CHOW YAT TIM v. TANG HING KEUNG AND OTHERS

HCMP 418/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 418 OF 2008

(Formerly Companies Winding Up No. 396 of 2007)

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(Heard Together)

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J U D G M E N T

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The two proceedings

1.  There are two proceedings before the court.  They were ordered to be heard together by an order made on 14 March 2008.

2.  The action commenced earlier in time is the writ action in HCA No. 84 of 2007 (“the Writ Action”) brought by Hing Ming Gondola (HK) Company Limited興銘吊船 (香港) 有限公司 (“the Company”) against Chow Yat Tim (“Chow”).  The Company claimed HK$2 million, being two loans of HK$1 million each made to Chow in January 2001 and June 2001.  The writ was issued on 15 January 2007, shortly before recovery of the first loan would have become time-barred, but was not served on Chow until 15 June 2007.  Chow’s defence was that the first payment of HK$1 million was a bonus of HK$500,000 each given to him and his younger brother Chow Yat Hung (“YH Chow”) as employees of the Company.  He acknowledged that the second payment of HK$1 million was a loan of the Company to him to assist in his purchase of a property, but asserted this had been repaid by setting off against his bonus or dividend as a shareholder of the Company.

3.  The petition was presented by Chow on 29 August 2007 under sections 177(1)(f) and 168A of the Companies Ordinance, Cap. 32.  The 1^st respondent is the majority shareholder, Tang Hing Keung (“Tang”).  The 2^nd respondent is the Company and the 3^rd respondent Madam Au Fung Yee (“Madam Au”) is Tang’s wife.  On 6 March 2008, it was ordered that the prayer for winding up in the petition be struck out, on the basis there were no real prospects a winding-up order would be made, it being common ground that the Company is solvent and doing profitable business and there was no suggestion Tang is not financially capable of buying out the 10% shareholding of Chow at a fair value.  The petition was re-allocated a new proceedings number of HCMP No. 418 of 2008.  The petition has been amended twice, the last amendment was made on 7 March 2008 following the striking out of the prayer for winding up.  The only relief sought is an order that Tang is to purchase the shares of Chow at a fair value.

4.  Chow was legally represented in both proceedings until all the evidence had been filed and discovery was given.  He then filed a notice to act in person in September 2008.

5.  Mr. Victor Dawes appeared for the three respondents in the petition and the Company in the Writ Action.

The background matters

6.  The background to the formation of the Company and other matters that would appear to be non-controversial may be stated as follows.

7.  In 1976, Tang came to know Chow’s brother-in-law, Lee Wong Lam, when they were working in the construction industry and became good friends.  Tang got acquainted with members of Lee Wong Lam’s family, including Chow.  In 1979, Tang and Chow got to know each other when both were working as tower crane operators.  There was a period when they worked for the same employer for five years.  Although they later worked for different employers in 1989, they remained good friends.

8.  In 1990, Tang set up his own gondola business as a sole proprietor using the name of Hing Ming Engineering Company (“the Firm”).  From time to time, Tang had discussed with Lee Wong Lam about investing in his gondola business but nothing came of the discussions.  Tang later asked various members of Chow’s family to work for him.  Chow joined the Firm in March 1996.  It was Chow’s case that he joined as a partner and had contributed to the capital by making a purchase of 20 gondolas with a down payment of HK$400,000.  Tang alleged Chow was merely an employee and denied he had made any contribution to capital.  It is not in dispute that Chow worked for the Firm, and later on for the Company, as a foreman or supervisor.

9.  A number of those who worked for the business, before and after it was incorporated, were family members.  On Chow’s side, there were his two younger brothers whose names in English were both spelt Chow Yat Hung (周日洪 (“YH Chow” as referred to earlier) and周日雄 (“Yat Hung Chow”, to distinguish him from the other brother)), his two brothers-in-law, his elder sister Madam Chow Hiu Ying (who was married to Lee Wong Lam), his nephew Lee Chuen Tai and the husband of his niece Cheung Kam Ming.  On Tang’s side, there were his two brothers-in-law, Au Kay Wah Eric (“Eric Au”) and Au Cho Wah Joe (“Joe Au”).

10.  The Company was incorporated in Hong Kong on 22 September 1997.  The Firm ceased business completely in March 1999.  It is not in dispute at some point in time, the assets of the Firm were injected into the Company.  The authorised share capital was HK$1 million, divided into 1 million ordinary shares of HK$1 each.  Tang held 800,000 shares and Chow and Madam Au each held 100,000 shares.  Chow said he received 100,000 shares because the gondolas he brought into the business were about 10% of the assets.  Tang claimed he had made a gift of 10% of the shares to Chow to motivate him to work harder.  There had been no change in the shareholdings until June 2007.  The first directors were Tang, Chow and Madam Au.  Tang was and is the managing director.  The principal objects of the Company were and are to carry on the business of buying, selling and supplying gondolas for hire.

11.  The business of the Company expanded due to the boom in the construction industry.  The business in selling and hiring gondolas was good.  The Company acquired further gondolas with bank finance.  By the end of 2000, it was able to clear all payments for the new gondolas to the bank.  The total number of gondolas it had at the time was no less than 1,400.  The Company also invested in Point (HK) Engineering Company Limited普英特 (香港) 工程設備有限公司.  Chow alleged the Company had invested in other entities as well, including Point (Shanghai) Engineering Company Limited上海普英特工程設備有限公司and TransAsia Engineering (Holdings) Co., Limited漢暉重運 (控股) 有限公司.  This was denied by Tang, who alleged that the investments in the other two entities were his personal investments, although he said in a subsequent affirmation he has “no objection” in treating the business of these entities as belonging to the Company, which was what he had done since 2001.

12.  Relations between Chow and Tang had become strained since early 2006, when Tang sent a team comprising Joe Au, Eric Auand an accountant to investigate the affairs of a company in Beijing known as Xing Ming Machineries Rental Company Limited北京興銘機械設備租賃有限公司 (“the Beijing Company”).  YH Chow was then in charge of the Beijing Company.  According to Chow this entity was the Company’s subsidiary but Tang denied this, alleging again it was a company set up with his own funds, albeit accepting in a subsequent affirmation he has “no objection” in treating the business of the Beijing Company as belonging to the Company.  Although no impropriety in financial matters was found by the team, recommendations were made in its report to improve the management of the Beijing Company.  Eric Au and the accountant who prepared the report left the Company not long after.  Lee Chuen Tai, Madam Chow Hiu Ying and Cheung Kam Ming followed suit and, after a short while, Lee Chuen Tai and Cheung Kam Ming went into the business of hiring out gondolas.  On 30 June 2006, a company known as Azure Engineering Company Limited 事佳工程有限公司 (“Azure”) was established, with Lee Chuen Tai and Cheung Kam Ming as the only shareholders and directors.

13.  On 8 September 2006, Chow offered to resign from his position as a supervisor of the Company.  Tang and Chow had a quarrel when discussing how Chow’s shares in the Company should be bought out.  As a result, Tang refused to accept Chow’s resignation and chose to dismiss him instead.  The Company issued a notice to its customers and other parties the following day informing them of Chow’s dismissal.

14.  On 14 September 2006, Joe Au, who had joined the Company in February 2006 as deputy managing director, was appointed an additional director of the Company.

15.  The next thing that happened was that Chow received notice to attend a shareholders’ meeting to be held on 6 October 2006, to consider a resolution to dismiss him as a director of the Company.  As he knew he would be out-voted, he tendered his resignation before the resolution was to be passed.  Tang and Joe Au, voting as Madam Au’s proxy, passed the resolution for dismissal.

16.  Chow then approached the Company’s auditors to ask for the audited accounts of the Company but was not provided with them.  He later instructed solicitors to request for the accounts and they were provided eventually in November 2006.

17.  On 5 January 2007, the Company through its solicitors demanded repayment from Chow of HK$2 million being advances made by two cheques issued in January and June 2001.  Chow replied by a letter of his solicitors dated 15 January 2007 denying liability to repay and requesting documentary evidence of the alleged outstanding sum.  The writ in the Writ Action was issued against Chow the same day but was not served on him as mentioned earlier.

18.  By a meeting of the directors of the Company held on 8 May 2007, it was resolved to increase the share capital by HK$5 million by a rights issue of 5 million ordinary shares of HK$1 each.  This was followed by a shareholders’ resolution signed by Tang and Madam Au on 18 May 2007 to like effect.  It was stated in these resolutions that the board had decided to develop the business of permanent gondolas and was negotiating with GEDA-Dechentreiter GmbH & Co. (“GEDA”) of Germany for the agency rights of GEDA brand permanent gondolas and the directors unanimously resolved to increase the authorised share capital for that purpose.

19.  Chow was notified of the above matters by letter dated 22 May 2007, by which he was requested to sign the shareholders’ resolution by 8 June 2007, failing which he would be regarded as forgoing his right to vote on the resolution.  Chow wrote to the board of directors on 6 June 2007 requesting all relevant information, documents and analysis in relation to the negotiation of agency right of GEDA gondolas and an explanation how this was relevant to the proposed increase of capital, for him to consider whether it would be worthwhile to subscribe for new shares.  Tang responded by letter dated 8 June 2007, he did not provide further information as requested, he merely stated it was necessary to increase share capital to develop a new brand, and gave Chow a further three days to respond to the shareholders’ resolution.  Chow replied through a firm of accountants on 11 June 2007 saying he was opposed to the shareholders’ resolution, as he had not been provided any detailed justification on these matters: why the issuance of new shares was the preferred way of raising funds instead of by other means; why the Company would not be able to finance its working capital through its earnings; and how the Company could benefit with the proposed additional fund of HK$5 million.

20.  On 14 June 2007, Tang on behalf of the Company gave notice to Chow that he should subscribe for his proportionate entitlement of new shares at HK$500,000 by 22 June 2007, failing which the shares would be allotted to other shareholders.

21.  On 15 June 2007, the writ in the Writ Action was served on Chow.

22.  Chow’s solicitors wrote to the board of directors on 22 June 2007 stating that the Writ Action would be contested.  It was asserted that the board was well aware of Chow’s financial position that he was hardly in the position to raise HK$500,000 at short notice to subscribe for new shares, even if the increase of capital was justified.  Moreover, it would not be appropriate for Chow to continue to invest in the Company as a complete outsider, as he had lost trust and confidence in the other shareholders and directors.

23.  On 23 June 2007, 5 million new shares of the Company were issued, of which 4.5 million shares were allotted to Tang and 500,000 shares to Madam Au.  As Chow did not take up the new shares, his 10% shareholding was diluted to 1.66%.

24.  Chow’s solicitors wrote to Tang on 5 July 2007 setting out his complaints regarding the affairs of the Company and offering to sell his 10% shareholding in the Company to Tang at a value to be agreed, or failing agreement to be assessed without discount for minority shareholding.  In the absence of response within 14 days, Chow would seek relief under sections 177(1)(f) and 168A.  Nothing was heard from Tang when Chow presented his petition on 29 August 2007.

25.  In October 2007, YH Chow resigned from the Beijing Company.  He later became a manager of Azure.

26.  On 4 June 2008, Chow filed a list of documents in these proceedings disclosing among them an item described as “the duplicate of hard disc of documents of the Company provided by Eric Au as back up kept by the Petitioner”.  After Tang’s solicitors had inspected this item, they wrote to Chow’s solicitors on 13 June 2008 demanding delivery up of the same, alleging a cause of action against Chow for breach of confidence and fiduciary duties by copying the files in the computer server of the Company or by removing the hard disc without authorisation.  The files in the hard disc contained, among other documents, engineering calculations and design drawings prepared by or provided to the Company for different projects.  Chow’s solicitors returned the original and duplicate of the hard disc and hard copies of documents printed from them to Tang’s solicitors on 17 June 2008.

27.  On 14 July 2008, Tang’s solicitors wrote to Chow’s solicitors stating that the design calculation of parapet clamps for temporary gondola installation submitted by Sam & Sam Associates (“Sam & Sam”) on behalf of Azure in the project of the Lam Tin Estate was clearly copied from one of the Company’s design calculations contained in the hard disc and there was an infringement of copyright.  Chow was asked to provide an explanation and to confirm if he was involved in the business of Azure.  Similar letters were sent to Azure and Sam & Sam.

28.  Separate replies were made by Chow’s solicitors, Sam & Sam and Azure on 15 July 2008.  Chow’s solicitors stated he had nothing to do with the formation or operation of Azure, he had no knowledge of the design calculation submitted by Sam & Sam, and he had never made use of the information in the hard disc except for the purpose of these proceedings.  Sam & Sam stated they had only worked on the endorsement and review on the accuracy of the design calculation provided to them.  Azure claimed it had no relationship with Chow and did not receive from him any documents relating to the Company, it provided the necessary information to Sam & Sam to make the design calculation, and there was no breach of copyright.

29.  On 2 August 2008, the Company issued a writ in High Court Action No. 1461 of 2008 (“the Copyright Action”) against Chow, Azure, and Sam & Sam for breach of copyright and breach of confidence.  Lee Chuen Tai and Cheung Kam Ming were later joined as defendants.  A statement of claim was filed by the Company in March 2009 and the defendants filed separate defences in April 2009, along more or less the same lines as set out by them in their letters mentioned earlier.  A third party notice was issued by Sam & Sam against Chow and Azure shortly after it filed its defence.  I will have more to say about the third party notice and the defence of Sam & Sam and subsequent developments in the Copyright Action in the few days before the present proceedings came on for trial.

The complaints in the petition

30.  The broad complaints of unfairly prejudicial conduct raised in the re-amended petition are as follows:

(1) Chow was unjustifiably dismissed as a supervisor of the Company and was forced to resign as a director.

(2) The resolution to increase share capital was made with the intention to dilute Chow’s shareholding from 10% to 1.66%.

(3) Tang had misappropriated assets of the Company in that:

(a)    An entry was made in the accounts for the year ended 31 March 2001 of an advance from a shareholder of HK$56,826,609 when none of the shareholders had made such a substantial advance to the Company.

(b)   For the year ended 31 March 2002, the Company disposed of fixed assets with cost of HK$28,992,141 at a loss of HK$7,122,027.  There was no justification for this alleged disposal.

(c)   The administrative expenses for the year ended 31 March 2001 amounted to HK$31,334,650, about 80% more than that of the previous year.  There was no justification for such substantial increase.

(d)   Tang had on several occasions issued cheques of the Company for substantial sums to his personal account and the personal account of his relative.

(e)    Madam Au was paid HK$25,000 per month by the Company since 2001 or 2002, she had never worked or taken part in the business.

(4) The Company wrongfully demanded repayment of HK$2 million from Chow in January 2007 and brought the Writ Action against him claiming the said sum.

31.  Tang denied the above allegations.  He alleged that Chow did not come to court with clean hands in that Chow had established Azure, which was in direct competition with the business of the Company, and the petition was presented with ulterior motive or collateral purpose.

The witnesses

32.  Chow was the only witness on his side.  Tang and Joe Au gave evidence for the respondents.  Chow filed a total of five affirmations.  Tang made seven affirmations, but only four were placed before the court as the others were concerned with earlier applications in the proceedings not relevant to the trial.  Joe Au gave three affirmations.

33.  I have had the opportunity to observe Chow in the course of his cross-examination by Mr. Dawes and when he conducted the cross-examination of Tang and Joe Au.  I understand this was the first time Chow had conducted a case in court.  He has done very well conducting his case without legal representation.  As Mr. Dawes had remarked, Chow was organised and meticulous.  Not only that, he had a very good grasp of the documentary and the affidavit evidence.  He was indefatigable and determined in pursuing his questioning, and was apparently unfazed by the court setting.

34.  Both Chow and Tang appeared to me to be strong-willed and strong-minded persons.  Regrettably, I am unable to accept the evidence of either of them wholly without reserve.  In Chow’s case, I am disposed to accept a large part of his evidence, on the balance of probabilities.  However, there are matters that I do not think he has presented the whole truth to the court, by omitting, without any or any good explanation, to adduce evidence on matters which he knew were important to his case.  In Tang’s case, I am unable to say with confidence which parts of his evidence could safely be accepted on the balance of probabilities, if unsupported by other evidence.  He may be a successful, resourceful and hardworking businessman, but he cut a pathetic figure in the witness box.  He appeared to have deluded and convinced himself into thinking that a certain state of affairs had existed, and stuck to his version in the face of evidence which showed otherwise, even documents generated or approved by him in the past.  He was constrained to retract or alter parts of his evidence a number of times, some of the explanations he gave were risible and in some instances he simply said he could not provide any explanation.

35.  Of the witnesses, Joe Au has received the best education.  He was promoted to an important position in the Company after Chow’s departure.  He played a supportive role to Tang in this litigation and would appear to have a part to play in devising strategy.  He is not an impartial witness.

The issues

36.  The issues in dispute in both proceedings will be considered in this order:

(1) if the Company was a quasi-partnership;

(2) if the first payment by cheque of HK$1 million was a loan or a bonus to employees;

(3) if the loan made to Chow by the second payment by cheque of HK$1 million had been repaid;

(4) if Chow was involved in or had an interest in Azure;

(5) if Chow had provided the Company’s design calculations contained in the hard disc to Azure;

(6) if the dismissal of Chow as supervisor and as director was justified;

(7) if the resolution to increase share capital was made with the intention to dilute Chow’s shareholding;

(8) if Tang had misappropriated the assets of the Company;

(9) if Chow had come to court with clean hands and if the petition was presented for a collateral purpose; and

(10)   what relief, if any, should be granted.

Was the Company a quasi-partnership

37.  The re-amended petition now seeks relief only under section 168A.  It is nevertheless relevant to consider if the Company should be regarded as a quasi-partnership to allow equitable principles considered in Ebrahimi v. Westbourne Galleries Ltd. [1973] AC 360 to be imported.  I will first consider the legal principles, which have been helpfully canvassed in the opening submissions of Mr. Dawes.

38.  The words “unfairly prejudicial” should be applied flexibly to meet the circumstances of the particular case and the concept of fairness in these words is capable of introducing considerations similar to those explained by Lord Wilberforce in Re Westbourne Galleries, supra. at 379 (Re Saul D Harrison & Sons plc [1995] 1 BCLC 14 at 30f and 31i).

39.  To found relief under section 168A, the court must be satisfied the conduct complained of is both unfair and prejudicial to the petitioner.  In considering the complaints, the court must subject the conduct complained of, and the result of such conduct, to an objective examination, taking all the facts and circumstances into account, including the nature of the company and the relationship of the parties.  Conduct which might be incapable of being put forward as unfairly prejudicial in the context of a large corporation might assume a quite different complexion where a small commercial enterprise is involved (Re Taiwa Land Investment Co. Ltd. [1981] 1 HKLR 297 at 305A and 307F to H).

40.  The above ideas were expressed in a succinct and similar way by the English Court of Appeal in Grace v. Biagioli [2006] 2 BCLC 70 at 92c to d, para. [61]: “The concept of fairness, although objective in its focus, is not to be considered in a vacuum.  An assessment that conduct is unfair has to be made against the legal background of the corporate structure under consideration.  This will usually take the form of the articles of association and any collateral agreements between shareholders which identify their rights and obligations as members of the company.  Both are subject to established equitable principles which may moderate the exercise of strict legal rights when insistence on the enforcement of such rights would be unconscionable.”

41.  Thus, context and background are very important in considering if unfairly prejudicial conduct is established.  Conduct which is fair between competing businessmen may not be so in a different context where there is a personal relationship between shareholders such that additional legitimate expectations may be superimposed.

42.  The conversion of a pre-existing partnership into a company would be a typical example of quasi-partnership (Re Westbourne Galleries, supra. at 380A).  It is not necessary to establish that the parties in a quasi-partnership should be equal.  The petitioner may be entitled to relief even if he was the ‘junior partner’ in the company (Quinlan v. Essex Hinge Co. Ltd. [1996] 2 BCLC 417 at 426d to f), or where his shareholding is relatively modest and he has made no or no substantial financial contribution to the company (Re a company (No. 00709 of 1992) [1997] 2 BCLC 739 at 769a to d).

43.  I come now to the evidence for asserting that there was a quasi-partnership.

44.  It is not in dispute that HK$400,000 was paid to Tang by Chow in late 1995 and that this payment was made for the purpose of acquiring 20 gondolas.  Chow said he borrowed HK$300,000 from his relatives and obtained HK$50,000 from each of his two brothers, YH Chow and Yat Hung Chow.  It was accepted in Tang’s evidence that the HK$400,000 was raised by Chow from his family members.

45.  It is also not in dispute that a set of European manufactured gondola cost HK$80,000 at the time.  So the HK$400,000 raised by Chow was only a quarter of the full purchase price of HK$1.6 million for 20 gondolas.  According to Chow, the arrangement he made with Tang was that the HK$400,000 would be used to pay the down payment for 20 gondolas, to be brought into the business of the Firm as his contribution.  Tang told him the balance could be paid by monthly instalments, and the instalments would be paid out of the rental received from hiring out the gondolas.  He left it to Tang to deal with the purchase and did not know how the balance of the purchase price of HK$1.2 million was actually financed.  He did not pay anything further towards the purchase price of the 20 gondolas, nor did he receive any rental from the hiring of these gondolas.

46.  Tang’s evidence as to the payment of HK$400,000 was as follows.  Chow was to purchase 20 gondolas which were not meant to be invested in the Firm.  The arrangement was merely that these gondolas would be rented by Chow to the Firm which would in turn sub-let them to customers and it was a sub-contracting relationship.  Chow was to pay him the purchase price of HK$1.6 million by two instalments.  Chow only managed to pay HK$400,000.  The balance of HK$1.2 million should be paid by Chow by the end of 1996.

47.  It is common ground that in around January 1997, Tang paid HK$120,000 to Chow and in about January 1998, Tang paid HK$280,000 to Chow, making a total of HK$400,000.  Chow’s evidence was that these sums were paid to him in keeping with a promise made by Tang, when he was asked to invest in the Firm, that within two years Chow would receive a return of his original investment of HK$400,000.  Tang’s evidence was that Chow was unable to raise the balance of HK$1.2 million by the end of 1996 and asked Tang to return HK$400,000 to him as he was in need of money.  Tang complied with his request and the HK$400,000 was paid back to Chow by 1998.  Hence, Chow had no interest in the 20 gondolas, and no rental income was ever paid to him.

48.  When the Company was incorporated, Chow received 10% of the shares and was appointed a director.  He said this was due to the investment he made to the Firm as the 20 gondolas purchased with his money were injected into the Company.  This was denied by Tang.

49.  I have very little difficulty in coming to the view that Chow’s version is to be preferred.

50.  By the time the Company was incorporated in September 1997, Chow had just worked for Tang for a little over a year.  I do not find it convincing that he would have been rewarded 10% of the issued shares, no matter how reliable he was as an employee.  Tang claimed he made Chow a gift of the shares to motivate him to work harder, but there was no reason why he should appoint Chow a director as well.

51.  More damning to Tang’s case is a subsequent document in Chinese called a “Directors’ Report” dated 8 December 2001.  There are two versions of this document.  One was written in Tang’s own hand, the other was printed on a computer with some differences from the handwritten version.  I do not intend to set out the details of the handwritten and printed versions.  Suffice it to say on a fair reading of the Directors’ Report, it is clear that Tang had acknowledged he and Chow had jointly invested in the Firm in 1996, with 90% of the assets invested by him, and 10% by Chow.  It was recorded that Chow (the actual wording was “Tim and others”, meaning Chow and his brothers) had brought into the business 20 gondolas with a value of HK$1.6 million.

52.  Tang tried to explain away the Directors’ Report in his affirmation and in his oral testimony by saying what was written was merely “assumptions” to demonstrate that Chow was wrong in repeatedly requesting for dividends to be paid on the untrue allegation he had made an investment of HK$1.6 million in the business.  He ended up entangled in the convoluted, illogical and contradictory explanations.  His evidence here is wholly incredible.

53.  I do not think Chow’s evidence on this issue was undermined in cross-examination.  I have considered what he said about the monetary contributions made by his two brothers: that he and YH Chow had paid a total of HK$150,000 to Yat Hung Chow who had left the business in 1997 as return of the latter’s investment; that he acknowledged he held 50% of the shares in the Company for YH Chow; and that he had not paid YH Chow his share of the HK$1 million dividends he had allegedly received.  Chow even said when YH Chow left the Company in 2007, his brother gave his interest in the shares to him as a gift.  I also bear in mind that YH Chow did not give evidence to corroborate Chow.  I do not find the events Chow related as implausible, given that he apparently has a close relationship with his brothers and they have been working together for many years.

54.  I find that there was a quasi-partnership so that the complaints of unfairly prejudicial conduct should be considered against this context and background.  The basis of association was not adequately or exhaustively laid down in the articles of association.  There was a tacit understanding that Chow would be kept informed about and could vote on important matters in the management of the Company that would impact on his investment in the business, by virtue of the position he held all along as a director, even though it was accepted that Tang, as the 90% shareholder and managing director, would make decisions how the business should be run.  Further, given the restriction upon the transfer of shares in the Company, if Chow was excluded from the management without justification, he could not take his stake and go elsewhere but for the relief under section 168A.

Was the first payment of HK$1 million a loan or a bonus to employees

55.  As Chow has admitted receiving HK$2 million from the Company, and prima facie payment would import an obligation to repay in the absence of any circumstances tending to show anything in the nature of presumption of advancement, the legal burden is on him to prove that the amount demanded by the Company is not repayable at the date of the issue of the writ in the Writ Action (Seldon v. Davidson [1968] 1 WLR 1083 at 1088B to G; Mak Ka Hing v. Pang Ming Chung, CACV No. 215 of 2002, 28 November 2003, paras 23 to 24).

56.  The first payment of HK$1 million was made by a cheque of the Company to Chow dated 15 January 2001.  According to Chow, in early 2001, Tang told him the Company had made money and as every one had been working hard for the Company for several years, each of the three supervisors, Chow, YH Chow and Leung Shea Lit, would be paid a bonus of HK$500,000.  The cheque issued to Chow was to include the bonus to him and his brother.

57.  Out of the money received, Chow issued two cheques, one dated 18 January 2001 to YH Chow for HK$231,000 and the other dated 22 January 2001 to Yat Hung Chow for HK$100,000.  He has produced these cheques as evidence and given this explanation regarding the payments out of the HK$500,000 he claimed to have received on behalf of YH Chow.  YH Chow received a net sum of HK$231,000 out of the HK$500,000 as Chow had made other payments on his behalf.  Firstly, Chow paid his credit card debts which were in excess of HK$70,000.  Secondly, Chow repaid a loan owed by YH Chow to Tang, which was in excess of HK$130,000.  Thirdly, it was agreed between the two brothers that although Yat Hung Chow had left the Company, each of them would pay Yat Hung Chow HK$50,000 from their share of the bonus.  Hence, Chow made out the cheque to Yat Hung Chow of HK$100,000 on 22 January 2001.

58.  Tang denied that the supervisors were paid any bonus in January 2001 as alleged.  He claimed that the cheque of the Company was given to Chow as a loan, at the latter’s request to enable him to purchase a village house.

59.  Mr. Dawes submitted that I should reject Chow’s evidence as incredible.  He pointed out the absence of documentary evidence on the nature of the payment.  He submitted there was no good reason why the brother’s share of the bonus should be included in the cheque to Chow.  There was no documentary evidence regarding two of the three payments allegedly made by Chow on his brother’s behalf, and YH Chow was not called to give evidence.

60.  Chow pointed out that on a copy of the cheque issued six months later on 18 June 2001 for HK$1 million, he had written out in Chinese that he borrowed HK$1 million from the Company on 18 June 2001 and that the amount of the loan would be deducted by instalments from shareholder’s year-end dividends.  Tang had signed against what was written out by Chow as a witness on 16 June 2001.  In contrast, for the cheque dated 15 January 2001, there was nothing in writing to acknowledge that it was a loan.  Chow said this was the same as other cheques he had received from the Company as bonus over the years, which were produced in evidence – the cheque dated 7 January 2004 for HK$150,000; and the cheque dated 5 January 2006 for HK$100,000.

61.  The absence of documentary evidence on the nature of the payment is not a matter in the Company’s favour.  The question one should ask is why the nature of the payment was not specified in any document, if it was indeed a loan, given that the second cheque issued six months later was acknowledged in writing by the borrower to be a loan and it was signed by Tang as a witness.  There was no or no convincing explanation from Tang why Chow was not asked to make a record that the first cheque of HK$1 million was a loan.

62.  At the end of the day, it is a matter of my assessment of Chow’s credibility on this issue.  I am inclined to accept his evidence.  I do not regard the matters submitted by Mr. Dawes as casting doubt on his credibility to be illogical or inherently improbable.  I find that the Writ Action brought by the Company to recover payment of the alleged debt made in January 2001 to be unfairly prejudicial conduct towards Chow, as it was without basis.

If there was repayment of the loan by the second payment by cheque of HK$1 million

63.  As mentioned above, when the loan was made by the Company’s cheque dated 18 June 2001, Chow had written that the proceeds were a loan to him to be repaid by deduction by instalments from shareholder’s year-end dividends and Tang had signed to acknowledge agreement with this arrangement.  I have no reason to find otherwise.  Thus, the only issue is whether the loan had been repaid when the writ in the Writ Action was issued in January 2007.

64.  Chow gave evidence that in around 2002, he was told by Tang that the entire loan of HK$1 million had been repaid or set off by the method as agreed.  Chow did not expect the loan to be paid off so quickly.  He was unable to give an approximate time when in 2002 he was told about this.  In his defence in the Writ Action, there was no mention he was ever told in 2002 that the loan had been completely repaid, it was alleged instead he was so informed at about the end of 2005 or the beginning of 2006.  When he was questioned about this apparent discrepancy, he explained that he was told by Tang as alleged on two occasions, in 2002 and in late 2005 or early 2006, that he did not recall the earlier occasion when he gave instructions to file a defence in July 2007 and this earlier occasion was only mentioned in his petition filed a month later, after he had gone through in his memory the whole event.  I do not find this incredible, as urged upon me by Mr. Dawes.  After all, Chow was given no details by Tang as to how and when the entire loan was paid off.  It is not improbable that he would have a vague recollection of when he was told of this by Tang.

65.  Chow has also adduced documentary evidence of further sums he had received from the Company as bonuses from the year of 2003 onwards in the total sum of HK$350,000, making the point that if he had indeed owed the Company HK$1 million all along, there was no good reason why, time and again, the Company had paid him further bonuses or dividends without applying these sums to set off in part the loan alleged to be owing.

66.  As mentioned above, there were two cheques issued by the Company to Chow for HK$150,000 on 7 January 2004 and HK$100,000 on 5 January 2006.  These were his bonuses from the Company.  Further, according to a Chinese document dated 24 March 2005 bearing the heading “On trust for various companies – assets of Tang Hing Keung up to 31 December 2004”, it was stated that Chow received a share of the profits of the Company for the year of 2003 in the sum of HK$300,000 and that he and YH Chow would each receive a share of the profits for the year of 2004 in the sum of HK$100,000.  Apparently, the figure of HK$300,000 for the year of 2003 included the amount of HK$150,000 paid to YH Chow, as Tang had produced two cheques to YH Chow dated 23 January 2003 and 7 January 2004 for the total sum of HK$150,000.  Tang also said the cheque of HK$100,000 dated 23 January 2003 was given to YH Chow as a loan at the latter’s request, and that express terms stating this was a loan were written on the reverse of the document, although this had not been produced in evidence.  Thus, the loan to YH Chow was repaid out of the bonus given to him of HK$150,000 on 7 January 2004.  This was similar to the method of repayment of the loan to Chow as agreed with him in June 2001.

67.  Chow also drew attention to the Directors’ Report dated 8 December 2001 which stated that he and his brothers had, by that date, received bonus or dividends as shareholders in the sum of HK$1.6 million.  Chow said Tang had not explained to him how the amount of HK$1.6 million was alleged to have been received by him and his brothers as bonus or dividends.  He does not know whether the HK$2 million paid to him by the Company in January and June 2001 was included in this figure.

68.  Tang is the only person who could explain the figures.  Regrettably, I am unable to attach weight to his oral evidence, without the support of evidence from an independent source.  Nor am I able to rely unreservedly on the audited financial statements.  Tang contended that the Company had never declared dividends from its incorporation to the presentation of this petition in August 2007, as borne out by the audited financial statements.  I do not think it matters that dividends were not formally declared.  It seems to me inherently unlikely that given the vast amount of profits accumulated by the Company, it did not make any distribution to the shareholders for the ten-year period.  Tang asserted that the amounts paid out to Chow and others as bonuses during 2004 to 2006 were considered to be paid by Tang personally rather than by the Company, as they were booked as his drawings from the Company in the accounts.  Again, I do not think it matters how Tang chose to treat such payments in the accounts.

69.  I am satisfied on the evidence that distribution was made to Chow, in one form or other, and I find that the distribution was sufficient to set off in the entirety the loan of HK$1 million made to him in June 2001.  I hold that the Writ Action brought by the Company to recover payment of the loan made in June 2001 to be unfairly prejudicial conduct towards Chow, as the loan had been repaid by the time the writ was issued and the claim was without basis.

If Chow was involved in or had an interest in Azure

70.  There was no direct evidence Chow owned or controlled Azure, he was not a shareholder or director on the public records.  It was submitted for the Company and Tang that the court should infer that Chow was behind the establishment of Azure which was incorporated on 30 June 2006, and he had a calculated plan to set up a competing business when he was still a supervisor and director of the Company.  Reliance was placed on these matters:

(1) Since May 2006 when Chow’s relatives left the Company one after the other, Chow had often spent long hours outside the office of the Company, without informing any one of his whereabouts.

(2) In May 2006, Tang increased Chow’s monthly salary from HK$17,000 to HK$25,000.

(3)    Notwithstanding the raise in salary, Chow tendered his resignation on 8 September 2006.  He acknowledged there was no dispute with Tang over any specific matter and attributed the reason for his resignation to Tang’s attitude generally, that Tang had often pulled a long face and had a temper.

(4) Chow had significant financial burden towards his family at the time he tendered his resignation.  He did not have a job lined up when he resigned.

(5) When Chow tendered his resignation on 8 September 2006, Tang had a discussion with him about selling his shares in the Company.  When there was no agreement on the price, Chow suggested the alternative of allowing him to take away his share of the gondolas and equipment.

(6) On the day after Chow was dismissed as a supervisor, he immediately got in touch with one Mr. Tsui, the deputy manager of plant and machinery of Paul Y General Contractors Limited and the biggest customer of the Company.  Chow had asked if the latter had any sort of favour, he could offer it to Chow.

(7) The directors and shareholders of Azure are Chow’s nephew and the husband of his niece.  They used to work as mechanics in the Company.  YH Chow also joined Azure as manager after he resigned from the Company in October 2007.

71.  I should mention that I reject Joe Au’s evidence of a discussion with Chow before he resigned in which it was suggested that Chow’s two relatives could come back to work for the Company but this was declined.  This discussion was denied by Chow and it was not mentioned in any of the three affirmations of Joe Au, who said he only thought of it for the first time in the witness box.

72.  Mr. Dawes submitted it was inconceivable that with his financial commitments, Chow would have decided to resign without making any plans.  He contended that the only plausible inference is that Chow was involved in the business of Azure, and that was why Chow made a suggestion to split up the tools and machineries, including the gondolas, when he had his argument with Tang on 8 September 2006.

73.  There is also the hard disc of the Company which Chow had in his possession and the allegation that Azure’s design calculations and drawing were copied from a document in the hard disc.  Tenders were invited for the project in Lam Tin Estate in January 2008 and Azure’s design calculation bore the date of March 2008.  This allegation is the next issue to be considered.  But even assuming the allegation to be made out, this would only tend to suggest Chow’s involvement in Azure in early 2008.  It cannot be the basis for an inference that at the time when he was still a supervisor and director of the Company, he had already devised a plan and was behind the setting up of a competing business.

74.  It does not appear to me the matters relied on are sufficiently cogent for an inference to be drawn that Chow was behind the establishment of Azure right from the start, when he was still employed by the Company and was a director.  Mere suspicions would not be sufficient to found a case.  I decline to find that Chow was involved in or had an interest in Azure when he was an employee and director of the Company.

If Chow had provided the Company’s design calculations to Azure

75.  This is the least satisfactory part of Chow’s evidence.

76.  The issue I am looking at is whether Chow had provided the document in question in the hard disc to Azure.  I am not concerned with the aspect whether there was infringement of copyright as alleged in the Copyright Action.

77.  I have considered the document in the hard disc and the design calculations and drawings submitted by Azure for the Lam Tin Estate.  The two documents are strikingly similar, down to a typing error pointed out by Mr. Dawes to Chow in cross-examination.  I am inclined to agree with Mr. Dawes it was more probable than not that Azure’s calculations and drawings were modified from a soft copy of the Company’s document instead of from a hard copy.

78.  Chow said he was not the only person to have access to a soft copy of the Company’s document.  He had the hard disc which was a back up, the document was stored in the Company’s computer in the office.  That may be so, but by the time Azure’s document was prepared, Chow’s nephew and the husband of his niece had long since left the Company and even when they were employed by the Company as mechanics to work on sites, it was not suggested they ever had access to the computer in the office.

79.  Chow admitted he played a part in the preparation of the document in question in the hard disc.  He also said his nephew and the husband of his niece consulted him on technical matters, after they set up Azure.

80.  Mr. Dawes drew attention to the defence filed by Sam & Sam and the third party notice issued against Chow and Azure.  These documents were filed in April 2009, alleging, among other matters, that Chow approached Sam & Sam in January 2008 to carry out survey work for Azure and in February 2008 Chow provided some design calculations to Sam & Sam for checking and correction for setting up gondolas at Lam Tin Estate.  On 5 June 2009, the Company’s solicitors informed Chow that the defence and third party notice would be included in the court bundles for the trial commencing on 10 June.  After the weekend, on 8 June 2009 Sam & Sam proposed all of a sudden to amend its defence and third party notice, to delete the references to Chow and to allege instead it was YH Chow who had approached Sam & Sam for work and supplied the design calculations to it.  It was proposed to withdraw the third party notice against Chow.  Although Chow had denied that he had contacted Sam & Sam about the documents filed in the Copyright Action, Mr. Dawes submitted it would be too much of a coincidence that Sam & Sam should decide to amend its pleadings to remove unfavourable references to Chow immediately after these documents were proposed to be added to the trial bundles in the present proceedings.  I am also inclined to agree.

81.  Chow was not forthcoming when he was asked about the hard disc.  At first he claimed to have forgotten about it between June and September 2006 when he did not bring back the disc to the office to do upgrade and it was left untouched in his home.  But it was shown later in a computer printout that he had opened some of the files in the hard disc between June and August 2006.  He claimed to have no idea how Azure came to prepare the design calculations and drawings substantially the same as a document in the hard disc.  He said it had occurred to him to ask his nephew and those in Azure about this but did not, as the Company is suing Azure and he did not want to get involved.

82.  I find this part of his evidence wholly unconvincing.  He knew it was alleged he had provided the document in the hard disc to Azure.  There was no question of him not getting involved in the Copyright Action as he is a defendant, along with Azure and others.  He was and is on good terms with his relatives.  He had gone to great lengths to obtain other evidence to fight this case against Tang.  He seemed to be a determined person.  I do not believe he would have stopped short of finding out from his relatives how Azure’s document came to be prepared, had it really been necessary for him to obtain this information.

83.  I reject Chow’s evidence he did not provide the document in the hard disc to Azure.  Too many matters are inexplicable.  The surrounding and circumstantial evidence is sufficiently strong to support a finding that Chow had supplied the document in the hard disc to Azure.  It is not necessary for me to find also if Chow had an interest in Azure by then, as he had left the Company at that time.

If the dismissal of Chow as supervisor and director was justified

84.  In respect of the dismissal of Chow as a supervisor, I do not find that to be unfair and prejudicial.  It was Chow’s intention to leave any way and he had tendered his resignation though it was not accepted and Tang chose to dismiss him instead.  There is no need to consider the allegations made against Chow’s performance in work in an internal report prepared after the event.  The maker of that document was not even identified until Joe Au was asked about this in cross-examination and that person had no first hand knowledge of the matters in the report.

85.  On the basis of the above findings, I regard the removal of Chow as a director to be unfairly prejudicial.  He was effectively forced to resign as a director as he would be out-voted anyway at the shareholders’ meeting on 6 October 2006.  I have found there was a quasi-partnership and he was appointed a director on the basis of a tacit understanding that he would be kept informed about and could vote on important matters in the management of the Company that would impact on his investment.  I have also held it has not been established he had set up a competing business when he was still a supervisor and director of the Company.  He was excluded from the management of the Company without justification and without a reasonable offer for the purchase of his shares at a fair value (Re a company (No. 00709 of 1992), supra. at 770d to e; O’Neill v. Phillips [1999] 1 WLR 1092 at 1107C).

If the resolution to increase share capital was to dilute Chow’s shareholding

86.  The gravamen of this complaint was that the proposal to increase share capital was not for a genuine business purpose but was designed to dilute Chow’s shareholding in the knowledge that he was not in a position to raise funds to subscribe for new shares at short notice.  In short, there was an abuse of power of the board and the majority shareholders.

87.  In considering whether the Company was in need of increasing its share capital, the court does not substitute its opinion for that of the board of directors or question the correctness of the decision of the management, provided it was arrived at bona fide.  The court will respect the judgment of the directors as to matters of management and give credit to the bona fide opinion of the directors.  Where a dispute arises as to whether the directors had made a particular decision for one purpose or for another, or whether one or another of the purposes was the substantial purpose, the court is entitled to look at the situation objectively to estimate how critical or pressing or substantial an alleged need might have been and may have reason to doubt or discount the assertions of the board that the action they took was to deal with the alleged need (Howard Smith Ltd. v. Ampol Ltd. [1974] AC 821 at 832E to G, 835G to H).

88.  There was evidence before the court that the Company had been considering for some time the expansion of business to permanent gondolas known as building maintenance units.  A detailed business proposal for the GEDA agency was prepared in August 2006.  The price of a building maintenance unit was €120,000.  The Company’s authorised share capital at the time was only HK$1 million, which would have been sufficient just to purchase one building maintenance unit.  Tang had explained in one of his affirmations that the Company had to demonstrate its financial strength to acquire the authorised agency status from GEDA.  The board proposed to do so by the increase of share capital to HK$6 million to give confidence to GEDA that the Company was financially sound to do business with.  There was clearly a need to do so to support the new business opportunities.  The fact that the accountants consulted by Chow had on 11 June 2007 suggested other ways of raising funds for such purpose is neither here nor there.

89.  Further, as submitted by Mr. Dawes, the Company’s action after the increase of share capital was consistent with its plans to expand its business.  As related in one of the affirmations of Joe Au, the Company did acquire the agency status from GEDA and spent a substantial sum on the purchase of building maintenance units.  It also purchased new gondolas and additional spare parts and components, developed its own hoist with one of its suppliers, and expanded its rental business to overseas markets such as Dubai, Thailand, the Philippines and Macau.

90.  I see no good reason to discount or disbelieve the assertion that the proposed increase of share capital was for the expansion of business in acquiring agency rights from GEDA and find that this was for a genuine business purpose.

91.  I turn to the contention there was unfair prejudice in that the rights issue was made at par when the shares were worth a lot more and with the knowledge that Chow was unable to raise funds at short notice to subscribe for the shares allocated to him, thereby resulting in a diminution in value of his shares which were diluted from 10% to 1.66%.  The circumstances of the rights issue must be carefully examined to determine if a contention of this kind could be regarded as unfairly prejudicial conduct (Re a company (No. 007623 of 1984) [1986] BCLC 362 at 367a to c; Ng Yat Chi v. Max Share Ltd. [2001] 1 HKLRD 561 at 575G to 576A).

92.  On the evidence, it is not established that Chow had no means to subscribe for the new shares.  Chow had only just sold his property for HK$3,150,000 by entering into an assignment on 27 April 2007.  He admitted in cross-examination he had the means to subscribe for his proportionate entitlement of 500,000 shares.  According to him, the primary reason why he decided not to take up the rights issue was because his relationship with Tang had turned sour, he had lost trust in Tang and he had been excluded from the management.

93.  As I have found, the increase of share capital was for a genuine business purpose.  The parties were not able to resolve their differences as to the terms upon which Chow was to divest his interest in the Company.  Unlike the situation in Re a company (No. 007623 of 1984), there are no pre-emption provisions in the articles of association laying down a mechanism for a shareholder to sell his shares to other shareholders.  Chow was notified of the proposed resolution to increase the share capital on 22 May 2007.  He had time to seek professional advice and had done so.  He was given the deadline of 22 June 2007 to subscribe for new shares failing which the shares would be allotted to other shareholders.  Chow responded by a letter of his solicitors on 22 June 2007 declining to take up the rights issue and giving his reasons, with a request to withhold action on the increase of share capital for 14 days for the solicitors to advise Chow further.  The Company declined to do so and made a return of allotment of new shares the following day.

94.  In the circumstances, even though the effect of the increase of share capital might have been prejudicial to Chow in that the value of his minority stake could have been affected with the dilution of his shareholding, I do not think it was unfair for the Company to go ahead with its plan of expansion and do what was necessary and appropriate to achieve that end.  The alternative was to defer the increase of capital until after an agreement was reached with Chow on the terms on which his shares were to be bought out.  Battle lines were already drawn as the writ in the Writ Action was served on Chow on 15 June 2007.  In the letter before action on 5 July 2007, Chow’s solicitors offered to sell his shares at a price to be agreed, or failing agreement to have the market value of the shares assessed without discount for minority shareholding.  It could be a long and uncertain wait for the Company if it were to shelf the proposed increase of capital and this would directly impinge on its business development.  For these reasons, I hold that the complaint of unfair prejudice regarding the increase of share capital has not been established.

If there had been misappropriation of assets of the Company

95.  There are a number of complaints under this head.

96.  Firstly, complaint was made of the entry in the audited accounts for the year ended 31 March 2001 of an advance from a shareholder, namely, Tang, of HK$56,826,609, an increase of HK$37,345,118 from the advance in the preceding year of HK$19,481,491.  It was alleged that Tang had not made such substantial advances to the Company.

97.  Tang’s first answer was that the audited accounts were signed and approved by Chow as well.  He alleged that before Chow signed on the audited accounts, he had discussed the matter of the shareholder’s advance with Chow and Chow had understood what this was.  I reject his evidence on this.  There was no mention of any such discussion in any of the affirmations he filed in court.  I prefer Chow’s evidence that all along, copies of the audited accounts were not given to him and when Tang showed him documents written in English for him to sign, he would just sign as he had trusted Tang at the time.  I accept his evidence Tang did not explain to him about the shareholder’s advance as alleged.

98.  According to Tang’s evidence in his affirmation and in chief, the HK$37 million for shareholder’s advance was the rental income from 200 gondolas which were not injected by him into the assets of the Company when it was incorporated and were rented by him to the Company.  The rental income was treated as and booked in the accounts as an advance by him to the Company in 2000.  There are difficulties with accepting this evidence.  When he was cross-examined about the rental income allegedly generated, the figures he gave did not add up to HK$37 million and only came up to HK$21 million at HK$7 million per year from 1998 to 2001.  He then said the shortfall of HK$16 million was the value of the 200 gondolas at HK$80,000 each, which were injected into the Company in 2001, after he had a discussion with Chow in December 2001.

99.  Even assuming the figures could be accounted for in the way he sought to explain them, this could hardly be fair to the Company, as Chow had put it to him did in cross-examination.  For three years, Tang had been receiving rent on the 200 gondolas which he did not put into the assets of the Company.  Then after the gondolas were in use for three years, he injected them into the Company and received full value of HK$80,000 per set as if they were new.  It is hard to disagree with Chow’s suggestion that in so doing, Chow had kept three years’ rental for himself, the profit of the Company was reduced in the accounts so less profits tax was paid and less profit was made available for distribution to shareholders, and Tang got the most benefit out of the exercise.

100.  Tang admitted that he had made large withdrawals from the Company’s account and that such withdrawals were repaid from the amount the Company had owed him for shareholder’s advance.  It was Tang who decided on the accounting treatment of assets, liabilities, income and expenses of the Company, and some of the figures he had come up with appeared to me to be arbitrary or dubious.  The staff responsible for preparing the accounts at Tang’s directions did not give evidence.  It is not known what information the auditors had obtained from the Company to satisfy themselves in the audit of the accounts.  As I have stated, the audited accounts cannot be relied on without reservation and I am unable to attach credence to large parts of Tang’s evidence.  On the evidence adduced before the court, it is not possible to make a finding as to the extent to which the shareholder’s advance could be regarded as proper and substantiated.

101.  I find there was unfairly prejudicial conduct in respect of this complaint regarding shareholder’s advance.

102.  The next complaint related to the disposal of gondolas of HK$28,837,141 at a loss of HK$7,122,027 for the year ended 31 March 2002.  It was alleged in the petition there was no justification for this alleged disposal at such a substantial account.

103.  Tang explained in his affirmation the disposal was 300 gondolas manufactured in China that had been purchased in 1999.  It was decided to dispose of them in 2001 or 2002 by transporting them back to China and that the Company should only hire out European manufactured gondolas in future, to raise the quality of its fleet of gondolas.  Chow accepted he was aware that gondolas were transported back to China at this time.

104.  When Tang came to give evidence, he said that the disposal price of gondolas of HK$28 million odd related not just to 300 gondolas manufactured in China, but 300 gondolas manufactured in Europe as well as these gondolas were also moved to China.  He claimed he had discussed with Chow and it was agreed that it would be treated in the accounts as his purchase of these 600 gondolas from the Company.  This evidence was mentioned for the first time in cross-examination.  I have grave doubts about this.  I reject his evidence of a discussion and agreement with Chow on the accounting treatment of this item.

105.  As Chow had put it to Tang, when he allegedly sold 200 gondolas to the Company, he had used the full price of HK$80,000 per set at HK$16 million, but when he allegedly purchased 600 gondolas from the Company, it was at a discounted price which resulted in a loss of HK$7 million to the Company.  He claimed that there were documents on the disposal but none were produced to the court.  It is not known what documents, if any, were provided to the auditors when the audit was carried out.  This is another example of Tang’s arbitrary treatment of items in the accounts.

106.  I find that his treatment of the above item in the accounts was unfairly prejudicial conduct to Chow.

107.  The third complaint was in relation to the administrative expenses for the year ended 31 March 2001, which amounted to HK$31,334,650, about 80% more than that of the previous year.  Chow alleged there was no justification for such substantial increase.

108.  Tang pointed out the turnover for the relevant year had increased by 115% and the increase in administrative expenses was justified.  He was not cross-examined about this.  On the available evidence, I decline to find unfair prejudice for this complaint.

109.  The fourth matter was substantial withdrawals made by Tang from the Company for his personal account.  These withdrawals were not particularised in the petition.  Insofar as Chow had relied on the amounts allegedly taken by Tang as stated in the Directors’ Report dated 8 December 2001, it was also stated in that document that Chow had taken from the Company HK$1.6 million as his 10% share of the profits, which might have been included in the payments by cheque of HK$2 million in 2001.  If these withdrawals were indeed made, they would seem to have been accepted by Chow without complaint for a long time.  I decline to find unfair prejudice in respect of this complaint.

110.  The last matter was that Madam Au was paid HK$25,000 per month by the Company since 2001 or 2002, even though she had never worked or taken part in the business.  In comparison, Chow’s salary as a supervisor was reduced from HK$22,000 a month to HK$17,000 in 2003 due to the downturn in business that year, and was only raised to HK$25,000 in 2006.

111.  According to Tang, his wife started receiving a salary of HK$25,000 since October 2003.  The work she carried out was to collect and deliver important documents and cheques to and from customers and to sort out miscellaneous banking matters for the Company.  Tang said he needed someone trustworthy for this task and the amount paid to his wife included her travelling expenses too.  It was not Tang’s evidence that he paid his wife the monthly sum as a reward for her mere holding of office as a director.

112.  Chow said he was not aware of the extent of Madam Au’s involvement in the work of the Company.  He had no idea when she started to receive a salary, nor was he told Tang did not receive a salary for five months in 2003.

113.  Mr. Dawes submitted that the amount received by Madam Au was neither excessive nor unreasonable.  If the court is satisfied the payments made were genuine exercises of the company’s power to pay remuneration, applying an objective test and ordinary standards, in the absence of evidence that the payments made were patently excessive or unreasonable, it is not for the court to engage on a minute examination of whether it would have been more appropriate or beneficial to the company to fix the remuneration at a certain level instead of another figure, as that is a matter left to company management (Re Halt Garage (1964) Ltd. [1982] 3 All ER 1016 at 1039 d to g, 1041c to d; see also Re a company (No. 004415 of 1996) [1997] 1 BCLC 479 at 494a to c).

114.  I hold that the payments to Madam Au were genuine payments of remuneration for services rendered to the Company.  I decline to find unfair prejudice for this complaint.

If Chow had come to court with clean hands and if he had presented the petition for a collateral purpose

115.  In a petition under section 168A, there is no independent or overriding requirement that it should be just and equitable to grant relief or that the petitioner should come to court with clean hands.  The conduct of the petitioner may be material in that it may render the conduct on the other side not unfair even if prejudicial, or may affect the relief which the court thinks fit to grant in the event unfair prejudice is made out (In re London School of Electronics Ltd. [1986] Ch 211 at 222 B to C).  In the latter situation, depending on the seriousness of the matter and the degree of its relevance, such conduct would be capable of leading a court to deny the petitioner any relief at all, even though the conditions for the exercise of the discretion in his favour under section 168A are otherwise satisfied.  And if misconduct by the petitioner is relied on as a reason for exercising the court’s discretion under section 168A so as not to grant any relief, some of the cases on the clean hands doctrine may provide useful guidance by way of analogy (Richardson v. Blackmore [2006] BCC 276 at 289H to 290A, paras. 53 and 54).

116.  The only misconduct I have found against Chow was his providing the design calculations and drawings in the hard disc to Azure some time in early 2008.  I do not find this sufficiently serious or sufficiently closely related to the unfairly prejudicial conduct of Tang to make it appropriate to deny relief under section 168A.

117.  As for the allegation of collateral purpose, I understand this was that attributed to the presentation of the petition seeking winding-up relief, which was struck out.  It was alleged this was done to cause maximum damage to the Company, for the benefit of Azure, in which Chow was involved or had an interest.  The foundation for this allegation has not been established.  There is no need to say more about this.

Conclusion and relief

118.  For the reasons given above, I dismiss the Writ Action.  There will be an order nisi that the plaintiff is to pay the defendant’s costs in that action.

119.  As the complaints of unfair prejudice in the petition are largely established, it would be appropriate to grant the relief sought under section 168A, namely, that Tang is to purchase the shares of Chow in the Company.  The valuation of the shares is to be carried out by an independent valuer being a certified public accountant appointed by the court, without discount for the fact that Chow’s shareholding is a minority shareholding.

120.  I have not heard submissions what should be the appropriate date at which the shares should be valued, whether this be the date of the presentation of the petition on 29 August 2007, by which time Chow’s shareholding had been diluted, or some other date.  I direct a further hearing should be held in chambers to finalise the order for the purchase of shares and appropriate consequential directions that should be made in that regard.  The parties are to seek a hearing date with two hours reserved within fourteen days of the handing down of this judgment.  They may address the court as to what specific matters the valuer should be directed to take into account in carrying out the valuation, such as various interests admitted by Tang to be held by the Company in other entities but not reflected in the audited accounts.

121.  Regarding the costs of the petition, I make an order nisi that the respondents are to pay the petitioner’s costs of these proceedings.