RE SARATOR PROPERTIES AND INVESTMENTS LTD.

HCCW 64/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 64 OF 2000

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JUDGMENT

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1. This is a petition for the winding-up of a company called Sarator Properties and Investments Limited ("the Company") on the just and equitable ground under s.177(1)(f) Companies Ordinance, or alternatively for an order for the purchase of the Petitioner's shares on the ground that he has been unfairly prejudiced under s.168A Companies Ordinance.

Background

2. The Company is a family company. The main characters in the petition were Wilkinson Ho Kak Sing ("the Petitioner"), and the Opposing Contributories his mother Leung Shuk Han ("the mother") and his brother Raymond Ho Kak Wai ("Raymond Ho"). Both the Petitioner and the mother gave oral evidence. Raymond Ho did not attend the hearing and his statement was admitted under the hearsay rules as he was in Canada. However, it has to be said that without cross-examination in a case such as this, little weight and value could be given to his statement.

3. The Company was formed in the late 1970's for the acquisition of properties owned by Ho Lai ("the father") who belonged to a traditional extended family whose members co-owned various properties.

4. The father never worked during his lifetime, and so the mother had to get the household's living expenses from an aunt who was in charge of the extended family finances. It is in issue between the parties whether the Company actually paid the father for his properties, and if so, with what means it paid for them.

Shareholding

5. At the time the Company was set up, the Petitioner and Raymond Ho were still minors in Canada. At that time, the shares were held mainly by the mother (as to 60%) and a sister Barbara Ho Kak Yin (as to 15%), with the rest of the shares held by 5 other sisters (as to 5% each).

6. By 1984, after certain increases in allotments and a transfer of legal ownership by Barbara Ho, the Company was held by the mother (as to 40%), the Petitioner (as to nearly 30%) and Raymond Ho (as to nearly 30%), with the 6 sisters holding a nominal 50 shares out of 1,800,000 shares (i.e. 0.0028% each).

7. As will be seen below, there is an issue as to the beneficial ownership of the shares registered in the mother's name.

Directors

8. The directors of the Company were the mother and Barbara Ho since the inception of the Company, with Raymond Ho appointed a director since 1979 and the Petitioner appointed a director since 1980. The four have remained the directors of the Company.

Business

9. The Company's business comprised of the collection of rent from the co-owned properties, and initially, the acquisition of local stocks for long-term investment.

Dibbinsdale

10. In 1979, however, a company by the name of Dibbinsdale Co. Ltd was set up as a subsidiary of the Company. The Company has held 99,998 out of 100,000 shares of Dibbinsdale, with the mother and Raymond Ho holding the remaining 2 shares. The directors of Dibbinsdale have been the mother, the Petitioner and Raymond Ho.

11. Dibbinsdale was set up to trade and invest in local and foreign stocks, although it would appear that initially it also participated occasionally in some real property transactions. It became dormant in January 1995.

12. By the early 1980's, the Company had become a holding company, the principal activities of which were the collection of rent from the co-owned properties and the holding of Dibbinsdale as its trading arm.

13. The issues in this case have arisen against the backdrop of the following events.

Purchase of Wang Fung Terrace property

14. In 1981, after the Company had received some funds from the sale of a co-owned property, it bought a residential property in Wang Fung Terrace for $2.68m. The Petitioner lived in the property with the mother and some of his sisters, but not Raymond Ho. No rent was paid to the Company.

Dividends

15. In 1984, after the sale of another co-owned property, the Company declared dividends of $4.87 per share. Dividends of $2,629,069 were paid to each of the Petitioner and Raymond Ho, but not to the mother. The accounting treatment of the dividends payable to the mother will be dealt with later in paragraphs 59-61 of this Judgment.

Alleged agreement for cessation of Dibbinsdale's activities

16. In 1984, Raymond Ho secured employment in Toronto with the stockbrokers Richardson Greenshields.

17. The Petitioner alleges that there was an agreement among himself, the mother and Raymond Ho that Dibbinsdale should cease business, that all documents would have to be approved by him before the mother signed them, that no money would be withdrawn from the Company or Dibbinsdale, and that all inactive bank and stock-trading accounts of Company and Dibbinsdale should be closed.

18. The Petitioner was inconsistent as to the time when (as he alleged) this agreement was reached. At one stage, he said it was made in 1981, with reference to the fact that he himself had passed a Canadian Securities Course in 1982. At another stage, he said this agreement was made when Raymond Ho emigrated to Canada, which would have been in 1984-5.

Loans from Company to the mother

19. It would appear from the Company's financial statements that starting from the year ended 30 April 1985, the Company made interest-free, unsecured loans to the mother. For the year ended 1985, the amount outstanding was $72,846, increasing to $97,855 (y.e. 1986); $144,034 (y.e. 1987) and $257,222 (y.e. 1988).

20. For the year ended 1989, however, there was a dramatic increase in the amount outstanding from $257,222 to $1,453,896, increasing to $1,476,567 (y.e. 1990); $1,538,845 (y.e. 1991); $1,549,104 (y.e. 1992); $1,569,972 (y.e. 1993); further increasing to $2,397,329 (y.e. 1994); $2,110,830 (y.e. 1995); $2,171,037 (y.e. 1996); $2,371,369 (y.e. 1997); $2,375,775 (y.e. 1998) and $2,403,526 (y.e. 1999).

21. These loans made by the Company to the mother are the subject matter of complaint by the Petitioner and will be dealt with in paragraphs 83-90 of this Judgment.

22. On top of these interest-free, unsecured loans which were made without a fixed repayment period, the Company also paid expenses incurred for the mother, including rent for her residence (when she was renting accommodation from 1989 to 1991), mortgage instalments for a property at Mount Parker Lodge acquired by the Company in 1991 which she used as her residence, management fees, utilities, and travelling expenses.

23. From 1993 onwards, the Company also paid the mother remuneration in the amounts of $50,000 for the year ended 1993; $45,600 (y.e. 1994); $66,000 (y.e. 1995); $72,000 (y.e. 1996); $72,000 (y.e. 1997); $84,000 (y.e. 1998) and $90,000 (y.e. 1999).

Sale of Wang Fung Terrace property

24. In 1987, the Company sold the property at Wang Fung Terrace when the Petitioner was in Latin America. The Petitioner has complained that this sale was done behind his back.

Estrangement

25. In November 1987, the mother, having moved out of the Wang Fung Terrace property, rented a flat in Yukon Heights. The Petitioner lived there for a brief period at the end of 1987 and the beginning of 1988 before moving out as a result of a disagreement of a personal nature. This led to an estrangement between the Petitioner of the one part and the mother of the other part.

Events after estrangement

26. Thereafter, there was no contact between the Petitioner and the mother, although both sides communicated with an aunt. The Company (and Dibbinsdale) were controlled and run by the Opposing Contributories viz. the mother and Raymond Ho (who remained in Canada). As for the other director of the Company, Barbara Ho, she had also emigrated and took no part in its operations.

27. From 30 April 1988 to 30 April 1989, as noted above, there was a dramatic increase in the loan made by the Company to the mother. The Petitioner claims he was not made aware of this and would not have agreed to it.

28. It is admitted by the Opposing Contributories that from 1991, no notices of meetings were ever served by the Company upon the Petitioner as a shareholder. He was also not given any notices of meetings of the board of directors. The mother's attitude as shown in cross-examination was that she regarded the Petitioner as having abandoned the family when he moved out of the Yukon Heights flat, and she claimed they did not know where to send the notices. In any event, it would appear that the Company (and Dibbinsdale) were run on the basis of informal discussions between her and Raymond Ho.

29. In short, from 1988 onwards, the Company carried on, collecting rent from the co-owned properties, with Dibbinsdale trading in stocks, and the Company advancing moneys to the mother on top of paying for her expenses (and later, paying her remuneration). No dividends were declared throughout the period.

Petitioner's demands and Opposing Contributories' response

30. In May 1996, as a result of certain financial obligations, the Petitioner became interested in discovering the state of the Company's finances and obtained the Company's financial statements through accountants. He was dissatisfied with the losses suffered as a result of Dibbinsdale's trading activities, and also with the loans made by the Company to the mother. He made various demands for repayment by Raymond Ho and the mother which were not met by the Opposing Contributories.

31. In the meantime, notwithstanding the Petitioner's objections to the making of interest-free, unsecured loans to the mother, further loans continued to be made to her.

32. Apparently, no meetings were called other than a directors' meeting on 2 September 1996 in which it was resolved that the Company would no longer invest or trade in stocks and that term deposits were not to be withdrawn or reduced except with the consent of all directors. The Company also gave notice of an extraordinary general meeting of the shareholders scheduled to be held on 16 September 1996 to pass a resolution to remove the Petitioner as a director, but this was later cancelled.

High Court action

33. In 1997, the Petitioner issued High Court proceedings which were eventually struck out for procedural reasons in 2000 with costs awarded against the Petitioner.

Abortive EGM purportedly called by Petitioner

34. On 11 November 1999, the Petitioner gave notice purportedly under Article 56 to call an extraordinary general meeting of the shareholders to be held at the registered office of the Company (which was the mother's residence at Mount Parker Lodge) on 10 December 1999.

35. The agenda included his complaints concerning the lack of dividends, the withdrawals of profits and capital from the Company, the failure to call Annual General Meetings, abuse of power by the directors, the making of various investments, removal of directors, management of accounts, directors' emoluments and voluntary liquidation.

36. Procedurally the calling of an extraordinary meeting by the Petitioner himself was incorrect as the Petitioner had not requisitioned the directors to do so although he had sufficient shares to deposit a requisition (Articles 59 and 60).

37. Be that as it may, no meeting took place because on the appointed day, the mother refused to let the Petitioner into the premises. The mother alleged that she had security concerns.

Petition

38. This petition was then presented in January 2000 for winding-up on the just and equitable ground, alternatively a buy-out on the ground of unfair prejudice.

39. After the presentation of the petition, the parties again attempted negotiations for the sale and purchase of shares but failed to arrive at any agreement.

40. The petition was conducted on the basis that the Court was being asked to order a purchase of shares under s.168A Companies Ordinance, rather than to wind up the Company under s.177(1)(f) Companies Ordinance. It has not been alleged by any party that the Company is insolvent, even if it were to be assumed that the loans made to the mother are not repaid.

41. Section 168A Companies Ordinance provides that any member of a company who complains that the affairs of the Company are being or have been conducted in a manner which is unfairly prejudicial to the interests of the members generally or some part of the members (including himself) may make an application to the Court for orders including an order for the purchase of shares. The conduct must be both unfair and prejudicial.

42. It is not necessary, and it has not been submitted by Mr Wong Po Wing for the Opposing Contributories, that the Court should first decide if it would be just and equitable to wind up the Company before it can exercise its discretion to grant relief under s.168A. Nor has it been submitted that the petitioner has himself to come to court with clean hands.

Issues

43. The issues between the parties at the hearing of the petition were as follows:-

(1) did the mother hold her shares in the Company on trust for the Petitioner and Raymond Ho equally?

(2) was the sale of the Wang Fung Terrace property an act of unfair prejudice to the Petitioner?

(3) was the Company's failure to reimburse an amount of $500,000 to the Petitioner upon the sale of Wang Fung Terrace property an act of unfair prejudice to the Petitioner?

(4) was there an agreement between the Petitioner and the Opposing Contributories that Dibbinsdale would cease business, such that Dibbinsdale's continuation in stock trading activities until January 1995 was an act of unfair prejudice to the Petitioner, and was there any misconduct by Raymond Ho?

(5) were the making of interest-free, unsecured loans by the Company to the mother breaches of s.157H Companies Ordinance and acts of unfair prejudice to the Petitioner?

(6) was the Petitioner ousted from the management of the Company?

(7) did the Opposing Contributories control the Company in such a way as to unfairly prejudice the Petitioner, by not giving him notices of meetings, or providing him with the Company's financial statements, or declaring dividends?

(8) if the Petitioner had been unfairly prejudiced, what is the proper relief?

(1) The mother's shares not held on trust for sons

44. The first issue is the extent of the Petitioner's beneficial ownership in the Company. It is the Petitioner's case that he owns 50% of the shares in the Company and that Raymond Ho owns the other 50%. Consequently the s.168A order he sought was for Raymond Ho to be ordered to buy his shares including half of the shares registered in the mother's name.

45. The Petitioner claims that it was "agreed and understood" from the commencement of the Company that the mother and Barbara Ho (other than the minimal shares she had, equivalent to the other sisters') held their shares on trust for himself and Raymond Ho, being the only 2 sons of the father.

Acquisition of properties from the father

46. The Petitioner said that the father had been persuaded to transfer his properties to the Company on the basis that the properties would go only to the sons, and not the mother, and that the father had not been paid for the assignments, contrary to the receipt clauses in the assignments. He said neither the mother nor the sons had funds to pay for the father's properties in the late 1970's.

47. In this connection, I accept that neither the mother, the Petitioner nor Raymond Ho had personal resources with which to purchase the properties from the father. The sons were still minors at the time. The mother did not allege that she had any private resources. She never worked and depended on the aunt to give her money for the household, with which she said she could make ends meet, but there was no allegation that she could have saved up enough from the household money to pay for the father's properties.

48. The mother said in evidence that the consideration for the purchase was in fact paid, but with the father's share of the Ho family money which the father himself was not allowed to access but which the aunt let her use. The effect of that evidence would appear to be that the father was paid for the properties with money to which he had some sort of interest, although it was not money that he would otherwise have had access to.

49. Be that as it may, I am satisfied from the fact that the assignments were attested by solicitors and that they contained receipt clauses, that the father had not assigned the properties as a gift to the sons. If the father had wished to make a gift of the properties to the sons, it would have been easy enough to do so by way of a deed of gift, which would not only have given effect to his intention (if it be such) of making a gift, but would also have the practical advantage of saving stamp duty.

50. Consequently, irrespective of where the funds had come from, I am satisfied that the properties had not been transferred by the father to the sons as a gift.

Instruments of transfer

51. The Petitioner gave evidence that the mother had signed instruments of transfer, transferring half of the shares registered in her name to the Petitioner and the other half to Raymond Ho. These were referred to in a letter he wrote to the mother in 1996. He also alleged that he had a copy (an allegation that was later withdrawn with the explanation that it was a bluff). The mother denied that she had ever signed any instruments of transfer, although she had not replied to the letter.

52. The Petitioner's evidence as to whether he ever had the instrument of transfer in his possession was confused and inconsistent. At one stage, he claimed he had never had possession of them, but at another stage of his evidence he said his wife had put them in a closet in the Wang Fung Terrace property. He also alleged that after the mother had given them to Raymond Ho and himself, he warned her that she should not part with them for her own protection and advised her to get them back. However at another stage of his evidence, he said his mother had to cry and beg him to return it to her.

53. I am not satisfied with the state of that evidence that the mother had ever signed instruments of transfer to the Petitioner and Raymond Ho. In any event, even if she had, the fact that she has not given it to the Petitioner irrevocably, or that she has retrieved it from him, is just as consistent with her having signed it in escrow, and not with a present intention to transfer the shares irrevocably.

Transfer of shares from Barbara Ho

54. In my view, the contemporaneous evidence that shows most clearly that the mother's shares were not held on trust for the sons is the fact that by way of contrast, Barbara Ho had transferred the shares registered in her name to them. If the truth was that all the shares in the Company (less the sisters' minimal shares) were held on trust for the sons, then there would have been no reason for one tranche of shares to have been registered in the mother's name, and another tranche to have been registered in Barbara Ho's name. One trustee, holding the shares with a declaration of trust in favour of the Petitioner and Raymond Ho, would have been enough.

55. The fact that the shares (less the sisters' minimal shares) were split into two tranches, with one tranche registered in the mother's name, and the other tranche registered in Barbara Ho's name - which shares were then transferred by Barbara Ho to the Petitioner and Raymond Ho, shows clearly the difference in the nature of those two tranches.

56. I find from that that the mother's shareholdings are hers beneficially, although there may once have been an expectation on the part of the Petitioner (if relationships had not soured) that on her passing, her shares would go partly to him.

Dividends

57. I have noted that dividends were declared by the Company for the year ended 30 April 1984 and they were claimed only by the Petitioner and Raymond Ho. (No dividends had been declared by the Company either before then, or since). The Petitioner has drawn support from that for his case that the mother was not a beneficial owner of the shares registered in her name.

58. However this has been explained satisfactorily by the mother as a one-time lump sum paid to each of the sons, then young men in their 20's, to help set them up in life. The mother had no need for a lump sum and so apparently did not claim the dividends from the Company.

59. The financial statements for the year ended 1985 are not available, but those for the year ended 1986 show an item of "accounts payable" of $3,365,867, which the Petitioner accepts may be the dividend corresponding to the mother's shareholding.

60. The financial statements for the year ended 1987 are not available, but those for the year ended 1988 do not show that item. The mother's evidence is not clear as to how that item was treated after the year ended 1986. No evidence was called from the auditors, and in any event, the mother's evidence was that the auditor responsible for the Company's financial statements had died. For the year ended 1989, new auditors were retained by the Company.

61. The upshot of that incomplete evidence is that although dividends had at one time been set aside by the Company as being payable to the mother, she did not claim them. That is consistent with her evidence that she did not need a lump sum, unlike the 2 sons then starting out in life. In view of the omission of the "accounts payable" item thereafter, the amount set aside was apparently then regarded as being no longer payable by the Company, a position with which the mother, who was a director and largest single shareholder of the Company, must presumably have agreed.

62. In conclusion, I find on issue (1) that the mother does not hold the shares registered in her name on trust for the Petitioner or Raymond Ho, and that the Petitioner's shareholding in the Company remains at 539,850 out of 1,800,000 shares.

(2) Sale of the Wang Fung Terrace property not an act of unfair prejudice

63. It is clear from the Petitioner's evidence that he felt very aggrieved by the manner in which the Wang Fung Terrace property was sold. It was his residence, apart from that of the mother and his sisters, and it took place when he had gone to Latin America.

64. The mother alleged that the Petitioner had agreed to the sale. I cannot accept that evidence. The Petitioner had chosen the Wang Fung Terrace property as his residence and I accept that he had spent quite a sizeable sum decorating it. I do not think he would have easily agreed to its sale, especially at a loss. Even if the property market were falling, it is unlikely that the Petitioner would have agreed to dispose of it, in view of his attachment to the Wang Fung Terrace property. There was no board minute approving the sale until May 1988, nearly 6 months after the sale and purchase.

65. Having said that, however, I do not consider that the sale was an act unfairly prejudicial to the Petitioner. As far as the Company was concerned, the property was being occupied by the Petitioner and the mother without any returns to the Company. The Petitioner had gone to Latin America for quite some time, and the mother did not know when he would return. The mother did not wish to continue living there as apparently management and maintenance expenses were high.

66. Of course the Company could have let the property out, but it was a matter of commercial judgment whether to do so or to dispose of the property on the market. It has not been suggested by the Petitioner that the sale was below market value, nor has it been shown that the proceeds of sale had not been properly received by the Company. Therefore, even though the Company did dispose of the property at less than the purchase price, the Petitioner has failed to prove that the sale was an act unfairly prejudicial to him.

67. In any event, it was far too late for the Petitioner to complain in 1996 of an act which had taken place in 1987 and of which he was aware in 1988.

(3) Company's failure to reimburse $500,000 not an act of unfair prejudice

68. The Petitioner also complained that the Company had failed to reimburse some $500,000 which he had used to decorate the Wang Fung Terrace property.

69. I accept that he had spent a sizeable sum in decorations, but it was not proven that he had spent the sum on behalf of the Company, rather than as an occupant. The Wang Fung Terrace property had been purchased by the Company in 1982 and was not sold until late 1987. The Petitioner did not fall out with the Opposing Contributories until after the sale of the Wang Fung Terrace property. If the Company had any obligation to reimburse him, one would have expected the Petitioner to have caused that obligation to have been satisfied during that period of 5 years.

70. In any event, again, it was far too late for the Petitioner to complain.

(4) Dibbinsdale's stock trading activities

71. The losses suffered by Dibbinsdale from its stock trading activities was one of the Petitioner's major complaints. When analysed, his complaint was first, that there had been a breach of an agreement among himself, the mother and Raymond Ho that Dibbinsdale would no longer trade in stocks, and secondly, that in conducting the trades, Raymond Ho had been guilty of some misconduct.

72. I deal first with the alleged agreement. The Petitioner's evidence regarding this was inconsistent. He first said that the agreement took place in 1981. He said he was able to recall that because he himself had completed a Canadian Securities Course in 1982 and he produced a certificate to that effect.

73. However, the financial statements of Dibbinsdale show clearly that it carried on trading after 1981, to the knowledge of the Petitioner. The directors report of Dibbinsdale for the year ended 30 April 1983 stated that the principal activities of Dibbinsdale was the trading of local and foreign stocks, and recorded that the loss for that year amounted to nearly $128,000. With the debit balance of more than $152,000 from the previous year, the total debit balance was more than $280,000.

74. The Petitioner was one of the directors who recommended that the total debit balance be brought forward. The Petitioner has said that he did not know of the report, but that denial is inconsistent with the statement in his affirmation that he was active in management between 1981 and 1985. I find therefore that there was no agreement in 1981 that Dibbinsdale would cease trading in stocks.

75. Even if it be assumed that the agreement took place when Raymond Ho emigrated (which would put it in 1984-5), the Petitioner has still failed to prove that there was such an agreement. At that stage, the Company's affairs were still quite well-documented. Even individual sales of stocks held long-term by the Company were minuted in detail. I do not accept that an important decision such as the cessation of Dibbinsdale's stock trading activities upon Raymond Ho's emigration would have gone without proper (or even informal) documentation.

76. Further, the Company's financial statements after 1984-5 show that Dibbinsdale carried on trading in stocks, and the Petitioner was aware of that and had no objection. The Petitioner has not denied that he signed a resolution of all directors of the Company dated 5 November 1987 resolving that the Statement of Accounts for the Company for the year ended 30 April 1987 be approved and that he and the mother be authorized to sign the Accounts. It also resolved that the directors report be approved.

77. Although those financial statements signed by the Petitioner (for year ended 1987) are no longer available, it can be seen from the Company's consolidated profit and loss account in the financial statements for year ended 1988 that the turnover for year ended 1987 was $22,727,927. That sort of turnover clearly showed the trading of stocks, as the rental income from properties co-owned by the Company were substantially less. Indeed the Notes to the Accounts for year ended 1988 stated that the Group turnover for year ended 1987 comprised $144,415 for "rental income" and $22,583,512 for "trading of quoted stocks". Obviously therefore Dibbinsdale had continued its stock-trading activities, as the Company itself did not trade in stocks.

78. In relation to this point, the Petitioner could only say that he had not read the financial statements which he signed. However I find that unconvincing. According to his own evidence, the financial statements had been given to him by his aunt who passed on a request for him to sign them. He was put under no pressure of time, and had the time to read and digest them before signing them. He could see from the resolution that the financial statements were to be signed by himself and the mother, and he knew the latter did not read English. I cannot accept that he would have signed the financial statements without even a brief glance at their contents, and even a brief glance would have shown the high turnover figure, clearly showing that Dibbinsdale had carried on stock trading activities for the year ended 1987, some 2 years after the agreement alleged by the Petitioner.

79. The Petitioner was by then no longer on good terms with the Opposing Contributories. If Raymond Ho had been trading in stocks in breach of any agreement, the Petitioner would have raised an outcry immediately. There was no complaint. In my view, that shows clearly that there was no such agreement.

80. As for the Petitioner's allegation against Raymond Ho, there has been no evidence that Raymond Ho had conducted himself improperly in doing the trades. Dibbinsdale's accounts were audited and there was no qualification of those accounts in the years when substantial losses were suffered. The Petitioner had not pursued his request to Raymond Ho's employers for information with which he had hoped to find some fault.

81. The Petitioner has referred to the fact that as broker, Raymond Ho would have received commission from doing the trades, but the fact was that Raymond Ho had started working for Richardson Greenshields in 1984-5 and the Petitioner was well aware of that. Clearly he had no objection to that arrangement then and it was far too late to start complaining in 1996.

82. I find therefore that the fact that Dibbinsdale continued to trade in stock (until it ceased business in January 1995) was not an act that was unfairly prejudicial to the Petitioner.

(5) Interest-free, unsecured loans to the mother in breach of s.157H CO and an act of unfair prejudice

83. I then come to the Petitioner's other major ground of complaint, which was of the making of substantial interest-free, unsecured loans by the Company to the mother. The fact that these loans were made is clear from the Company's financial statements. As noted above, from 30 April 1988 to 30 April 1989, there was a substantial increase in the amount outstanding from $257,222 to $1,453,896, and from 30 April 1993 to 30 April 1994, there was another substantial increase in the amount outstanding from $1,569,972 to $2,397,329.

84. These loans were on top of expenses paid by the Company for the mother's accommodation, utilities, travelling expenses etc., and from 1993 onwards, the Company had also paid remuneration to the mother.

85. Mr Wong, counsel for the Opposing Contributories, has not sought to deny that these unsecured, interest-free loans made without fixed repayment periods would be in breach of s.157H Companies Ordinance if they were not approved by the Company in general meeting. However, as will be seen in paragraphs 94-7 of this judgment, I find that any such meetings were invalid for want of notice to the Petitioner.

86. The Opposing Contributories have sought to argue that it had been "understood" by all the shareholders of the Company that the mother's living expenses would come from the Company, and the mother's evidence was that the former accountants of the Company had advised that she drew the expenses as "loans".

87. The Opposing Contributories have referred in support of this "understanding" to the fact that the Petitioner had signed minutes of an EGM of the Company dated 15 April 1986 resolving that loans to the maximum extent of $122,920 advanced to the mother for year ended 30 April 1985 be ratified and approved.

88. The Petitioner accepts that he had no objection to the mother drawing her living expenses from the Company income which he expected to be the rents received from the co-owned properties and bank interest, but he has pointed to the very large amounts advanced, when most living expenses had already been defrayed by the Company and booked as "general administration expenses". I agree with this contention. With her accommodation, travelling expenses, utilities, rates and management fees paid for by the Company, the mother has not been able to explain what other "living expenses" would have been so substantial as to have warranted a "loan" of $1.2m in 1988-9 and $800,000 in 1993-4. These represent substantial increases over the modest amounts advanced of $10,000 - $20,000 a month in the years 1985-8.

89. I am conscious of the fact that the mother had not claimed the dividend declared in 1984, but there was no evidence that there was any set-off arrangement. As noted above in paragraphs 59-61, the dividend had been booked as "accounts payable" for the year ended 1986, but thereafter the amount was no longer regarded as being payable by the Company.

90. In my judgment, there was no justification for the Company making such substantial "loans" to the mother. In particular, the "loan" in 1988-9 (immediately after the estrangement) was 6 times the amount she had taken the year before and amounted to more than one-third of the Company's net assets. The mother has not satisfactorily explained what the money was used for, and where it has gone, and she has not suggested that she is in a position to repay any part of it. Given that a substantial amount was taken in the year immediately after the estrangement with the Petitioner, she may have taken it as an act of retaliation against the Petitioner with whom she had fallen out. But it is not necessary for the Court to consider why she had taken the money. The fact is that she has been allowed to withdraw substantial funds without interest and without security, and far in excess of any amount explicable as her usual living expenses. There have been no demands for repayment and she has not suggested that she would be able to repay the loans or any part thereof. Clearly, her withdrawal of such substantial funds is unfairly prejudicial to the interests of the Petitioner as a shareholder of the Company.

(6) No ouster from management

91. The Petitioner has also complained that he had been ousted from the management of the Company. I do not find this ground substantiated. The Petitioner made no attempt to even inquire about a role for himself in the management of the Company after he fell out with his mother in late 1987 - early 1988.

(7) Failure to give notices of meetings and financial statements

92. The Petitioner has also complained that he had been unfairly prejudiced in that he had not been given notices of meetings or financial statements, and that the Company had failed to declare any dividends.

93. It would appear that the Company had been run by the Opposing Contributories as if the Petitioner were not a shareholder. It is not denied that no financial statements had been sent to him, although they were supplied after he asked for them in 1996.

94. It has also been expressly admitted that there were no notices of meetings from 1991 to 1995 (see the letter dated 26 February 1998 from the Opposing Contributories' solicitors).

95. The mother has sought to explain this failure by saying that she did not know the Petitioner's address. However, I reject that excuse. The mother knew of their common point of contact - the aunt, and had passed documents to the Petitioner that way. Besides, the Articles provided for notices to be sent to members by post to their registered address (Article 146), posting up in the office (Article 147) and by advertisement (Article 148). The Opposing Contributories, who had access to professional advisers in accountants and company secretaries, did none of those things.

96. This was notwithstanding the fact that there were general meetings of the Company purportedly held in Canada at which the "loans" to the mother were purportedly ratified. Such ratification cannot be valid as the omission to give notice of meetings to the Petitioner could not be said to be accidental (Musselwhite v Musselwhite & Son Ltd [1962] Ch 964). It was clear from the mother's evidence that she knew no notices were to be sent to the Petitioner.

97. Indeed it would appear that even after the Petitioner had started correspondence with the Company in 1996 (giving his address and asking for notices to be sent to him there) and had complained (amongst other things) about the loans to the mother, no notices of meetings were sent to him and he could not take part in any meetings.

98. In my view, the failure of the Opposing Contributories to give the Petitioner notices of meetings (at which large "loans" to the mother were ratified) was unfairly prejudicial to him. Whatever feelings they may have towards the Petitioner as a son and brother, they should not have allowed those feelings to affect their obligations as persons controlling a company.

99. As for the lack of declaration of dividends, I am satisfied that there was only a one-off declaration to help the sons establish themselves. Before that, there was no practice of declaration of dividends. I do not therefore think that the failure to declare dividends was itself an act unfairly prejudicial to the Petitioner.

(8) Remedy

100. That leads to the last issue - being the appropriate remedy. As noted above, the case has been argued by both sides on the assumption that the appropriate remedy (assuming a finding in favour of the Petitioner) would be an order for the purchase of shares rather than an order for the winding-up of the Company. Indeed, the parties had been in correspondence on this matter although they have not been able to agree on the terms of a purchase. The application for an order to wind up the Company would therefore be dismissed.

Order

101. Given the findings in this Judgment, I would order that the Opposing Contributories (as between themselves, proportionally) do purchase the Petitioner's shares on the basis that he holds 539,850 shares in the Company, such shares to be valued by an accountant to be agreed between the parties and failing agreement to be nominated by the President of the Hong Kong Society of Accountants. I would further direct that for the purposes of such valuation, the amounts advanced to the mother since 30 April 1988 should be included in the Company's assets on the assumption that they are repaid, save for a sum of $123,000 p.a. since 30 April 1985 (with yearly adjustments in accordance with inflation rates). This is in recognition of the fact that the Petitioner had admitted that the mother was expected to draw her living expenses from the Company and that he had previously ratified modest "loans" to the mother. I will give liberty to apply for any further directions required.

102. Finally I would make an order nisi that the costs should follow the event, in other words, that the Opposing Contributories bear the Petitioner's costs of the petition.