CHIU WING KEUNG MIKEY v. INTERASIA CORPORATION LTD AND OTHERS

HCMP 2114/2021

[2025] HKCFI 386

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2114 OF 2021

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J U D G M E N T

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1.  This is the judgment following the trial of an unfair prejudice petition presented by the Petitioner, Chiu Wing Keung Mikey (“P”)  on 13 December 2021 (the “Petition”).

2.  By the Petition, P seeks an Order pursuant to s.724(1)  of the Companies Ordinance (Cap 622)  (“CO”)  that his 25% shareholding in Interasia Corporation Ltd (“the Company”)  be purchased by the 2^nd and 3^rd Respondents, Ong Kay Gee (“KG”)  and Kim Beom Jin (“Beom”)  (together “Rs”), at a fair value to be determined by the Court.

3.  The background facts are partly set out in an Agreed Statement of Facts, Dramatis Personae and Chronology.  Supplemented by my findings of fact, they may be summarised as follows.

4.  Interasia Pte Ltd (“IASG”)  is a Singapore company providing litigation support and outsourcing services.  It was incorporated in 2003 and conducted its Hong Kong operations through an affiliate company, KG (a Singaporean national)  being its 60% shareholder and Managing Director.  KG has a background in computer engineering.

5.  IASG conducted its Hong Kong operations through an affiliate company.  Beom, a Korean national who has a background in computer science worked at the company. P, a Hong Kong resident who has a background in finance and management, also worked at the company and became a 20% shareholder.

6.  Around early 2013, IASG decided to shut down its Hong Kong office.  Around late April 2013, KG and Beom approached P to discuss the proposed incorporation of a new company, and its intended scope of business and the relationship between this company and IASG. 

7.  Quoting from the Agreed Chronology, “KG, Beom and P agreed orally to incorporate the Company and that the Company would enter into an outsourcing arrangement with IASG. The parties differ as to the terms of the agreed arrangement”. I set out what was agreed below.

8.  On 23 May 2013, the Company was duly incorporated in Hong Kong under its former name Interasia Discovery Management Ltd.  (It changed to its current name in 2017.)  The shareholding was as to 45% KG, 30% Beom, and 25% P. All three of the shareholders became directors.  P’s role was as finance director, Beom’s role was as business development director, and KG’s role was as managing director in charge of project management.

9.  The Company and IASG subsequently entered into three “Professional Services Agreements” (“PSAs”).  There is a fundamental disagreement as to their scope.  P maintains that they only applied to “LPO Services” (which is defined in the Points of Defence as litigation support services, which comprised hardcopy discovery and/or data processing services)  whereas KG and Beom maintain that they also applied to “BPO Services” (which is defined in the Points of Defence as business process outsourcing business).

10.  In May 2016, IASG obtained by way of sub-contract to one of its Singapore affiliates (“DNX”)  participation in a major project for the digitization of hard copy documents and microfilms for the Urban Redevelopment Authority of Singapore (“URA”; “URA Project”). This was sub-subcontracted by way of an Agreement between the Company, IASG and DNX dated 31 July 2016 (the “URA Sub-subcontractor Agreement”). Manpower supply was outsourced to a Singapore company called Avixa Solutions Pte Ltd (“AVX”).  I was told that the project was performed between 2017 and 2019.

11.  In broad terms, and subject to the difference of views referred to above, the Company is said to have “owned” the URA Project and was responsible for financial matters. IASG was responsible for delivery.  By “owned” is meant that the Company was entitled to the income stream from the contracts.  However, this caused complications because the Company then had to reimburse IASG for various costs.

12.  The details of their outsourcing arrangements, whether oral (P’s case), or reduced into writing in the PSAs (Rs’ case), were complicated, opaque and varied from time to time.  Even by the end of the trial, it was difficult to see the underlying rationale, and the parties struggled to explain it.  The fact that various definitions have been adopted by the parties, sometimes used in the same way, sometimes not, or in this judgment should not elide that point.  It seems that the arrangements were entered into to save Singapore tax.  Also a Hong Kong operation may have been better placed to attract Mainland work. The position is further complicated by the fact that the companies in the IASG “group” did not have the same shareholding. 

13.  Although matters seem to have proceeded smoothly for a while, misunderstandings and disagreements began to emerge.  A central dispute between the parties is a difference of understanding as to accounting arrangements between the Company and IASG under the URA Project. 

14.  Such is the background to the first two issues in the Agreed List of Issues, which concern whether KG procured the Company to overpay IASG in reimbursement for the labour costs of URA (“URA Labour Costs”), and the alleged failure of KG and Beom to procure the Company to collect revenue from the URA Project (“URA Project Revenue”). The remaining issues either relate to these issues or are standalone.

15.  By the end of 2019, the Company was having difficulty meeting its obligations, and the parties agreed to inject further capital. There is a dispute as to whether Rs paid their share in full.

16.  According to KG, because of a loss of confidence in P caused by the alleged overbilling of IASG for the URA Project (denied by P), coupled with the projected impact of Covid-19 on the business of the Company, in early January 2020 he expressed his intention to scale down the business of the Company.

17.  The parting of the ways came in March 2020.  The relationship ended in acrimony and allegations and counter-allegations about the accounting of the Company’s books.  On 6 March 2020, KG resigned as a director of the Company.

18.  On 10 March 2020, the shareholders agreed that the Company was to cease business with immediate effect.

19.  KG’s resignation was followed by that of Beom on 24 March 2020. This left P in the difficult position of being the only director left in the Company.  By this time, the restrictions caused by the Covid-19 pandemic were in full force.

20.  About this time, certain invoices (i.e. the “IASG Invoices” and “A&P Invoices”; see §§53(3)  and (4)  below)  were cancelled by KG and Beom, which give rise to issues between the parties.

21.  On 19 August 2020, P as sole director caused the Company to commence an action against IASG and KG in the High Court of Singapore claiming (i)  HK$ 1,346,823.62 as the outstanding principal and interest on a loan, and (ii)  HK$ 208,265.50 being the total sum due under various invoices (“Singapore Action”).

22.  On 23 September 2020, P as sole director caused the Company to commence an action in Hong Kong against KG, Beom and IASG in respect of multiple claims set out in the Statement of Claim (“Hong Kong Action”).

23.  Both these actions largely concerned matters now at issue in the Petition.

24.  On 2 December 2020, an annual general meeting (“2020 AGM”)  was convened whereby KG and Beom removed P as director of the Company.  In his place, Rs appointed Beom and a nominee of KG (namely, Alex Toh)  as directors.  So now P had lost all control over the Company.

25.  The Statement of Agreed Facts relates that on 17 December 2020, KG and Beom caused the Company to discontinue the Hong Kong Action, and on 29 January 2021, KG and Beom caused the Company to discontinue the Singapore Action.  This is the subject of one complaint on the grounds that it is said to have been in breach of fiduciary duty.

The proceedings

26.  The Petition was presented on 13 December 2021.  Various case management orders were made by Linda Chan J.

27.  The trial took place between 12 and 19 December with a break for the parties to produce written closings.  The written material has been of much assistance.  I express my appreciation to Counsel for producing it close to the Christmas holiday. 

28.  Each of the parties gave oral evidence.  Each side makes adverse comments as to the reliability of the witness(es)  on the other side.  Broadly, however, I consider all three of them to have been honest and trying to give reliable evidence.  However, P in particular was unwilling to make concessions, even where obviously appropriate.  More generally, despite the efforts of counsel to state the arrangements between them in a coherent way, the evidence tended to show that the problem was that the arrangements were simply not mutually understood.

29.  The main protagonists were P and KG.  They are two very different people.  I think it fair to say that P lacked much flexibility when mutual misunderstandings about the financial arrangements surfaced, when flexibility might have made all the difference.  On the other hand, KG did not assist by characterising disagreements about P’s account keeping as irregularities. I do not doubt that KG felt justified in raising issues on the accounts.  This is apparent from the various emails he sent including in early 2020.  But I consider that P would never knowingly have committed accounting irregularities.

30.  Beom was straightforward in his evidence, and to some extent has had the misfortune of being caught up in a dispute between P and KG.  However, he was on the sales side and on some points his understanding was second hand through KG, and I have not been able to accept all his evidence.

31.  The fact is that between the three of them, all directors until March 2020, they failed to manage the orderly rundown of the Company which had become inevitable and which should have been comparatively simple.  It may be that the onset of the pandemic also contributed to this state of affairs.

32.  A single joint expert valuer appointed by the Court, Ms Joey Sung of Perun Consultants Limited (the “Valuer”), prepared a valuation report (“Report”)  assessing the value of P’s 25% shareholding in the Company on the alternative bases set out at §3 of the Order of Linda Chan J dated 21 July 2022. The Valuer was not called to give evidence, and her evidence is therefore agreed.

33.  Following the report, a much needed mediation ordered by Linda Chan J did not unfortunately result in a compromise.  I do not know the details.

34.  In accordance with standard directions, discovery took place and the parties produced witness statements for their respective witnesses.  Shortly before trial, the parties produced an Agreed List of Issues stating 12 issues for decision by the Court, a Statement of Facts, a Chronology and a Dramatis Personae.  The purpose of these agreed documents is to identify the issues for trial and where possible to establish common ground in the light of the evidence. This can (for example)  obviate the need to amend the pleadings to bring them up to date.  The Agreed List of Issues in this case, however, was replicated from the Schedule of Principal Issues dated 8 July 2022 shortly after the close of pleadings.  It was inherent in the judge’s directions for trial, I think, that it would reflect the position after the evidence was in, which should have been its role.  In fact, on the key issue of the outsourcing arrangements between the companies, the parties did usefully agree the gist of each other’s cases and stated it in the Agreed Chronology. 

35.  There was some discussion as to how the pleading rules applied in relation to disputes as to the accounting between the parties.  At common law, the evidential burden to prove an assertion lies upon the party making it.  Thus the burden of proof lies upon the plaintiff (or here the Petitioner).  If the defendant wishes to advance a positive case then it must plead it so as to give the other party fair notice.  Absent a positive case, where the defendant (expressly or by implication)  puts the plaintiff to proof, it is at liberty to challenge the latter’s case at trial.  So in the present case, in cross-examination the Petitioner accepted that there was a mistake in his figures (see §§66-68 below).  To that extent the case was not proved.  This does not raise any pleading issues.  I do not think that any of this is controversial.

The applicable legal principles

36.  Section 724(1)  CO provides that:

“The Court may exercise the power under section 725(1)(a)  and (2)  if, on a petition by a member of a company, it considers that—

(a)  the company's affairs are being or have been conducted in a manner unfairly prejudicial to the interests of the members generally or of one or more members (including the member);…”

37.  In an unfair prejudice petition, the burden is on the petitioner to establish that (a)  the affairs of the company in question have been conducted (b)  in a manner which is unfairly (c)  prejudicial to the interests of the petitioner or the shareholders generally: Re Canadian Education Foundation (China)  Ltd [2024] HKCFI 3167 at §34, Anthony Chan J, citing Re Nobility School Ltd [2020] HKCFI 1503, §28.

38.  There is no dispute between the parties as to the applicable legal principles which are well established.  Other recent cases cited to me valuably review the authorities and state the principles: Re Harsen Industries Ltd [2024] HKCFI 1563, §§83-86, Linda Chan J; Re Promising Securities Company Ltd [2023] HKCFI 3367, §§49-55, Linda Chan J; and Re Jiang Yuan International Development Ltd [2018] HKCFI 1575, §§7-22, Alex Lee DHCJ.  

The relationship between the parties

39.  As noted above, in late April 2013, KG, Beom and P agreed orally to incorporate the Company and that the Company would enter into an outsourcing arrangement (referred to as the “Outsource Agreement”)  with IASG. 

40.  It is not in dispute that there was a relationship of trust and confidence between them. There were three “Fundamental Bases of Cooperation”.  These were that (1)  each shareholder was entitled to participate in the Company’s management by appointing himself or a representative as a director; (2)  each shareholder would leverage his experience, resources and connections in managing the Company’s business, with P becoming the finance director in charge of finance and accounting; (3)  when the Company required funding or capital injection from the shareholders, each shareholder would contribute on a pro rata basis in accordance with his shareholding. As to the latter there is some difference as to how this could be delivered, e.g. by set off etc.

41.  However this sheds no light on the scope of the outsourcing arrangements between the Company and IALS.  This has been called the “Outsource Agreement”. As to it, the parties differ.  As stated in the Agreed Chronology, in gist:

1.  On P’s case, the Company would engage IASG as its outsource processing contractor in Singapore, and all the litigation support and outsourcing businesses contracted by IASG, KG and Beom would be owned by the Company.

2.  On KG/Beom’s case, the Company would engage IASG as its outsource processing contractor in Singapore. However, the Company would only own IASG’s litigation support services business, which comprises hardcopy discovery/data processing services (“LPO Services”), whereas IASG’s business processing outsourcing business (“BPO Services”)  (which provides services to the Singapore government and banks)  would remain IASG’s own business.

42.  In more detail, Rs’ contention is that: 

(i)  The Outsource Agreement was not intended to govern the relationship between the Company and IASG, especially after the execution of the PSAs.

(ii)  There is no evidence that the PSAs included BPO work. There is no reference to BPO related words in the PSAs. Any suggestion that words in the “Scope of Services” such as “hardcopy discovery services” is a hidden reference to broad outsourcing work is not possible and also contrary to P’s position that LPO work is a sub-category of BPO work – not the other way around. If the parties had intended for BPO work to be included they would have included these words in the agreement. The absence of any reference to BPO work in the PSAs also supports and is consistent with Rs’ position that BPO work was not agreed during the Outsource Agreement.

(iii)  The matters discussed in relation to the shareholders’ expectations and obligations were preliminary matters of discussion without which they could not incorporate the Company and were not intended to form a formal agreement.

(iv)  The URA Project was governed by the URA Sub-subcontractor Agreement only and not the Outsource Agreement and/or PSAs.

43.  P’s contention is that: 

(i)  BPO is a generic term that covers most of the outsource business and LPO is a subcategory of BPO which caters specifically to the needs of the legal sector, and KG accepted this in cross-examination.

(ii)  This completely undermines Rs’ case that IASG only transferred its LPO business to the Company while retaining the BPO business – and by extension the allegation that the URA Project was somehow governed by a “different” but unspecified scheme.

(iii)  In any case, the question is irrelevant as regards the URA Project being the only substantial project at issue in the case (the other being minor work for Arnold & Porter, or “A&P”, a Singapore law firm).

(iv)  Rs expressly accepted in their Points of Defence that the URA Project belonged to the Company which was entitled to be paid the revenue for the project on a back-to-back basis.

44.  Rs submit that the matters discussed in April 2013 in relation to the shareholders’ expectations and obligations were preliminary matters and were not intended to form a formal agreement.

45.  However, the fact that the “Fundamental Bases of Cooperation” are at a high level of generality, and one might have expected a formal agreement to follow, does not mean that they were not agreed.  I find that they were agreed (as is admitted in the Points of Defence)  and were intended to restrict the shareholders exercising what would otherwise be their legal rights: Re T-Hero Industrial Co Ltd [2023] HKCFI 3118, §19.

46.  More relevantly for present purposes, it is common ground that the parties agreed at the time that the Company would enter into outsourcing arrangements with IASG. This was an essential part of the business of both companies.

47.  In this regard, Rs point to the distinction between litigation support services (i.e. LPO)  as against business processing (i.e. BPO)  to show that the PSAs did not include the URA Project, which is indisputably business processing.  I reject P’s evidence that he paid no attention to the PSAs, regarding them as mere formalities.  In any case, he signed them.  They seem to have been entered into because of an auditing or tax compliance requirement. However, this does not take the matter much further, because KG accepted in cross-examination that that LPO is simply a subcategory of BPO, which is just a generic term covering most of the outsourcing business.

48.  As relevant to the relationship between the parties, the dispute between the parties is as to the URA Project.  Rs’ case is that it was governed by the URA Sub-subcontractor Agreement only and not the Outsource Agreement and/or the PSAs. 

49.  As I have noted above at §10, the URA Sub-subcontractor Agreement was entered into by the Company, IASG and DNX on 31 July 2016.  DNX is also an affiliate of IASG.  The companies outsourced the URA Project to AVX. The Agreement has IASG and the Company as contracting together as regards the rights and obligations under the project. The URA Project was clearly something that they were undertaking jointly.

50.  However, the URA Sub-subcontractor Agreement does not deal with the outsourcing arrangements between the companies. For this, one has to look to what happened in practice.  Much of the cross-examination revolved around detailed book entries.  But looking at the bigger picture, the proceeds of the URA Project were paid to the Company, and accounted for by the Company allowing for reimbursement of IASG’s costs. Rs admit on the pleadings that the URA Project “belonged” to the Company. I find that this was how it was understood by the parties.  It is true that in March 2020, Beom emailed P saying that he was “… not sure why we [that is, the Company] need to bill for URA when we didn’t do the project”.  That reflects his lack of first-hand knowledge as to these issues, and does not reflect how the URA Project had been agreed and operated.

51.  Overall, I accept P’s submission that the URA Project fell within the outsourcing arrangements agreed between the parties, in other words within the Outsource Agreement.  This is also consistent with the fact that the words “Discovery Management” were dropped from the Company’s name in 2017. I find that the basic outsourcing relationship was agreed in conversations between the parties.  This was P’s evidence, and I accept it. It seems to have worked reasonably satisfactorily until the parties fell out.

The parties’ overall contentions on the 12 Agreed Issues

52.  I shall deal with the parties’ contentions under the 12 issues identified for decision in the Agreed List of Issues.  Standing back from the detail, both parties set out in their closing submissions some general points as follows.

Petitioner’s general submissions

53.  P submitted that the crucial issues for the Court’s determination can be distilled into the following 7 key issues.  These issues along with P’s submissions as to the correct answer are as follows:

(1)    Was IASG over-reimbursed for URA Labour Costs in the amount of SGD 240,006.40?  Answer, yes.

(2)    Did the Company fail to collect unpaid URA revenue from IASG in the total amount of SGD 337,073.88? Answer, yes.

(3)    Was there any basis for KG to delete the IASG Invoices in the total amount of SGD 403,109? Answer, no.

(4)    Was there any basis for Beom to delete the A&P Invoices in the total amount of USD 20,574.14? Answer, no.

(5)    Did Rs fail to inject capital into the Company leaving a shortfall of HK$ 308,100?  Answer, yes.

(6)    Did Rs fail to settle a loan from Standard Chartered Bank (“SCB Loan”)  in the amount of HK$ 69,853.87?  Answer, yes.

(7)  Was there any justification for Rs to terminate the Hong Kong and Singapore Actions? Answer, no.

54.  P submits that these key issues are dispositive of P’s claim for a buy-out order, both in liability and quantum. P submits that if any of the issues is resolved in P’s favour, the Company’s affairs would indisputably have been conducted in an unfairly prejudicial manner, entitling P to a buy-out order.

The general submissions of KG and Beom

55.  Rs’ broad response to each of the allegations of unfairly prejudicial conduct is summarised as follows:

(1)    Allegation 1(a): Alleged over-reimbursement to IASG –

(a)  P is mistaken as to the difference between LPO work and the URA Project and what agreement governs the project, and the operation of the PSAs versus the URA Sub-subcontractor Agreement. What the real agreement is between the parties is the crux of the dispute.

(b)  As a result, P attributed IASG’s LPO-Staff Cost to IASG’s URA-Staff Cost. This disregarded IASG’s own URA costs.

(c)  This under-calculated the amount owed to IASG and inflated the amount owed to the Company by IASG, hence creating a false “over-reimbursement”.

(2)  Allegation 1(b): Alleged failure to recover the URA Project revenue –

(a)  P did not take into account the agreed 3% margin to IASG for its miscellaneous costs before calculating the invoices and revenue.

(b)  There is no outstanding revenue once this is taken into account.

(3)  Allegation 2: KG and Beom deleting valid invoices –

(a)  P had committed accounting irregularities arising from his misunderstanding as to the difference between LPO and URA and the operation of the PSAs versus the URA Sub-subcontractor Agreement and the absence of including the 3% margin on URA Project invoices.

(b)  Further invoices should not be issued until these had been resolved.

(4)  Allegation 3(a): Failure to inject capital contribution into the Company –

Rs did in fact inject sufficient capital contribution to cover the Company’s expenses.

(5)  Allegation 3(b): Failure to settle the SCB Loan –

(a)  No evidence that this constitutes an unfairly prejudicial conduct by Rs against P as a member.

(b)  KG did not resign as a director to escape settling the SCB Loan.

(c)  There were multiple reasons the Company could not settle the SCB Loan, which cannot be solely be attributed to Rs.

(6)  Allegation 4: Removal of P as a director –

(a)  This was entirely unrelated to the Hong Kong and Singapore Actions.

(b)  It was solely because of the accounting irregularities discovered.

(c)    Also P’s failure to facilitate Rs in investigating the alleged accounting irregularities.

56.  Accordingly, Rs submit that the Petition should be dismissed.

57.  As appears from the above discussion of the relationship between the parties, I do not accept the first sentence of the contentions put forward in paragraph 55(1)(a)  above.  But the other issues remain live.

The Agreed List of Issues

Issue 1: Did KG procure the Company to overpay IASG the sum of SGD 240,006.40 in reimbursement for the URA Labour Costs?  

58.  Issues 1 and 2 go together.  Issue 1 is about overpayment by the Company, and Issue 2 is about underpayment to the Company.  They both arise from the model which the Company operated, which required what was on the evidence a relatively complex and opaque accounting between the Company and IASG. 

59.  Issue 1 arises out of the digitization project for the URA. The issue is whether KG procured the Company to overpay IASG SGD 240,006.40 in reimbursement for the URA Labour Costs.

60.  I refer to my findings above that the URA Project “belonged” to the Company and not IASG, and the Company was entitled to be paid the revenue generated by the URA Project.

61.  This involved the Company reimbursing IASG for various items, on P’s case (i)  URA Labour Costs payable to its sub-contractor AVX which actually executed the URA Project, (ii)  project management fees, and (iii)  business and travel expenses incurred.  

62.  It is P’s case that (i)  KG has procured the Company to pay IASG a total amount as reimbursement for its costs of the URA Project which exceeds IASG’s entitlement by SGD 240,006.40, and (ii)  Rs have failed to take any steps to recover the same from IASG despite P’s repeated requests.

63.  The alleged overpayment by IASG of SGD 240,006.40 was, on P’s case, reimbursement for the URA Labour Costs, that overpayment being the difference between (i)  the URA Labour Costs and (ii)  the amount which KG had procured the Company to pay IASG under that label.

64.  Rs deny this allegation on the basis, in gist, that P has undercalculated the amount of labour costs for which the Company was obliged to reimburse IASG. P submit that Issue 1 therefore turns on the question of what payments and reimbursements IASG was entitled to receive from the Company.

65.  It will be noted that Issue 1 is whether the alleged overpayment by the Company to IASC was procured by KG, and this is how it is pleaded.  As is pointed out on behalf of Rs, there is no evidence that KG procured the Company to overpay IASG. This is not a mere linguistic objection based on how Issue 1 has been framed.  P was the one in charge of finance and making payments to IASG, and if overpayments were made, in the absence of evidence to the contrary, it is reasonable to attribute them to P, not KG.  The closing submissions on behalf of P do not deal with this point.

66.  In fact, on cross-examination, it turned out that P made a mistake in his calculations.  That arises in this way.  The alleged shortfall is SGD 240,006.40.  This is calculated by reference to (1)  the total URA Labour Costs paid by the Company to IASG (SGD 1,907,187.64), less (2)  the total URA Labour Costs incurred by IASG from 2017 to 2018 (SGD 949,249.89), and (3)  the total URA Labour Costs incurred by IASG in 2019 (SGD 717,931.35, based on the provisional figure of IASG’s unaudited management account).

67.  The challenged number is under (2), namely SGD 949,249.89.  After being taken through the documents, P ultimately conceded that SGD 949,249.89 did not include the costs for 2017 (despite his earlier insistence that it included such costs)  and that there was a possibility as a result of the 2017 figures being left out that the alleged over-reimbursement figure of SGD 240,006.40 as pleaded in the Petition would need to be recalculated. He also fairly conceded that there was a possibility that the Company has not overpaid SGD 240,006.40 to IASG.  It is clear to me that there is more than a possibility.

68.  This was not, contrary to submissions on behalf of P, a new unpleaded case advanced by Rs.  The short point is that the numbers pleaded in the Petition have been shown to be unreliable, and this part of P’s case is not proved, the burden being upon him.

Issue 2: Did KG and Beom fail to procure the Company to collect URA Project revenue totalling SGD 337,073.88? In particular, did P on behalf of the Company pay IASG the sum of SGD 1,907,187.64 for the Total URA Labour Costs as alleged? If so, does this amount include the “IASG LPO-Extra Cost” and “IASG LPO-Staff Cost” (both as defined in the Points of Defence)?

69.  Issue 2 is about the alleged failure of the Company to collect URA Project revenue totalling SGD 337,073.88. In spite of its apparent complications, in the event it is common ground that Issue 2 has come down to a single point.

70.  It is Rs’ case that subsequent to the 2016 URA Sub-subcontractor Agreement, there was an agreement between P and KG for a 3% margin to be deducted by IASG from any invoices issued to the Company under the URA Project.  The Company did not take into account the agreed 3% margin to IASG for its miscellaneous costs before calculating the invoices and revenue.  There is no outstanding revenue once this is taken into account.

71.  P’s case is that there was no such agreement.  It also submits that the allegation is inconsistent with Rs’ pleaded defence which admits that the revenue generated by the URA Project should be paid by IASG to the Company on a back-to-back basis.

72.  Turning to the evidence of such agreement, reliance is placed by Rs on a WhatsApp conversation between P and KG on 28 May 2018.  P accepted in cross-examination that he agreed that a small amount of cash could remain in IASG in Singapore for the purchase of small items. However, he denied any 3% margin, and there is no mention of such a margin in the WhatsApp messages.  In fact, the conversation is inconsistent with any such agreement.

73.  In his witness statement, KG alludes to what he says was a subsequent meeting in which he and P orally agreed that the margin would be set at 3%.  As was pointed out on behalf of P, this is shorn of any particulars (e.g. where, when and how the alleged meeting was held, and who the attendees were).  KG endeavoured to redress this in cross-examination, but I did not find these further explanations credible.

74.  Further, I accept P’s submission that had the 3% margin existed, one would expect to find a paper trail somewhere in the 5,570 pages of contemporaneous documents adduced in the trial. Yet it is common ground that there is no reference to a 3% margin anywhere in the papers.

75.  While it may seem reasonable to make such a deduction to cover IASG’s costs, it has to be kept in mind that KG was a major shareholder in both the companies.  He had an interest in the success of both. In any case, the issue is presented as an agreed 3% margin, and I find that there was none.  The collection of URA Project revenue was a matter for IASG.  I find this Issue proved as regards KG.  Beom was not concerned with this aspect of the business.

76.  A further issue relates to the installation of CCTV in respect of the URA Project. KG accepted in cross-examination that he approved the issuance of the relevant invoice in a WhatsApp message.  This issue is no longer live.

Issue 3: Was there any legitimate reason for KG to delete the IASG Invoices?

77.  It is not in dispute that on 4 March 2020, KG deleted 7 invoices issued by the Company to IASG in the total amount of SGD 403,109 from the Company’s internal accounting system without consulting P. 

78.  P’s case is that there was no legitimate reason for doing so, and the matter is settled by the fact that there was no 3% margin agreement.

79.  Rs’ case is that the 3% issue was only one reason for KG deleting the invoices.  His discovery of what he believed to be overbilling of IASG due to P disregarding IASG’s URA-Staff Cost was the underlying issue which needed to be investigated.

80.  I see the force of Rs’ case in this respect. Whether or not KG was mistaken in his understanding, I accept his evidence that he believed that there was an accounting issue that should be investigated before any further invoices were issued.  Whatever the merits of the underlying issues, I do not consider that this was unreasonable in itself.  Nor is it accurate to describe this as a case of “accounting irregularities”.  That said, as a director of the Company he should not have deleted invoices upon which the Company would be seeking payment without at least notifying P as finance director first.

81.  KG resigned as director the following day thereby indicating that he would not be responsible for resolving the issues that he himself had raised.  He did email P on 8 April 2020 suggesting that P should submit a set of 2018 and 2019 Company accounts to him and Beom – P was then to appoint an auditor and KG and Beom would communicate their queries on the transactions between IASG and the Company to the auditor. P did not reply to this email, and though I think it is correct that an audit was (and is)  the only way conclusively to resolve the issues on the accounting arrangements, I doubt that KG thought that the way his offer was put to P was seriously likely to be accepted.

Issue 4: Was there any legitimate reason for Beom to void the A&P Invoices?

82.  It is not in dispute that that on or around 10 March 2020, Beom voided A&P Invoices in the aggregate amount of USD 20,574.14, and issued fresh invoices to A&P in IASG’s name thereby directing A&P to pay the same amounts to IASG instead.

83.  Beom’s explanation is two-fold.  First, the clients themselves asked him to reissue the invoices from Singapore because the business had been conducted in Singapore. This is what he told P at the time. Second, he thought that because the 3^rd PSA had not been renewed, this work belonged to IASG and not the Company.

84.  The difficulty with these explanations is that they do not fit with the facts.  A&P provided the relevant email chain, and there was no request from the firm for reissuance.  Beom’s evidence in cross-examination that he had been thinking of other clients was not convincing.  In fact, it was Beom himself who asked A&P for reissuance by email of 6 March 2020.  I do not accept his second explanation either, which I consider is an attempt at ex post justification. 

85.  In these circumstances, I consider that there was no legitimate reason for Beom to void the A&P Invoices.

Issue 5: Did KG and Beom fail to inject HK$ 308,100 as capital contribution into the Company?

86.  The Company was, as P puts it (and I accept)  in desperate need of funds in December 2019.  There is no dispute that P, KG, and Beom agreed to inject HK$ 250,000, HK$ 450,000 and HK$ 300,000 respectively as capital contributions into the Company. It is also not disputed that P paid his share in full, and that on 23 December 2019, Rs injected HK$ 441,900 into the Company. This left a shortfall in Rs’ contribution of HK $308,100.

87.  It is Rs’ case as summarised in its closing submissions that through a combination of (1)  other direct transfers into the Company and (2)  set-off from fees owed to them by the Company, that they have injected the shortfall subsequently, and in fact the total amount is HK$ 1,110,741, which was more than the required amount of HK$ 750,000.

88.  In Rs’ Witness Statements, this issue is dealt with by Beom – surprisingly, it is not dealt with by KG.  Beom says that “Although there was a shortfall of HK$ 308,100, this shortfall reflected the payment made by [the Company] to IASG being the operation costs for the LPO business…”.  This is a sum said to be owed by the Company to IASG being the operation costs incurred by IASG in providing the LPO services.  Beom agreed in cross-examination that he meant a set off or waiving arrangement.  It was put to him that a set off would not address the cash flow issue, but he said that even if HK$ 750,000 had been injected, HK$ 308,000 of it would have had to be transferred to Singapore.

89.  It is not in dispute that a payment of HK$ 260,000 was made by IASG to the Company on 27 December 2019.  KG’s evidence in cross-examination was that it came from his director’s account with IASG and was his money – however, this was not stated in his evidence or in the pleadings and is unsubstantiated.

90.  Light is shed on this payment by a contemporaneous email from P to KG on 27 December 2019, in which he acknowledged receipt of the money from IASG.  P said, however, that the directors’ capital injection should not be mixed up with the position between the Company and IASG.  It should, he said, be made by a hard cash injection, and not set off against the LPO operation cost: the Company “really needs hard cash to pay for operation costs each month”.  Then P set out the deficit in detail.

91.  I find that this payment cannot be treated as going towards KG’s share of the capital call for the reasons P gave at the time.

92.  In Rs’ submissions made in closing, the further payments said to make up the total of HK$ 1,110,741 are as follows.

93.  In February 2020, it is asserted that HK$ 42,208.34 and HK$ 143,708.34 was transferred to the Company.  As to the first, which was said to be a leftover balance, P submits, and I accept, that this figure is counted twice in Rs’ calculations.  As to the second, it was properly accepted by Counsel in closing that HK$ 100,000 of that number should not be included, as being attributable to disbursements in China and Japan.  I do not find Rs’ figures reliable, even if such payments could count towards the capital contribution, which in my view they could not.

94.  An amount of HK$ 334,738.66 is said to have been converted into capital by KG as part of a rolling account as a further sum injected by him to the Company. This rolling account is pleaded as being between (inter alia)  IASG and the Company in respect of which the directors would give temporary loans and would be repaid either in full or in part.

95.  P objects that such a rolling account makes no sense given the different ownership structures of IASG and the Company. 

96.  In closing, Rs relied on what KG said during cross-examination, to the effect that under the Outsource Agreement, he was entitled to directors fees payable by the Company. The HK$ 334,738.66 was directors fees owed to KG which KG did not take and left in the Company, converted into funds to be accounted for as part of his contribution to inject capital to the Company. Similarly, Beom claims that HK$ 31,894 was converted into capital.

97.  P denies it, and I do not find this rolling account proved.  As to directors fees, as P points out, writing off such fees would not solve the liquidity problem.  Further, the position may be affected by the fact that the parties had agreed as part of a cost cutting exercise that none of them would take any directors fees from December 2019 onwards.

98.  In sum, I reject Rs’ case. I consider that P is correct in this respect.  Even if Rs’ numbers add up, which they do not, it is not acceptable to meet a capital call by aggregating disputed set offs.  If a rolling account is to be held out, its existence and operation must be clearly articulated and proved.  This was not the case here.  I find that Rs’ failure to pay their full share and then to argue about it was damaging both to P personally and to the Company at a critical moment.

Issue 6: What reason(s)  led to the Company being unable to settle the SCB Loan?

99.  On 13 May 2020, at a time when P was sole remaining director of the Company, Standard Chartered Bank (“SCB”)  approved the Company’s extension application for a business instalment loan in the sum of HK$ 69,853.87 at an interest rate of 0.3% per month secured by the personal guarantees of Beom and P. The loan was part of the Covid-19 related pre-approved holiday on principal payments scheme.

100.  The last outstanding instalment due in July 2021 was in the sum of HK$ 69,853.87.  P who by this time was no longer a director paid this personally.

101.  Rs raised a number of factual points in relation to this loan.  They have contended that the loan was not needed in the first place, that funds would have been available had P not closed down a contract with Credit Suisse, and that they were not fully aware what the position was generally.

102.  I reject each of these.  Beom as good as admitted in cross-examination that the loan was needed. As regards Credit Suisse, this followed from the agreement to cease the business with immediate effect made on 10 March 2020. The Company clearly did not have the funds to repay the loan.  Rs were aware of the position both because Beom was a guarantor, and because there were email exchanges between P and Beom and the new director appointed in December 2020 (Alex Toh, KG’s nominee)  informing them.  If they needed further information, they could have asked.

103.  As a matter of fact, P says, and I accept, that KG and Beom left him to deal with the SCB Loan on his own, and as a guarantor he was ultimately compelled to settle it with his own funds in the sum of HK$ 69,853.87 on 2 September 2021.

104.  P submits that Rs did nothing about the SCB Loan because, in the case of KG, he knew that P was a personal guarantor and would be compelled to use his own money to settle the loan, and in the case of Beom, because he did not care whether the Company defaulted since he was prepared to have it wound up anyway.

105.  Rs say that KG could not be responsible for an extended loan due more than a year after his resignation as a director.  He said in cross-examination that it was not that he did not care, but that he was no longer a director.  A similar reason was given by Beom for stopping depositing funds into the Company’s account in relation to the loan.

106.  Rs submit that there was never any intention by them to escape from the loan repayments or avoid their obligations as directors. It is also clear, they say, that Rs’ resignations as directors have no relevance towards the repayment of the SCB Loan. The decision for Rs to resign was by virtue of the collapse of the Company’s inner management and P’s refusal to allow Rs to investigate the alleged accounting irregularities.

107.  I accept Rs’ submissions to this extent.  The loan played no part in the resignations of Rs as directors and their subsequent removal of P as a director.  The sums concerned were not large. P’s submission that Rs were in breach of their fiduciary duties in respect of the loan is tenuous (they ceased to be directors in March 2020, though Beom was reappointed in December 2020).

108.  However, more generally, I consider it relevant as part of the bigger picture because it underlines that both KG and Beom left P to cope on his own in March 2020.  They only re-engaged to protect their own interests in December 2020 after legal proceedings had been commenced against them.  That I turn to now.

Issue 7: Did KG and Beom remove P’s directorship for the improper purpose of putting a stop to the Singapore Action and Hong Kong Action, or for the reasons discussed in the 2020 AGM, including accounting related and/or conflict issues?

Issue 8: Were any accounting irregularities committed in respect of the Company’s financial accounts? If so, by whom?

Issue 9. Were the claims made in the Hong Kong Action and Singapore Action meritorious?

109.  As pointed out by Counsel for the Rs, these questions are interrelated and I shall deal with them together.

110.  The facts have been outlined above at §§21 to 23 above.  On 19 August 2020 (by which time P was sole director), the Company commenced an action against IASG and KG in the High Court of Singapore claiming (i)  HK$ 1,346,823.62 as outstanding on a loan, and (ii)  HK$ 208,265.50 due under various invoices. 

111.  On 23 September 2020, the Company commenced an action in Hong Kong against KG, Beom and IASG in respect of multiple claims set out in the Statement of Claim.

112.  Both these actions largely concerned matters now at issue in the Petition. Though the claims pleaded in these actions seem heavy handed to me, on the whole I consider that the actions were instituted by P as the only way he saw open to resolve the issues concerning the Company.  In any case, Counsel accept that it is not for this court to express a view as to the merits or otherwise of these proceedings.

113.  On 2 December 2020, the Company held its 2020 AGM by way of teleconference.  KG and Beom voted (with P objecting)  in favour of (i)  removing P as director, and (ii)  appointing Beom and Alex Toh as directors. Rs admit that Alex Toh is a nominee and/or associate of KG and Beom.

114.  The reasons cited by KG and Beom for P’s removal as recorded in the 2020 AGM minutes were respectively that:

KG: “… we believe that there are some improper accounting mislead by [P] and his accounting team. So at this point of time, I don’t think it is proper for him to continue to remain as a director, so the new director will investigate into the accounts…

Beom: “I agree to remove [P] from director for the same reason that I think given that [P’s] team has been doing the auditing I mean creating the financial books I think there is some conflict of interest for [P] being the director and remain the director.”

115.  As mentioned at §25 above, The Statement of Agreed Facts relates that on 17 December 2020, KG and Beom caused the Company to discontinue the Hong Kong action, and on 29 January 2021, KG and Beom caused the Company to discontinue the Singapore action.

116.  The main factual question that arises is whether KG and Beom removed P as a director to put a stop to the Singapore and Hong Kong actions.  P says that this was the real reason.

117.  As expressed in the minutes, KG and Beom say that the removal of P was due to P’s failure to cooperate with Rs’ requests on accounting records leading to the conflict of interest and the breakdown of trust and confidence between the shareholders. Subsequently, the Singapore and Hong Kong Actions were stopped in accordance with the Company’s best interests. The court is invited to form the conclusion that there were accounting irregularities, and the removal of P’s directorship was made in good faith, and did not unfairly prejudice P.

118.  Specifically, Rs say that P did not consider the IASG URA-Staff Cost, and only applied the LPO invoices when preparing the billing summary report for URA costs. Hence, a total of SGD $658,020 of the URA-Staff Cost incurred by IASG during 2016-2018 has not been properly reimbursed by the Company.  It was this that gave rise to KG’s suggestion in April 2020 of appointing an auditor (I have dealt with this under Issue 3).

119.  This IASG URA-Staff Cost complaint comes under Issues 1 and 2.  I accept P’s submissions to the effect that this complaint is not well founded.  In cross-examination, KG asserted that it was based on a special arrangement agreed to orally at an online board meeting.  However, this was not mentioned in his witness statement, and he was unable give any details.  It is not mentioned in any documents.  I agree with the comment made on P’s behalf that it is inherently improbable that P, an accounting professional, would consent to making a payment to IASG without any invoice or any sort of proper accounting documents.

120.  Issue 8 asks whether there were any accounting irregularities committed in respect of the Company’s financial accounts.  I think the word “irregularities” is used to impute fault without suggesting bad faith.  An answer to the question can only be at a high level since there is no independent analysis of the transfers between the companies. (This is not a criticism of the parties – the expense of expert accountancy evidence on this question would have been disproportionate to a claim which, though important to the parties, does not involve large sums of money.)  I am satisfied that there were no accounting irregularities.  I base that on the fact that, though I consider that P was unyielding when compromise could have resolved the dispute, his integrity is beyond question.  I repeat what I said earlier: P would never knowingly have committed accounting irregularities.

121.  Neither in my view would KG knowingly have committed accounting irregularities. But while I do not doubt his good faith, I am sceptical as to Rs’ assertions as to why P was removed as a director.  P was removed as a director on 2 December, and (quoting from the Statement of Agreed Facts)  on 17 December 2020 KG and Beom caused the Company to discontinue the Hong Kong Action, and on 29 January 2021 KG and Beom caused the Company to discontinue the Singapore Action.  The sequence of events is striking.  It was not suggested that the new director instituted investigations into the accounts. I find that discontinuance was indeed the prime purpose of P’s removal. 

122.  Rs say that it was in the Company’s interests to discontinue the actions, and that the court should not look behind the judgment of the directors in this regard. However, as P points out, Beom as a director had a conflict of interest in respect of the Hong Kong Action in which he was a defendant. KG was a defendant to both actions, but he was not a director by the time of the 2020 AGM.  I am not convinced on the facts that he was under a director’s fiduciary duty by way of being a de facto director.

123.  In conclusion on this part of the case, I agree with a point made by P in opening.  Regardless of Rs’ reasons for doing so, P’s removal as director was in breach of the parties’ agreement that each shareholder was entitled to participate in the Company’s management by appointing himself or a representative as a director of the Company.  This it will be recalled was part of the “Fundamental Bases of Cooperation” agreed at the time of incorporation.  For the purposes of the Petition, this is by far the most important point, in my view.

Issue 10: How much, if any, losses have the Company and/or P suffered as a result of KG and Beom’s unfairly prejudicial conduct?

124.  In opening, P submitted that as for the losses suffered by P, those consist primarily of (i)  the amount of HK$ 69,853.87 paid by P personally to settle the SCB Loan, (ii)  the legal/mediation fees paid by P on the Company’s behalf in pursuing the Singapore and Hong Kong Actions; and (iii)  the legal fees incurred by P in resolving the disputes arising from the unfairly prejudicial conduct complained of in these proceedings to date.

125.  In opening, Rs submitted that the answer to “how much, if any, losses have the Company and/or P suffered as a result of Rs’ unfairly prejudicial conduct” will depend on whether the Court finds that there has been such conduct as a result of the other issues.

126.  Neither party fully addressed Issue 10 in closing. I need say no more on this Issue.

Issue 11: Was a 3% margin agreed due to IASG in respect of the invoices issued by the Company to IASG? If so, did P or the Company pay this to IASG?

127.  This is dealt with above.

Issue 12: Did P inflate the amounts owed to the Company by IASG under the URA Project by attributing IASG LPO-Staff Cost (as defined in the Points of Defence)  invoices that were unrelated to the URA Project to URA staff cost and disregarding the actual IASG URA-Staff Cost incurred by IASG?

128.  This is dealt with above.

Conclusion on liability

129.  P submits that if any one of the issues is resolved in P’s favour, the Company’s affairs would indisputably have been conducted in an unfairly prejudicial manner, entitling P to a buy-out order.  I do not accept that way of putting it.  The context and background are very important (O’Neill v Phillips [1999] 1 WLR 1092 at 1098D-1099F, per Lord Hoffmann; Kam Leung Sui Kwan v Kam Kwan Lai (2015)  18 HKCFAR 501 at §§43-45, per Chief Justice Ma and Lord Millett NPJ). The matter has to be viewed as a whole to see whether or not the Petitioner has proved his or her case. 

130.  I have made it clear that P’s unyielding attitude must bear some of the responsibility for the breakdown in relations. There must be few such disputes in the quasi-partnership context where the fault is one way.  Nevertheless, my view of the overall position is as follows.

131.  Drawing together the points made above, I consider that neither P nor KG were responsible for accounting irregularities.  However, when the trust between them collapsed, the opacity of the accounting arrangements between the Company and IASG became apparent. In March 2020, all three shareholders agreed that the Company was to cease business with immediate effect, but this was not caused by accounting issues as between the Company and IASG, but rather because the business had not been flourishing recently.  Both KG and Beom resigned as directors.  I do not think that either of them made sensible offers to P as to how to resolve the disputes going forward.  They added to the breakdown in relations by deleting some invoices. As sole remaining director, P was left alone to deal with the responsibilities of closing the business down.  He responded with legal proceedings in Singapore and Hong Kong against KG and Beom which (though heavy handed)  were intended to resolve outstanding issues about the Company. To put a stop to the proceedings, and in breach of the understandings they had agreed at the formation of the Company, KG and Beom voted him off the board, KG substituting his nominee and Beom resuming his position as director.  The fact that P was left thereafter to pay off the SCB Loan from his own funds, was symptomatic of their attitude.

132.  I am satisfied that on that basis, P has established that the affairs of the Company have been conducted in a manner which is unfairly prejudicial to the interests of the Petitioner, who is entitled to relief under the CO (see Re Canadian Education Foundation, supra, at §28).

Relief

133.  Where unfair prejudice is established, the Court has wide powers under s.725(1)(a)  CO to make “any order that it thinks fit for giving relief”.  Non-exhaustive examples of possible orders are set out under s.725(2)  CO.  As Clough NPJ explained in Wong Man Yin v Ricacorp Properties Ltd and Others (2003)  6 HKCFAR 265 at §61, the Court has

“… a very wide discretion… to do what is considered fair and equitable in all the circumstances of the case, in order to put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company.”

134.  P submits that a buy-out order is appropriate because the relationship of trust between the parties has broken down, the reappointment of P as a director or otherwise recompose the Company’s board is fanciful and a recipe for disaster. Absent a buy-out order, P will be unfairly locked in the Company despite having only a minority stake which leaves him unable to defend his interests against the majority shareholders, and there is no reason to suppose that the Company could not resume its business with KG and Beom at its helm once P has been bought out.

135.  Rs submit that even if the Court finds there is unfair prejudice, a buy-out order would be unfair and inequitable and allow P to take similar opportunistic advantage in relieving himself of his shareholding in the Company, unjustly enriching himself at Rs expense, in circumstances where the Company was no longer profitable and the parties had already collectively discussed ceasing its business prior to the present litigation.  Examples are given which show the parties facing a loss of business going back as far as 2018.

136.  Rs point out that P does not have a right to require Rs to buy out his shares simply because there is a finding of unfairly prejudicial conduct. They submit that ordering a buy-out order would be wholly disproportionate where the Company no longer has any business and other remedies are available.  It would have a crippling effect on Rs and punitively punish them, going far beyond remedying any unfair conduct.  The Court is invited to exercise its discretion and grant a bespoke remedy/arrangement under its wide powers of discretion which would better do justice to all the concerned parties.

137.  My conclusion is as follows.  There is no prospect of this company recommencing business.  In any case, all trust between the parties has gone. This is not a case of an opportunistic taking of advantage on P’s part.  It is not disproportionate to seek a buy-out order, though issues of proportionality may be relevant to valuation.

138.  A careful appreciation of the schedule of alternative possible relief annexed by Rs to their submissions on relief shows, I think, that none of the alternative orders would work, and would simply prolong this dispute to no good end.  

139.  Rs submit that P contributed to his removal as a director by refusing to consider appointing an auditor as suggested by KG in April 2020.  I have dealt with this above. I doubt that KG thought that the way his offer was put to P could seriously advance a settlement.  The same can be said of an offer made by Beom in March 2020 to take P’s shares at zero value.

140.  As regards the alleged effect of the order financially on Rs, impecuniosity is not in of itself a reason for not making a buy-out order and in any case, there is no evidence before the court as to their means.

141.  There is no perfect solution.  I am satisfied that a buy-out order is fair and equitable in all the circumstances of the case. I will follow the case-law to the effect that a buy-out order is normally the most appropriate order to deal with intra-company disputes involving small private companies and involving exclusion from management such as the present case (see e.g. Re Hong Kong Agricultural Special Zone Ltd (unrep., HCA 2147/2013, 28 April 2017 at §290, Madam Recorder Linda Chan as she then was; Grace v Biagioli [2006] BCC 85 (CA)  at §75, Sir Nicholas Patten ).

142.  As I have noted above at §32, the Report prepared by the Valuer has assessed the value of P’s 25% shareholding in the Company on the alternative bases set out at §3 of the Order of Linda Chan J dated 21 July 2022.

143.  There is no dispute as to the content of the Report or the analysis of the Valuer, and there has been no cross-examination.

144.  As stated in the Order of Linda Chan J dated 21 July 2022, the Valuer renders her opinion on four scenarios as follows:

(1)  The value of the Petitioner’s shareholding in the Company (a)  as at 2 December 2020; (b)  without applying any minority discount; (c)  on a going-concern basis; and (d)  without taking into account the Petitioner’s allegations in the pleadings;

(2)  The value of the Petitioner’s shareholding in the Company (a)  as at 2 December 2020; (b)  without applying any minority discount; (c)  on a going-concern basis; and (d)  assuming the Petitioner’s allegations in the pleadings are true;

(3)  The value of the Petitioner’s shareholding in the Company (a)  as at 13 December 2021; (b)  without applying any minority discount; (c)  on a going-concern basis; and (d)  without taking into account the Petitioner’s allegations in the pleadings;

(4)  The value of the Petitioner’s shareholding in the Company (a)  as at 13 December 2021; (b)  without applying any minority discount; (c)  on a going-concern basis; and (d)  assuming Petitioner’s allegations in the pleadings are true.

145.  The Valuer explains why she chose fair value over fair market value for the valuation (see Section 2), and why she considers the discounted cash flow (“DCF”)  methodology the most appropriate approach for this valuation at Section 5).  She has rendered her opinion as at the date of P’s removal as a director on 2 December 2020 (“VD1”), and as at the date of the Petition on 13 December 2021 (“VD2”), under different scenarios, including with, or without, taking into account of the Petitioner’s allegations: she respectively refers to these as the “Topline Case” and “Base Case”.  She explains why she has approached the valuation distinguishing between the value of the Petitioner’s shareholding and the value of his Additional Claims (see Section 7).

146.  On this basis, her valuation arrives at four alternative numbers for the Court to choose from (all numbers are HK$):

	Base Case VD1	Topline Case VD1	Base Case VD2	Topline Case VD2
Fair value of the Company	11,324,000	16,154,953	12,628,000	17,749,818
Value of P's Shareholding: (A)	2,831,000	4,038,738	3,157,000	4,437,455
Value of P’s Additional Claims (B)		819,147		817,282
Fair values of P's shareholding in the Company + Additional Claims = (A)+(B)	2,831,000	4,857,885	3,157,000	5,254,737

147.  On this basis, P submits that the fair value of P’s shareholding is HK$ 5,254,737. The Court should adopt the date of Petition (VD2)  instead of the date of the 2020 AGM (VD1).  He submits that the Allegations under the Petition have been amply established, and even if some of them are rejected, it will not affect the value of his shares.  Likewise, the claims in the Hong Kong and Singapore Actions do not affect the value of the shares, since those claims should have already been recognised in the financial statements of the Company. Finally, the Additional Claims are substantiated by the evidence.

148.  Rs submit that even on the lowest of the valuations, P’s shareholding is valued at HK$ 2,831,000, and taking into account the financial amounts involved in the allegations against Rs, a buy-out order at higher levels would be wholly disproportionate where the Company no longer is in business.  It would effectively punish Rs, which is not the purpose of the legislation.

149.  I approach my conclusions by reminding myself of the correct approach to valuation as set out in Re New Century Iatrical Inv Management Ltd [2020] 3 HKLRD 464, §§29-30, per Susan Kwan VP, with whom Peter Cheung and Thomas Au JJA agreed:

“29. In valuing a company for the purposes of ascertaining the price to be paid for shares to be acquired by one party from another ordered in an unfair prejudice petition, the overriding consideration is fairness as between the parties in all the circumstances of the case. Which of the various approaches to valuation of a shareholding should be adopted is to be determined by what fairness in a particular case requires (Re Yung Kee Holdings Ltd [2014] 2 HKLRD 313 at §146). Which approach should be adopted as appropriate depends on all the circumstances, and the choice must be fair to both parties (CVC/Opportunity Equity Partners Ltd v Demarco Almeida [2002] 2 BCLC 108 at §38).

30. The statutory framework of the remedies for unfair prejudice confers on the court a wide discretion to do what is considered fair and equitable between the parties in all the circumstances of the case, in order to put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company (In re Bird Precision Ltd [1986] 1 Ch 658 at 669D to E, 672G to H).

150.  As regards the valuation date, the choice is between the date of the 2020 AGM on 2 December 2020 in which the majority removed P as a director, and the date of the Petition which is 13 December 2021.  As P correctly submitted, the starting point is that prima facie, an interest in a going concern ought to be valued at the date on which it is ordered to be purchased, but that is subject to the overriding requirement that the valuation should be fair on the facts of the particular case (Re New Century Iatrical Inv Management Ltd, ibid, at §32). I bear in mind that all three shareholders agreed on 10 March 2020 that the Company was to cease business with immediate effect.  I further consider that the date of P’s exclusion from the Company in effect crystalised his position (Re Tai Lap Investment Co Ltd [1999] 1 HKLRD 384 at 399G (per Doreen Le Pichon J)), and in the circumstances of the case decide that 2 December 2020 (VD1)  is the fairer date.

151.  The choice between Topline Case and Base Case is the choice between assuming the Petitioner’s allegations in the pleadings are true, or without taking into account Petitioner’s allegations in the pleadings.  The allegations are those which in the Valuer’s view can have a financial impact on the computation of the enterprise values of the Company using the DCF approach.

152.  P’s case is that the allegations have been amply proved, and Issue 2 (which was not proved)  has no impact on the value of the shares.

153.  I do not think it would be right to treat P’s allegations in the pleadings as true.  It is correct that P has largely succeeded, but my findings are nuanced.  There is no clean sweep, and so far as the financial side is concerned, an independent audit was probably the only (but impractical)  way to resolve the matter as between the Company and IASG.  As regards the claims in the Hong Kong and Singapore Actions, although those claims should already have been recognised in the financial statements of the Company, I have made no finding as to the merits one way or the other and Counsel accepted that such a finding would be inappropriate.  I consider that the fair approach is to adopt the Base Case.

154.  On that basis, the value of the Petitioner’s shareholding is HK$ 2,831,000.  I do not consider that it would be right to add to that the value of the Petitioner’s Additional Claims.  In summary, I determine that the value of the Petitioner’s shareholding is that sum, which is the Base Case number with a value date of 2 December 2020.

155.  I would add that the numbers arrived at on a DCF valuation, as in the case of any valuation, can properly be subject to a reality check.  Upon the evidence as a whole, this valuation arrives at the figure which in my view, as between the parties in this case, is the fairest of the four figures which the Valuer has put forward for consideration as the price for the buy-out order, and I would adopt it for that reason too.

Conclusion

156.  Following from the above, I will make these orders:

(5)  KG and Beom do purchase P’s 25% shareholding in the Company at the fair value of HK$ 2,831,000 (“Purchase Price”);

(6)  Interest shall accrue on the Purchase Price at 1% p.a. above the HSBC prime rate from 13 December 2021 until the date of Judgment, and at judgment rate (currently 8.875% p.a.)  from the date of Judgment until satisfaction in full.

The parties can agree the precise form of the order and revert to me if necessary.

157.  As regards costs, and on a nisi basis, P as the overall successful party is entitled to his costs of the Petition but there must be a deduction to reflect the fact that he was not successful on every issue, and on some issues, Rs’ contentions have succeeded.  P is entitled to 80% of his costs to be taxed on a party and party basis, if not agreed.  There will be a certificate for two counsel for the trial given the complexities of the case.

158.  I am most grateful to counsel for their assistance.