Case No. CL-2019-000290

; Kung v Kou [2004] HKCFA 73, the Hong Kong Court of Final Appeal (the “CFA”) considered the distinction between derivative actions intended to compensate the company for wrongful acts by individual directors or shareholders and the equivalent of a s.994 petition, the purpose of which was to remedy the unfairly prejudicial conduct of the affairs of the company. The CFA held that the purpose of a s.994 petition was not to order the payment of damages or compensation by a shareholder. Lord Scott (with whom the other members of the CFA agreed) held (at [47]–[48] and [61]–[62]) that, although the court did not lack jurisdiction, in the strict sense, to make the orders sought against a director for breach of duty, a derivative action was the proper way in which to remedy such a breach. The essence of the decision was that, where the central claim was an action by the company to be compensated for a director’s breach, a minority shareholder should not use s.994 as a way of circumventing the rule in Foss v Harbottle (1843) 2 Hare 461. It seems to me that the decision was simply an application of the principle I have described in a particular situation. The facts were very far removed indeed from this case. 120. In Gamlestaden Fastigheter AB v Baltic Partners Ltd [2007] UKPC 26; [2007] BCC 272, the Privy Council, on appeal from Jersey, considered Chime (above). Lord Scott gave no indication that he thought that the law was different in Hong Kong. He said this at [26]–[28]: “26. As their Lordships have noted, the relief sought under Gamlestaden’s representation includes an order that the directors pay damages to Baltic for breach of duty. … 27.The first question to be addressed, therefore, is whether an order for payment of damages to the company whose affairs have allegedly been conducted in an unfairly prejudicial manner can be sought and made in an unfair prejudice application. Another way of putting the question is whether a cause of action allegedly vested in the company can be prosecuted to judgment in an unfair prejudice application. It would, of course, always be essential for the parties allegedly liable on the cause of action to be respondents to the proceedings. But that is not a problem in the present case. 28.There is nothing in the wide language of art.143(1) to suggest a limitation that would exclude the seeking or making of such an order: the court ‘may make such order as it thinks fit for giving relief in respect of the matters complained of.’ The point was raised and considered by the Hong Kong Court of Final Appeal (the CFA) in Re Chime Corp Ltd (2004) 7 HKCFAR 546. An unfair prejudice application had been made in respect of Chime and one of the issues was whether the court had power on such an application to make an order for the payment of damages or compensation to the company. The CFA held that the court did have power to make such an order (see the judgment given by Lord Scott of Foscote at [39]–[49], concurred in by the other members of the court, and the cases there cited). No reason has been advanced to their Lordships on this appeal why the decision in Chime should not be followed. Accordingly, no objection to Gamlestaden’s prayer in its art.141 application for an order that the directors pay damages to Baltic for breach of duty can be taken at this strike-out stage.” 80.I accept that breaches of fiduciary duties owed by directors or others to the company often provide the basis of a petition for relief for unfair prejudice. A petitioner who lacks control of the company may in an appropriate case seek an order requiring those liable for the wrongdoing to compensate the company as part of the unfair prejudice petition. And a petitioner who is seeking an order intended to address the consequences of the unfairly prejudicial management of the company (such as an order requiring the respondent to buy out its shares, or permitting it to buy out the respondent’s shares) may secure relief which reflects the consequences of the wrongful conduct of the company’s directors as part of that relief. 81.Here, EIGL has no need for a judicial mechanism (be it a derivative action or relief in the context of an unfair prejudice petition) to find some means of asserting Heritage’s claims on Heritage’s behalf, and it will enjoy the benefit of 100% of any recovery made. Equally, as 100% owner of Heritage, EIGL does not need and does not seek any relief to remedy the prejudicial management of EIGL. Any unfairly prejudicial management of Heritage ceased long ago. 82.The issue of the distinction between prejudicial management of the company’s affairs and wrongful conduct was considered by Millett J in