Company — Court dismissed Unfair Prejudice Petition in the Lao Xue Yuan Shareholder Dispute

The case of JS Success Ltd v Cheung Theobald Aylwin & Ors [2025] HKCFI 3837 concerns a shareholder dispute which arose from the joint venture of a Shanghainese restaurant operated under the brand of Lao Xue Yuan (“老雪園”). The Petitioner sought a buy-out order pursuant to s.724 of the Companies Ordinance (Cap. 622), alleging the operation and the eventual closure of the restaurant constituted unfair prejudice on the part of the majority shareholders. The petition was ultimately dismissed by Linda Chan J after a 6-day trial.  

Chris Wong, instructed by Messrs. Oldham, Li & Nei, represented the 1st to 4th Respondents. 

Core Complaints 

At trial, the Petitioner relied on the following complaints in alleging that the Respondents have conducted the affairs of the company in an unfairly prejudicial manner: – 

1. Exclusion from management;
2. Failure to renew tenancy agreement;
3. Breach of fiduciary duties in setting up competing ventures;
4. Breach of non-competition obligation in shareholders’ agreement; and
5. Misappropriation of company funds,  

(The claims on quasi-partnership and transfer of shares in breach of pre-emption clause were abandoned at the beginning of the trial.) 

One major dispute at trial was whether the majority shareholders acted in breach of the common understanding or expectation between the parties (particularly in relation to the issues of exclusion and non-renewal of tenancy). While the exercise of shareholders’ legal right may be subject to equitable constraint if there is such understanding or promise that would be unfair to allow a member to ignore, the starting point is to look at the company’s articles and shareholders’ agreement. With the Petitioner abandoning the quasi-partnership claim, the Court rejected to expand the scope of obligations on the Respondents beyond the express terms of bargain as agreed between the parties.  

The Court would also pay heed to the modus operandi of the company in determining whether the conduct complained constituted unfair prejudice. For instance, on the alleged misappropriation of funds, the Court found that some of the transactions concerned were agreed by the parties at the outset or made in accordance with established arrangements. There is no basis to impugn such transactions simply because the Petitioner took a different view on the matter after the parties’ relationship turned sour.  

Takeaways  

This decision reaffirms that a mere breakdown in shareholders’ relationship itself, however acrimonious, does not necessarily justify judicial intervention. Unfair prejudice relief is available only where the company’s affairs have been conducted in a manner that is both unfair and prejudicial to the interests of shareholder. The Court would carefully scrutinise the contractual bargain between the parties and assess their conduct against the background and commercial reality in the circumstances.  

 

Chris Wong

Prior to joining Chambers in 2024, Chris served as a Judicial Assistant at the Hong Kong Court of Final Appeal, where he assisted the judges with substantive appeals, leave applications, and other works of the Court generally. Chris was called to the Bar in 2023, upon his completion of pupillage with Mr. Tony Li SC, Mr. Eric Leung, Mr. Robin D’Souza and Mr. Simon Wong.

During his legal studies, Chris competed in the Willem C. Vis International Commercial Arbitration Moot, where he received honourable mentions both as an oralist and for the written memorandums.

Chris is developing a broad civil and criminal practice. He is fluent in English, Cantonese, and Mandarin. He accepts instructions in all areas of work.

View Chris’s profile for more details.

 

This article was first published on 15 September 2025.

Disclaimer: This article does not constitute legal advice and seeks to set out the general principles of the law. Detailed advice should therefore be sought from a legal professional relating to the individual merits and facts of a particular case. The photographs which appear in this article are included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related. The views and opinions expressed in this article/material are solely those of the members authoring it and do not necessarily reflect the official policy or position of Denis Chang’s Chambers, or of any other member or members of Denis Chang’s Chambers.