CHAN LUEN YAN AND OTHERS v. CHAN TIN CHAI AND OTHERS

HCCW 211/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 211 OF 2007

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J U D G M E N T

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1.  By these proceedings, the Petitioners seek relief under sections 168A and 177(1)(f) of the Companies Ordinance (Cap. 32) in respect of a company called Goldsfine Development Limited (“Goldsfine”).  Under section 168A, they seek an order that the 1^st to 10^th Respondents purchase their shares in Goldsfine at a price to be determined by reference to the net asset value per share as at the date of the petition.  Under section 177(1)(f), they seek, as an alternative, an order for the winding up of Goldsfine on the just and equitable ground.

2.  The Petitioners are Chan Luen Yan, Chan Hin Tung, Chan Luen Fai and Chan Luen Cheung (the 1^st to 4^th Petitioners respectively).  The 1^st to 10^th Respondents are, respectively, Chan Tin Chai, Chan Hin Kai, Chan Hin Kuen Micky, Chan Hin Cheung Paul, Chan Bo Yu, Chan Mo Yin, Chan Tat Chai, Chan Hin Chai, Chan Nam Thomas and Chan Loon Fong.  Goldsfine is the 11^th Respondent.

3.  All of the individuals who are parties to these proceedings share a common surname.  They are all members of the same extended family, but are from different branches of it.  The 1^st, 3^rd and 4^th Petitioners are brothers.  The 2^nd Petitioner (who is from a different branch of the family) is the brother of the 9^th Respondent.  The 2^nd, 3^rd and 4^th Respondents are also brothers, from a further branch of the family.  For the most part, the remaining Respondents each come from further and different branches of the family.

4.  In order to appreciate the background against which Goldsfine came into existence, it is necessary to have regard to certain aspects of the family history.

5.  It is common ground that all of the Chans who are parties to these proceedings are members of a Chinese family tong known as the Chan Him Muk Tong.  Since about the early twentieth century, members of the Chan Him Muk Tong have, together with members of another Chinese family tong known as the Li King Sun Tong, operated a Chinese medicine business in Hong Kong known as Chan Li Chai or Chan Li Chai Medical Factory (“Chan Li Chai”).

6.  Apart from the Hong Kong business, there was also in existence in China a Chinese medicine business of the same name, with a history going back some three or four hundred years.  It is not entirely clear, however, whether the Hong Kong business was a continuation of the Chinese business, or whether it was a separate business set up by certain members of the Chan and Li families in Hong Kong using their own personal funds.  Although this question was of some importance in the context of other proceedings, in which a claim was made that the Hong Kong business was one to which all members of the Chinese tong (and not just the various branches of the family that had settled in Hong Kong by the early twentieth century) were interested, it is not a matter that needs to be resolved for the purposes of these proceedings.

7.  The Hong Kong Chan Li Chai business had, since the 1920s until the mid- 1990s operated from premises in Belcher’s Street and Queen’s Road Central.  These premises were acquired in the 1920s, and were held at various times in the names of certain members of the Chan and Li families, who were the managers of Chan Li Chai from time to time.

8.  In July 1952, the Chan Li Chai business was registered as a partnership under the then recently enacted Business Regulation Ordinance.  In September 1952, the two properties were assigned to four individuals who were managers of the business – two members of the Chan family and two members of the Li family – as tenants in common in equal shares.  The two managers from the Chan family declared that they held their interests in the property for what was described as “the Chan family tong”

9.  Thereafter, in 1975, having apparently been advised that the partnership was no longer a valid one in law, the Chan and Li family tongs agreed, through meetings of their representatives, to convert the partnership and its business into a limited company.  They did so making use of a limited company, which had earlier been incorporated under the name of Chan Li Chai Medical Factory (Hong Kong) Company Limited (“CLC Ltd”).  The two properties, however, were not transferred to CLC Ltd – instead, they remained vested in the four individuals, and on their later passing away, became vested in their respective personal representatives.

10.  From 1992 onwards, various proceedings were taken in relation to the properties.  The object seems to have been to enable the properties to be sold and the proceeds shared between the two families.

11.  First, CLC Ltd brought proceedings against the then titleholders (i.e. the personal representatives of the four individuals who had been tenants in common of the properties) seeking declarations that CLC Ltd had title to the properties and orders for sale.  Initially, CLC Ltd was owned as to 50% by members of the Chan family and 50% by members of the Li family, but by around the time of CLC Ltd’s claim, the shareholdings had changed (the changes are described in paragraph 14 below), and only one member of the Li family still had an interest in CLC Ltd.  The proceedings were settled as between CLC Ltd and the personal representatives of the former managers from the Chan family.  Under the settlement, it was agreed that the personal representatives of former managers from the Chan family should assign the shares in the property that were held by them to CLC Limited.  Such assignments were made in September 1995.  No settlement was reached with the personal representatives of the former managers from the Li family, perhaps because by this time, the Li family’s interest in CLC Ltd had been reduced.

12.  Thereafter, an application was made by CLC Ltd against the personal representatives of the former managers from the Li family under the Partitions Ordinance seeking orders for sale of the properties and directions for the disposition of the sales proceeds.  Orders for sale were made, and it was directed that the net sales proceeds of each property should be divided into two equal parts, one of which should be paid to CLC Ltd, and the other to the personal representatives of the former managers representing the Li family.  When the two properties were sold, they fetched a total of HK$120.1 million, of which HK$60 odd million should have been paid to CLC Ltd.

13.  However, the fact that a member of the Li family was still a shareholder of CLC Ltd complicated matters.

14.  Initially, each of the Chan and Li families had owned 50% of the shares of CLC Ltd.  Two members of the Li family each held 45 shares in CLC Ltd, while ten members of the Chan family (each of whom was apparently from a a different branch of the family) held the other 90 shares (all but two held 9 shares each, with the remainder holding 10 and 8 shares respectively – the reason for this difference was not explained and does not appear to be relevant).  Over time, the share capital of CLC Ltd was increased from 180 shares to 4,500 shares.  Of these, half (2,250) were divided equally between members of the Chan family from the ten branches to which I have referred.  With the exception of the branch of the family consisting of Chan Po Chai and his sons, the 2^nd to 4^th Respondents, one member of each branch of the family held 225 shares.  In the case of Chan Po Chai and the 2^nd to 4^th Respondents, each of the sons held 70 shares, while the father held 15 shares.  The remaining 2,250 shares were held as to 750 by a Mr Hans Li, and as to 1,500 by a company called All Able Development Ltd (“All Able”).  By mid-1996, All Able, which had formerly been owned by members of the Li family, had become owned by certain members of the Chan family, but not all those who had interests in CLC Ltd – in particular, the no-one from the branch of the family of whom the 1^st Petitioner was a part had any interest in All Able.

15.   As a result of Mr Hans Li’s shareholding in CLC Ltd, payment of a half share of the proceeds to CLC Ltd would have meant that some members of the Li family would additionally benefit to the extent of his shareholding in CLC Ltd, with the result that the Li family would, overall, obtain more than half of the value of the properties (as the other half share had been paid to parties representing them, to the exclusion of the Chan family).  In addition, the interests of the different branches of the Chan family in the sale proceeds would not be equal, as a result of certain branches having a greater interest in CLC Ltd through their interests in All Able.

16.  This led eventually to an arrangement being reached with a view to ensuring that the half share of the sale proceeds that were to be paid to CLC Ltd would enure for the benefit of the Chan family alone in broadly equal shares for each branch.  This was achieved by way of a Deed of Compromise dated 22 January 1998, to which I refer below.

17.  Prior to that, however, Goldsfine had been acquired by members of the Chan family.  Although the family consisted of ten branches, not all ten of the branches of the family took up an interest in Goldfine – only individuals from eight branches of the family did so.  The branch of the Chan family consisting of the descendants of Chan Sum Yu and the branch consisting of Chan Luen Kai, Albert and his relatives did not.  Broadly speaking, the interests in Goldfine corresponded to the interests in the 2,250 shares in CLC Ltd that were held by individuals from the various branches of the Chan family, with the exception of the two branches that did not acquire any interest in Goldsfine.

18.  Goldsfine had by this time entered into an agreement to acquire property known as Units A1 and A2 of the 2^nd and 3^rd floors (Block A) and a car parking space at No. 40 Lee Chung Street, Hong Kong (“the Property”).  The Property was later rented out to CLC Limited.

19.  The Deed of Compromise was entered into between CLC Ltd and nine members of the Chan family, namely, the eight branches of which members took up shares in Goldsfine, together with the branch of which Chan Luen Kai, Albert was a member.  No member from the branch consisting of the descendants of Chan Sum Yu was a party to the Deed.  Instead, it had been agreed between the Chans that a cash payment representing its share of the proceeds of sale should be made to the Chan Sum Yu branch of the family.  Under the Deed of Compromise, CLC Ltd agreed that its half share of the net sale proceeds of the two properties from which it had operated, less various agreed deductions, should be paid to the nine Chans who were parties to the Deed of Compromise.  The deductions included an amount for the acquisition of the Property, an amount of HK$350,000 to be paid to the administratrix of Chan Sum Yu’s estate for the acquisition by Goldsfine of the estate’s 225 shares in CLC Ltd, and various amounts in respect of legal costs.

20.  The Deed recited, incorrectly, that the nine Chans who were parties to it were all the extant male members of the Chan Him Muk Tong.  Although each of the nine Chans were from a different branch of the family, they were not in fact all the extant male members of the family, and thus could not have been the same persons as were then interested in whatever property the Tong might then have.

21.  After the payment of the agreed deductions, there remained a substantial balance that was payable in accordance with the directions of the nine Chans who were parties to the Deed of Settlement.  In the result, it appears to have been agreed that a distribution should be made to all the Chan shareholders of CLC Ltd at the rate of HK$3,000 per share.  Initially, it was proposed to make a similar payment to All Able, but this was subsequently revoked.  According to the 1^st Petitioner, this was a result of his having protested against making such a payment to All Able, as the making of such a payment would have meant that those members of the family who had interests in All Able would receive a larger share than the others, who did not.  Certain other payments were also agreed upon, and the balance remaining was later paid into Goldsfine, and treated as shareholders’ loans by the then shareholders.

22.  A little later, the branch of the Chan family consisting of Chan Luen Kai, Albert and his immediate relatives indicated that they did not wish to be shareholders of Goldsfine either.  It was eventually agreed that a further payment would be made to Chan Luen Kai, Albert and that he would not take up any shares in Goldsfine.  Unlike the Chan Sum Yu branch of the family, however, Chan Luen Kai, Albert did not sell his shares in CLC Ltd to Goldsfine, and has remained a shareholder of CLC Ltd throughout.

23.  The shares in Goldsfine were divided into two types – Class A shares with a par value of HK$10 each, and Class B shares with a par value of HK$1 each.  The shares carried different voting rights.  In broad terms, shareholders from each of the eight branches of the Chan family who took up shares in Goldsfine obtained 225 Class A shares, while only shareholders from six of the eight branches obtained Class B shares, each branch obtaining about 250 Class B shares.  This appears to have been done by agreement between the shareholders.

24.  As at around the beginning of 1998, the shareholdings in Goldsfine, CLC Ltd and All Able were as indicated in Annex A.  It will be observed from Annex A that the interests of the various branches of the Chan family in Goldsfine were not quite identical (as a result of two shareholders having no Class B shares).  More importantly, however, the Class A shareholdings, while broadly corresponding in more or less the same proportions to the shareholdings of each branch of the family in CLC Ltd that were held through individuals, did not correspond to the interests of each branch in CLC Ltd when the shareholdings held through All Able were taken into account.  As All Able held 1,500 shares in CLC Ltd, the five branches of the family who had interests in All Able (those of the 1^st, 2^nd/3^rd/4^th, 6^th, 9^th and 10^th Respondents) each had an interest in a further 250 or 300 shares in CLC Ltd, resulting in their direct and indirect interests in CLC Ltd being just over double that of the other branches of the family.

25.  On 22 January 1998, the same day as the Deed of Compromise was entered into, the eight members of the Chan family who were to take up shares in Goldsfine agreed that the surplus funds from the sale of the two properties, amounting to some HK$25.9 million, should be injected into Goldsfine, and treated as shareholders’ loans in the same proportions as the intended shareholdings of each shareholder in Goldsfine.  It was also agreed that any transfer of shares in Goldsfine by a shareholder should be accompanied by an assignment of his shareholder’s loan, and that the shareholder’s loans should be repayable only with the approval of Goldsfine’s board of directors.

26.  Thereafter, Goldsfine leased part of the Property to CLC Ltd, and leased the remaining part to another tenant.  It also seems to have placed some of its excess funds on deposit or in investments in shares, and to have made occasional loans to its shareholders, on terms that involved the payment of interest.  Occasional payments were made to the shareholders – although these seem to have been regarded by them as dividend payments, they were treated as repayments of shareholder’s loans so far as Goldsfine was concerned.

27.  However, the relationship between the various shareholders in Goldsfine did not run smoothly.  The 1^st Petitioner soon began to complain about the way in which Goldsfine and CLC Ltd were being run.  Initially, the complaints seem to have related to the number of relatives who were employed by CLC Ltd.  Further complaints were made as to:-

(1) allegedly unauthorised loans by Goldsfine to CLC Ltd;

(2) a decision at an EGM of CLC Ltd to raise funds by way of a rights issue, the alleged failure by CLC Ltd to give notice of such meeting to Goldsfine, and a decision by Goldsfine (made at an EGM held the same day) not to subscribe for its entitlement under the rights issue, but instead to effect repayments of the shareholder’s loans so as to enable individual shareholders to subscribe for their entitlements instead;

(3) the failure by Goldsfine to take steps to recover outstanding rentals and loans due from CLC Ltd, and a subsequent decision in January 2005 to defer repayment of such loans for 18 months, to waive rental for a similar period, and to make all loans to CLC Ltd interest free with effect from 1 November 2004 onwards

28.  When the Petitioners instructed lawyers to complain about these matters, solicitors acting on behalf of CLC Ltd responded to the effect that the individual shareholders had no real interest in the assets of Goldsfine, which were, or should be regarded as, held on trust (or as nominee) for CLC Ltd. The Petitioners also complain about this stance, saying that it amounts to a denial of their beneficial interest in Goldsfine and as such is a further form of unfairly prejudicial conduct.

29.  As the parties were unable to resolve their differences, the Petitioners brought these proceedings.  Their petition was supported by affirmation evidence from the 1^st Petitioner.  On the Respondents’ side, evidence was provided through an affirmation made by the 3^rd Respondent, who had by the time the proceedings commenced become the chairman of Goldsfine’s board of directors, in which he adhered to the contention that Goldsfine was no more than a nominee or trustee for CLC Ltd, and that its assets were thus to be used to support the business of CLC Ltd.

30.  At the trial, the Petitioner’s position was that they were the beneficial owners of the shares in Goldsfine that were registered in their respective names, and that Goldsfine did not hold its assets as a nominee or trustee for CLC Ltd (as the Respondents claimed), so that the insistence by the Respondents that Goldsfine should simply be viewed as a source of support for CLC Ltd, and the actions by the Respondents of which complaint was made, amounted to conduct that entitled the Petitioners to relief under either section 168A or section 177(1)(f) of the Companies Ordinance.

31.  The Respondent’s position at trial was, however, no longer that which had been taken in the pre-action correspondence and the evidence filed on their behalf.  Instead, Mr Swaine, who appeared for the Respondents, suggested that the correct approach was to seek to ascertain the purpose for which Goldsfine was set up, and to consider the matters complained of in the context of that purpose.  Adopting that approach, he contended that while it would not be appropriate to suggest that Goldsfine’s purpose was to act as a nominee for CLC Ltd, or to be a trustee of its assets for CLC Ltd, it was nonetheless the case that the mutual understanding between the shareholders of Goldsfine, at the time that it was set up, was that it should act as a source of support for CLC Ltd, which was carrying on the business out of which Goldsfine’s assets were derived.  On that basis, Mr Swaine submitted, there was nothing unfair or prejudicial about Goldsfine providing such support by making loans to CLC Ltd, or leasing its property to CLC Ltd.  Nor was there anything unfair or prejudicial about Goldsfine choosing (through a majority of its shareholders and directors) to provide such support on terms that might, in other circumstances, seem uncommercial.

32.  In my view, Mr Swaine’s abandonment of the suggestion that Goldsfine was a nominee of, or trustee for, CLC Ltd was sensible.  Given the history which I have described above, such a suggestion was, I think, a non-starter.  The whole point of the entering into of the arrangements embodied in the Deed of Compromise was to ensure that the half-share of the proceeds of sale of the two properties formerly occupied by CLC Ltd should remain in the hands of members of the Chan family, a purpose which would not be achieved by allowing such proceeds to be left in the ownership of CLC Ltd, which had among its shareholders a member of the Li family.  Further, as I have also noted, leaving such proceeds in the ownership of CLC Ltd would also have meant that different branches of the Chan family would have different and unequal interests in the proceeds, given that some branches of the family had acquired proportionately greater interests in CLC Ltd through their acquisition of All Able from the Li family.  In these circumstances, to regard Goldsfine as no more than a nominee for, or trustee of its assets for, CLC Ltd would be to render the Deed of Compromise a pointless exercise, and would have simply put things back into the position they would have been in had the Deed of Compromise never been entered into, and the sale proceeds simply allowed to remain in the ownership of CLC Ltd.

33.  It is therefore necessary, in my view, to ascertain what (if anything) had been agreed by the shareholders in Goldsfine at the time that the balance of the proceeds of sale of the two properties was transferred to it.  Unfortunately, this is not a straightforward task.  It was clear from their evidence at the trial that neither the 1^st Petitioner nor the 3^rd Respondent had any real knowledge of the detailed thinking behind the entering into of the Deed of Compromise, and they were thus unable to throw any real light on it.  All that they could say was that the object was to ensure that the half share of the sale proceeds should go to the Chans, and not be left with CLC Ltd where the Lis would also have some claim to it.  The 3^rd Respondent said that, as a younger member of the Chan family at the time, he had left matters in the hands of his uncles, who (being members of the senior generation) had primary responsibility for making the arrangements.  Although the 1^st Petitioner did not appear to accept that everything was left to two of the more senior members of the family to arrange, he too was unable to speak with any personal knowledge of the arrangements that were made.

34.  Mr Wong, who appeared for the Petitioners, argued that a purpose of the nature asserted by the Respondents could only arise if it were first established that the proceeds of sale of the two properties belonged to the Chan family tong, rather than to the individual shareholders in Goldsfine personally.

35.  He went on to submit that the proceeds of sale did not belong to the Chan family tong, and in fact belonged to the individual shareholders of Goldsfine in their personal capacity, as a result of the Deed of Compromise.

36.  Mr Wong’s first argument in support of this contention was to suggest that the Deed of Compromise showed that the nine members of the Chan family who were defined by the Deed as “the Chan Group”, were not the same as the “Chan Tong”, as that was a separately defined term in the Deed.  However, it is clear from the Deed that the Chan Group was defined as the nine persons who were signatories to the Deed, and that they were also described as the only extant male members of the Chan Tong.  Thus, notwithstanding the fact that the Deed referred in a number of clauses (e.g. clauses 9, 10 and 11) to the “Chan Group” and the “Chan Tong” as if they were different groups of persons, there was in fact no difference between the two groups (and thus the Chan Group and the Chan Tong) so far as the persons making up the two groups of persons (as defined in the Deed) were concerned.  I therefore do not think that this point takes matters very far.

37.  Mr Wong also submitted that the Deed of Compromise made it clear that the nine Chans who were parties to it were asserting a personal claim to the proceeds of sale, and that such claim was accepted by CLC Ltd.  However, in the course of cross-examination, the 1^st Petitioner accepted on more than one occasion that he understood that in becoming a party to the Deed of Compromise, he was acting in some sense as a representative of at least the other members of his branch of the Chan family.  He accepted, for example, that when he received any payments out of the proceeds of sale, he would share these with his brothers (and sisters).  He also accepted that if he (or one of the other shareholders) were to take the entire benefit of their shareholding in Goldsfine for himself, this would be something for which he would be answerable to other members of his branch of the family (but not to the other branches of the Chan family).  Having regard to this evidence, it would not seem that the nine persons who were parties to the Deed in fact regarded themselves as wholly entitled to the sales proceeds for their own account, to the exclusion of other members of the family.  However, as Mr Wong pointed out, this did not mean that the proceeds of sale were not intended to be paid to the nine individuals named in the Deed of Compromise, subject to some obligation on their part to deal with them in a manner that took account of the interests of their branch of the family.

38.  But Mr Wong also relied on other matters in support of his contention.  He pointed to the fact that two branches of the family were allowed to, in effect, withdraw their shares of the sale proceeds as an indication that the proceeds should not be regarded as the property of the Chan family tong, and to the fact that there were from time to time distributions of substantial sums to the nine individual shareholders as indicating that they had personal interests.  It seems to me that these factors do tend to suggest that after the entry into of the Deed of Compromise, the proceeds were to be dealt with as determined by the nine individual Chans, rather than as if they were in some sense the property of the Chan family tong.

39.  Moreover, Mr Swaine did not seriously suggest that the half share of the sales proceeds should be regarded as the property of the Chan Tong, recognising that there were substantial difficulties in the way of any suggestion that a Tong is capable of owning property other than New Territories land.

40.  I am therefore of the view that the half share of the sale proceeds of the two properties were to be dealt with as decided by the nine individuals, albeit that they may have been expected to have regard to the interests of their respective branches of the family in doing so.

41.  Nonetheless, I do not think that this is conclusive of anything in the petitioners’ favour.  The question remains: the parties to the Deed of Compromise having decided that a substantial part of the proceeds of sale of the two properties should be injected into Goldsfine, what, if anything, had they agreed about the purpose for which Goldsfine had been set up and how the funds so injected should be used by Goldsfine?

42.  As to this, the 3^rd Respondent’s evidence was that he understood the purpose of Goldsfine to be to support CLC Ltd.  However, he was unable to articulate the basis for this understanding on his part, other than to suggest that it would be contrary to the spirit of the Chan family and the Chan Tong for the assets of Goldsfine to be used in any other way.

43.  The 1^st Petitioner disputed this, saying that the purpose of Goldsfine was simply to act as an investment holding company, to make such investments as were agreed upon by its shareholders.

44.  Given the paucity of direct evidence as to the intentions of the persons concerned it is necessary to have regard to all of the circumstances in seeking to ascertain whether or not Goldsfine was set up with the purpose contended for by the Respondents.  It is, however, important to bear in mind that that purpose calls for, in effect, the interests of the members of Goldsfine to be subordinated to the interests of CLC Ltd.

45.  The fact that the source of Goldsfine’s funding was from properties formerly occupied and used by CLC Ltd’s predecessor firm, Chan Li Chai, which was in turn a long-established business of the Chan family tong provides some support for the suggestion that members of the family might wish to continue to provide support for the business.  But even if it is accepted that there was a general intention to provide support for CLC Ltd, the question that must still be answered is what the nature of that support was to be:  was it to be the total and virtually unlimited support which the Respondents’ case ultimately entails, or was it to be something less?

46.  The various payments out that were made, such as the distributions in proportion to the individuals’ shareholdings in January 1998, and payments to particular branches or members of the family approved at a meeting on 19 January 1998, while suggesting that the funds were to be used as determined by the nine individuals, does not take matters much further when it comes to seeking to ascertain what agreement might have been made as to how Goldsfine’s assets were to be used.

47.  In my view, the matter weighing most strongly against the case advanced by the Respondents is the divergence in the underlying beneficial interests of the various shareholders in Goldsfine and CLC Ltd.  Even leaving aside the fact that Mr Hans Li appeared to have retained an interest in CLC Ltd, the more important difference relates to the differences in the interests of the various branches of the Chan family.  As I have already noted, some branches of the family (all of whom are on the Respondent’s side of the divide) have almost twice the interest in CLC Ltd through their shareholdings in All Able as compared to the interest in CLC Ltd of those branches of the family which did not own any shares in All Able.  Thus, whenever Goldsfine confers a benefit on CLC Ltd, but does not get anything in return, the branches of the family benefit in unequal proportions.  Those with additional interests in CLC Ltd through All Able obtain an additional benefit, while those having no such interests suffer a corresponding disadvantage.  It seems to me inherently unlikely that the parties would have agreed at the outset to such an arrangement.

48.  Further, the incident relating to the proposal to distribute HK$3,000 for each share held in CLC Limited, in which it was initially decided that the distribution should extend to All Able, but subsequently decided that it should not, provides, in my view, cogent support for the view that the persons involved were conscious of this fact, and accepted that the funds deriving from the sale of the two properties should be regarded as funds to which each branch of the family had an equal claim.  Although this incident might be said to precede the injection of funds into Goldsfine, there is no reason to think that the injection of the balance of the funds into Goldsfine was intended to make any difference, so as to permit them to be used to benefit different branches of the Chan family differently.  Similarly, the very fact that the interests in Goldsfine were, as between the various branches of the family, more or less equal, tends to suggest that  the interests in the proceeds of sale were to be shared equally among the different branches.  It would be inconsistent with this if Goldsfine were to to serve the sole purpose of providing unlimited support for CLC Ltd, thus giving different branches unequal benefits from the use of the funds they had allowed to be injected into Goldsfine.

49.  Moreover, while the facts that the property purchased by Goldsfine was made available to CLC Ltd, and loans were made to CLC Ltd from time to time might be regarded as the giving of support, it must be borne in mind that so far as the property was concerned, it was occupied under a tenancy agreement, under which rent was payable by Goldsfine, and so far as the loans were concerned, they were (initially, at any rate) interest bearing.  Thus, neither of these situations represented unqualified support in a way that would benefit CLC Ltd at the expense of Goldsfine.  On the contrary, in the earlier stages, matters were dealt with in such a way that Goldsfine received consideration for the support which it provided to CLC Ltd.  This would indicate, to my mind, that while there might have been a desire to provide CLC Ltd with some support or facilities, it was at the outset the intention that this should be done in a way that provided compensating benefits for Goldsfine, so that the persons interested in Goldsfine would not be, in effect, subsidising CLC Ltd.

50.  Mr Swaine was critical of the attitude adopted by the Petitioners, contending that their approach ignored the family history and amounted to a suggestion that the nine individuals were appropriating to themselves the benefit of the assets of the family business.  However, having regard to the fact that the 1^st Petitioner in fact did conduct himself, vis-à-vis his siblings, as in effect their representative, going so far as to transfer part of his shareholding to his two brothers, I do not think that this criticism was really justified.

51.  I am therefore not persuaded that the purpose of Goldsfine was to provide support for CLC Ltd in such a way as would require it to subordinate its interests to those of CLC Ltd.

52.  That being so, it seems to me that the decision in January 2005 to grant CLC Ltd a waiver of rent for 18 months, and to make all loans to CLC Ltd interest free from November 2004 onwards would be conduct by the majority that was unfairly prejudicial to the interests of the Petitioners, as the effect was to benefit the majority (through their additional shareholdings in CLC Ltd) at the expense of the minority.

53.  On the other hand, I do not think that the mere fact that loans were from time to time made to CLC Ltd would amount to unfairly prejudicial conduct.  Only two loans were identified by the Petitioners, of which the larger was repaid shortly after it was made.  So long as interest was charged on any outstanding balances, the Petitioners would not appear to have good grounds for complaint.

54.  Similarly, the decision to make a distribution to shareholders by way of partial repayment of shareholders loans, so as to enable them to subscribe for shares in CLC Ltd directly when CLC Ltd decided to raise funds by way of a rights issue, does not seem to be particularly unfair or prejudicial.  While it is true that the result was that Goldsfine itself did not subscribe for its share of the rights issue and suffered a dilution of its interests in CLC Ltd, the shareholders individually were given the means to invest directly in CLC Ltd if they wished to do so.  If some received less than others because of earlier advances made to them by Goldsfine, which were set off against such payments, that was not unfair, as they had already had the benefit of the earlier loans.

55.  The approach taken by the Respondents, in particular their insistence on the notion that Goldsfine exists to provide total support for CLC Ltd, suggests that, if nothing is done, matters are likely to continue in the same vein in future.  In these circumstances, it seems to me that there the appropriate way in which to deal with the unfairly prejudicial conduct, which is likely to continue so long as the Respondents are in control of Goldsfine, is by requiring the company itself to buy out the shares of the Petitioners on the basis of its net asset value as at the date of the petition, adjusted so as to include interest on outstanding loans and advances by Goldsfine to CLC Ltd and all arrears of rental (ignoring any agreement by Goldsfine to waive outstanding or future rents).  The parties should seek to agree on the identity of a valuer and any consequential matters, but may apply to the court for directions if they are unable to agree.

56.  So far as the costs of the proceedings are concerned, the Petitioners having succeeded in obtaining the primary relief sought, I make an order nisi that the Respondents are to pay the Petitioners’ costs of the proceedings, inclusive of any previously reserved costs, such costs to be taxed on the party and party basis if not agreed.

ANNEX A