Hong Kong: Court Rules On Yung Kee Restaurant Case

Last Updated: 19 November 2012
Article by Richard M. Tollan and Edmund M.S. Ma

Keywords: Kam Kwan Sing v Kam Kwan Lai & Ors, place of business, Companies Ordinance, court jurisdiction, Hong Kong, British Virgin Islands,

Summary

The Court of First Instance delivered its judgment in the high-profile case of Kam Kwan Sing v Kam Kwan Lai & Ors. (HCCW 154/2010) on 31 October 2012, in which the Petitioner applied to wind up Yung Kee Holdings Limited, the company indirectly holding the well known Yung Kee restaurant in Central, Hong Kong. The Court decided that it has no jurisdiction to entertain the Petition as the Company has not established a place of business in Hong Kong.

Background

Yung Kee Holdings Limited (the "Company") is an investment holding company incorporated in the British Virgin Islands (BVI) but it is not registered in Hong Kong under Part XI of the Companies Ordinance (Cap.32) (CO). The Company ultimately owns the Yung Kee restaurant, a well known Chinese restaurant in Hong Kong, through a complex corporate structure.

The Yung Kee restaurant was established by the late father of the Petitioner and the 1st Respondent in the early 1930s. The Petitioner alleged that the affairs of the Company had been conducted in a manner unfairly prejudicial to him as a member and he sought relief under section 168A of the CO to wind up the Company. As an alternative relief, the Petitioner also sought a winding-up order under section 327(3)(c) of the CO to wind up the Company on just and equitable grounds.

The 1st and 2nd Respondents contested the Petition on the grounds that the Company was incorporated in the BVI and it has no assets or business activities in Hong Kong. Therefore, those Respondents argued, the Hong Kong Court has no jurisdiction to wind up the Company here.

The main issue before the Court was whether the Company had established a place of business in Hong Kong.

A Place of Business in Hong Kong

The Court of First Instance ruled in favour of the 1st and 2nd Respondents and concluded that the Company had not established a place of business in Hong Kong. Accordingly, there is insufficient connection between the Company and Hong Kong to justify the Court asserting jurisdiction to make a winding-up order. The Court took the view that the dispute would be better resolved before the BVI courts where, for all practical purposes, the same remedies sought by the Petitioner under the CO are also available. In coming to this conclusion, the Court relied on the following observations:

  • The Company was incorporated in the BVI and its only asset is the shareholding in a BVI subsidiary, which in turn holds the interests in the Yung Kee restaurant and other business operations. The register of members of the Company was kept and maintained in the BVI, and the Company does not have a bank account in Hong Kong. The Company is a mere "passive investor in another BVI company".
  • The Company has conducted certain of its internal affairs in Hong Kong, but this does not necessarily indicate that it had established a place of business in the jurisdiction.
  • The complex corporate structure of the Company was designed to distance the ultimate ownership of the assets from Hong Kong so as to avoid paying estate duty. It is therefore inferred that the Company did not intend to establish a place of business in Hong Kong.
  • A place of business may take different forms, and it need not be a company's own physically discrete premises, but some degree of regularity or permanence must be shown.
  • The Company does not directly own the operating subsidiaries and it has never played any role or function in the business or operations of the Yung Kee restaurant. Therefore the Court cannot properly conclude that the Company operates a business in Hong Kong.

It may be that the Petitioner decided to petition for the winding-up of the Company (as the ultimate holding company of the group's businesses), instead of presenting multiple petitions against all operating subsidiaries (which might have avoided the jurisdictional issue), because the first option was likely to be more efficient. The Petitioner might consider that the Court has taken an overly formalistic view by focusing on the shareholding structure. It remains to be seen whether the Petitioner will appeal the decision, or petition in the BVI, or adopt some other approach.

Originally published 14 November 2012

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© Copyright 2012. The Mayer Brown Practices. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

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