XCHRX CHOY BING WING v. MAX SHARE LTD.

1993, MP No.1096

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. Max Shares Limited ("Max") is a private company, incorporated in Hong Kong, on 4th February 1986, with an initial issued capital of $200,000, divided into shares of $1 each, later increased to 25,700,000 shares of $1 each on 4th August 1992.

2. A founding member of Max was Mr Ng Yat Chi. Once the formalities of incorporation were over, Mr Ng Yat Chi was registered as the owner of 98,000 of the $1 issued shares of Max. That meant that up until Max increased its issued capital on 4th August 1992, Mr Ng Yat Chi held 49% of its issued capital. Because of the increase in issued capital on 4th August 1992, Mr Ng Yat Chi's holding was diluted to 0.38%.

3. Mr Choy Bing Wing ("Mr Choy"), the Plaintiff in the present proceedings, won a libel suit against Mr Ng Yat Chi, resulting in an award of $2.5 million by way of damages to Mr Choy on 24th June 1992. Costs of the action were agreed at $3.5 million in Mr Choy's favour on 24th July 1992. Earlier, in the same action, on 5th March 1992, there had been an Order for interlocutory costs of $360,035 to Mr Choy against Mr Ng Yat Chi.

4. On 9th April 1992, Mr Choy's solicitors got a Charging Order absolute on Mr Ng Yat Chi's 98,000 shares in Max. That Charging Order was for the sum of $400,301, made up of the $360,035 interlocutory costs already referred to, plus some miscellaneous items, the details of which are of no importance for present purposes.

5. At an Extraordinary General Meeting of Max, held on 1st May 1992, having been called by notice on 16th April 1992, a resolution was passed increasing Max's authorised capital to $50.2 million. Besides Mr Ng Yat Chi, there was only one other shareholder in Max, namely, Strong Progress Ltd, ("Strong Progress"), which held its shares through nominees who were its employees. Later, I will enlarge upon the position of Strong Progress and its nominees.

6. On 25th May 1992, Strong Progress, through its solicitors, made an offer to Mr Choy, through his solicitors, to purchase for $400,301 the 98,000 $1 Max shares over which he held a charge, subject to his obtaining an Order for Sale from the court. Mr Choy rejected that offer on the ground it was too low. As already mentioned, the issued capital was increased to $25.7 million on 4th August 1992. None of that increase was attributable to any allocation to Mr Ng Yat Chi whose holding, therefore, remained at 98,000 shares of $1 each.

7. A lot of things were happening to affect Mr Ng Yat Chi's position round about that time. On 17th July 1992, a bankruptcy petition was brought against him in respect of a personal debt of $80,115 he owed a Mr David Chan. There was the already-referred-to Order, by consent, on 24th July 1992, in respect of the $3.5 million costs he had to pay in the libel suit brought against him by Mr Choy.

8. On 28th July 1992, Mr Choy's solicitors got an Order from the court to sell Mr Ng Yat Chi's 98,000 $1 shares in Max to satisfy the sum of $400,301 due to Mr Choy in respect of the interlocutory costs already mentioned, such sale to be at a public auction. On 29th July 1992, a Receiving Order was made against Mr Ng Yat Chi, in favour of the Official Receiver, in connection with the bankruptcy petition brought by Mr David Chan.

9. The public auction of Mr Ng Yat Chi's 98,000 $1 shares in Max at Mr Choy's behest was set for 10th August 1992. Sale prospects were somewhat blighted when, by virtue of the allocations of new $1 shares made by Max's Board on 4th August 1992, Mr Ng Yat Chi's 98,000 $1 shares were effectively diluted to 0.38% of Max's issued capital. Those attending the public auction had all been alerted to that dilution. None was prepared to pay the reserve price then. There was, again, a public auction on 13th August 1992, with Mr Choy as the sole bidder: he bought the 98,000 shares for $460,000, which was the same as the reserve price.

10. In common with all prospective bidders at the auction of Mr Ng Yat Chi's 98,000 Max shares, Mr Choy knew not only that what was on offer represented a mere 0.38% of Max's issued capital, but, also, that Max was a private company, with a restriction on the registration of transfers of its shares, brought about by its article 6 which is as follows:

TRANSFER OF SHARES

6. The Directors may at their discretion and without assigning any reason therefor, refuse to register a transfer of any share whether or not it is a fully paid share. If the Directors refuse to register a transfer, they shall within two months after the date on which the transfer was lodged with the Company, send to the transferor and transferee notice of the refusal as required by Section 69 of the Ordinance."

11. Mr Choy's solicitors, on 4th September 1992, sent Max's solicitors the instrument transferring, (with the concurrence of the Official Receiver, as Mr Ng Yat Chi's trustee in bankruptcy), the 98,000 $1 shares from Mr Ng Yat Chi to Mr Choy, with a request for that transfer to be registered by the company in Mr Choy's name.

12. By a letter dated 29th September 1992, Max's solicitors replied that Max's Board refused to register the transfer.

13. Subsequent efforts were made by Mr Choy, with the assistance of the Official Receiver representing Mr Ng Yat Chi's bankrupt estate, to get the transfer to Mr Choy registered. For present purposes, there is no need to go into further detail on the steps taken by the Official Receiver. Suffice it to say that the Official Receiver has now dropped out of the picture, and Mr Choy has fought on alone - so far unsuccessfully - to get Max's Board to register the transfer in his name.

14. Mr Choy has now turned to the courts in his endeavour to get himself registered. He has taken out the present Originating Summons, which seeks to invoke s.69(1B) of the Companies' Ordinance Cap.32, ("the Ordinance"), which is as follow :-

"Where a company refuses to register a transfer of any shares, the transferee may apply to the court to have the transfer registered by the company; and the court may, if it is satisfied that the application is well founded, disallow the refusal and order that the transfer be registered forthwith by the company."

15. How that section works has been helpfully explained by Jones J. in Simon Fireman v. Golden Rice Bowl Ltd. [1987] HKLR 981, a case in which a transferee of shares in a private company with an article in substantially the tenns as Max's article 6, sought an order from the court to have the transfer registered in his name after the board of directors in that case had rejected his application. As far as I can gather, the section, enacted in 1984, is peculiar to Hong Kong. The events giving rise to the Simon Fireman case had occurred before s.69(1B) was brought into force, and one of the findings of the learned judge, namely, that the legislation did not apply retrospectively, was by itself sufficient to dispose of that case. In observations which were, technically, obiter, he went on to explain an alternative basis under s.69(1B) which would have led him to the same conclusion, namely, that, on the facts, he would not have exercised his discretion under s.69(1B) in the transferee's favour. To determine whether he was, in the words of the Ordinance, "... satisfied that the application ..." was "... well founded ...," the learned judge followed the equitable principles laid down in a long line of cases where transferees of shares in private companies have sought the assistance of the courts in getting their shares registered in the face of a refusal by a board of directors exercising powers conferred by articles to refuse registration at their discretion without assigning any reason. The landmark authorities are: In Re Gresham Life Assurance Society, Ex Parte Penney (1872) L.R. 8 Ch.446; In Re Bell Brothers (Limited) Ex Parte Hodgson TLR 1890-91 Vol.7, 689; In Re Coalport China Company [1895] 2 Ch.404; and Re Smith and Fawcett Ltd [1942] 1 All ER 542.

16. The principle to be distilled from those cases is, that where the articles confer a discretion on the board to refuse registration of a transfer without giving any reason, the court will not interfere unless it is satisfied the discretion was not exercised bona fide and honestly in the best interests of the company. The court is not entitled to interfere with a decision with which it merely disagrees. Such was the approach propounded by Jones J. inSimon Fireman in his interpretation of s.69(1B), and that will be my approach, too.

17. All the cases cited to me by both sides were unanimous in agreeing that where a board, in the type of situation now under consideration, declines to register a share transfer, the onus is on the transferee, who seeks to have the register rectified, affirmatively to show, by proper evidence, the board has acted from some improper motive or capriciously. The cases showing that are In Re Bell Brothers (Limited), Ex Parte Hodgson T.L.R. 1890-91. Vol 7 689, 690;Re Alfred Shaw & Co Ltd V.L.R. Vol XXL 599, 601; and The Australian Metropolitan Life Assurance Company Ltd v. Ure [1923] 33 C.L.R. 199, 298.

18. According to those appearing for Max, Mr Choy is doomed to fail on the present Originating Summons to get his shares registered, even if he manages to prove every fact he asserts as true in the affirmations, with their accompanying exhibits, he has filed, in support of his case. Pursuant to O.18, r.19 and the court's inherent jurisdiction, Max has applied to have Mr Choy's Originating Summons struck out as an abuse of the process of the court. It is that application to strike out which is now before me.

19. I will apply the law, as I have stated it, to the facts, as alleged by Mr Choy, through the evidence he has caused to be filed.

20. To understand Mr Choy's claim, it is necessary to consider how Mr Ng Yat Chi, the nominal transferor of the shares, came to be involved in Max, and to follow the events culminating in the refusal by Max's board to register the transfer to Mr Choy.

21. As already mentioned, Max was incorporated in Hong Kong on 4th February 1986. For many years before that, Mr Ng Yat Chi had owned and operated Hung Wai Company which imported and exported steel and other building materials to and from Hong Kong. It was an immensely successful business, with a turn-over in tens of millions of dollars every year.

22. In 1985, he branched out into the not unrelated business of building construction in Hong Kong. His vehicle for that was Vincent Construction.

23. One of the contracts won by Vincent Construction in 1985 was for the construction of a warehouse complex in Cheung Sha Wan for China Resource Holdings Limited ("CRH").

24. CRH is a company incorporated in Hong Kong in 1983. It is owned and controlled by the Central Authorities of the Peoples' Republic of China, ("P.R.C."), and is their holding company for its subsidiary companies, operating a wide range of businesses, including banking, for the P.R.C., in Hong Kong.

25. The link between Mr Choy and Mr Ng Yat Chi is through CRH. Mr Choy is the sole proprietor of a Hong Kong firm of consulting civil and structural engineers and architects, employed by CRH and its associated companies between 1980 and 1987 on their Hong Kong building and engineering works and projects, including their Cheung Sha Wan warehouse complex. Because of written accusations made by Mr Ng Yat Chi in 1986 to various Ministries of the Central Administration in Beijing against Mr Choy in relation to that warehouse project, Mr Choy brought the libel proceedings in Hong Kong resulting in the award of $2.5 million, plus costs, both interlocutory and final, already referred to.

26. Back in 1985, it was unsurprising that CRH wanted to put business Mr Ng Yat Chi's way, since he was a man who had made a success of running businesses in Hong Kong while at the same time cultivating people in China, at the very top, with their hands on the levers of power, upto and including the Party Chairman and the Chairman of the State at that time - Mr Jiang Zemin and Vice-Premier Zhu Yongji, respectively. Mr Ng Yat Chi himself was Vice- Chairman of the Political Consultative Committee of Jiangsu Province.

27. Besides having excellent political connections with Ministers in the State Council and top military men within the P.R.C., Mr Ng Yat Chi had close personal relations with top P.R.C. officials posted to Hong Kong, including the then Director of the New China News Agency ("N.C.N.A."), Mr Xu Jia Tun, ("Mr Xu"), together with deputy directors and other senior officials within that organisation, as well as the people at the very top in CRH, from the Chairman and General Manager, Mr Cheung Kin Wah, down. He was also close to the head of the Hong Kong and Macau Management Office of the Bank of China Group.

28. Up until 1986, it had not been within CRH's terms of reference from the P.R.C. to invest in or develop land for profit in Hong Kong. By 1986, CRH wanted to change that. CRH required approval from the P.R.C. State Council for such a change. CRH approached Mr Ng Yat Chi in early 1986 with a proposal that he and CRH should form a joint venture company for exploiting opportunities to invest in and develop real estate in Hong Kong. What CRH found attractive about Mr Ng Yat Chi for such activities were his expertise and business connections in land development, construction and investment. By this time, Mr Ng Yat Chi's business interests had spread into a variety of fields. He now headed what can be described as the Hung Wai Group, carrying on the following businesses in Hong Kong :-

(a) Hung Wai Company : importing and exporting, inter alia, steel and other building materials;

(b) Hung Wai Securities Company: stockbroking;

(c) Hung Wai Gold Traders: forex and gold trading;

(d) Vincent Construction : building construction

At about the same time, too, Mr Ng Yat Chi was already involved in a variety of joint ventures in different provinces of the P.R.C., such as operating trading companies, factories, and hotels, as well as running hospitals and schools.

29. What CRH could bring to the proposed Hong Kong joint venture with Mr Ng Yat Chi were its own vast resources of capital, either directly, or indirectly through P.R.C. - related banks, as well as its connections and prestige.

30. There were valid reasons for CRH to become a player in Hong Kong's land investment and development market. Such a step was likely to be lucrative, a sufficient reason by itself for a business organisation such as CRH. Another reason was the commercial advantage from land development likely to accrue to CRH's existing wholly owned subsidiary, Redland Concrete Limited ("Redland"). Mr Kei Kwong Chuen ("Mr Kei") was the Chief Executive of Redland, and played a leading part in the negotiations with Mr Ng Yat Chi to set up the joint venture company, Max.

31. The upshot of all this was that in September 1986, the State Council of the P.R.C. gave the approval that CRH and Mr Ng Yat Chi sought for land investment, development and construction in Hong Kong. The result was the breathing of life into Max, with 51% of its shares held on behalf of CRH, and 49% by Mr Ng Yat Chi.

32. CRH did not own the shares in Max directly. It did so, indirectly, through its wholly owned subsidiary, Strong Progress.

33. Strong Progress, in its turn, owned its shares in Max indirectly, through nominees who were P.R.C. officials, seconded to CRH in Hong Kong.

34. Of the 102,000 $1 shares making up Strong Progress's 51% holding in Max, 51,000 were in the name Mr Kei (from about mid 1988 onwards, but the precise details are unimportant), 25,500 to Mr Bao Feng, ("Mr Bao"), and 25,500 to Mr Wang Hong Ling, ("Mr Wang"). They held as trustees for Strong Progress. On the other side, as already stated, Mr Ng Yat Chi held 98,000 shares, representing 49% of Max's capital.

35. Max's board of directors comprised Mr Kei as chairman, Mr Ng Yat Chi as managing director, Mr Bao and Mr Wang as ordinary directors. I do not propose going into every twist and turn relating to who, precisely, was a director or a shareholder when, except where such details are relevant. Those details can be found helpfully set out in Schedules I and II of Mr Ronny Wong, Q.C.'s skeleton submission. I propose setting down only such information as is necessary for an understanding of the larger picture, and, even then, only insofar as it is necessary for determining the issue whether Max's board was wrong in refusing to register Mr Choy's shares as and when it did. Almost as soon as the State Council in the P.R.C. gave its blessing for Max to engage in the business of real estate investment and development, Max took over T.S. Wong & Co. Ltd., a well established Hong Kong construction company holding a Hong Kong Government Grade "C" Construction Licence, entitling it to bid for Hong Kong Government contracts without any financial limit. Possessing such a Licence undoubtedly enhanced the value of T.S. Wong & Co. Ltd. considerably. That acquisition was consummated in September 1986. As with Max, the shareholding in T.S. Wong & Co. Ltd. was 51% to Strong Progress and 49% to Mr Ng Yat Chi. T.S. Wong & Co. Ltd. was the first of many subsidiaries which came to form the Max Group. The combination of Mr Ng's influence and the P.R.C. connection led to T.S. Wong & Co Ltd securing about ten major construction projects.

36. Although Max was sent forth into the Hong Kong real estate and development market with a rather modest share capital of $200,000, which might not be sufficient to buy one square metre of a prime site in Hong Kong, the company was in no way handicapped by lack of finance, since it had access to all the money it needed by being able to borrow from P.R.C. - related banks or CRH.

37. From the outset, Max was able to embark on an aggressive programme of land acquisition and development. An early example was a site at 231-247 Un Chau Street, Kowloon, purchased through a Max subsidiary, for $39.5 million on 17.12.1986, developed with a loan of $46.5 million from Nanyang Commercial Bank, and sold off as units after the Occupation Permit was issued on 11th April 1989.

38. The scale of Max's operations can be deduced from the circumstance that, as at 31st December 1990, it had properties under development and for sale valued in excess of $750 million.

39. Details of ten or more pieces of real estate acquired for investment and/or development by Max between 1986 and 1989 can be found at paragraph 19 of Mr Choy's affirmation of 7th May 1993, and paragraph 19 of an affirmation of the same date from Mr Brumen Li, ("Mr Li"), Mr Ng Yat Chi's personal assistant in the Hung Wai Group at material times. An indication of how closely the Hung Wai Group and the Max/CRH Groups worked together is to be found in the circumstance that from March to September 1987, Mr Li was seconded to CRH, Max, and T.S. Wong & Co Ltd.

40. The concept of combining capital from China with expertise from Hong Kong for the purposes of land investment and development in Hong Kong via the joint venture company, Max, was sound, and 1986 was a propitious time to embark on that sort of business, so that, CRH, and, ultimately, the P.R.C., should have garnered a lot of quick profits from Max, but it did not make any, if one looks at the period commencing September 1986 and finishing 31st December 1990. Why I have selected that period will become apparent as the narrative unfolds.

41. At times, though, during that same period, Mr Ng Yat Chi, Mr Kei and various P.R.C. officials did make a lot of money, for themselves, as individuals, through their involvement with Max.

42. As related in the affirmations filed on Mr Choy's behalf, Mr Ng Yat Chi and Mr Kei made tens of millions of dollars for themselves by conspiring with P.R.C. officials to defraud Max, T.S. Wong & Co. Ltd. and other subsidiaries of the Max Group.

43. Whether what Mr Choy and Mr Li have to say in their affirmations is true or not does not call for consideration in the proceedings before me. It is merely for the sake of argument in the present striking-out application that I am assuming that what Mr Choy and Mr Li have said in their affirmations represents what did in fact happen, but I hasten to add that the court, at this stage, is not casting any aspersions against any of the persons named by Mr Choy and/or Mr Li, in particular, nor P.R.C. officials working for CRH, generally, since none of those people are here to defend the allegations being made against them.

44. With that caveat, I will now go on to describe the types of fraud which Mr Choy and Mr Li allege were perpetrated by Mr Ng Yat Chi, and the nominees of Strong Progress who held shares of Max in trust for Strong Progress and were also on Max's board. The three nominees whom Mr Choy and Mr Brumen Li identify as participants in the frauds against Max were Mr Kei, Mr Bao and Mr Wang. As nominees of Strong Progress, they also held shares in, and were directors of the subsidiary companies in the Max Group.

45. Mr Kei was the most senior of those three P.R.C. officials by virtue of his position in the hierarchy of the P.R.C.'s Communist Party. It was alleged by Mr Li that Mr Ng Yat Chi had told him that Mr Kei, besides taking corrupt money for himself, was also collecting for his "principals" in CRH. Nothing in the evidence identifies which individuals comprised those "principals".

46. There were three main ways in which Mr Ng Yat Chi, representing the Hung Wai Group on the one hand, and Messrs Kei, Bao and Wang, for the Strong Progress/CRH Group on the other hand, combined to cheat Max and the other companies in the Max Group.

47. The first method was the dishonest allocation of sub-contracts awarded to T.S. Wong & Co. Ltd., which was invariably chosen by Max and the companies in the Max Group as the Main Contractor for all the Max Group developments. The modus operandi was for the Main Contract to be awarded to T.S. Wong & Co. Ltd. at an inflated price. T.S. Wong & Co. Ltd., in its turn, would then sub-contract the work to companies owned or controlled by Ng Yat Chi and/or Kei for their own private purposes. Those companies, privately owned or controlled by Mr Ng Yat Chi and Kei, in fact had no experience as sub-contractors. Those companies would then sub-contract the work again to a genuine sub-contractor at the ordinary market price. The difference between the amount paid to the dummy sub-contractor owned privately by Mr Ng Yat Chi and/or Mr Kei, and the amount paid to the genuine sub-contractor, would find its way into the pockets of Mr Ng Yat Chi, Mr Kei, Mr Bao, Mr Wang, and whoever else had to be paid off. This, so the court was told, was Mr Kei's favorite way of cheating Max, Strong Progress, CRH, and ultimately the P.R.C. itself, since it was the way in which he could cream off the most for himself. An example of this type of corrupt activity is furnished by Max's development of the Max Share Centre in King's Road where T.S. Wong & Co Ltd, as Main Contractor, sub-contracted the superstructure works to Vincent Construction at a price of $60 million, Vincent Construction in its turn then sub-contracting at a price of $40 million.

48. The second way in which Mr Ng Yat Chi and Mr Kei cheated Max was through the monopoly Mr Kei, in practice, had, via Redland, for supplying concrete, and Mr Ng Yat Chi had for supplying steel to T.S. Wong & Co. Ltd. on all the development projects of the Max Group. Such commodities, supplied by Mr Kei and/or Mr Ng Yat Chi to T.S. Wong & Co. Ltd. and the sub- contractors, were not supplied at the market price, but at an inflated price, the difference between the two prices, needless to say, going to the same people who cheated the Max Group over construction sub-contracts.

49. The scale of the intra-party transactions involving Max, T.S. Wong & Co. Ltd., and companies owned or controlled by Ng Yat Chi and/or Mr Kei can be gauged from the circumstance that, upto the end of 1991, the cost T.S. Wong & Co. Ltd. had incurred for development work was $572,388,306, of which sum, $394,371,423 went to companies owned or controlled by Mr Ng Yat Chi in respect of either sub-contracts or supply of materials in respect of building works. Mr Ng Yat Chi had even set up special companies - Wai Sing Metal Company Limited and Wai Ming Design and Decoration Company Limited - to facilitate his cheating the Max Group over sub-contracts and the supply of building materials.

50. While highly profitable to Mr Ng Yat Chi, Mr Kei, and the others allegedly involved, the business practices I have just been describing were disastrous for T.S. Wong & Co. Ltd. which was handicapped by having to pay too much for the materials bought from Redland and companies in Mr Ng Yat Chi's Hung Wai Group, as well as having to deal with sub- contractors chosen, not on the basis of merit, but their willingness to go along with the dishonest practices of Mr Ng Yat Chi and Mr Kei. The result was delay and waste, for which, sub-contractors, in due course, demanded compensation from T.S. Wong & Co. Ltd.

51. Thirdly, Mr Ng Yat Chi, Mr Kei and the same band of people allegedly cheated the Max Group by "confirmor" transactions, connected with the buying or selling of real estate. A company privately owned by Mr Ng and/or Mr Kei would buy a property at one price, and then sell it on at a higher price to Max companies in the Max Group, the difference in the two prices finding its way into the pockets of Mr Ng Yat Chi, Mr Kei and their corrupt associates. A similar wheeze was practised by the same people on sale transactions by Max: a property belonging to Max would be sold to a company privately owned by Mr Ng Yat Chi and/or Mr Kei cheaply, and then sold again at a profit which would end up with Mr Ng Yat Chi, Mr Kei, and their associates.

52. Mr Ng Yat Chi is alleged to have prospered greatly so long as Mr Cheung Kin Wah remained the Chairman and General Manager of CRH. Mr Cheung Kin Wah, like Mr Ng Yat Chi, was a protege of Mr Xu.

53. In mid-1988, events are supposed to have taken a turn for the worse, as far as Mr Ng Yat Chi was concerned, when Mr Cheung Kin Wah was replaced by Madam Zhu Youlan as the Chairman of CRH. For reasons unexplained, Madam Zhu Youlan did not get along well with Mr Ng Yat Chi, and did nothing to assist him in his various business activities.

54. Ng Yat Chi's lack of rapport with Madam Zhu Youlan was of small moment compared to the dramatic reversal in his fortunes occasioned by the repercussions from the landmark events occurring in the P.R.C. on 4th June, 1989. Mr Xu, as the result of the stand he took over the Tiananmen Square episode, swiftly fell out of favour with those running CRH, and ceased to be influential in P.R.C. circles in Hong Kong. Because he was closely identified with Mr Xu, Mr Ng Yat Chi's star went into eclipse at the same time as his protector's. From being a sleek, fat cat, Mr Ng Yat Chi was rapidly transmogrified into a lean and hungry one.

55. Part of the aftermath, following the watershed events of 4th June 1989, was a decision by those in charge of CRH to investigate the way business had been done in the Max Group. Mr Kei, presumably for reasons of self- preservation, distanced himself from Mr Ng Yat Chi. Mr Ng Yat Chi was no longer invited to participate in any more "confirmor" transactions; nor was he brought into any new development projects where he would have the opportunity to sell his building materials at inflated prices, and take a percentage by deft manipulation of sub-contracts. P.R.C.-related banks no longer smiled favourably on his requests for the financing of his myriad business activities.

56. Matters went from bad to worse for Mr Ng Yat Chi when Mr Xu retired from the N.C.N.A. in February, 1990, and then sought refuge in the U.S.A. Having been left out in the cold since the time of the Tiananmen Square incident, Mr Ng Yat Chi was asked by CRH officials in early 1990 to give up his shares in Max. Mr Ng Yat Chi at first refused. Pressure was continuously exerted against him by CRH officials until, in November 1990, he caved in to their demand that he should withdraw from the Max Group. It was agreed between Mr Ng Yat Chi and top officials in CRH in November 1990 that Messrs Wong Tan & Co, the auditors for CRH, should perform a valuation exercise in respect of Mr Ng Yat Chi's 49% holding in the Max Group, such valuation to form the basis of the price Mr Ng Yat Chi would receive from CRH for his shares. The valuation was to be made as at 1st January 1991.

57. Messrs Wong Tan & Co's Share Valuation Report ("the Report") was presented in May 1991. It showed that, as at 31st December 1990, the Max Group of Companies had an accumulated loss exceeding $275 million.

58. A board meeting of Max was held on 1st June 1991. There was discussion then between Mr Ng Yat Chi, and the directors representing the CRH/Strong Progress interest, about the factors to be taken into account in determining the price to be offered to Mr Ng Yat Chi for his Max shares, but no figure was arrived at. At that meeting, Mr Ng Yat Chi agreed that, with effect from 8th June 1991, he would no longer play any part in the running of the Max Group of Companies. He remained a director, however.

59. Around about July or August 1991, CRH put the proposal to Mr Ng Yat Chi that he should sell his whole 49% interest in Max for a total of $1, and accept liability to pay $99 million towards Max's losses. Mr Ng Yat Chi rejected that proposal.

60. Using the Report as ammunition, CRH/Strong Progress, according to Mr Choy, now started trying to cheat Mr Ng Yat Chi, while, at the same time, also laying the ground-work for further cheating of the Max Group. Such cheating is manifested by Messrs Wong Tan & Co's undervaluing the Max Group's assets in the Report, so those appearing for Mr Choy say. As at 1st January 1991, so it is said on behalf of Mr Choy, Max Group's real estate is undervalued by $30 million in the Report. Likewise, the valuation of Max's goodwill, stemming from its P.R.C. connection, is shown in the Report worth $30 million less than it should be, and the value of T.S. Wong & Co. Ltd.'s goodwill attributable to its Grade "C" Construction Licence should be $30 million more than the Report states. Further, the Report fails to take into account monies likely to accrue to the Max Group from its construction litigation claims, as well as, of course, from the misfeasance claims it is entitled to launch against the its directors.

61. P.R.C.-related banks, which, in happier days, had been the main source of credit for the Hung Wai Group, now brought unrelenting pressure for the repayment of all their outstanding loans to Mr Ng Yat Chi's businesses. A further bitter blow was dealt Mr Ng, in November 1991, when T.S. Wong & Co. Ltd. announced it would no longer buy any steel from the Hung Wai Group.

62. Mr Ng's business empire crumbled, in effect, on 6th January 1992 when Hung Wai Securities was suspended from trading. Withdrawal of credit by P.R.C.-related banks had brought about the slow strangulation of Mr Ng's businesses.

63. It was not only in Hong Kong that Mr Ng's businesses were destroyed. By mid-1991, he had been squeezed out of all the joint ventures in which he had participated in China, with those businesses being wholly taken over by local municipal authorities there.

64. Mr Ng Yat Chi, financially ruined, left Hong Kong for the P.R.C. on 8th February 1992 in the hope of being able to restore himself to favour amongst those in places of high influence there. How successful he has been in that endeavour is not touched upon in the material put before me for the purposes of the present application, and he now drops out of the picture.

65. Chronologically, I have returned to the point at which this judgment started, with the focus once more on Mr Choy who set in motion the events giving rise to the present application when, on 5th March 1992, he obtained the Order for interlocutory costs against Mr Ng Yat Chi, in the libel action he had brought.

66. Mention was made near the beginning of this judgment of how, on 10th April 1992, Mr Choy's lawyers sent Max a copy of the Charging Order they had obtaining the previous day in the sum $400,301 against Mr Ng Yat Chi's 98,000 $1 shares in Max.

67. That was followed on 16th April 1992 by a Notice from Max's board, announcing an Extraordinary General Meeting ("E.G.M.") to be held on 1st May 1992 to consider whether to increase Max's authorised share capital from $200,000 to $50.2 million. The E.G.M. duly took place on 1st May 1992 when Max's authorised capital was increased by $50 million, and shares were offered, pro rata, to existing shareholders. CRH/Strong Progress, through their nominees, Mr Kei, Mr Bao and Mr Wang subscribed for their full entitlement of $25.5 million new shares, but Mr Ng Yat Chi, predictably, in view of his straitened financial circumstances at the time, allowed this offer of new shares to go by default.

68. Those appearing on behalf of Mr Choy contend, inter alia, that the increase in Max's capital was a reaction from CRH/Strong Progress to Mr Choy's Charging Order, prompted by a wish on their part to discourage any outsider from becoming a registered shareholder in Max, the line of thought imputed to CRH/Strong Progress being that, if they took steps to dilute Mr Ng Yat Chi's holding, Mr Choy might lose heart over trying to enforce the Charging Order, and then CRH/Strong Progress would avoid the problems for themselves which might arise if an outsider tried to take over Mr Ng Yat Chi's shares. According to those representing Mr Choy, the type of problem Max/Strong Progress wanted to forestall was an outsider taking the lid off the Max Group and causing embarrassment to CRH, and, ultimately, the P.R.C., by revealing how corrupt P.R.C. officials could be.

69. I think those appearing for Mr Choy were probably right in their contention that a reasonable inference for the court to draw was that it was not mere coincidence that Max's board sent out the E.G.M. notice on 16th April 1992, i.e., a few days after becoming aware of the Charging Order of 9th April 1992, and that CRH's seeking a massive increase in Max's capital stemmed from their wish to prevent an outsider from becoming a shareholder.

70. Where I part company from those appearing for Mr Choy is over the further inferences a court could reasonably draw, from the affirmation evidence presented, as to why CRH wanted to keep prospective purchasers of Mr Ng Yat Chi's shares from becoming registered shareholders.

71. According to the submission made on Mr Choy's behalf, those running CRH/Strong Progress at the time the notice for the E.G.M. was given, and at all material times subsequently, must have known that Messrs Kei, Bao and Wang, plus other P.R.C. officials, both in and outside CRC, had been in league with Mr Ng Yat Chi to plunder the Max Group. Even on the basis of what Mr Choy knew about Max from his own sources or from Mr Li, it was clear, so the submission on behalf of Mr Choy went, that Max had good causes of action against the P.R.C. officials and Mr Ng Yat Chi, who, together, had systematically cheated Max, yet CRH, which, from its vantage point, must have known a great deal more than Mr Choy and Mr Li about the misfeasance visited upon Max, did nothing about it by way of causing Max to launch recovery proceedings against those who had stolen from it.

72. The reason CRH does nothing, so Mr Choy alleges, is its fear of the scandal involving the P.R.C., and some of its corrupt officials, which would become public knowledge if Max sought restitution from those who had fleeced it. It cannot be in Max's interest, so Mr Choy contends, to abstain from taking action against those who siphoned off large amounts of its money, even if it might be in CRH's interests, as perceived by those running CRH, to keep the lid on this scandal which would gravely embarrass CRH and the P.R.C., if it sees the light of day. It is further asserted on behalf of Mr Choy that, because the interests of CRH in suppressing facts leading to a public scandal are diametrically opposed to those of Max, which can only get its money back by having the same set of facts ventilated openly in the courts in the course of recovery proceedings, Mr Choy, as an outsider, with the court's assistance, should, therefore, have his shares in Max registered, so that he can champion the interests of Max itself, which CRH are sacrificing for CRH's own corporate, and the P.R.C.'s political ends.

73. As Mr Choy would have it, CRH has not been acting bona fide and honestly in pursuit of Max's interests, but, instead, has acted in its own interests, whereas he, once registered as a shareholder of Max, will be in a position to act bona fide and honestly in Max's interest.

74. At the stage where all that CRH had caused to be done was sending a notice to the registered shareholders concerning an E.G.M. to increase Max's authorised capital, and the passing of the resolution to authorise the increase of Max's capital on 1st May 1992, it was possible to come up with an elaborate hypothesis like Mr Choy's, at least consistent with the primary facts of misfeasance, as alleged by those appearing on his behalf against Max's directors.

75. Whilst theoretically possible, the hypothesis put forward, on behalf of Mr Choy, to the effect that CRH's actions were designed to prevent the possibility of Mr Choy exposing the alleged rottenness of P.R.C. officials connected with CRH, it is, nevertheless, in my judgment, a far-fetched hypothesis, even if confined to the period up to and including the E.G.M. on 1st May 1992. A far more reasonable hypothesis was CRH's disenchantment with the arrangement of supplying Max with capital by way of loans. Once Mr Ng Yat Chi fell out of favour with CRH, it would have been a natural reaction for CRH to resent Mr Ng Yat Chi's continuing to hold 49% of Max's shares after cheating Max, and no longer having, in CRH's eyes, anything of worth to contribute to the joint venture arrangement embodied in Max. Bearing in mind that, for many months before the 1st May 1992, Mr Ng Yat Chi had, in practice, been frozen out by CRH from all decision-making for Max, and he was no longer deriving any material benefit from his 49% shareholding in Max which he was in the process of selling to CRH in any event, it is, in my view, reasonably understandable that CRH allowed matters to drift along with Mr Ng Yat Chi still owning 49% of Max's shares.

76. When, however, Mr Choy suddenly burst upon the scene with a Charging Order which, with time, could result in a stranger coming to own Mr Ng Yat Chi's 49% of the equity in Max. CRH took steps which I regard as far more rationally explained on the basis that it did not relish the prospect of being saddled with a freeloading outsider in substitution for Mr Ng Yat Chi who had started out with much to contribute to the joint venture, rather than on the basis asserted by Mr Choy, of CRH being terrified at the prospect of a new member of Max likely to insist on acting bona fide in Max's best interests.

77. Two events occurred after 1st May 1992 which, in my judgment, completely undermine Mr Choy's hypothesis that CRH was and still is involved in a big cover-up of the looting of Max.

78. The first such event was the resignation of Messrs Kei, Bao andWang from Max's board on 14th July 1992, and their replacement as directors by other officials from the P.R.C. On 4th August 1992 yet another P.R.C. official was added to Max's board.

79. There is nothing in the evidence to suggest anything adverse against the new P.R.C. officials appointed as directors on 14th July and 4th August 1992. The sensible inference to draw is that CRH had got rid of all the bad eggs who had represented it previously on Max's Board.

80. The second event which spoils Mr Choy's theory, in my view, is that ownership of all Strong Progress's shares in Max was transferred away from Messrs Kei, Bao and Wang on 28th August 1992 to other P.R.C. officials.

81. Thus, CRH had made a clean sweep of Messrs Kei, Bao and Wang as directors and nominee shareholders before the board of Max rejected Mr Choy's application, made on 4th September 1992, to have his shares in Max registered. Moreover, before 29th September 1992 which was when Max's directors informed Mr Choy of their refusal to register his shares, Mr Ng Yat Chi and his family members, had also ceased to be directors of Max.

82. Whereas Messrs Kei, Bao and Wang, because of their long course of alleged misconduct, would have been highly vulnerable to pressure from CRH to do whatever CRH bade, no matter how irregular or dishonest, there is nothing by way of evidence to suggest that their replacements were other than honest men or women, doing in good faith what they honestly thought best for Max. As Lord Diplock pointed out in Marfani & Co. Ltd. v. Midland Bank Ltd. [1968] 1 WLR 956, 974, most people are honest, and should be treated as such, unless there are indications to the contrary. A similar thought was expressed by Starke J. in The Australian Metropolitan Life Assurance Co Ltd v. Ure [1923] 33 C.L.R. 199, 228 where he said, "Directors are entitled to the presumption of honesty ...." Conspiracy theories are easy enough to dream up, and, for those with sufficient imagination, sinister implications will be found in even the most innocent of circumstances.

83. Needless to say, courts come down hard on any far-fetched hypothesis which does not flow reasonably and logically from the alleged substratum of fact, and that is particularly so where the hypothesis involves allegations of fraud. As observed by Isaacs, J., in the Australian Metropolitan Life Assurance Co case (at p.220),

"The Court will judge of circumstances and form its conclusions on reasonable probabilities."

84. In my judgment, Mr Choy's alleged beliefs about how he is wrongfully being denied registration of his shares by CRH because it fears his apocalyptic powers once he is on the register are not reasonably anchored in the primary facts he alleges on the face of the affirmations, and, as he has no hope of winning his case if this is the best he can do, the action should be stopped here and now as an abuse of the court's process.

85. Viewed objectively, the fact Max's board refused to register Mr Choy's shares does not of itself point in the direction of that board acting from improper motives. All that Mr Choy and Mr Li have been able to tell the court about Max's new board of directors is that they are all P.R.C. officials working for CRH/Strong Progress. As far as the court is concerned, nothing adverse is known about them, either as individuals or collectively. Neither Mr Choy, nor Mr Li was in any way privy to their deliberations which resulted in their decision refusing registration of the share transfer to Mr Choy. In fact, Mr Choy and Mr Li are in no position to tell the court how Max has been run since the complete change of blood in Max's shareholders and directors between July and September 1992.

86. It has been claimed on behalf of Mr Choy that his position can be distinguished from that of the plaintiff in the Simon Fireman case who unsuccessfully sought to pray in aid the court's power to have his holding of shares in that private company registered in the face of its board's refusal. There, the plaintiff, to whom the shares had been transferred by way of charge, was described by the court as "a complete stranger" to the company. Mr Choy points out, by contrast, that he is not a complete stranger to Max, having dealt with companies in the CRH Group (including Max, presumably) as a consulting engineer.

87. In my view, the mere fact that Mr Choy had been employed by Max as a consulting engineer in no way points to Max's Board having acted otherwise than bona fide and honestly in Max's best interests in rejecting the share transfer for registration.

88. It was Mr Li who pointed out that it was "mutual trust and confidence" which formed, "the basis for the carrying on the business" of the joint venture company, Max. (See Exh.BLNS-Z p.9).

89. Under the law, private companies, generally speaking, are permitted to be set up in such a way that those running them can enjoy the partnership characteristic of choosing who may join them in the business venture for which the company was formed. The locus classicus on this feature of private companies is to be found in the judgment of Lord Greene, M.R. in Re Smith & Fawcett Ltd, [1942] 1 All ER 542,

"There is also another consideration which I think is worth bearing in mind when one comes to examine the construction of any article that falls for consideration, and that is that this type of article is one which is for the most part confined to private companies. Private companies are, of course, separate entities in law just as much as are public companies, but from the business and personal point of view they are much more analogous to partnerships than to public corporations. Accordingly, it is to be expected that, in the articles of such a company, the control of the directors over the membership may be very strict indeed. There are very good business reasons, or there may be very good business reasons, why those who bring such companies into existence should give them a constitution which gives to the directors powers of the widest description."

90. Just because Max knew of Mr Choy, from his having been their consulting engineer, in no way leads to any inference that the board should have had the "trust and confidence" in him necessary for carrying on Max's business. All that the evidence shows is that Max knew Mr Choy, and its board decided it did not want him as a shareholder. Mutual attraction was lacking.

91. The wording of the conclusion reached by Starke J., in the Australian Metropolitan Life Assurance Co case, at page 228, in relation to a private company's article providing that directors need not assign any reason for refusal to register a share transfer, happens to apply with equal force to the circumstances of the case before me:-

"Directors are entitled to the presumption of honesty, and the shareholders of the Company are also entitled to the benefit of the judgment of the directors under art.21 (The equivalent of Max's article 6, my parenthesis). The shareholders have agreed by their articles to abide by the directors' decision until some dishonest, arbitrary, capricious or unlawful act has been proved; and, as the (plaintiff, my parenthesis) has failed in this proof, the decision of the directors cannot be canvassed in a Court of law."

92. For the reasons stated above, I order that Mr Choy's Originating Summons is to be struck out.

93. This judgment is delivered pursuant to O.42 r.5B. I make an Order Nisi that costs are to follow the event.