ANTENNA INVESTMENT LTD v. ASIA TELEVISION LTD AND OTHERS

HCMP 2840/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2840 OF 2012

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J U D G M E N T

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Introduction

1.  I have before me a Petition presented by the Petitioner seeking an order for the appointment of managers over the 1^st Respondent, Asia Television Limited (“ATV”), and for an order for the sale by the 4^th Respondent, Panfair Holdings Limited (“Panfair”) of its shares in ATV.  During the trial ATV was represented by Chua Guan- Hock SC, Timothy Harry and Alexander Tang, the 4^th to 6^th Respondents by Chan Chi Hung SC, Samuel Chan and Keith Lam and ATV by Victor Joffe and Frederick Chan.  The 2^nd Respondent, James Shing, and the 3^rd Respondent, Wong Ching, did not attend the trial and were not represented at it.  The trial commenced on 25 November and finished on 13 December 2013.  In circumstances which I explain later in this judgment it was reopened on 25 November 2014.  ATV was not represented at the second part of the trial.

2.  The Communications Authority informed ATV on 5 September 2014 that it intended to recommend to the Chief Executive in Council (“Chief Executive”) that the Licence which currently allows ATV to operate a free to air television station should not be renewed when it expires on 30 November 2015 and, for reason that will become apparent, I assume that that recommendation has now been formally given.  In these circumstances it seems to me that it is desirable that I give my judgment as soon as possible in order to assist the shareholders in ATV in formulating proposals to the Communications Authority or the Chief Executive for renewing the Licence notwithstanding the current recommendation.  I am, therefore, giving an oral judgment which will be reduced into writing and circulated to the parties in due course.

3.  In the first section of the judgment I shall explain the circumstances in which the current dispute arises.

Background

4.  ATV is one of Hong Kong’s two free to air television stations.  From June 2007 to March 2009 ATV had four shareholders.  They were Panfair, Alnery No. 112 Limited (“Alnery”), Dragon Viceroy Limited (“Dragon Viceroy”) and China Light Group Limited (“China Light”).  Panfair owned 10.75% of the Company and was itself owned by the Cha brothers.  Alnery owned 47.58% of the Company and had three shareholders: Pelaka, owned by the Cha brothers, which holds 51%, ABN AMRO NV, through a special purpose vehicle (“ABN”), held 25% and Louis Page held 24%.  Dragon Viceroy owned 26.85% and was itself owned by Tin Yee, Li Hui, Vital Media Holdings Limited and Liu Changle.  China Light owned 14.81% of the Company was owned by Guoan Elstrong Limited.  The shareholders had entered into a comprehensive agreement governing their rights on 15 June 2007 (“Shareholders Agreement”).  The Shareholders Agreement provided in clause 3 that the board should have no less than 3 and no more than 10 directors.  Each shareholder was entitled to nominate a certain number of directors: Panfair 2, Alnery 4 (Alnery could also nominate the chairman, the chief executive officer and chief financial officer), Dragon Viceroy 2 and China Light 2.

5.  In late 2008 ABN wished to sell its shares.  The Chas invited the Tsai family to acquire ABN’s interest.  Mr. Tsai Eng-Ming has substantial business interests in Taiwan including television stations and newspapers.  On 23 January 2009 the Chas and the Tsais entered into a non-binding term sheet recording an agreement that the Tsais would acquire ABN’s indirect interest in ATV.  It also envisaged the Chas transferring control of ATV to the Tsais through the following mechanism.

6.  Under the Term Sheet dated 23 January 2009 (“Term Sheet”), it is stipulated that the investment by Mr Tsai would take place in two “steps”.  First,  the Petitioner’s investment in the Company was to be implemented by replacing Alnery as a shareholder in the Company with 47.58% shareholding interest, and Mr Tsai owning, through San Want, 49% of the Petitioner’s voting rights and 100% of the Petitioner’s economic interest.  Second, there would be a transfer to Mr Tsai, or a person proposed by him, of 36,196,905 of the Company’s shares (being the equivalent of 2.75% of the Company’s issued share capital) from Panfair, and of 2% of Pelaka’s Class A voting shares in the Petitioner (“Intended Transfers”).

7.  The consequence of the Intended Transfers at the level of the Board would be that Panfair’s shareholding in the Company would fall below 10% and so, in accordance with Clause 3.3 of the Shareholders Agreement, Panfair would lose its right to appoint two directors onto the Board.  Without Panfair’s right to board representation, the size of the Board would fall to eight directors.  As the Antenna is entitled to (a) appoint four directors onto the Board pursuant to Clause 3.3 of the ATV Shareholders’ Agreement and (b) appoint the Chairman of the Board pursuant to Clause 3.16 of the ATV Shareholders Agreement, there would be a relative increase in the representation of Antenna on the Board and Antenna would be able more effectively to participate in, and influence, management decisions of the Company.

8.  The in-principle deal was approved that day, 23 January 2013, by the board of ATV.  The Term Sheet recorded the Tsai’s agreement to provide short term finance to ATV to address its immediate cash flow problems, but contained no commitment to provide long term finance.  In February 2009 ATV applied to the Broadcasting Authority (a statutory body, whose function was taken over by the Communications Authority (“CA”) on 1 April 2012) for approval of a change in the shareholding structure of ATV. For convenience I shall refer throughout this judgment to both the Broadcasting Authority and Communications Authority as “the CA”.  The application stated that Mr Tsai was expected to “bring to ATV substantive management know-how, financial expertise and market insight.” On 26 March 2009 the Chas and Mr Tsai entered into a subscription and shareholders agreement to set up Antenna Limited.  Antenna replaced Alnery as an ATV shareholder with Antenna becoming a party to the Shareholders Agreement.  The Tsais held their interest in Antenna through San Want Media Holdings Limited (“San Want”).  On 7 April the Chas and the Tsais entered into a joint declaration of co‑operation which provided that Tsai Eng Meng was to provide management expertise and finance to ATV.  On 23 June 2009 the Tsais subscribed for HK$150 million worth of convertible bonds.  However, by September 2009 no agreement had been reached between them on the terms on which the Tsais were to provide the necessary medium and long term funding for ATV.

9.  As a result of their failure to secure funding from the Tsais, the Chas looked for an alternative source.  The person they identified was a businessman resident in the Mainland, namely, Mr. Wong Ching.  Before describing how matters developed thereafter it is necessary to understand the regulatory scheme within which ATV operates.

10.  The regulation of broadcasting in Hong Kong is governed by the Broadcasting Ordinance, Cap. 562 (“Ordinance”).  Broadcasting is currently supervised by the CA in accordance with the provisions of the Ordinance.  Since  1 December 1988 ATV has been the holder of a domestic free television programme service licence (“Licence”).  The Licence was renewed on 12 November 2002 and remains valid until 30 November 2015.  The CA has to advise the Chief Executive one year prior to the expiration of the Licence whether or not it recommends the renewal of the Licence.  As I have already mentioned the CA indicated to ATV on 5 September 2014 that it intended to recommend that the Licence should not be renewed for reasons that I shall explain later in this judgment.  Self-evidently this has major commercial ramifications for ATV.

11.  Under clause 10.4 of the Licence ATV is obliged to inform the CA of any change in its shareholding in excess of 10%.  Importantly the Ordinance contains restrictions on who may own and direct a broadcasting company.  Paragraph 20 of Part 1 of Schedule 1 to the Ordinance prohibits a person not ordinarily resident in Hong Kong, and who has not been so for one continuous period of 7 years, from controlling more than 2% of a licence without the CA’s prior approval.  Section 8 of the Ordinance contains restrictions on the corporate character and control of a licence holder.  The relevant restrictions are:

(1) A licence holder must be ordinarily resident in Hong Kong.

(2) The majority of its directors must actively participate in its direction.

(3) The majority of its directors must be ordinarily resident in Hong Kong.

(4) Its articles of association must comply with the Broadcasting Ordinance and the terms of the Licence.

12.  Additionally, section 21 of the Ordinance requires a licencee to be a “fit and proper” person to operate a broadcasting company:

“(1) A licensee and any person exercising control of the licensee shall be and remain a fit and proper person.

(2) Subject to subsection (3), a licensee shall, on or before the 1^st of April of each year, provide information in the specified form to the Authority to enable the Authority to establish and verify whether the licensee or a person exercising control of the licensee is a fit and proper person

…

(4) In determining whether a licensee or person exercising control over the licensee is a fit and proper person, account shall be taken of –

(a) The business record of the licensee or person;

(b) The record of the licensee or person in situations requiring trust and candour;

(c) The criminal record in Hong Kong of the licensee or person in respect of offences under the laws of Hong Kong involving bribery, false accounting, corruption or dishonesty; and

(d) The criminal record in places outside Hong Kong of the licensee or person in respect of conduct which, if done in Hong Kong, would constitute or form part of the criminal record in Hong Kong of the licensee or person as mentioned in paragraph (c)”;

13.  Section 39 of the Ordinance requires ATV to lodge a return every year with the CA containing the names and places of residence of its directors and principal officers.  Subsection 39(3) obliges ATV to inform the CA of any change in its directors within 7 days of the change.

14.  The CA is entrusted with wide-ranging powers to police and ensure that a licenced and its business (including its operation and television programmes) complies with the provisions of Ordinance and the conditions of its Licence: sections 25 and 26.  Under section 24 the CA may issue directions in writing to a licencee requiring it to take action to comply with the terms of its licence.  Section 28(1) and (2) empower the CA to impose a financial penalty on a licence for any breach of:

“(2) …

(a) a licence condition;

(b) a requirement under this Ordinance which is applicable to it;

(c) a direction, order, or determination, under this Ordinance which is applicable to it; or

(d) a provision in a Code of Practice which is applicable to it”;

15.  The import of this statutory scheme is fairly clear.  The controlling shareholder of a licensee is to be a Hong Kong resident and it is to have an active board of directors the majority of which are resident in Hong Kong, directing the affairs of the licensee in accordance with high commercial standards.  Wong Ching did not satisfy the residence requirement for a substantial shareholder of ATV.

16.  On 23 December 2009 the Mainland shareholders of Dragon Viceroy and China Light signed a provisional agreement with Mr. Wong Ching, pursuant to which he agreed to acquire their interests in those two companies for HK$200 million.  A final agreement was concluded on 17 June 2010. 

17.  On 21 January 2010, ATV’s directors were notified by email of Wong Ching as “the potential investor” in Dragon Viceroy and China Light, and that he wished to conduct due diligence. On 28 January 2010, well before completion or Wong Ben Koon’s (“BK Wong”) involvement, 2 of Wong Ching’s relatives and nominees, Yuk Fung Shing (“YF Shing”) and Sai Kwan Shing (“SK Shing”), were appointed as alternate nominee directors of Dragon Viceroy.

18.  On 2 March 2010, the Chas and Wong Ching entered into an agreement, whereby the Chas would sell to Wong Ching all their interests in Pelaka and Panfair (“Wong Agreement”). It included the following terms:

(a) Prior to completion, Wong Ching had the right to nominate 3 directors to ATV’s Board: Clause 2.7.1.

(b) Clause 2.9.1 contained terms the substance of which acknowledged the existence of obligations by the Chas under the Letter of Intent to Tsai Eng-Meng, but apparently conferred on Wong Ching the right to decide whether those obligations should be honoured.

19.  On 22 March 2010, Wong Ching purportedly sold to BK Wong the ATV shares he bought from the Chas in Panfair and Pelaka.  Notwithstanding the sale of the ATV shares to BK Wong, Wong Ching retained the right to decide whether the obligations of the Chas under the Letter of Intent should be honoured.  Pursuant to clause 2.9 of the agreement with BK Wong, Wong Ching continues to have all of his and the Purchaser’s rights and benefits under the Wong Agreement with the Chas. The rights conferred on Wong Ching by clause 2.9.1 of the Wong Agreement therefore remained.

20.  Although Wong Ching was not a director of ATV and could not be so as he was not resident in Hong Kong he quickly took an active role in directing its affairs.  On 4 March 2010, Wong Ching (via Panfair) nominated James Shing and Even Sheng as directors. On 15 March 2010, Wong Ching appeared at ATV’s headquarters, and told the press that he had appointed 4 relatives to the Board and had “mapped out [ATV’s] long and mid-term goals”.  Wong Ching then held several internal meetings within ATV during March 2010, whereby he sought information, and gave directions and instructions including setting revenue targets and providing action lists. He also attended meetings of ATV’s Mainland subsidiaries.  He had his own office in ATV, although he had no official title.

21.  The CA raised concerns about the extent of Wong Ching’s involvement in ATV’s management with Nancy Hu, ATV’s then CEO and Antenna’s nominee.  Nancy Hu raised the issue with the Board, and asked staff not to directly report to Wong Ching by an email dated 20 March 2010.

22.  James Shing then proposed in an internal meeting that Wong Ching be appointed as his “Senior Consultant” and Stephen Luan (chief financial officer of Wong Ching’s Rongfeng Group) as his “personal assistant”, so “[they] could act on [James Shing’s] behalf to exercise the rights and powers which he was entitled to in ATV”, with James Shing having authority over all payments of ATV’s expenses.  This is recorded in meeting minutes dated 20 March 2010. On 23 March 2010, James Shing was appointed as “Executive Director” with extremely wide terms of reference. He was given extensive powers and could engage consultants as he thought fit.  On about 15 April 2010, unknown to the Board at the time, James Shing and Wong Ching signed a consulting agreement, which described itself as a personal agreement of James Shing (ATV is not a party) to pay Wong Ching an undetermined fee for consultations in relation to ATV’s affairs, and to appoint Wong Ching as “Senior Consultant”.  There is no suggestion nor evidence that any fees were ever paid for such “services”.  In July 2010, Wong Ching instigated Michelle Ng’s appointment as James Shing’s “assistant”.  She became ATV’s company secretary in August 2010.  On 14 July 2010, during a Board Meeting a resolution was proposed by James Shing to suspend Nancy Hu as ATV’s CEO.  This resolution was passed with the support of the Board majority who were appointed at Wong Ching’s instigation. The suspension continued until Nancy Hu elected on 31 December 2010 to treat herself as constructively dismissed.

23.  On 17 June 2010, Wong Ching and the Chas entered into a detailed 60‑page Sale and Purchase Agreement with the shareholders of Dragon Viceroy and China Light. On the same day, Wong Ching purportedly sold to a distant relation, BK Wong, the shares he bought from the shareholders of Dragon Viceroy and China Light.

24.  On 21 and 28 June 2010 and 13 July 2010, Robert Yung, Wong Kong, and Stephen Luan, another 3 relatives or associates of Wong Ching and BK Wong, were appointed as alternate directors on ATV’s Board by China Light.  More importantly in June 2010 ATV, Wong Ching, and BK Wong applied to the CA for approval of the shareholding changes.  The CA was concerned about whether Wong Ching would exercise de facto control of ATV.  In response to the CA’s queries concerning the extent of his control Wong Ching stated that he had a “…strong commitment to provide financial support to ATV and that he would not be in a position to exercise any voting control over ATV once the shareholding change had been completed…”.  Both BK Wong and Wong Ching gave to the CA No‑Control Undertakings dated 15 July and 19 October 2010 respectively (“Undertakings”). The Undertakings provide that Wong Ching would not be entitled to exercise de facto control over ATV.

25.  On 6 September 2010, the sale of Panfair (but not Pelaka) by the Chas was completed.  On 15 October 2010, the sale of Dragon Viceroy and China Light was completed.  On 18 November 2010, the ATV Board was reconstituted with Wong Ching’s nominees forming a majority having been nominated by Panfair, Dragon Viceroy and China Light. The Board remained basically unchanged until 7 June 2013 and consisted of the following persons representing the various shareholders:

Antenna: Payson Cha, Peter Brown, Kevin Tsai, Rebecca Huang

Panfair: James Shing, Even Sheng

Dragon Viceroy: Robert Yung, YF Shing

China Light: Wong Kong, Stephen Luan

At the ATV Board meeting on 26 November 2010, James Shing disclosed that he intended Mr Stephen Luan to be the “Senior Vice CEO”.

26.  On 21 April 2011 Kevin Tsai, the Son of Tsai Eng Meng and one of the Antenna nominees on the Board, commenced legal proceedings, HCMP 749/2011, to compel James Shing and ATV to provide him with documents as a director under section 121 of the then Companies Ordinance.  The  application was made because, so alleged Mr. Tsai, of ATV’s failure to convene board meetings since 26 November 2010 and its failure to provide requested documents.  On 16 September 2011 Barma J granted an order directing inspection of documents. James Shing's appeal was dismissed on 29 June 2012.  It was not until 4 October 2011 that a board meeting was held. This Antenna complains was in breach of both the Shareholders Agreement and the Articles which required them to be held “as necessary” and at least every 3 months and indicates, Antenna contends, indifference on the part of Mr. Shing and Wong Ching to the views of the 4 directors representing Antenna’s interests. 

27.  On 6 and 7 July 2011 ATV incorrectly reported the death of Jiang Zemin.  This lead to complaints to the CA and attracted wide spread criticism in the media.  On 21 July 2011 and 1 August 2011 the CA announced it would investigate the reporting of Jiang Zemin’s death and Wong Ching’s control over ATV.  On 5 December 2011 the CA issued a press release concerning the false reporting incident and criticising ATV for adopting an irresponsible approach to the CA’s enquiry.  The CA imposed a fine of HK$300,000 on ATV.

28.  I note at this juncture that during the first stage of the trial objection was taken by Mr. Joffe to the contents of any of the CA’s reports or the judgments in the inspection proceedings be relied on by Antenna as evidence.  I accept they are not admissible to prove facts found in them, but it does not seem to me that there is anything objectionable in Antenna pointing to the fact of the investigations and the CA’s conclusions as part of the series of events that has led Antenna to the conclusion that the conduct of the directors representing Panfair, Dragon Viceroy and China Light (“Wong aligned directors” and “Wong aligned companies” respectively), along with other matters, has caused its interests to be unfairly prejudice.  The CA’s report states:

“25 (b) …ATV had…made conflicting representations to the BA about the sources of the story…”, whereby “…BA has serious doubt as to whether ATV management had checked with relevant parties in ATV before it submitted representations to BA. Further Information obtained by BA indicated that ATV had not conducted any enquiry nor even discussed the incident with [its VP and Senior VP of News and Public Affairs] after 7 July before making representations to the BA. In this connection, the BA considers ATV’s approach in its representations to the BA totally irresponsible.”

29.  On 9 March 2012 the CA sent a draft investigation report to ATV’s lawyers, Baker & McKenzie, provisionally concluding that the Consulting Agreement was mere disguise to permit Wong Ching to exercise control over ATV’s day to day management and operations.  The CA sought ATV’s reply by 22 March 2012.  Antenna complains that notwithstanding this short deadline the draft report was not circulated to the Board until 16 March and a board meeting was only called on 20 March 2012.  At the request of the Antenna directors the meeting was postponed until 26 March 2012.  A recording was kept of the meeting and a transcript has been prepared of what was said at it.  At the meeting Mr. Luan proposed that the Consulting Agreement should be ratified.  The Antenna directors objected to the resolution on the grounds that to do so would only tend to confirm the CA’s opinion that Mr. Shing was not a fit and proper person and Wong Ching was in breach of his Undertaking.  They also recorded that they had no prior knowledge of the Consulting Agreement.  No reasons are advanced by the other directors for taking the view that despite the CA’s misgiving it was necessary and in ATV’s best interests that Wong Ching be retained by Mr. Shing as a consultant.

30.  On 27 June 2012 ATV filed, at the instigation of the Wong aligned directors, a notice of application for leave to apply for judicial review seeking an injunction prohibiting the CA from publishing a final report containing the criticisms I have referred to above.  The Antenna directors voted against a resolution at a board meeting on 4 July 2012 to ratify the decision.

31.  The first instance judicial review proceedings were heard on 30 and 31 August 2012 before Au J.  Kevin Tsai asked to be allowed to attend the hearing.  The CA consented.  However, ATV refused to provide its consent, and Kevin Tsai had to write to the Court directly to seek permission which was granted.

32.  Au J delivered his judgment on 19 October 2012 in ATV’s favour.  Kevin Tsai asked for a copy of the judgment, but by email dated 29 October 2012, Stephen Luan refused to provide a copy of the judgment to Kevin Tsai.  Kevin  Tsai requested a copy of the judgment at the Board Meeting on 10 December 2012, but this request was not put to the vote by Stephen Luan, Chairman of the meeting.

33.  The CA’s appeal was heard on 17 and 18 April 2013.  The ATV Board was not provided with the relevant documents until after the hearing, on 24 April 2013.  The Court of Appeal delivered its judgment on 15 May 2013 allowing the CA’s appeal. As Kwan JA noted (at §91):

“In making the provisional finding that Mr. Wong is in de facto control, the Authority has relied, first and foremost on the documentary evidence – Minutes supplied by ATV, Minutes supplied by Interviewees, the consultancy agreement between Mr. Wong and Mr. Shing”

34.  On 23 May 2013, without informing the Board, ATV applied for leave to appeal to the Court of Final Appeal. The Board was again only informed ex post facto on 26 May 2013.  The Court of Appeal refused leave on 5 June 2013.  On 15 August the Court of Final Appeal dismissed the leave application.

35.  On 23 August 2013 the CA published its Final Report confirming their earlier view that Wong Ching was in de facto control of ATV and that the Consulting Agreement was a sham.  The CA found that ATV was in breach of the terms of the Licence and imposed a HK$1,000,000 fine.  It also found that Mr. Shing was not a fit and proper person and ordered that he cease to be a director of ATV within 7 days.  Mr. Shing resigned on 31 August 2013 as a director, but before doing so convened a board meeting which took place on 28 August 2013 to discuss the CA’s final report, a potential judicial review in respect of its findings and the appointment of an executive director to replace him, who was Mr. Louie King Bun.  A transcript is also available for this board meeting, which records Mr. Tsai stating, and not being contradicted, that directors had not been provided with any information about Mr. Louie prior to the meeting.

36.  On 24 September 2013 a board meeting took place primarily to discuss providing to Wong Ching security for loans that he had advanced to ATV.  At this time ATV had not had any audited financial statements prepared for some years, which was in breach of both the Companies Ordinance and the terms of the Licence.  What was, however, clear was that ATV has been operating at a substantial loss for a number of years.  By August 2014 KPMG had audited ATV’s financial statement for 2013.  These record losses for 2012 of HK$340,037,108 on a turnover of HK$257,449,048 and losses for 2013 of HK$378,422,682 on a turnover of HK$168,091,717.  This included finance costs of HK$95,423,200 and HK$108,101,821 respectively.  At the board meeting it was revealed that between 2010 and 2013 Wong Ching had made unsecured loans to ATV totaling HK$722,989,000.  These loans had not been approved by the Board.  Ratification of this loan was sought.  Approval was also sought for further lending of HK$1,000,000,000 from Wong Ching to be secured against ATV’s assets if shareholders did not take up their pro rata portion of the proposed lending.  Both resolutions were passed.

37.  A dispute arose between the shareholders concerning the proposed security.  Antenna contended that the proposed arrangement would have the effect of granting security in respect of the then unsecured loans and also breach the terms of the convertible notes that had been issued.  After a threat of an application to enjoin ATV entering into the arrangement the proposal was withdrawn and the resolution approving it revoked.

38.  On 27 November 2012 San Want obtained leave from Barma J to commence the present proceedings on behalf of Antenna.  The Petition was issued on 19 December 2012.  This sought an order that managers be appointed over ATV and an order made that Panfair sell its shares to an independent third party thus depriving Dragon Viceroy and China Light of control of ATV.  Initially Antenna sought an interim order for the appointment of managers, but this I took the view was not practical and that it was more expedient to bring the matter on for trial as soon as was practical.  The trial commenced on 25 November 2013 and finished on 13 December 2013.  The Petition was amended 4 times to add new complaints.  In its final form the Petition summarises Antenna’s complaints and the relief it seeks as follows in paragraphs 8 to 10 (in clean form):

“8. It is the Petitioner’s position that:

(a) Specific acts of mismanagement were conducted by Mr James Shing (as the Executive Director of the Company from 4 March 2010 to 31 August 2013) and/or the majority of the Board of the Company (the “Board”). Such acts include, inter alia, excluding the Petitioner from having any real participation in the management of the Company, negligent and/or inefficient management of the Company, and a denial of access to the Petitioner of full and proper information concerning the Company’s affairs.

(b) Moreover, the Board (now de facto controlled by Mr Wong Ching) has failed and continues to fail to prevent and/or rectify such acts of mismanagement to the detriment of the Petitioner as minority shareholder, and the 6 directors representing Panfair and the Mainland Shareholders (the “Wong Controlled Majority of the Board”) persistently breached and continue to breach their fiduciary duties (i) to exercise independent judgment; (ii) not to improperly favour one section of the shareholders over another; and (iii) not to exercise their powers for an ulterior purpose. The acts complained of in this Petition are unfair and prejudicial to the Petitioner. In particular, but without limitation, by appointing Mr James Shing as Executive Director and allowing Mr Wong Ching to exercise de facto control of the Company, or to be involved in the management of the Company to such an extent that he gave the CA reasonable grounds for believing that he had de facto control of the Company, through a sham Consulting Agreement which in turn put the Company’s broadcasting licence in jeopardy (as pleaded in, inter alia, paragraphs 95-98 below), and allowing the conduct complained of in this Petition to occur (and continue), the Wong Controlled Majority of the Board were (and continue to be) in breach of their fiduciary duties above and to act in the best interests of the Company. Furthermore, in procuring or allowing their nominated Directors to approve the appointment of Mr James Shing, thereby allowing the conduct complained of in this Petition to occur (and continue), the Mainland Shareholders and Panfair were also complicit in these continuing breaches of fiduciary duties, to the detriment of the Company.

9. The relief the Petitioner seeks pursuant to this Petition is directly responsive and proportionate to the need to address the unfair and prejudicial conduct which has occurred (and is continuing) persistently, to the detriment of the Petitioner, as well as providing a structural solution which recognises, on the one hand, the majority ownership of Mr Wong Ching (through Panfair and the Mainland Shareholders) and, on the other hand, the unfair and prejudicial conduct of Panfair and the Mainland Shareholders, and the wrongful conduct of their appointed directors, which has disentitled them from the right to manage and control the Company.

10. The principal relief sought therefore is the appointment of a manager who shall have the power to, and shall:

(a) seek to identify an independent third party purchaser to purchase all the shares in ATV held by (i) Panfair (amounting to 10.75% of the registered share capital of ATV), or, in the alternative (ii) each of the Mainland Shareholders and Panfair.

(b) assume a role on the Company’s Board and shall have the power to appoint an alternate director and, if an alternate director is so appointed, they will be the joint and several managers of the Company (the “Managers”). Such Managers shall also be granted reasonable powers to ensure that the affairs of the Company are conducted competently and fairly in the interests of the Company and Shareholders, and to be authorised to obtain access to all documents and information available in order to conduct all necessary investigations and/or proceedings as necessary to address any wrongs committed against the Company. In so far as is necessary at the time of the trail, the Managers shall also ensure a proper process is adopted for the recruitment and appointment of a CEO thereby enforcing the Petitioner’s rights pursuant to Clause 6 of the ATV Shareholders’ Agreement (see paragraph 21 below) and the Managers shall ensure the actual appointment of a CEO.”

39.  The complaints are expanded in the subsequent paragraphs of the Petition.  It is asserted that it was known to Wong Ching by virtue of his representative directors attendance at a board meeting held on 23 January 2009 that the CA had been informed in February 2009 when told of the intended change of shareholding to introduce the Tsais that “Mr. Tsai, with his extensive business experience in Asia, will bring to ATV substantive management know-how, financial expertise and market insight, ATV’s association with Mr. Tsai will enable ATV to leverage Mr. Tsai’s background and experience, contributing towards its business growth”.  He also knew that Antenna was by virtue of ability to nominate the chief executive officer (“CEO”) and chief financial officer (“CFO”) intended to have a direct involvement in the management of ATV.  In addition he was aware of the Intended Transfer as this was referred to in clause 2.9.1(a) of the agreement that Wong Ching signed with the Chas on 2 March 2010.  The propriety of that agreement given the existing undertaking of the Chas is itself the subject of separate legal proceedings: HCA 773 of 2010.  Antenna complains that it, and in practice largely the Tsais, were prevented from participating in the manner envisaged.  In particular its nominated CEO, Nancy Hu, was excluded from meaningful participation in high level management decisions and her role usurped by the creation of an executive director, James Shing, acting under the direction of Wong Ching and then she was dismissed.  Board meetings were not convened regularly.  Appropriate financial information was not provided and James Shing made major decisions without board’s approval, in particular in respect of the decisions to pursue judicial review proceedings.  More generally no regard or interest was shown in the views of the Antenna directors.

40.  Antenna also complains that the directors appointed at the instigation of the Wong aligned companies exercised no independent judgment when determining resolutions and thus were in breach of their fiduciary duties.  Antenna says that they were simply ciphers for Wong Ching.  Amongst the examples cited in the Petition is their unquestioning approval of the Consulting Agreement after the CA had provisionally agreed that the Consulting Agreement was a sham to enable Wong Ching to exercise control over ATV.

41.  Central to the narrative of complaints is the role of Wong Ching.  Antenna contends that he was remains the person in control of the Wong aligned companies.  He is responsible for the problems referred to in the preceding paragraphs.  Antenna says that the Consulting Agreement and the direction by Wong Ching of the affairs of the Company were in breach of the Undertaking, caused the CA to impose a fine of HK$1,000,000 and require ATV to submit a proposal to the CA for improvement in ATV’s corporate governance.

42.  The trial finished on 13 December 2013.  Before judgment was handed down Antenna’s solicitors wrote on 17 February 2014 to the Court requesting the Court to have regard to certain matters that had occurred after the trial finished.  I declined to do so and informed them that if they wished to pursue the matter they would have to make an application to reopen the trial.  This they did and, perhaps surprisingly, shortly before that application was heard the Respondents agreed to it.  The first available date to recommence the trial convenient for all counsel was 25 November and the trial continued from 25 to 28 November 2014.  Antenna raised three new matters.

43.  The first arose from the termination and subsequent reinstatement of Nicholas Lee the head of ATV’s accounts department.  Mr. Lee was terminated by Mr. Louie.  There is a dispute between Mr. Louie and Mr. Lee and BK Wong on the other hand about why Mr. Louie did so.  He was subsequently reinstated.  Once again there is a dispute about why this took place.  Subsequently Mr. Louie was dismissed and replaced as CEO by Mr. Ip Ka Po.  The Antenna directors were not involved in these matters and have no knowledge of them.  Antenna’s complaint is that they were not kept properly informed of these events or consulted on the dismissal and replacement of very senior management.

44.  The second matter arises in part from the first.  After his dismissal Mr. Louie wrote to the CA alleging that Wong Ching had intervened in the operation of ATV on numerous occasions and had directly requested him to handle the external affairs of ATV.  In addition he alleged that Wong Ching instigated his dismissal.  In addition to receiving this information the CA also received 3 facility letters submitted to it in order to demonstrate ATV’s ability to finance its operations.  The facility letters describe Wong Ching as the “ultimate controlling shareholder” of ATV.  This, contends Antenna, supports its case at the first part of the trial that Wong Ching was in de facto control of ATV.  It also exacerbated the CA’s concerns that the Undertaking had been breached.

45.  The third matter concerns the way in which the majority directors have dealt with corporate governance issues.  At the first stage of the trial issues arose concerning the preparation and substance of a report on corporate governance of ATV by Kapital Advisory Partners (“KAP”).  On 7 February 2014 the CA responded to proposals to improve corporate governance contained in the KAP report.  The CA criticised the proposals as being too general and not adequately addressing its concerns.

46.  ATV replied on 15 April 2014.  On 20 June 2014 the CA wrote to ATV stating that ATV’s response had “fallen far short” of addressing the CA’s concerns.

47.  The CA’s letter was not sent to the Board until 3 July 2014.  It was not until 6 July 2014 that a draft reply was circulated.  This rejected the suggestion that independent non-executive directors (“INEDS”) be appointed on the grounds that it would be inconsistent with the Shareholders Agreement and therefore impossible to implement.

48.  Subsequent to these matters a further highly, significant event occurred.  On 5 September 2014 the CA sent to ATV their draft report containing their recommendation to the Chief Executive in respect of the renewal of the Licence.  The recommendation was that the Licence not be renewed.  The recommendation has to be submitted to the Chief Executive by the end of November.  The letter informed ATV that they should provide any written comments on the report and recommendation by 4 October 2014 and inform the CA by 27 September 2014 if they wished to make oral submissions.  ATV wrote on 15 October 2014.  The letter proposed nothing new in respect of improvement in corporate governance.  Mr. Ip, Mr. Lee and Mr. Luan subsequently attended a meeting with the CA.  Although at the time of preparing this judgment the CA’s final recommendation is not known it seems highly likely that it will be the recommendation contained in the report sent to ATV on 5 September 2014.  As  things, therefore, stand at present if the Chief Executive accepts the CA’s recommendation the Licence will expire.

49.  On 5 November 2014 Wong Ching’s solicitors sent to ATV a statutory demand for payment of HK$1,035,167,104.04. As I have already mentioned the 2013 audited financial statement show that as at 31 December 2013 ATV had a deficit of HK$1,095,742,887.  If the Licence is not renewed ATV will have no business and be massively insolvent.  At the end of the trial Mr. Chua confirmed that the only relief that Antenna seeks is the appointment of managers and a sale of the Panfair shares to an independent third party.  Antenna’s position is that if managers are appointed and an order that requires Wong Ching, or BK Wong, to relinquish control of ATV it may be possible to persuade the CA or the Chief Executive to renew the Licence.  Unless this happens I understand that Antenna anticipates that the Licence will not be renewed.

50.  During the cross-examination of Kevin Tsai and BK Wong the week before last it became apparent that in fact BK Wong, whether on his own behalf or as nominee for Wong Ching, is trying to sell his interest in ATV.  Therefore, there seems to be a recognition by both parties, although probably for different reasons, that it is desirable that BK Wong divests himself of his interest in ATV.

Legal principles – unfair prejudice

51.  Section 168A(1) of the Companies Ordinance, Cap. 32, provides:

“(1) Any member of a specified corporation who complains that the affairs of the specified corporation are being or have been conducted in a manner unfairly prejudicial to the interests of the members generally or of some part ofthe members (including himself) or, in a case falling within section 147(2)(b), the Financial Secretary, may make an application to the court by petition for an order under this section.”

52.  The concept of unfair prejudice has recently been explained in the context of its English equivalent, section 994(1) of the Companies Act 2006, by Arden LJ in Re Tobian Properties Limited [1].

“21. The key phrase in s 994(1), “unfairly prejudicial”, comprises two elements, unfairness and prejudice but both of these must be understood in the context of company law. The concept of fairness inherent in this phrase is flexible and open-textured but it is not unbounded. The courts must act on a principled basis even though the concept is to be approached flexibly. They cannot decide whether to grant or refuse relief from unfair prejudice on the basis of palm-tree justice. The impact of the context was explained by Lord Hoffmann in O'Neill v Phillips [1999] 2 All ER 961, [1999] 2 BCLC 1, [1999] 1 WLR 1092. The editors of Pettet's Company Law: Company Law & Corporate Finance (Longman 4^th ed 2012) have described his speech as “a state-of-the-art account of the rationale of this area of law”. So far as material to this case, Lord Hoffmann held, at 1 WLR 1092 at pp 1098–1099:

‘Although fairness is a notion which can be applied to all kinds of activities, its content will depend upon the context in which it is being used. Conduct which is perfectly fair between competing businessmen may not be fair between members of a family. In some sports it may require, at best, observance of the rules, in others (‘it’s not cricket’) it may be unfair in some circumstances to take advantage of them. All is said to be fair in love and war. So the context and background are very important.

In the case of s 459 [predecessor of section 994 in the Companies Act 1985], the background has the following two features. First, a company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality. The terms of the association are contained in the articles of association and sometimes in collateral agreements between the shareholders. Thus the manner in which the affairs of the company may be conducted is closely regulated by rules to which the shareholders have agreed. Secondly, company law has developed seamlessly from the law of partnership, which was treated by equity, like the Roman societas, as a contract of good faith. One of the traditional roles of equity, as a separate jurisdiction, was to restrain the exercise of strict legal rights in certain relationships in which it considered that this would be contrary to good faith. These principles have, with appropriate modification, been carried over into company law.

The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith.’

22. One of the most important matters to which the courts will have regard is thus the terms on which the parties agreed to do business together. These are commonly found in the company’s articles. They also include any applicable rights conferred by statute. In addition, the terms on which the parties agreed to do business together include by implication an agreement that any party who is a director will perform his duties as a director. Primary among these duties are the seven duties now codified in ss 171 to 177 of the Companies Act 2006. Under these duties, a director must act in the way which he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.”

53.  Whether or not a particular act is unfair has in the first instance to be judged by reference to the agreements that the shareholders have reached and established duties that apply to the conduct of the affairs of a company.  Accordingly, the articles of the company and any shareholders agreement will form the criteria by reference to which unfairness is to be assessed as will a director’s failure to comply with his or her fiduciary duties.  Complaints that are of this type fall into the first of the 2 categories referred to Lord Hoffmann in the passage Arden LJ quotes from O’Neill v Phillips and do not give rise to the type of difficulties common to petitions that invoke more equitable considerations that are by their nature harder to delineate and apply.  The present case falls into the former category, although the way in which the complaints have, as unfortunately is common, been formulated in the Petition and the Points of the Claim is largely a chronological narrative of matters which are said to be unfairly prejudicial with only isolated incidences in which the matter is identified as giving rise to a breach of a particular provision in the articles or the Shareholders Agreement.

54.  I would note in passing that it has become my practice to require nearly all unfair prejudice petitions to be pleaded and parties told that this is to ensure so far as possible that proper consideration is given to what matters can properly be relied on and careful consideration given to the relief sought.  As Arden LJ observes in paragraph 27 of her judgment in Tobian Properties:

“27. Unfair prejudice proceedings generally raise numerous factual issues entailing examination of events over a considerable period of time. Just as defended divorces used to raise numerous issues, making trials long and complex, so trials of section 994 petitions can be long and complex. Thus a high degree of case management is required if the case is not to get out of hand. Effective case management means that, where possible, the court prevents unnecessary court time being spent on issues that are not capable of giving rise to relief.”

This is a view I would strongly endorse.

55.  Given the desirability of giving a decision and making an order swiftly in the present case my approach has been to focus on the issues which in my view go directly to an assessment of whether unfair prejudice has been proved which justifies the very specific, and unusual, relief that Antenna seeks rather than deal with each complaint identified in the Petition.

Legal principles – relief

56.  It is not in dispute that the court has an unfettered discretion to grant relief under section 168A[2]. The specific circumstances of a particular case must be considered and weighed by the court to determine whether relief should be granted at all and, if so, what it should be[3] mindful that the main purpose of a remedy is to grant the most appropriate and fitting relief aimed at tackling the findings of unfair prejudice and preventing it recurring[4].  When framing the court is entitled to consider the entire circumstances of the case and have regard to the interests the company as a whole and those with an interest in most obviously creditors, but also in my view employees and the public if the nature of the company’s activities have a public dimension.  As Stanley Burnton LJ observed in Re Neath Rugby Ltd:

“… I do not see why the court should close its eyes to the interests of others, and the effect of any order made under s 996 on them, although of course the weight to be given to their interests will depend on the circumstances”;[5]

57.  A helpful working guide on how to approach the formulation of appropriate order is provided by Lewison J in Frederick Geraint Hawkes v. Michael Cuddy & Others [6]

“The general principles

243. The court has a wide discretion in fashioning an order once unfair prejudice has been proved. But like all discretions it must be exercised judicially and on rational principles: Profinance Trust SA v Gladstone [2002] 1 BCLC 141. The starting point is the judgment of Oliver LJ in Re Bird Precision Bellows [1986] Ch. 658, 669:

‘The whole framework of the section, and of such of the authorities as we have seen, which seem to me to support this, is to confer on the court a very wide discretion to do what is considered fair and equitable in all the circumstances of the cases, in order to put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company.’ ”

58.  In the more recent case of Grace v. Biagioli [7]the Court of Appeal explained:

“Once unfair prejudice is established, the court is given a wide discretion as to the relief which should be granted. Although [s 461(1)] speaks in terms of relief being granted ‘in respect of the matters complained of’, the court has to look at all the relevant circumstances in deciding what kind of order it is fair to make. It is not limited merely to reversing or putting right the immediate conduct which has justified the making of the order. In Re Bird Precision Bellows Ltd [1985] BCLC 493, [1986] Ch 658 Oliver LJ described the appropriate remedy as one which would ‘put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company’. The prospective nature of the jurisdiction is reflected in the fact that the court must assess the appropriateness of any particular remedy as at the date of the hearing and not at the date of presentation of the petition; and may even take into account conduct which has occurred between those two dates. The court is entitled to look at the reality and practicalities of the overall situation, past, present and future.”

If the unfair prejudice has been remedied at the date of the hearing of the petition and is unlikely to be repeated the court may conclude that no relief is required, but if this is not the case the court asks what can be done by way of relief to prevent the unfairly prejudicial state of affairs continuing and in framing relief which has this result there is, in principle, no restrictions on what that relief might be.

Unfair Prejudice: Factual Issues

59.  Although Antenna has advanced a series of complaints in substance they amount to one composite criticism: since Wong Ching acquired an interest in ATV, Wong Ching has directed the affairs of ATV without proper regard to Antenna’s rights under the Shareholders Agreement, proper corporate practice, the requirements of the Licence and the CA generally.  The result of this is that the continuation of the Licence has been put at serious risk and with it the continued viability of ATV.

60.  Antenna’s case can be divided into 4 components.  The first component is the way in which Wong Ching came to be involved with ATV.  Antenna says that the incontrovertible facts largely speak for themselves.  On 23 December 2009 Wong Ching acquired the Mainland Shareholders interest in ATV.  On 21 January 2010 ATV's board of directors was officially notified of the proposed acquisition of the Mainland shareholders interest in ATV.  A draft confidentiality letter prepared by Baker McKenzie referred to “the proposed acquisition by Mr Wong Ching or his designated person(s) or company(ies) or entity(ies).”

61.  On 28 January 2010 Ms YF Shing and Ms SK Shing, both relatives of Wong Ching, were appointed as alternate directors of the Mainland Shareholders’ nominated directors.  On 2 March 2010 the Chas and Wong Ching concluded a conditional agreement pursuant to which Wong Ching would acquire the Chas’ interests in Panfair and Pelaka.

62.  On 4 March 2010 Mr James Shing and Mr Even Sheng were nominated by Panfair as its directors on the ATV Board.  The appointment was made by Panfair pursuant to the share and purchase agreement made between the Chas and Wong Ching in relation to Panfair and Pelaka, under which Wong Ching was entitled to nominate 3persons to be appointed as ATV’s directors pending completion of the sales and purchase of the shares.

63.  On 15 March 2010 Mr Wong Ching appeared in ATV’s headquarters and told the press he had added 4 relatives to the ATV Board.  He said the transaction for his acquisition of a stake in ATV had yet to be completed, but he was working as a volunteer at ATV and had mapped out ATV’s mid and long‑term goals.  On the same day Wong Ching had a meeting with Ms Nancy Hu, ATV’s then CEO, Ms Maisy Leung and Ms Cherry Yuen at which he requested access to information relating to ATV, including both financial and legal information.

64.  On 16 March 2010 Mr Wong Ching had meeting with ATV’s senior management at which he informed them of his future plans for ATV in Mainland China, Hong Kong and Macau, potential expansion in South East Asia and Taiwan, and a potential IPO.  He also set revenue targets and an action list for them and made recommendations on ATV’s programme scheduling.  At this time the press reported that Mr Wong Ching had continued his role as a “special volunteer” by attending meetings at ATV, including meeting ATV’s staff who handled a number of ATV’s productions.

65.  Self-evidently, says Antenna, these were the actions of a man who was intending to take control of ATV.  On 22 March 2010 an agreement was concluded between Wong Ching and BK Wong pursuant to which BK Wong was to acquire the shares in Panfair and Pelaka that Wong Ching had agreed on 2 March 2010 to purchase from the Chas.  The agreement is short, 4 pages, and perfunctory providing little more than that the shares are to be transferred to BK Wong or his corporate nominees for the specified purchase price.  I note that in paragraph 20 of his witness statement BK Wong says of Wong Ching “it was and still is always his aspiration to elevate the status of ATV from a domestic TV channel to one which will be able to gain a foothold in the market in the Mainland.”

66.  The second component relates to the Consulting Agreement made on 15 April 2010. The Consulting Agreement provided in clause 2.1 that “from time to time during the Consulting Period, the Senior Consultant  [Wong Ching] shall, in a timely and diligent manner, provide advice, recommendations, assistance and support to the Appointer [James Shing] in relation to the management, operations and businesses of the group”.  The Consulting Period was not defined.  The fee was to be agreed and paid by James Shing.  In practice none was paid.  The Consulting Agreement characterises Wong Ching as an independent contractor assisting James Shing discharge his duties as executive director of ATV.

67.  The fact that Wong Ching was retained by James Shing as a consultant suggests that despite the agreement of 22 March 2010 with BK Wong the reality was that, as the matters leading up to 22 March 2010 indicate, Wong Ching was the real investor in ATV.

68.  The Consulting Agreement was not approved by the Board at the time it was made and not brought to its attention until a notice was sent to the Board members on 20 March 2012, purporting to convene a board meeting the next day, which refers to it as one of the matters to be discussed and attaches it.  The Antenna directors objected to the meeting being held at such short notice and it was held on 26 March 2012.  At the meeting on 26 March James Shing sought its ratification, although this matter was not included in the agenda for the meeting and no information explaining why ratification was sought had been provided prior to the meeting.  The Antenna directors all voted against the resolution, but it was passed.  At this time the CA was investigating whether or not Wong Ching was exercising de facto control over ATV.  Antenna says that a truly independent board would have appreciated that it was undesirable to ratify the Consulting Agreement in the face of CA concerns particularly as no reason was advanced by the Wong aligned directors for doing so.  It is clear from the transcript that none of the Wong aligned directors gave any reason at all for ratifying the Consulting Agreement and, in particular, James Shing gave no explanation for why he needed Wong Ching’s assistance.

69.  The arrangement between James Shing and Wong Ching continued in place until the publication of the CA’s final report on 23 August 2013 in which, amongst other things, the CA recorded its conclusion that Wong Ching did exercise de facto control over ATV and was in breach of the No‑Control Undertaking.  On 31 August 2013 James Shing resigned as a director having been replaced as executive director by Mr. Louie on 23 August 2013.

70.  Antenna says that Mr. Louie’s correspondence with the CA after his dismissal demonstrates that notwithstanding the CA’s report Wong Ching continued to interfere in ATV’s affairs.  As a result the CA’s concerns about the corporate governance within ATV have escalated and contributed to its recommendation to the Chief Executive that the Licence should not be renewed on its expiry on 30 November 2015.

71.  The third component is financing.  Wong Ching undertook to the CA to provide funding for ATV.  On 18 June 2010 Baker & McKenzie acting on behalf of Wong Ching wrote to the CA seeking various approvals in connection with change in beneficial ownership consequential on the Chas sale of their interests.  In paragraphs 7.2 and 8 of that letter Baker & McKenzie state the following:

“7. Intended Cooperation between the New Shareholder and CW

…

7.2 As confirmed by CW, he has provided the funding to Panfair, Dragon and China Light, respectively, to finance their subscription of certain convertible notes offered by ATV, and it is his intention to provide further financing to ATV through Panfair, Dragon and/or China Light on such terms as the relevant parties may agree in support of ATV’s operation and development.

…

8. Investment Commitment

We are aware that ATV has previously submitted to the broadcasting Authority a proposal relating to a HK$2.3 billion investment commitment for 2010  to 2015, but so far we have not been made aware of the details of such proposal. Notwithstanding so, CW would like to hereby stress that subject to Completion he has a strong commitment to provide financial support to ATV in order to ensure that it will be able to maintain a sustainable operation.  CW further confirms that he will request for the details of the aforesaid investment commitment proposal from ATV in due course and, once he has been provided with sufficient information, he should be in a position to make a more appropriate and specific commitment.”

72.  It would appear from the documents that by the time the Board meeting held on 24 September 2013 took place, Wong Ching had made unsecured loans totalling HK$723,000,000 which had not been approved by the Board in respect of which the Wong aligned directors sought ratification.  I note, although this was not a matter explored at the trial, that the audited financial statement for the year ending 31 December 2013, which had not been available during the first part of the trial, would appear from note 18 to treat them as having been made by BK Wong.  However, Mr. Luan during his evidence confirmed that by the middle of 2010 Wong Ching had lent about HK$800,000,000 and the loans were unsecured.

73.  On 22 April 2014 Payson Cha and Johnson Mou presented a winding‑up petition against ATV for non-payment of interest payable on convertible notes issued to them. They were owed approximately HK$290,000,000.  Towards the end of June, ATV entered into a loan agreement with Treasure Ridge, a BVI company, to borrow HK$290,000,000 to settle the debt owed by ATV to Mr. Cha and Mr. Mou.  Wong Ching guaranteed the loan. 

74.  As recently as August 2014 Wong Ching entered into 3 facility agreements with Treasure Ridge, and it would appear 2 associated BVI companies, for a total of HK$2.7 billion to demonstrate his ability to continue to provide financial support for ATV to the CA for the purposes of their consideration of whether or not to recommend the renewal of the Licence.

75.  Antenna argues that such an extensive involvement in financing ATV is consistent with, and only makes commercial sense if, Wong Ching was in reality a substantial investor in ATV.

76.  The fourth component concerns the conduct of the Wong aligned directors.  Antenna says that it is clear, as demonstrated by the transcripts of the board meetings, that other than for James Shing and Mr. Luan the Wong aligned directors contributed nothing of substance to discussions.  They were present at meetings simply to ensure that resolutions introduced by James Shing or Mr. Luan were passed.  For reasons I have explained above Antenna says that James Shing was doing Wong Ching’s bidding.  Mr. Luan is a director of Rongfeng Holdings Group Ltd and had been its chief financial officer.  Rongfeng is an A listed‑share company in Shenzhen.  Wong Ching is its Chairman and major shareholder.  Mr. Luan attended the dinner in November 2009 with Wong Ching and Tsai Eng Meng to discuss Wong Ching investing in ATV.  Antenna says that self‑evidently James Shing and Mr. Luan were Wong Ching’s representative directors and acted in accordance with his wishes.  They were clearly not interested in involving Antenna’s directors in the management of ATV.  Given the terms of the Shareholders Agreement and the experience of the Tsais in running television stations the only plausible explanationfor this is that Wong Ching wanted to control ATV and had no interest in sharing control, as the Shareholders Agreement required, with Antenna and the commercial interests that it represented.

77.  Mr. Luan lack of interest in actively involving Antenna’s directors in ATV’s affairs has continued after the first part of the trial finished in December 2013.  Mr. Louie was dismissed and replaced with Mr. Ip without any meaningful consultation with Antenna’s directors.  This continues a pattern, says Antenna, of marginalising its directors.

78.  Wong Ching did not give evidence at the trial.  BK Wong did.  BK Wong explains in his witness statement that his Wife is a distant relative of Wong Ching.  He had met Wong Ching socially as a result of this connection and he had 2 business ventures with Wong Ching although only 1 came to fruition.  He goes on to explain in his witness statement that he was approached by Wong Ching, who explained to him that because he could not satisfy the residence requirements of the Broadcasting Ordinance he had decided not to acquire the a majority control of ATV himself.  Wong Ching suggested that BK Wong acquire the interest he had agreed to buy from the Chas.  BK Wong explains his reaction to this proposal in paragraphs 26 to 29 of his witness statement:

“26. Having heard more about the potential of ATV, I was also interested in the opportunity to invest in the business of ATV. I understood that he saw ATV as a good investment, but that he considered he might not fulfil the Residency Requirement and thus decided not to acquire the shares of ATV himself. I trusted Mr Wong Ching’s commercial sense and judgment and could see the potential of launching ATV into the Mainland to serve as a connecting platform for Hong Kong and the Mainland. If that could be achieved, ATV would be able to substantially expand its business, and would prove itself to be a good investment for me.

27. One cause for concern for me at that time was that, as would appear from the media reports from time to time, ATV was running at a loss and was in need of substantial capital injection to sustain its operations. In this respect, Mr Wong Ching informed me that it was his intention to provide financial support to ATV even if he could not become its shareholder, and he assured me that if I were to acquire the majority shareholding in ATV, he would continue to provide funding to ATV by way of loans to finance its operations.

28. Based on Mr Wong Ching’s assurance and with a view to realising the vision of promoting the business and status of ATV in Hong Kong and possibly in the Mainland as well, I agreed to take up the opportunity to purchase a majority shareholding in ATV.

29. Given that I was not familiar with and had no relevant experience or expertise in the television or broadcasting industry, it was my intention that I would only be a passive investor in ATV and would not personally take on any active role in the management of ATV. Besides, I was already fully occupied with my business with the Prosperity Group. As such, my intention was to entrust the management and day-to-day operations of ATV in the hands of the Board of Directors.”

79.  What BK Wong does not explain in his witness statement is the reasons why Wong Ching was willing to make such large unsecured advances to a company which was loss making and in which he had no equity interest and why he had “aspirations” for a company in which he had no interest.  It is difficult to believe that it was out of a sense of altruism.  Presumably he saw a personal benefit in ATV achieving the statues he aspired to it achieving, but BK Wong’s witness statement is strikingly lacking in any attempt to explain what it might be or any attempts by him to find out.  Similarly BK Wong does not articulate any reason why he saw an investment in ATV as being in his financial interests, it was, after all loss making.  BK Wong was cross-examined on these matters.  The following extracts show how he dealt with this issue:

“Day 11 page 72 line 1 to line 4

HIS LORDSHIP: ...It was whether it would be fair to say that the arrangement that you made with Mr Wong Ching was joint business venture between you and him.

A. Right, correct and a fair one.

…

Day 11 page 83 line 4 to line 15

HIS LORDSHIP:     And it was important to your thinking that Mr Wong Ching continued to have an active involvement in the development of ATV, as I understand it?

…

A. If he would not help ATV to get access to the mainland market, or rather to get permission to be broadcast on the mainland, and also would not help to get advertisements, at that time I would not have purchased.”

80.  What did become clear during BK Wong’s cross-examination is that he had not involved himself in ATV’s affairs.  He does not seem to have received regular reports about its progress other than what he was told when he occasionally met some of the directors socially[8]. Neither would it appear that on becoming aware of the CA’s concerns he instructed the directors who represented his interests to independently investigate the matter and tell him if Wong Ching had over‑stepped the mark[9].

81.  What is also notable and relevant is that nowhere in BK Wong’s evidence does he suggest that either Wong Ching or he thought that there was a role for the Tsais in the development of ATV.  BK Wong talks as if he was the sole shareholder of ATV. This indicates an indifference to Antenna’s legitimate and lawful interests under the Shareholders Agreement and the right of its directors to be engaged in the governance of ATV.  Kevin Tsai in his evidence talks of not being taken seriously and in cross-examination when dealing with 2 particular matters explained, with some, in my assessment genuine, emotion, he felt that his attempts to deal with issues of concern to him were being treated lightly and he was simply being mad fun off:

In relation to the Board meeting on 26 March 2011.

“Day 7 page 66 line 14 to line 22

A. …If you look at item 3, “the company to reserve its right against James Shing or Wong Ching to recover if there are any damage costs”, I do not see how going against, voting against this kind resolution would be for the interests of the company. At that time basically they’re just making fun out of me. “You want it, you vote. I’ll vote against you anyways. Go for a vote, call for a vote. We’ll vote.” That’s what happened.”

In relation to his attempts to obtain access to documents and information about ATV and the establishment of, what has been described as, a data room containing documents.

“Day 7 page 102 line 12 to line 19

A. …He’s [Mr. Luan] a very smart person, and I respect him a lot. If you -- the content of the data room itself, those are for auditors to work on their paper materials. I’m not there to look at the general ledger and look at each and every invoice. I’m not there to do an audit. That was -- they’re just trying to make fun of me, you know? This is very rude to me, to be honest, to go into a data room and see things like that.”

Kevin Tsai explained that what he wanted was the type of report and memoranda that one would expect senior staff to have prepared for directors not access to large quantities of source material.

82.  This last point does not of itself cast much light on the large issue that I am considering, namely, whether or not Wong Ching was the real owner of Wong aligned companies.  This issue involves assessing whether or not the matters Antenna point to establish on the balance of probabilities that Wong Ching rather than BK Wong is the person in control of the Wong aligned companies and in de facto control of ATV.  In my view they do and I so find, although the position may be more nuanced than Antenna suggest.

83.  The matters to which I have referred in paragraphs 60 to 80 point compellingly to the conclusion that Wong Ching was the real investor in ATV and that BK Wong was introduced in order to overcome the problem caused by the residency requirement in the Ordinance.  It is very difficult to see why Wong Ching would have been prepared to commit so much money and time to a company in which he had no equity and in my assessment BK Wong’s evidence was too vague to amount to a satisfactory explanation for this unusual state of commercial affairs.  The evidence points to Wong Ching seeing ATV as a vehicle for entering the large Mainland market and that at some point in time he envisaged being able to take an explicit interest in the venture and until then BK Wong would be presented to the CA as the beneficial owner of the Wong aligned companies.  It may be that the arrangement with BK Wong gave BK Wong some economic interest in ATV.  I think it is probably instructive that BK Wong was prepared to describe his arrangement with Wong Ching as a joint venture.  This may in some respects be correct.  However, in my assessment BK Wong has not told the Court the whole story.

84.  The implication of the finding that Wong Ching was in de facto control of ATV is in my view decisive for the determination of this case.  It follows that in my view the CA’s conclusion is correct.  Wong Ching and BK Wong have constructed a bogus arrangement intended to circumvent the provisions of the Ordinance and in breach of the terms of the Licence and the Undertaking given to the CA by them.  It also follows that BK Wong must have known this.  This conduct has directly contributed to the present predicament in which ATV finds itself: the CA has recommended to the Chief Executive that the Licence is not renewed.  If the Licence is not renewed Antenna’s economic interest in ATV will be destroyed.  Antenna has been prejudiced by Wong Ching and BK Wong’s conduct in creating and implementing this scheme of deception and in the actions of the Wong aligned directors in assisting its implementation: its seems inherently unlikely that James Shing and Mr. Luan did not know what the real arrangements were.  This was not only prejudicial but clearly unfairly so.

85.  In addition in my view it is also clear that the Wong aligned directors and Wong Ching himself had no interest in complying with the terms of the Shareholders Agreement or allowing the Antenna directors to play a meaningful role in the operation of ATV.  The most obvious adverse consequence of this is that no regard was given to their attempts to prevent the deception on the CA which Wong Ching in my view perpetrated.

86.  A theme that ran through the Wong aligned companies’ defence was that their control of ATV came about and remained necessary because of the unwillingness of the Tsais to provide the finance that ATV desperately required.  The upshot of this being that it sits ill in the mouths of the Tsais to complain about the attempts of the party financing ATV to build a better company: and I accept that, however misguided their approach to corporate governance, this is what Wong Ching, BK Wong and their directors wanted.  They also pointed to the internal disputes within Antenna, namely, between the Chas and the Tsais which had prevented them agreeing on nominees for chief executive officer and chief financial officer as the Shareholders Agreement provided.  In these circumstances they say Antenna can hardly complain that Wong aligned companies took the initiative to appoint an executive director and direct ATV’s operations.

87.  I accept that the disagreements between the Chas and the Tsais have created the opportunity for the Wong aligned companies to control the Board and effectively the management of ATV.  I also accept that for this reason a degree of latitude is justified in assessing whether or not the conduct of Wong Ching and those associated with him has been not just prejudicial but unfairly so.  However, it does not seem to me that it excuses a course of conduct which has misled the CA, paid lip service to agreements and the notion of proper corporate governance and seriously, perhaps fatally, jeopardised ATV’s future existence.

88.  As I have explained in the section of this judgment dealing with legal principles the very wide discretion the court is given to do what is fair and equitable is to be used to put right for the future unfair prejudice a petitioner has suffered.  Mr. Chan argued that much of the complaints advanced, such as that relating to James Shing, had been remedied and that having regard to this the extreme relief sought by Antenna was neither necessary nor justified.  It does not seem to me that given that it is now probable that the Licence will not be renewed unless some significant changes takes place in the governance of ATV it is appropriate to approach this case on the basis that the court is aiming to remedy the individual types of activity which go to make up the complaint.  The unfair prejudice is now Antenna losing its investment and the opportunity to exploit the Licence effectively as a result of the Licence being lost and ATV being put into liquidation, which it must be assumed would be the consequence of the Licence not being renewed.  There are 2 ways of trying to remedying this.  The first, and  the conventional, would be an order that the Wong aligned companies buy Antenna’s shares at a value determined on the basis that the unfair prejudicial matters had not occurred.  The second, which is what Antenna seeks, is a novel order appointing managers and ordering Panfair to sell its shares to change the control at board level.

89.  The relief sought by Antenna was subject to forceful attack by ATV at the end of the first part of the trial.  The attack focused on the difficulties of finding an investor willing to purchase a non-controlling interest in a company with huge debt and facing, even at the time, the possibility of non-renewal of its Licence. I accept that there is a very real risk that a new investor will not be found. If this happens it seems probable that ATV will cease operation and all shareholders will lose their investment and Wong Ching will lose the sums he has advanced to ATV or guaranteed.  It might be thought that the safer choice for Antenna would be an order that its shares are bought out, although that would presumably depend on whether it could be established that the shares had any quantifiable economic value given that it has been consistently making significant losses.  What Antenna seeks, if I have understood correctly the rational for seeking an order that Wong aligned companies sell the stake which gives them control over the Board, is that Antenna, and in practice the Tsais, think that if ATV is managed properly it has a viable future.  I am not in a position to assess whether or not that commercial decision is sensible.  What I am concerned to assess is whether the order sought is a fair and equitable way of putting right for the future the unfair prejudice suffered as a result of the actions and omissions of the Wong Ching and the Wong aligned companies.  In my view it is.  It is the actions of Wong Ching and the Wong aligned directors who have directly contributed towards the CA concluding that the Licence should not be renewed.  This is evident from the matters that I have described earlier in this judgment.  It is noteworthy that even now that Wong aligned directors and BK Wong seem to have difficulty recognising the need to address effectively the CA’s concerns.  For example, the CA has made it clear that ATV should have INEDs.  The reaction of the Wong aligned companies is that this would be inconsistent with the Shareholders Agreement, but they have not suggested to the other shareholders that the Shareholders Agreement be amended to provide for this.  The real reason seems to be an unwillingness to relinquish control of ATV or accept that the statutory regime has to be complied with and not treated as an inconvenience to be circumvented.  Unless this attitude is changed and the CA see a materially different approach to addressing the issues that they have identified it seems fairly clear that ATV will lose its Licence. In fact it is remarkable that the Wong aligned directors have even as recently as September seemed either not to appreciate this or, if they do, because they act at the behest of Wong Ching and BK Wong, who cannot countenance the CA’s requests, have simply not addressed them.  Mr. Ip’s evidence is instructive in this regard.  It will be recorded that Mr. Ip is a director and the CEO of ATV.  He gave this evidence in relation to the approach to responding to the CA’s letter of 20 June 2014 in which they explain that in their view the revised proposals to improve corporate governance submitted by ATV on 14 April 2014 had “fallen far short” of addressing the CA’s concerns:

“HIS LORDSHIP: Before this letter was sent, Mr Ip, did you have any discussions with any of your fellow directors or Mr BK Wong or Mr Wong Ching about the possibility, if you sent a reply in this form, of the Communications Authority deciding to recommend that the licence wouldn’t be renewed?

A. I did not. I don’t know if Stephen or Nicholas discussed this matter with either of those directors.

HIS LORDSHIP: I’m asking about you. You’re the executive director.

A. Yes.

HIS LORDSHIP: Did it not cross your mind that if you sent a letter in this form to the Communications Authority, they would react very negatively and conclude that they should recommend that the licence was not renewed?

A. Yes, I did give thought to those things.

HIS LORDSHIP: And did you voice those thoughts to anybody on the board, or Mr Wong Ching or Mr BK Wong?

A. No. Because we reviewed our company’s circumstances and think that what’s stated in the proposal was – were the most effective measures.

HIS LORDSHIP: Let me get this right: it didn’t cross your mind that the response of the Communications Authority might be, well, that’s unsatisfactory. We are going to recommend the termination of the licence, and given that risk, it might be a good idea to sit down round the table with the other shareholders and discuss the possibility of changing the shareholders’ agreement and the articles so you could accommodate and achieve the Communications Authority’s requests?

A. I gave thoughts to all those things. Nevertheless, when the CA considered to grant licence or not, the proposal was only one of the things considered by the CA.

HIS LORDSHIP: Did anybody come to you, any of your colleagues, “Aren’t we going to have to do something to placate the Communications Authority or we run a serious risk of losing the licence?”

A. Yes. Some of the board members raised this point during the board meetings.

MR CHUA: Those directors would be from Antenna, correct?

A. Yes.”

90.  Mr. Ip also said that he only quickly read the CA’s report of 5 September 2014 indicating that it intended to recommend to the Chief Executive that the Licence not be renewed.  My impression was that Mr. Ip took little interest in a matter, which one would have thought would be at the forefront of issues that the CEO had to address at the time, because his views were of little relevance.  He  was simply there to do what Wong Ching and BK Wong told him to do probably with Mr. Luan being the conduit for instructions. 

91.  What needs to be remedied is the conduct that he led to the CA’s recommendation and this can only be done by removing control from the hand of the Wong aligned directors because they have repeatedly demonstrated that they will not deal properly with the CA’s concerns.  If this is not done it must be assumed that the Licence will not be renewed and ATV will be liquidated with loss of jobs and, at least for a period I assume, a reduction in the viewing options available to the public.  It seems to me that these are considerations that I can properly take into account in determining what relief to grant.

92.  Antenna have also sought 2 other orders.  The first is that the 2^nd and 3^rd Respondents do indemnify ATV for the HK$1 million fine imposed on the company largely as a result of the finding that the Consulting Agreement was a sham.  James Shing and Wong Ching chose to take no part in the trial.  I find that they did cause this loss and will order that they indemnify ATV in respect of it.

93.  The second is that the 2^nd to 6^th Respondents indemnify ATV for the costs of addressing the CA’s draft report.  Although the way in which this report was addressed, in particular the judicial review proceedings, arguably demonstrated poor judgment it seems to me to be conduct, as illustrated by the fact that ATV were successful before Au J, which falls into the category of activity about which businessmen can disagree rather than a breach of duty for which the ATV should be compensated.

94.  I will now hear counsel on the precise terms of the order.