The submission of “no case to answer” can be made in both criminal and civil trials. The rules are, however, different in these two types of trial. In a criminal trial, after the prosecution has presented its case, the defence counsel can submit there is no need for the defence to present his case as the prosecution’s evidence is insufficient to make out a prima facie case. However, one must exercise caution in making the same submission in a civil trial – the judge may ask the counsel to “elect” upon a submission of no case to answer. This means that unless counsel confirms that he will stand by his submission and call no evidence even if the judge rules against him, the judge will not entertain such a submission.

This is why a submission of no case to answer is rare in civil litigations, let alone in winding-up or unfair prejudice actions. In Re T-Hero Industrial Company Limited [2023] HKCFI 3118, the Honourable Harris J had the opportunity to elucidate the key principles of accepting a no case to answer submission in a winding-up action pursued on just and equitable ground.

Quasi Partnership

In this case, the three petitioners (against the remaining shareholder and the company) advanced the ground that there is a breakdown in mutual trust and confidence among the shareholders in seeking a compulsory winding-up. Their mutual trust and confidence engages equitable considerations, which restrict how the shareholders can exercise their legal rights. To demonstrate that a company is formed in such circumstances, it is necessary to show that the association among shareholders is not a purely commercial one ([18]). In this regard, the petitioners relied on a 2007 Shareholders Agreement which imposed certain restrictions on transfers of shares to say that the rights of the shareholders were circumscribed. However, the Court has difficulty to see these restrictions were intended for an indefinite period especially when all shareholders are also directors and that there has been a fundamental change in shareholding structure in 2012,

“It cannot possibly be that every agreement made after a company is formed about some aspect of the management of its affairs binds shareholder thereafter regardless of how circumstances change. Shareholders of small companies who also act as their directors will frequently agree aspects of its management as its business develops. In nearly all cases they will be intended to regulate the management of the company until such time as circumstances require them to be modified. They cannot sensibly be understood as restrictions on the way a shareholder is to exercise his rights for an indefinite period.” ([22])

No case to answer

A submission of no case to answer in the context of a civil trial can be made on two grounds:

(i) Where the plaintiff’s case, even accepting it at its face value, does not disclose a sustainable cause of action in law; or

(ii) The quality of the evidence given by the plaintiff is such that there is not even a prima facie case for the defendant to answer ([29]).

Further, the Court also has to consider if the claim has no prospect of success and it would be a waste of time and costs to hear the defendant’s evidence ([30]). Once a defendant elects to make a no case to answer submission, he so elects to call no evidence. If however, the Court finds there is a case to answer from the plaintiff, it will proceed to rule, on a balance of probabilities, whether the plaintiff’s case is made out, having regard to the plaintiff’s evidence (including that given under cross-examination) and the available documentary evidence, but without regard to the defendant’s witness statement ([32], where Harris J explicitly adopt the recent authority of the Privy Council in Roopnarine v Attorney General of Trinidad and Tobago [2023] UKPC 30 (27 June 2023) at [27] per Lord Hamblen).

Applying the above principles, the Court ruled that the petitioners failed to make out a case of the breakdown of the quasi partnership. On the evidential ground, other complaints such as exclusion from management were refuted by the contradictory witness statement of one of the petitioners ([47]).

Takeaways

The Court also reiterated that the petitioners are confined to their pleaded complaints in the petition, and as the petitioners were not legally represented, “they had no real understanding of what they needed to establish to obtain a winding up order” ([4]). They also ignored a sensible buy-out offer from the respondent shareholder to insist on a full-blown trial which amounted to an abuse of process. As the Hong Kong courts will now accept a submission of no case to answer in the appropriate circumstances, it would be prudent to take legal advice before commencing legal proceedings, instead doing so at one’s own peril.

See full judgment here.