Chu v Lau [2020] UKPC 24

Mr Lau and Mr Chu were equal shareholders in OSL, a BVI quasi-partnership company. Following complete breakdown of trust and deadlock, Mr Lau sought winding up on just and equitable grounds. The Privy Council restored the winding-up order, holding the Court of Appeal wrongly interfered with the trial judge's findings.

Facts

Mr Lau and Mr Chu were experienced Hong Kong businessmen who together established Ocean Sino Ltd (OSL), a British Virgin Islands company, holding equal shares and serving as its only directors. OSL had a wholly owned subsidiary, PBM Asset Management Ltd, through which they held a 49% stake in Beibu Gulf, a joint venture with a Chinese state entity. From early 2014, their relationship deteriorated, leading to multiple disputes over financial information, asset management, and alleged breaches of fiduciary duty by Mr Chu. In May 2015, Mr Lau applied to wind up OSL on just and equitable grounds, alleging irretrievable breakdown of trust and functional deadlock.

Issues

Primary Legal Issues

• Whether there was sufficient deadlock and breakdown of trust and confidence to justify winding up OSL on just and equitable grounds.
• Whether matters occurring at the Beibu Gulf level were relevant to assessing deadlock in OSL.
• Whether the relevant date for assessing deadlock was the date of filing or the hearing date.
• Whether Mr Lau’s freedom to sell his shares precluded a finding of deadlock.
• Whether Mr Lau unreasonably failed to pursue alternative remedies.

Judgment

The Privy Council unanimously allowed Mr Lau’s appeal and restored the winding-up order. Lord Briggs, delivering the main judgment, held that the Court of Appeal had erred in all four criticisms of the trial judge’s decision.

Quasi-Partnership and Relevant Conduct

The Board confirmed OSL was a corporate quasi-partnership, applying Lord Wilberforce’s principles from Ebrahimi v Westbourne Galleries Ltd. Lord Briggs stated:

Where the subject company is a corporate quasi-partnership the position is otherwise. What matters is the relationship between the quasi-partners, and the extent to which the necessary basis of trust and confidence has evaporated. For this purpose, no aspect of their business relationship is likely to be irrelevant.

Relevant Date for Assessment

The Board rejected any rule requiring grounds to be established solely at the date of filing. Lord Briggs noted that section 162(1)(b) of the 2003 Act is couched in the present tense, requiring the court to ask whether it is just and equitable at the hearing date.

Freedom to Sell Shares

The Board held that the theoretical freedom to sell shares was not a realistic remedy where a fair price could not be obtained, given Mr Chu’s control and refusal to provide financial information.

Alternative Remedies

The Board confirmed the legal burden on alternative remedies lies with the respondent. The Court of Appeal erred in law by placing this burden on Mr Lau and in suggesting the court could order a buy-out without unfair prejudice proceedings.

Lady Arden’s Concurrence

Lady Arden agreed, emphasising that the case also involved wrongful exclusion from management. She stated:

In my judgment the facts found by the judge show that exclusion from participation in management occurred in substance in this case.

Implications

This judgment clarifies several important aspects of just and equitable winding up in quasi-partnership companies. It confirms that all aspects of the quasi-partners’ business relationship are relevant, not merely those directly concerning the subject company. The decision reinforces that winding up may be ordered for breakdown of trust and confidence even without complete functional deadlock. The case also affirms that post-application conduct is admissible evidence and that the burden of proving unreasonable failure to pursue alternatives lies with the respondent.

Verdict: Appeal allowed. The order of the Court of Appeal dated 17 January 2020 was set aside and the winding-up order of Wallbank J made on 28 July 2017 was restored.

Source: Chu v Lau [2020] UKPC 24