CHOW SAU HEI v. HO KEUNG YUEN AND OTHERS

CACV 112, 113 & 114/2013

CACV 112/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 112 OF 2013

(ON APPEAL FROM HCMP NO. 716 of 2006)

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BETWEEN

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AND

CACV 113/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 113 OF 2013

(ON APPEAL FROM HCMP NO. 717 of 2006)

________________________

BETWEEN

________________________

AND

CACV 114/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 114 OF 2013

(ON APPEAL FROM HCMP NO. 875 of 2010)

________________________

BETWEEN

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(Heard together)

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Hon Cheung JA :

1.  Deputy High Court Judge Yan SC dismissed the petitioner’s (‘Chow’) applications made pursuant to section 168A of the Companies Ordinance (Cap. 32) in respect of three companies, namely, Smart Creator International Limited (‘Smart Creator’), Fintasy Limited (‘Fintasy’) and Turbo Cheer Development Limited (‘Turbo Cheer’). Chow now appeals.

Background

2.1   Chow and the first named respondent in CACV 112 and 114/2013 (‘Ho’) are the only directors and shareholders of Smart Creator and Turbo Cheer, each holding 50% of these companies.  They are also the directors of Fintasy together with Madam Cheung, Ho’s wife (second named respondent in CACV 113/2013).  They are effectively each holding 50% of the shares of Fintasy.  Chow holds 5,000 shares.  Ho holds 4,999 shares and Madam Cheung holds one share as Ho’s nominee.

2.2   The three companies involved in this litigation hold properties which are let out to tenants :

1) Since 10 January 2001, Smart Creator has been holding the properties known as Shops D and E on the Ground Floor of Lee King Building, Nos. 3-19 Hong King Street, Yuen Long, New Territories (‘Lee King Building’).

2) Since 10 January 2001, Fintasy has been holding the properties known as Shops F, G and H on the Ground Floor of Lee King Building.

3) Since 7 August 2003, Turbo Cheer had been holding the properties known as Shops Nos. 1-9, 12, 14-26 and 28-31 on the Ground Floor of Comet Mansion, 45-47 Fung Cheung Road, Yuen Long, New Territories (the ‘Comet Mansion Shops’).

2.3   The assets of the three companies have since 26 May 2008 been directed by Kwan J, pursuant to the consent of the parties, to be under the joint receivership of two solicitors from the two firms of solicitors representing the parties. 

Oppressive conduct and breach of duty

3.   In support of his section 168A application, Chow complained that Ho who was responsible for the management of the companies had been guilty of oppressive conduct and breach of duties and sought, among other things, an order for the acquisition of Ho’s shares in the companies.  The complaints are summarised under three headings as follows :

A) Secret operation of bank accounts of Smart Creator and Fintasy without the consent and knowledge of Chow

A.1) Despite the parties’ agreement to change the mandate of the authorised signatories to the bank accounts from a single signature of either Chow or Ho to the joint signatures of both of them and the opening of new bank accounts, the original accounts had not been closed and they were controlled by Ho for the collection of rental and for payments out.

A.2) Ho had, without authority, made payments from the original accounts totalling about $4.2 million.

B) Ho had misappropriated about $1.1 million belonging to Turbo Cheer

C) Mismanagement of the companies’ operation and their tenancies

C.1) Ho failed to exercise reasonable care and skill in managing the companies.  There were numerous complaints against Ho including :

(1) Books of accounts had not been properly kept.

(2) Directors’ reports not signed.

(3) Profits and loss accounts not laid in annual general meeting.

(4) Annual returns not filed.

(5) Annual general meetings, board meetings not held and auditors not appointed for Turbo Cheer.

(6) Since 2003, Ho had disappeared and neglected in the management of the companies.

(7) Ho failed to respond to inquiries by Chow’s lawyers.

(8) Ho acted in disregard of Chow’s rights as a director and shareholders.

(9) Smart Creator was prosecuted for failing to file its annual return for the year 2004.

(10) On 7 May 2005, as the companies’ bank accounts could not be operated by a single signature and as Ho continued to be absent, Chow had to settle unpaid taxes totalling $238,504 which included a sum of $175,000 being profits tax payable for the years 2002/2003 and 2003/2004.

(11) The Incorporated Owners of Lee King Building had commenced legal proceedings in 2005 against Smart Creator and Fintasy in the Lands Tribunal by reason of their failure to contribute their share towards repair costs approved by the Incorporated Owners.  By reason of Ho’s absence, neither Smart Creator nor Fintasy was able to enter appearance resulting in judgments and charging orders been granted against them.

(12) Due to non‑payment of bills, the electricity supply to some of the units in Lee King Building had been suspended.  Despite his letters to Ho’s solicitors, including one dated 17 September 2005, no action was taken by Ho and Chow had to pay China Light and Power a sum in excess of $40,000 and has since been paying the monthly electricity bills out of his own pocket.

(13) Turbo Cheer had failed to pay Government rates in respect of the Comet Mansion Shops since 27 January 2006, which failure attracted a continuing penalty until payment.

C.2) Chow complained that under the management of Ho, the companies did not have office premises or any office facilities.  As a result no internal control system for management and financial reporting as regards the companies’ tenancies had ever been instituted.

C.3) The specific complaints of mismanagement of tenancies included :

(1) mismanagement of certain tenancies of specific premises;

(2) Ho had failed to secure renewal or granting of tenancies of certain premises held by the companies on reasonable terms;

(3) failure to maintain the units so that the companies are not and at all material times were not in a position to secure the best rent reasonably obtainable thereon;

(4) failure to remedy water leakage at the leased premises;

(5) failure to remove illegal structures within time;

(6) failure to ensure proper supply of electricity and water to the leased premises;

(7) unreasonable objection to proper offers of tenancy in relation to properties;

(8) dilatory conduct and breaches of duty leading to wasted expenses being incurred;

(9) miscellaneous failures to exercise reasonable care and skill in managing the companies; and

(10) failure to explain the misconducts despite complaints by Chow.

The Judge’s finding

4.1   In a 100 page judgment, the Judge addressed Chow’s complaints and Ho’s response to them.  The Judge found that the complaints were not substantiated.

4.2   The Judge found Chow was not an honest witness.  On certain points his evidence was blatantly untruthful and he was prepared to tailor his evidence to match other evidence.

4.3   The Judge found Ho to be an unsophisticated person and an honest witness.  He had good recollection of most of the main facts and figures.  He demonstrated a clear knowledge of the various tenancies and was able to provide very detailed explanations as to what had happened.

4.4   Another defence witness was Madam Chu who had been employed as an accountant by Ho and his wife in their restaurant business.  She was not a qualified accountant.  Although she was not employed by the companies she assisted Chow and Ho by keeping records of the receipts and payments of the companies.  The Judge found her to be a truthful and impressive witness.

History of the parties’ relationship

5.1   Chow is a native villager of Yuen Long in the New Territories.  He lived in Holland for over 24 years and returned to Hong Kong in 1998.

5.2   Ho and his wife Madam Cheung are restaurant operators and investors in retail properties.

5.3   In April 2000 Ho acquired a property in Yuen Long known as Hong Lok Square.  Chow learnt of his name from the land registry.  He approached Ho and asked Ho to sell the Hong Lok Square property to him.  Ho who bought the property in April 2000 for $4,700,000 agreed and sold it to Chow three months later for $5,600,000.

5.4   Shortly thereafter, the parties agreed to jointly invest in the five shops in Lee King Building.  Smart Creator was acquired by the parties to be used as the vehicle to hold the five shops.  However, as the Judge found, as there were problems in obtaining finance, the parties decided to acquire the shops by two companies. Smart Creator would hold two shops while Fintasy would hold three shops.  The Smart Creator’s purchase was financed by two loans from Wing Hang Bank totalling $12,800,000 while Fintasy had a loan of $13,500,000 from the same bank.

5.5   In 2002, the parties decided to acquire the Comet Mansion Shops and Turbo Cheer was used as the corporate vehicle to acquire them.

The appeal

6.  Chow’s appeal is an appeal against the finding of facts by the Judge.  He was most ably represented by Mr Wong Yan Lung SC and Mr Harry Liu.  Mr Wong’s arguments are summarized as follows :

1) The Judge adopted a wrong approach to the evidence by first forming an overall view on credibility of the witnesses.

2) This wrong approach and other errors in the judgment are probably attributable to the 16.5 months’ delay between the conclusion of evidence on 19 December 2011 and the delivery of judgment on 6 May 2013.

3) The Judge proceeded to approach the issues by emphasizing and resorting to his initial assessment and erred by falling into errors of facts, overlooking material inconsistencies and inherent improbabilities in respect of the evidence of Ho and Madam Chu and supplying explanation which was not supported by evidence or contended by Ho.

4) The errors affected the Judge’s assessment of the credibility of Chow :

i) the mistaken assumption that English is the main language spoken in Holland (and Venezuela).

ii) the attribution to Chow a sinister motive to shut out evidence against him in order to advance a false case against Ho in respect of the issue on stamp duty.  It also fundamentally affected his approach to Chow’s complaint of Ho’s attempt to siphon off three of the shops in Lee King Building.

iii) the Judge’s misunderstanding of the events and calculations about the sale of Shop 12 of the Comet Mansion Shops which was an example of deceit practised by Ho and Turbo Cheer.

5) Consequently, the Judge’s overall assessment of the credibility of Chow is flawed, leading the Judge to resolve disputed issues with perspectives adverse to Chow.

6) The Judge held against Chow on significant factual allegations (some new, and some inconsistent) that were not put to Chow in cross-examination, such as :

i) the allegation by Ho that $1.4 million of the $5.6 million purchase price for the Hong Lok Square property was used to set off Ho’s initial payments towards the purchase of the shops in Lee King Building.  Erroneous finding here also affected the Judge’s finding on the parties’ respective contributions to the purchase price of those shops, and the issue of valuation of the shares of the companies;

ii) Chow had refused to agree to necessary withdrawals being made from the companies’ accounts;

iii) Ho’s new version about the overdraft;

iv) Chow’s version given in his 1^st affirmation regarding the wrongful use of the old bank accounts of Smart Creator and Fintasy was never challenged;

v) The use of money belonging to companies for horseracing which was denied by Chow and not challenged.

7) The Judge overlooked significant flaws in Ho’s evidence: the Judge ignored that on the facts as contended by Ho, he must have committed a fraud against the Inland Revenue Department by underreporting the sale price of Shop 12 of the Comet Mansion Shops and inconsistencies in his evidence.

8) In respect of Madam Chu’s credibility, the Judge brushed aside the glaring oddity in her affirmation and other inconsistencies in her evidence.

9) He failed to address Madam Chu’s failure to bring to Court documents which she adamantly said were in her possession.  The flawed finding on Madam Chu’s credibility contributed to the Judge’s rejection of Chow’s complaint that he had been denied information of the companies.  The Judge’s finding that Madam Chu had been providing Chow with weekly or monthly accounting records is contrary to other evidence and the inherent probabilities in their historical context.

10) Fundamentally, the Judge failed to address the burden of proof and to draw proper inferences from Ho’s failure to provide primary documents in support of his assertions regarding withdrawals (including the bank passbook manuscripts) or regarding the supply of periodic accounting with documents to Chow.

11) The Judge made further significant errors :

i) The Judge wholly failed to deal with a main ground of Chow’s complaint, namely, the denial of information resulting in effective exclusion from management.  The Judge ignored the undisputed factual matrix of the case, namely, that it was Ho who had been responsible for keeping records and the day-to-day running of the companies between 2000 and 2004.

ii) Even if last-minute disclosure (made at the time of closing submission) could clarify some of the dubious payments, the fact remains that Ho had persistently failed to provide such documentation notwithstanding the repeated demands by Chow and other parties such as valuers, accountants and auditors, and in breach of the discovery orders.  Such conduct of Ho was unfair and prejudicial to Chow.  Further, it was unfair for Ho to have priority over Chow in terms of having reimbursement from the companies’ moneys.

iii) The Judge wholly failed to deal with the inter-solicitors’ correspondence exchanged since 2005 which clearly showed Ho and his wife had neglected the management of the companies.

iv) The Judge wrongly rejected Chow’s complaint that the arrangements pertaining to Fintasy’s acquisition of Shops F, G and H of Lee King Building was an attempt on the part of Ho and his wife to deceive Chow by siphoning off the three shops.

v) The Judge erred in holding that Chow consented to overdraft facilities being utilized by Ho and his wife.  The Judge brushed aside the affirmation evidence of Ho that the overdraft facilities were given to Fintasy for the purposes of Fintasy and Smart Creator.

vi) The Judge excused Ho for continuing to use old bank accounts after new bank accounts requiring Chow’s joint signature was opened, by holding that Chow must have known, because Chow had received the bank passbooks copies with manuscript notations.

vii) There are the individual sums withdrawn from the bank accounts of the companies which Ho had completely failed to explain, and the Judge wholly exonerated him without any evidence, by suggesting that Chow must have authorized them.

12) The Judge should have upheld Chow’s claims for relief under section 168A.

13) Because of the erroneous conclusions, the Judge failed to address the issue of proper relief.  The Judge also failed to reach the correct conclusion that the parties’ respective contributions to the purchase price of the shops of Lee King Building were in fact as reflected in the contemporaneous records summarised in paragraph 55 of the judgment.

Overview

7.1   Mr Wong’s grounds of appeal are whole-sale attacks on the Judge’s finding of fact.  Before I addressed the individual complaints of Mr Wong, it is pertinent to repeat the well-established principles regarding challenges of the trial judge’s assessment of facts :

1) The appellate court should only disturb a finding of fact if it is satisfied that the finding is plainly wrong and the decision ought to have been the other way: Ting Kwok Keung v Tam Dick Yuen & Others (2002) 5 HKCFAR 336 at 349J; Tin Kwong International Enterprise Co Ltd v. San Tung [2006] 2 HKLRD 185 at 190A-D.

2) The Court should also be vigilant against any attempt to categorize a finding as an inference from other facts or documents and thus to argue that the appellate court is in as good a position as the trial judge: Pang Ketian Sally v. Tam Yuk Hung Annie (unreported) CACV 147 of 2013 Judgment dated 25 April 2014.

3) The words of Lord Hoffmann in Piglowska v Piglowski [1999] 1 WLR 1360 at 1372 and relied upon in Ting Kwok Keung at 350B are worth emphasizing :

‘ The need for appellate caution in reversing the trial judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance ... of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation.’

7.2   These principles establish a strong and consistent theme that the appellant court is not to assume the task of reviewing the evidence and substituting the trial judge’s finding with findings of its own.  The appellant court will only interfere if the finding is plainly wrong, for example, when the finding is contrary to some crucial evidence which the judge has overlooked or when the finding is inherently improbable.

7.3   Mr Wong, however, urged us not to follow this long established approach on finding of fact because of two unique features in this case.  First, the Judge erroneously formed an overview on the credibility of witnesses (in favour of Ho and Madam Chu) and he then relied on this general impression to justify his conclusions against Chow on disputed issues.  Second, there was a substantial delay between the conclusion of the case on 19 December 2011 and the rendering of judgment on 6 May 2013 : a delay of 16.5 months or 19.5 months, if the delay is counted from the date of the conclusion of the evidence on 7 October 2011.

7.4   In my view, the first complaint has to be considered in its context.  Inevitably after a trial (particularly after a lengthy one of 14 days which spanned over a three month period in August, September and October 2011 and another three days of submission in December 2011), the Judge would have formed a view of the credibility of the parties when he penned his judgment.  Looking at the judgment, I do not think his assessment of credibility of the witnesses expressed at the beginning of the judgment forms solely the basis of his finding against Chow or in favour of Ho and Madam Chu.  This is a case which involves myriad issues and, as can be seen from the way the Judge addressed these issues, credibility plays only a very small part in the decision making process.  The Judge based his decision on the facts of the case and inherent probabilities of the issues.  Mr Wong criticised the Judge for saying that where there was a conflict of evidence, he preferred that of Ho and Madam Chu.  I do not regard this to be a flawed approach.  Again, one must consider this statement in the context of the judgment.  This statement certainly does not fall into the kind of error discussed in Tradepower (Holdings) Ltd v Tradepower (HK) Ltd (2009) 12 HKCFAR 417 where the statement made by the trial judge was :

‘ …I am satisfied that I should accept their evidence [of two witnesses] unless any particular aspect of their evidence is shown to be wrong by undisputed contemporaneous documents or other incontrovertible evidence.’

7.5   Ribeiro PJ held that :

‘ 24. ….. I would comment in passing that this is an unusual and somewhat unsatisfactory approach. Inconsistencies between the testimony of a witness and other items of evidence have to be evaluated as part of the overall process of assessing credibility. It is not satisfactory first to form the view that the witness is generally credible and then to carve out exceptions in areas where inconsistencies with other evidence are found. Such an approach casts doubt on the initial assessment of credibility.’

7.6   Further, unlike the case of Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439, where this Court reversed the trial judge’s finding of fact because he had eschewed reliance on contemporaneous documents and had instead made determination of facts largely upon his ‘overall assessment of the character of the persons involved and in the light of such assessment [he made a] determination of what truly happened.’  I do not consider that the Judge below had fallen into the same error when the judgment is properly considered in its context.

7.7   The second complaint is a more substantial one.  There is a lengthy delay of 16.5 months.  One must, of course, recognise the exigency of work of a judge with a heavy list or, as in this case, a busy practitioner providing his service to the Judiciary on a temporary basis.  However, while the question of delay must be considered in the context of the length and complexity of the case itself, one can safely say that the 16.5 months’ delay in this case is unreasonable. This Court in Welltus Ltd v Fornton Knitting Co Ltd [2013] 5 HKC 106, at 110E-112B reviewed the authorities and summarised the principles as follows :

‘ 11. The importance of giving judgment promptly has recently been highlighted in several authorities in Hong Kong: Yeung May Wan v HKSAR (2005) 8 HKCFAR 137, [2005] HKCU 551 paras 116 to 125; Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corp [2007] 3 HKLRD 439, [2006] HKCU 1705 at paras 3 to 7; Mak Kang Hoi v Ho Yuk Wah (2007) 10 HKCFAR 552, [2007] HKCU 567 at paras 56 to 66. In Yeung May Wan, the majority of the Court of Final Appeal said at para 124 (with the agreement of Bokhary PJ on this issue as well, see para 166),

‘ ... it must be clearly and firmly reiterated that judges at all levels of court have a duty to give judgments within a reasonable time after the conclusion of the hearing. This is important not only for ensuring that justice is done to the parties but also for the maintenance of public confidence in the Judiciary and the judicial system.’

12. In Mak Kang Hoi paras 57 to 59, Mortimer NPJ set out what an appellant court must be satisfied before acceding to a request to set aside a judgment on the ground of delay,

‘ 57. First, it is necessary to note that even delay of this length cannot alone succeed as a ground of appeal in the absence of it being shown that there are omissions, errors, misunderstandings, inconsistencies and the like which invalidate the Recorder’s findings, render the judgment unsafe, and have led to injustice to the Appellant.

58.    Delay of this nature therefore increases the burden on an appellate court. Necessarily it must be vigilant to ensure that the decision and reasoning have not been harmed in any significant or fatal way by the passage of time. Counsel’s submissions and the evidence require detailed examination.

59.     On the other hand, much as an appellate court may deplore delay of the length here shown, to overturn an otherwise sound judgment simply on delay would amount to a greater injustice than the delay itself.’

13. In short, there must be grounds for believing that the judgment contains errors that are probably, or possibly, attributable to the delay.

14. In that case, the Court of Final Appeal agreed with the Court of Appeal that a judgment delivered 30 months after the conclusion of the trial should not be set aside because, as observed by Rogers VP in the Court of Appeal, ‘the judgment itself demonstrates that far from the judge not recollecting the events and issues at the trial, her concise and precise reasoning demonstrates that she was fully aware of all the facts and matters and, indeed, the events of the trial’.

15. In contrast, in Esquire, the Court of Appeal set aside a judgment delivered 16 months after the end of the trial where ‘there are areas which clearly lead to the conclusion that the judge must have forgotten important conclusions to which he had arrived in the course of the hearing the case’ and ‘the lapses in this case ... are almost certainly attributable to the delay in the preparation of the judgment having led the judge to forget important factors and the conclusions to which he arrived as a result of them’.  That was a trial which lasted for 24 days.

16. Thus, it is not the mere lapse of time which gives rise to a ground of appeal.  There has to be grounds for believing that the judgment is unsafe on account of errors attributable to the delay.  In many instances whether such grounds exist will depend on the adequacy and cogency of reasons set out in the judgment.’

7.8   The appellate court’s approach in considering factual challenges to cases involving delayed judgments is that a higher degree of scrutiny is required than the usual cases involving factual challenges.  This approach has been considered in the English case of Goose v Wilson Sandford & Co. unreported, Court of Appeal (Civil Division) 13 February 1998 which was also adopted by the Australian courts in R v Maxwell, unreported, Court of Criminal Appeal 23 December 1998 and Laminex (Australia) Pty Ltd v Smeeth [1999] NSWCA 462 at sub-section 6-9 :

‘ 113. Because of the delay in giving judgment, it has been incumbent on us to look with especial care at any finding of fact which is now challenged. In ordinary circumstances where there is a conflict of evidence a judge who has seen and heard the witnesses has an advantage, denied to an appellate court, which is likely to prove decisive on an appeal unless it can be shown that he failed to use, or misused, this advantage. We do not lose sight of the fact that the judge had transcripts of the evidence, as well as very extensive written submissions from counsel. But the very fact of the huge delay in itself weakened the judge’s advantage, and this consideration had to be taken into account when we reviewed the material which was before the judge. In a case as complex as this, it is not uncommon for a judge to form an initial impression of the likely result at the end of the evidence, but when he has come to study the evidence (both oral and written) and the submissions he has received with greater care, he will then go back to consider the effect the witnesses made on him when they gave evidence about the matters that are not troubling him. At a distance of 20 months, Harman J denied himself the opportunity of making this further check in any meaningful way.’ (emphasis added)

7.9   This is a sound approach and the Court will adopt the same approach in this appeal.  I would only repeat that it is a blot on the administration of justice for a judgment to be delayed.  The sooner the judgment is delivered the better it is for all parties concerned.

The specific issues   

8.1   I agree with the observation by Mr  Chan Chi Hung  SC and Mr  Derek Chan, counsel for Ho and Madam Cheung, that, notwithstanding the general challenge to the Judge’s overall assessment of the witnesses’ credibility, the specific factual findings actually challenged on appeal are limited to the following issues, not all of which were relied upon by Chow as the basis for his section 168A relief :

1) Provision of accounting records of the companies;

2) Abandonment of management of the companies;

3) Sale of Shop 12 of the Comet Mansion Shops;

4) $1.4 million of Hong Lok Square purchase price;

5) Cheating of Chow by siphoning off Shops F, G and H of the Lee King Building to Fintasy;

6) Use of overdraft facilities by Ho;

7) Ho’s continued usage of old bank accounts;

8) Withdrawals from companies’ accounts;

(1) HK$150,000 withdrawn from Fintasy on 25 July 2003;

(2) HK$70,000 withdrawn from Smart Creator on 21 April 2001 (which is now no longer pursued by Chow);

(3) Withdrawals for horse betting.

8.2   These eight issues are only a fraction of the extensive complaints raised by Chow at trial and many of which are no longer being pursued in this appeal.  Some of the most glaring examples of the abandonment by Chow are the allegations on siphoning off the shops in Lee King Building to Fintasy and the mismanagement of the tenancies.  I will now address these topics.

1.  Provision of accounting records to Chow

9.1   This aspect forms the core of Mr Wong’s attack on the Judge’s finding on credibility of the parties.  Chow’s complaint is that he was only provided some time in December 2004 with summaries of the companies’ income and expenditure and supporting documents.  He produced some of these documents in his 6^th affirmation dated 13 September 2010.  He further said that he no longer have possession of all the summaries that were supplied to him.  The Judge rejected Chow’s allegation that he was not provided with the documents and he only began to receive them in December 2004.

9.2   Mr Wong argued that Chow was entitled to information relating to the companies.  The failure by Ho to provide the accounting records to Chow means that Ho was not keeping Chow informed of the financial position of the companies.  The failure to do so constituted prejudicial conduct on the part of Ho.  The fact that Chow had not specifically asked for the records would not exonerate Ho.  The issue was canvassed in the amended petitions relating to Smart Creator and Fintasy and the petition relating to Turbo Cheer.  It was also canvassed in arguments. Mr Wong relied on authorities such as RA Noble & Sons (Clothing) Ltd [1983] BCLC 273; Re Back 2 Bay 6 Pty Ltd 12 ACSR 614; Re Perfect Trade Ltd, HCCW 1147/1999 (unreported Judgment delivered on 1 June 2001); Re Maxtop International Investment Ltd, HCCW 661/2006 (unreported Judgment delivered on 14 March 2014); McGuane v Welch [2008] 2 P&CR 24 and Re Bondwood Development Ltd [1990] 1 HKLR 200.

9.3   In my view Chow had certainly pleaded and argued that he had been excluded from the management.  He certainly had pleaded and argued that he was not provided with the accounting records. However, it is only fair to say that Chow’s counsel at the trial below, unlike Mr Wong (who did not appear below), did not put at the forefront of his case that Ho’s failure to keep Chow informed of the financial position of the companies (by the failure to provide accounting records) constituted exclusion of Chow from the management of the companies.  It had been held in Luck Continent Ltd v Cheng Chee Tock Theodore [2013] 4 HKLRD 181 that the authorities did not decide that allegations in the petition must contain the precise legal formulation or characterization of the forensic analysis relied upon and on the contrary, once the factual allegations are pleaded and established, it is a question of law whether they are sufficient to support a case for relief under section 168A.  But in my view the Judge’s decision on any particular issue will very much depend on how the issue was framed and argued before him.  Had this issue been put forward in the way argued before us, I very much doubt the Judge would have not addressed it.  Anyhow, as the matter had been argued before us, I will address it.  Ultimately this issue will depend on whether Mr Wong can succeed in overturning the Judge’s finding that accounting records had in fact been provided to Chow before December 2004.

9.4   Mr Wong complained that the Judge was wrong to reject Chow’s case that he had been denied information of the companies.  It was contrary to the evidence adduced by Ho, such as the summary of rental payment and receipts which showed that they were complied over a period of time, for the Judge to hold that Madam Chu had provided the information to Chow on a monthly or weekly basis.  Even on the Judge’s findings, Chow was only provided with extracts from the passbooks of the saving accounts, not the full set of passbooks with all manuscript notations. Mr Wong challenged the accuracy of the manuscript marking and the credibility of Madam Chu whose evidence supported Ho’s case that information had been provided to Chow.

9.5   Mr  Wong submitted that Madam  Chu was well rehearsed and was used to collaborate Ho’s case. The Judge had ignored the inherent improbabilities of her evidence, namely,

1) she did not produce documents to support assertions of payment despite her claim that she had such documents. 

2) despite the lapse of time of over 10 years, she remembered vividly almost each occasion she went to the banks for the purpose of withdrawing and depositing monies and of specific conversations taking place then.

3) she was vindictive and evasive when it comes to the auditors’ reservation and the inability to obtain documentation.

4) she appeared to be able to narrate various events in detail despite the long lapse of time.  The Judge ought but failed to test such detailed narration and alleged vivid memory against the inherent probabilities in their historical context.

5) the glaring inconsistency in her evidence about the deposit of $200,000 into Smart Creator’s bank account on 10 October 2002.

6) the evolution of Madam Chu’s evidence regarding the basis of her knowledge that the $100,000 withdrawn on 10 October 2002 for Chow was for horse betting.

9.6   This is a revisit by Chow of an issue which the Judge had fully addressed in his judgment.  The Judge rejected the complaint that Chow was only provided with the information from December 2004 onwards.  The Judge held that the information had been provided to him from 2001 onwards.  I find his reasoning unassailable :

‘ 33. I prefer the testimony of Madam Chu to that of the Petitioner. After all, the Petitioner and the Respondent had agreed to co-invest only very shortly after they had met. It would therefore have been natural for the Petitioner to have asked to be provided with details of and documents relating to the income and expenditure of their joint business from 2001. There would also not have been any reason for the Respondent to have refused to provide such information and documentation to the Petitioner. It is also inconceivable that the Petitioner would only have waited until 2004 to request to be provided with the same. Indeed, the Petitioner has provided no explanation as to why, if Madam Chu had not previously provided the relevant information and documentation to the Petitioner, she should have suddenly started to do so in 2004.’

9.7   Further, Chow’s complaint that he had not been provided with the accounting records from the beginning of their relationship had to be judged in the context of the contemporaneous documents coming from Chow himself.  In the first letter before action dated 28 April 2005, Chow’s lawyer complained that Ho misconducted the companies since early 2003 by not keeping or showing to Chow regular and proper accounts of money received and expended by the companies.  The complaint was not that Chow had been kept in the dark since 2000.

9.8   Further, the complaint was not originally raised in the petitions relating to Smart Creator and Fintasy.  It was only put forward in the amended petitions and in Chow’s 5^th affirmation in support of the proposed amendment, which was in the context of his allegation of false accounting by Ho and his wife.  In any event, Chow’s own case was that he had received accounting records in December 2004 although he chose only to produce samples of such records he received.  These documents include copies of pages of the passbooks showing the transactions of the saving accounts in the relevant month, the table of rental and income and primary documents such as cheques, deposit slips and demands for rates and rents.  As Mr Chan had submitted, Chow was as much informed as Ho.  Despite Mr Wong’s criticism of the content of these documents, I do not consider that Chow had established that he was being kept in the dark about the management of the companies.

9.9   Further, the Judge had formed the view that Chow was also involved in the management of the companies. Mr Wong retorted that Chow’s involvements were minimal.  However, the evidence clearly showed that Chow had asserted a more active role by December 2003 when new bank accounts were opened which required his and Ho’s joint signatures.  By December 2004, inquiries were made by Chow with Top Executive Management Company Ltd which then provided documents such as tax returns and audited reports to Chow.  Requests for information were also made to Wing Hang Bank.  By April 2005 the tenants were told by Chow to pay rent into the new accounts with a warning that payment into other accounts would not be considered as proper payment of rent.  In my view the involvement of Chow must be considered in its context.  The three companies are not engaged in trading activities.  They were property holding companies and their activities were basically the collection of rentals.  Chow’s claim of exclusion from management in this type of set-up really has to be realistically assessed as the Judge had done.

9.10   I agree with Mr  Chan that Mr  Wong is overly pedantic when he criticised Madam Chu’s general contention of having provided ‘weekly’ or ‘monthly’ information to Chow.  She accepted that the elaborated tables such as B13/2769 were prepared for the litigation and they were not previously provided to Chow.  However, this does not mean that Chow had not been provided with accounting records when he began his joint venture with Ho.  Further, it was always open to Chow, if he was not happy with the sufficiency of the information provided to him, to insist on a different system.  No such evidence was put forward.

9.11   In respect of the credibility of Madam Chu and Ho, Mr Wong criticized Madam Chu for not being able to produce documents such as rental receipts, cheque stubs and cheques issued by Ho’s restaurant despite her promise to do so in her cross-examination. Mr Wong relied on the statement in Tullett & Tokyo International Securities Ltd v. APC Securities Co. Ltd [2001] 2 HKLRD 356 at 365 that non-production of evidence that would naturally have been produced by an honest and therefore fearless claimant permits the inference that its tenor is unfavourable to the party’s cause.  Again the matter has to be considered in its context.  This is not a case where Chow had no information at all about the documents.  Chow himself had sought documents and information relating to withdrawals and transactions from Wing Hang Bank.  In respect of rent receipts, the amount of rent can be ascertained from the tenancy agreements.  Ho had made extensive disclosure of the financial condition of the companies and payments made by him (by way of his restaurants’ cheques) for the companies in his 3^rd affirmation filed on 23 July 2010.  Further, the summary of payment and expenses annexed to counsel’s closing submission was supported by the corresponding documentary evidence produced by him. 

9.12   The Judge also found that Chow was involved with the management of the tenancies from at least 2002.  It is too simplistic to say that the Judge had not properly regarded the burden of proof or had failed to draw adverse inference against Ho.  How the inference is to be drawn depends not only on some isolated issues, but also on the whole circumstances of the case.

9.13   The Judge’s finding that Madam Chu’s annotations on the passbooks were genuine and contemporaneous can hardly be challenged.  I agree with Mr Chan that the Judge’s reasoning was not based solely on his assessment of Madam Chu’s credibility.  The Judge relied on the fact that a majority of manuscript markings were never questioned or challenged by Chow.  Further, certain samples of bank passbooks produced by Chow in his 6^th affirmation (which Chow admits were provided to him by Madam Chu) bore exactly the same manuscript markings as the corresponding pages in the full set.  This simply could not be possible if the markings were made post-litigation.  The documentary evidence and inherent probabilities point squarely toward the manuscript markings being genuine and contemporaneous.

9.14   It is said that the accounting documents that Ho had supplied to Chow and produced by Chow (the Bundle B/10 documents) did not include those relating to the withdrawals which were challenged.  But the fact is, even on Chow’s own case, it is ambivalent that he had produced all the documents that had been supplied to him.

9.15   The provision of the more elaborate summaries produced by Ho’s counsel at closing submission, which admittedly had not been supplied to Chow before the present litigation, is, of course, not an answer to the complaint (if substantiated) that accounting records were not provided in the past.  However, as Mr Chan had submitted, the summary of payments and expenses matched the documentary evidence disclosed (admittedly also at the closing stage).  Despite the complaint that Chu had failed to produce documents that she claimed she had, Chow had not identified any factual finding which might have been reversed had an adverse inference been drawn.  The manuscript markings on Chow’s copies were the same as those in the documents that were disclosed.  In my view this is a powerful argument that overall the Judge had got it right on the assessment of evidence and credibility.

9.16   Mr Wong also complained that the Judge had applied different tests for Chow on the one hand and Ho and Chu on the other hand.  I disagree.  This is too much of a generalisation.  In my view the Judge had based his assessment by reference to the evidence.

9.17   Even with a higher degree of scrutiny, I do not regard the Judge had erred in this aspect of the case either as an independent head of exclusion of management or in his assessment of the credibility of the witnesses.

2.  Abandonment of management

10.1   Chow complained that Ho abandoned his management obligation since the end of 2003. Chow put this matter on record by his solicitors’ letter of 28 April 2005.  He set out details of his complaints from that time onwards in Appendix C of counsel’s submission.

10.2   This issue is considered by the Judge in paragraphs 130 to 140 of his judgment.  He rejected Chow’s allegation.  He considered the allegation was ‘patently false’ not only by reference to his own evidence of the discussion of the parties resulting in the payment of $1,000,000 from Turbo Cheer in December 2003, but also by the evidence that Ho had signed the annual returns of Smart Creator and Fintasy between February 2004 and July 2005 and the details of the advancement made by Ho to defray the expenses of the companies for the whole of 2004 and at least the first half of 2005.

10.3   Further the Judge held that Chow had as much responsibility as Ho to take care of the company matters which Chow complained had not been taken care of by Ho.  In my view Chow failed to show that the Judge was at fault in his reasoning.

10.4   Mr Wong relied heavily on the pre-litigation correspondence which showed the lack of response by Ho to proposals made by Chow’s solicitors on renewal of tenancies and joint contributions to meet the demands of the Inland Revenue and the Incorporated Owners.  The substantive reply from Ho only came about half a year later in which Ho indicated that he would not accede to Chow’s request to make joint contributions to defray the expenses of the companies.

10.5   It is true that Ho had delayed substantially in replying to the requests.  The documents speak for themselves.  Ho explained that for some time he was ill and he had spent time outside Hong Kong.  This is of course not an excuse for the lack of a prompt response.  However, again this is only part of the evidence of the case upon which the Judge had to assess and draw inference.  Ho’s belated refusal to make joint contributions towards the companies was qualified, however, by his suggestion that each of them should be responsible to defray the expenses and be reimbursed from the accounts of the companies after all the inquiries and doubts on the accounts of the companies had been cleared.  Ho had up to that time used at least $100,000 to defray the expenses of the companies.  This is not an instance of Ho refusing to be responsible for the expenses of the companies at all.  In any event, Ho’s later suggestion to use the funds of the companies to defray expenses was rejected by Chow.

10.6   Mr Wong’s reliance on the correspondence was in fact a repetition of the argument advanced by Chow’s counsel below (like many of the other arguments which Mr Chan had tabulated in the appendix to his written submission).  The Judge had stated at paragraph 142 of the judgment that he had ‘borne in mind the very detailed submissions made by [the trial counsel for Chow] on the proper approach to evidence and the authorities cited in support thereof.’  In my view the Judge cannot be faulted.

10.7   Even if the Judge was wrong to find that the non-payment of building repair contributions and other outgoings were due to Chow’s refusal to join Ho in authorizing the withdrawals, this error did not really affect in a major way the Judge’s decision on this aspect of the case.

3.  Sale of Shop 12 Comet Mansion

11.1   After Turbo Cheer acquired the shops in Comet Mansion, it disposed of one of the shops, namely, Shop No. 12. 

11.2   The original complaint of Chow in his petition concerning Comet Mansion Shops was that :

1) Ho had not provided his 50% share of the $1 million deposit for the acquisition of the Comet Mansion Shops;

2) Ho had cheated him by not accounting to him the proceeds of three other shops in Comet Mansion which had been sub-sold before the completion; and

3) Ho had cheated him of his entitlement to 50% share in the $1 million which was the balance of the proceeds of sale of Shop 12.  Further Ho had made a secret profit in respect of the sale of Shop 12 when he entered into a side agreement to sell the decorations of Shop 12 for $525,000. 

11.3   The Judge found against Chow on all three complaints. 

11.4   Chow now only relies on the disposal of Shop 12.  The evidence shows that the consideration stated in the Assignment for Shop 12 was $1 million and there was a Chinese agreement between Turbo Cheer and the purchaser whereby the latter agreed to pay $525,000 to take over the decoration of the shop.  The Judge found that Ho had paid $500,000 being his share of the deposit for the purchase of the Comet Mansion Shops (against which there is no appeal) and had used part of the $525,000 as reimbursement of his payment of the deposit.  The Judge held that,

‘ 125. ……The acquisition of the Comet Mansion Shops being a joint investment, there was no reason why the Respondent should have paid $500,000 as initial deposit and not recovered it. There is no evidence as to any other way in which the Respondent had recovered what he had paid.’

The balance of $25,000 (i.e. $525,000 less $500,000) was paid into the account of Turbo Cheer.

11.5   Mr Wong submitted that the Judge had forgotten that Ho had admitted that the consideration for the sale of shop was not $1 million but $980,000.  This explained why Ho had to deposit $25,000 into Turbo Cheer’s account to cover up the shortfall.  Ho also gave an incredible answer as to why the purchaser’s cashier order of $525,000 was paid to him and not Turbo Cheer, namely, ‘maybe it was the purchasing party requesting it’.

11.6   In my view Mr Chan is correct to say that the argument on the amount of the consideration is an opportunistic argument. Ho’s statement that the purchase price was $980,000 was a reference to the balance of the purchase price after deducting the initial $20,000 deposit.  Although Ho only mentioned $980,000 in his cross-examination and the $1 million purchase price was never referred to in re-examination (likewise for the $20,000 deposit), the documentary evidence, such as the notes to the financial statements, amply supported a purchase price of $1 million. 

11.7   Mr Wong submitted that the Judge was wrong to conclude that Chow had agreed to distribute $500,000 of the proceeds to Ho as dividends when there was no board resolution on this as required by Turbo Cheer’s articles of association.  While there may not be board resolutions, the Judge clearly accepted Ho’s evidence that Chow had agreed that the $1 million should be distributed in two shares.

11.8   I also do not see how it can be said that Ho’s account at trial of the proceeds of Shop 12 contradicts what he told the accountants who prepared the annual financial statements.  From 2003 onwards, the notes to the financial statements showed that there was a running account of the amount due from the directors.  In respect of Ho, under the heading ‘Add: Fund transfer from the Company to [Ho]’ the following was included :

10 October 2003	[Ho] received Shop 12 Decoration Fee (B521 HKY-40)	525,000.00
10 October 2003	Paid back [Ho] deposit for purchase Comet Mansion (B521 HKY-40)	500,000.00
1 December 2003	[Ho’s] drawings 1 December 2003 (B521 HKY-40)	500,000.00

 11.9   Then under the heading ‘Less: Funds transfer from [Ho] to the company’ :

20 December 2002	Deposit paid to Festive Land Investment Ltd by Bank of China Chq#153754 (B388-9 HKY-13)	500,000.00
10 October 2003	[Ho] returned Shop 12 Decoration Cost received (B638-40)	525,000.00

11.10   I do not see any error made by the Judge on this issue.

4.   $1.4 million of Hong Lok Square’s purchase price used as set-off towards Ho’s contribution towards the Lee King Shops?

12.1   This issue was not related to oppression or misconduct on the part of Ho.  This issue was only related to whether Chow had contributed more than his 50% share in the acquisition of the shops in Lee King Building and therefore was entitled to purchase Ho’s shares at a discount price.  The Judge ruled that this point was not opened to Chow because the matter was not pleaded in his petition and was only raised by way of his counsel’s closing submission.  There is no appeal against this ruling.

12.2   Without going into details, the issue on the $1.4 million is as follows.

12.3   The 2^nd Sale and Purchase Agreement of the shops in Lee King Building provided that payment was to be made in the following manner :

1) $1,000,000 should be paid as deposit upon the signing of the agreement;

2) $2,800,000 should be paid upon the signing of the formal agreement on or before 14 July 2000 as balance of deposit;

3) $3,800,000 should be paid on or before 14 November 2000 as further deposit; and

4) the balance of the purchase price should be paid upon completion.

12.4   Chow initially accepted that the parties had contributed equally towards the purchase of the shops although he said that he had lent $1 million to Ho before the completion.  He later said that the whole of the $2.8 million further deposit was paid by him alone. 

12.5   Ho denied he had borrowed $1 million from Chow and this was accepted by the Judge.  In respect of his half share of the $2.8 million paid on 3 July 2000, Ho said it was paid by way of set-off of $1,400,000 which constituted part of the $5,600,000 that Chow had to pay him for the purchase of the Hong Lok Square property.

12.6   Mr Wong submitted that the Judge had not properly addressed the issue of set-off :

1) The case of set-off was only first raised in Ho’s opening without the support of his affidavit evidence;

2) The new case was contradicted by his earlier case on payment of $2.8 million.  His explanation for the late change of stand was untrue; and

3) The Judge had brushed aside the evidence contained in the Assignment where Ho had acknowledged in the receipt clause the full purchase price of $5.6 million.

12.7   The Judge accepted Ho’s evidence that he had contributed half of the $2.8 million.  I do not find fault with his reasons.  He found that it was inconceivable that Chow should contribute the whole of the $2.8 million when the parties had only recently agreed to enter into business relationship.  Furthermore it was inconceivable that Chow would have initially forgotten about that he had wholly contributed $2.8 million.  The Judge found Ho’s version more probable as the payment of the $2.8 million was made close to Chow’s acquisition of the Hong Lok Square property from Ho.  Further Chow was not able to prove that Ho had in fact received the whole of $5.6 million from the Hong Lok Square property transaction.  The acknowledgment in the Assignment did not conclusively indicate when the sum was actually received.

12.8   Mr Wong also challenged the Judge’s acceptance of Ho’s evidence that he repaid $473,658.20 to Ho (this was the amount Ho admitted was due to Chow because Chow had paid more towards the completion of shops).  It had to be borne in mind, as summarized by the Judge, that Chow did not initially say he had contributed more, he only said he lent $1 million to Ho to complete the transaction.  Chow only latched on this additional sum after Ho admitted he owed him this money.  The Judge in accepting Ho’s case is not simply based on his say-so but on the contrary, as he held :

‘ 66. ….. It is otherwise strange that there is no evidence that the Petitioner had chased the Respondent for repayment of this large amount of money, especially since the Petitioner and Respondent had only recently got to know each other and had agreed that their respective contributions should be equal. Further, it was over a year before the Petitioner and the Respondent again co-operated to make another investment …..’

12.9   In respect of Mr Wong’s complaint that Ho’s case that his 50% contribution to $2.8 million was paid by way of setting off $1.4 million of the $5.6 million which Chow had to pay him for the purchase of the Hong Lok Square property was only first raised when he was being cross-examined, it should be observed that Ho’s answer was in response to the suggestion that the $2.8 million all came from Chow.  This is not a situation where Ho volunteered the answer before he was even asked about it. It is true that the case of set-off was not pleaded earlier and was not put to Chow in cross-examination, but this must be a matter upon which the Judge would have to form a view either against Ho or accept Ho’s evidence.  In this connection, the Judge expressly stated that despite the invitation by Mr Chan for Chow to be recalled to respond to this allegation and despite Chow was recalled and gave evidence on other matters, he chose not to respond to this new allegation of set-off.  In the circumstances I fail to see why the Judge must necessarily draw an adverse inference against Ho.

12.10   In my view the Judge had fully dealt with the issue and he cannot be faulted.

5.   Attempt to siphon off Shops F, G and H of Lee King Building to Fintasy

13.1   Attempt to siphoning off the three shops was originally relied upon as a ground of appeal.  The petition had not pleaded the case of siphoning off.  Half way in the course of his submission of this issue in this appeal, Mr Wong indicated that he would abandon it and instead it was argued on the basis that the arrangement regarding the three shops was an attempt by Ho and his wife to enrich themselves at Chow’s expense and to exclude Chow from the affairs of Fintasy.  This was objected to by Mr Chan.  The matter was then considered by this Court on a provisional basis.  In the end, irrespective of the label or description put on this issue, what this Court has to decide is whether making the acquisition in the name of Fintasy and the issue of share transfer was really an attempt by Ho to deprive Chow of these three properties.

13.2   Fintasy holds Shop F, G and H of Lee King Building.  The original directors and shareholders of Fintasy were Ho and his wife Madam Cheung each holding one share.

13.3   The allegation that Ho had attempted to deceive Chow of the three shops by using Fintasy was made on a number of grounds :

1) Ho misrepresented to Chow as to why Chow could not be a shareholder of Fintasy;

2) it was untrue for Ho to allege that his wife had executed a deed of trust in favour of Chow over her subscriber share in Fintasy;

3) the reluctance of Ho to transfer the Fintasy shares to Chow when Chow first demanded the transfer; and

4) in the cross-examination of Chow, Ho’s counsel impliedly suggested that Chow had no right to receive the financial information of Fintasy because he was not a director or shareholder of Fintasy.

13.4   Chow said he was initially prepared to be a passive investor but later when he decided to spend more time in Hong Kong, he wished to take a more active role in the operation of Smart Creator and Fintasy.

13.5   Chow complained that when he asked Ho to transfer his portion of shares in Fintasy to him, Ho was evasive and later even refused to sign the instrument of transfer prepared by Chow’s professional accountant.  It was only when Chow refused to complete the purchase of the Comet Mansion Shops that two shares in Fintasy were allotted to him. 

13.6   As of February 2003, the shareholders of Fintasy were Chow (two shares), Ho (one share) and Madam Cheung (one share) as Ho’s nominee.  Chow was also appointed as a director.  Madam Cheung resigned as a director on 29 May 2003.

13.7   On 14 June 2003, 4,998 shares were allotted to each of Chow and Ho.

13.8   Ho denied the allegations of wrongdoing. He said Chow knew Fintasy was used to hold the properties.  He said that he had explained to Chow that the transfer of shares would first require the approval of the mortgagee bank as his wife continued to provide a guarantee to the bank but Chow had refused to accept this explanation.  He also said that the bank refused to lend to Chow because members of Chow’s family declined to charge their personal assets as additional security and the bank required those who had provided security (i.e. Ho and his wife) to be named as shareholders on record.  Further Ho said that Chow was the person who wished to participate as a joint investor in the acquisition of the Comet Mansion Shops and it made no sense that he should have threatened not to proceed with the transaction.

13.9   The Judge accepted Ho’s evidence.

13.10   Chow argued that the Judge had ignored the inherent improbabilities of Ho’s explanations.  I disagree.  The starting point is the Judge had considered Chow is an experienced businessman and if there was no difficulty for Smart Creator to take up all five shops, it was inconceivable that he would have agreed to the arrangement for three of the shops to be held in the name of Fintasy.  While Chow might not know about the technical details, there was a Nomination dated 5 January 2001 whereby Smart Creator (who was originally to take up all five shops from the vendor) nominated Fintasy to take up three of the shops.  On behalf of Smart Creator, the document was signed by Chow and Ho.

13.11   I need to address an issue concerning the Trust Deed.  Chow in his 2^nd affirmation dated 24 August 2006 referred to a Trust Deed dated 30 January 2001 executed by Fintasy and Smart Creator whereby Fintasy was to hold the three shops on trust for Smart Creator, of which Chow has a 50% interest.  In the same breathe, Chow said that he was advised by his counsel that as the Trust Deed was not stamped, it was inadmissible as evidence.  Plainly for strategical reasons Chow’s counsel later sought to remove the Trust Deed from the evidence.  The application was allowed by the Judge. 

13.12   The Judge criticized Chow in his judgment for his approach towards the Trust Deed in that he was seeking to exclude the evidence in order to run a case that he knew was not true. Mr Wong challenged the Judge’s view on this issue.  In my view while the Judge may be overly robust when he attributed the approach to Chow personally, it is not difficult to see why the Judge had taken an unfavourable view on this aspect of Chow’s case.  It is plain that Chow originally referred to the Trust Deed in order to refute Ho’s argument that it was his wife who was holding the three shops on trust for Chow.  But this would no doubt at the same time hinder his case that Ho had cheated him by siphoning off the three shops.  It was a double-edged sword which cut both ways.  In order to persist with the allegation of Ho siphoning off the three shops; the only way out is to abandon the reliance on the Trust Deed.  Notwithstanding the weight of the decision of this Court in Lam Chi v Yip Ching [1982] HKC 623 (which has not been challenged in any subsequent Court of Appeal decision and is binding on the first instance judge) that stamp duty points are by convention not taken at the bar of the court, reliance was made of the English Court of Appeal decision of McGuane v Welch [2008] All ER (D) 158 which upheld the view that secondary evidence of unstamped documents is inadmissible.  Reliance was also placed on an academic article by the late Professor Willoughby (‘Professional Conduct and Stamp Objections’ (1981) 11 HKLJ 361) to the effect that because of the difference in wording in the Hong Kong and English legislations, it is open to counsel to take objections to admitting unstamped document as evidence in Hong Kong.

13.13   It is not necessary for me to decide in this judgment the correctness of the English approach.  Even at this level, Lam Chi is binding on this Court unless it is shown to be plainly wrong.  Suffice for me to say that the approach taken by Chow’s legal team below towards the Trust Deed was, in the context of this case, disingenuous. It gave credence to the Judge’s unfavourable view on how Chow’s case was presented.  Needless to say the Judge had not relied on the Trust Deed when he held against Chow on the issue of disposition of the three shops in Lee King Building to Fintasy. 

13.14   In any event, the Judge clearly did not rely only on this episode to disbelieve Chow.  This is a case which covers multiple issues and the Judge had gone through these issues carefully and based on the evidence he had considered, rejected Chow’s case.

13.15   In my view the reasons given by the Judge on Chow’s knowledge of why Fintasy was used cannot be faulted.  As to the issue on the transfer of shares, the Judge was clearly entitled, having considered all the circumstances of the case, to accept Ho’s explanation.

6.   Chow agreed to Ho and his wife using the overdraft facility

14.1   The $500,000 overdraft facility was part of the credit facilities applied for by Fintasy and granted by Wing Hang Bank for the acquisition of the Lee King shops. The other facility was the $13,500,000 instalment loan.

14.2   The Judge accepted Ho’s explanation that Chow was aware of the overdraft as he was present in the bank on various occasions to go through the formalities of applying for and obtaining credit facilities.  He was also present in the solicitors office and through this attendance would also have known of this overdraft.  Additionally, the Judge also accepted Ho’s explanation that Chow agreed to Ho and his wife using the overdraft on condition that they would provide a guarantee for him to obtain a bank loan.  They had actually later provided the guarantee.  The Judge rejected Chow’s allegation that he only first learnt of the overdraft from Ho’s 1^st affirmation in these proceedings as being incredible.

14.3   Chow complained that Ho’s version about the overdraft was raised for the first time during the oral opening of his counsel.  The alleged agreement that Ho and his wife could use the overdraft in exchange for providing a guarantee to the bank for Chow’s own business was never put to Chow during cross-examination.  As a matter of fact, counsel for Ho (not Mr Chan who only appeared below at the stage of the closing submission) withdrew the question on the alleged agreement when it was objected to.  Ho’s evidence in cross-examination was a departure from his case as affirmed in his 1^st affirmation.

14.4   It is of note that Ho had expressly stated his case on the overdraft in his 1^st affirmation as follows :

‘ 60. …. The Overdraft facility was granted by the Bank directly to Madam Cheung but with the agreement of the Petitioner, the 2^nd Respondent and I were responsible for its use in particular, to discharge the on going expenses of both Fintasy and Smart Creator and repayment. The overdraft and interest thereon were repaid by myself and Madam Cheung on 31 October 2003 without any claim against Fintasy nor Smart Creator.’

14.5   It was open to the Judge to find that Chow was aware of this facility from the beginning.  Even if he was wrong to rely on Ho’s additional explanation that there was an agreement between them for each of them to provide guarantee to the other in the use of bank facilities, it does not follow that the Judge’s finding is necessarily vitiated by this error.  In any event the evidence as the Judge had found was :

‘ 74. ….. Fintasy had in fact arranged for Wing Hang Bank to provide a letter of guarantee to Compaq Financial Services (Hong Kong) Ltd (“Compaq”) in consideration of Compaq agreeing to grant credit facilities in respect of goods ostensibly to be supplied to Fintasy. It is not in dispute that those credit facilities were in fact made use of by the Petitioner’s own personal business. Further, as discussed above, Fintasy had also procured the provision of a similar guarantee to H P for provision of financing to the Petitioner’s own personal business.’

7.   Ho’s continuous use of old bank accounts

15.1   The Judge accepted Ho’s evidence that the old accounts were continued to be used because the tenants had standing orders to pay rent into the old accounts. This arrangement was not challenged by Chow.  Further the Judge found that :

‘ 163. ….. [Chow] would have known this from seeing the copies of the bank accounts savings passbooks provided to him from time to time. He would also have known that the accounts continued to be operated from such copies provided after December 2003.’

15.2   As to the alleged inconsistency in Ho’s evidence that the last withdrawal was in July 2003 when the evidence showed that there was a further withdrawal after that day on 25 July 2003.  The fact that there was one further withdrawal within the same month could not possibly undermine the Judge’s assessment of Ho’s case.  Ho had explained in evidence that the last withdrawal on 25 July 2003 was to reimburse himself for funds he expended for the company.  The fact that he was under-reimbursed at the material time is supported by the summary attached to counsel’s submission.

15.3   Mr Wong argued that the Judge’s holding was based on his erroneous belief that Chow had been seeing copies of the passbooks provided to him from time to time.  As I have previously held that the Judge was not in error to find that Chow was supplied with the accounting records including the passbooks, this challenge must also be rejected.

8.   Withdrawal from company accounts

16.1   Of the various sums that form the allegation that Ho had withdrawn about $5.3 million without authority, Chow in his notice of appeal had singled out three items, namely, two withdrawals of $150,000 and $70,000 respectively from the account of Fintasy and the withdrawals for betting.  The $70,000 withdrawal was not even perused by Mr Wong before us.

16.2   In respect of $150,000, Ho’s explanation, which was accepted by the Judge, was that it was a reimbursement for the miscellaneous expenses he had paid for the companies.  Ho was not specifically cross-examined on this sum.  The Judge had considered the summary of the advances and reimbursement from the companies.  The Judge made the following finding :

‘ 156. The Respondent further pointed out that where the Petitioner had himself benefited from withdrawals or payments, he plainly knew their nature and purpose. He further added that neither he nor his wife had drawn any fees for themselves and that such withdrawals and payments as had been made to them or on their behalf had been by way of reimbursement of monies advanced by them in respect of the property purchases or ongoing expenses. He further pointed out that it was in fact the case that they had, to-date, not yet been fully reimbursed. As stated above, I find this to be the case.’

16.3   I do not see how the determination on this issue can be challenged.

16.4   As to withdrawal of funds for betting, the Judge held that :

‘ 160(8) In respect of the withdrawals made for betting on horseracing and the Mark Six, if these withdrawals had not been made for such purposes has agreed to by the Petitioner, it is inconceivable that Madam Chu or the Respondent would have kept the relevant slips or tickets relating to such bets or indeed entered details of the same on the bank passbooks.’

The Judge had therefore approached the issue as a matter of inherent probability and come to a conclusion that he was entitled to.

16.5   Even if, for the purpose of argument, the Judge was wrong on this point, one must not lose track of the amount of the bets as compared to the overall sum of $5.3 million which Chow boldly challenged were all unauthorized withdrawals on the part of Ho.  Again one may ask rhetorically how this small error would necessarily vitiate the whole of the finding.

Conclusion

17.1   In the end, even adopting a higher intensity of scrutiny on the findings made by the Judge, I still fail to see any fundamental error that necessitates an overturning of the findings.  This being the case, I do not need to address the issue of a discount to the buy-out price on the ground of the parties’ alleged unequal contribution towards the acquisitions by reference to Irvine v Irvine (No. 2) [2007] 1 BCLC 445 and Joffe, Minority Shareholders : Law, Practice and Procedure, 4^th Ed paragraph 7.266.

17.2   The Judge ordered indemnity costs against Chow. Mr Wong submitted that this is unwarranted.  I see no ground for varying the Judge’s costs order in any way.

17.3   The appeal is accordingly dismissed with costs to Ho and Madam Cheung with certificate for two counsel.

Hon Chu JA :

18.  I agree, for the reasons given by Cheung JA, that the appeal should be dismissed with costs.

Hon Au J :

19.  I respectfully agree.