Ming Siu Hung and others v J F Ming Inc and another (British Virgin Islands)

By this appeal to the Board the appellants, three siblings in the Ming family, seek to reinstate the order made by Leon J in the British Virgin Islands on 16 August 2016 that their brother Ming Shui Sum, Lawrence, the Second Respondent (“Lawrence”) purchase their shares in the First Respondent company JF Ming Inc (“the Company”) at a price to be determined by the court. That order was made at the conclusion of unfair prejudice proceedings, following a finding (which is no longer in dispute) that Lawrence had conducted the affairs of the Company in a manner which was oppressive, discriminatory and unfairly prejudicial to the appellants as shareholders within the meaning of section 184I of the BVI Business Companies Act 2004. This was mainly by his failure to ensure that they were provided with financial information about the Company pursuant to their right to be given such information enshrined in article 120 of the Company’s Articles of Association, but also because he had abused his voting powers as majority shareholder by seeking to have their right to financial information permanently removed.

By its order made on 28 June 2017 the Court of Appeal (Blenman, Webster and Gonsalves JJA) set aside the Judge’s order for a buy-out, but upheld both his findings of unfairly prejudicial conduct, his order that the rights to information in article 120 be fully reinstated and that the financial information be provided. The Court of Appeal considered that it was appropriate to exercise the remedial discretion afresh because of what it regarded as errors of principle in the judge’s reasoning. The relatively short question which is decisive of this appeal to the Board is whether the judge made the errors identified by the Court of Appeal. If he did not, then the Court of Appeal should not have taken it upon itself to re-exercise the discretion as to remedy, and the judge’s order for a buy-out should stand. But it is first necessary to summarise the facts.

The late Ming John Fook was a successful Hong Kong businessman who had seven children, including the appellants and Lawrence. In 1991, as part of estate planning late in his life, he established the Company as the vehicle for the family ownership of his by then substantial property development business in Hong Kong. He gave each of his children 1,000 shares in the Company. Unknown to the other siblings he also gave a further 10,000 shares in the Company to Lawrence who, alone among the children, had helped him build up the business. When Lawrence revealed the existence of these shares to his siblings in response to their attempt to take over control of the Company after their father’s death in December 1992 there ensued protracted litigation in Hong Kong about the validity of that gift. After losing in the lower courts, Lawrence was ultimately successful before the Hong Kong Court of Final Appeal, in May 2006. From then on, Lawrence has been the undisputed majority shareholder in the Company, and in sole control of its affairs as its only director.

Article 120 of the Company’s Articles of Association required the directors of the Company to furnish each of the company’s shareholders annually with a profit and loss account and a balance sheet for the Company, unless that entitlement was waived by a members’ resolution. Lawrence provided none of that financial information to his minority shareholder siblings from his resumption of control of the Company, for any year from 2006, until the judge’s order that he should do so was affirmed by the Court of Appeal in 2017.

The appellants did not protest about not being provided with that information until late in 2013, when the second appellant sought it, unsuccessfully, in connection with a possible sale of her shares to Lawrence. In 2014 all the appellants sought it, under threat of proceedings if not provided. The other siblings had by then sold their shares to Lawrence.

Lawrence’s response was not to provide that information, but to use his majority shareholding to pass resolutions waiving the shareholders’ entitlement under article 120, both for the past and for the future. Thereafter the appellants petitioned under section 184I, initially seeking only an order for the provision of the requisite information and the setting aside of the waiver resolutions. Lawrence’s defence, supported by his own witness statement and the submissions of his counsel, included the assertion that, since the appellants had merely been given their shares and had never worked for the Company or in the underlying businesses, they had no reason to expect any monetary return on their shares, so that they suffered no unfair prejudice by being denied the financial information prescribed by article 120. Further he maintained that the appellants had waived their rights to financial information by not asking for it between 2006 and 2013. Lawrence also alleged misconduct by the appellants when briefly in control of the Company before 2006. In response, by a late amendment to their pleadings, the appellants alleged financial misconduct by Lawrence prior to 2006 and sought for the first time a buy-out of their shares, by Lawrence.

A split trial was directed, with liability and the form of remedy to be dealt with first, with any question of valuation of shares to follow, if necessary. The liability trial took place over seven days between October 2015 and May 2016, following which Leon J delivered a lengthy reserved judgment in August 2016. Lawrence had provided evidence in the form of a witness statement, but illness prevented him from attending for cross-examination. The judge accepted his evidence “for what it was” and did not treat it as being of less weight than it would have carried after cross examination.

The judge found that both the persistent refusal to provide the financial information in and after 2013 and the passing of the waiver resolutions designed to deprive the appellants of the right to receive it amounted to unfairly prejudicial conduct. He described the deliberate failure to provide the financial information as “oppressive, unfairly discriminatory and unfairly prejudicial” (para 145), as contrary to commercial morality (para 158) and as having been done for the improper purpose of benefiting himself by depriving the appellants of information to which they were entitled (para 171). He described the waiver resolutions as having been motivated by Lawrence’s “desire to take advantage of the claimants’ lack of information” about the affairs of the Company (para 156) and done “in a manner designed to inflame the situation between himself and the claimants” (para 162). Following the rejection by the Court of Appeal of Lawrence’s challenge to the ruling of unfairly prejudicial conduct these serious findings against him, reached by the judge after a full trial, stand unchallenged before the Board.

The judge approached his consideration of the appropriate remedy from a clearly expressed perspective that, on the facts found by him, he had a broad choice between one which would merely compel Lawrence to provide the prescribed financial information and one which, in addition, would deal fully with what he found would be a likely continuation of unfairly prejudicial conduct by Lawrence in the future. He concluded that the best that could be achieved, in the legitimate interests of all the parties (see eg para 215), was by ordering a buy-out of the appellants’ shares. Although no substitute for reading the judgment in full, the following extract best summarises the core of his reasoning:

The Court of Appeal’s own view of the merits of that choice was the opposite to that of the judge. As expressed in the leading judgment of Blenman JA a more limited order, requiring the furnishing of the prescribed financial information, both for the past and for the future, was a more proportionate response to the unfair prejudice pleaded and proved at trial. But the Court of Appeal did not say that the judge’s solution fell outside the reasonable range within which the judge’s statutory discretion had to be exercised, nor that the judge’s self-direction as to the relevant law, based (with counsel’s concurrence) upon Grace v Biagioli [2006] 2 BCLC 70; [2005] EWCA Civ 1222 was flawed.

Rather the Court of Appeal identified two aspects of the conduct of the appellants arising from the evidence which it considered that the judge had failed to take into account, in his reasoning as to the appropriate remedy, so that the Court of Appeal was entitled and indeed obliged to exercise that discretion afresh. The first was the financial misconduct of the appellants while briefly in control of the Company’s affairs before they finally lost the Hong Kong litigation in 2006. The second was what the Court of Appeal described as the blameworthy failure of the appellants to complain about the denial of financial information about the Company between 2006 and 2013. Before addressing their significance directly and considering how (if at all) the judge dealt with them, it is worth summarising the relevant law, both about the exercise of the discretion as to remedies under section 184I of the Act, and about the constraints upon the appellate function, when reviewing the exercise of a discretion conferred upon a trial judge.

The remedy for what is usually labelled unfairly prejudicial conduct is expressed in section 184I of the Act in terms evidently derived from the similar jurisdiction conferred in the United Kingdom by the Companies Acts, but slightly differently. It provides:

This statutory jurisdiction differs from its UK predecessor in two principal respects. First, it includes conduct which is oppressive or discriminatory rather than just unfairly prejudicial. Secondly it describes the very wide discretion as to remedies as requiring that the chosen remedy must be one which the court thinks it just and equitable to grant. The first of those differences makes no difference in a case such as the present where the judge found that the conduct complained of satisfied all three of those adjectival descriptions. Nothing is added to the UK formula by the requirement that the remedy should be just. That would in any event be implied. But the requirement that the remedy should also be equitable might perhaps add an element, although the UK remedy started out in life as a more flexible remedy than winding up on the just and equitable ground. However that may be, it has at all times in this litigation been common ground between counsel that the decisions of the UK courts are at least persuasive authority on the interpretation and application of this statutory jurisdiction.

There was, likewise, little disagreement between counsel as to the following principles. First, at the remedy stage, the court is entitled to have regard to any aspect of the facts as found about the history of the company and the relationship between its shareholders inter se, and between them and the directors, including those occurring after the issue of the claim and those which may fairly be found by the court even though not necessarily pleaded. In short, nothing is off-limits, subject only to the twin tests of relevance and weight, in relation to the choices to be made in the exercise of the discretion. Secondly, the court necessarily looks not only to the past but to what the court finds is likely to happen in the future.

In Grace v Biagioli (supra) at para 73 Patten J put it like this, giving the leading judgment in the Court of Appeal:

There was a difference between counsel about whether it had been established by UK authority that a buy-out order had become the usual remedy for all serious cases of unfair prejudice, or only for those arising within quasi-partnership companies, after the exclusion of a minority shareholder from management. At para 75 in Grace v Biagioli Patten J continued:

The Board does not consider that any useful purpose would be served by seeking to resolve this difference about the types of case in which a buy-out order has become the usual remedy. Neither the BVI Act nor its UK predecessor makes a buy-out a preferred remedy in general, in quasi-partnership companies or otherwise. If it has become widely used, (as it probably has), that will be because the particular facts about a large number of cases make it the most appropriate remedy in each of them. At the highest it may be said that it would usually be an uphill struggle for an appellate court to conclude that such a remedy for serious oppression, discrimination and unfair prejudice was out with the reasonable confines of a discretionary judicial response to the facts. But that is not how the Court of Appeal approached the present case, even though it was not persuaded by, and did not share, the judge’s view (para 89).

It is clear that, as in the exercise of any discretion on just and equitable principles, the conduct of the party seeking relief may be both relevant and, in particular cases, of real weight in the grant or choice of remedy. Laches (that is long delay plus prejudice) and estoppel may sometimes operate as an equitable bar. More often the conduct of the applicant may be one among a number of factors to be weighed in the balance. There may even be some room for the notion that a person seeking equity must come with clean hands: ie that misconduct of the applicant may sometimes justify the refusal of a remedy which would otherwise have been granted. That was unsuccessfully argued in Grace v Biagioli and rejected only on the facts, rather than because the petitioner’s conduct was regarded as being irrelevant in principle: see para 77.

Conversely it may well be, in particular cases, that the fact that during a deteriorating relationship there has been misconduct on both sides is a factor militating in favour of a remedy like a buy-out which provides a clean break between the warring parties, provided that it is kept firmly in mind that the remedy is primarily there as the court’s response to the unfairly prejudicial conduct pleaded and proved. What cannot be doubted is that the conduct of the applicant is in any particular case a factor of infinitely variable weight, on a scale from it being decisive at one end to being of no weight at all at the other. The question where it lies on that scale is a matter for the judge.

It is necessary at this point to bear in mind the well-settled constraints upon the appellate jurisdiction, when asked to re-exercise a discretion conferred upon the first instance judge. These constraints form part of a package, developed over many years, which ensure that the benefit of finality which should normally follow from the judicial determination of the parties’ dispute is not rendered ineffective by undue appellate activism. The general reasons for appellate restraint are well summarised by Lewison LJ in his well-known judgment in Fage UK Ltd v Chobani UK Ltd [2014] EWCA Civ 5; [2014] FSR 29, para 114, as follows:

In In re B (A Child) (Care Proceedings: Threshold Criteria) [2013] 1 WLR 1911, para 107, Lord Kerr of Tonaghmore adopted a three-fold classification of the various functions of the trial judge. Although he used it in relation to care proceedings it is equally applicable to unfair prejudice proceedings. He said:

The question whether a judge has failed to take something into account is not to be answered by an over-zealous dissection of the language of the judgment. In Piglowska v Piglowski [1999] 1 WLR 1360, at 1372, Lord Hoffmann said:

Appellate review of the exercise of judicial discretion on just and equitable principles in relation to shareholder remedies is no less subject to restraint than in care proceedings, in the UK or in the British Virgin Islands: see Chu v Lau [2020] 1 WLR 4656; [2020] UKPC 24, para 70.

With that need for appellate restraint in mind, which affects the Board as much as the Court of Appeal, it is necessary now to look closely at the two matters which the Court of Appeal considered that the judge left out of account. The first is the appellants’ own financial misconduct in relation to the Company while briefly in control of it before 2006. The allegation was that the appellants had taken money from the Company to which they were not entitled, contrary to an order of the Hong Kong court, and allotted some shares to themselves without authority. The judge dealt with this first at paras 35 to 37 of his judgment, as follows:

The judge dealt fully with the allegation that the appellants were guilty of delay in seeking financial information about the Company between 2006 and 2013 at paras 88 to 94 of his judgment. In summary he found:

that the delay was not surprising in the light of the outcome of the years of bitter litigation in Hong Kong,

That it was understandable and that the appellants should not be criticised for it, the onus being on Lawrence to provide the information without prior request,

Their delay was even more understandable, with hindsight, in the light of Lawrence’s reaction to the request for information once made,

The requirements for Lawrence’s case that there had been a waiver by the appellants’ delay were not met either in law or in substance.

The judge made no further reference to this aspect of the appellants’ conduct when considering the question of remedy, apart from noting the submission made, at para 196. But in the light of his conclusion, with reasons given, that the appellants’ delay was not blameworthy on their part, it may readily be inferred that he did not regard it as a factor of any weight.

In the Court of Appeal Blenman JA dealt with both these aspects of the appellants’ conduct at paras 87-88. In summary she said that:

their delay in seeking financial information was both blameworthy and had contributed to the “state of affairs” calling for a remedy.

the judge was to be criticised for having improperly minimised the delay as the appellants’ contribution to that state of affairs.

the judge should have given “more weight” to the appellants’ delay than he did.

the judge failed to take the appellants’ financial misconduct into account on the question of remedy.

In the Board’s view these criticisms of the judge’s reasoning in his exercise of discretion do not withstand analysis. Taking them in turn:

The judge decided that the appellants’ delay in seeking financial information was not blameworthy, with fact-specific reasons which the Court of Appeal did not address. Furthermore the Board does not understand how, on the judge’s findings of fact, the delay made any contribution to the unfairly prejudicial conduct of Lawrence which followed in and after 2014, when the request for information was made. At most, it just postponed an inevitable confrontation.

Accordingly there was no blameworthy contribution by the appellants’ delay for the judge to minimise.

A view that a judge should have given “more weight” to a relevant matter is not within the scope of appellate review. Matters of weight when exercising a discretion are for the judge, provided that his assessment of weight is not irrational. In the present case it was not.

The judge did not fail to take into account the appellants’ financial misconduct on the question of remedy. He did so expressly, at paras 35 to 37, and his conclusion, supported by reasons, was that they were of little or no weight. He repeated that conclusion at para 135. Again this assessment of weight was a matter for him. He was not saying that such matters were in principle irrelevant, just that they were of no weight on the facts of the case. The Court of Appeal did not engage with the judge’s reasons for reaching that conclusion about weight.

In oral submissions Mr Chaisty made two further criticisms of the judge’s approach to remedy, not made by the Court of Appeal. In his written case, it was stated at para 2 that there was to be no cross-appeal, and that reliance was placed purely on the grounds set out by the Court of Appeal in its own judgment for setting aside the judge’s ruling on remedy. It is therefore sufficient for the Board to deal with them briefly. The first was that the judge made no reference to the fact that the absence of trust and confidence between Lawrence and his siblings (including the appellants) went right back to 1994, so that it existed before the matters complained of in the unfair prejudice claim. There is nothing in this point. The judge recognised in the second paragraph of his judgment, and elsewhere, that the long history of disputes between them went right back to the 1970s, and that the most significant of them occurred between 1994 and 2006, culminating in the bitter Hong Kong litigation.

The second criticism, pursued at rather more length, related to the non-payment of dividends. Mr Chaisty noted, correctly, that the appellants had refrained in their Statement of Case from relying upon non-payment of dividends as unfairly prejudicial conduct, merely reserving their position pending provision of financial information. He noted that the judge had recorded this position, accurately, at paras 47-48 of his judgment. But he submitted that the judge had then, in a series of later passages, rowed back on that acknowledgment and relied upon non-payment of dividends as part of Lawrence’s misconduct.

It is enough for the Board to say that, after studying all those passages, and considering them in the light of the judgment read as a whole, the judge did no such thing. His references to payment of dividends never went beyond simple fact-finding, or the plainly correct observation that provision of the financial information about the Company was of real importance to minority shareholders with no role in management, so as to enable them to inform themselves (inter alia) about the ability of the Company to pay dividends, as an aspect of its financial health about which they had a legitimate interest.

It follows that neither the Court of Appeal, nor Lawrence on this appeal to the Board, have demonstrated any basis for appellate intervention in the exercise of the judge’s discretion to order a buy-out of the appellants’ shares. Had it mattered, (and the question was fully argued) the Board would have shared the judge’s view that this was a clear case for ordering a buy-out, for the reasons which he gave. Lawrence’s refusal to provide financial information was in reality a symptom, albeit a very serious and harmful one, of his complete and continuing inability to recognise or acknowledge that the appellants had any legitimate stake in the Company as minority shareholders.

The Board will therefore humbly advise Her Majesty that this appeal should be allowed, and the judge’s order restored.