DENNIS KWOK HON MING v. POON SUI CHEONG ALBERT AND OTHERS

CACV 9/2017, CACV74/2017
and CACV 169/2017
(Heard Together)
[2019] HKCA 461

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 9, 74 AND 169 OF 2017

(ON APPEAL FROM HCMP 1526, 1527 AND 1528/2013)

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(ON APPEAL FROM HCMP 1526/2013)

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(Actions consolidated by the Order of the
Honourable Mr Justice Harris dated 27 January 2015)

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(HEARD TOGETHER)

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J U D G M E N T

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Hon Cheung JA:

1.  I agree with the judgment of Barma JA and the orders he proposes to make.

Hon Barma JA:

Introduction

2.  There were before us three appeals against judgments of Deputy High Court Judge Ismail SC given in relation to three petitions issued by the petitioner, Mr Dennis Kwok, pursuant to what was section 168A of the old Companies Ordinance (Cap 32), seeking orders that his beneficially owned shares in Minloy Limited, Top Master Development Limited and Wealth Island International Limited (which were registered in the names of Madam Man Pui Fong and Mr Law Joe Lok, the mother and father of the 5^th respondent, Ms Helen Law) be bought out by four of the other five shareholders of those companies (“the majority shareholders”), on the grounds of allegedly unfairly prejudicial conduct on the part of the majority shareholders against him.  HCMP 1526/2013 concerned Minloy, HCMP 1527/2013 concerned Top Master, and HCMP 1528/2013 concerned Wealth Island.

3.  In each of the petitions, the 1^st to 8^th respondents were, respectively, Mr Albert Poon, Ms Irene Tseng (who, having unfortunately passed away before the trial, was substituted as 2^nd respondent by her son and executor, Mr Solomon Tseng), Mr Norris Yang, Mr William Lo, Ms Helen Law, Asian Adventure Limited, Enchantment Properties Limited and China Funds Development Limited.  Asian Adventure, Enchantment Properties and China Funds were corporate vehicles for Irene Tseng, Norris Yang and William Lo respectively, through which they held their interests in the three companies (although, in the case of Minloy, Irene Tseng held her shares in her own name).  The majority shareholders consisted, in each case, of Albert Poon, Irene Tseng/Asian Adventure, Enchantment Properties and China Funds.  No allegations were made, and no relief was sought, against the 5^th respondent, Helen Law.  Originally, the three companies were named as 9^th respondents to the respective petitions, but they were removed as respondents prior to the trial by an order of Harris J at an earlier stage of the proceedings.

4.  The parties’ shareholdings were the same in respect of each of the three companies.  The petitioner held 10.714% (through his nominees - Madam Man, in the case of Minloy and Top Master, and Mr Law, in the case of Wealth Island).  Helen Law held 17.857% (again through a nominee, her mother Madam Man).  As for the majority shareholders, Albert Poon held 21.429%, Irene Tseng/Asian Adventure held 35.714%, Enchantment Properties held 7.143% and China Funds also held 7.143%.

The formation of the companies and the Shareholders’ Agreement

5.  The background to the formation of the companies can be briefly summarised as follows.  In about late 1991, Dennis Kwok and Helen Law (who at one time were cohabitees) identified an opportunity for the acquisition of some 900,000 square feet of land on Lantau Island for a price of some HK$6.80 per square foot.  In order to proceed with the acquisition, funds of HK$7,000,000 would be required.  In order to raise the necessary funds, they sought additional investors.  Mr Kwok contacted his former colleague Mr Poon, while Ms Law contacted her friend Ms Tseng.  Ms Tseng brought in Mr Lo, who in turn brought in Mr Yang.  Although each of the eventual investors knew one or more of the others, it does not appear that they all knew each other, or that they had any prior business or other relationship in which they were all involved.

6.  Following a number of meetings and site visits, the six investors agreed to pursue the proposed investment in the land.  To this end, they entered into an undated written agreement (made in about January 1992) to set out the terms on which they would enter upon the investment – this agreement has been referred to throughout as “the Shareholders’ Agreement”.  Initially, it was envisaged that the entire investment would be made through Minloy, which is the company referred to in the Shareholders’ Agreement.  However, it was eventually decided that the land should be acquired by three separate companies (i.e. the three companies), and although no further agreements were entered into in relation to Top Master and Wealth Island, it was accepted by all parties that the Shareholders’ Agreement governed the relationship of the investors in respect of all three companies.

7.  The Shareholders’ Agreement is of central importance to these proceedings.  The key arguments on the issues of whether or not there has been unfairly prejudicial conduct, both before us, and in the court below, turn on its proper interpretation.  Accordingly, it is best set out in full.  It is in the following terms (sub-clause numbers in square brackets were inserted by the Deputy Judge for ease of exposition):

“Minloy Limited

Shareholders’ Agreement Concerning the Land Acquisition on Lantau Island

1) Land Ownership

Minloy Limited (hereinafter, ‘Minloy’) is the legal entity acquiring approximately 900,000 s.f. of land on Lantau Island (for details regarding the land lots, see Attachment 1). The names of shareholders and their respective shareholdings in Minloy are listed at the end of this Agreement.

2) Funding

The total cost for this land acquisition project, including legal and transaction cost, working capital etc, is estimated to be HK$7,000,000 to be funded through:

1% - HK$70,000 paid up share capital (divided into 70 equal shares of HK$1,000 each, and each share having equal voting right of one vote per share)

99% - HK$6,930,000 shareholders’ loan, interest bearing at 2% per month compounded monthly.

Shareholders must prescribe (sic) to the loan pro-rata to their shareholding percentage. In the event the above amount is insufficient to fund the project upon approval of the new budget at a shareholders’ meeting, all shareholders will be required to subscribe to the additional loan amount pro-rata to their shareholding percentages.

3) Objective of this Project

The objective of Minloy to engage in this project is NOT for short-term gain through immediate disposal of its entire land assets.

3.1 Short-term: to allow shareholders to recuperate (sic) their initial investments with interest (on the loan), through the sale of certain ‘Non-Core land’ parcels.

3.2 Medium-term: to provide land for shareholders to enjoy as a recreational facility.

3.3 Long term: to realize the appreciation in land value on Lantau.

4) The Managers

[1] All shareholders agree to appoint Irene Tseng, Helen Law and Dennis Kwok as the Managers, responsible for:

- liaising and monitoring the progress of all relevant matters;

- commissioning an annual valuation of the land retained within the company;

- evaluating development projects for the shareholders’ approval.

[2] The Managers will receive no remuneration for their work except for reimbursement of expenses. However, when the cumulative cash receipts from sale of land/assets have reached the original investment of HK$7.0 million, the Managers are entitled to receive a bonus of 15% (to be shared equally by the 3 Managers) on perpetual basis of any future cash receipt (or payment in kind for the land sale) from sale of land/assets.

5) The ‘Core Land’

[1] The ‘Core Land’ means those lots to be retained within Minloy for the medium term, to be recommended by the Managers and as agreed upon by the shareholders from time to time.

[2] The Managers will commission an annual valuation of the ‘Core Land’ and any other lots still retained within Minloy, and report to the shareholders.

[3] In case proposals are submitted to Minloy for developments on the ‘Core Land’ (or any other lots retained by Minloy), the Managers will try their best to establish a fair market price to be recommended to Minloy as the selling price (or transfer price). In case no agreement can be reached as to what the fair market price should be, all shareholders agree to accept the latest annual valuation (as explained above) as reference for the selling price.

[4] Such development proposals can come from any shareholders, but in any case, a separate ‘Development Company’ must be used for the development projects.

6) ‘Non-Core Land’

[1] All lots except the ‘Core Land’ will be termed ‘Non-Core Land’. The Managers will use their best efforts to dispose of the ‘Non-Core Land’ as soon as possible, with the aim of allowing the shareholders to recuperate (sic) their investment and interest thereon in full.

[2] In selling any land parcels, when an ‘outside buyer’ submits an offer, the shareholders will have to approve of the sale first. The shareholders also have the first option to match the purchase offer within 7 days. If no shareholders match the offer within the period, the land will be sold to this outside buyer.

[3] Similarly, for any shareholder who wishes to purchase any of the Non-Core Land, the person can make an offer to Minloy, and the other shareholders have a 7-day first option to match the offer or to find an outside buyer who must pay at least a 10% premium over the offer price. In case more than one shareholder is interested in the same lots, the decision will be made by close tender. In any event, the selling price must be at least HK$10/s.f. or the latest valuation price, whichever is the higher.

7) Commission

The shareholders agree to pay a five percent (5%) commission to any agent, including any shareholder or Manager, for the successful sale of land to any external party other than to the shareholders. The commission percentages, set to be five percent for the time being, is subject to revision by the shareholders through a shareholders’ meeting.

8) Decision Making Process

[1] The Managers can make operational decisions on behalf of Minloy, except for those decisions which require shareholders’ approval:

- sale of any land asset;

- raising debt;

- payment of shareholders’ loan interest and principal;

- declaring and paying dividend;

- development projects;

- annual valuation of the land assets;

- transfer of shares and/or changing the share structure.

[2] Before the shareholders’ loan is fully repaid with interest, any of the above decisions require 100% agreement amongst shareholders. In the event a decision is discussed but disapproved by the same shareholder at least 2 times, on the condition that 75% of the share votes are in favour, Minloy has the right to buy back the shares from this shareholder at book value provided that his/her loan is repaid in full plus monthly interest at 2% compounded monthly. However, if the latest valuation of the land falls below the book value, such buy-back arrangement will not apply. In this case, 75% vote is sufficient for approving any of the above decisions, subject to other clauses as stated in this Agreement.

[3] After HK$7 million (cumulative) has been recuperated (sic) from land sales, a 60% vote is sufficient to approve any decisions.

9) Sale of Shares

If any shareholder wishes to sell his/her shares, the other shareholders have a 7-day first option to purchase the shares. If more than one shareholder is interested in the purchase, all those interested will jointly decide to make any offer to the selling party within 7 days.

If no shareholder is interested, the shares can be offered to any outside party, subject to all other shareholders’ approval of such a party becoming the new shareholder.

10) Disputes

All shareholders agree to resolve any disputes in good faith and friendly manner. In case any disagreements cannot be resolved otherwise, an Arbitration Committee consisting of 3 members (one being a non-shareholder, one being a Manager of Minloy, and the third being either a Manager or shareholder of Minloy, all 3 members to be accepted by the 2 disputing parties concerned) will be formed and all shareholders agree to be binded (sic) by the Committee’s decision.”

The factual background to these proceedings

8.  In her judgment, the Deputy Judge set out in some detail the events between the setting up of the companies and the final breakdown of the relationship between the parties that resulted in the petitioner bringing these proceedings.  For present purposes, however, it is sufficient to set out the key events that led to the Deputy Judge’s conclusion that there had been breaches of the Shareholders’ Agreement amounting to unfairly prejudicial conduct by the majority shareholders making it appropriate to order them to buy out the petitioner’s shareholdings in the companies.  These related to:

(1)   attempts to sell parts of the Non-Core Land;

(2)   the manner in which a Government resumption of part of the land owned by Top Master, and the compensation proceeds arising therefrom, were handled by the petitioner;

(3)   the removal of the petitioner and the 5^th respondent as managers and as directors of the companies and their consequent exclusion from management of the companies;

(4)   the subsequent failure to distribute the resumption proceeds arising from the resumption of the Top Master lands;

(5)   a complaint made to the police relating to alleged wrongdoing on the part of the petitioner in drawing down funds of Top Master to obtain cashier orders in favour of the shareholders in an attempt to distribute the redemption proceeds.

9.  The first set of key events relate to the proposals presented by the petitioner and the 5^th respondent for the sale of parcels of Non-Core Land.  These were as follows:

(1)   Soon after the three companies were incorporated and the land acquired, a part of the land (situated at Pui O) was sold for HK$672,804.

(2)   In September 1997, there were two offers to purchase parts of the land – an offer of HK$2,200,000 for a plot at Ngau Ku Long, and an offer of HK$15,165,414 for part of the land at Shui Hau. Neither was approved by the majority shareholders.

(3)   In November 1997, there was a further offer of HK$27,000,000 for a larger part of the land at Shui Hau, subject to payment of a consultant’s fee which would result in a net sale price of HK$15,348,430.  This was not approved by the majority shareholders either.

(4)   Finally, in July 2006, an offer of slightly over HK$10,000,000 was received from Chun Wo Construction & Engineering Co Ltd for part of the Shui Hau land.  This offer, too, was not approved by the majority shareholders.

10.  As for the Government land resumption, the sequence of events can be summarised as follows:

(1)   In June 2007, the Government informed Top Master that two plots of land at Mui Wo had been resumed, and offered compensation for such resumption.

(2)   The petitioner and 5^th respondent were in favour of accepting the offer of compensation, but the majority shareholders were not keen to do so and wished to hold out for a higher level of compensation.

(3)   On 13 December 2007, the petitioner suggested that a meeting be held on 20 December 2007 to discuss the Government’s compensation offer, and other matters relating to the companies. As few of the shareholders appeared to be available on that date, the petitioner suggested that the proposed meeting be held on 26 December instead. The 2^nd respondent indicated that although she could not attend that day, she would give her proxy to the 1^st respondent.  The 3^rd and 4^th respondents did not respond.  In the event, only the petitioner and the 5^th respondent attended on 26 December 2007.  At the meeting, which was treated as a board meeting of Top Master, the petitioner and 5^th respondent resolved to accept the Government’s offer of compensation.

(4)   After the meeting, the majority shareholders were not informed of the resolution to accept the compensation offered.

(5)   The compensation was received on 28 January 2008, and was paid into Top Master’s bank account.  On 1 February 2008, the petitioner withdrew HK$1,260,050 from Top Master’s bank account, and deposited that amount in his personal account.

(6)   The petitioner says that he orally informed the 1^st and 2^nd respondents in early February (around Chinese New Year) that the resumption compensation had been received.

(7)   On 23 February 2008, the petitioner advised all the shareholders by email that the compensation monies had been received.  The email did not specifically mention the resolution to do so passed at the meeting on 26 December 2007, nor did it mention that the monies had been transferred to the petitioner’s personal bank account shortly after receipt.

(8)   This notification resulted in correspondence between the shareholders, in the course of which the 3^rd respondent (on 13 March 2008) questioned the petitioner’s authority to accept the Government’s offer of compensation and also enquired as to the whereabouts of the compensation monies.

(9)   On 27 March 2008, the petitioner redeposited HK$1,260,464.83 into Top Master’s account, the increase over the sum withdrawn on 1 February 2008 apparently representing interest.

(10)   On 31 March, the petitioner explained by email that as on previous occasions when resumption compensation had been received, the managers had dealt with the matter on the basis of a board resolution (which in this case was dated 26 December 2007) and the proceeds were (as before) paid into the relevant company’s bank account.  Again, no mention was made of the fact that the proceeds had been transferred to the petitioner’s personal account and subsequently returned to Top Master.

(11)   On 2 April, the petitioner emailed the other shareholders to respond to complaints by the 3^rd respondent. In this email, he mentioned having informed the 1^st and 2^nd respondents of the receipt of the resumption compensation in conversations with them around Chinese New Year.

(12)   On 3 April, the petitioner sent copies of the 26 December 2007 board resolution to the other shareholders.  This would appear to be the first occasion on which this was done.

(13)   In none of this correspondence did the petitioner disclose that he had transferred the resumption proceeds to his personal account where they remained for a period of nearly two months.  In his witness statement, the petitioner said that this was done to maximise interest and to facilitate the obtaining of cashier’s orders to effect payment of shares of the resumption proceeds to the individual shareholders.  In cross-examination at the trial, the petitioner also added that he was concerned that the majority shareholders were trying to freeze the managers out and he wanted to ensure that the monies could be paid to the shareholders rather than be held up in Top Master.

11.  So far as the removal of the petitioner (and the 5^th respondent) as managers and directors of the companies is concerned, this came about shortly afterwards.  On 7 April 2008, EGMs of the companies were convened for 9 May 2008, at which such removal was to be considered.  At such meetings, a majority of the shareholders voted in favour of such removal.

12.  As for the subsequent failure to distribute any of the resumption compensation proceeds, the sequence of events was:

(1)   A proposal by the petitioner and 5^th respondent, at the Top Master EGM held on 9 May 2008, that HK$1.2 million of the proceeds should be distributed was voted down by the majority shareholders.

(2)   Thereafter, in June 2008, the petitioner continued to chase the majority shareholders for a decision as to how to deal with the proceeds, which were idle funds in Top Master’s hands.

(3)   On 4 July 2008, the petitioner was sent extracts of the minutes of board meetings that were also held on 9 May 2008.  These noted the resolutions to remove the petitioner and 5^th respondent as directors and managers passed at the EGMs held on the same date, and contained board resolutions to remove them as signatories on the companies’ bank accounts.  It does not seem, however, that this latter resolution was acted upon by informing the companies’ bankers and changing the authorised signatories of their bank accounts.

(4)   On 18 August 2008, the petitioner again reminded the other shareholders by email of the idle funds held by Top Master, and proposed that if no objection was received by the end of August, arrangements would be made to pay a dividend.

(5)   On 4 September 2008, the petitioner arranged for cashier orders in favour of each shareholder to be issued from funds in Top Master’s account so as to pay each shareholder his or her pro rata share of a distribution totalling HK$1.1 million.  He informed the other shareholders on 6 December 2008 that such cashier orders were available.  This triggered a complaint the same day from the 1^st respondent to the effect that the preparation of the cashier orders and consequent removal of funds from Top Master was done without board approval and amounted to criminal conduct.

(6)   Matters having remained at an impasse for a considerable time, on 23 January 2013 the petitioner arranged for the cashier orders to be cancelled with the proceeds being paid into his personal account.

13.  The complaint to the police against the petitioner arose from the preparation of the cashier orders mentioned in paragraph 12(5) above.  Following the 1^st respondent’s complaint of 6 December 2008, in January 2009 a board resolution of Top Master was passed authorising the 1^st respondent to make a report to the police alleging theft by the petitioner from Top Master of the amount of the cashier orders.  The 1^st respondent made such a report on 18 January 2009.  The Deputy Judge found that, in making the report, the 1^st respondent made false statements to the police regarding Top Master’s dividend policy, and regarding whether or not Top Master owed any money to the petitioner (and the 5^th respondent).  The police investigation continued for about two years, following which it was brought to an end, apparently on the basis that there was insufficient evidence to justify taking it further.

14.  It seems clear from the Deputy Judge’s findings that matters had reached an impasse, and that as from mid-2008 onwards, the two camps of shareholders (the petitioner and the 5^th respondent on one side, and the majority shareholders on the other) were unable to work together in relation to the companies’ affairs.  From time to time after his removal as a manager, until the second half of 2012, the petitioner pressed for compensation for such removal.  Eventually, on 22 November 2012, the petitioner requested the majority shareholders to buy out his shares and arrange for the repayment of his shareholders’ loan to the companies, given the inability to agree on his compensation and the general impasse as to the companies’ continued activities.  Finally, on 20 June 2013, the petitioner issued the unfair prejudice petitions in respect of the companies.

The alleged unfairly prejudicial conduct

15.  In his petitions, the petitioner complained of the following allegedly unfairly prejudicial conduct by the majority shareholders:

(1)   a threat to usurp the petitioner’s powers as manager, and thwart his entitlement to his manager’s bonus under the Shareholders’ Agreement by blocking the proposed sale to Chun Wo in 2006, and demanding amendments to the Shareholders’ Agreement and abolition of the role of the managers as a condition for proceeding with further Non-Core Land sales thereafter;

(2)   the removal of the petitioner as a manager and director of the companies, and excluding him from management, after 9 May 2008;

(3)   the failure to pay the petitioner compensation for such removal;

(4)   frustration, or breach, of the short term objective mentioned in Clause 3 of the Shareholders’ Agreement by preventing the recouping of the shareholders’ loans and interest thereon, through the blocking of proposed sales of land, attempting to block the acceptance of the offer of resumption compensation from the Government, failing to effect repayments to shareholders out of the resumption monies and failing to pursue sales of Non-Core Land after 2008; and

(5)   the allegedly malicious criminal complaint against the petitioner in respect of the use of Top Master’s funds to obtain cashier orders for payment of a distribution to shareholders out of the resumption proceeds.

The Main Judgment

16.  Following the trial, the Deputy Judge gave judgment on 14 December 2016 (“the Main Judgment”) dealing with whether or not a buy out of the petitioner’s shares should be ordered, whether the petitioner should be awarded compensation in respect of his role as manager of the companies, and dealing with certain issues relating to valuation of the petitioner’s shareholding.

17.  For present purposes, the following conclusions are of importance:

(1)   the finding that the relationship between the petitioner, the 5^th respondent and the majority shareholders was not in the nature of a quasi-partnership;

(2)   the conclusion that the majority shareholders had been guilty of unfairly prejudicial conduct which called for a buy-out order to be made, such unfairly prejudicial conduct consisting of:

(a)   breaches of Clause 6[2] of the Shareholders’ Agreement, which the Deputy Judge construed as imposing a positive obligation on the shareholders to agree to sales of Non-Core Land to outside parties which were recommended by the managers, or to match such offers by purchasing such parcels of Non-Core Land themselves;

(b)   breaches of the Shareholders’ Agreement by removing the petitioner (and the 5^th respondent) as managers on 9 May 2008, in that the resolution to remove them was not unanimous, and because they were not paid compensation;

(c)   failure to make repayments to shareholders from 2008 onwards, when there were available funds for this purpose from the resumption compensation proceeds;

(d)   the reporting of the petitioner to the police in respect of his causing Top Master to obtain cashier orders to distribute the resumption compensation proceeds was regarded as oppressive conduct which rendered the breaches more egregious.

(3)   However, the Deputy Judge did not consider that the following allegations of unfairly prejudicial conduct were made out:

(a)   the unsuccessful attempts to block acceptance of the resumption compensation;

(b)   the allegation that the majority shareholders failed to make Non-Core Land sales after 2008; and

(c)   the removal of the petitioner (and the 5^th respondent) as directors on 9 May 2008, on the basis that section 157B of the old Companies Ordinance was satisfied and sufficient notice of the resolution had been given.

(4)   Having regard to the unfairly prejudicial conduct, the Deputy Judge ordered that the majority shareholders should buy out the petitioner’s shares in the companies.  She further ordered that the valuation should be as at the date of the buy-out order (i.e. the date of the Main Judgment), and should be on the basis that all shareholder loans were fully repaid by September 1997 (i.e. on the footing that the offers made at that time had been accepted, and the proceeds used to settle the shareholder loans).  She also ordered that the valuation should be without any discount for the fact that the petitioner was a minority shareholder, and that it should be on a going concern basis, and should take account of remuneration to be paid to the petitioner in his capacity as manager (which is the subject of the next sub-paragraph).

(5)   Additionally, the Deputy Judge ordered that the majority shareholders should cause the companies to pay (or failing that, themselves pay) remuneration to the petitioner as provided for under Clause 4 of the Shareholders’ Agreement until the date of the buy-out (this was subsequently agreed between the parties as being HK$592,967.47), and that account should be taken of amounts due to the petitioner for shareholder loan repayments or dividend payments not yet paid to him, and of the sum of HK1.1 million owing from the petitioner to Top Master in respect of the proceeds of the cancelled cashier orders which he had paid into his personal account in January 2013.

Further Decisions and Judgments

18.  Following delivery of the Main Judgment, a number of further hearings took place.  These were concerned mainly with the manner in which the valuation should be conducted.  However, a number of substantive points were also raised, which were dealt with by the Deputy Judge in decisions given in respect of such hearings.  For present purposes, it will suffice to note the following:

(1)   In a decision dated 21 February 2017 (“the February Decision”), the Deputy Judge determined that:

(a)   the majority shareholders’ liability to buy out the petitioner’s shares was joint and several, rather than several;

(b)   that there was no basis for the petitioner to be paid compensation in respect of the manager’s bonus provided for in Clause 4 of the Shareholders’ Agreement after he ceased to be a shareholder, or after his status as manager had been lawfully terminated.

(2)   In a further decision dated 15 March 2017 (“the March Decision”), the Deputy Judge reiterated that there was no scope for the petitioner to contend that he should be entitled to the manager’s bonus in perpetuity, contrary to the decisions she had already made in the Main Judgement and the February Decision.  She also noted the parties’ agreement as to the amount of the manager’s bonus down to the date of the buy-out order, in the amount referred to in paragraph 17(5) above.

(3)   By a judgment dated 6 April 2017 (“the April Judgment”), the Deputy Judge refused an application by the majority shareholders for a stay of execution pending their appeal against the Main Judgment.  A subsequent application for an interim stay pending an application to the Court of Appeal for a stay was also dismissed on 12 April 2017.

(4)   Finally, in a decision dated 7 July 2017 (“the July Decision”), which was largely concerned with giving directions for the further progress of the valuation process, the Deputy Judge:

(a)   declined a request by the petitioner for an assessment of damages to be carried out in respect of his lost remuneration as manager, on the basis that this had already been dealt with in the Main Judgment and the sealed order in respect thereof dated 18 January 2017; and

(b)   declined (for the time being) to deal with an application by the petitioner for an interim payment to be made pending the value of his shareholding being determined.

The three appeals

19.  As noted at the beginning of this judgment, there are three appeals before us. CACV 9/2017 is an appeal by the majority shareholders against the Main Judgment, in which the petitioner has filed a respondent’s notice.  CACV 74/2017 is an appeal by the majority shareholders against aspects of the February Decision.  CACV 169/2017 is an appeal by the petitioner against an aspect of the July Judgment.

20.  There was also before us an application by the majority shareholders, by summons dated 22 January 2018, seeking to restore their application to this court dated 13 April 2017 for a stay of the Main Judgment, and the February and March Decisions, on the basis that if this were not done, it would be necessary to continue with the valuation process and go ahead with a hearing in relation to the petitioner’s interim payment application in the period between the hearing of this appeal and delivery of judgment, which would result in considerable wasted effort and costs if the majority shareholders’ appeals proved to be successful.  At the conclusion of the hearing, we granted the stay sought pending delivery of this judgment.

21.  Shortly before the hearing of the appeals, the majority shareholders sought leave to re-amend their notice of appeal in CACV 9/2017. This was not opposed by the petitioner, and leave to re-amend was accordingly given at the outset of the appeal.

22.  In CACV 9/2017, the majority shareholders appealed against the making of the buy-out order, and the order for the payment of remuneration to the petitioner as if he had remained a manager until the date of the share buy-out.

23.  So far as the buy-out order was concerned, the main arguments advanced by Mr Joffe (who did not appear at the hearing below) for the majority shareholders were directed against the Deputy Judge’s conclusion that the majority shareholders were in breach of their obligations under Clause 6[2] of the Shareholders’ Agreement in failing to approve of the sales of Non-Core Land that had been brought forward by the managers, and had thereby frustrated what the Deputy Judge considered to be the purpose and objectives of the Shareholders’ Agreement.  In essence, Mr Joffe’s complaint (elaborating on grounds 1 to 4 of the re-amended Notice of Appeal) was that the Deputy Judge had wrongly held that the shareholders were under a positive obligation to approve Non-Core Land Sales, when they in fact had an unfettered discretion as to whether or not to do so, and thus had wrongly concluded that they were in breach of their obligations under the Shareholders’ Agreement, resulting in their conduct being unfairly prejudicial to the petitioner.

24.  So far as the order for payment of remuneration to the petitioner as manager was concerned, Mr Joffe’s contentions (elaborating on grounds 5 and 6 of the re-amended Notice of Appeal) focused on demonstrating that contrary to the Deputy Judge’s conclusion that the petitioner’s position as manager was entrenched so as to be, in effect, irremovable, there were implied terms entitling the majority shareholders to remove the managers, either for cause, or on reasonable notice, and that in the circumstances of this case, both routes to removal were available to the majority shareholders, so that there was no wrongdoing on their part in having resolved to remove the petitioner and 5^th respondent as managers at the EGM held on 9 May 2008.

25.  Although the re-amended Notice of Appeal (and Mr Joffe’s oral submissions) suggested that the first issue (raised by grounds 1 to 4) related to the buy-out and the second (raised by grounds 5 and 6) related to the compensation order, it seems to me that the second issue was also of importance in relation to the buy-out order, as it is one of the forms of unfairly prejudicial conduct complained of, which the Deputy Judge found to have been established.

26.  A third complaint in the re-amended notice of appeal (ground 7) concerned the treatment of the shareholders’ loans to the companies – in essence, the complaint was that the Deputy Judge had overlooked the need to require the petitioner to procure the waiver of the shareholders’ loans advanced to the companies by his nominee shareholders (the 5^th respondent’s parents).  The argument here was that if this were not required, it would seem possible for the petitioner to receive payment for his shares on the footing that the shareholder’s loans had been repaid by 1997, but for the shareholders (his nominees) to then demand repayment of the loans as they were not parties to the proceedings and would not be bound by the judgment, giving rise to a risk of double recovery.  This argument was not, I think, seriously contested by the petitioner.

27.  Finally, the majority shareholders contended (ground 8) that even if the Deputy Judge had been right to order a buy-out, she had erred in ordering that the petitioner’s shareholdings should be valued without any discount for the fact that they were minority shareholdings, particularly having regard to her conclusion that the relationship between the shareholders was not one of quasi-partnership.

28.  The petitioner’s respondent’s notice, ostensibly to affirm the Main Judgment on additional grounds, makes the following points:

(1)   it contends that the manager remuneration should be calculated on a perpetual basis;

(2)   it contends that the Deputy Judge should have held the companies to be quasi-partnerships;

(3)   it complains of breaches of the Shareholders’ Agreement and the absence of any offer to buy out the petitioner;

(4)   it contends that the petitioner was removed in order to prevent the need to pay manager’s remuneration from arising;

(5)   it contends that the costs order nisi made by the Deputy Judge should be sustained; and

(6)   it is suggested that there is ample evidence to support the findings of unfairly prejudicial conduct.

29.  Turning to CACV 74/2017, this was the majority shareholders’ appeal against two aspects of the February Decision.

30.  The first aspect complained of (by grounds 1 to 3) related to the Deputy Judge’s ruling that liability for the buy-out was to be joint and several.  It was contended that such liability should be several only, as the majority shareholders had acted individually and not in concert, that there had been no claim for joint and several liability, and there was nothing to suggest that a several liability to buy out would be impracticable or impossible.  It was further suggested that joint and several liability might upset the balance of shareholdings as between the majority shareholders.

31.  The second aspect complained of (by ground 4) related to the ruling that the majority shareholders should bear the costs of the valuation, in that it was premature to have determined that matter at this stage of the litigation, the correct approach being to await the outcome of the valuation process in order to make a proper assessment of how the costs of the process should be allocated, in the light of the different parties’ approach and behaviour regarding the valuation process.

32.  As for CACV 169/2017, this was an appeal by the petitioner against what he suggested was a ruling in the July Judgment that there was no further scope for further damages to be awarded to the petitioner in respect of the unfairly prejudicial conduct, and that the order for lost remuneration should be limited to such remuneration up to the time of the buy-out, rather than on a perpetual basis.

CACV 9/2017

33.  I shall consider first the contentions in CACV 9/2017 that the Deputy Judge fundamentally erred in her interpretation of the Shareholders’ Agreement, both in respect of whether or not the shareholders were obliged, by the terms of Clause 6[2], to agree to any sale to outside parties introduced by the managers as long as the price exceeded the floor price provided for in Clause 6[3], and in respect of what she found to be the entrenched, or effectively irremovable, position of the managers, so long as they remained shareholders of the companies, and in consequence was wrong to conclude that there had been any such unfairly prejudicial conduct as would call for the making of a buy-out order.  Depending on the outcome, the other issues raised in this and the other appeals might be rendered academic.

Whether the shareholders were obliged to approve sales of Non-Core Land

34.  As for Clause 6[2], as we have seen, the Deputy Judge concluded that the shareholders were obliged by Clause 6[2] of the Shareholders’ Agreement to approve of sales of Non-Core Land where an offer was made by an outside buyer, so that the majority shareholders were in breach of this obligation by failing to approve of the various offers made in September and November 1997, and by Chun Wo in 2006.

35.  Her reasoning was set out in paragraphs 35 to 45 of the Main Judgment.  She first noted that under Clause 3 of the Shareholders’ Agreement the objective was not the immediate sale of all of the land, but to sell some of the Non-Core Land in the short term to repay the shareholders’ loans and interest thereon.  She went on to note that Clause 6[1] required the managers to use their best efforts to dispose of the Non-Core Land as soon as possible, in order to allow the recoupment of the shareholders’ investment and interest thereon in full.

36.  The Deputy Judge went on to set out the procedure for Non-Core Land sales under Clause 6[2].  She described this as follows:

“(1) if an outside buyer makes an offer, the shareholders must approve of the sale first; (2) shareholders have the first option to match the purchase offer within 7 days; (3) if no shareholders match the offer within the period the land will be sold to this outside buyer.” (The emphasis is the Deputy Judge’s.)

37.  She went on to express her view that the floor price mentioned in Clause 6[3], which deals with the situation where a shareholder wishes to make an offer to buy Non-Core Land, is equally applicable to sales to outsiders pursuant to Clause 6[2].

38.  She then referred to Clause 8, stating that it “provides generally that a decision to sell any land asset is a decision requiring 100% shareholder approval (until such time as the shareholder loans have been fully repaid)”.

39.  She then concluded that Clause 6[2] created a specific obligation on the part of the shareholders to approve any sale to an outside party which was not matched by a shareholder within the period indicated in Clause 6[2], and rejected the view that the shareholders had an unfettered discretion as to how to vote on any proposed sale, as this was, she said, inconsistent with the terms of Clause 6[2], the objectives stated in Clause 3 for the sale of Non-Core Land as soon as possible to recoup the shareholders’ loans and interest, and the obligation on the part of the managers (pursuant to Clause 6[1]) to similar effect.  She also regarded the interest rate of 2% per month attaching to the shareholders’ loans to be indicative of an intention to have those loans repaid as quickly as possible, rather than remaining outstanding and racking up large amounts of interest.

40.  Mr Joffe submitted that:

(1)   The natural reading of the language of Clause 6[2] is not to impose on the shareholders an obligation to approve outside sales of Non-Core Land, but rather to make such approval a precondition, or a first hurdle that must be passed, before the rest of the provisions of the clause can take effect.

(2)   The Deputy Judge’s emphasis on the word “will” at the end of Clause 6[2] was misplaced, in that Non-Core Land would only have to be sold to the outside buyer making an offer for it if first, the shareholders had approved of the sale, and second, no shareholder had put in a matching offer for the land.

(3)   The interpretation of Clause 6[2] as imposing an obligation on the shareholders to approve outside offers for Non-Core Land was inconsistent with Clause 8[1] and [2], by which it was made clear that any decisions relating to the sale of land (whether Core or Non-Core) required the approval of 100% of the shareholders prior to the recouping of the initial investment of HK$7 million.  Even after this was achieved, approval by 60% of the shareholders would continue to be required.

(4)   There were valid reasons why shareholders should be entitled to come to their own views as to the desirability of any particular sale of Non-Core Land, as the shareholders would justifiably be concerned to ensure that the best price was achieved for such sales, and to avoid the possibility of the managers attempting to put sales through quickly so as to reach the point when the initial investment would be recouped, at which they would begin to receive remuneration.

(5)   Clause 3 of the Shareholders’ Agreement did not provide a sound basis for concluding that the shareholders were under an obligation as suggested by the Deputy Judge, as that clause did no more than set out the aspirational aims of the project, and did not in any event define what was meant by short-term.

(6)   The interest rate on the shareholders’ loans provided for in Clause 2 of the Shareholders’ Agreement also did not require that the shareholders should be obliged to agree to sales of Non‑Core Land, rather than be entitled to consider for themselves whether or not particular proposed sales should be approved.  Although the interest rate appeared, on the face of it, to be very high, it should be borne in mind that the accumulation of interest would not disturb the shareholders’ relative economic interests in the companies, as their loans were proportionate to their shareholdings.  Further, if the amount of interest reached a level that caused concern, it would be open to the shareholders to agree to waive the interest, or part of it.

(7)   Finally, to require the shareholders to approve of all sales of Non-Core Land brought forward by the managers would in effect be to require the shareholders to bring about the situation in which the managers could commence earning remuneration, when there was nothing in Clause 4 to suggest that there was any obligation on the part of the shareholders to bring about that state of affairs.

41.  I start by considering the language of Clause 6[2].  This states that:

“In selling any land parcels, when an ‘outside buyer’ submits an offer, the shareholders will have to approve of the sale first. The shareholders also have the first option to match the purchase offer within 7 days. If no shareholders match the offer within the period, the land will be sold to this outside buyer.”

42.  In my view, Mr Joffe is correct to submit that the language of the first sentence of the clause, in particular the phrase “the shareholders will have to approve of the sale first”, reads more naturally as a precondition that must be satisfied, rather than as an obligation imposed on the shareholders.  What they suggest is that when an offer is received from an outside buyer, the first thing that needs to happen is that the approval of the shareholders of the offer should be obtained.  But they do not obviously suggest that the shareholders are required to give such approval.

43.  Indeed, if the shareholders were obliged to give their approval, so that they had no choice in the matter, that phrase would be otiose.  The clause would have exactly the same effect if they were left out.  It would have sufficed to have said that when an outside buyer submitted an offer, the shareholders would have the first option to match the purchase, failing which the land would be sold to the outside buyer.  In order to give some real meaning to the provision that “the shareholders will have to approve of the sale first”, it must be understood as a precondition, rather than an obligation.  Put another way, there would be no real need to obtain the approval of the shareholders if they had no choice in the matter.

44.  I would also agree with Mr Joffe that the provision at the end of the clause that “if no shareholders match the offer within the period, the land will be sold to this outside buyer” does not suggest that Non-Core Land for which an offer is received must necessarily be sold.  All that this provision does is to make clear that where the hurdle of shareholder approval has been cleared, and no matching offer is thereafter received, the sale will go ahead.

45.  This construction of Clause 6[2] is, I think, clearly reinforced by Clause 8.  The latter clause makes it clear that the operational decisions to be made by the managers do not include decisions relating to “sale of any land asset”, which is among the decisions reserved to the shareholders.  The reference in Clause 8 to “any land asset” does not seek to distinguish between Core and Non-Core Land.  On the contrary, it expressly relates to “any” land.  To say that Clause 6[2] requires the shareholders to approve of any offers from outside buyers brought to them by the managers would mean that in relation to Non-Core Land, the managers, and not the shareholders would be the effective decision makers. This would be clearly inconsistent with the terms of Clause 8, and the very opposite of what that clause states in relation to land sales. 

46.  As Mr Joffe submitted, there were sound commercial reasons why the shareholders would wish to have a say over whether or not particular offers should be accepted.  While they might well be keen to recoup their investment in a reasonably short time frame, they would be equally concerned to ensure that the best possible price was achieved for any land that was sold.  Further, the provisions of Clause 4 relating to manager remuneration would tend to incentivise the managers to sell sufficient land to enable the initial investment to be recovered, and it is therefore reasonable for the other shareholders to be able to satisfy themselves that proposed sales were for a proper price, by providing for all land sales to be subject to their approval, whether unanimous or by a 60% majority.

47.  It should also be noted that the requirement for 100% approval in the early stages of the companies’ operation was not absolute.  If a substantial majority (75%) of the shareholders were in favour of a sale, it would be open to them to bring the matter up for consideration again, and thereafter for the company to buy back the shares of the dissentient member, thereby enabling the majority’s preferred course of action to be pursued.  Such a buy-back by the company could be made out of distributable profits or the proceeds of a fresh issue of shares made for the purpose of financing the buy-back (see sections 49B and 49A of the old Companies Ordinance).

48.  The Deputy Judge also considered that her interpretation of Clause 6[2] was supported by Clause 3 and Clause 2.  However, in my view, neither of these provisions justifies an interpretation of Clause 6[2] which does not accord with its natural meaning, and which is inconsistent with Clause 8.  Clause 3 simply sets out the general objectives of the companies.  While it indicates that Non-Core Land is to be sold in the short term, it does not mandate that this must be done, and does not purport to set out the procedure to be adopted for such sales – that is dealt with by Clauses 6 and 8.

49.  Similarly, although it is fair to say that the interest rate specified in Clause 2 in respect of the shareholders’ loans is a high one, given that they would not affect the relative economic interests of the shareholders in the companies, and could, if necessary, be waived by the shareholders, this does not justify giving a strained interpretation to Clause 6[2].

50.  Mr Joffe’s final point, regarding the non-promissory nature of Clause 4, so that the shareholders were not obliged to bring about a situation in which the managers could start earning remuneration also appears to me to be a valid one.

51.  All of this said, Mr Joffe readily accepted that it was probably anticipated by the shareholders that sufficient Non-Core Land would be sold to enable the shareholders’ loans to be repaid within a reasonably short time.  However, as he submitted, it does not follow from this that the shareholders must have agreed that they were under an obligation to achieve this result.

52.  For all of the foregoing reasons, I am satisfied that the Deputy Judge erred in her construction of Clause 6[2], and that there was in fact no obligation on the part of the shareholders to approve the sales to outsiders brought forward by the managers.  It follows that the majority shareholders were not in breach of the Shareholders’ Agreement in failing to approve of the proposed land sales in 1997 and 2006, and in the absence of any finding that their failure to approve was due to some improper motivation, the finding of unfairly prejudicial conduct arising from such non-approval cannot be sustained.

Whether the managers could be removed

53.  Turning to the question of whether or not the managers’ position should be regarded as entrenched, the Deputy Judge held that there was no implied term entitling the shareholders to remove the managers, whether for cause or not.  In support of this conclusion, she suggested (at paragraph 48 of the Main Judgment) that this was not obviously intended, given that the petitioner and 5^th respondent were the only persons with knowledge of Lantau property, whose expertise would have formed the basis of the project.  As for the 2^nd respondent, the Deputy Judge considered that her position as the largest single shareholder tended to suggest that she, too, should not be at risk of being removed.  The Deputy Judge went on to point out (at paragraphs 49 to 51 of the Main Judgment) that as the remuneration provisions in Clause 4 meant that no remuneration would be paid at all until after the initial investment had been recouped, but thereafter would be payable on all land sales, a right on the part of the shareholders to remove the managers should not be implied, as this would enable the shareholders to circumvent the managers’ entitlement to remuneration by the expedient of removing them just before (or just after) they were in a position to receive it.

54.  Mr Joffe contended that this conclusion was wrong, and that there should be implied into the agreement, on the basis that it was an obvious implication, terms permitting the removal of the managers by the shareholders:

(1)   for cause; and

(2)   on reasonable notice.

55.  He went on to submit that there was clearly good cause for removal of the petitioner as a manager, having regard to his failure to inform the shareholders of the passing of the resolution to accept the Government’s offer of compensation in respect of the resumed land at Mui Wo, and his diversion of the compensation proceeds into his own bank account and failure at any material time to inform the majority shareholders of this.  At the hearing, Mr Joffe accepted that the first of these failures would not, on its own, suffice to justify removal, but submitted that the second, whether taken on its own or in conjunction with the first, would suffice for this purpose.

56.  As far as removal on notice was concerned, Mr Joffe submitted that reasonable notice had been given.

57.  I shall deal first with the suggested implied term that the managers could be removed for cause.  Mr Joffe submitted that this was a matter of obvious implication, as it would be absurd to suppose that a manager could never be removed, no matter how serious his misconduct.  He also suggested (relying on authorities such as Jervis v Skinner [2011] UKPC 2) that such a term was consistent with the position in relation to employment contracts, where an employee may be terminated for conduct which undermines the trust inherent in the relationship of employer and employee.

58.  I agree.  This is clearly a matter which must be regarded as being so obvious that it goes without saying.  None of the justifications put forward by the Deputy Judge for declining to imply a term entitling the shareholders to terminate a manager have particular force when considering termination for cause, in the case of misconduct which would have the effect of undermining the trust and confidence reposed in the manager concerned.  Although the fact that the petitioner had expertise in and knowledge of Lantau land would be a good reason for his appointment as a manager in the first place, it does not follow that such expertise and knowledge would require him to be kept on in that position even if he were guilty of such misconduct.  Similarly, the concern expressed as to the possibility that the shareholders could avoid the need to pay the managers their remuneration by the expedient of removing them loses much of its force where the removal is for good cause.

59.  I am therefore satisfied that there must be implied into the Shareholders’ Agreement a term entitling the shareholders to terminate the appointment of a manager for cause.

60.  Turning to the alleged misconduct on the part of the petitioner, the Deputy Judge held that while his conduct was unwise, it was perhaps understandable given his frustration at the way in which the project had failed to develop as he had hoped and expected.  With respect, I am of the view that the complaints relied upon by Mr Joffe are well founded, and are serious matters that did justify the removal of the petitioner as a manager of the companies.  While the failure to advise the other shareholders promptly of the fact that a board meeting of Top Master had been held on 26 December 2007 at which it had been resolved to accept the Government’s offer of compensation might not seem to be a particularly serious matter, the same cannot be said of the diversion of Top Master’s funds to a personal account of the petitioner.  Such an action, undertaken without the knowledge or consent of the other shareholders, was clearly a serious breach of duty on the part of the petitioner.  The reasons put forward for it (whether in relation to the allegedly more favourable rate of interest obtainable, or for ease of obtaining cashier orders, or fears of being held up by the other shareholders) cannot be regarded as justifications for the course taken.  More significantly, it is notable that despite being asked about the whereabouts of the resumption compensation proceeds, the petitioner did not at any time before his removal inform the shareholders that the monies had been transferred to his personal account where they remained for some two months before being transferred back to Top Master when questions were being asked.  Such conduct would clearly, in my view, give rise to a justifiable loss of confidence in the petitioner on the part of the other shareholders.  As such, I have no doubt that it was misconduct which was serious enough to justify removal of the petitioner from his position as a manager.

61.  Although the shareholders were not aware of this misconduct on the petitioner’s part prior to his removal, this makes no difference, as they are entitled to rely retrospectively on a valid ground for termination even though they were unaware of it at the time (see e.g. Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339, Chitty on Contracts (32^nd ed) para 24-014).  Indeed, having regard to the fact that the petitioner did not disclose what he had done, despite having several opportunities to do so, it is scarcely surprising that the shareholders were not aware of it.

62.  In these circumstances, the termination of the petitioner’s position as a manager of the companies cannot be regarded as being a breach of the Shareholders’ Agreement, and hence does not amount to being unfairly prejudicial conduct as against him.

63.  I note that the Deputy Judge suggests in the Main Judgment that the termination of the petitioner’s management was a breach of the Shareholders’ Agreement because it was (1) not unanimous and (2) not accompanied by payment of compensation. However, nothing in the Shareholders’ Agreement suggests any requirement of unanimity for such a decision (which is based on an implied term, and not any express provision in the Shareholders’ Agreement), and a requirement of unanimity would not appear to be apt in respect of a decision to terminate the position of one of the shareholders as a manager, as it is inherently unlikely that the shareholder in question would be likely to agree to the termination proposed.  As to the non-payment of compensation, given that the termination was justified and was for cause, there would not seem to be any reason why compensation should be provided.

64.  In the light of my conclusions as to termination on the basis of an implied term relating to termination for cause, it is not necessary to come to any determination as to whether or not there was also an implied right to terminate the managers’ appointments on reasonable notice.  However, I would accept that the Deputy Judge’s concerns, expressed in paragraphs 49 to 51 of the Main Judgment, have considerable force in this context.

Whether the buy-out order should have been made

65.  Having regard to the foregoing, the two principal findings of unfairly prejudicial conduct, arising from alleged breaches of the Shareholders’ Agreement, cannot stand.  In their absence, I do not think that the remaining complaints which the Deputy Judge found to be made out are sufficient to justify the making of a buy-out order against the majority shareholders.  The failure to agree to the distribution of the resumption compensation monies was a relatively minor matter, which could not of itself justify the grant of the relief sought.  The complaint to the police was a matter which the Deputy Judge regarded as rendering the breaches of the Shareholders’ Agreement more serious, but in the light of my conclusions that there were, in fact, no relevant breaches of the Shareholders’ Agreement, this too, is inconsequential.

66.  I would therefore set aside the findings of unfairly prejudicial conduct in respect of the alleged breaches of the Shareholders’ Agreement, and set aside the order for a buy-out and payment of compensation pursuant to section 168A. 

Remaining issues in respect of CACV 9/2017

67.  The remaining points raised by the re-amended Notice of Appeal relate to the terms of the buy-out.

68.  As to the complaint that the Deputy Judge erred in ordering a buy-out with a valuation to be made on the assumption that the shareholders’ loans had been fully repaid, without making it a condition of the buy-out that the petitioner should ensure that the shareholders’ loans were waived by his nominees, this was not seriously disputed by the petitioner, and had it been necessary to do so, I would have varied the buy-out order to cater for this.

69.  As to the argument that in the light of the finding that the companies were not quasi-partnerships, the buy-out should have been on the basis of a valuation that took into account the fact that the petitioner’s shareholding represented a minority interest, I would leave the question of the appropriate approach – whether there should be a presumption in favour of a discount, or no presumption either way – for consideration in a case in which it actually arises for decision, as the matter is one that is necessarily fact-dependent, and does not need to be decided in the present case.  That said, whichever starting point is adopted, it does seem to me that having regard to the nature of the venture, which essentially envisaged that the shareholders would realise their investment and any return on it through the sale or development of the companies’ land assets over time, rather than through a sale of their stake in the companies, and the fact that had a buy-out order been appropriate, it would be something that the petitioner would have been driven to seek as a result of (on that hypothesis) unfairly prejudicial conduct on the part of the majority shareholders, I would have been inclined to the view that any buy-out should have been on an undiscounted basis.

70.  Turning to the respondent’s notice, the only issue of substance raised by it is the correctness of the decision that the companies were not quasi-partnerships.  In the light of my conclusion that there is no sufficient unfairly prejudicial conduct to require the making of a buy-out order, there is no real need to revisit this question.  In any event, I see no reason to disagree with the Deputy Judge’s finding in this respect, having regard to the background to the setting up of the companies, in particular the absence of a pre-existing relationship between all the shareholders, and the fact that they chose to regulate their relationship by way of the detailed provisions of the Shareholders’ Agreement.

CACV 74/2017

71.  So far as CACV 74/2017 is concerned, the main question that it raises relates to whether the buy-out order should have been made on a joint and several basis, or simply on a several basis.  Again, in the light of my conclusion that the buy-out order should be set aside, it is not necessary to express a final view as to this.  While I can see some force in Mr Joffe’s suggestion that the way in which the buy-out order is framed should, so far as possible, recognise and maintain the respective proportionate shareholdings of the different shareholders, it would also have been necessary to ensure that the buy-out order would have been effective to extricate the petitioner from the companies completely.  A purely several liability to buy him out, proportionately to the majority shareholders’ respective shareholdings inter se, might well fail to achieve this.  Thus, even if the primary position were to have been that the buy-out should be effected by the majority shareholders each buying out a proportionate quantity of the petitioner’s shares, provision would, I think, have had to be made for the eventuality that one or more shareholders did not comply with their buy-out obligations.

72.  As to the other issue raised in CACV 74/2017, concerning the liability for the costs of the valuation, this too, does not arise now that the buy-out order is to be set aside.

CACV 169/2017

73.  Turning finally to CACV 169/2017, which is the petitioner’s appeal against the July Judgment, seeking a determination in his favour that compensation for his loss of office as a manager should be assessed on the basis that his entitlement to compensation was perpetual, I can see no merit in the appeal.

74.  The July Judgment principally dealt with the giving of directions for the further conduct of the proceedings, and in particular the valuation process.  The part of the judgment that the petitioner complains of is paragraph 8, which addressed his application for an assessment of damages to be fixed for hearing at the same time as the hearing to determine the valuation of his shareholding.  The petitioner suggests that this was a rejection by the Deputy Judge of his contention that he should be entitled to damages assessed on the basis of a perpetual entitlement to manager’s remuneration.

75.  However, it is apparent from that paragraph that all that the Deputy Judge was saying was that there was no scope for a further assessment of damages because the question of compensation for lost remuneration had already been dealt with in the Main Judgment at paragraph 260, as part of the remedies for the unfairly prejudicial conduct which the Deputy Judge had found to have taken place.

76.  In fact, a similar point had been raised by the petitioner at the hearings and in the submissions that resulted in the February and March Decisions, and the possibility of a further award of damages assessed on the basis of a perpetual entitlement to compensation was rejected by the Deputy Judge in both of those decisions (see paragraph 19 of the February Decision and paragraph 20 of the March Decision).

77.  In these circumstances, I think Mr Joffe was right to say that paragraph 8 of the July Judgment was merely a reiteration of the earlier rulings, and that the petitioner should have sought to appeal against paragraph 260 of the Main Judgment, or the relevant paragraphs in the February and March Decisions, but was now well out of time for doing so.

78.  In any event, the appeal cannot succeed, as the compensation sought was predicated on there having been a breach by the majority shareholders of the Shareholders’ Agreement when they removed the petitioner as a manager.  For the reasons given earlier in this judgment, there was no such breach in this case.  The question of compensation being payable therefore does not arise at all.

79.  Finally, it should be noted that as appears from paragraph 21 of the March Decision, the amount of compensation had in fact been agreed at some HK$592,000 odd, at a time when the petitioner was still legally represented.  In the light of that agreement, there would not seem to be any basis for revisiting this issue.

80.  It follows that the petitioner’s appeal in CACV 169/2017 must be dismissed.

Disposition and costs

81.  I would therefore make the following orders in respect of the appeals:

(1)   I would allow the majority shareholders’ appeal in CACV 9/2017, set aside the orders below and in their place order that the petition be dismissed.

(2)   I would make no order in relation to the majority shareholders’ appeal in CACV 74/2017, as it has been rendered academic by the result of CACV 9/2017.

(3)   I would dismiss the petitioner’s appeal in CACV 169/2017.

82.  So far as costs are concerned, I would propose to make orders nisi as follows:

(1)   In CACV 9/2017, that the costs of the appeal be paid by the petitioner to the majority shareholders, to be taxed on the party and party basis if not agreed.

(2)   In CACV 74/2017, that there be no order as to the costs of the appeal.

(3)   In CACV 169/2017, that the costs of the appeal be paid by the petitioner to the majority shareholders, to be taxed on the party and party basis if not agreed.

83.  Finally, I wish to thank all parties for their submissions, and would like to apologise for the time it has taken to deliver this judgment.

Harris J:

84.  I agree and would make the orders in paragraphs 81 and 82.