W. HAKING ENTERPRISES LTD v. WONG IGNATIUS WAN CHIU AND ANOTHER

DCCJ6048/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6048 OF 2002

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JUDGMENT

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Background

1. The plaintiff W. Haking Enterprises Ltd. was incorporated in January 1956. One of its funding members was Dr. Haking Wong. The 1st defendant ("D1") and the 2nd defendant ("D2") are two of his children. They are also shareholders of the plaintiff each holding 11,749 shares out of a total of 1,056,869 issued and allotted shares.

2. D1 was appointed a director of the plaintiff on 3/5/1991 and made a managing director on 1/6/92. For his position as a director, he was given an annual director's fee of HK$5,000. In 2002, his position of managing director carried a monthly salary of HK$138,470.00. His employment contract was made orally and without any record in writing. The employer's returns filed by the plaintiff in respect of his employment income for the financial years ended 31st March 1988 to 1991 stated that he was a consultant. The return for 1992 stated that he was a manager. The returns for 1993 to 2002 stated that he was a managing director. Apart from these engagements, there is no evidence to indicate that he was engaged by the plaintiff in any other executive or salaried position.

3. D2 first became a salaried employee of the plaintiff in 1969. She was appointed the company secretary in 1985 and was thereafter appointed a director on 1/11/85. She was appointed by the plaintiff's board to be the chairman of the plaintiff on 8/5/00 on the proposal of the then sole chairman Dr. Pauline Chan who was resigning. For her position as a director, she was given an annual director's fee of HK$5,000. In 2002, her positions as secretary and chairman carried a monthly salary of HK$138,470.00. Her employment contract was also made orally and without any record in writing. The employer's returns filed by the plaintiff in respect of her employment income for the financial years ended 31st March 1988 to 1991 stated that she was an account scrutinizer. The returns for 1992 to 1995 stated that she was a manager. The returns for 1996 to 2000 stated that she was the deputy chairman. The returns for 2001 and 2002 stated that she was the chairman. There is no evidence to indicate that part of the salary was to remunerate her work as the company secretary. She also said in evidence that she was the finance director and this was not challenged.

4. On 18/1/02, a member of the plaintiff Madam Chung Hoi Yen submitted a requisition letter to the board under section 113 of the Companies Ordinance, Cap. 32 to convene an EGM to pass a special resolution to forthwith remove D1, D2 and one Ernest Wong Wan Chee ("Ernest Wong") as directors of the plaintiff. D1, D2 and Ernest Wong were then the only directors of the plaintiff. Madam Chung's letter said that the objects of the EGM were:

1) To pass a special resolution to forthwith remove Ms. Wong Siu Ling (D2), Mr. Wong Wan Chee Ernest ("Ernest Wong") and Mr. Wong Wan Chiu Ignatius (D1) as directors of the Company;

2) Conditional upon the passing of the special resolution described in (1) above, to pass an ordinary resolution to appoint Dr. Tai Chak-Leung Tony ("Tony Tai"), Dr. Lo Tai-chin and Mr. Chan Wing Kee as directors of the Company to fill the vacancies created by the removal of directors pursuant to such special resolution; and

3) Failing the passing of the special resolution described in (1) above, to pass an ordinary resolution to forthwith determine the tenure of the offices of Mr. Wong Wan Chee Ernest and Mr. Wong Wan Chiu as Managing Directors of the Company.

5. The board did not react to the requisition and Madam Chung on 15/2/02 issued a notice under section 113(3) of the Ordinance to convene an EGM at 10:30 a.m. on 11/3/02 seeking to pass the same resolutions as contained in her requisition referred to above.

6. On 7/3/02, D1 tendered resignation from his office as director as well as his salaried office as managing director of the plaintiff. On the same day, D2 also tendered her resignation as director, chairman and company secretary of the plaintiff. Also on the same day, the board of the plaintiff composed of D1, D2 and Ernest Wong resolved as follows:

"3) It was noted that an Extraordinary General Meeting ("EGM") of the shareholders of the Company was to be held at 10:30 a.m. on 11th March, 2002 at which it was proposed to pass a special resolution to remove the current directors of the Company forthwith and to appoint by ordinary resolution Dr. Tai Chak-leung Tony, Dr. Lo Tai-chin and Mr. Chan Wing Kee as directors in their place.

4) In view of this Miss Wong Siu Ling and Mr. Ignatius Wong offered to resign as directors of the Company and also, in the case of Mr. Ignatius Wan Chiu Wong, as Managing Director of the Company and, in the case of Miss Wong Siu Ling, as Chairman and Company Secretary of the Company.

5) Miss Wong Siu Ling declared her interest and did not vote. Mr. Ernest Wan Chee Wong and Mr. Ignatius Wan Chiu Wong then RESOLVED to accept her resignation with effect from 9:30 a.m. on Monday 11th March, 2002 and, in view of the forthcoming EGM to be held at 10:30 a.m. on Monday 11th March, 2002 at which new directors would be appointed to the Company, not to require her to work as an employee of the Company but instead to pay her 2 months' salary in lieu of notice and/or by way of compensation for her loss of office and all her accrued benefits and entitlements up to 10th March, 2002 by way of a banker's cashier order.

6) Mr. Ignatius Wan Chiu Wong declared his interest and did not vote. Miss Wong Siu Ling and Mr. Ernest Wan Chee Wong then RESOLVED to accept his resignation with effect from 9:30 a.m. on 11th March, 2002 and, in view of the forthcoming EGM to be held at 10:30 a.m. on 11th March, 2002 at which new directors would be appointed to the Company, not to require him to work as an employee of the Company but instead to pay him 2 months' salary in lieu of notice and/or by way of compensation for his loss of office and all his accrued benefits and entitlements up to 10th March, 2002 by way of a banker's cashier order.

7) Mr. Ernest Wong wishes to record that the offer of payment to any of the directors in lieu of notice and/or compensation for loss of office does not constitute waiver of any of their potential claims for loss of office."

7. Pursuant to these resolutions, D2 on 9/3/02 caused the plaintiff to pay D1 and herself sums including the 2 months' salary for each of them.

Causes of Action and Grounds of Defence

8. In this action, the plaintiff sued D1 and D2 for the return by each of them the 2 months' salary. The plaintiff said that D1 and D2 had tendered their resignations as salaried employees and were thus not entitled to any payment in lieu of notice in respect of the termination of their employments. Thus, the plaintiff said that such payments were for loss of office or in connection with their retirement from the plaintiff's board as directors. Since the payments had not been disclosed to members of the plaintiff or approved by the members in general meeting under section 163 of the Companies Ordinance, they were illegal or void. Section 163 reads:

"163. It shall not be lawful for a company to make to any director or past director of the company any payment by way of compensation for loss of office, or as consideration for or in connexion with his retirement from office, without particulars with respect to the proposed payment (including the amount thereof) being disclosed to the members of the company and the proposal being approved by the company. (Replaced 6 of 1984 s. 120) [cf. 1948 c. 38 s. 191 U.K.])"

9. In this connection, I should also refer to section 163D(3)(a) of the Ordinance which was also relied on by the plaintiff in its opening and final submissions. It reads:

"163D. (3) References in sections 163, 163A and 163B to payments to any director of a company by way of compensation for loss of office, or as consideration for or in connexion with his retirement from office-

(a) include any such payments to him in respect of the loss of or retirement from his office as director of the company or in respect of the loss or retirement, while a director of the company or on or in connexion with his ceasing to be a director of the company, of or from-

(i) any other office in connexion with the management of the company's affairs; or

(ii) any office as director or otherwise in connexion with the management of the affairs of any subsidiary of the company;

10. Furthermore or in the alternative, the plaintiff said that the payments were made by it as a result of mistake of law namely that the plaintiff thought that such payments did not require to be approved by the plaintiff. The plaintiff thus sought repayment on the basis of money had and received.

11. As a further alternative, the plaintiff said that D1 and D2 owed the plaintiff the duties (i) to act bona fide in the best interest of the plaintiff; (ii) to act for the proper purposes of the plaintiff in relation to its affairs and (iii) to avoid conflicts between their personal interests and that of the plaintiff. The plaintiff further said that such payments were made in breach of such duties and should thus be repaid by the defendants.

12. The defendants' amended defences are in the same terms. They pleaded that the directors of the plaintiff in the meeting on 7/3/02 considered their position as directors and employees of the plaintiff in the light of the forthcoming EGM to be held at 10:30 a.m. on 11/3/02 at which they would be removed. The directors at the meeting took into consideration of a number of factors including the following:

i) The general interest of the plaintiff as a corporation of long standing in Hong Kong;

ii) The anticipatory breach of the employment contract on the part of the plaintiff and their liability to pay damages to the defendants and Ernest Wong for such anticipatory breach;

iii) The need to compromise claims; and

iv) The previous offer by the board of the plaintiff of gratuitous payments of 4 months' salary to one Ronald Wong and 2 months' salary to one Herbert Wong and upon termination of their employments in 9/2000.

13. The defendants further pleaded that after due deliberation at the meeting on 7/3/02, they passed separate resolutions requiring D1 and D2 to continue to serve as directors and employees of the plaintiff until 9:30 a.m. on 11/3/02 which was one hour before the EGM convened by Madam Chung and to pay them the 2 months' salary as compensation for loss of offices as employees of the plaintiff. They further relied on articles 69 and 70 of the articles of association which provided:

"69. The business of the Company shall be managed by the Directors, who may ...... exercise all such powers of the Company, as are not, by the Ordinance, or by these articles, required to be exercised by the Company in general meeting ......

70. The Directors may from time to time appoint one or more of their body to the office of Managing Director or Manager for such term and at such remuneration (whether by way of salary, or commission, or participation in profits, or partly in one way and partly in an other) as they may think fit, and a Director so appointed shall not, while holding that office, be subject to retirement; but his appointment shall be subject to determination ipso facto if he ceases to be a Director, or if the Company in general meeting resolve that his tenure of the office of Managing Director or Manager be determined"

14. The defendants therefore denied the plaintiff's claim or the applicability of section 163 or any breach of duty. They also relied on section 163D(3)(b) of the Ordinance and pleaded that the payments were bona fide by way of damages for the anticipatory breach of employment contract on the part of the plaintiff or by way of compromise or by way of pension, gratuity or similar payment in respect of past services and such payments fell within section 163D(3)(d) which provides:

"163D. (3). References in sections 163, 163A and 163B to payments to any director of a company by way of compensation for loss of office, or as consideration for or in connexion with his retirement from office-

(b) do not include any bona fide payment by way of damages for breach of contract or by way of pension in respect of past services; and for the purposes of this paragraph "pension" includes any superannuation allowance, superannuation gratuity or similar payment."

15. The plaintiff's replies to the defendants' defences argued that none of the resolutions proposed by Madam Chung, if passed, would have the effect of terminating any of the employment contracts between the plaintiff on the one hand and D1 and D2 on the other and that the shareholders in general meeting had no authority to terminate the said employment contracts. The plaintiff therefore denied that it had committed any anticipatory breach of the employment contracts.

16. The issue is thus on whether the defendants had voluntarily resigned from their employments and hence would not be entitled to any damages or that the plaintiff was in breach of the employment contracts in that those in control of the voting in general meeting and the composition of and voting in the board have made it clear that the defendants' employment would be put to an end in any event.

The Facts

17. Towards the end of 2001, there were a number of bidders for the control of the plaintiff. A Titan Continental Ltd. ("Titan") was one of the bidders. It was in the control of one Tony Tai. Its offer letter was dated 21/12/01. The relevant paragraphs of the letter are as follows:

6) Within 14 days of the Acceptance Date ("S&P Date"), the Purchaser and the Shareholders to whom the Purchaser agrees to acquire their shares of the Group according to the procedure, terms and conditions stated therein ("Vendors") shall sign a Sales and Purchase Agreement at the Purchaser's attorney based on the terms and conditions set out in the Offer. After that, the Purchasers shall be entitled to nominate and the Vendors undertake, warrant and agree to procure the board of directors of Haking ("Board") to appoint at the Purchaser's expense such number of advisors ("Advisors") to Haking as the Purchaser deem fit to assist Haking in its daily operations and business activities, failing which the Purchaser is entitled to in its absolute and sole discretion to terminate this transaction immediately and no party shall have any claim against the other thereafter.

7) After receiving the notification as indicated in paragraphs 4 and/or 5 above (notice that the offer had been accepted by at least 51% of the shareholders or even below that but the Purchaser was willing to proceed), the Vendors undertake, warrant and agree to procure their solicitor ...... to procure the petitioners and respondents of the Wing Up Case (HCCW No. 1166 of 2000) to withdraw and/or discontinue the Winding Up Case according to the Rules of the High Court.

9) Completion shall take place at the office of the Purchaser's solicitors on 5 working days after (1) ...... OR (2) the petitioners and the respondents of the Winding Up Case have duly and completely withdrawn and/or discontinued the Winding Up Case according to the Rules of the High Court ...... ("Completion Date"). If the aforesaid two conditions cannot be duly completed within 45 days from the S & P Date, the Purchaser is entitled in its absolute discretion to terminate and rescind the transaction. In this case, the appointment of the Advisors and New Directors shall forthwith be terminated and ...... no party shall have any claim against the other.

14) At Completion, the Vendors shall procure the Board to

i) approve the transfer of the Vendor's shares to the Purchaser; and

ii) approve, as directed by the Purchaser, the resignation, termination and/or appointment of directors, secretary, auditors and/or other staff from their respective offices with immediate effect on the condition that no claim will be raised against the Group (the plaintiff).

18. On 18/1/02, D1 in the name of the plaintiff issued a letter to Tony Tai of Titan referring to his visit to D1 on 7/1/02 at the plaintiff's office and that he had told D1 that Titan had secured the acceptance of 65.31% of the shareholders to the takeover bid. D1 also said in the letter the following:

"I am writing to you on behalf of myself and my sister because my future as a managing director and my sister's future as chairman of Haking have remained uncertain. We need to seek clarifications from you on a number of matters both in our capacities as shareholders and as members of the Board of Haking. It seems quite proper that the very first question we would like to know is this: Do you expect me to remain as a managing director and my sister as executive chairman of Haking, and if so, for how long? Until we know what the clear intention of Titan Continental Ltd. is, it is almost impossible for us to plan our immediate future."

19. Also, on 18/1/2002, one Madam Chung Hai Yen, obviously one of those shareholders who had accepted Titan's offer, submitted the said requisition under s. 113 of the Companies Ordinance to the board. The terms of the requisition have already been referred to above. These terms went beyond what was required of the vendors/shareholders under paragraph 6 of the offer letter referred to above. This notice was obviously issued at the instance of Tony Tai and he wanted the then directors to be vacated en bloc no later than 49 days from that day (as provided in section 113) or sometime in early March 02. One does not know if this notice was Tony Tai's answer to D1's letter referred to above as both documents were issued on the same day.

20. On 19/1/02, Tony Tai replied to D1. The relevant paragraph of the reply said:

"I would like to reiterate that it is the intention of the new investors to bring in a representative board with members having had experiences in technical and marketing fields. In my view, this should be done as quickly as possible so the new board could be given an opportunity to regenerate the business of Haking, which is in the best interest of all the shareholders."

21. This letter should be read together with the requisition submitted by Madam Chung as referred to above. Titan obviously wanted to drop the three existing directors from the plaintiff's board though the sale and purchase of shares had not been completed and the time for implementation of paragraph 14 of the offer letter had not yet arrived.

22. On 21/1/02, D1 wrote to Tony Tai again seeking answers to the questions he raised in his letter of 18/1/02. Tony Tai replied on the same day:

"1) It is my intention to bring in a representative new board as soon as possible with members having had experiences in technical and marketing fields. In my view, as well as most of Haking's existing shareholders' view, the formation of such a new board is much needed and vital to regenerate the business of Haking. As a result, I would like to see that you and your sister, Siu Ling, be resigning from the board of Haking as soon as possible. On the other hand, you and your sister, Siu Ling, may nominate a member to attend the new board. I personally have no objection to have you or your sister to be a member of the new board."

By this letter, Tony Tai made it clear to D1 that he did not want D1 and D2 to remain as directors in the plaintiff's board.

23. Also on 21/1/02, D1 on behalf of the board wrote to all shareholders of the plaintiff asking them when they would want to appoint Tony Tai and his colleague Tai-Chin Lo as advisors to the plaintiff's board. This matter was raised because by that time the vendors of shares and Titan had agreed that they would complete the sale and purchase of shares without signing any sale and purchase agreement and the timing for appointment of Titan's nominees as advisors under clause 6 of the offer letter was not strictly applicable. Apparently, no body replied to this letter as none has been produced at the trial.

24. On 23/1/02, D1 wrote to Tony Tai again and obviously to respond to Tai's request in the letter of 21/1/02 that D1 and D2 should resign from the board as soon as possible. D1 pointed out that the vendors should firstly perform the obligations in clause 7 of the offer letter so that the sale and purchase of shares could be completed. D1's concern that the vendors should perform their obligations under clause 7 before a new board was packed is understandable as Titan could rescind the sale and purchase under clause 9 of the offer letter if the obligations in clause 7 were not performed within the time provided therein.

25. On 25/1/02, D1 wrote to Tony Tai again asking him directly the question of for how long he would want D1 to remain as a managing director and D2 as executive chairman. Instead of replying to D1 directly, Tai wrote on 29/1/02 to the plaintiff's board for the attention of D1, D2 and Ernest Wong and asked them to explain to the shareholders why the board did not issue a notice to convene an EGM pursuant to Madam Chung's requisition. He also said, inter alia:

"As discussed, the new management staff, who have substantial technical and marketing experience, should be brought into Haking as soon as possible. To regenerate Haking's business, the new management staff would review and scrutinise the previous transactions or agreements entered into by Haking upon their appointment. We trust that the current directors would provide the necessary assistance to us as it is for the best interests of Haking and all shareholders."

However, he did not address the question of the performance by the vendors of the obligations in clause 7 of the offer letter or the completion of the sale and purchase.

26. An attendance note kept by D1 shows that Tai had telephoned D1 on 30/1/02 wherein Tai had told him that Tai would not have the time to reply his fax which was possibly be the one dated 25/1/02 referred to above. The note also recorded Tai as having told D1 that Tai wanted him to be out on 1/3/02 and that he would be paid up to 31/1/02. That was probably an answer to D1's question of how long Tai wanted him to remain as a managing director. The reference to payment of salary conveyed a clear message that Tai also him to vacate from the employment with the plaintiff on the same date.

27. Also on 30/1/02 and before the obligations in clause 7 of the offer letter had been performed or the sale and purchase completed, Tai wrote another note to the plaintiff's board in relation to a PMA Show to be held in Florida, USA in early 2/02. The letter said:

"I am disappointed that as of today, I have not heard anything from your board of directors or any other staff from your company on the status on the plans for the captioned show to be held in Florida, USA in Feb., 02. I understand that a booth has been reserved for Haking at the show and I urge your board of directors giving me a timely reply on its status.

Since we are expecting the change of board of directors of Haking by early March, 2002, it is sensible to keep us involved in the planning and implementation of all important events such as the PMA show.

Prior to the change of management of Haking, I trust that your directors shall conduct the business of Haking in a normal and efficient manner and I look forward to your prompt reply."

This letter again made clear Titan's contemplation of a change of the board and the management of the plaintiff in early March, 2002 after having acquired control of the plaintiff.

28. The next event was an offer letter from Titan's solicitors to D1 dated 4/2/02 to D1. The relevant paragraphs read:

"1. You shall forthwith procure Haking's board of directors to appoint Dr. Tony Chak-leung TAI, Dr. Tai-chin LO, Dr. York LIAO, Mr. Wing-kee CHAN and Mr. Wing Sun CHAN as additional directors of Haking, such appointments to take effect simultaneously as from 5 February, 2002.

2. Immediately following the effective appointment of additional directors of Haking as described in (1) above, you shall tender your resignation as director of Haking, all and any of Haking's subsidiary or any associated companies, and all and any joint venture entities of which Haking or any of its subsidiary company is a partner (collectively called "Haking Companies"), and from all and any executive/salaried positions in all Haking Companies, such resignation to take effect as from 5:00 p.m. on 28 February, 2002, irrevocably confirming that you have no claim against the Haking Companies or any of them for damages or compensation for loss or pre-mature termination of office, or for damages for breach of contract of whatever nature, or for any other relief or remedy.

3. In consideration of your due fulfilment of (i) and (2) above, in respect of which time shall be of the essence, our client undertakes to procure Haking to pay you monthly in arrears, by way of ex gratia payments, a sum equivalent in amount to the aggregate of the director's remuneration and employee salary that you are currently drawing from the Haking Companies per month (housing allowance being excluded), for the period from 1 March 2002 to 30 April 2002 (both days inclusive), notwithstanding the termination of all your offices and positions at the Haking Companies with effect from 28 February 2002." (emphasis added)

29. Annexed to the offer letter was a draft letter of acceptance in the following terms:

"I hereby tender my resignation as director of W. Haking Enterprises Limited ("Haking"), all and any of the Haking's subsidiary or associated companies, and all and any joint venture entities of which the Haking or any of its subsidiary is a partner (collectively called "Haking's Companies"), and from all and any executive/salaried positions in all Haking's Companies with effect from 5:00 p.m. on 28 February 2002 and I confirm that I have no claim against Haking's Companies or any of them for damages or compensation for loss of office or pre-mature termination of office, or for damages for breach of contract of whatever nature, or for any similar relief or remedy."

30. A similar offer was made to D2 except that the proposed payment would last until 31/5/02 instead of 30/4/02 as in the case of D1. It was thus clear that by this date, Titan wanted D1 and D2 to vacate from all directorships as well as all employment positions in the plaintiff's group of companies.

31. Both defendants rejected the offer through their then solicitors. However, from the terms of the offer, they knew that Tony Tai was determined to and could remove them from the plaintiff's board as well as their executive and salaried positions in early March 2002 though under clause 9 of the offer letter, Titan technically could still withdraw from the agreement to purchase, they therefore also replied through their then solicitors on 5/2/02 on a without prejudice basis agreeing to step down from their directorships and resign from all executive and salaried positions on 28/2/02. The relevant paragraphs read as follows:

"Having taken our clients' instructions, we are instructed to write this letter in the spirit of cooperation and goodwill to see if it is possible to reach a sensible and amicable agreement leading to our clients ceasing to be employees and directors of Haking.......

1. Our clients (D1 and D2) will resign as directors and from all executive and salaried positions in Haking and any other companies in the Haking Group as from 5:00 p.m. on 28th February, 2002;

2. Our clients will be paid by Haking on or before February 2002 a sum equivalent to the aggregate of the directors' remuneration and salary, which they are currently drawing from Haking (excluding housing allowance) for the period from 1st March 2002 to 31st May 2002 (both days inclusive), in addition, of course, to their salary for the month of February and the outstanding annual leave pay, which will have accrued as at 28th February 2002 and to which they are entitled pursuant to the Employment Ordinance;

3. Prior to their resignation as directors of Haking on 28th February, 2002 our clients will procure the appointment of Dr. Tony Chak-leung Tai, Dr. Tai-chin Lo, Mr. Wing-kee Chan, Mr. Wing Sun Chan and Dr. York Liao as directors of Haking to take effect from 28th February, 2002;

4. Your clients will procure the withdrawal or cancellation of the requisition or intended EGM of Haking referred to in the letter from Madam Chung Hai Yen dated 18th January, 2002; and

5. So long as our clients together or singly retain a shareholding in Haking of 10% or more your clients will agree to appoint one nominee of our clients (which may include our clients) as a non executive director of Haking."

This letter was produced without objection from the defendants. It seems that the parties were not far apart. In terms of money, there was no difference between the offer to D2 and D2's counter-offer. There was a difference of one month's salary for D1.

32. However, the next letter dated 7/2/02 from Titan's solicitors to the then solicitors of the defendants put an end to the negotiation. This letter stated that Titan had the overwhelming support of the shareholders of the plaintiff in the takeover exercise. Paragraphs 3, 4 5 and the last 2 paragraphs are as follows:

"3. On completion of the acquisition, our clients are confident of being in control of over 77% of voting rights in Haking shares.

4. Our clients are ready and willing to complete as soon as the outstanding Winding-up Petition against Haking Group pending in the High Court under HCCW No. 1166 of 2000 ("Petition") can be removed and an Order of the Court of the Court is made dismissing the Petition. In this regard, we understand that the Petitioners' Solicitors are proceeding expeditiously with such step.

5. In the circumstances, our clients are confident of acquiring, in the imminent time-frame, the ultimate control of the management of Haking, in spite of the persistent opposition of its directors, to an orderly change in its management. As you will agree, responsible members of a board of any company, who are in the position of trust and owe duties towards the overwhelming majority selling shareholders, would accept the inevitable course of events of any take-over proceeding so as not to harm the prospect of a speedy recovery of the company in question.

All that said, our clients have instructed us to say that they no longer wish to entertain any, or any further, discussion on their goodwill offer which you have now formally rejected on your clients' behalf. In the meantime, we are further instructed to say that they do not accept any of the assertions of rights with respect to your clients' alleged sustained directorships and employment, the existence of which and each of them is hereby denied, beyond the perimeters of the law, more specifically under the Companies Ordinance Chapter 32 and the Employment Ordinance Chapter 57. Our clients will deal with them, and will address such issues as necessary, at the appropriate times.

Lastly, we are further instructed by our clients to say that they hereby expressly reserve all their rights, and will address such issues and seek full indemnification, against your clients as well as any other as directors of Haking for any loss and damage that Haking group and our clients may suffer or have suffered by reason of any delay in the change of management at the board level caused by the unreasonable, persistent opposition of the current Board of Directors at Haking and of such breaches of trusts and/or their fiduciary duties as may hereafter come to light at the appropriate times."

33. It is not easy to understand how Titan could have complained about the delay in the change of management as by that time, the option to rescind the sale and purchase under clause 9 of the offer letter had not been extinguished. Titan could still back out from the takeover if there was any good commercial reason for it to do so. But that was the attitude of Titan. It regarded the defendants as people obstructing their way forward. The animosity was deeply entrenched. I should also note that by this time, D1 and D2 had also agreed to step down as directors and vacate from all offices and employment positions and their counter-offer was very close to the offer made to them. However, Titan did not bother to continue with the negotiation on their departure. The tone of this letter showed that the halting of the negotiation did not mean that Tony Tai would allow them to remain in the plaintiff's employ. It is tolerably clear that Tai would resort to other means to remove them as Titan had commanded sufficient control of the company in general meeting and the board.

34. On 15/2/02, the vendor shareholders filed an application with the Court of First Instance to perform their obligations under clause 7 of the offer letter. On the same date, Madam Chung issued her own notice convening an EGM at 10:30 a.m. on 11/3/02. The proposed resolutions in this notice were exactly the same as those in her requisition referred to above.

35. The defendants were not merely on the defensive side. They as members of the board plaintiff also made a strike at Titan. The board's solicitors wrote a letter of 21/2/02 to Tony Tai and Tai-Chin Lo of Titan referring to the fact that they have been representing to members of the staff of the plaintiff and its subsidiaries and third parties that they had acquired about over 75% or 77.6% of the plaintiff's shares. The relevant paragraphs read:

"We are informed that that an offer letter has been sent by Titan to the Board of the Company addressed to shareholders of the Company seeking to bind shareholders who accept the offer letter, to selling their shares in the Company, subject to conditions. Whether the terms of the offer had become unconditional, or resulted in a contractual relation with shareholders, is not clear. In any event, we are instructed that no transfer documents in respect of the shares in the Company has been produced to the Company for any transfer to Dr. Tony Tai, Dr. Tai-chin Lo and/or Titan nor is any of them a registered holder of any share in the Company.

In the circumstances: -

(i) Titan, Dr. Tony Tai and/or Dr. Tai-chin Lo has/have no right to representation on the Board of the Company, nor any right to direct the business of the Company; and

(ii) the accuracy of the representations of Titan, Dr. Tony Tai and/or Tai-chin Lo as to its/their interest in the share capital of the Company is suspect.

We hereby give you notice: -

(1) the Company will take legal action, including seeking urgent injunctive relief, if the conduct of the kind described in (a) and (b) above continues; and

(2) the Company reserves its rights to take action against you for any loss and damage suffered as a result of (a) and (b) above."

36. The solicitors of Tai and Lo (who were also the solicitors of Titan) replied on 25/2/02 and maintained their clients' right in commanding over 75% of voting rights in the plaintiff's general meeting and thus had the right to express this. There was a further reply from the board's solicitors challenging Tai and Lo that they were not registered shareholders of the plaintiff.

37. On 7/3/02, the board (composed of D1, D2 and Ernest Wong) held a meeting and resolved to keep D1 and D2 until 9:30 a.m. on 11/3/02 and to pay them 2 months' salary in lieu of notice and/or by way of compensation for their loss of office and all their accrued benefits and entitlements calculated up to 10th March 2002. The full terms of the resolution and the fact that D1 and D2 were so paid have been referred to above. In the case of D2, what she got under this resolution was less than what Titan had offered to her on 4/2/02.

38. The EGM was duly held at 10:30 a.m. on 11/3/02 and Ernest Wong, being the only director then remaining on the board, was removed without any hassle and in terms of the first proposed resolution as contained in the Madam Chung's notice. Titan then packed a new board of directors for the plaintiff. It seems that Ernest Wong was dismissed from all his positions in the company without notice and without being paid his arrears of salary, accrued annual leave entitlement and long service payment.

39. On 13/3/02, Tony Tai as the new Chief Executive Officer of the plaintiff wrote to D1 and D2 respectively demanding their repayment of the 2 months' salary they received pursuant to the resolutions of 7/3/02 on the basis that they had resigned from their offices and were thus not entitled to any salary in lieu of notice. On 21/3/02, D1 replied that the board paid him the 2 months' salary in lieu of notice as new directors were appointed at 10:30 a.m. on 11/3/02. This unfortunately is not entirely correct as that is not the ground of payment as recorded in the resolution of 7/302. On 28/5/02, Tony Tai as the CEO again wrote to D1 and D2 demanding, inter alia, repayment of the 2 months' salary by relying on section 163 of the Ordinance. D1 replied to this letter on 10/7/02 but did not deal with this point as the plaintiff by then had already lodged a claim in the Labour Tribunal for return of the sums.

40. I should also note that at an AGM of the plaintiff on 8th April 2000, the shareholders did not re-elect one Dr. Ronald Wong and one Mr. Herbert Wong as directors. The plaintiff's board also resolved on 15th September 2000 to terminate their employments. In the case of Dr. Ronald Wong, he also had a title of director of international marketing, but that was not a directorship. He had served the plaintiff for 9 years and was paid 4 months salary in lieu of notice. Regarding Mr. Herbert Wong, he had served the plaintiff for 4 years and was given 2 months salary in lieu of notice. However, I do not find these cases of relevance in determining the entitlements of D1 and D2 as they were individual discretionary treatments and not contractual ones.

PW1 Chan Po Man

41. The plaintiff called one Chan Po Man, its former accountant, to give evidence on its behalf. He adopted his witness statement and supplemented it with oral evidence. He said that the former chairman Dr. Pauline Chan was not paid any salary other than a director's fee. D2 however was paid a salary because D2 was an executive chairman of the plaintiff.

DW1 Wong Ignatius Wan Chiu

42. In his witness statement, D1 referred to Tony Tai's attempt to remove them by special resolution as a hostile move and he regarded such move as unnecessary. He further said that Titan could have completed the purchase without delay and then arranged for transfer of shares and appointment of new directors. He believed that it was not in the interest of the plaintiff and it would generate unnecessary adverse publicity for the plaintiff to proceed with the EGM and pass the proposed resolutions. He also regarded the attempt to remove them in an EGM on 11th March 2002 an anticipatory breach of contract by the plaintiff. They therefore had a directors' meeting on 7th March 2002 to resolve the matter in what he thought to be a far less unpleasant way. They at the meeting also recalled that Ronald Wong, who had 9 years of service, was given 4 months' salary in lieu of notice and Herbert Wong, who had 4 years service, was given 2 months'. In their case, the board under article 70 only gave them 2 months' salary in lieu when D1 had more than 10 years' service and D2 had more than 32 years' service. He also said that the payment was governed by section 163D(3)(b) of the Companies Ordinance and not section 163.

43. In cross-examination, he said that before he was appointed a managing director, he had been an executive director for a year. His responsibilities were general administration, to oversee the procurement department and the Hong Kong operation. His duties were the same after he had been made a managing director. But then the plaintiff was an old fashioned company and his duties were not clear-cut. He was also responsible for the operation in Thailand and the liaison work with the operation in the United Kingdom. He agreed with the plaintiff's counsel that his role was more than what a mere director was. He also agreed that his role was only that of a managing director and did not have any other role. In answer to a question of whether the salary was paid to him as a managing director, he said that he was paid the salary for his executive position as an employee.

44. He also agreed that Chung's notice for an EGM did not say that he was not going to be paid his long service payment and payment in lieu of notice and such was a matter for the board to decide. But he said that he did not think that Tony Tai was going to pay him anything more than what he had offered. He also said that the payments he and D2 got were to give them something for their loss of employment and a token payment in consideration of their past services though long service payment did not cross his mind.

45. In re-examination, he also made it clear that he had no wishful thinking that Tony Tai would keep him on the payroll after his removal as director or managing director.

DW2 Wong Siu Ling

46. D2's witness statement is in all material respect the same as that of D1. She also gave oral evidence to supplement her statement. She said that she was the in-house architect and was responsible for the management of all the properties of the plaintiff including renovation and collection of rental. In addition, she was also the cashier and responsible for overseeing the accounts department of the plaintiff and all associated companies. She was also the finance director and responsible for signing all cheques for the Xinhui and Thailand operations. She also said that she was appointed the company secretary in 1985 and was a salaried employee since a very early date. There was no change to her salary after she was appointed as chairman. She did a lot of things including the overseeing of overseas companies. She left all her posts on 11th March 2002. She also said that she took Chung's notice of EGM as a hostile move by Tony Tai to remove her and it was impossible for her to continue working with the plaintiff. She could also sense the hostility from the correspondence. She regarded the two months' salary paid to her as a token for her services for the plaintiff and for loss of employment instead of loss of directorship. She also told the court that the remaining director Ernest Wong was laid off and he had to go to the Labour Tribunal to claim his losses.

The plaintiff's case as put to the defendants

47. In line with the plaintiff's replies, it was put to D1 and D2 that the resolutions proposed for the EGM did not have the effect of putting an end to their employments with the plaintiff. It was also pointed out to them that Dr. Ronald Wong and Mr. Herbert Wong both remained as salaried employees for sometime after they had ceased to be directors of the plaintiff. Though they agree with this proposition, they took the view that given the hostile attitude of Tony Tai, it was impossible for them to continue with their employments with the plaintiff and that Tai would not keep them on the payroll after their removal as directors.

48. The plaintiff also produced some documents showing that Ernest Wong had claimed in the Labour Tribunal on 23/4/02 various sums including arrears of salary, annual leave pay, and long service payment. This claim was settled in the Tribunal on 26/6/02 and he was paid his arrears of salary, pro rata annual leave pay, severance payment and HK$206,704.79 salary in lieu of notice and the net sum payable, after deduction of some items he owed the plaintiff, came to a round figure of HK$260,000.

Submissions and analysis

49. Before embarking on the analysis of the plaintiff's submissions, I would say that I have found the defendants honest witnesses. Their factual evidence was not really challenged to any substantial extent and they stood firm on their grounds. They were senior citizens and their versions of events did not have the indicia of having been concocted. I accept what they said both in their witness statements and in their oral evidence.

50. The plaintiff's first argument is that neither D1 nor D2 was entitled to any notice or salary in lieu as they had resigned from their employment positions with the plaintiff rather than having been dismissed. The payments to them were thus paid in connection with their loss of offices and were caught by section 163 as clarified or enlarged by section 163D(3)(a). The plaintiff however accepts that this argument may not be appropriate for every resignation. The plaintiff accepts that there may be cases where it is tolerably clear that a wrongful dismissal was imminent and that would justify the employee's voluntary departure without affecting his rights to termination of employment benefits.

51. The plaintiff submitted that there was no evidence which would lead any reasonable person to conclude that the service contracts of D1 and D2 would have been terminated and would happen in a manner inconsistent with the terms of the contracts themselves. For this, I have to consider the conduct of Tony Tai and Titan vis-à-vis the defendants since the making of the takeover bid on 21/12/01.

52. On 7/1/02, Tony Tai visited told D1 and told him that Titan had secured 65.31% of the shares of the company. On 18/1/02, D1 wrote Tai and asked him whether he expected D1 and D2 to remain as a managing director and executive chairman respectively and if so, for how long. On the same day, Madam Chung issued a requisition for an EGM seeking to remove the defendants and Ernest Wong from being directors. On 19/1/02, Tai wrote to D1 saying that Tai wanted to bring in new members to the board as quickly as possible. Tai did not give D1 any direct answer to his letter of 18/1/02, but the requisition for EGM and reply of 19/1/02 made clear Tai's stance. There was then no indication of when completion of the sale and purchase of shares would take place. The attempt at that stage to remove the existing directors and to pack a new board would look premature. D1 repeated his question in a letter of 21/1/02 and Tai in a reply of the same day made it clear that he wanted to appoint a new board to drop D1 and D2 from the board as soon as possible. This was in line with Chung's requisition but not a direct answer to D1 as D1 was seeking clarification, not on their offices as directors, but on their offices as managing director and executive chairman. On 23/1/02, D1 wrote to Tai pointing out that he should have proceeded with steps gearing to completion rather than blaming the then existing directors for obstructing his moves. On 25/1/02, D1 repeated his question to Tai again. Tai did not answer D1 but on 29/1/02 wrote to the board and queried why Chung's requisition was not acted on. He also said that the new management staff should be brought into the plaintiff as soon as possible. Thus, Tai was insistent on pushing ahead with the packing a new board without the old faces as soon as possible but before the completion of Titan's purchase of shares. He obviously took the view that the then directors were obstructing his way forward. I cannot say that such attitude was reasonable.

53. There was then an attendance note of D1 dated 30/1/02 recording that Tai had told D1 that Tai wanted D1 to be out on 1/3/02 but would pay him till 31/1/02. That was the first time that Tai gave D1 a clear message that Tai did not only want to drop D1 from the board, but he also wanted him to drop him from his salaried office. The clearer message came on 4/2/02 in the form of an offer which required both D1 and D2 to vacate from all offices salaried or otherwise. The offer was not a very generous one. D1 had served the plaintiff since 1988 and that was over 13 years. He would then have been entitled to a substantial long service payment. For D2, she started working for the plaintiff in 1969. She also had accrued over 5 years' service since she took her long service payment on 3/9/96 when she reached 65 (but without leaving her employment). The maximum amount of long service payment for termination on or before 30/9/1996 was HK$230,000, but if the termination was on or before 30/9/02, the maximum was at the higher sum of HK$350,000. It is not known if she could have her entitlement calculated again by reference to the new maximum as she had never left the plaintiff's employ despite having received such payment in September, 1996. They counter-offered and, in the case of D1, he asked for one more month salary than was offered. There were other terms in the counter-offer which did not have bearing on the amount of payment. However, Tai rejected their counter-offer and stopped the negotiation on 7/2/02. There was nevertheless no indication that Tai had changed his intent on removing them from the plaintiff as soon as possible.

54. Thought the letter of 7/2/02 from Titan's solicitors did not deny any right of D1 and D2 as may be within the perimeters of the law, the letter certainly ended bluntly as follows:

"Lastly, we are further instructed by our clients to say that they hereby expressly reserve all their rights, and will address such issues and seek full indemnification, against your clients as well as any other as directors of Haking for any loss and damage that Haking group and our clients may suffer or have suffered by reason of any delay in the change of management at the board level caused by the unreasonable, persistent opposition of the current Board of Directors at Haking" (emphasis supplied)

55. Such vengeful statement and resentful attitude of Tai could not have given D1 or D2 any comfort that they would be allowed to remain in the employ of the plaintiff. In these circumstances, it was entirely reasonable for them to have anticipated that Tai would drop them from the plaintiff's payroll as soon as Tai could manage. It was thus reasonable for them to conclude that their service contracts would be terminated very soon. The options were to wait to be dismissed or to leave purportedly in the name of resignation. But their resignations were not really a matter of choice. Their departure was the very thing that Titan had wanted from them. It was analogous to a case where an employee was told that either he should resign or he would be dismissed. Resignation in such circumstances would not be different from constructive dismissal and the employee would not, for the resignation alone, be deprived of his rights under the law. I therefore come to the view that the resignations of D1 and D2 did not deprive them of their rights and benefits in law upon involuntary termination of their employments.

56. The next issue would be the reasonableness of the compensation they got from the board on 7/3/02. However, the plaintiff has submitted that they would only be entitled to their benefits if a reasonable person in the same circumstances would not just conclude that their service contracts would be terminated, but would also conclude that the contracts would be terminated in a manner inconsistent with the contract terms. I do not agree with this proposition. If an employer has demonstrated to an employee, who is not guilty of any breach of contract, that he should either resign or his dismissal is inevitable and the employee then opts for resignation, the conduct of the employer would amount to an act of termination and the employee would be entitled to all the termination rights and benefits. However, I would also consider the plaintiff's further argument in case I should be wrong on this.

57. The correspondence showed that Tai had tried to roughshod over D1 and D2 and pushed for a new board and new management despite non-completion of the sale and purchase. Tai also put an abrupt and blunt end to the negotiation on terms for them to leave the plaintiff's employ. Tai's attitude was vengeful and resentful. In these circumstances, it was only reasonable for D1 and D2 to apprehend that Tai would not observe their rights in the law. Furthermore, after the cessation of negotiation on 7/2/02, they were then served with a notice for EGM by Chung on 15/2/02 proposing the very same resolutions for removal of the then board en bloc. Once the negotiation was stopped, there was no more suggestion that compensation according to the law would be paid for the termination of their employments. I therefore find that it was reasonable for them to conclude that Tai would simply tell them to go leaving them to pursue whatever they might have been entitled at the Labour Tribunal. I also note that even up to the trial, the plaintiff never intended to give any credit to the defendants in respect of the long service payments payable to them.

58. In fact, what Tai did to Ernest Wong proved that D1 and D2 were right in their conclusions. Ernest Wong was severed from the plaintiff on 11/3/02 without being given his arrears of salary. He had to pursue his claims at the Labour Tribunal and the settlement was only clinched on 226/6/02.

59. On making this finding, I am mindful of D1's answer in cross-examination that he expected Tai would give him something but he did not think that Tai would pay him anything more than what Tai had offered previously. I would however rely more on what he did than what he said. What he did was to resign from the plaintiff with a compensation which was the same as that offered by Tai. If he was not apprehensive that Tai would simply dismiss him without payment, I cannot see any reason why he would have done so. He did not take away a fortune, but only that which Tai had previously offered. For D2, she got even less than that.

60. However, the plaintiff further argued that in the case of D1, he would in any event not be entitled to any salary in lieu even if he was removed from his offices of director and managing director without notice. The plaintiff referred to article 70 which provided for the automatic determination of his office of managing director once he was removed as a director by the members in general meeting. Apart from these two offices, D1 did not have any other post in the plaintiff. I was referred to Read v. Astoria Garage (Streatham) Ltd. [1952] 1 Ch. 637. The defendant company there adopted Table A as its articles and article 68 was materially the same as article 70 of the plaintiff herein. The plaintiff in that case had been appointed managing director with a salary. He was later removed by the board from that office and the removal was confirmed by an EGM of the company. The plaintiff then claimed damages for wrongful dismissal on the ground that he had been removed from being managing director without notice. It was held that there was no service agreement entitling the plaintiff to any notice and his tenancy of the office of managing director could under article 68 be determined ipso facto by resolution of the company in general meeting without notice. Jenkins, L. J. said at page 641:

"In my view, it is really clear beyond argument that the directors must be taken to have been making that appointment with reference to the provisions of article 68 of Table "A"-it was only under that article that they could make the appointment. Accordingly, in my view, the resolution, containing as it did no other special terms beyond the fixing of the remuneration of ￡7 a week, and containing nothing whatsoever amplifying, or inconsistent with, the provisions of article 68, must be taken to have been an appointment of the plaintiff as managing director on the terms of article 68, and accordingly it was an appointment upon terms, inter alia, that it should be subject to termination if the company in general meeting resolved that the plaintiff's tenure of the office of managing director be determined.

Mr. Harold Brown said alternatively that even if the appointment made by the resolution of the board must be taken as in effect incorporating the provisions of article 68, nevertheless the provisions of the article as so incorporated must be held to be subject to an implied term that the plaintiff's employment could not be determined without reasonable notice. For my part, I see no ground for implying such term; indeed, to imply one really comes back to saying over again that the appointment was not on the terms of article 68, but on some other and different terms, including a term as to reasonable notice. I see no ground for implying such a term in the absence of any contract outside the article and the resolution, and in the absence, moreover, of any provision about it at all in the resolution itself."

61. The plaintiff thus argued that D1 was in any event not entitled to any notice or salary in lieu if he should lose his salaried office of managing director by reason of his removal from the board by members in a general meeting. I think this argument is correct. D1's appointment as a managing director was obviously within the terms of article 70 and he would be removed from this office automatically if the company in general meeting should remove him from the office of a director. However, it does not mean that D1 would not be entitled to any other right or benefit if he should be so removed. He would obviously have been entitled to a substantial long service payment.

62. The plaintiff argued that D1 and D2 took such payments as a "token payment" or a "gesture" and D1 had expressly admitted that long service payment had not crossed his mind. Furthermore, the term long service payment had not even appeared in any pleading or witness statement. Thirdly, the plaintiff submitted that D1 and D2 appeared to be still entitled to long service payment and were not precluded from claiming such by virtue of the phrase "all his/her accrued benefits and entitlements up to 10th March, 2002" in the resolution of 7/3/02. The plaintiff also relied on paragraph 7 of the resolutions which recorded Ernest Wong's view that the offer of payment in the resolutions did not constitute any waiver of any potential claim for loss of office.

63. My first reaction to these submissions is that long service payment is not a compensation for loss of office and is thus not within the scope of the reservation in paragraph 7 of the resolution. It is a statutory payment in recognition of past service. The amount of payment provided in the Employment Ordinance is in line with the length of service subject to a maximum. Though D1 and D2 had not regarded the 2 months' salary as long service payments but as a "token payment" or a "gesture" and D1 had expressly admitted that long service payment had not crossed his mind, they indeed regarded such "token" payment" or "gesture" as something paid in respect of their past service. In the circumstances when they made the resolution, it was obvious that D1 and D2 intended and accepted these payments as their final payments and they would not be entitled to any further payments in respect of their long periods of service. Those payments therefore had to include the long service payments; otherwise, the payments would not represent "all his/her accrued benefits and entitlements up to 10th March, 2002" (emphasis added).

64. I now consider whether the two payments to D1 and D2 were reasonable amounts. In the case of D1, he was not entitled to any salary in lie of notice, but D2 was so entitled. For both D1 and D2, they were entitled to long service payments. From the returns to the IRD, D1 had been in service as a consultant since 1988. Though D2 had one long service payment in September 1996, she then had accumulated another period of service of over 5 years. Her previous payment was calculated under a lower maximum and the payment was not made upon termination of her employment. Arguably, that payment was a premature one as the time for payment had not arrived. If her entitlement to long service payment was calculated afresh in March, 2002 under a different maximum, she might have been entitled to a much larger sum than a mere long service payment for 5 years of service. Furthermore, the 2 months' salary that each of them was given by the board were the same extra sums that had been offered them by Tai on 4/2/02. In the circumstances, I cannot say that such sums were unreasonable.

65. The plaintiff then argued on the terms of the resolution the relevant part reads:

"to pay her 2 months' salary in lieu of notice and/or by way of compensation for her loss of office and all her accrued benefits and entitlements up to 10th March, 2002".

66. The plaintiff argued that the payments were also for "loss of office" and payments for loss of office were disallowed by section 163 of the Companies Ordinance. I was referred to the Australian decision Lincoln Mills (Aust.) Ltd. v. Gough [1964] VR 193 which dealt with a similar provision in Australia. Hudson, J. said at p. 199 lines 44 to 58:

"The question whether the section applies in a particular case must, in my view be determined by inquiry as to the true nature of the payment that has been made. Assuming it has been made to a person who has held and has ceased to hold office as a director by reason of removal or retirement it cannot be postulated in every such case that the payment falls into the category of those rendered unlawful by s. 129(1)(a). The nature and circumstances of the payment must be looked at with a view to determine its true a character. If as a result of investigation it becomes apparent that it is a compensation for loss of the office of director or a consideration for retirement therefrom it will be unlawful unless the sanctions of a general meeting has been obtained. If on the other hand, the payment appears to have been made as a result of other considerations, then, even though it may be coincident with the loss of or retirement from office as a director, the payment will not fall within those prohibited by the section." (emphasis supplied)

67. This approach was approved by Lord Wilberforce in Taupo Totara Timber Co. Ltd. v. Darcy Kevin Rowe [1978] A. C. 537 at 546C to D:

"The section as a whole read with sections 192 and 193 which are in similar form and the words "proposed payment" and "proposal" point to a prohibition of uncovenanted payments as contrasted with payments which the company is legally obliged to make." (emphasis supplied)

68. If the payments were only for loss of office, the plaintiff might be right. However, the payments were also said to be in lieu of notice as well as for all his/her accrued benefits and entitlements up to 10th March 2002. They were not said to be exclusively for any particular purpose. I take the description to mean that the payments were for one or more of the said purposes to the extent that they were applicable to or appropriate for D1 and D2. Thus even though D1 and D2 were not entitled to payment for loss of office and D1 was not entitled to salary in lieu of notice, they were both entitled to some payments. So long as the amounts were reasonable, the board was entitled to resolve in favour of payment. I find that the description was intended to be a catch-all phrase. If part of the description should turn out to be inapplicable or unlawful, that part should simply be ignored. It was not a payment arrived after detailed consideration. It was a payment which appeared to be reasonable overall and it was in line with what had been offered by Titan. I therefore decide that such payments were not paid as compensation for loss of the office of director or a consideration for retirement therefrom and not caught by section 163 of the said Ordinance. They were to reflect the past service rendered by D1 and D2 and also as payment in lieu of notice for D2.

69. Finally, the plaintiff also argued that the payments were also caught by section 163D(a)(i). However, long service payment is a statutory payment to reflect past service and not a payment for loss of or retirement from an office in connection with cessation of directorship. Long service payment is thus not within the scope of section 163D(a)(i).

70. I would also point out that it is the plaintiff's case that the removal from directorship of D1 and D2 did not mean that the employment of D1 and D2 would thereby be terminated. Sine D1 did not seem to have been in any employment apart from that of a director and managing director, I take this argument to be a reference to D2 only. In the case of D2, the termination of her employment would thus be unconnected with the removal of her directorship. The payment to her for termination of her employment and long service payment would thus be independent from her removal from the board.

71. I also deal with the plaintiff's final ground which is that the payments were made by D1 and D2 in breach of their duties to the plaintiff in that they had failed to act bona fide in the best interest of the plaintiff and had failed to avoid conflict of interest between their personal interests and that of the plaintiff. As I have noted above, it was reasonable for D1 and D2 to apprehend that their employments would be terminated and the plaintiff would not pay them anything but to leave them to resort to the Labour Tribunal. In order to avert a distasteful litigation, they and Ernest Wong therefore resolved as they did. Since the amounts of payments were reasonable and it was always desirable to settle litigation in a reasonable manner, I do not think D1 or D2 had breached their duties to the plaintiff as pleaded or at all. I also hold that such payments were within the scope of section 163D(3)(b) of the Companies Ordinance.

Judgment

72. For the above reasons, I conclude that the plaintiff's board was entitled to resolve in favour of the two payments and they did not require they approval of the members of the plaintiff in general meeting. I therefore dismiss the plaintiff's claims. I also make an order nisi that the plaintiff do pay the defendants' the costs of this action.