CHOI TAK LAN AND OTHERS v. NG WING HONG AND ANOTHER

HCMP 2670/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2670 OF 2006

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(CONSOLIDATED BY THE ORDER OF
THE HONOURABLE MR JUSTICE BARMA DATED 1^st MARCH 2007)

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Dates of Hearing: 19-23 May 2008

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J U D G M E N T

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I.       INTRODUCTION

1. These consolidated actions concern the shareholding of three companies (“Companies”):

1.1 Data World Computer & Communication Limited (“Data World” or “DWCC”);

1.2 Nexus Solutions Limited (“Nexus”); and

1.3 Data World Technology (China) Limited (“Data China” or “DWT”).

2. The main company of the group is Data World, which was incorporated in 1987. It carried on computer networking business. Nexus and Data China are companies owned by the same shareholders as Data World. Nexus was established in August 2002 to focus on hardware end-user solutions. In December 2002, Data China was set up for the group’s China operation.

3. It is not disputed that the Companies have identical directors and shareholders with identical shareholding. All three actions involve the same set of facts, and the relief sought are also in substance the same.

4. The main issue for determination is whether the issue and allotment of 237,436 new shares in Data World, effected on or about 30 November 2004 pursuant to shareholders and board resolutions signed by its registered shareholders and directors, and corresponding transfer of shares in Nexus and Data China consequent on the change in the shareholding percentage in Data World, are valid. (For convenience, I shall refer to the November 2004 allotment of new shares in Data World and transfer of shares in Nexus and Data China collectively as “November Allotment”.)  Pursuant to the November Allotment, the Defendant Mr Ng Wing Hong (“Ben Ng”) obtained 50.18% of the Companies’ shares.

5. The 1^st to 5^th Plaintiffs, who are the other registered shareholders of the Companies, contend that the purported shareholders and board of director meetings approving the November Allotment were “illegal, invalid and void”, hence the allotment and transfers should be cancelled. They allege that there was no agreement between the shareholders to effect the November Allotment, and that they had signed the relevant documents effecting the November Allotment without knowing that the documents included the allotment of the new shares.

6. Ben Ng, on the other hand, contends that all the shareholders and directors agreed to the November Allotment in a meeting held on 12 November 2004. The written resolutions were properly prepared to implement the resolutions so decided. Alternatively, estoppel, acquiesce and laches are relied upon.  As a final fallback, if the allotment of new shares were held to be invalid, Ben Ng seeks validation pursuant to section 57C of the Companies Ordinance.

7. There are three prior actions commenced by Ben Ng, being HCMP 2274 to 2276 of 2006, for convening annual general meetings of the Companies pursuant to section 114B of the Companies Ordinance. Recorder P Fung SC heard and disposed of those proceedings in July 2007, ordering meetings to be convened.  I only need to add that because of that judgment, the relief sought in these actions concerning the validity of annual general meetings held in June 2005 and June 2006 and the appointment of additional directors in those meetings have become academic.

8. Just before the commencement of the trial, on 16 May 2008, the 1^st, 4^th and 5^th Plaintiffs, acting in person, gave notice of discontinuance of their action under O. 21 r. 2, RHC.  Since the notices were given out of time, they were treated as applications for leave to discontinue their actions. Subpoenas to each of them were issued upon the application of the 2^nd and 3^rd Plaintiffs, but their counsel Mr K M Chong, leading Mr Ivan Cheung, informed me on instructions that attempts to serve the subpoenas had not been successful. In the end, the 1^st, 4^th and 5^th Plaintiffs did not appear at the trial. I shall deal with their discontinuance application towards the end of this judgment.

9. In the rest of this judgment, unless expressly stated or the context indicates otherwise, when I refer to “the Plaintiffs”, I am referring only to the 2^nd and 3^rd Plaintiffs.

II.      BACKGROUND AND PARTIES

10. I shall first set out the uncontroversial background facts and introduce the parties.

II (A). History of the companies and the Directors

11. In around 1983, Mr Ngo Tak Wah, Denny (“Denny”) set up a computer-related services business under the “Data World” name. Mr William Lee (“William”) was the manager of that business. Soon thereafter, the 2^nd Plaintiff Mr Ho Kwok Kit (“KK”) and his brother-in-law, the 3^rd Plaintiff Mr Ng Wing Hon (“WH Ng”), were invited to join as partners of that business. It is common ground that the four initial partners had expertise in electronics and computer science.

12. In around November 1987, the four partners acquired a shelf company, which they renamed Data World, to take over the business.

13. In around 1990, Ben Ng was invited to join Data World as a shareholder.  He was originally a customer of Data World.  He was a businessman, running a number of businesses. He was qualified as an accountant and company secretary, although he never practised either of those professions. He also had a law degree and had passed the Postgraduate Certificate in Laws, but he never practised as a lawyer. He became managing director of the Data World group of companies in June 2002.

14. Since Ben Ng joined Data World in 1990 and up to June 2005, the de facto directors of Data World were Denny, William, KK, WH Ng and Ben Ng. I say de facto because Denny was not himself a director on record, while his wife, Mdm Choi Tak Lan (“Mdm Choi”, the 1^st Plaintiff) was. However, there is no dispute that Mdm Choi never attended any directors meetings, and it was always Denny who acted as a director in her place.

15. KK was an executive director until December 2003. He remained as a director of the Companies although he ceased to have any active involvement in the Companies’ affairs thereafter.  He obtained his BA degree from the Chinese University in 1976. In the 1980s he obtained the Higher Diploma in Electrical Engineering and the Professional Diploma in Information Technology from the (then) Hong Kong Polytechnic. In 2005, he obtained a PhD degree in Business Administration.

16.  WH Ng was a director of the Companies until 30 November 2004.  He was prior to his resignation in charge of research and technical development aspects of the group’s business. He obtained his bachelor degree in Electronics Engineering from the University of Hong Kong in the early 1980s.  He worked for a large computer manufacturer as designer of motherboards until 1989 when he joined Data World on a part time basis, until around 1993 when he worked full time as General Manager.

17. Denny was an executive director for China operation, while William was the director in charge of operations and accounting for the whole group.

18.  For convenience, I shall refer to Denny, William, KK, WH Ng and Ben Ng collectively as “the Directors”.

II (B). Changes in Shareholding up to September 2004

19. When Ben Ng joined Data World in 1990, the shareholders and their shareholding were as follows:

Denny	18.98%
William	18.98%
Mdm Lee Kit Mui Kitty (William’s sister)	5.09%
Mdm Leung Yok Mui (KK’s mother)	18.98%
Mdm Tam Pik Chung (WH Ng’s mother)	18.98%
Ben Ng	18.98%

 

20. In 1994, Data World increased its share capital to $2.5 million and the shareholding, after the allotment of new shares and some transfer of shares amongst the existing shareholders, became as follows:

Mdm Choi (Denny’s wife)	12.63%
Mdm Suen Kit Yee Kitty (“Mdm Suen”, the 4th Plaintiff and William’s wife)	15.42%
Mr Lee Yeung Fai (“YF Lee”, the 5th Plaintiff and William’s son)	3.39%
KK	15.42%
WH Ng	15.42%
Ben Ng	37.12%

 

21.  There is a dispute as to whether Mdm Choi, Mdm Suen and YF Lee held their shares on their own account or on behalf of Denny (in the case of Mdm Choi) and William (in the case of Mdm Suen and YF Lee) respectfully.  I shall return to that issue later on.

22. The shareholding remained unchanged until 2004. By an extraordinary general meeting held on 28 May 2004, the share capital of Data World was increased from $2.5 million to $7.1 million by the creation of 4.6 million shares of $1 each.  The general meeting also gave approval to the board to issue such of the unissued shares of the company as they in their full discretion shall determine to be in the best interest of the company.

23. By a resolution of the board of directors dated 28 May 2004, 2,613,728 shares were allotted to the existing shareholders on a pro-rata basis.

24. The next change took place in September 2004. By a board of directors meeting dated 8 September 2004, the board resolved that the remaining unissued shares (2.3 million shares) would be offered to the existing shareholders on a pro-rata basis for subscription by 22 September 2004. Any unsubscribed shares would be open for subscription by the shareholders on pro-rata basis by 29 September 2004.

25. By 30 September 2004, only Ben Ng and Mdm Choi subscribed for the new shares.  The shareholding ratio after this subscription was as follows:

Mdm Choi	16.67%
Mdm Suen	10.43%
YF Lee	2.29%
KK	10.43%
WH Ng	10.43%
Ben Ng	49.76%

26. No dispute arises from the two allotments in May and September 2004.

III.     EVENTS LEADING UP TO THE DISPUTED ALLOTMENT

27. By October 2004, Ben Ng’s shareholding in Data World was touching 50%. His shareholding rose to 50.18% after the disputed November Allotment.  It arose in the following circumstances.

28. The Directors have been in dispute about Data World’s business and management since about 1998. But despite their differences, the business remained profitable. The two camps have raised accusations and counter-accusations against each other in relation to various episodes over the years. I do not find it necessary to resolve these disputes.  Suffice to say that the relationship between the Directors became increasingly tense and even acrimonious.  In particular, there was considerable distrust between KK and WH Ng on the one hand, and Ben Ng on the other.

29. The evidence shows that Data World’s business was being run on a very tight cashflow.  Very often the Directors were required to provide loans to enable payments to be made to suppliers. These were intended to be short-term loans, but the loans tended to accumulate. The evidence reveals that the loans owed by Data World to the Directors increased from $3.8 million as at 31 December 2001 to $4.8 million as at 31 December 2002 and to $5.2 million by 31 December 2003.

30. Out of the $5.2 million owed to the Directors as at 31 December 2003, $2.3 million, or 43.9%, was owed to Ben Ng, while just over $1 million (19.2%) was owed to Denny, $400,000 (7.6%) was owed to William, $956,000 (18.2%) was owed to KK and $581,000 (11.1%) was owed to WH Ng.  It should be noted that in the documents these loans were described as “shareholders’ loans” or “directors’ loans” interchangeably, but more often as “shareholders loans”. Mdm Choi, Mdm Suen and YF Lee never provided any loan to Data World.

31. In around September 2003, the Directors began to express their wish to be repaid their loans. In particular, Denny, KK and WH Ng have indicated that they wanted to be repaid their existing loans and would not provide any further loans to finance Data World’s operations. In early 2004, Data World sold its office premises and the net proceeds of around $1.4 million were used to repay some of the Directors’ loans, in particular, the loans from Denny and KK.

32. It was in those circumstances that an increase in share capital was called for in April 2004 in order to repay part of the Directors’ loans, leading to the allotment in May 2004. However, not all the Directors’ loans were repaid after the May allotment.

33. In early September 2004, Ben Ng made another call for subscription by issuing the remaining 2.3 million shares still unissued, so as to repay all the outstanding Directors’ loans. In an email to all the Directors dated 6 September 2004, he explained that the exercise was to turn the shareholders’ equity of Data World from a negative figure of $0.7 million to a positive one of $1.6 million, so as to improve the financial standing of the company for the purpose of the forthcoming annual review by bankers and vendors.

34. On 8 September 2004, the board resolved to issue and allot the remaining 2.3 million shares to the existing shareholders.

35. According to the minutes of the 8 September 2004 meeting prepared by KK, the Directors disagreed on a number of issues concerning the future of the Data World group.  I would highlight the following matters:

35.1 Ben Ng indicated his view that the only way to solve       the financial difficulties faced by the        Companies was     to raise further capital, and that he should take control                    of the Companies.

35.2 On the other hand, William suggested, and KK agreed, that in the capital raising exercise, no single director should increase his shareholding to more than 51% (it should be 50%).  The other directors, however, disagreed with this suggestion, thinking that it was unnecessary to have such an agreement.

35.3 Moreover, William asked Ben Ng to guarantee that he would not stop paying dividends if he should become the “dominating director holding over 51% shares”, but Ben Ng refused so to promise.

36. What is reasonably clear is that the prospect of Ben Ng acquiring more than 50% of Data World’s shares was raised, and there was no agreement that Ben Ng should not be allowed to acquire more than 50% of Data World’s shares.

37. Only Ben Ng and Denny applied for the new shares in the first round of the September subscription.  About 1.1 million shares were therefore available for subscription in the second round. 

38. On 28 September 2004, Ben Ng sent an email at 3.02pm to all the Directors informing them that if only he and Denny were to subscribe for the remaining shares, his shareholding would reach 49.76%. In an email to all Directors at 3.51 pm, KK reminded Ben Ng that the funds produced should be used to pay back the Directors’ loans and other loans as had been agreed, and that

“[after] paying all the loans, you can raise further funds if the company needs cash for operation.”

39. On 29 September 2004, Ben Ng sent another email to all the Directors in which he stated that:

“This is a matter of how to make best use of the limited funds called up by the new issues in view of the serious shortage of our cash. We can decide it on [sic] the BOD meeting next Wednesday (6 Oct) whether to repay loan first or to keep running the business first. If we decide to repay loan first, then we need to make another call of capital immediately for new cash to run the business as KK had observed correctly [ie, in KK’s email on 28 September 2004]. If so, my shares will definitely go beyond 50% if one of you fails to subscribe again.

It is therefore to my advantage if the BOD decides to repay the loans first.

However, if the directors do not want my share to go beyond 50%, I advise to keep the money to run the business first. But it is up to the BOD to decide.”

40. Eventually, no one else subscribed for any of the new shares in the second round.  Hence Ben Ng’s shareholding increased to 49.76% after the September allotment as already stated above. 

41. It is not disputed that the September allotment only produced net funds of $590,000 (from Ben Ng), while all Directors’ loans were repaid.

42. Data World’s cashflow did not improve.  In an email dated 4 November 2004 from Doris (one of Data World’s accounts staff) to all the Directors, it was stated that there would be a cash shortage of $260,000 by the end of the month without any repayment of loans from Nexus to Data World. Ben Ng then sent an email to the Directors stating, inter alia, that:

“After repaying the directors loan, if we are really short of cash as forecasted, we need to call for additional capital to make up the shortage. This is also part of our agreement and Board decision.”

43. There was also a problem with Data World’s bank as KK and WH Ng refused to sign certain bank guarantees for a tax loan, which was required to enable Data World to pay its tax on time.

44. On 7 November 2004, Ben Ng suggested that a board meeting be held on 12 November 2004 to discuss (inter alia) the need to call for additional capital. It was again stated in this email that the estimated cash shortfall by the end of the month was about $300,000.

45.  In the meantime, the relevant documents to implement the September allotment had not been prepared. These corporate documents were always prepared by JK Asia Company Limited, which provided company secretarial services to the Data World companies. Miss Jenny Kun (“Jenny”), the principal of the firm, was the person in charge of Data World’s account. On this occasion, however, no instructions had been given to Jenny.

46. On or about 8 November 2004, WH Ng took up the matter with Jenny. It would appear that he was concerned about implementing the share allotment because it had been agreed in late October 2004 that he would leave Data World’s employment after repayment of his loans.  In an email dated 8 November 2004 to Ben Ng and Doris, copied to all Directors, WH Ng stated that Jenny had told him that she had not received instructions from the board to prepare the documents, or instructions in relation to changes in shareholding in Nexus and Data China.

47. In response, Ben Ng sent an email on 8 November 2004 to WH Ng and Doris, copied to all Directors, saying that:

“The BOD documents will be prepared by Jenny together with all other documents once all the figures and arrangements are settled. It is a standard procedure for similar professional services and there is no need for us to worry about that. Jenny will know how to do it once we give her the instruction.

We expect that we will have some other related changes such as change in directorship or further call of additional capitals [sic] for paying the directors’ loan etc. All these developments will be clear by the end of November. In order to avoid unnecessary duplication of Jenny’s efforts and thus to save some costs, we still have the time to wait until end of November when everything is clear so that we can give a single clear instruction to Jenny to get everything settled in one action.

Since I have already called a BOD meeting on 12 Nov (Fri), I expect that we will get most of the things cleared by that day. It will then be the best time to give Jenny the necessary instruction after the meeting.”

48. There followed emails from Denny and WH Ng confirmed that a board meeting would be held on 12 November 2004.

IV.     MEETING ON 12 NOVEMBER 2004 AND SUBSEQUENT EVENTS

49. All the Directors attended the meeting on 12 November 2004. There is, however, sharp dispute as to what had been agreed in that meeting. Regrettably no minutes had been prepared for this meeting.

50.  The Plaintiffs claim that no minutes had been prepared because no resolution had been passed.

51. Ben Ng, on the other hand, claims that it was in this meeting that the Directors agreed to call for additional capital of $300,000 by issuing and allotting 300,000 new shares to the existing shareholders on a pro-rata basis. KK and WH Ng declared in the meeting that they would not be subscribing for any more shares, so only Ben Ng, Denny and William subscribed for the new shares.

52. I shall have to decide which version is correct.

53. I pause here to record that in the course of KK’s cross-examination, he claimed for the first time that he had in fact kept some notes he had made during the 12 November meeting.  Having heard argument from counsel, and taking into account the lateness of the revelation and the prejudice to Ben Ng, I refused to allow KK to produce these notes as evidence in the trial.

54. Returning to the contemporaneous correspondence, on 13 November 2004, Ben Ng sent an email to Jenny, copied to all Directors, in the following terms:

“Jenny,

Please carry out and complete the following change of shares and directorship for us within November:

1.      Allotment of 2,300,000 shares for DWCC with figures previously given to you by Doris

2.      Issue of additional 300,000 shares at par value according to the new ratios subsequent to the above allotment

3.      After (1) & (2), determine the final share ratios between shareholders; then transfer shares in DWT and Nexus among the shareholders to match the same final ratios of DWCC that you have calculated;

4.      Arrange for resignation from directorships by [WH] Ng from all the companies with effect from 1 Dec 2004.

5.    Advise us on the earliest day that we should convene the AGM of the companies.

Directors, should I have any thing missed or misrepresented, please feed back immediately. Otherwise, Jenny will proceed accordingly with the above instructions on Monday.

KK, please let us know whether you want to be released from the bank guarantee or not. If yes, you need to resign from directorship too and should inform us as soon as possible. After [WH] Ng’s resignation, we will submit the request for release to bank. If you have that intention, we have to do it together this time.

Ben”

55. No one responded to this email except Jenny, who on 15 November 2004 (the following Monday) sent an email to Ben Ng, copied to all Directors, confirming that she would prepare the documents accordingly.

56. On 18 November 2004, in an email sent to William, Doris cried out for help because Nexus was short of $80,000 needed to transfer to Data World by the following day in order that Data World could repay the Directors’ loans. William then sent an email to Ben Ng, copied to Denny, asking them what should be done. Ben Ng replied to Katherine (a staff) and William, copied to Denny and Doris, saying that

“[as] I shall pay $150,000 to subscribe for the newly called $300,000 new capital, please transfer $150,000 from DWS [Data World Solutions, a company wholly owned by Ben Ng] to DWCC”. 

57. The sum of $150,000 was obviously a reference to the amount that Ben Ng had to pay for the shares allotted to him in the November Allotment, ie $149,274. On 19 November 2004, Doris sent an email to Ben, William and Denny acknowledging receipt of $150,000 from Data World Solutions.

58. Also on 19 November 2004 at 4.13pm, Jenny sent an email to all the Directors, asking them to review the share allocation worked out by her pursuant to Ben Ng’s instructions on 15 November. She attached to this email a worksheet setting out the shares allocation.  In this worksheet, Jenny correctly calculated the number of new shares issued and allotted to Ben Ng and Mdm Choi in the September allotment. She, however, thought that all 6 registered shareholders subscribed for the $300,000 further capital in the November Allotment.

59. Ben Ng immediately responded to Jenny by email at 4.55pm on the same day, also copied to all the Directors. In this email, Ben Ng informed Jenny that:

“As KK and [WH] Ng have declared not to subscribe for any additional shares, please adjust your calculation to show zero subscription form both of them and proceed accordingly.”

60. Jenny then reworked the worksheet and sent the revised version to Ben Ng and all the Directors at 5.32pm on 22 November 2004.  The revised worksheet showed that only Ben Ng, Mdm Choi, Mdm Suen and YF Lee participating in the $300,000 subscription, with a total of 237,436 new shares issued and allotted to them.  The revised worksheet also set out the new shareholding percentage after completion of the November Allotment, stating unequivocally that Ben Ng’s shareholding became 50.18%.

61. At 12.59am on 23 November 2004, Ben Ng sent an email to Jenny, copied to all Directors, instructing her to proceed.  At 5.28pm on 23 November 2004, Jenny sent an email to William, copied to all Directors, informing William that all the documents had been prepared and would be sent to William the following morning, and asked him to have the documents signed and returned to her for filing.

62. On 23 November 2004, an email from William to Denny and Roland (another staff) stated that $600,000 would be needed within the week to settle some urgent accounts payable.  It is not clear from this email which company needed the money, but other emails indicate that it was Data China.

63. In response to this email, Roland informed William and Denny that the “most optimistic expection [sic]” was that $300,000 could be remitted to Hong Kong. Denny then sent an email to William and Ben Ng, stating that:

“Under this situation, we also need to call 300K to settle the payment. Please discuss with Ben and inform me how much should I pay for a total of $600K, $300K for DWCC and $300K for DWT …”

64. William responded by an email on the same date to Denny and Ben Ng, saying that:

“we totally need to call capital HK$600,000. – How to share additional ratio between you and Denny for KK and [WH] Ng.”

65. By letter dated 23 November 2004, Jenny sent to William 3 sets of documents (1 set each for Data World, Nexus and Data China) for execution. The documents included Minutes of Extraordinary General Meetings, Consent to Short Notice, Board Minutes approving the allotment of new shares, Application for Shares, documents for transfer of shares of Nexus and Data China, share certificates, etc, to implement the September  and November allotments in one go.

66. The Directors and all the shareholders signed these documents where their signatures were required.  In the case of KK and WH Ng, they assert that they signed those documents they were asked to sign in great hurry thinking that they were for the September allotment only.  The documents that stated the issue of 237,436 new shares did not require their signature and they did not know that those new shares had been allotted.

67. On 26 November 2004, William issued a cheque for $38,156 “for call capital” and paid it into Data China’s bank account. That sum represented the exact amount Mdm Yuen and YF Lee had to pay for the new shares in Data World they had subscribed for in the November Allotment. It would appear that the money was paid into Data China’s account because that company was in need of cash.

68. Similarly, Denny paid $50,000 into the account of Data China, when Mdm Choi was required to pay $50,006 for her subscription in the November Allotment.

69. Ben Ng did send an email to William and Denny, telling them that the money should be paid into Data World first “to satisfy auditor’s requirement for cash payment for share issues. You can then transfer the money to [Data China] as loan”. This email was copied to other staff, including Doris and Katherine. However, it probably came too late as William and Denny had already paid the money into Data China’s account.

70. On 30 November 2004, Jenny sent an email to Ben Ng, copied to all the Directors, informing them that the documents effecting the November Allotment had been filed and stamped, and summarised the work done as follows:

“1.        DWCC issued addition shares 237,436;

   2.         DWCC allotted the new additional shares accordingly;

   3.         DWTC transferred the shares according to DWCC ratio;

   4.         Nexus transferred the shares according to DWCC ratio; and

   5.            Mr Ng Wing Hon resigned the directorship from DWCC, DWTC         ad Nexus.

The new share proportion is the same in DWCC, DWTC and Nexus which is:

Ben Ng:                                                50.18%

Choi Tak Lan:                                       16.81%

Kitty Suen:                                           10.52%

Lee Yeung Fai:                                      2.31%

KK:                                                     10.09%

Ng Wing Hon:                                      10.09%

For your information, we also attached the detailed calculation for you. [The revised worksheet showing the allotment as previously emailed to the Directors on 22 November 2004 was attached to the email.] Please do not hesitate to contact me for any further clarification.”

71. No one responded to raise any query or objections.

V.       EVENTS AFTER NOVEMBER 2004 LEADING UP TO LITIGATION

72. None of the Plaintiffs raised any complaint about the November Allotment until months later.  However, all was certainly not well as the power struggle amongst the Directors continued.

73. Matters came to a head in a board of directors meeting of Data World which took place on 27 May 2005.  The minutes of this meeting showed that in the course of the meeting, and without prior notice, Denny proposed to remove Ben Ng as managing director. KK and William, the other directors present, supported the motion. Ben Ng protested against the motion for want of prior notice and insisted that he would continue to act as managing director. Eventually KK proposed that the motion should be brought up in the next board of directors meeting for confirmation.

74. The next board meeting took place on 30 May 2005. Ben Ng was present in Data World’s office but he did not take part in this meeting. Before the meeting commenced, Ben Ng went to the meeting room and informed the other directors that he would not take part and produced two solicitors letters, one calling for an extraordinary general meeting and the other to cancel the meeting.  The other directors proceeded to hold the meeting and resolved to confirm the removal of Ben Ng as managing director.  KK was appointed as the new managing director and WH Ng was appointed general manager responsible for the company’s business in Hong Kong.

75. On 6 June 2005, Ben Ng’s solicitors sent a letter to all the other Directors reiterating that the purported removal of Ben Ng as managing director was invalid, and that actions were at hand to stop their actions.

76. Also on 6 June 2005, Ben Ng sent an email to all Data World and Nexus staff stating that the board decision to remove him was invalid, that he had instructed solicitors to commence legal proceedings against the other Directors, and that as managing director he has terminated all executive duties of William, Denny and KK as well as power and duties of KK, William and Mdm Choi (who was, of course, a director on record although she was always represented by Denny).

77. Ben Ng then attempted to convene an extraordinary general meeting on 20 June 2005 to appoint 3 additional directors. The other shareholders snubbed that meeting and it had to be adjourned for lack of quorum.

78. On 24 June 2005, a board of directors meeting was held. Ben Ng attended this meeting.  It was during this meeting that the November Allotment was formally challenged for the first time.  A number of points arise from the minutes of this meeting, as prepared by KK.

77.1            First, in the course of discussing certain actions Data World’s bank was to take upon hearing of the dispute between the Directors, William suggested an option as follows:

“There were problems as Ben had obtained more than 50% of shares; whereas there had not been any problem when no one was the majority shareholder. William suggested Ben to cut back his shares to below 50%. Then directors signed an agreement among themselves to safeguard the interests of all parties.”

77.2              Denny also suggested an option:

“Ben was suggested to sell 10% of shares to Denny and KK. In return, Denny and KK would guarantee a profit in the company and issue dividends accordingly.”

77.3     Although the options proposed by William and Denny appeared to indicate that they considered that Ben Ng’s majority shareholding was valid, the meeting proceeded to discuss Ben Ng’s shareholding under the heading: “Issues related to Ben’s status as majority shareholder”. The relevant part of the minutes read as follows:

“— Board found that Ben got his majority shares through improper means. The proofs are:

-  The EGM of 30^th November 2004 was invalid, as other members had not been informed of and given chance to discuss the issue of raising the share capital to $7.3M. And there was only one signature on the minutes.

- KK and WH Ng had never been asked if they would subscribe to the additional 233K [sic].

- It was improper and unacceptable to have two different sharing ratios in one allotment especially when other members had never consented to this.

- Ben could only hold barely more than 50% of shares by cheating KK and WH Ng, and by improperly using a shares allotment ration [sic] not approved by the board.

- Shareholders had been deceived.

— Ben did not reply to the above allegation. He only said that the deal was conclusive as the case had been filed in the Company Registry.”

79. Ben Ng, in turn, proposed his revisions to the minutes, although his proposed revisions did not receive approval from the other Directors. In relation to his shareholding, Ben Ng proposed the following amendment to the second bullet point:

“Ben did not reply to the above allegation. He only said that the deal was conclusive as the case had been filed in the Company Registry. reiterated that he kept on reminding the shareholders repeatedly to subscribe for the new shares if they did [not] want him to go through 50% during the calling of the new shares last year…. Ben also said that it was pointless to get back to these discussions as we have already signed all necessary sales and purchase documents which are already conclusive on this issue.”

80. On 27 June 2005, at the adjourned extraordinary general meeting attended by Ben Ng alone, Ben Ng appointed 3 new directors to the board.

81. On 5 August 2005, Ben Ng sent a draft buy-out agreement to the other Directors proposing to buy out their shares in the Companies on the basis that the November Allotment was valid. There is no dispute that the parties did discuss the buy-out proposal but no agreement could be reached on the price.

82. The impasse continued until May 2006, when it was time for the next annual general meeting.  Ben Ng issued a notice convening the meeting on 8 June 2006. But again, no one other than Ben Ng attended the meeting which had to be adjourned. Eventually, no valid annual general meeting took place.

83. It is unnecessary to recount the details of the dispute between the two camps thereafter. 

84. On 4 November 2006, Ben Ng commenced proceedings pursuant to section 114B of the Companies Ordinance to convene annual general meetings of Data World, Nexus and Data China.  These originating summonses came to be known as “Ng’s Proceedings” and were disposed of by Recorder Fung SC’s judgment dated 27 July 2007.

85.  On 20 December 2006, the Plaintiffs commenced the present proceedings.

VI.     SUMMARY OF PLAINTIFFS’ CASE

86. The main case advanced by the Plaintiffs is that there was no agreement reached on the November Allotment.  They contend that no valid shareholders’ meeting had been held whether on that date or otherwise.

87. In relation to the written resolutions dated 30 November 2004, the Plaintiffs claim that they did not realise the contents of the documents, which they had signed in a hurry thinking that they accurately reflected changes consequent upon the September allotment, and that they had no reason to believe otherwise.

88. In relation to the meeting on 12 November 2004, the Plaintiffs contend that it was a board of directors meeting, not a shareholders meeting, and no notice of shareholders meeting had been given to all the shareholders. The Plaintiffs rely on the fact that Mdm Choi, Mdm Suen and YF Lee did not attend the meeting on 12 November 2004.

89. As to the emails sent by Ben Ng and Jenny between 13 November and 30 November 2004, the Plaintiffs claim that they either did not receive them or had not read them at the material time, hence they did not respond and did not have notice of the allotment of 237,436 shares.  Nor had those emails been sent to all the shareholders who were not also directors.

90. Mr Chong, counsel for the Plaintiffs, also pointed out that while Ben Ng’s primary case at trial was that agreement had been reached in the 12 November 2004 meeting, no mention of that fact had been made in his amendments to the minutes of the 24 June 2005 board meeting, nor in the first solicitors letter dated 5 December 2006 responding to the Plaintiffs’ letter before action dated 24 November 2006.

VII.    SUMMARY OF DEFENDANT’S CASE

91. Mr Lawrence Ng, leading Mr Gary Lam, on behalf of Ben Ng contended that the evidence showed that agreement had been reached on the allotment of 300,000 new shares (eventually only 237,456 shares were allotted) because of the need to raise further capital.  That need arose from the demand by the Directors, including the Plaintiffs, to be repaid their loans.  Having agreed to raise capital in order that they are repaid their loans, it is unjust and inequitable for them to go back on their words.

92. Counsel pointed out that Mdm Choi, Mdm Suen and YF Lee did participation in the November subscription and were allotted shares. Denny (on behalf of Mdm Choi) did pay for the shares allotted, as did William (on behalf of Mdm Suen and YF Lee).  These acts were inexplicable if there had been no agreement on the allotment of new shares.

93. Counsel further submitted that the lack of formal notice to Mdm Choi, Mdm Suen and YF Lee could not avail the Plaintiffs since it was clear that at all material times, Denny and William always acted on their behalf which was the accepted practice over the years.

VIII.   DISCUSSION

94. In their written closing submissions, counsel for the Plaintiffs warned me not to approach the credibility of witnesses merely on their demeanour which could be deceptive. Rather, I should consider any factual assertion of a witness having regard to the undisputed evidence or contemporaneous documents: (Lord) Patrick Devlin, The Judge (1979) at page 63, citing a speech given extra-judicially by Mr Justice MacKenna.

95. I propose to adopt the approach advocated by the Plaintiffs; indeed, that is why I have set out the objective facts as disclosed by the contemporaneous documents at length in earlier parts of this judgment. The only refinement to that approach that I may possibly add is that one must also judge any assertion of fact against the inherent probabilities of that event happening, again against the background of the undisputed facts or contemporaneous records.

96. Adopting that approach, I am unable to accept the evidence of KK and WH Ng that they did not agree to the November Allotment. My reasons are as follows.

97. First, I reject their suggestion that there was in fact no need to call for any further capital. There is ample documentary evidence that Data World (and Nexus and Data China) were constantly in need of cash.  Further, the contemporaneous documents fully support Ben Ng’s case that the Directors wanted their loans repaid and were not prepared to extend further loans.  It was thus necessary for a further call of capital in November 2004 when $300,000 cash was needed by the end of that month.

98. Second, I note that Ben Ng made no attempt to hide the November Allotment from anyone. His email of 13 November 2004 was sent to all the Directors, asking them to respond if he had misunderstood the position. That email strongly supports his case that the November Allotment had been agreed in the meeting held on the previous day.  Likewise all the emails and worksheets from Jenny, and replies from Ben Ng, were copied to all the Directors.

99.  Although KK and WH Ng did not respond to these emails, their silence is consistent with Ben Ng’s case that they had declared in the 12 November 2004 meeting that they would not subscribe for any new shares, hence they did not feel the need to respond.

100. I am unable to accept their claim that they had not received or read any one of those emails.

101. Third, there is no dispute that William and Denny did get these emails and subscribed for shares in the November Allotment. There can be no explanation other than that they had agreed to the subscription and allotment of shares.

102. Fourth, I take note of the fact that KK or WH Ng did not raise any complaint until several months after the November Allotment.  No satisfactory explanation for this delay has been given by them in their affirmations or in their oral evidence.

103. In contrast, I find Ben Ng’s evidence to be credible, mainly because his evidence is consistent with the contemporaneous documents and accords with inherent probabilities.  It is true that he did not expressly refer to the 12 November 2004 meeting when he attempted to amend the minutes of the June 2005 board meeting, but what he did write was, in substance, that the Directors had agreed to the allotment so there was nothing to talk about.  The same observation applies to the solicitors’ response to the Plaintiffs’ letter before action.  I accept his evidence as being truthful.

104. Jenny also gave evidence. She is an independent witness, and she confirmed in her oral evidence that she had prepared the worksheets showing the results after the November Allotment, and that her staff upon her instructions prepared the necessary documents to effect the changes. I am conscious of the fact that the format of the board minutes effecting the November Allotment deviated from similar documents previously prepared by her firm for the Companies, in that the previous minutes provided space for each of the directors to sign against their names, whereas the ones on this occasion did not have such space hence the directors were not required to sign the minutes.  However, Jenny confirmed in evidence that the documents were prepared by her staff according to her instructions, but she did not pay particular attention to the format, and that both types were appropriate. She said firmly that there was no intention to hide anything from anybody.  I have no reason to doubt her evidence, and in my judgment she is a credible witness whose evidence I fully accept.

105. In the circumstances, I find that the Directors did agree in the 12 November 2004 meeting to the issue and allotment of 300,000 shares, and that the November Allotment was done pursuant to that agreement.

106. That leaves the question of shareholders’ consent.  In this regard, I am satisfied, and I do find, that Mdm Choi, Mdm Suen and YF Lee held their shares on behalf of Denny and William respectively. The evidence shows clearly that Denny and William always acted as if they were themselves shareholders, and for all purposes Denny and William were acknowledged and treated as shareholders of the Companies.  That being the case, there was consent of all the beneficial shareholders.

107. In any case, I have no hesitation in finding that even if Mdm Choi, Mdm Suen and YF Lee were the beneficial owner of the shares registered in their names, they did, through Denny and William, agree to the November Allotment. This is made abundantly clear by their subscription and payment for shares in the exercise.  None of them have explained their action in their affirmations, and no reasonable explanation had been given.

108. Since William, Denny, Mdm Choi, Mdm Suen and YF Lee signed the relevant documents effecting the November Allotment and did pay the subscription money for the new shares, there can be no question that they did consent to the allotment.

109. In the light of the above findings, it is unnecessary to consider Ben Ng’s alternative arguments.

IX.     RESULT

110. I am not inclined to grant leave to the 1^st, 4^th and 5^th Plaintiffs to discontinue the action.  The applications to discontinue are dismissed.

111. I therefore dismiss the 1^st to 5^th Plaintiffs’ claim, with an order nisi that costs should be to the Defendant, to be taxed if not agreed.