In a recent Privy Council decision, the Board allowed the appeal and restored Justice Wallbank’s order to wind up Ocean Sino Ltd, a BVI company in which the appellant, Mr Lau, and the respondent, Mr Chu, each owned one of the two issued shares. Mr Lau sought the winding up on the grounds of a functional deadlock and irretrievable breakdown of trust and confidence.
The Board held that a company may be wound up because of a functional deadlock in the management of the company even if it is not a quasi-partnership. A quasi-partnership, as in this case, may also be wound up on grounds of a breakdown of trust and confidence. Lord Briggs summarised equitable considerations the courts should consider when determining whether a company is a quasi-partnership (such as an association formed or continued on the basis of a personal relationship involving mutual confidence, and any agreement that all shareholders shall participate in the conduct of the business).
The Board rejected the Court of Appeal’s findings and held:
- The Court may consider whether the members are deadlocked on management issues of a company down the chain in the corporate structure;
- The Court may consider facts which have occurred since the filing of the application to appoint a liquidator;
- A member could only be expected to sell its shares to avoid a functional deadlock if it could be expected to do so upon fair terms (which were not present in this case); and
- Mr Chu had the legal burden to provide that the applicant has unreasonably failed to pursue some other available remedy instead of winding up which he had not done.
Lady Arden agreed with Lord Briggs’ judgment, but held that she would have also allowed the appeal on the ground that Mr Lau had been wrongly excluded from participation in the management of the company, its subsidiaries and affiliates.
You may view of a copy of the judgment here.