YU CHI MING v. CHIU YEE WAH KATHERINE AND ANOTHER

HCCW 724/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 724 OF 2002

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AND

HCA 2820/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2820 OF 2002

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BETWEEN

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(Heard Together)

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  REASONS FOR  JUDGMENT

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Finding of background facts

1.  The background facts, as I find them, are set out in this section.

2.  Glory Plan Industrial Limited (“the Company”) is a company registered under the Companies Ordinance, Cap. 32, on 11 May 1993.

3.  Its authorised share capital is $100,000 divided into 100,000 shares of $1.00 each.  Its paid-up capital is also $100,000.  Mr YU Chi Ming, also known as “Joey” (“Yu Chi Ming”), and Ms CHIU Yee Wah Katherine (“Katherine Chiu”) each held 50,000 shares and were the only directors of the Company.

4.  Neither Yu Chi Ming nor Katherine Chiu had the financial means to start their own business.  So, almost right from the formation of the Company, Yu Chiu Ming and Katherine Chiu turned to Katherine Chiu’s parents,  Mr CHIU Kwong Bun and Madam YUM Fook Sheung, for financial assistance.  Katherine Chiu’s parents had retired but had substantial savings.  They were supportive of their daughter.  From about 1994, they gave the Company a number of 7-digit loans.  The earlier loans, i.e. loans in 1994, 1995 and early 1996, were repaid within a month or at most a year.

5.  Yu Chi Ming and Katherine Chiu were married on 23 March 1996.

6.  Chuang Peng Electronics (Shenzhen) Company Limited (“the Subsidiary”) is a wholly owned subsidiary of the Company and was incorporated in Shenzhen in about March 1996.

7.  Neither Yu Chi Ming nor Katherine Chiu had the financial ability to fund the growth of the Company or to acquire any manufacturing facilities.  Yu Chi Ming and Katherine Chiu turned, again, to Katherine Chiu’s parents for financial assistance.  Katherine Chiu’s parents made various loans to the Company from late 1996 to 1999. 

8.  The Company’s principal activity was trading in electronics products, selling electronics products to its customers which were mainly overseas and buying those products from the Subsidiary which manufactured them. Apart from selling to the Company which was its biggest customer, the  Subsidiary also sold some of its products in China.

9.  In contrast with the loans made before the marriage of Yu Chi Ming and Katherine Chiu, the Company made no real attempt to repay any of the loans made after the marriage of Yu Chi Ming and Katherine Chiu.

10.  Yu Chi Ming and Katherine Chiu separated since about August 2000.

11.  As at 30 September 2000, the Company was indebted to Katherine Chiu’s parents in the sum of $7,180,000.

12.  Between 1 October 2000 and 31 January 2001, 2 sums adding up to $280,000 had been repaid to Katherine Chiu’s parents. 

13.  As at 31 January 2001, the Company was indebted to Katherine Chiu’s parents in the sum of $6,900,000.

14.  By their solicitors’ letter dated 18 May 2001, Katherine Chiu’s parents demanded the Company to repay $6,900,000.27 (neither Yu Chi Ming, nor Katherine Chiu, nor their lawyers had taken the trouble to deal with the 27 cents and I make no attempt to reconcile this discrepancy), failing which they said Katherine Chiu’s parents would petition for winding up pursuant to section 178(1)(a) of the Companies Ordinance, Cap. 32.

15.  Yu Chi Ming took no step to cause the Company to make any repayment.

16.  On 16 May 2002, Katherine Chiu’s parents issued a Writ against the Company (HCA No. 1845 of 2002) for $6,900,000.27 with interest and costs.

17.  On 2 July 2002, Yu Chi Ming filed his petition in HCCW 724 of 2002 (“the HCCW proceedings) for an order that Katherine Chiu do purchase his shares in the Company or to wind up the Company under section 177(1)(f) of the Ordinance and for other reliefs.

18.  On 22 July 2002, Katherine Chiu commenced a derivative action, HCA No. 2820 of 2002 (“the HC Action”), against Yu Chi Ming for damages for breach of fiduciary duties and other reliefs.

19.  By her Amended Points of Defence and Counterclaim dated 26 October 2004 (re-amended on 11 November 2004), Katherine Chiu counterclaimed in the HCCW proceedings for an order that her 50,000 shares in the Company be purchased by Yu Chi Ming.

Orders made on 25 November 2004

20.  The HCCW proceedings and the HC Action were heard together.  At the end of a 10-day trial, I made the following orders in the HCCW proceedings:-

(a)    The Petition be dismissed.

(b)    The 50,000 shares held by [Katherine Chiu] of and in [the Company] be purchased by [Yu Chi Ming] at the price of $2,032,118.

(c)    [Yu Chi Ming] do pay the Official Receiver’s costs, assessed at $8,900.

21.  Katherine Chiu’s counsel told me that there was no need for me to make any order in the HC Action, except an order on costs.

22.  After hearing counsel, I was persuaded not to make an order for costs between Yu Chi Ming and Katherine Chiu there and then.

23.  I told the parties that reasons for my judgment would be handed down on 16 December 2004 and that I would make an order nisi on costs between Yu Chi Ming and Katherine Chiu.

Yu Chi Ming’s pleaded complaints

24.  Madam Justice Kwan ordered the parties to file pleadings.

25.  I shall deal first with Yu Chi Ming’s pleaded complaints and then with Katherine Chiu’s pleaded complaints.

Katherine Chiu’s parents’ demand letter and statutory demand

26.  It is not clear from the Amended Points of Claim whether Yu Chi Ming was complaining about the demand letter and statutory demand from Katherine Chiu’s parents, and if the answer is in the affirmative, what the complaint was and the basis therefor.

27.  Yu Chi Ming’s pleaded case is as follows (written exactly as it stands in the original):-

“9.     ... the Company had borrowed various loans from their respective family members, the particulars of which as per a special auditor report for the year ended 31 January 2001, are ... a) the Company was indebted to the parents of [Katherine Chiu] in the sum of HK$6,900,000 (‘Chiu’s Loan’) ... c) Both of the aforesaid loans were lent to the Company without interest and security and no specific date of repayment.

...

12.    Since about March 2001, [Yu Chi Ming] and [Katherine Chiu] tried to resolve their disputes and negotiated for the disposal of the shareholdings of the Company but no agreement could be reached, mainly for the reason that the parties could not agree on the term and method of repayment of Chiu’s Loan.

13.    Since then the parties were in disputes on the following matters that created substantial difficulties in the operation of the Company, and deadlock in the management of the Company.

...

16.    In light of the statutory demands, [Yu Chi Ming] suggested that a firm of solicitors should be engaged to advise on the Company’s rights and actions to be taken.  [Katherine Chiu] disagreed and insisted that the parties should first agree on the repayment of debts to her parents.  Accordingly, [Yu Chi Ming] and [Katherine Chiu] could not agree any terms on how to respond to the statutory demands.”

28.  On his own pleaded case, Yu Chi Ming accepted that the Company was indebted to Katherine Chiu’s parents in the sum of $6,900,000 and that the loans had “no specific date of repayment”.  He did not allege that the Company had any defence.  He did not allege any repayment.  He did not allege any proposed repayment.  He did not allege any financial inability or difficulty on the part of the Company to make any repayment, whether in full or in part.  The loans had been outstanding for a long time.  In my judgment, Yu Chi Ming was clearly taking advantage of Katherine Chiu and her parents and it was perfectly reasonable for Katherine Chiu to insist on concrete terms of repayment.

“Loan interest”

29.  Paragraph 17 of the Amended Points of Claim alleges a number of withdrawals, said to be without Yu Chi Ming’s or the Company’s consent.

30.  Yu Chi Ming’s pleaded case on “loan interest” reads as follows (written exactly as it stands in the original):-

“17. a)    A sum of HK$13,500 per month from the Company since 30 November 1999 and continued until 28 February 2001 purportedly as ‘loan interest’ for Chiu’s Loan, totaling HK$219,500”.

31.  $13,500 per month for 17 months equals $229,500, not $219,500.

32.  In his testimony, Yu Chi Ming accepted that he knew about these payments.  When asked why he did not complain, he asserted that he had and pointed to a note from him to Katherine Chiu dated 23 November 2001.  In that note, his complaint on this item reads as follows:-

“The purported ‘Loan Interest’ at $13,500 per month for the period of 31 October 2000 to 28 February 2001.”

33.  In my judgment, Yu Chi Ming’s complaint on loan interest is wholly unmeritorious for these reasons:-

(a)    In his note dated 23 November 2001, he did not complain about the payments from November 1999 to September 2000.  There is no allegation of any change in circumstances since October 2000.

(b)    More importantly, I accept the evidence of Katherine Chiu that Yu Chi Ming co-signed the cheques on this item.  I find that he knew about the payments and had all along approved them.

Payments to domestic helpers

34.  Yu Chi Ming’s next pleaded complaint is about payments totalling $142,820 “purportedly for the fees for domestic helpers” from April 1998 to April 2001.

35.  In my judgment, Yu Chi Ming’s complaint is totally devoid of merit for these reasons:-

(a)    These were reimbursements to Katherine Chiu for payments made by her to domestic helpers serving at what Yu Chi Ming referred to in his Amended Points of Claim as the “Matrimonial Home”.

(b)    Prior to their separation, both Yu Chi Ming and Katherine Chiu ordinarily resided at the Matrimonial Home.

(c)    Since their separation, Yu Chi Ming ordinarily resided at the Matrimonial Home.

(d)    Yu Chi Ming accepted that all expenses and outgoings at the Matrimonial Home were charged to the Company as the Company’s expenses.  Whether any other person or company may complain is beside the point.  It was not open to Yu Chi Ming to complain.

The sum of $68,255.80

36.  Yu Chi Ming’s pleaded case reads as follows (written exactly as it stands in the original):-

“17. d)    on 10 November 2000, a sum of $68,255.80 and caused the same be paid to Hantech Securities, albeit it was repaid to the Company on 13 November 2000”.

37.  I note that this sum was repaid within 3 days, including Saturday and Sunday.  I accept the evidence of Katherine Chiu that she had consulted and obtained clearance from Yu Chi Ming before advancing this sum as a short term loan to a mutual friend of Yu Chi Ming and her.  There is no substance in this complaint.

A piano and hi-fi

38.  Yu Chi Ming’s pleaded case reads as follows (written exactly as it stands in the original):-

“17. e)    on 11 November 2000 a total sum of HK$25,080 purportedly for ... a piano of $18,600; and ... an unidentified item under the brand name Yamaha for $6,480”.

39.  As stated above, Yu Chi Ming admitted that all expenses and outgoings at the Matrimonial Home were charged to the Company as the Company’s expenses.  In my judgment, it was not open to Yu Chi Ming to complain about $6,480 which was used for the purchase of a set of hi-fi which was purchased for his use and enjoyment and had been delivered to and remained at the Matrimonial Home.  

40.  I turn now to the piano.  Katherine Chiu originally thought that she could indulge herself with a piano since Yu Chi Ming was having the benefit of all the items (purchased using the Company’s funds) at the Matrimonial Home.  In her testimony, she readily conceded that she, and not the Company, should pay for the piano.  Her original view was understandable.  In my judgment, think Yu Chi Ming is not entitled to have the Company wound up or to a buy-out order on this ground alone.

$180,000

41.  Yu Chi Ming’s pleaded case reads as follows (written exactly as it stands in the original):-

“17. f)    on 17 November 2000 a sum of HK$180,000 purportedly for the reason of showing to the Immigration Department for hiring the new Philippine maid which eventually, was paid to the parents of [Katherine Chiu] purportedly as partial payment to the Chiu’s Loan.”

42.  When Yu Chi Ming was confronted with the voucher dated 17 November 2000 to repay $180,000 to Katherine Chiu’s father, he claimed that he did not know about it until January or February.  He asserted that he had objected and pointed to the note dated 23 November 2001!  He said he agreed with the report dated 31 January 2001 prepared by the Company’s auditors.  That report showed that the Company was indebted to Katherine Chiu’s parents in the sum of $7,180,000 as at 30 September 2000 and in the sum of $6,900,000 as at 31 January 2001.  He further agreed that the amounts due to Katherine Chiu’s parents as stated in that report was arrived at after deducting $180,000.  Yu Chi Ming pleaded in paragraph 9 of his Amended Points of Claim (see paragraph 27 above), that the Company was indebted to Katherine Chiu’s parents in the sum of $6,900,000.  On the one hand, Yu Chi Ming took the benefit of repayment of $180,000 to Katherine Chiu’s parents.  On the other hand, Yu Chi Ming complained in paragraph 17 f) of his Amended Points of Claim about the payment “purportedly as partial payment”. 

43.  In my judgment, his complaint on this item was calculated to waste the Court’s time and was a clear abuse of the process of this Court.

$4,000 a month to Katherine Chiu’s mother from January 2001 to April 2001

44.  With typical sloppiness, Yu Chi Ming’s pleaded case reads as follows (written exactly as it stands in the original):-

“17. h)    Between the period from 1 January 2001 until 1 April 2001, [Katherine Chiu] caused the Company to pay a sum of HK$4,000 per month to her mother, Madam Yam Fook Sheung purportedly as her salary, notwithstanding the fact that Madam Yam had already retired from the Company on 29 December 2000.  The total amount was HK$20,000.”

45.  To start with, there were at most 4 months between 1 January and 1 April 2001.  4 x $4,000 = $16,000, not $20,000.

46.  The assertion that Katherine Chiu’s mother “had already retired” was known to Yu Chi Ming to be untrue.  Katherine Chiu’s mother had never worked for the Company.  Whether it was an exercise to evade tax by inflating the Company’s expenses is beside the point.  As Katherine Chiu’s mother had never worked for the Company, Yu Chi Ming was trying to mislead the Court by asserting in his pleading that she “had already retired”.

47.  Yu Chi Ming testified that he agreed with Katherine Chiu to pay $4,000 a month to her mother as “pocket money”.  Unless there was any change in circumstances, it was not open to Yu Chi Ming to complain.

48.  The only alleged change in circumstances was that the Company’s provident fund package terminated when an employee reached the age of 65 and that Katherine Chiu’s mother had reached 65. 

49.  In my judgment, this does not confer any basis on Yu Chi Ming to complain.  He had not informed Katherine Chiu about any cessation of the payment of “pocket money”.  He has succeeded in wasting the Court’s time by raising another thoroughly unmeritorious complaint.  

“ISO Certification”

50.  Yu Chi Ming’s pleaded case reads as follows (written exactly as it stands in the original):-

“18.   ...by an email dated 13 April 2002, [Katherine Chiu] without any reasonable justification informed all staff of the Company to cease the application for the continuation of the certifications of TL 9000, ISO 9002 and QS 9000.  It is a standard condition of all sale contracts entered into by the Company with its customers that one of the certifications must be provided as an internationally accepted assurance of the product quality.  Without such certification, the Company would be in breach of all its sales contract which may render its customers to reject the goods and cause the Company and/or the Subsidiary substantial loss and damage.

19.    In order to avoid such possible loss and damage, on 20 April 2002 [Yu Chi Ming] had no option but to proceed with the application for the continuation of such certification for the Subsidiary alone without the Company being included.”

51.  In my judgment, this is another unmeritorious complaint by Yu Chi Ming, for these reasons:-

(a)     In her email of 13 April 2002, Katherine Chiu said she decided to cancel the application for TL9000 because no business plan of the Company had been prepared.

(b)    However, after further written communications between her and Yu Chi Ming, Katherine Chiu sent an email on 26 April 2002 to all her colleagues on the subject of ISO9000, QS9000 and TL9000 certificates.  She wrote that despite the fact that there was no business plan, she was proposing to the board of directors to continue applying for ISO9000/QS9000/TL9000 certificates.

52.  Taking an email out of context and ignoring another email sent within 2 weeks shows how desperate Yu Chi Ming was in trying to draw up a list of complaints against Katherine Chiu.

Audited financial statements for the year ended September 2001

53.  Yu Chi Ming went into some length to complain about Katherine Chiu’s alleged failure to agree the financial statements for audit purposes and for submission to the Inland Revenue Department.

54.  For reasons given above, with the exception of the piano, I have already held that it was Yu Chi Ming, not Katherine Chiu, who was in the wrong on the items in dispute.  For reasons which I will give, Yu Chi Ming was again in the wrong on the items which Katherine Chiu complained of.  In my judgment, if any person was liable for the failure to submit audited financial statements to accompany a tax return to the Inland Revenue Department, it was Yu Chi Ming, not Katherine Chiu.  I also find that it was reasonable for Katherine Chiu not to agree to qualify the accounts in view of the auditor’s advice that he could not foresee the impact on the Company in respect of its financial position and business rating.

Alleged concealment of writ issued by Katherine Chiu’s parents

55.  In paragraphs 23 – 35 of his Amended Points of Claim, Yu Chi Ming went into great length to complain about alleged concealment by Katherine Chiu of the writ issued by her parents against the Company, in the course of which Yu Chi Ming alleges the following in paragraph 30 (written exactly as it stands in the original):- 

“... During the absence of [Katherine Chiu] from the office, [Yu Chi Ming] had searched the Hong Kong office of [Katherine Chiu], including the computers ... used by [Katherine Chiu], but still could not locate any writ or court documents in relation to the said action.”

56.  I confess I do not understand how Yu Chi Ming or the pleaders could possibly locate any writ or court documents by a search of Katherine Chiu’s computers.  If Katherine Chiu was concealing the writ, the last thing she would do was to create a soft copy and save it in her computers.

57.  Katherine Chiu admitted that she knew about the writ issued by her parents.  She said that she had tried to contact her parents but they refused to answer her telephone calls and they had declined to open the door when she went to their home.  She said she did not inform Yu Chi Ming about the writ because she saw no point in doing so.

58.  I accept her evidence given at the trial, including her evidence in relation to her parents’ action against the Company. 

59.  While it might have been better if she had informed Yu Chi Ming about the writ, I reject any allegation or contention that she concealed the writ.  She did not. 

60.  There was no need for her to conceal the writ.  In paragraphs 14 – 16 above, I recounted that the Company had not repaid a single cent to her parents despite the service of a statutory demand a year ago.  The Company had no defence.  It was perfectly legitimate for her to conclude that the Company should not defend her parent’s action.  The Company could not defend without her agreement.

61.  Further, I find that she was bona fide of the opinion that there was no point in telling Yu Chi Ming.  The Company’s indebtedness to her parents in the sum of $6,900,000 had been outstanding for some time.  In paragraphs 14 – 16 and 26 – 28 above, I concluded that Yu Chi Ming was taking advantage of her and of her parents.

62.  Yu Chi Ming’s complaint of alleged concealment fails.

Other matters

63.   It was incumbent on Yu Chi Ming to make good his complaints or to expressly withdraw them, and not expect the Court to sort it out for him. 

64.  Yu Chi Ming alleges the following under “Other Matters” in his Amended Points of Claim (written exactly as it stands in the original):-

“36.    On 29 January 2001, [Katherine Chiu] issued a memo to the Account Staff of the Company and instructed him to stop the payment of the salaries to [Yu Chi Ming].

37.    On 29 March 2001, [Yu Chi Ming] through his staff of the Subsidiary requested the Company to transfer RMB300,000 to settle rental and electricity charges urgently but [Katherine Chiu] did not response despite repeated requests.  It was only until 10 April 2001, the money was finally transmitted to Shenzhen, about 9 days longer than the normal period of 2-3 days.

38.    On or about 11 and 17 April 2001, [Katherine Chiu] instructed the account staff, Mr. Calvin Wong to deny [Yu Chi Ming’s] access to the sales reports for December 2000 and for January to February 2001 of the Company which was a right of [Yu Chi Ming] as a director of the Company.

39.    On 3 July and 16 July 2001, [Katherine Chiu] instructed the account staff to stop the reimbursement for [Yu Chi Ming’s] expenses related to the quarters at Shenzhen, travelling expenses between Mainland China, and expenses for the use of the car in Hong Kong, contrary to the long established practice between [Yu Chi Ming] and [Katherine Chiu] that such expenses were to be paid by the Company.”

65.  The parties saw fit to place no less than 2,390 pages of documents before me. 

66.  I have not been able to locate the alleged memo referred to in paragraph 36.  Yu Chi Ming admitted that his salary was in fact paid on time.  Paragraph 36 shows how petty he is.

67.  Yu Chi Ming has not proved the alleged request on 29 March 2001 as alleged in paragraph 37.  He has not proved what the request comprised of.  He has not proved any urgency.  He has not proved the alleged “repeated requests”.  He has not proved that the normal period was 2 – 3 days. 

68.  There is no allegation of actual denial of access in paragraph 38.  There is a world of difference between denying access to existing documents and instructing an accounts staff not to prepare a sales report.  I see no reason why I should plough through the voluminous documents to try to make sense out of paragraph 38.

69.  Katherine Chiu’s instructions on 3 July 2001 was to stop reimbursement of personal expenses or car expenses of a car used by an outsider.  Katherine Chiu’s instructions on 16 July 2001 referred to an increase of $20,000 in allowance to cover expenses.  No attempt has been made to prove the alleged “long established practice”.

70.  In my judgment, there is no merit in Yu Chi Ming’s  complaints on “other matters”.

Dismissal of petition

71.  Yu Chi Ming has failed to make good the factual basis alleged and that was why I dismissed his petition.

Katherine Chiu’s pleaded Complaints

72.  I turn now to Katherine Chiu’s pleaded complaints.

Diverting business and money away from the Company and stoppage of delivery of PCBs to the Company

73.  Katherine Chiu’s complaints are that Yu Chi Ming sent written circulars to the Company’s customers to divert the Company’s business and funds away, initially to the Subsidiary and subsequently to a company called Global Expert Technologies Limited (“GET”) and that Yu Chi Ming caused the Subsidiary to stop supplying the Company with printed circuit boards.

74.  While Katherine Chiu was on away from the office because she was sick, Yu Chi Ming went to the Company’s office on 14 and 15 June 2002.  The following is what Yu Chi Ming himself said in paragraph 30 of his Affirmation filed on 2 August 2002 in the HC Action (written exactly as it stands in the original):-

“f)    On 14 June 2002, I issued a Memorandum to the staff about the absence of [Katherine Chiu].  I appointed Heidi Chan as the acting in-charge of the office and all staff should report to me direct.  To maintain the current situation of [the Company], I instructed the staff to change the lock of the office and then I went back to the Shenzhen Factory because I did not know what might be done against [the Company] by [Katherine Chiu] or its creditors.

...

h)    On 15 June 2002, (Saturday and a public holiday), I returned to Hong Kong office to search the office to find out what had happened and why the Writ, judgment etc were not known to [the Company].  Since I did not have the new key of the office, I requested my staff, Ms. Suzanne Seeto to go back to the office.  In the presence of two staff members Suzanne Seeto and Zou Chuan Jian, I opened the Company’s drawers used by [Katherine Chiu] to see whether urgent tasks had been on hold ...

i)    Zou Chuan Jian as the Senior Engineer of the Shenzhen has excellent knowledge on computer, but he still could not fully access the information of [the Company’s] computer supplied to [Katherine Chiu] for her use.  I therefore directed him to remove the hard disk and took it back to the Shenzhen office where he could have more software and equipment to deal with the computer ...”

75.  On 14 June 2002, Yu Chi Ming locked out Katherine Chiu and tried to exclude her from management by appointing some other person to be in charge and instructing all staff to report to him.  On 15 June 2002, he caused the hard disk in the computer used by her to be removed and taken away in order to gain unauthorised access to the data stored in that hard disk.  Having obtained the data he desired (including the Company’s database of its customers and the customers’ orders), he wrote to all the Company’s customers.

76.  On 17 June 2002, he sent the following email to the Company’s customers (written exactly as it stands in the original):-

“First of all, thank you for your support of [the Company], I am Joey Yu is one of director of [the Company].  We would like to inform you that another director didn’t show her face for a long time.  We decide to move all operations from Hong Kong to China factory immediately.  We beg you to amend your P.O. from that address to [the Company] to [the Subsidiary].  Please find the following detail of our Shenzhen factory.

[Name, address, telephone and fax number of the Subsidiary]

I believe that some of you have been our Shenzhen factory before.  Our factory is running normally it is influenced by this matter.  We will proceed your orders directly some of orders have been finished already.  We would like you can cancel P.O of [the Company] and change to [the Subsidiary]. We will inform you of what P.O you need to amend it.  We are providing service and boards to you directly now from China factory.  Some of staffs you can contact which are ...”

77.  On the same day, 17 June 2002, Yu Chi Ming sent a circular letter to the customers of the Company asking them to pay to the Subsidiary instead of the Company (written exactly as it stands in the original):-

“This is to inform you that [the Subsidiary and address] succeeded to [the Company].  This was effective on 17^th June 2002.

Please pay all invoices which was issued by [the Company] to new bank

[Name: the Subsidiary, bank name, account number and bank address]

[The Subsidiary] is entitled to collect payment of [the Company] and [the Subsidiary] succeeded to the right of [the Company].  [The Company] frees of all customers from the obligation of paying the same invoices.” 

78.  On 17 June 2002, he also sent each customer another letter identifying the invoices and amounts in respect of which payment should be made to the Subsidiary instead of the Company.

79.  In my judgment, Yu Chi Ming was clearly diverting the Company’s business and funds away from the Company to the Subsidiary.

80.  He accused Katherine Chiu of not showing her face but suppressed from the Company’s customers the fact that he had tried to exclude Katherine Chiu from management and that he had locked Katherine Chiu out of the Company’s office.  He asserted, knowing his assertion to be false, that the Subsidiary was the Company’s successor.  I reject the argument that as the Subsidiary was a wholly owned subsidiary of the Company there was no loss to the Company.  That is true in theory but not true on the facts in this case.  Yu Chi Ming had sole and complete control of the Subsidiary and that was why he diverted the Company’s business and funds to the Subsidiary.  It was solely for his personal benefit.

81.  Not content with mere diversion, he stopped delivery of all goods to the Company.  On 27 June 2002, he sent an email to all the Company’s staff in Hong Kong telling them that he had stopped all supplies by the Subsidiary to the Company.  This ensured that nobody in the Company would accept any further order from its customers, forcing the customers to deal with him instead.

82.  On 2 July 2002, he issued the petition in the HCCW proceedings.

83.  On 4 July 2002, he sent a letter to all customers of the Company to divert the Company’s business to GET.  He wrote as follows (written exactly as it stands in the original):-

“Thank you very much for your continuing support for [the Subsidiary].

On 17 June 2002, we sent you an email about operational difficulties in [the Company] at Hong Kong.  Owing to the existing problems, [the Company] is now being wound up and will not be able to providing you with services.

However, we are pleased to be able to report that operations in the China manufacturing plant [the Subsidiary] remain normal.  Your orders are still being processed promptly and products provided at high quality.  As you know, [the Subsidiary] has established a high reputation for producing excellent quality electronic boards.  We process UL recognition, and have obtained ISO9002 and QS9000 accreditation for our company quality management system.  We can ensure you that we will continue to offer you excellent service and a high quality product.

To help to ensure that our service to you is not affected in any way and that orders were processed smoothly, we have made the following arrangement with one of our strategic partners [GET].  From 4 July 2002 onwards, while [the Subsidiary] continue to be responsible for the production operation, [GET] will provide you with comprehensive operation, [GET] will provide you with comprehensive administrative services including processing purchase orders, marketing, solving technical problems, payment and other supporting services.  [GET] has been working side by side [the Subsidiary] providing services for our customers.  We believe that their services meet your high standards and that you will be delighted with their work.

...”

84.  Yu Chi Ming testified that GET had no business licence, no social insurance and no bank account.  He did not know who, apart from one Ellen Chang, were the shareholders of GET.  He only came to know Ellen Chang in March 2002.  He did not know the net worth of GET.  He knew from a company search made after July 2002 that the paid-up capital of GET was $1.  No businessman in his right mind, and Yu Chi Ming is a shrewd businessman, would transact any business with GET against such background.  I am compelled to infer, and do infer, that GET was a front or vehicle used by Yu Chi Ming to divert the Company’s business and funds away.

85.  The diversion is clear and complete.  Even if in theory, the Company still had the benefit of the profit made by the Subsidiary, the Company has lost the profit in transactions which the Company hitherto made with Subsidiary.  The loss suffered by the Company is substantial.  Yu Chi Ming gave evidence in Cantonese, in the course of which he referred to the Company as the “profit centre”.  “Profit centre” in English, were the words which Yu Chi Ming used.

Counterclaim

86.  On the diversion ground alone, Katherine Chiu has already made out her case in her counterclaim.  I shall nevertheless deal briefly with the misappropriation of $60,000, $36,660.75 and $1,929.54.  Katherine Chiu has also made out her case on these items.  Further, Yu Chi Ming conceded in testimony that the Company was entitled to be paid these sums by him.

87.  On 25 November 2004, both parties agreed $2,032,118 as the price for any purchase order which I might make for the purchase of the other party’s 50% shareholding in the Company.

88.  As Katherine Chiu has made out her case, I ordered that the 50,000 shares held by her of and in the Company be purchased by Yu Chi Ming at the price of $2,032,118.

Order nisi

89.  Yu Chi Ming’s case is in my judgment a frivolous and vexatious one, an abuse of the process of the Court and one calculated to waste, and did in fact waste, the Court’s time.  This is one of the exceptional cases where an order for costs on indemnity basis is appropriate.

90.  I make an order nisi under Order 42 rule 5B(6) of the Rules of the High Court, Cap. 4, that Yu Chi Ming pays Katherine Chiu’s costs in the HCCW proceedings and in the HC Action, to be taxed if not agreed, on an indemnity basis.