WONG TO YICK WOOD LOCK OINTMENT LTD AND ANOTHER v. WONG TIN CHEE TINLY AND OTHERS

HCA 7984/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 7984 OF 2000

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BETWEEN

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AND

HCA 1311/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1311 OF 2005

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J U D G M E N T

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1.  This is a sad case.  The 2^nd Plaintiff Wong To Yick is the father of the 1^st to 3^rd Defendants in High Court Action No.7984 of 2000.  The other Defendants in the action are sons-in-law and daughter-in-law of the 2^nd Plaintiff and companies or entities controlled by the individual defendants.  There are altogether 7 daughters and 1 son in the family.  The 2^nd Defendant is the 4^th daughter whilst the 3^rd Defendant is the 8^th daughter.  In essence, the litigation is about the goodwill in Wong To Yick Wood Lock Ointment [“the Ointment”] and its related trademarks and businesses.

2.  The Ointment was first introduced into the market by the 2^nd Plaintiff in about 1968.  It was developed by the Father based on a recipe given to him.  As a matter of fact, ‘ointment’ is a misnomer.  The proper description of the product should be medicated oil.  However, the parties had adopted that term in the names of their companies and Mr Liao SC had adopted it in his submissions.  For the sake of consistency, I am content to use that expression in this judgment. 

3.  Over the years, the Ointment had become popular in local as well overseas markets, including the mainland market.  According to the figures pleaded in the Statement of Claim in HCA 7984, the sale volumes ranged from $62 million to $47 million between 1996 and 2000.  There is no dispute that the goodwill attached to the Ointment is substantial.

4.  Before I go into the background leading to the dispute, it must be emphasized that in a court of law, the judge must resolve the issues according to the law and the evidence.  The court has to decide the case in accordance with the strict legal rights and obligations of the parties.  There is no scope for coming up with any other solution even though the answer provided by the law may not deal with all the problems.  It is not possible for a court of law to mend the relationship between the parties.  Only the parties can achieve that by their own willingness to do so.

5.  A lot of parents would gladly pass the family business to their children hoping that they could carry on the same trade after the parents’ retirement.  But there are exceptions.  In the present case, the 2^nd Plaintiff is almost 90 years old.  He claims that the children had misappropriated his (or the 1^st Plaintiff’s) rights in the goodwill of the Ointment and seeks relief from this court against them.  The evidence shows that at one stage, the Ointment business was run by the children and the family had had happier days.  It is therefore quite distressing for this court to observe that when they gave evidence, both the father and the son harboured bitterness towards each other.  The father was particularly vocal in expressing his animosity.  How does it come about?

The genesis of the clinic and the Ointment businesses

6.  The parties had in their evidence recounted events way back in the past.  For present purposes, I can pick up the story from 1967.  In that year, the father commenced operation of a bone-setting clinic at the back of his Yick Kee Herbal Tea Shop in Nam Cheong Street, Shamshuipo.  The clinic was called “中國跌打風湿醫館(黄道益醫館)”.  The father practised bone-setting there and the Ointment was often applied in treatment in conjunction with that practice.  The mother and the children assisted in the practice.

7.  The connection between the clinic and the Ointment was highlighted in the earlier packaging for the Ointment.  An example of the 1969 packaging can be found at the Trial Document Bundle 2 at p.666 and 667.  The name of the Clinic was stated on the top of the label and the packaging box.  The father was said to be the producer (“監制人”) of the Ointment and his photograph was used as a device.  The address of the Clinic was provided in the packaging.

8.  The clinic and the Ointment was the main source of income for the family.  In the 1970’s, the elder children were sent to Canada for education and they settled down there.  The son went in 1974 when he was 18 years old.  The children also brought along some Ointment to develop the market in North America although the volume of that business was not very large.  The three younger daughters stayed in Hong Kong.  Amongst them, the 6^th daughter was most active in the Ointment business. 

9.  By reason of redevelopment, the clinic was relocated to a new premises at Cheung Sha Wan Road in 1978.  That premises was purchased in 1977.  Yick Kee ceased business upon relocation.

10.  In a packaging for the Ointment used after relocation, at Trial Document Bundle 2 at p.669, the clinic was referred to as the sole manufacturer of the Ointment.

11.  Since about 1979, the apprentices of the father assisted in the bone-setting and Ointment business.

12.  The father and mother also emigrated to Canada with the 3 younger daughters in 1979.  The parents only stayed there for 3 months.  After that, they came back to Hong Kong to attend to the businesses.  During the 3 months’ interval, the son came back to Hong Kong to take care of the businesses.

13.  The son learnt the trade of dental laboratory technician in Canada and he acquired the qualification as a registered dental technician in 1981. 

14.  In 1982, the father purchased a property at Texaco Road for the Ointment business.  He registered a business under the name of Chinese Medical Laboratory [“CML”] at the Texaco Road property for the manufacturing and sale of the Ointment.  Obviously, the Ointment business was expanding in those years.

15.  He also applied on 23 July 1982 for the registration of his portrait device as a trade mark for medicated oil in Hong Kong under Trade Mark No.19831236.

16.  Madam Wong, a cousin of the father was engaged by the father to work as the factory in CML since August 1982.

17.  A new packaging for the Ointment was introduced in 1982.  A sample can be found at Trial Documents Bundle 2 at p.713.  Instead of the clinic, the name of CML appeared.  It was also emphasized at the front packaging that this was a new packaging with the setting up of the new factory.  The production was said to be under the supervision of the father (“監制”).  The portrait device was used as a registered trade mark in relation to the new packing of the Ointment.

18.  The clinic did not disappear altogether.  In 1986, there was another packing (Trial Documents Bundle 2 at p.716-7).  In the packaging box and the leaflet inside, CML was described as the manufacturer whilst the clinic was named as the sole distributor.

19.  The evidence of Madam Wong was that initially CML did not operate on a large scale.  It only had 3 to 4 workers including her and one pharmacist.  However, there had been an increase in the turnover.  In 1980, the accounts of the clinic showed a turnover (for sales of the Ointment) in the sum of $165,009.60.  That figure increased to $529,422.90 in 1983 and then to $998,969.10 in 1984, $1,023,631.60 in 1985, $1,203,333.50 in 1987.  If one were to refer to the figures in the accounts of CML, from a half year figure of $357,835.05 (July 82 to Jan 83), it grew to a yearly figure of $923,406.58 in 1984, $1,228,252.80 in 1985, $1,457,542.80 for 1986, $2,134,542.20 in 1987 and $2,468,362.80 in 1988. 

20.  Having examined the packaging for the Ointment and its advertisement, it is quite plain that the names “黃道益活絡油”, “黄道益”, “Wong To Yick Wood Lock Ointment” and “China Medical Laboratory” as well as the portrait devices are the badges of trade by which the public identified the Ointment.

21.  In 1986, the father was the registered sole proprietor of both the clinic and CML.  Although there is an issue raised in the pleadings as regards whether the mother had a beneficial interest in the businesses (Para. 16 and 21 of Re-re-re-Amended Defence), Mr Chan SC did not advance any argument along that line in his final submissions.  Instead, counsel focused on the submission that by transferring the clinic to the son, the father also transferred the goodwill relating to the Ointment to the son.  Ex hypothesi, the father was taken as the sole proprietor of the clinic prior to the transfer.

22.  It is not suggested anywhere in the pleadings that the children acquired a beneficial interest in the businesses in the 1970’s or 1980’s simply on account of their respective contribution by way of constructive trust.  There is an allegation that the father had made a specific promise to the son in 1983 and I shall have to deal with it later.

23.  The mother was not called as a witness and whilst the contribution to the businesses by each family member was a topic that have been canvassed in the course of evidence with reference to the works each of them did in the clinic and in the Ointment business (including the dispute between the son and the father about the son’s contribution to the improvement of the recipe for the Ointment) and the representations to the outside world that the mother and some of the children as bone-setters or herbalists practicing together with the father, there had not been any investigation as regards the common intention of the parties (if there was any) in respect of the registration of the businesses under the sole proprietorship of the father.

24.  Apart from the business registration, there are other materials in the evidence pointing to the sole proprietorship of the father in the clinic and CML.  He was the only person who signed the accounts of the businesses, filed tax returns, operated bank accounts and employed staff.  The registration for the trade mark regarding the portrait device was done solely in the name of the father.  These were apparently all done with the knowledge of the mother.  There was no exploration in the evidence regarding the extent to which these manifestations of ownership of the businesses were consistent with a common intention of joint beneficial ownership.

25.  I have discussed at length the law in respect of constructive trust for ownership of property in Ip Man Shan Henry v Ching Hing Construction Co Ltd (No 2) [2003] 1 HKC 256 at Paras. 66 to 90.  As I held there, the key question is not the contribution by a party.  Rather one should focus on the common intention of the parties.  Common intention can be inferred even though there had not been any explicit or specific discussion on joint ownership.  Nonetheless, the court has to be satisfied that there was a common intention before effect could be given to it.  Therefore it is important that matters pertaining to common intention are canvassed in the pleadings, evidence and submissions.

26.  In the circumstances, given the stance adopted in closing submissions and the inadequate investigation into the question of common intention in the trial, I do not think it is open to this court to proceed on any basis other than that up to 1988, the father was the sole proprietor of the clinic and CML.

27.  Since the clinic and CML were not separate legal entities, I agree with the submission of Mr Liao SC that the goodwill attached to those businesses also vested in the father as a matter of law.

Any promise to the son in 1983?

28.  The son came back to Hong Kong in 1985 and took part in the running of the businesses.  There is a serious dispute between the father and the son regarding the circumstances leading to his return.  The son alleged that in 1983 the father had requested him to come back to take over the businesses.  The father denied it and said the son requested the father to let him come back to assist in the businesses.

29.  In pleadings and in witness statements, the son painted a picture that he had been successful in building up a blooming business in his ABC Dental Lab and had to give up a lot in acceding to the request of the father to come back to Hong Kong.

30.  The son married with the 4^th Defendant in 1981.  They gave birth to their first child in 1984.  In paragraph 48 of his Supplemental witness statement, the son explained why he was rather unwilling to give up his easy life in Canada to come back to Hong Kong.  He said he had a house, the mortgage of that had been discharged.  He had a good income from ABC Dental Lab.  He had health security by virtue of the medical protection scheme offered by the Canadian government.  Further, in paragraph 57, he said his income from the lab in Canada was sufficient not only to support himself, but also his parents.

31.  Under cross-examination, it was revealed that the son was not doing as good in Canada as he would have the court to believe.  The mortgage in respect of his property was not completely discharged.  Records showed that there was an outstanding mortgage in respect of his house until 1997.  The down payment for the house was actually paid by the father.  ABC Dental Lab did not have its own business address until 1983 and appointment of auditors and filing of directors’ report were dispensed with up to 1983.

32.  When Mr Liao cross-examined the son about the business of ABC Dental Lab, the son was evasive.  He said he could not recall the tax position and the profitability of the Dental Lab as he had no access to the documents regarding it.  He said he had left it with his elder sister who refused to speak with him after this litigation.  However, he could not give a satisfactory explanation as to how some documents pertaining to ABC Dental Lab came to the possession of the Defendants and were disclosed in their list of documents.

33.  The son obviously realized that it was important for him to establish the financial position of ABC Dental Lab.  According to his own evidence, he had asked his wife to go back to Canada to locate the relevant documents.  However, he was unable to produce anything concrete.

34.  The son transferred ABC Dental Lab to his brother-in-law and nephew upon his departure from Canada.  It was, according to his own evidence unsupported by any documents, transferred at a consideration of about Can$15,000 to $20,000 and that was paid by instalments.  At the same time, the son himself reckoned he earned about Can$5,000-6,000 per month from the lab.  He also said he had to spend about Can$40,000 in setting up the lab.  Even taking into account of the relationship between the parties, I doubt whether the transfer would be at that price if the prospect of the lab was as rosy as the son depicted.

35.  When he was asked about the lack of business address until 1983, the son was again unhelpful.  He could not even recall the fact that prior to 1983, the registered office of ABC Dental Lab was the office of a lawyer.  He did not explain why that address had to be used as opposed to the address of the lab itself if he was correct that the lab had started operation since 1981.

36.  I do not think it is just a matter of mixing up dates.  I am unable to accept the evidence of the son that he was doing pretty well in Canada and he had to make much sacrifice in coming back to Hong Kong.

37.  But the crucial question is whether the father made a promise to let the son take over the businesses.

38.  To answer this question, we should examine the state of affairs and the father’s likely state of mind in 1983.  Mr Chan submitted that it was more probable than not that the father asked the son to come back in the light of the following indisputable facts,

(a)     the clinic and the factory had not been successful;

(b)    the parents were getting old and the father said in evidence he had to paved the way for the future;

(c)     the son was the only son of the family;

(d)    the daughters were not willing to come back to Hong Kong;

(e)     the father had no intention to pass on the businesses to his apprentices.

39.  Mr Chan further submitted that the father’s version is inherently improbable.  In his witness statement, the father said the businesses were running smoothly and he was neutral about having the son back in Hong Kong.  Further, when the son made a suggestion of coming back, the witness statement stated the father told the son that he could not expected much and he would only be paid a salary of $10,000 per month.  Under cross-examination, the father at one stage said he did not tell the son not to expect much and the salary was limited to $10,000 per month.  However, when Mr Chan showed him his witness statement, the father confirmed that what was set out in the statement was the truth.

40.  I agree that the father’s version was improbable.  The father is not a good witness and it should be clear from what I said below why I have reservations in placing reliance on his evidence.  But it does not follow that I should accept the son’s version.  As mentioned, I also have problem with the son’s veracity.

41.  With respect, I do not think Mr Chan has alluded to all the relevant matters in his submission based on indisputable facts.  I do not accept that the clinic and the factory were not successful.  As pointed out by Mr Liao, the businesses had generated sufficient income to enable certain properties to be purchased.  The father had remitted money to the son for the purchase of his property in Canada.  The son also got $150,000 from the business for the setting up of his dental lab.  The history set out above showed clearly that the businesses were expanding: in 1982, new factory premises was purchased, CML was set up, a trade mark was registered, Madam Wong was employed.  Quite clearly, the father had high expectation for the businesses in the years to come.  The trading volumes increased in a very promising manner since 1980.  The Ointment must have enjoyed some reputation because there were imitation products even in Canada.  The evidence shows that the Ointment was sold in more than a hundred dispensaries all over Hong Kong.  Even the son admitted in his evidence that before he came back in 1985, the businesses had a healthy prospect.

42.  After the son came back, the father purchased a property for the son.  Whilst I agree that the father must have been happy that the son came back to assist in the running of the businesses (and the father also accepted that in his evidence), I am not satisfied that he had promised to pass on the businesses to the son.  The father had made a will in the late 1970’s.  In that will, he divided his estate by half: one half to the son and the other half to his wife which were to be devolved to the daughters upon the demise of his wife.  The son was aware of the contents of this will.

43.  The father did not have any immediate need for the son to come back to assist him.  He had several staff assisting him already.  Although he might be thinking ahead, he did not need to promise the son anything to allure him to come back.

44.  The son’s evidence about the precise nature of the alleged oral promise is equivocal.  Mr Liao cross-examined the son about his understanding of the alleged oral promise (see Transcript p.723 to 724).  The son at first said the mother and the daughters would also have shares in the businesses.  After a few questions, the son began to ponder whether this answer might prejudice his case.  He then testified that the father said the businesses would be passed to him and he simply had not asked further.  It is noteworthy that when Mr Liao asked the son again whether he understood he should have the whole of the businesses, the son gave the following evidence,

“問：哦，即係你嗰陣時冇乜理解嘅，唔係好清晰嘅？

答： 我嘅理解就係畀我，承繼家族嘅--屋企嘅生意，嗰盤生意。

問： 你意思係咪將活絡油嘅--我想問你當時嘅理解，你嘅意思係咪將全盤活絡油嘅生意同埋醫館，跌打嘅生意，將來淨係畀晒你一個人？

答： 哦，唔會，唔會，一半。

問： 唔會？

答： 起碼都一半。

問： 只係畀你一半？

答： 喀。

問： 起碼一半？

答： 喀，因為...”

45.  On the evidence, I find that the father did not promise the son that if he came back to Hong Kong to assist in the running of the businesses, the businesses would be passed to him.  Rather, owing to his knowledge of the will made by the father, the son thought he would have at least one half in the businesses.

46.  The subsequent conducts of the son and the father also demonstrate that no such oral promise had been made by the father.  In 1988, the son assisted the father in the setting up of the 1^st Plaintiff [“the Company”] to continue with the Ointment business.  The father was allotted 51% in the Company and the son got 12%, the wife got 9% and each daughter got 4%.  If the father had promised to give the businesses to the son, this arrangement would be inconsistent with the promise and instead of assisting the father in the process, the son would have objected.  But the evidence shows that the parties had accepted the arrangement in relation to the Company. 

47.  The son accepted in his evidence that the shareholding in the Company reflected that he did not get 100% of the Ointment business.  At p.752-3 of the transcript,

“問：哦。咁喺88年當時，其實呢隻黃道益活絡油嘅生意係個生意係蒸蒸日上嘅，係咪呀？

答： 第幾年話？

問： 88年，1988年成立有限公司嘅時候。

答： 係。

問： 咁你同唔同意我講成立有限公司，你阿爸嘅意願係將活絡油嘅生意係由全家喺將來都有份嘅？

答： 同意。

問： 並不是係你個人獨佔嘅？

答： 同意。

問： 當時嘅股權嘅分配，譬如話邊個有幾多股，呢個其實係你阿爸嘅決定？

答： 係爸爸最終嘅決定。

問： 所以最後佢係攞咗五十--佢自己寫咗係百分之五十一？

答： 同意。

問： 因為咁樣佢可以保留公司嘅紅利？

答： 同意。

問： 因為你亦都幫助活絡油生意嘅發展，85年後返嚟，你父親從來冇否認你對生意嘅貢獻，所以你嘅股份當時係其他家人之中係最高嘅，百分之十二？

答： 同意。

問： 亦都係尊重你母親，所以佢嘅股份係百分之九？

答： 同意。

問： 其他姐妹就百分之四？

答： 同意。”

48.  Further at p.757,

“問：將啲生意分配，咁你嘅理解，佢話將啲生意分配係分配畀邊個呀？

答：  就我哋姓黃嘅喇。

問：  你哋姓黃嘅？

答：  喀，爸爸--媽媽，各位子女都有，因為當時兩間--原來嗰兩間無限公司就冇其他人嘅名。

問：  事實上得一個人名啫，兩間都係你阿爸係唯一嘅--商業登記係唯一嘅東主？

答：  係，係。

問：  好嘞，咁成立有限公司其中一個目的就係將啲活絡油嘅生意，係咪呀，嘅資產係分配畀你哋當時黃家嘅成員，係咪呀？

答：  係。”

49.  Despite such arrangement, the son had not protested at any time that this was in any way in breach of any oral promise by the father to pass the businesses to him only.

The changes in 1988

50.  The Company was incorporated on 22 July 1988.  On 31 July 1988, the father cancelled the Business Registration for the clinic and CML.  On 6 August 1988, the son registered a business called China Medical Centre [“CMC”] under his name at the address of the clinic.

51.  Notwithstanding these changes, the business at the clinic operated in the same manner as in the past.  The father remained as the sole signatory for the bank account of the business.

52.  The son’s case is that the goodwill pertaining to the Ointment was passed to him upon the transfer of the clinic from the father to him in 1988.

53.  On the other hand, the father said the changes in the registration regarding the proprietorship of the clinic were not intended to be a genuine reflection of the true position as between the father and the son.  The father testified that such changes were induced by misrepresentation by the son.  The father considered that under the changes in 1988, the son became the “licence holder” for the business whilst the father himself remained as the true owner.

54.  The father further said the goodwill pertaining to the Ointment was transferred to the Company upon its incorporation.  Since 1988, the Ointment business was carried on by the Company.

55.  In terms of personnel arrangement and staffing, there was no clear dichotomy between the Ointment business and the clinic.  But there were separate sets of accounts and separate business registrations.  Prior to the changes in 1988, it did not matter much whether they were in law one business with two different departments (one for treating patients and the other one for production and sale of Ointment) or two separate businesses.  Since the father was the proprietor of both and they were unincorporated, as a matter of law everything belonged to the father.

56.  The changes in 1988 made the situation slightly more complicated.  The production of the Ointment was taken over by the Company, in which all family members were shareholders.  The clinic was operated under the business registration of CMC as opposed to the father’s business registration.  As far as the sale and marketing of the Ointment is concerned, although the son contended that CMC as sole distributor handled most of the sale, the evidence indicates otherwise.  The Company issued invoices in its own name and the overseas agents dealt with the Company.  To whom was the goodwill pertaining to the Ointment transmitted: the Company or CMC?

57.  Since it is a transmission of the goodwill from the father, the father’s intention at the material time is important.  I have already rejected the son’s case regarding the 1983 promise.  Whilst it must be accepted that the son had been more involved in the Ointment business from 1985 to 1988, it does not follow that the father must have decided to give him the full benefit of the goodwill to the exclusion of the other family members.  As the son accepted in evidence, the allocation of 12% of the shareholdings of the Company to him was partly a reflection of his contribution.

58.  In my judgment, having regard to the circumstances leading to the formation of the Company, the father’s intention was to transmit the goodwill pertaining to the Ointment to the Company.

59.  The father as well as the son gave evidence on the circumstances surrounding the setting up of the Company.  I reject the father’s assertion in the witness box that he set up the Company as a means of making provision in relation to his estate as if it was a disposition by will.  He had made a will before and he understood the difference between a will and the setting up of a company.

60.  He said in his witness statement that by setting up the Company, he intended to share the fruits of his business with his family members.  I think that was his real intention.

61.  Such intention was clearly reflected in the name of the Company.

62.  I have already recited the son’s evidence as regards the intention of the father behind the setting up of the Company.  It is consistent with the father’s evidence in the witness statement.

63.  To achieve the purpose of sharing the fruit with all family members, the father must have intended to transmit the goodwill of the Ointment to the Company.  Subsequent to the incorporation of the Company, the Ointment business was carried on by the Company.

64.  Even the son accepted right at the beginning of his cross-examination by Mr Liao that the goodwill of the Ointment belongs to the whole family instead of him alone and the Ointment business is carried on by the Company.

65.  In the packaging after 1988, initially CML still appeared as the manufacturer but it was also stated it was wholly owned by the Company (see Trial Bundle of Documents, Vol.2 p.721, 725).  Subsequently, the Company was given more prominence in the packaging box (see Trial Bundle of Documents, Vol.2 p.735, 746, 749).  The clinic or CMC was referred to as the distributor.  Given the nature of the product, it is more likely that the reputation of the Ointment was attached to the manufacturer rather than the distributor.  It was the manufacturer who was responsible for the character and quality of the Ointment both as a matter of actual control and as a matter of public perception.  The packaging therefore supports the Plaintiffs’ case that the goodwill attached to the Company. 

66.  In his evidence, the son seems to suggest that the goodwill was at least shared between the Company and CMC.  Hence, he had a right to exploit the goodwill without any reference to the Company by reason of his capacity as proprietor of CMC.

67.  I do not accept that suggestion.  Having transmitted the goodwill of the Ointment to the Company, the father could not have the intention to transmit it again to the son through CMC.  Further, after the goodwill had been transmitted to the Company, the father did not have the power nor the right to transmit it to the son again.

68.  Apart from the son’s assertion, I cannot find any concrete evidence to show that the father intended to make the son a co-owner of the goodwill with the Company.  Having rejected his evidence on the 1983 promise, the son’s case that the transfer of the clinic was an implementation of that promise cannot be sustained.

69.  By 1988, it was apparent that the Ointment business had a much better prospect than the clinic business.  The parents were getting old.  The patients were mainly treated by the apprentices.  Although the son tried to impress this court that he was qualified to practise Chinese medicine, I do not think he had any real interest in the clinic business.  He admitted in 1988 he did not treat any patient at the clinic.  He also said that the clinic business did not generate much income.  In 1983 and 1985, the children had suggested to the father to close down the clinic.

70.  I accept Mr Liao’s submission that the son did not show much interest in the clinic business.  Based on the evidence before me, I find that the clinic business served more as a retail outlet for the Ointment than an independent business on its own.  It was certainly not the main income producer.

71.  Hence, it is not surprising that the father did not attach too much significance to the transfer of the registered ownership of the clinic to the son.  Whilst I would not go so far as finding any intention to deceive on the part of the son in procuring the transfer, I have no hesitation in rejecting the son’s contention that the change in the business registration for the clinic was meant to be a transfer of the ownership of the goodwill pertaining to the Ointment business.  The father remained as the sole signatory for the bank account of the clinic and as in the past he took all the cash income of the clinic everyday after 1988.  On the balance of probabilities, I believe the father agreed to the change in the business registration for the clinic due to some misguided advice on estate duty planning.

72.  Mr Chan submitted that the father was happy with the son’s contribution and hence, the clinic was given to the son.  I do not find so.  The 12% shareholding (as compared with the 4% to the daughters) in the Company, on top of other benefits provided by the father over the years, was the reward to the son.  Since the contribution was to the Ointment business rather than the clinic, it was natural for the reward to take the form of shareholding in the Company as opposed to the clinic.

73.  Had the son been regarded as the true beneficial proprietor of the clinic upon the change in 1988, I do not believe the father could have closed it down that easily in 1999.

74.  Hence, after 1988 the goodwill pertaining to the Ointment vested with the Company.

The strife within the family and the reduction of the shareholding percentage of the father in 1996

75.  After the transfer of the Ointment business to the Company, several daughters came back from Canada to work in the Company in addition to the son.  The 3^rd Defendant came back in 1992 and the 2^nd Defendant came back in 1994.

76.  The Ointment business was expanding and there were registrations by the Company of trademarks in Hong Kong and overseas between 1991 and 1993.  The marks included “Wong To Yick” and its Chinese characterization, “Wood Lock” and the portrait device.  These registrations are indication that everyone in the family regarded the Company as the owner of the goodwill of the Ointment business.

77.  The only exception during this period was a registration of “Wood Lock” by the son in the name of CMC on 19 May 1992 in Hong Kong.  The application was re-activated in 1995.  The son said the father was not interested in the mark “Wood Lock” as it was an English mark whilst the primary market for the Ointment was Chinese people, whether local or overseas.  The registration was actually made in July 1995 and it was paid by cheque signed by the father.  When Mr Chan cross-examined the father about this, the father could not recall the circumstances under which he approved the payments.  But he gave the following evidence about the registration of trademarks,

“問：好嘞，嗰幾年，嘩，又搞吓商標呀，又GMP呀，其實嗰幾年因為都搵緊幾千萬一年喇，即係幾千萬銷售額喇，你唔想搞咁多嘢吖，其實你自己對嗰啲咩嘢商標嗰啲就冇乜興趣嘅，啱唔啱？冇乜認識添嘅？

答： 冇乜認識呢句就真，冇興趣呢個就唔講得。”

78.  Although I have reservations about many parts of the father’s evidence, I think he was telling truth here.  The father was simply ignorant about matters relating to trademarks.  He had no idea about the intricacies regarding registration of trademarks and the requirement that only the owner of the mark can properly apply for registration.  I do not think one can draw the conclusion that he had agreed to transmit the goodwill pertaining to the mark to the son by signing cheques for its registration.  The same observation applies to the involvement of the son in making reports to the Custom & Excise Department.

79.  The Company also took steps to tap the market in mainland China.  In 1994, it obtained a PRC drug import licence and registered “黄道益”and the portrait device as trademarks in the mainland.

80.  Another factory premises was acquired by the Company at the same industrial building at Texaco Road in 1994 and the production of Ointment was moved there in March 1995 with expanded facilities.  A liquid filling machine was purchased from Italy to enhance the production capacity. 

81.  It was about the same time that the children discovered the father had an extra-marital affair with someone called Kwan who had once worked in the family in the mid 1980’s.  The children had engaged a private investigator to check on the father.  After reading the report of the private investigator, they decided to take no further action and they did not inform the mother about it.

82.  In 1992, the parents moved to a new matrimonial home at Tuen Mun.  In late 1995, the children found out that the father had also purchased a unit for Kwan in the same housing estate.  They confronted the father and the father decided to tell the mother about his affair.

83.  Although the father claimed in the witness box that the mother had some idea about his affair before that time, he agreed he had not told her before and he only speculated that someone must have told her.  He could not tell this court the name of the person who might have informed the mother.

84.  Naturally, the mother was very upset and the daughters in Canada had to come back to Hong Kong to comfort her.

85.  There was a family meeting in December 1995.  When Mr Chan cross-examined him, the father was evasive about what had happened around this period.  He said he had no recollection that he had refused to leave Kwan, refused to relocate her elsewhere.  He also could not remember whether he had suggested the mother to move elsewhere and subsequently reneged on his promise to buy another property for the mother to live.  He recognized his signature on a document produced as exhibit D-7 but he could not recall anything as regards its contents.

86.  On further cross-examination, after being confronted with the witness statement of one of the daughters, the father had to admit some of the suggestions put by Mr Chan.  At p.321-2 of the transcript,

“問：你記唔記得當時你嘅前妻最先就叫你離開關女士喇，你記得喇，係咪呀？

答：  唔。

問：  你唔願意喇，你記得喇？

答：  係。

問：  所以佢就冇辦法，你唔願意嘞，不如你叫關女士搬出外面喇咁，記唔記得呀？

答：  唔記得嘞。

問：  點知呢，「這建議不為父親接納」，你連呢樣嘢都唔，你仲「反建議母親遷離瑜翠園」，你記唔記得呀？又唔記得呀？

答：  係呀。

問：  真係唔記得？

答：  唔。

問：  「當時母親及各子女所擔心的另一件事就是關秀容會藉著與父親的關係插手我們家庭生意業務」，記唔記得呢？

答：  唔記得喇。

問：  又唔記得？

答：  唔。

問：  「大家經過一番討論之後，由父親建議，大家亦同意，父親會另行購買一個住宅給媽媽居住」，記唔記得呀？

答：  嗰陣時佢好似曾經提過，佢叫我買。

官：  邊個曾經提過？

答：  羅金梅。

官：  曾經提過咩嘢呀？

答：  即係話提議我另外買過樓畀佢住咁囉，佢曾經咁講過。

問：  咁你有冇應承呀？

答：  當時都有應承，佢同我睇過樓，後來冇，做唔成。

問：  做唔成因為你唔肯畀錢買吖嘛？

答：  買唔成。吓？

問：  做唔成因為你唔肯畀錢買吖嘛，啱唔啱呀？

答：  嗰陣時可能或者睇得唔得滿意喇。

問：  可能？

答：  即係睇樓睇得唔啱喇，唔鍾意喇，大家，咁呀買唔成囉。

問：  大家？

答：  係。

問：  講番--不如講番蟠龍半島呢？

答：  咪嗰度買唔成囉。

問：  嗰度羅女士冇唔滿意喎？

答：  唔知呢。

問：  你前妻冇唔滿意喎？

答：  唔知點呢。

問：  你嘅子女冇唔滿意喎？

答：  唔記得嘞。

問：  係你唔畀錢咋喎，去到褸屘，記唔記得呀？

答：  唔滿意梗係唔買㗎。

問：  你唔滿意梗唔買喇，係咪呀？

答：  梗係大家商量過妥當先吖嘛。

問：  哦，商量完之後你嘅前妻決定住番喺瑜翠園呀？

答：  唔記得喇。

問：  我諗你唔係唔記得嘅，原來商量完之後你嘅前妻都「唔好嘞，住番喺瑜翠園喇，喺你二奶隔籬喇」，係咪咁呀？

答：  傾偈嘅嘢邊度記得咁十足㗎，唔記得就唔記得喇，冇得講嘅，呢啲。

問：  其實你記得，不過你講大話啫，黃先生？

答：  呀，我好少講大話個喎。”

87.  I must say I agree with Mr Chan that the father was lying when he said he could not remember these events.  He refused to tell this court what had actually happened because he knew his conducts in the whole episode were disgraceful.  He chose to hide behind the lame excuse of failure of his memory instead of facing up to the truth.

88.  Mr Liao submitted on behalf of the father that the relationship was not that tense in 1995 to 1996 and he was not under tremendous pressure.  The submission was premised on the proposition that the mother had already known about the affairs of the father for quite some time.  The father agreed it was only his speculation.  Further, there was a difference between the a suspicion of one’s husband having an affair and the full knowledge of such an affair plus the fact that the husband had bought a flat for the mistress in the same housing estate.

89.  The father recalled how the 3^rd Defendant went to kick the door of Kwan’s home.  That highlights the pressure that the father was facing at that time.

90.  The father had the audacity to testify that he was acting out of good intention in moving Kwan to the same housing estate.  He said it was an act by him out of love for the mother as he wished Kwan to serve the mother.  I do not believe for one single moment that such was the genuine intention of the father.  If he was hoping to achieve the acceptance of Kwan by the mother, there was no reason why he had not discussed the matter with the mother first.

91.  Even the father had to accept, after some probing by Mr Chan, that the mother was angry with him when he told her his extra-marital affair.  He also agreed that it was suggested that he would purchase a property for the mother to live so that she needed not remain in the vicinity of Kwan.  Two elder daughters had to come back to Hong Kong because of the incident.  All the objective indicators suggested that the relationship between the mother and the father was tense at that time.

92.  I do not accept the father’s evidence about his lack of memory regarding the contents of exhibit D-7.  The purported loss of recollection was just a convenient answer to avoid more detail questioning about the document.  That document was signed by the father, the mother, the son and two daughters.  It is notable that the two daughters who signed were not the 2^nd and 3^rd Defendants.  Between 1999 and 2004, they stood on the side of the father.  Even up to now, they are apparently not on good terms with the son.  There was no reason why they would put down their signatures on this document to assist the son in advancing a false case against the father.

93.  I find the defence version on the circumstances leading to the making of this document to be credible.  After the refusal of the father to relocate Kwan, the mother and the children were concerned about the possibility of Kwan’s intervention into the Ointment business through the shareholding of the father in the Company.  Hence, they had a discussion with the father and it was agreed that the father would transfer his shareholdings to the mother and the children to allay their fear whilst he would continue to receive dividends and bonus from the Company.  Exhibit D-7 was a note made at that meeting.

94.  As shown by exhibit D-7, at some stage in such discussion, it was suggested that some of the shares would be transferred to the two grandsons, viz. 2^nd and 3^rd Defendants in HCA No.1311 of 2005.

95.  Mr Liao submitted that D-7 was not made in such circumstances.  Counsel suggested if it was a genuine document, it was a document prepared in 1999 after the mother had filed a petition for divorce.  With respect, that was sheer speculation on the part of counsel.  The father did not give evidence to such effect.  Counsel invited this court to treat D-7 as the document referred to in paragraph 125 of the witness statement of the son.  It is quite obvious that the document referred to in that paragraph is not D-7.  The shares referred to in paragraph 125 were shares in public companies, not the shares in the Company.

96.  Later, the father reneged on that agreement.  Instead of having all his shares transferred to others, he only agreed to reduce his shareholdings to 45%.  This was implemented by the further allotment of 10,000 shares to the various family members on 30 January 1996.  After that allotment, the distribution of shareholding in the Company was as follows,

(a)     father            45%

(b)    mother          11%

(c)     son               12%

(d)    7 daughters   4% each

(e)     2 grandsons  2% each

The father’s allegation of misrepresentation

97.  The father claimed that the allotment of the shares to the two grandsons was procured by the son through misrepresentation.  He said the son misled him by suggesting that the Company would encounter difficulties upon his death if he held more than 50% shareholding in the Company.  Hence, the father contended that the shares held by the grandsons should be returned to him and this is the subject matter of his claim in HCA No.1311 of 2005.

98.  I have no difficulty in rejecting the father’s evidence on the alleged misrepresentation.  The documents showed clearly that the allotment to the grandson was part and partial of the overall arrangement in January 1996.  Although I accept his transfer of the registered proprietorship of the clinic was based on misguided estate duty planning advice, I do not accept the same reason had been put forward by the son to procure the arrangement in 1996.  It is quite obvious to me that the January 1996 arrangement was brought about by the revelation of the father’s affair with Kwan to the mother in late 1995.

99.  I find the claim of misrepresentation to be a recent invention of the father.  In April 2000, the father made a complaint to the police regarding the son’s conducts in respect of the affairs of the Company in 1999.  In the later part of this judgment, I shall go into greater details about the events in 1999.  In a statement made by the father to the police on 25 April 2000 in the presence of his lawyer, the father stated that the grandsons were shareholders of the Company.

100.  It is noteworthy that no claim of misrepresentation pertaining to the grandsons’ shares had been raised in HCA 7984 of 2000.  It should be borne in mind that the father had already advanced allegation of misrepresentation of a similar nature against the son concerning the transfer of the registered proprietorship of the clinic in HCA 7984, see original paragraph 9 of the Reply and Defence to Counterclaim filed on 7 February 2001.  If there were any truth in his case that similar misrepresentation was made to procure the allotment of the shares to the two grandsons, I find it incredible that the allegation was not raised in the context of that action as well.

101.  In an affirmation made on 13 May 2002 in the divorce suit, the father did not suggest that the allotment of shares of the grandsons were procured by misrepresentation.  Instead, he said the following with regard to the Company,

“It has always been my intention to keep the Company as a family business.  Therefore, all family members, including my two grandsons are and were, at all material times, the shareholders of the Company.”

102.  In his affirmation of means filed in the divorce suit, the father never suggested that he had a beneficial interest in the shares allotted to the grandsons.

103.  Between 2000 and 2004, there were a number of general meetings of the Company.  At a meeting held on 11 March 2003 the two grandsons attended by proxy in the same camp as the son, opposing the father.  If the father were the true beneficial owner of the shares or had any right to demand the transfer of the shares back to him, he would have taken action at that stage.  Yet he had not raised any objection nor did he take any steps to assert his interest in the shares. 

104.  Throughout this period, the father had the benefit of very capable legal advice.  He attended meetings together with his solicitor and he had retained the services of experienced counsel in the various sets of legal proceedings.  The same firm of solicitors acted for him in all the legal proceedings.  In HCCW 668 of 2000, the son and two daughters petitioned for the just and equitable winding-up of the Company or alternatively for Section 168 relief under the Companies Ordinance.  The claim for winding-up was struck out by the court and the petitioners subsequently withdrew the petition altogether.  In the striking out application, the shareholding structure was alluded to (see p.3 of the judgment of Yuen J of 24 April 2001).  It would be incredible that the ownership of the shares in the Company, including the shares held in the name of the grandsons, had not been canvassed between the father and his lawyers at that stage.  Apparently, the father did not see fit to raise any question about his interests in the grandsons’ shares on that opportune occasion.

105.  The father did not impress me as a truthful witness in respect of the events in 1995 to 1996.  I have mentioned his evasiveness about his matrimonial misconducts.  Mr Chan referred to the general unreliability of the father in his closing submissions and cited the evidence given by the father on some collateral issues to demonstrate the propensity of the father in being less than frank when he gave evidence in court.  I do not think it is necessary for me to go through all of them.  It is sufficient to highlight several examples.

106.  Chan Yin Shui, a former employee of the son gave evidence at the trial for the father.  The father said quite categorically that he only met him at a restaurant without any prior appointment.  However, this was contradicted by the witness himself.  It is quite plain that the father had arranged the meeting through another person.  The father was actually quite anxious in procuring evidence from the witness and he had pleaded Chan to give evidence for him for a number of times after that meeting.  Chan’s evidence as regards the arrangement of the meeting was corroborated by another witness, Kiu Yuk Ming.

107.  The father was cross-examined by Mr Chan about the use of chloroform in the Ointment.  At first, the father denied any knowledge about the term “方水”.  However, exhibit D-6 was in his own handwriting and it showed that “方水” was used by him in the Ointment.  The father had to admit that  “方水” was the euphemism for chloroform.

108.  The father acquired the shares of the eldest daughter in 2005.  When he was asked about the transfer, he initially denied that it was a sale.  He said the daughter just gave it back to him.  It was only on further probing, he admitted that it was actually a sale: the father wrote off the debt owed by the daughter in the sum of $8 million.  Mr Chan had to go into considerable length before the father finally made the admission.  The father had tried to avoid that by saying he could not recall how the $8 million loan had been repaid.  It was only when such attempt failed to dissuade Mr Chan from pursuing the topic that the father conceded that it was a sale.

109.  I must therefore treat the evidence of the father with considerable skepticism.

110.  The father explained about his silence as regards the alleged misrepresentation inducing the allotment of the shares to his grandsons in paragraph 15 of his affirmation filed in HCA 1311 of 2005.  He said he only discovered the representation was false in January 2003.  He delayed in taking action because of the involvement in other legal proceedings and the attempts to reach overall settlement by negotiations.

111.  I do not accept that explanation.  Given the escalation of the hostilities between the father and the son after the incidents in 1999 (which I shall recount below) and the numerous legal proceedings involving the parties, if the alleged misrepresentation had any ring of truth, I believe the father would have no hesitation in consulting his legal advisers and taking action regarding the grandsons’ shares well before January 2003.

112.  I do not believe for one moment that the father did not realize the dilution of his shareholding had nothing to do with estate duty planning prior to 2003.  The issue of estate duty planning had been raised in HCA 7984 of 2000 in the context of the registered proprietorship of the clinic and it did not take a lot of imagination to see the parallel with the alleged misrepresentation concerning the grandsons’ shares.

113.  This belated assertion of misrepresentation has to be considered in the light of the change of circumstances between 2002 and 2005.  In 2000, the three eldest daughters were on the side of the father.  Hence, the father was able to command a majority in the general meeting of the Company.

114.  However, the situation had changed dramatically.  In 2001, the father alleged the husband of the 3^rd daughter of stealing.  In 2004, the father fell out with the 2^nddaughter and she was dismissed by him.  In this connection, I reject Mr Liao’s submission that that daughter left on her own accord.  On the father’s own evidence, when the daughter refused to leave the office, he threatened to summon the police to arrest her.  Even before she left, the father arranged for the lock to be changed to prevent her from coming back.  According to the father, her wrong was to have a meeting with the staff in his absence.

115.  At a meeting held on 5 May 2005, two daughters out of the three voted in favour of re-appointment of the mother as a director of the Company.  The father was barely able to defeat that motion by virtue of the fact that the proxy of the two grandsons were not delivered to the Company.  If the votes of the two grandsons were cast in favour of the motion, it would have been carried since the father’s side (taking into account of the 4% acquired from the eldest daughter) only held 49%.

116.  After the defeat of that motion, the solicitor for the mother, the son and the two daughters who are defendants in HCA 7984 of 2000 requisitioned another meeting to consider the appointment of them as directors.  An extraordinary general meeting was scheduled to be held on 2 August 2005.

117.  In order to prevent the motion from being carried, the father had to secure control of over 50%.  He admitted he had tried to acquire the shares from other daughters without success.  Hence, he had to target at the grandsons’ shares.  To achieve his purpose, HCA No.1311 of 2005 was commenced on 8 July 2005.  The father then applied to court for interim injunction to prevent the grandsons from exercising the voting rights in respect of those shares.  On 15 July 2005, the two grandsons gave an undertaking to the court that they would not exercise any rights attached to the shares until further order.

118.  Hence, there existed a powerful incentive for the father to lie about the circumstances leading to the allotment of shares to the grandsons.  That was the only means by which he could command majority control in the Company after the two daughters refused to side with him against the mother.

119.  The allotment to the grandsons took place at the same time as the increase in the shareholding percentage of the mother in early 1996.  The timing suggested a nexus with the exposure of the extra-marital affair of the father.

120.  The father did not challenge the increase in the mother’s shareholding in the same exercise.  Mr Liao said that was because the father did not want to upset the settlement reached in the divorce proceedings.  However, that submission does not address the position prior to the settlement.  If the whole exercise in early 1996 was the result of a misrepresentation, bearing in mind the animosity displayed by the father at the trial, it is incredible that he had refrained himself from raising it in the divorce suit.

121.  Mr Liao asked this court to regard the 1996 allotment as part of a conspiracy on the part of the son to harm the business of the Company to further his own personal interest.  He referred to some other activities undertaken by the son to support this conspiracy theory.  Those activities are set out in Paragraph 14 of the Statement of Claim in HCA 1311 of 2005.  I shall comment on some of those activities below.  Whilst those activities did indicate that the son had been making some contingency plans after the exposure of the father’s extra-marital affairs, it does not follow that the son had to procure the change in the shareholding in the Company in early 1996 by misrepresentation.  Indeed it is difficult to see how the allotment in favour of the grandsons could have furthered any conspiracy on the part of the son.  He could not foresee how the other daughters in Canada would react in his fight against the father.

122.  On the contrary, it is quite natural that after the exposure, the mother and the children were concerned about the possibility of Kwan’s participating in the Company through the 51% shareholding of the father.  The redistribution of shareholding in January 1996 was to address that concern.

123.  Taking all the circumstances into account, I reject the suggestion of the father that the allotment was the result of a misrepresentation fromthe son.

Do the grandsons hold the shares on trust for the father?

124.  In the Statement of Claim in HCA 1311 of 2005, apart from a case of misrepresentation, the father also pleaded a case of trust. It was averred that the father did not have any intention to make a gift of the shares to the grandsons.

125.  It is not disputed that the father paid for those shares and the share certificates were kept by the father. Further the father has been collecting all the dividends in respect of those shares.

126.  The son said at the time of the 1996 allotment, there was an agreement that the father was to receive the dividends on behalf of the grandsons until they attained majority.

127.  This contention is partly supported by exhibit D-7.  That document shows that in the genesis of the 1996 allotment, there was a compromise at some stage in the family discussion that even though the father had to forego or reduce his shareholdings, he could still have the benefit of the dividends to secure his income.

128.  Such a compromise could address the concern of the mother and the children regarding Kwan’s participation in the Company on the one part and the concern of the father in respect of his income on the other.

129.  As Mr Chan pointed out, the Company had been operating as a family business and it is not surprising that some formalities were not attended to.  Hence, one should not attach too much significance to the keeping of the share certificates by the father.

130.  Given my finding that the 1996 allotment was to address the concern regarding the majority shareholding of the father, it must follow the common intention was that the grandsons were to become beneficial owner of the shares subject to the father’s right to collect the dividends.  If the grandsons were bare trustees for the father, he would be able to demand a transfer of their shares into his name at any time and the purpose of the allotment could be readily defeated.

131.  Having come to this conclusion on common intention, there is no scope for the operation of any resulting trust, see Yuen Yat Shan Fiona v Sit Hin Kau [2005] 4 HKC 170, Para. 20.  Therefore, the grandsons do not hold the shares as trustees for the father.

132.  At the same time, it is unlikely that the father would agree to hold the dividends as trustee.  The compromise as evidenced in D-7 was that he could have the benefit of the dividends.  That purpose could not be achieved if the father merely held the dividends as trustee. 

133.  In fact, the son’s evidence does not support a case of trust in respect of the dividends collected by the father during the minority of the grandsons.  In paragraph 46 of his affirmation filed in HCA 1311 of 2005, the son said,

“At the time of the 1996 Allotment, … my first son was 11 years old, and my second son was 8 years old.  My father told me that since his 2 grandsons were so young at that time, all the dividends payable to them should be kept by him until his grandsons attained the age of 18.  At that time I did not dissent from my father’s suggestion, for after all he was my father and I respected him.”

134.  The son did not say such dividends would be kept by the father as a trustee.  Bearing in mind the relationship between the parties and the state of affairs in 1996, it is unlikely to be their intention that the dividends were to be held by the father on trust for the grandsons.

135.  I find it more likely to be the case that the father was given the right to keep the dividends during the minority of the grandsons for his own use.

136.  The position is different as regards the dividends declared after the grandsons had attained their respective majority.  The concession regarding the dividends to the father expired upon the grandson reaching majority.  The father had no legal rights to collect the dividends of the grandson after that.  Insofar as he had kept such dividends, he must be regarded in law as keeping it on trust and he is accountable to the grandsons for such dividends.

137.  In this respect, the father’s position is not so favourable as the arrangement evidenced by D-7.  However, D-7 was dealing with a scenario where the father would be stripped of all his shareholdings.  As matters developed, that did not happen.  In other words, the father still retained 45% shareholding in the Company and there is no problem with his income.  The dividends arrangement regarding the grandsons’ shares should be viewed very much as a face-saving gesture for the father.  Its symbolic significance was greater than its practical significance.

138.  I find that the common intention at the time of the 1996 allotment was that the grandsons would become the beneficial owner of the shares subject to the right of the father to collect the dividends prior to their majority.

139.  There is no trust in favour of the father in respect of the grandsons’ shares.

140.  The elder grandson was born in November 1984 and the younger one was born in October 1987.  By now, both grandsons have reached majority.

141.  The father should account to the grandsons the dividends he had received in respect of their shares since November 2002 and October 2005 respectively.

The contingency plan of the son after 1996

142.  To recap, after the 1996 allotment, the father held 45% shareholdings in the Company.  The goodwill of the Ointment belonged to the Company.

143.  The day-to-day management and operation of the Company were in the hands of the son and two daughters, viz. the 1^st to 3^rd Defendants in HCA 7984 of 2000.  However, the father remained as the managing director and the sole signatory who could sign cheques on behalf of the Company.

144.  Since 1996, the son and the two daughters acted against the interest of the Company in several respects.  First, he procured the registration of quite a number of trademarks both overseas and in Hong Kong and mainland China in the name of CMC.  Details of those registration are as follows,

Country	Trademark	Date of registration
Australia (澳洲)	“Wood Lock” “黄道益活絡”	27/06/1997 04/07/1997
Brunei (汶萊)	“Wood Lock” “黄道益活絡”	02/10/1997 02/10/1997
Cambodia (柬埔寨)	“Wood Lock” “黄道益活絡”	14/02/1997 14/02/1997
CTM (歐洲共同體)	“Wood Lock” “黄道益活絡”	27/11/1998 16/11/1998
Hong Kong (香港)	“Wood Lock”	14/12/1995
India (印度)	“Wood Lock” “黄道益活絡”	20/01/1997 (Application(申請)) 20/01/1997 (Application)
Indonesia (印尼)	“Wood Lock” “Wood Lock黄道益活絡” “黄道益活絡”	06/01/1999 (Application(申請)) 14/08/1996 06/01/1999 (Application(申請))
Japan (日本)	“Wood Lock” “黄道益活絡”	26/04/1996 (Application; Subsequently abandoned (申請;稍後放棄申請)) 26/04/1996 (Application; Subsequently abandoned (申請;稍後放棄申請))
South Korea (南韓)	“Wood Lock” “黄道益活絡”	04/02/1998 04/02/1998
Malaysia (馬來西亞)	“Wood Lock” “黄道益活絡”	28/03/1996 (Application (申請)) 28/03/1996 (Application (申請))
Mexico (墨西哥)	“Wood Lock” “黄道益活絡”	31/08/1998 19/02/1997 (Application (申請))
New Zealand (纽西蘭)	“Wood Lock” “黄道益活絡”	13/01/1997 13/01/1997
Philippines (菲律賓)	“Wood Lock” “黄道益活絡”	05/06/1997 (Application (申請)) 05/06/1997 (Application (申請))
Singapore (新加坡)	“Wood Lock”	02/05/1996
Republic of China (中國)	“Wood Lock”	11/09/1998 (Application (申請))
Thailand (泰國)	“Wood Lock” “黄道益活絡”	28/11/1996 28/11/1996
Vietnam (越南)	“Wood Lock” “黄道益活絡”	27/03/1997 27/03/1997

145.  Since these trademarks were indicia of the goodwill pertaining to the Ointment business, the registration of such marks could curtail the development of the overseas market by the Company unless such registration could be regarded as registration made on behalf of the Company.

146.  Most, if not all, of these registrations were paid by the Company.  However, the son did not regard himself as making the registration on behalf of the Company.  He said in his evidence that the father indicated he was not interested in overseas markets and told the son to develop such markets on his own using CMC.  At the same time, the father was willing to provide support to the son by paying for the registration fees.

147.  I do not accept this explanation.  The evidence shows that the father had been selling the Ointment to the U.S. through a Mr So of So’s (USA) Company Inc. since the 1980’s.  The reputation of the Ointment in the U.S. had generated sufficient interest on the part of some traders to sell imitation products.  Mr So therefore suggested the registration of the trademarks of the Ointment in the U.S. and this was done in the name of the Company.

148.  I have already found that the father had no intention of transferring the goodwill of the Ointment to the son alone.  The change in the registered proprietorship was not regarded by the father as a real change in the ownership of CMC.  It is unlikely that he would knowingly ask the son to pursue the registration in the name of CMC.

149.  One of the registrations was made in Hong Kong.  I have explained above why it is unlikely that the father would have agreed to let the son have the sole benefit of the goodwill to the exclusion of the other members of the family.

150.  Further, had the father agreed to let the son develop the overseas markets on his own, there would not be any need for the son acting so secretly in setting up a new factory in 1997 and the 11^th Defendant in 1999.

151.  In any event, since the goodwill belonged to the Company and the fiduciary duty of the son as director was owed towards the Company, the father’s lack of interest in developing overseas markets does not absolve the son.  There are other shareholders in the Company apart from the father and the son.  The father was not in a position to decide on behalf of the Company to give up the overseas market in favour of the son.

152.  On 6 January 1996, the son applied for a business registration in respect of a business by the name of “China Medical Laboratory”.  On other words, he registered a business in the same name as the one operated by the Company.  He admitted that this was done without the consent of the Company and he did not discuss this with the father nor with some of the daughters in Canada.  He said the new business intended to engage in production of Chinese medicine. 

153.  On 30 April 1996, the son purchased a factory unit at Kam Fat Building in the name of the 7^th Defendant, a company owned by him and his wife, the 4^th Defendant.  The son told the court his intention at that time was as follows,

“因為爸爸仲揸住四十份股份，令到我哋好不安，即係都同--另外爸爸媽媽個關係亦都發生好多磨擦，雖然爸爸都出咗--加咗媽媽人工，又出好多花紅，但係都係住埋同一個屋村，媽媽同爸爸嘅關係亦都好僵硬，咁就係亦都同啲家姐傾過，二家姐亦都同另外啲家姐傾過，佢就話嗌我兩手準備，驚住爸爸另外嗰房人會唔會仲有啲細路仔，驚佢哋入我哋公司嘅董事局，咁就我聽咗其他啲家姐姐妹嘅意見，就作出兩手準備，就準備可能會開廠 …”

154.  Later on, on 30 November 1996, the son purchased two other units in the same factory building for the purpose of setting up a new factory.  He said the following in his evidence regarding his reason for doing so,

“問：點解你嗰陣時你就決定開廠呢？

答： 當時媽媽同爸爸嘅關係又緊張啲嘞，又嗌得好緊要，所以變得我覺得都唔可以幫--即係我唔會再做啲生意幫爸爸有埋另外嗰房人囉。

問： 咁但係你話你哋已經有五十五控股個囉喎？你爸爸嘅股份你話由五十一變咗四十五吖嘛？

答： 係。

問： 係囉。

答： 咁如果係...

問： 咁公司佢都冇控制嘞？

答： 但係如果爸爸嗰四十五份畀咗另外嗰房人，我覺得都係影響我哋家族嘅安心囉。”

155.  He further explained the reason for his concern about the 45% being transferred to Kwan or her children.

“官：但係喺95、96嗰個階段吓，或者96年喇，有咩嘢跡象顯示你爸爸會將嗰四十五轉畀第二房人呢？

答： 因為爸爸佢冇話四十五份要--佢先頭佢原本就係可以將五十--佢五十一份完全唔要嘅，佢話淨係要保持佢嘅現金收入，唔好影響佢嘅現金嘅財政。但係傾到好地地，但係到簽--文件咩嘢都做好晒，佢都可以--最後佢都話一定要揸番啲股份，爭拗咗一段時間，佢都話要揸住呢四十五股份，即係見爸爸又要仲係要喺個權力嗰度咁唔肯放出嚟，當時先知道--即係更加知道佢嗰兩個細路仔又唔知喺邊度讀書咁，年紀又大喇，咁就係讀完書返嚟喇，聽到呢啲咁嘅消息，咁更加好--大家都更加擔心。後來媽媽亦都係「賜仔，你最緊要睇住盤生意」。”

156.  The son set up the new factory and it started operation in January 1997.  Like the registration of trademarks in the name of CMC, in my judgment, the new factory was the implementation of a contingency plan by the son.

157.  The son claimed he had told the 2^nd elder daughter about the new factory and she indicated she and the other elder daughters in Canada had no objection.  I do not believe the son had made his plan clear to the 2^nd elder daughter.  Otherwise, the reaction of the three elder daughters in 1999 and 2000 would not be that hostile in terms of assisting the father in suing the son in HCA 7984 of 2000.  I do not believe the elder daughters in Canada had ever indicated to the son that he could do whatever he like as regards the Ointment business without regard to their interests.

158.  The son admitted that he had not told the father nor the mother about the new factory.

159.  It is therefore plain that the son did not have the consent of the Company in setting up a new factory with a view to enter into competition with the Company.  

160.  The son was not forthcoming about the name under which the new factory operated.  In fact he was quite secretive about this factory.  He did not mention anything about this factory in his written evidence.  The father only got information about the factory from the former employees of the son who had worked at the factory.  Mr Liao asked him about the tax returns of the factory.  The son first mentioned his own China Medical Laboratory (the one registered by him in January 1996).  Then he said that business had not filed any tax return.  He put forward Goodic Limited as a possibility.  He was given the opportunity to locate the relevant documents over the night on 27 February 2006.  On 28 February 2006, he said his wife refused to disclose the documents.

161.  The Plaintiffs adduced evidence from Chan Yin Shui and Kiu Yuk Ming about the operation of the factory.  I find them credible and I accept their evidence as truthful.  The son should be able to adduce substantive evidence to rebut them if anything they said were inaccurate.  However, as I said, the son gave me an impression that he had something to hide regarding the affairs of this factory.

162.  According to them, the factory did not display any name of the business at its premises.  The advertisement for recruitment of staff did not specify the name of the employer.  The son was introduced to them as the boss.  They also learnt of the son’s relationship with the father.

163.  Their salaries were paid by different companies at different times.  Apart from the son, the 2^nd, 4^th, 5^th and 6^th Defendants also took part in the management of the factory.

164.  The factory produced medicated oil under the name Wong To Yick Wood Lock Ointment, viz. the same name as the products of the Company.  The factory ordered bottles from the same supplier who produced bottles for the Company.  The products of this factory also used packing similar to those used by the Company bearing all the distinctive features like the name Wong To Yick, the portrait device and it was purported to be manufactured by China Medical Laboratory.  The workers thought they were working at a branch of the Company.

165.  In May 1997, the factory was moved to another unit in the vicinity of Kam Fat Building.  In early 2000, the production of oil and bottling was relocated back to Kam Fat Building.  Shortly before that relocation, the workers were told to destroy the packing material and to obliterate the words “黃道益活絡油” from the packaging materials.

166.  The Plaintiffs engaged private investigators to look into the activities of the factory in late 2005 and early 2006.  One investigator posed as a worker looking for job and worked at the factory for 6 days between 11 and 16 November 2005.  She gave evidence in her witness statement that Wood Lock oil produced at the factory were contained in bottles engraved with the name China Medical Laboratory.  The bottled oil would be delivered to another factory for packing.

167.  Another investigator obtained evidence on 17 January 2006 showing that those bottles would be packed in another factory in Hong Kong at Lok Kei Industrial Building.  The package clearly identified the products as “黃道益活絡油” and it was described as the products of the 11^th Defendant.  The portrait device was not used in that packing. 

168.  Although the son suggested some of the exhibits produced by Mr Liao as samples were made by someone else as imitations, he did not dispute that the products of the 11^th Defendant were in similar packing.  Even without the portrait device, the use of the names “黃道益活絡油” and China Medical Laboratory would create a confusion in the consumers that the products of the 11^th Defendant were those manufactured by the Company.  The use of the Wong’s logo by the son cannot dispel such confusion.

169.  Since the son did not give proper discovery of the accounts and tax returns of thefactory, I would infer that since 1997, the son’s factory had been producing “黃道益活絡油” under the name of China Medical Laboratory.

170.  By reason of his failure to give proper discovery and my reservations about the son’s credibility in general, I do not accept his evidence that he had only sold the products to the market in mainland China.  He admitted that some goods had been sold to Solstice for the US market.

171.  In any event, even for goods aiming at the market in mainland China, the son and the 11^th Defendant are liable for passing off on the following basis,

(a)     the products were made in Hong Kong and there were trading activities in Hong Kong through a company called Top Empire, as evidenced by the witness statement of Lai Kam Wah, which is admitted as evidence without any challenge;

(b)    the products were shipped from Hong Kong and they were instrument of deception.

172.  Further, the fact that the goods were intended for market in mainland China cannot be a defence to the Plaintiffs’ claims for trademark infringements.

173.  In December 1997, the son and two daughters set up the 8^th Defendant.  The directors of this company were the 5^th and 6^th Defendants.  In the dealings with Solstice, payments by letter of credit were made to this company pursuant to the instructions given by one of the daughters.  The arrangement was made on the pretext that the Company did not have letter of credit facilities with its banker because the father had always insisted on payment by cash.

174.  Through that arrangement, it was possible for goods produced by the son’s factory to be sold to Solstice without the latter discovering that they were not the goods of the Company.

175.  Since the Statement of Claim in HCA 7984 of 2000 does not plead any cause of action based on misappropriation of funds, it has not been explored at the trial whether payments by Solstice channeled to the 8^th Defendant were all for goods supplied by the son’s factory or were in fact for goods supplied by the Company.

176.  As mentioned, the son had admitted that some of the goods produced by his factory had been sold to Solstice.

177.  The 8^th Defendant also sold Ointment to Mannings in Hong Kong.  The son explained that it was necessary because the father refused to do business on credit.  It was therefore necessary, in order to open the market at Mannings, to use the 8^th Defendant as an intermediate company since Mannings insisted on business on credit.  That may have been so at the beginning.  However, after the final showdown in 1999, the father found Ointment not emanating from the Company being sold as “黃道益活絡油” at Mannings.  I am satisfied that the Plaintiffs had established a case of passing off in respect of the supply by the son of Ointment manufactured by his factory to Mannings.

178.  I find that between 1996 and 1999, the son with the assistance of the 2^nd and 3^rd Defendants were making contingency plan for the setting up of a new business to sell “黃道益活絡油”.  I would not exclude the possibility that the plan started off as a contingency scheme to prevent Kwan and her children from reaping any benefit from the Ointment business through the 45% shareholdings of the father.

179.  However, such contingency plan is clearly against the interest of the Company.  It amounts to the misappropriation of the goodwill of the Company and it is therefore unlawful.  Further, from a practical point of view, the way in which the plan was executed harm the interest of the other shareholders in the Company as well as that of the father.  This unfortunately led to further deterioration of the relationship between the family members in 1999.

The intensification of the acrimony within the family

180.  After 1996, the father continued with his affairs with Kwan.  He spent more time with Kwan.  He became more open in his relationship with Kwan.  He had no qualm about being seen in public with Kwan.  He even introduced Kwan to others as Mrs Wong.  He was completely indifferent to the grief and suffering experienced by the mother whenever she saw or heard about his association with Kwan.  Not surprisingly, the relationship between the father and the mother continued to deteriorate and finally in 1999, the mother decided to have a divorce.  She left the matrimonial home in May 1999 and she went to Canada.  Whilst she was in Canada, she instructed solicitors through the children in Hong Kong to prepare a petition for divorce.  The petition was filed on 31 May 1999.

181.  The father did not want a divorce and he asked the daughters in Canada to plead with the mother.  He told the mother that all things could be negotiated if she was willing to come back.  When she came back from Canada, the father went to the airport to beg for forgiveness by kneeing before her.  The whole family went to a restaurant to discuss how the family proceedings could be resolved without a divorce.

182.  After some intense discussion, the mother agreed to withdraw the petition.  The petition was dismissed on 27 August 1999.

183.  The mother and the son thought the father had promised to leave Kwan and retire to Canada, leaving the Company in the hands of the son and the daughters and to purchase a property for the mother.  The father said in his evidence that was only what they subjectively wanted but he had not promised.  Needless to say, the mother was disappointed and she issued another divorce petition on 11 March 2000.

184.  In the meantime, the father held it against the son and the two daughters in Hong Kong that they stood on the side of the mother in relation to the first divorce suit (see transcript p.380).  He thought the divorce was instigated by them and took it as an attempt by the three of them to seize control over the Company.

185.  He therefore arranged for the elder daughters (who had come back from Canada to dissuade the mother from having a divorce) to take part in the management of the Company (see paragraph 29 of the father’s witness statement of 27 May 2004).  The first move by the father was to close down the clinic.  In early July, he told the 3^rd Defendant that she needed not return to work at the clinic as he was going to close it.  The son was upset about these decisions on the part of the father.  He regarded it as a plot on the part of the elder daughters in Canada to replace him and the two other daughters in the Company so as to advance their own personal interests (see para. 129 of his witness statement of 21 January 2005). 

186.  On 1 August 1999, the father went to the clinic with the third daughter and her husband.  They met the son and his wife there.  The son behaved angrily and violently, causing damages to properties and accidentally injured the daughter as well.

187.  That was the final showdown between the son and the father.  On 4 August 1999, the father discovered that the son had removed the oil-filling machine, accounting records and other company documents and customer contact data from the Company.  The records kept in the computer of the Company were also wiped out.  Some packing materials like laser labels and bottle caps were also removed.

188.  The 2^nd and 3^rd Defendants also cleared the stock from the Company.  Some were sold to a company owned by them.

189.  Without the oil-filling machine, the Company’s production was seriously disrupted.  Without stock and customer lists and records, its business came to a complete standstill. 

190.  The son and the 2^nd and 3^rd Defendants ceased to attend the Company after 3 August 1999.

191.  The father made a report to the police about the removal of the articles from the Company.

192.  In September 1999, the son told the staff of the Company over the phone to collect the oil-filling machine from a mechanics.  When the staff did so, they found that the machine had been dismantled and some of the wiring was cut.  The machine was manufactured in Italy and the manufacturer refused to assist in the re-assembling of the machine.  Due to the lack of expertise and the lack of parts, the Company had to continue with its production on a manual basis until early 2001.

193.  The son had told the staff that the machine was taken away for cleaning.  Obviously that was not true.  In the witness box, he said the machine was designed by him and he did not want others to have it.  But the machine belonged to the Company.  Viewing all the acts of the son and the two daughters in August 1999 together, they were clearly acting against the interest of the Company in breach of their duties as directors.

194.  At a general meeting of 17 December 1999, the son and the 2^nd and 3^rd Defendants were removed as directors of the Company.  They did not attend the meeting.  The three elder sisters were appointed as directors in their place.

195.  After the elder daughters took over the management of the Company, they found out about the diversion of business from the Company and the registration of the trademarks by the son.  The Company commenced HCA 7984 of 2000 on 9 August 2000. 

196.  The family was thus split into different camps.  In addition to the breakdown of the relationship between the father and the mother, the relationship between the siblings was also destroyed.

197.  As mentioned above, the father subsequently accused two of the elder daughters of wrongdoings and they were driven away from the Company.

The attempt by the son to seize the mainland market through the 11^th Defendant

198.  The sale of the Ointment in the mainland requires a licence.  Prior to 2000, the licence was held by the Company.  The licence was due for renewal in 2000.  In 2000, the licence was renewed in favour of the 11^th Defendant as opposed to the Company.  The 11^th Defendant is and was a company owned by the son and his wife.  The change came about as a result of the mainland authorities being confused by the name Hong Kong Wong To Yick Wood Lock Ointment Limited.

199.  By the time when the licence was due for renewal again in 2003, the Company had intervened through Solstice.  Some minutes were produced on behalf of the 11^th Defendant in support of its application.  The son and the 2^nd Defendant made statutory declarations in February 2005 vouching for the authenticity of these minutes.

200.  On the other hand, the Plaintiffs disputed the minutes.  Mr Liao contended that they were false documents in the sense that no such meetings had ever been held and the board of the Company had never passed such resolutions.  Counsel suggested that they were documents created by the son and the two daughters in order to deal with the Company’s objection to the renewal of licence in favour of the 11^th Defendant in 2003.

201.  One of the purported minutes was a minute of a directors’ meeting of the Company dated 8 September 1998.  It purported to authorize the son and the mother to set up a new company called Hong Kong Wong To Yick Wood Lock Ointment Limited to handle the mainland market and the Beijing office regarding “黃道益活絡油”.

202.  Another purported minute was in respect of a directors’ meeting of 28 May 1999.  On its face, it was resolved that a new company called Crown Honour Holdings Limited would be acquired by the son and the mother on their own behalf and it would change its name to Hong Kong Wong To Yick Wood Lock Ointment Limited.  Upon completion of the registration formalities, the Company would surrender the PRC market to this new company and thenceforth, the Company shall not interfere nor participate in the mainland market.  The Company further guaranteed that it would not set up any office in mainland China, whether directly or through any agent.

203.  According to these minutes, the father and the mother were said to be present at these meetings in addition to the son and the two daughters who are the 2^nd and 3^rd Defendants.  The son signed the minutes as the chairman of the board and the two daughters signed as executive directors.  The parents did not sign.  The meetings were purportedly held at the office of the Company.

204.  These minutes were not disclosed by the Defendants in the discovery in these actions and they were not referred to at all in the pleadings and the earlier witness statements of the Defendants.  The minutes were obtained by the Plaintiffs through Mr So in mainland China.  The son failed to give a satisfactory explanation for not producing these minutes in discovery.  Even if the minutes were kept by the daughter, the son should have known of their existence (as he had used them in mainland China and vouched for them in his statutory declaration made in February 2005) and instructed his lawyers to produce the same.  I note that the statutory declarations of February 2005 were prepared by the same firm of solicitors that conducted the defence in these actions since 2003.

205.  As Mr Liao submitted, it is unusual that the father did not act as the chairman if he was present at the meetings.  Further, the minutes were rather formal (as compared with the other minutes of the Company’s meetings placed before the court).  The decisions embodied in the purported resolutions were major decisions of the Company.  Further, in the context of exhibit D-9 related to the resolution of the Company passed on 4 May 1999 in respect of the increase of salaries for the family members, Mr Chan had made the following suggestion on behalf of the Defendants to the father,

“問：嗱，呢個係99年喇，即係嗰個已經係二奶問題發生之後喇，啱唔啱呀？發現之後喇？

答：  唔記得前後囉，不過我記得嗰張紙係有咁嘅嘢寫，我就承認有嗰張紙囉。

問：  嗰陣時啲仔女開始唔係點信你嘞，所以叫你寫低簽個字，係咪呀？

答：  唔。”

206.  I found it incredible that the father was not asked to sign on the minutes if those resolutions were actually passed.

207.  Further, it is the son’s own evidence that the mother had gone to Canada before she instructed the children in Hong Kong to engage lawyers to prepare the divorce petition.  The minute of 4 May 1999 suggests that the mother was not in Hong Kong on that day.  It would take some time for the lawyers to prepare the petition and I can also take judicial notice that the Family Court Registry had a practice of scrutinizing the relevant marriage certificate before a petition could be filed.  Judging from the fact that the petition was filed on 31 May, the mother was probably out of Hong Kong for quite some time before 31 May 1999.  The son was given the opportunity to check with the mother to see if there is any evidence that the mother was in Hong Kong on 28 May 1999.  But he did not produce any evidence tosuch effect.  In the circumstances, the proper inference to be drawn is that the mother was not in Hong Kong on that date.  She was in Canada whilst her divorce petition was being prepared and presented.  She only came back on 18 June 1999.  Therefore, she could not possibly attend a meeting at the Company’s office on 28 May 1999.

208.  In fact, up to August 2002, the mother apparently had no knowledge about these meetings.  As director of the Company, the mother, advised by her solicitors, made a request for inspection of the books and accounts of the Company in 2002.  The board of the Company considered that request at a meeting of 23 August 2002.  The notice of the meeting set out a proposed resolution rejecting the request on the basis of the mother’s directorship in the 11^th Defendant and that the 11^th Defendant carried on business in competition with the Company.

209.  The mother made a written response on 23 August 2002.  Judging from the wordings in that document, it was clearly a response prepared with the assistance of her lawyers.  In that response, not a word was said in respect of the Company’s approval for the setting up of the 11^th Defendant and the surrender of the mainland market to the 11^th Defendant as set out in those minutes. 

210.  The son was also reticence about these meetings in pleadings and his earlier written evidence.  In the first version of the defence filed on 17 November 2000, dealing with the allegation in paragraph 31 of the then Statement of Claim that the 11^th Defendant passed off ointment or balm as products of the Company, it was pleaded in Paragraph 99 of the Defence,

“The 11^th Defendant says that it is a dormant company and has no business of any kind.”

211.  Paragraphs 36 to 38 of the then Statement of Claim advanced specific allegations in respect of the activities of the 11^th Defendant using the name Hong Kong Wong To Yick Wood Lock Ointment Limited.  Paragraph 36(c) specifically alleged the wrongful use of such a name in the mainland to apply for the renewal of the drug import licence in place of the Company.  To that allegation, paragraphs 102 and 103 of the defence of 17 November 2000 simply pleads denial and puts the Plaintiffs to proof and avers,

“the 11^th Defendant says that he has not used the 11^th Defendant’s names either in Chinese or English for any wrongful purpose as alleged.”

212.  Despite several amendments, there is still no plea anywhere in the defence advancing a case of surrender of the mainland market by the Company to the 11^th Defendant.  The defence is simply based on the averment that the goodwill in the Ointment belongs to CMC, see paragraphs 38 to 41 and 50 to 55 of the final version of the defence.  Once the defence’s case based on CMC’s ownership of goodwill is rejected (as I did), there is no alternative defence based on the purported minutes.

213.  If the purported minutes were genuine minutes of board meetings of the Company, they would be highly material to the defence of the 11^th Defendant irrespective of the overall ownership of the goodwill.  It is indeed remarkable that no reliance was placed on those minutes in the defence when they were relied upon in procuring the drug import licence for the 11^th Defendant.

214.  In his first witness statement filed on 25 June 2004, the son said the following regarding the 11^th Defendant,

“The 11^th Defendant has always been a dormant company with no business operation.  We set up the 11^th Defendant to give my mother some sense of belonging after my father’s extra-marital affairs were discovered by us and the beginning of my parents’ first set of divorce proceedings in 1999 on the ground of my father’s adultery.”

For all we know, based on the evidence, the 11^th Defendant had not been dormant.  It had procured the renewal of the drug import licence in its favour and it had supplied “黃道益活絡油” manufactured by the son’s factory to the mainland market.  If the son believed in the authenticity of the purported minutes, it is difficult to see why he would choose to lie about the business operation of the 11^th Defendant instead of pointing to these minutes as the authorization from the Company to the 11^th Defendant to exploit the mainland market.

215.  Not a single word was said about the giving up of the mainland market by the Company in favour of the 11^th Defendant in that witness statement.  Instead it was said in paragraph 34 in the context of withdrawal of the mother’s divorce petition that the father was planning to sell the business and move to Canada and the sisters also planned to sell shares in the Company to the son.  The son further said,

“On that basis, my mother agreed to withdrew the divorce proceedings and the 11^th Defendant was incorporated with a view to take over [the Company’s] business when my father disposed of his shares.”

216.  The purported resolution of 28 May 1999 was passed before the presentation of the petition on behalf of the mother on 31 May 1999.  If there is any truth in the reason given in that paragraph for the withdrawal of the petition, it is hard to see why the mother bothered to present it in the first place.

217.  Further, if there was an agreement to transfer all the shares in the Company to the son, there was simply no need to have a new company to be incorporated.  It is only when the Company would continue to be owned by shareholders other than the son and continue to conduct the Ointment business that the purported resolutions had to be passed. 

218.  In his witness statement of 16 November 2005, the son tried to reconcile this in paragraphs 77 and 78.  He said because of the tense relationship between the parents and resumption by the Government of the land on which the factory of the Company was situated, the father expressed a wish to retire upon resumption by transferring all his shares in the Company to the son.  In the meantime, the father agreed to let the son and the mother set up of a new company to develop the PRC market.  Hence, the son and his wife set up the 11^th Defendant and applied for the renewal of the licence in the name of that company.

219.  He also referred to the meetings of 8 September 1998 and 28 May 1999 at paragraphs 101 and 102.  But what he said in those paragraphs was not entirely consistent with what he said in the earlier paragraphs.  In those two paragraphs, he said the setting up of the new company was to let him and the mother have the mainland market.  He did not refer to the father’s intimation of retirement and the transfer of all his shares to the son.  Rather, it was agreed that the Company would not participate or invest in the business of “黃道益活絡油” in mainland China.

220.  In his evidence under cross-examination, the son put forward two reasons behind the purported resolution of 28 May 1999.  First, he said the father agreed to let him and the mother have the mainland market as an act of reconciliation.  At p.839 of the transcript, he said,

“係呀，當時媽媽已經開始要搞離婚㗎喇，即係嗌得好緊要，所以呢個就係爸爸為咗緩和媽媽，又可以緩和吓喇，呢啲係做出一個退讓。”

Shortly after, at p.841, after he was referred to the minute for the meeting on 4 May 1999 where it was recorded that the Company was to acquire a new factory premises to replace the one to be resumed, he was asked about the purported resolution of 28 May 1999,

“問：呢度好似送一個大禮喎，即係乜都畀晒新公司，大陸市場？

答：  係吖，如果唔係呢，媽媽就會可能嘈得--吵上咗差館囉。

問：  哦，即係安撫你媽媽嘅？

答：  係。

問：  咁你媽媽又冇話要求--你媽媽又冇話要求離婚，又乜嘢，搞呢啲嘢嚟做咩嘢呀？

答：  媽媽當時都已經拗得好緊要喇，都有上過律師行睇緊，但係叫一人一步，大家都唔想離住，所以就傾咗當時呢個係8034嘅...

問：  你...

答：  ...分中國嘅市場我哋做。

問：  你意思即係你家庭，父母當一個妥協辦法，就將中國市場交畀你同你阿媽做嘞？

答：  係。

問：  解決個糾紛嘞？

答：  係，同埋最緊要就係可以唔會令到GMP廠房斷層。

問：  你好肯定係咁嘅情況？

答：  肯定。”

221.  I have explained above why the purported resolution could not be an act of reconciliation.  The mother was simply not there.  She was in Canada and she had instructed lawyers through the children in Hong Kong to file a petition for divorce.  Faced with the indisputable fact that the petition was filed on 31 May 1999, the son invented a further story as follows,

“問：但係又唔係好似喎，黃生，你阿媽其實喺5月31號已經出申請離婚囉喎？如果佢係同你妥協，同你爸爸妥協嘅，5月28號開完會，點解三日後出個離婚申請書呢？

答：  後屘嗰三日後又發生一件大事，令到媽媽又頂唔順。

問：  係咩嘢大事呢？

答：  要問番媽媽點樣會--好似係爸爸以為分咗中國嘅市場畀我同媽媽就係又可以緩和咗一啲糾紛，點知去到--可能去到嗰--唔知係申請書之前一日呢，唔知係咪發生過就係好似爸爸要半夜要過去對面，定媽媽就係攞住個鐵閘唔畀爸爸出去，爸爸就推開媽媽一定要出咗去。”

Since the mother was not in Hong Kong, there could not have been another incident between 28 and 31 May 1999 provoking the mother to change her mind about filing for divorce.  Further, as explained above, it took time for the petition to be prepared.

222.  The second reason given by the son in his testimony for the purported resolution was the father’s wish to keep his money instead of investing money into the building of a new factory.  But the Company had already had provision for funds for the setting up of new factory pursuant to a resolution passed on 22 October 1998.  The son said the father held onto the money.  However, the evidence showed that the Company distributed dividends to the shareholders on 3 June 1999 in the total sum of $4 million.  Hence, in May 1999, the Company could have used the money for building new factory instead of giving up the mainland market to the son.  On 4 May 1999, the Company actually passed a resolution (in the absence of the mother) to look for new factory premises.

223.  The 11^th Defendant was incorporated on 4 December 1998 under the name of Crown Honour Holdings Limited.  It changed its name to Hong Kong Wong To Yick Wood Lock Ointment Limited on 20 September 1999.  The registered office was only changed to the home address of the son on 12 October 1999.  On the same day, the son and his wife were appointed as directors of the 11^th Defendant.

224.  Although the son claimed under cross-examination that he had acquired the 11^th Defendant some time before the change of name, he could not produce any concrete evidence to support that.  As a matter of common sense, one would change the registered office and appoint new directors around the same time as one acquire a shelf company.  On the balance of probabilities, I find that the son did not acquire the 11^th Defendant prior to 20 September 1999.

225.  Hence, the son only acquired the 11^th Defendant about four months after the purported directors’ meeting on 28 May 1999.  It was also after the acrimonious departure of the son and the two daughters from the Company in July 1999.

226.  There is no explanation from the son as to why nothing was done pursuant to the resolutions contained in the purported minutes until such a long time afterwards.

227.  The mother was not appointed as a director nor was she a shareholder in the 11^th Defendant until 2 March 2000.

228.  Upon complaint from the Company to the Companies Registry, the 11^th Defendant changed its name to “Hong Kong Wong’s Pharmaceutical Holdings Limited”.  It is noteworthy that in face of such complaint, the 11^th Defendant did not put forward the purported minutes as justification for using the name Hong Kong Wong To Yick Wood Lock Ointment Limited.

229.  However, on 13 May 2002, the Company changed its name again to “Hong Kong Wong To Yick Wood Lock Pharmaceutical Holdings Limited”.  The PRC drug import licence was due to expire on 22 September 2003 and the Plaintiffs said the name “Wong To Yick” was essential to any renewal of the licence.  There were proceedings in mainland China about the right to use the name.

230.  Taking all the evidence into account, I find that the Company did not hold the meetings as recorded in the purported minutes.  The Company had not authorized the son or the mother to set up another company by the name of Hong Kong Wong To Yick Wood Lock Ointment Limited to exploit the PRC market for “黃道益活絡油”.  In my judgment, these purported minutes were made up by the son and the two daughters to resist the objection from the Company as regards the renewal of the licence in favour of the 11^th Defendant in 2003.

231.  The real reason for setting up the 11^th Defendant can be found in the son’s evidence at p.833.  The son said he determined to set up a new business after the events in July 1999,

“問：出事咗之後先至改名嘅？

官：  出事即係咩嘢？掟玻璃？

問：  即係話拆油機，返廠拆油機，攞文件，走，8月嘅事，99年。

答：  唔同意。

問：  嗰件事之後，你先去改名，改番做香港黃道益活絡油有限公司？

答：  嗰件事只係一個催化劑囉，嗰件事證明就更加我唔會同爸爸--即係點講呀？係更加係催化劑，要我一定要去立心去自己做囉。

問：  另起爐灶，即刻，係咪呀？

答：  係。”

232.  As a matter of fact, as Mr Liao observed, the son already had his factory (see discussion above).  By changing the name of the 11^th Defendant and getting the mainland drug import licence, the son was able to tap the goodwill of “黃道益活絡油” at the mainland market more effectively.

Further conduct of the actions

233.  I believe I have decided the major issues between the parties.  My key findings are that,

(a)     The goodwill of the Ointment business belongs to the Company exclusively;

(b)    The grandsons own the 4% in the Company beneficially;

(c)     There was no agreement by the Company to give up the mainland market in favour of the 11^th Defendant;

(d)    The son and the 11^th Defendant had no right to use the name “黃道益活絡油” and they had passed off products from their own factory as products of the Company;

(e)     The son had no right to register the mark “Wood Lock” in Hong Kong;

(f)     The 11^th Defendant did not have the right to use the names Hong Kong Wong To Yick Wood Lock Ointment Limited or Hong Kong Wong To Yick Wood Lock Pharmaceutical Holdings Limited;

(g)     The son and the 2^nd and 3^rd Defendants acted in breach of their fiduciary duties in removing and dismantling the oil-filling machine in August 1999 and in removing the documents and other materials from the Company.

234.  However, as regards some specific causes of action advanced by the Plaintiffs, I need further assistance from counsel.  In particular, counsel have not addressed this court in their closing submissions in respect of each prayer sought against the corporate defendants as well as the 4^th to 6^th Defendants and the specific evidence against each of them.  On the overseas trademarks, counsel have not addressed on the legal basis for asserting constructive trust in respect of the same and whether such trust is compatible with the law where the marks were registered. 

235.  I also have some concern about the mark “Wood Lock” and “活絡” which seems to me to be descriptive of the product.  I wish to hear further submissions on the registrability of these names as trademarks.

236.  There are some minor claims which I have not dealt with in this judgment.  I am however reasonably confident that in the light of my judgment on the major issues, Mr Liao and Mr Chan can work out some agreement with regard to those.  I also believe counsel can agree on most if not all of the terms of a draft order to be made in the light of my judgment.  However, if that proves to be wrong, I can deal with them by way of a supplemental judgment.

237.  There is another reason why I do not propose to deal with everything in this judgment.  Based on my key findings, no matter how the other issues raised in these actions are to be decided, there would not be a final resolution of the disputes between the parties.  The fortune of the parties is locked into the business of the Company.  The father holds or controls 49% of the shareholding whilst the mother and her children altogether hold the other 51%.  No judgment in these actions can change the reality that unless they agree on the way ahead for the Company, there will be no end to their fighting.  That would not be good for business and I do not see how it could be in the interest of any one of them.

238.  It is high time that the family members should sincerely attempt to make peace with each other.  Even though previous attempts have failed, I think it is worthwhile for them to try again in the light of this judgment.  There are alternative ways of resolving conflicts and litigation may not always produce the most satisfactory outcome.

239.  I shall therefore hand down this judgment and give some time to the parties to reflect on it.  Unless the parties reach some agreement within 30 days after the handing down, I shall list the case for hearing counsel on the outstanding matters.