be respondent in the case and suggests that neither the participation of the company not expenditure of its funds in the proceedings shall be visible in the proceedings of the petition related to unfair and prejudice remedy.

Who shall bear the cost?

Financing is the one serious issue as without financing you can not expect to even buy a pen then how can you imagine getting the sough relief without proper financing. As per the opinion of the legal experts, it is upon the discretion of the court that who court held liable for the financing of the proceedings and there is no definite rule in this regard thus this discretionary decision is subjected to the flow of events in the case. It is normally said that proceedings of unfair and prejudice conducts are basically the dispute between the members and not with the company thus although it is upon the discretion of the court but still legitimately speaking, court should not order company to bear the expenses of the proceedings pertaining to unfair prejudice remedy.