CONSTELLA LTD v. SUPER EASTERN LTD AND ANOTHER

HCCW 175/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 175 OF 2006

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J U D G M E N T

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Introduction

1.  These proceedings concern three companies that are ultimately beneficially owned by Mr Wan Chi Hing (“Mr Wan”) and Mr Wong Chung Kai (“Mr Wong”) through other companies controlled by them.  The companies are Thousand Bright Limited (“Thousand Bright”), Well Peace Transportation Limited (“Well Peace”) and More Elegant Limited (“More Elegant”).  Mr Wan and Mr Wong each beneficially own 50% of Well Peace and More Elegant.  In the case of Thousand Bright, Mr Wan has a smaller interest – he is beneficially interested in 35% of Thousand Bright, while Mr Wong has a 65% beneficial interest – but nothing turns on this for the purpose of these proceedings.

2.  The three companies carried on the same type of business.  They each operated a number of car parks on vacant land leased from the Government under short term tenancy agreements.  Such car parks provide parking to customers on an hourly or monthly basis.  Car parking facilities of this sort can be found in many parts of Hong Kong.  In this case, the companies operated a number of such car parks in Ma On Shan (Thousand Bright), Sha Tin and Tai Po (Well Peace) and in Kowloon City, in the vicinity of the old Hong Kong airport at Kai Tak (More Elegant).

3.  As at the date of the trial, however, all such short term tenancies, with the exception of one held by Thousand Bright, had come to an end.

4.  In each case, the shareholder in the companies representing Mr Wan’s interests has petitioned for the winding up of the company concerned on the just and equitable ground, under section 177(1)(f) of the Companies Ordinance (Cap. 32).  Petitions in respect of Thousand Bright and Well Peace were presented on 8 April 2006, while a petition in respect of More Elegant was presented on 15 May 2006.  Each of the petitions is resisted by the shareholder in the respective company representing Mr Wong’s interests.

The background to the parties’ relationship

5.  Prior to their becoming shareholders in the companies, Mr Wan and Mr Wong had carried on the same business of operating carparks themselves for many years through other companies beneficially owned by them.  However, it was not until very shortly before they did so that they began any form of commercial cooperation.  It was common ground that a reason for their doing so was with a view to reducing, at least to some extent, the competition between them in some of the localities in which they both operated car parks.

6.  Their cooperation started in the Ma On Shan area at about the end of 2004, at a time when Mr Wan was operating one car park in the area, while Mr Wong was operating two, through an entity called Kai Hing Trading Company (“Kai Hing”).  In late November 2004, Mr Wan agreed to surrender the short term tenancy in respect of the site on which his car park was operated, and agreed with Kai Hing that he would pay for 35% of the operating costs of the Kai Hing car parks in exchange for 35% of the profits generated by them.  This was recorded in a written agreement between Kai Hing and Mr Wan dated 24 November 2004.

Acquisition of interests in the companies

7.  At about the same time, Mr Wan and Mr Wong, through nominees, acquired shareholdings in Thousand  Bright.  Thousand Bright appears to have been initially acquired by Mr Wan, as, up to this time, its sole director and shareholder was Constella Limited (“Constella”), a British Virgin Islands (“BVI”) company beneficially owned by Mr Wan.  On 25 November 2004, 99 further shares in Thousand Bright were allotted.  Of these, 34 were allotted to Constella, while 65 were allotted to Super Eastern Limited (“Super Eastern”), a BVI company beneficially owned by Mr Wong.  At the same time, Super Eastern was appointed a director of Thousand Bright.  The relevant board resolutions relating to these allotments of shares, and the appointment of Super Eastern as a director, were signed by Constella as the (then sole) director of Thousand Bright.  Constella also signed various Companies Registry forms relating to these matters.

8.  About two months later, Mr Wan and Mr Wong similarly acquired shareholdings in Well Peace.  Well Peace also appears to have been initially acquired by Mr Wan, at about the same time as he acquired Thousand Bright, as Constella was, up to this time, its only director and shareholder.  However, on 26 January 2005, 99 further shares in Well Peace were allotted.  This time, 49 were allotted to Constella, while 40 shares were issued to Super Eastern, and 10 to Jumbo Best Limited (“Jumbo Best”) another BVI company beneficially owned by Mr Wong.  At the same time, both Super Eastern and Jumbo Best were appointed directors of Well Peace, although Jumbo Best was to resign its directorship a few months later, on 5 May 2005.

9.  Finally, another two months later, Mr Wan and Mr Wong similarly acquired shareholdings in More Elegant.  More Elegant appears to have been initially acquired by Mr Wong, as, until this point, its only director and shareholder had been Super Eastern.  However, on 21 April 2005, nine further shares in More Elegant were issued.  Three further shares were issued to Super Eastern, and one to Jumbo Best.  Five shares were issued to Ka Wah Container Storage Limited (“Ka Wah”), a Hong Kong company beneficially owned by Mr Wan.  At the same time, Jumbo Best and Ka Wah were appointed directors of More Elegant, although Jumbo Best was to resign its directorship with effect from the next day.

10.  The articles of association of each of the three companies, in their original form, provided for the chairman of the board of directors to have a casting vote in the event of a vote being tied.  However, in each case, this provision was amended so as to remove the chairman’s casting vote.  In the case of Thousand Bright and Well Peace, this was done by a special resolution dated 5 May 2005, and in the case of More Elegant, this was done by a special resolution dated 13 May 2005.

11.  The articles of association also provided, in each case, for restrictions on the transfer of shares, as is common in the case of companies with a small number of shareholders.

The car parks operated by the companies

12.  Following the acquisition by Mr Wan and Mr Wong of their interests in the three companies, each of the companies tendered for and obtained a number of short term tenancies of Government land for use as car parks, as follows:-

(1) Thousand Bright was successful in bidding for short term tenancies in respect of two sites:-

(a)    Short Term Tenancy (“STT”) No. 1266, commencing on 29 November 2004, in respect of a site in Ma On Shan (this was surrendered on 28 November 2005, as the Government required the site to be returned for development).

(b)   STT No. 1267 for a period of three years commencing on 1 March 2005, also in respect of a site in Ma On Shan.

(2) Well Peace obtained short term tenancies in respect of four sites:-

(a)    STT No. 1283, for a period of one year and thereafter quarterly until the tenancy was determined, commencing on 1 April 2005, in respect of a site at On Muk Street in Sha Tin.

(b)   STT No. 1284, for the same term and commencing on the same date for another site in Sha Tin, at the junction of On Ping Street and On Sum Street.

(c)   STT No. 1252, for a period of one and a half years and thereafter quarterly until the tenancy was determined, commencing on the same date, in respect of a third site in Sha Tin, at Tai Chung Kiu Road.

(d)   STT No. 1366, for a period of three years and thereafter quarterly until the tenancy was determined, commencing on 7 February 2005, for a site in Tai Po.

(3) More Elegant obtained short term tenancies in respect of two sites:-

(a)    STT No. KX 2358, for a period of three years and thereafter quarterly until the tenancy was determined, commencing on 1 April 2005, at Concorde Road, near Kai Tak in Kowloon.

(b)   STT No. KX 2350, for a period of one year and seven months and thereafter quarterly until the tenancy was determined, commencing on 1 June 2005, at Eastern Road, also near Kai Tak.

13.  At the trial, these car parks were variously referred to by the STT numbers, or by names (based on their location) that were used by the parties in their dealings with each other.  Thus, the Thousand Brights car parks referred to in paragraphs 12(1)(a) and (b) above were known as “Sha 4” and “Sha 5” respectively, the Well Peace car parks referred to in paragraphs 12(2)(a) to (d) above were known as “Sha 9” or “On Muk”, “Sha 10” or “On Ping”, “Sha 8” or “On Lai” (at the trial, this was also referred to as “Tai Chung Kiu Road”), and “Tai Po 2”) respectively, and the More Elegant car parks referred to in paragraphs 12(3)(a) and (b) were known as “Kai 3” and “Kai 4” respectively.

The arrangements as to decision making and operation of the car parks

14.  For all of the companies, the decision whether to tender for short term tenancies that might become available, and if so, on what terms, was a matter that was discussed and agreed between Mr Wan’s side and Mr Wong’s side.  However, if a short term tenancy was obtained, the two sides would decide which of them should run the car park to be operated at the location which was the subject of the tenancy.  Thereafter, that party was left to decide for itself how such car park was to be operated, although the party who was not involved in the operation of a particular car park could monitor its levels of business and income through arrangements that were agreed.

15.  Initially, each side operated four car parks.  Mr Wan’s side operated one of the Thousand Bright car parks (Sha 4) and three of the Well Peace car parks (Sha 9, Sha 10 and Tai Po 2), while Mr Wong’s side operated the other Thousand Bright car park (Sha 5), the remaining Well Peace car park (Sha 8) and the two More Elegant car parks (Kai 3 and Kai 4).  However, it was subsequently agreed in early 2005 that the operation of the Sha 4 car park should be transferred to Mr Wong’s side from March 2005 onwards.  From that point on, Mr Wong’s side operated the Thousand Bright car parks, the More Elegant car parks and one of the Well Peace car parks, while Mr Wan’s side operated the other three Well Peace car parks.

16.  As I have noted, each side was in a position to monitor the operation of the car parks even if they were not the group operating the car park in question.  This was because the two sides had agreed that whoever was operating a particular car park should provide daily records of the income of that car park to the other side.  It was also agreed that operating expenses should be met by cheques to be signed by one representative from each side.

17.  One feature of the arrangements between the two sides that should be noted is that notwithstanding that they were co-shareholders in the three companies, each was free to bid for short term tenancies and operate other car parks in the same districts as the car parks that were operated by the three companies, in competition with the jointly owned companies.  Thus, for example, in the Kai Tak area, both Mr Wan’s side and Mr Wong’s side operated car parks through companies in which the other party had no interest.  This is relevant to a complaint that has been made in the petitions relating to Well Peace and More Elegant, where it is complained that Mr Wong’s side has sought to make use of its position in the car parks operated by it for those companies to divert business away from such car parks to other car parks in the neighbourhood operated by Mr Wong through companies in Mr Wan had no interest.

Deterioration of the relationship – the Petitioners’ case

18.  Until about October 2005, the arrangements in relation to the three companies and the car parks operated on the short term tenancies obtained by them appear to have worked reasonably smoothly.  However, from then onwards, the relationship between Mr Wan’s side and Mr Wong’s side deteriorated, resulting in the presentation of these petitions by the shareholders representing Mr Wan’s interests in April and May 2006.

19.  The case for the Petitioners (in effect, for Mr Wan), is that each of the companies were set up and were to be managed on the basis of a relationship of mutual trust and confidence between himself and Mr Wong, and as such, were liable to be wound up on the just and equitable ground under s. 177(1)(f) of the Ordinance, as that trust and confidence had been destroyed as a result of things that had been done by Mr Wong’s side, namely:-

(1) Excluding Mr Wan’s side from the management of Thousand Bright and Well Peace, by refusing to recognise the appointment of a Ms Vera Lee as a director representing Mr Wan’s interests in place of Constella, and at the same time refusing to agree to the reinstatement of Constella as a director of those companies.

(2) Engaging a company, Well River Limited, controlled by Mr Wong and/or his brother, Mr Ong Chung Hing as a “management consultant” in respect of the car parks operated by Mr Wong’s side, principally to provide staff for such car parks.

(3) Refusing without any proper reason to sign cheques for the payment of expenses incurred in operating the car parks that were run by Mr Wan’s camp, causing considerable inconvenience in their day to day running.

(4) Withholding cash income of the car parks operated by Mr Wong’s side and not paying such income into the bank accounts of the companies concerned.

(5) Failing, in breach of the arrangements referred to in paragraph 16 above, to provide daily income statements in respect of the car parks operated by Mr Wong’s side from about 24 December 2005 onwards.

(6) Diverting business from car parks operated by Well Peace and More Elegant, which were managed by Mr Wong’s side, to other car parks in which Mr Wong was believed to have an interest.

20.  It is also contended that there was an agreement or understanding between Mr Wan and Mr Wong that they should participate equally in the management of the companies, and that Mr Wong was in breach of this understanding in relation to Thousand Bright and Well Peace, by reason of the matters referred to in paragraph 19(3) above, thus providing a further or alternative basis for winding up these companies.

21.  Finally, it is contended that the companies are in a state of deadlock, and should, for that reason also, be wound up.

The position of the Respondents

22.  The Respondents (in effect, Mr Wong) contend that the companies should not be wound up.  They dispute the suggestion that the companies were formed on the basis of any relationship of trust and confidence between Mr Wan and Mr Wong, and also dispute the allegations as to the various matters said to have been done by them that would (according to Mr Wan’s side) justify the making of a winding up order on the petitions.

23.  They also dispute the existence, and deny the breach, of the alleged understanding as to equal participation in management of the companies.  Further, they do not accept that the companies are truly in a state of deadlock.

24.  In further answer to the petitions, they contend that the fault for any breakdown in the relationship (if there was, contrary to their primary position, a relationship that would justify treating the companies as quasi-partnerships) or deadlock lay not with Mr Wong, but with Mr Wan, so that the court should exercise its discretion against making the winding up orders sought by the Petitioners.

25.  Finally, Mr Wong’s side contends that the Petitioners have unreasonably refused their offers to purchase the Petitioners’ shares in Thousand Bright and More Elegant, and to consent to wind up Well Peace, or to have it deregistered, and should, on this ground also, be refused the winding up orders that are sought.

The issues

26.  Thus, the following issues arise for determination:-

(1) Whether the companies were formed on the basis of such a relationship of trust and confidence between Mr Wan and Mr Wong that the legal rights of the shareholders as set out in the articles of association of the companies should be regarded as being subject to equitable considerations, so that the companies would be susceptible to being wound up on the just and equitable ground in the event of a breakdown in that relationship.

(2)    If so, whether the complaints levelled by Mr Wan’s side against Mr Wong are made out, and (if made out) led to a breakdown of the relationship of trust and confidence which had previously existed between them

(3) If so, whether or not it would be just and equitable to wind the companies up.

(4) If the companies were not susceptible to being wound up on the basis identified in sub-paragraph (1) above, whether the complaints against Mr Wong, if made out, involve the breach by Mr Wong of an agreement or understanding between himself and Mr Wan, outside the articles of association of the companies.

(5) If so, whether such breach would make it just and equitable to wind up the companies.

(6) If the companies should not be wound up on either of these bases, whether they should be wound up on the basis that there is a deadlock between their shareholders and directors.

(7) If the companies might otherwise be susceptible to being wound up on the just and equitable ground, whether the conduct of Mr Wan and the Petitioners has been such as to disentitle the Petitioners from seeking such relief.

(8) In any event, whether winding up orders should be refused because of an unreasonable refusal on the part of Mr Wan and the Petitioners to resolve matters without the need for a winding up order to be made by the court.

27.  At the trial, each party called three witnesses.  For the Petitioners, the main witness was Mr Wan, who had made a number of affirmations in each set of proceedings.  Apart from Mr Wan, Mr Jimmy Lam Ka Chor, one of his assistants, and Mr Chen Kuang Mao, a car park attendant who had previously been employed by More Elegant, also gave evidence for the Petitioners.  The main witness for the Respondents was Mr Wong, who had, like Mr Wan, made a number of affirmations in each set of proceedings.  Apart from Mr Wong, the Respondents also called his sister, Ms Wong Ling Ling (who also acted as his assistant) and Mr Lam Hing, a car park attendant who had been employed at the car park operated for Well Peace by Mr Wong’s side, at Tai Chung Kiu Road.  As will be apparent from the discussion of the issues and evidence below, I have not been able to accept the evidence of either Mr Wong or Mr Wan fully – while I have accepted their evidence on some matters, I have rejected it in relation to others.

Were the companies quasi partnerships?

28.  The first matter for consideration is whether or not the relationship between the shareholders in the companies (in effect, between Mr Wan and Mr Wong) was such as to give rise to equitable considerations being superimposed on the legal rights arising from the constitution of the companies.

29.  The starting point for this consideration is the judgment of Lord Wilberforce in Ebrahimi v Westbourne Galleries [1973] AC 360, where he said (at p. 379B-G):-

“The words [“just and equitable”] are a recognition … that there is room in company law for recognition of the fact that behind [the company] … there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure.  That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound.  In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small.  The ‘just and equitable’ provision does not … entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it.  It does, as equity does, enable the court to subject the exercise of legal rights to equitable considerations, that is, of a personal character arising between one individual and another, which make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.

“Certainly the fact that a company is a small one, or a private company, is not enough.  There are very many of these where the association is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively laid down in the articles.  The superimposition of equitable considerations requires something more, which typically may include one, or probably more of, the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence – this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding that all, or some (for there may be “sleeping” members), of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members’ interest in the company – so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.”

30.  The need for “something more” was reiterated by Deputy Judge Kaye QC in Re A Company (No. 007936 of 1994) [1995] BCC 705 at 715A-F, where he said:-

“… the following principles may be said to be applicable to the consideration of whether a court can and should make a winding up order on the just and equitable ground in a case such as this:

(1) In general shareholders have no legitimate expectations beyond the legal rights conferred on them by the memorandum and articles of association.

(2) Part of those general expectations, even in a small company, is that those responsible for the management of the company can be expected to have trust and confidence placed in them by the shareholders.  In the absence of proof of some additional agreement or understanding these factors do not make the association of the shareholders formed on the basis of the company’s constitution a partnership or quasi-partnership with partner-like obligations owed by each to the other.

(3) Additional rights, obligations and expectations may, however, be conferred or superimposed on those normal constitutional rights and expectations by virtue of some agreement or understanding between the shareholders and the management.

(4) To justify the court imposing equitable considerations by the making of a winding-up order, there must be ‘something more’ over and above those general rights and expectations that the shareholders may be expected to have from the company’s constitution or from the mere fact of their association in the company.  In the absence of ‘something more’, in the absence, in other words, of some such agreement or understanding there is no basis for subjecting the exercise of legal rights to equitable considerations by the making of a winding-up order on the just and equitable basis.”

31.  Thus, the subjecting of the legal relationship constituted by the contract to be found in the articles of association to equitable considerations that might justify the winding up of a company on the just and equitable ground is based on there being something in the relationship between the parties that makes is appropriate for the court to intervene, notwithstanding that there may not have been any breach of the articles that govern the shareholders’ relationship with one another.  Lord Wilberforce identified these features in terms of a personal relationship involving mutual confidence, the destruction of which would justify the dissolution of the relationship between the parties as shareholders in the company, and the existence of an underlying agreement or understanding that all or some of the shareholders should participate in the management of the company, the breach of which would have the same consequences.  There may, I think, be other understandings or agreements which are sufficiently fundamental to justify the same approach – although this would not seem to arise in this case.

32.  Although Lord Wilberforce also mentioned the existence in the articles of a  provision restricting the free transferability of shares in the company as a third characteristic commonly found in quasi partnerships, I do not think the existing of such a provision would in itself be a sufficient basis for winding up a company on the just and equitable ground if there were no personal relationship or basic understanding or agreement (i.e. one of the first two characteristics identified by Lord Wilberforce).  The relevance of this third characteristic seems to me to lie in the fact that the restriction on transferability has the result that the shareholder may well find himself locked in to the company, and thus unable to exit from it, even if the relationship of confidence has been destroyed, or the fundamental understanding or agreement on the basis of which the shareholder took up his shares in the company has been breached.  Where, however, the company is neither founded on a relationship of confidence of the sort described in Ebrahimi, or on some fundamental agreement or understanding, the fact that the parties have agreed to restrictions on the transferability of their shareholdings does not seem to me to justify the superimposition of equitable considerations so as to bring the just and equitable ground for winding up into play.

Was there a relationship of trust and confidence?

33.  I therefore turn to consider first whether the relationship between the shareholders, or between Mr Wan and Mr Wong, was such as to call for the superimposition of equitable considerations over and above the rights conferred by the articles of association, whether because of the nature of the relationship itself, or because of some other fundamental understanding between them.

34.  Both Mr Wan and Mr Wong were cross-examined about the nature of their relationship.  Mr Wong said that from the very outset, he had known that Mr Wan was a cunning person, and that he had cautioned his sister to be watchful in respect of Mr Wan.  He also claimed that he had never had any confidence in Mr Wan.  Similarly, Mr Wan said that he had been “on his guard” against Mr Wong, because Mr Wong was a cunning person.  He said that this view of Mr Wong was one he had held from before the start of their co-operation in the three companies.  Unlike Mr Wong, however, Mr Wan said that despite this, he had some trust and confidence in Mr Wong.

35.  Mr Shieh S.C., representing Mr Wan, submitted that there was personal trust and confidence between Mr Wan and Mr Wong, and that the nature of that personal trust and confidence was such as to bring in equitable considerations over and above the legal rights of the shareholders contained in the contract constituted by the articles of association of the companies.  In support of this contention, he pointed to the following matters:-

(1) Mr Wan’s evidence to the effect that he had some trust and confidence in Mr Wong.

(2) Statements in letters written on behalf of Mr Wong’s side by the Respondents’ solicitors which suggested that there was such a relationship.  Particular reliance was placed on a statement in a letter of 24 January 2006 that the actions of Mr Wan’s side in replacing Constella as a director of Thousand Bright by Vera Lee without informing Mr Wong’s side had “shattered … the trust and confidence” that Super Eastern and Mr Wong’s side had placed in Constella and Mr Wan’s side, and on a statement in an earlier letter from Super Eastern to Constella dated 11 January 2006, in which Super Eastern had stated that the smooth operation of Thousand Bright depended on their mutual cooperation in carrying out their roles as directors of that company.

(3) The fact that two rivals in the car parking business had come together to co-operate in the operation of the three companies was indicative of a certain degree of trust and confidence being placed by each side in the other.

36.  While accepting that Mr Wong and Mr Wan might not have had complete trust and confidence in each other, Mr Shieh submitted that the degree of trust and confidence that must have existed between them was sufficient to result in the superimposition of equitable considerations upon their relationship in the context of the companies.  He suggested that it would be an error to think that there had to be some particular level of trust and confidence before this criterion would be found to exist, and that the real difference was between cases in which the parties were not known to each other, and were dealing on a purely arm’s length basis, and those in which they knew each other.

37.  While I would accept that whether or not equitable considerations may be superimposed because of a relationship of trust and confidence that exists between shareholders in a company is not something that is to be determined mechanically, or by reference to a particular level, in percentage or otherwise quantifiable terms, of trust and confidence that the parties say they repose in each other, I do not think that the answer simply lies in whether the parties know each other or not.  In my view, the answer is to be arrived at by considering all the factors that throw light on the nature of the parties relationship, and considering whether or not it could be said that the nature of the relationship is one in which duties akin to those found in a partnership would arise.

38.  In the present case, I do not think that the relationship between the parties was such as to import equitable considerations so as to result in it being appropriate for the court to exercise its jurisdiction to wind up the companies on the just and equitable ground simply because of an alleged loss of trust on the part of one of the shareholders in the other.

39.  In coming to this conclusion, I have had regard to the following features of the relationship between the shareholders, and Mr Wan and Mr Wong.

40.  Prior to their acquisition of shareholdings in the companies, there was no prior relationship, or even history of business dealings, between Mr Wan and Mr Wong (the profit sharing arrangement in relation to Kai Hing was entered into more or less simultaneously with the setting up of the arrangements in relation to Thousand Bright).  There was certainly no pre-existing partnership whose business was continued by the companies.  Although Mr Wan and Mr Wong knew of each other, they clearly had no pre-existing relationship of the sort that is commonly found in companies that have the nature of a quasi-partnership.

41.  Although the existence of a prior partnership or close business relationship is not an essential element of a quasi-partnership company, its absence means that it is necessary to find something in the circumstances in which the parties came together as shareholders in the company concerned which points to the relationship being of that nature.

42.  In this case, however, these circumstances do not appear to contain any such features.

43.  I would accept, as Mr Wan suggested in his evidence, that there must have been a certain level of trust between the parties.  Without it, it would not seem possible for them to have come together as they did.  However, as Deputy Judge Kaye Q.C. pointed out in Re A Company (No. 007936 of 1994) (supra), every commercial agreement presupposes a certain basic level of trust, or expectation, on each parties’ side that the other party will carry out his end of the bargain, but this does not, of itself, justify the court in subjecting the legal relationship between the parties, embodied in the articles of association of the companies concerned, to wider equitable considerations.

44.  In this case, there is nothing to suggest that the relationship between the parties went beyond this level of expectation.

45.  On the contrary, the manner in which they went about their cooperation in the companies tends rather to suggest that the relationship was a basically commercial one, with no particular reliance on either side’s part on any relationship of particular trust and confidence.

46.  It clearly was not the case that either side reposed substantial trust in the other – this is negatived by the detailed arrangements that were worked out to enable each side to keep informed of the position in relation to the car parks allocated to the other.

47.  Similarly, the fact that arrangements were made to ensure that each side had one director in each of the companies, and to alter the articles of association of the companies so as to remove the casting vote given to the chairman at directors’ meetings suggests that thought was given to the contractual arrangements embodied in the articles, with a view to modifying them to suit the needs of the parties.  This, too, suggests that the parties were operating principally on the basis of the legal framework that had been established, rather than by reference to a relationship that went beyond that framework.

48.  I do not think that the assertion by Mr Wong’s solicitors, in a letter written in January 2006, after the parties were already in dispute, that there was trust and confidence on Mr Wong’s part as well, alters this.  This letter was written in the context of a complaint by Mr Wong about Mr Wan’s actions in purporting to replace Constella as a director of Thousand Bright with Ms Vera Lee (a matter which will be examined in more detail below), and is in my view not something to which much weight should be accorded.  When one looks at the reality of the situation, it is quite plain that the relationship was simply one of commercial convenience.

49.  However, the absence of a relationship of mutual trust and confidence similar in nature to that which might be expected to exist in the context of a partnership is not fatal to an attempt to wind up a company on the just and equitable ground.  As I have noted, apart from a personal relationship of trust and confidence, the courts may impose equitable considerations on the exercise of legal rights in the company context where there is some other basic understanding or agreement between the shareholders, which, if breached, will justify the winding up of the company on the just and equitable ground.

Was there an understanding or agreement that would justify winding up if breached?

50.  The most common such understanding or agreement that, if breached, would justify the court’s intervention would be one to the effect that all (or some) of the shareholders will participate in the management of the company.  In this case, it is alleged by Mr Wan’s side that there was just such an understanding.

51.  However, it was clear from the evidence that the parties did not expect that they would each be involved in most aspects of the business of the car parks operated on the properties in respect of which they had obtained short term tenancies.  On the contrary, it was made quite clear by both sides that the operation of each car park would be left in the hands of one side to deal with as it thought best, subject to the other side’s ability to keep an eye on what was being done through the checks and balances which I have described above.  Indeed, at no time during the operation of the car parks does either party appear to have sought the approval of the other for the way in which they ran the car parks which they were to operate

52.  On the evidence, the only matters that appear to have required joint decisions to be made were the questions whether or not to bid for a particular short term tenancy that might be available, and if so, on what terms.  Mr Wan was pressed as to whether or not there were any other matters that required the joint decision of both sides, but was only able to say that joint agreement was needed on all matters of importance.  Moreover, he was not able to point to any concrete examples of occasions on which there had been consultations or joint decisions in relation to any matter other than those which I have just described.

53.  However, Mr Wan’s side do not suggest that Mr Wong’s side caused any of the companies to bid for a short term tenancy without prior discussion and agreement, or that Mr Wong’s side ever did so on terms other than those which had been agreed between them.

54.  I do not think, therefore, that there was an understanding or expectation that each side would be involved in the management of the companies in the sense in which that notion has been understood in many of the cases in which it has been held that a company is susceptible to being wound up where one side has been excluded from management.

55.  As it turned out, the way in which the matter was ultimately put for Mr Wan’s side was that there was an agreement or understanding between the parties that each side should be represented at board level in each of the companies by being entitled to appoint one director to each company.  The real complaint on Mr Wan’s side is that, during the early part of 2006, Mr Wong’s side sought to suggest that it was entitled to run Thousand Bright (and Well Peace) at board level on its own, through a single director representing its interests, in circumstances in which it appeared that Mr Wan’s side might have become unrepresented on the board of these companies.  This complaint is not made in relation to More Elegant, where this situation never arose.

56.  For Mr Wong’s side, Mr Ng S.C. contended that there was in fact no such agreement or understanding in the first place.  Mr Ng went on to submit that, even if he was wrong as to that, having regard to all the circumstances, the matters complained of would not justify the making of a winding up order on the just and equitable ground.

57.  The basis of Mr Ng’s argument that there was no such agreement or understanding was premised on the fact that although the parties had agreed on 5 May 2005 to amend Article 11 of the articles of association of Thousand Bright and Well Peace to remove the casting vote that had previously been given to the chairman at any directors’ meeting, the amendments left unaltered that part of Article 11 which made provision for the conduct of proceedings of the directors in a situation in which there was only one director.  Mr Ng submitted that this indicated that the parties had considered the possibility that there might be only one director, and made appropriate provision for it.  Thus, as the articles of association were adequate to deal with such a situation, there was no need for any agreement of the sort suggested.

58.  I do not accept this argument.  In my view, when all the relevant circumstances are taken into account, the appropriate conclusion is that there was, if not an express agreement, at least a mutual understanding between the two sides that each should, so far as practicable, be represented at board level by one director.

59.  As I have described in paragraphs 7 to 9 above, in the case of both Well Peace and More Elegant, there was a brief period during which Mr Wong’s side was represented by two directors on the boards of the companies (in the case of Thousand Bright, each side had one director).  However, this situation did not persist, as one of the directors from Mr Wong’s side resigned, leaving each side with one director.  Further, the removal of the chairman’s casting vote effected by the amendment of Article 11 in the articles of association of each company in May 2005 (at about the same time as the resignation of the second director representing Mr Wong’s side) was clearly designed to require unanimity at board level of the companies.  Both of these factors point to the existence of an understanding between the parties that each side should have equal representation at board level.  Such an understanding is also consistent with the relationship between the parties, which, as I have found, was not one of trust and confidence, but one of commercial cooperation against a background in which neither side reposed complete trust in the other (and in which, on the contrary, each regarded the other with some wariness).

60.  I do not think that the retention of that part of Article 11 catering for the situation in which there might be a sole director negatives this conclusion.  Even with the understanding as to equal board representation, there might arise a situation in which one or other of the companies would be left with a single director (for example, if a director representing one side were a natural person who had died or otherwise become incapacitated).  In such a situation, the understanding would, I think ordinarily have required the other side to cooperate in the appointment of a replacement director.  But in the meantime, it might be necessary for the company to continue to function with a single director.

Was there a breach of the understanding?

61.  I turn next to consider whether or not the situation which arose in late 2005 and early 2006 amounted to a breach of this understanding which would justify the winding up of the companies.

62.  The factual background in relation to Thousand Bright is as follows:-

(1) Constella was appointed as a director of Thousand Bright on 16 September 2004, and acquired one share in Thousand Bright a few days later.

(2) On 25 November 2004, 99 additional shares in Thousand Bright were issued, 34 being allotted to Constella, and 65 to Super Eastern.

(3) Also on 25 November 2004, Super Eastern was appointed a director of Thousand Bright.

(4) The relevant corporate documentation, such as board resolutions and Company Registry forms, relating to the allotment of the additional shares and the appointment of Super Eastern as a director was signed by Constella.

(5) On 24 March 2005, Ms Vera Lee, an employee of the corporate secretarial firm which operated Constella on behalf of Mr Wan, caused to be filed at the Companies Registry forms stating that she had been appointed a director of Thousand Bright on 24 November 2004, and that Constella had resigned as a director of Thousand Bright on the same date.

63.  The factual background in relation to Well Peace is similar:-

(1) Constella was also appointed a director of Well Peace on 16 September 2004, and acquired one share in Well Peace a few days later.

(2) On 26 January 2005, Super Eastern (and Jumbo Best, which was later to resign) were appointed directors of Well Peace.

(3) On 27 January 2005, 99 additional shares in Well Peace were issued, 49 being allotted to Constella and 50 to Super Eastern.

(4) On 14 April 2005, Vera Lee caused to be filed at the Companies Registry forms stating that she had been appointed a director of Well Peace on 6 February 2005, and that Constella had resigned as a director of Well Peace on the same date.

64.  The focus of the complaint by Mr Wan’s side was in relation to Thousand Bright, as that was the company that was focused on in the correspondence between the parties.  Although the position in relation to Well Peace was similar, it was not adverted to in the correspondence at the time.

65.  That correspondence began with a letter from Super Eastern to Constella dated 2 November 2005.  The letter dealt primarily with other matters (principally the question relating to the engagement by Mr Wong’s side of Well River to supply staff to the car parks which they managed).  At the end of the letter, however, Super Eastern mentioned that they had recently learnt of the forms filed at the Companies Registry on 24 March 2005 in respect of Thousand Bright which indicated that Ms Lee had replaced Constella as a director on 24 November 2004, pointed out that this did not appear to reflect the true position, as Constella had executed various documents and minutes as a director after that date, and asked Constella to take such remedial action as might be necessary.

66.  There was no response to this letter at the time.  As a result, the matter was raised again by Super Eastern in January 2006, this time in a letter from their solicitors dated 13 January 2005.  The letter made much the same points as had been made in Super Eastern’s letter of 2 November 2005, but spelling out in more detail the documents which Constella had executed, qua director, after 24 November 2004.  Constella was again asked to take remedial action.

67.  This led to a response from Constella’s solicitors on 18 January 2006, in which they stated that there was an understanding that the parties should jointly manage Thousand Bright, and that as part of this understanding, each side was entitled to be represented by one director on the board of the Company.  They went on to assert that the replacement of Constella by Ms Lee was for “easier administration”, and should be regarded as an internal matter on Constella’s side, which did not affect Super Eastern’s position.

68.  The response from Super Eastern’s solicitors on 24 January 2006 was to deny the existence of the alleged understanding of joint management, asserting in the alternative that the understanding was limited to the directors initially appointed (i.e. Constella and Super Eastern).  They also claimed that the actions of Constella and Ms Lee had caused them to lose confidence in Mr Wan’s side, and said that as the articles of association of Thousand Bright provided for a situation in which there was only one director, Super Eastern would simple continue to run Thousand Bright, and would do so in the best interests of both sides.  This stance was repeated in subsequent correspondence.

69.  After the commencement of these proceedings, on 2 December 2006, Constella was in fact reinstated as a director of Thousand Bright by consent of the parties.

70.  Mr Shieh submitted that the stance taken by the solicitors acting for Mr Wong’s side in the correspondence in early 2006 was a breach of the understanding that each side should be entitled to equal board representation within the companies, and that this was sufficiently serious to justify the court in making the winding up orders sought.

71.  Although, on its face, these statement would appear to amount to a repudiation of the understanding which I accept existed, I have come to the conclusion that, having regard to the circumstances which existed at the time, they do not provide a sufficient basis for winding up either Thousand Bright or Well Peace.

72.  I think it is necessary first to ascertain what the actual position was in relation to the identity of the directors of Thousand Bright.  Although Ms Lee had on 24 March 2005 caused forms to be filed at the Companies Registry indicating that she had replaced Constella as a director of Thousand Bright with effect from 24 November 2004, this would not in itself have the effect of validly bringing Constella’s directorship to an end, or appointing Ms Lee as a director in its place.  The filing of the forms in question would have amounted to a representation of these matters.  However, whether or not such representations were true would depend on whether or not Constella had in fact validly resigned as a director of Thousand Bright, and whether or not Ms Lee had been validly appointed as a director in place of Constella.

73.  In order for Constella to validly resign as a director of Thousand Bright, it would have to have done so in accordance with Thousand Bright’s articles of association, Article 9(a) of which required notice in writing of such resignation to be given by Constella to Thousand Bright.  There is no evidence that it ever did so.  No record of any such written notice was produced in the course of these proceedings, or at the trial.  Similarly, in order for Ms Lee to have been appointed a director of Thousand Bright, it would have been necessary for an appropriate resolution (either of Super Eastern as sole director, if the articles empowered a remaining director to fill up a vacancy on the board, or of Constella and Super Eastern as shareholders) to that effect to have been passed.  Not surprisingly, there was no evidence of any such resolution.

74.  In these circumstances, the position appearing from the documents filed with the Companies Registry would not have reflected the true position, which would be that Constella had never validly resigned, and Ms Lee had never been validly appointed.  It would therefore have been open to the parties to have taken steps to rectify the situation by making an application to the court seeking a declaration as to the true position.

75.  Unfortunately, that this was (almost certainly) the situation does not seem to have been fully appreciated by either side until the trial, or perhaps shortly before.

76.  When the matter was first raised by Super Eastern on 2 November 2005, no response was forthcoming from Constella or Ms Lee.  It was only after Super Eastern’s solicitors wrote again on 13 January 2006 that a reply was received.  Although Super Eastern had drawn attention to the fact that Constella had executed documents as a director of Thousand Bright after 24 November 2004, when it had purportedly ceased to be a director (if the documents filed with the Companies Registry were correct), no attempt was made to address this point, either by admitting that a mistake had been made, or by seeking to explain the effect of the apparent resignation on such documents.

77.  Instead, Constella’s solicitors stated that the replacement of Constella as a director by Ms Lee was an internal matter so far as Constella was concerned.  This is plainly wrong.  It clearly affected the administration of Thousand Bright, in which Mr Wong’s side, through Super Eastern, had an interest.

78.  Further, I am satisfied that the actions on Mr Wan’s side in filing the relevant documents with the Companies Registry were done without notice to Mr Wong.  Although Mr Wan said, in an affirmation filed shortly before the commencement of the trial, that he had informed Mr Wong of his decision to replace Constella as the director of Thousand Bright representing his interests with Ms Lee at around the time this was purportedly done, I do not accept this evidence.  This assertion was made for the first time in that affirmation, long after the petitions had been presented, and long after Mr Wong had complained that the purported change of directors had been effected without his knowledge or consent.

79.  It is particularly striking that nowhere in the responses to Super Eastern’s complaints about the apparent change in directors was it ever stated that Super Eastern was well aware of the position, because Mr Wan had informed Mr Wong about it.  Had this been the case, one would have thought that it would have been one of the first points mentioned in response.  On the contrary, by asserting that the matter was something that was purely internal to Constella, Constella’s solicitors were, I think, implicitly accepting that the matter had been handled on Mr Wan’s side without notice to Mr Wong’s side.

80.  I also note that, even on Mr Wan’s latest evidence, he did not suggest that Mr Wong was told that the purported appointment had taken effect from 24 November 2004.  Mr Wan said only that Mr Wong had been told of the change in or shortly after March 2005, when the Company Registry documents were filed.  He did not appear to be aware of the fact that those documents suggested that the change of directors had been effected some four months previously, and therefore could not have told Mr Wong about this.

81.  But it was this factor that was likely to (and according to Mr Wong did) provide cause for concern on Mr Wong’s part, as the resignation of Constella with effect from 24 November 2004, if true, might well cast doubt on the validity of acts done and documents signed by Constella qua director of Thousand Bright after that date.  Given that the allotment of 65 shares to Super Eastern took place on 25 November 2004, this might have meant that the allotment was of questionable validity, a matter which would in turn have an effect on Super Eastern’s appointment as a director of the Company.

82.  Mr Shieh submitted that this was not really a genuine concern on Mr Wong’s part, but was more of an afterthought or subsequent rationalisation, which was put forward in an attempt to justify the attitude taken by Mr Wong’s side in January 2006.  Mr Shieh suggested that this concern was not raised until Mr Wong came to gave evidence at the trial.  However, Mr Wong had in fact mentioned this concern in his first affirmation in the Thousand Bright proceedings.  Moreover, both the letter from Super Eastern of 2 November 2005 and from their solicitors on 13 January 2006 did mention the fact that Constella had signed documents in its capacity as a director of Thousand Bright after 24 November 2004.  In these circumstances, I would not accept that the concern expressed by Mr Wong was not genuine or without foundation.

83.  Further, the explanation given by Mr Wan for wanting to replace Constella with Ms Lee as his representative director was not, with respect, particularly convincing.  Mr Wan said that this was done for reasons of administrative convenience.  He said that as Constella was a BVI company, it was necessary to obtain a certificate of incumbency from the BVI in connection with documents signed or executed by Constella qua director, in particular documents relating to the short term tenancies which Thousand Bright had obtained.  However, when cross-examined, he appeared to accept that such documentation would be required so long as Constella were a shareholder of Thousand Bright, even if it was not a director.  His uncertainty on this point does, I think, cast some doubt on the reason which he gave.

84.  Moreover, at the time that the issue regarding Constella’s status as a director of Thousand Bright surfaced and was being corresponded over, the relationship between Mr Wan’s side and Mr Wong’s side was already under some strain as a result of the disputes which had arisen since October 2005 over the appointment by Mr Wong’s side of Well River as a supplier of staff for the car parks that they managed, over the refusal of Mr Wan’s side to sign cheques for expenses relating to Well River and refunds of deposits to customers in respect of the car parks operated by Mr Wong’s side, and the later withholding (on both sides) of daily income records for the car parks.

85.  Finally, I would point out that Constella was in fact reinstated as a director of Thousand Bright (and Well Peace) by consent in December 2006, and that it is not suggested that Mr Wong’s side actually exploited the situation which had arisen by causing Super Easter to do anything qua director of Thousand Bright which prejudiced the interests of Mr Wan’s side.

86.  Taking all of these matters into account, I do not think that stance taken by Mr Wong’s side in January 2006, even if not one which was entirely appropriate, was something that would justify the making of a winding up order in this case, whether in respect of Thousand Bright, or in respect of Well Peace.

87.  Given that I have concluded that the companies were not founded on a relationship of trust and confidence, and that there has not been such a breach of an underlying agreement or understanding as would justify the making of a winding up order, this is sufficient to dispose of the petitions.  Although it may not be strictly necessary to go into the other issues that I have identified, I propose to deal with them and explain briefly the conclusions that I have reached in relation to them in case I am wrong on either of the issues already discussed.

Whether Mr Wong’s side to blame for any breakdown in relationship

88.  If, contrary to my view, the companies were founded on the basis of a relationship of trust and confidence, it becomes necessary to consider whether or not that relationship has broken down, and if so, if this happened as a result of acts done by Mr Wong’s side, or whether Mr Wan’s side is to blame for the breakdown.  By the time of the presentation of the petitions, the relationship between the two sides was clearly strained.  However, for the reasons that I shall briefly explain below, I do not consider that the responsibility for this lies mainly with Mr Wong’s side.

89.  Mr Wan had six principal complaints against the conduct of Mr Wong’s side.  These have been summarised in paragraph 19 above.  Of these complaints, the first, relating to the question of Ms Lee’s position as a director of Thousand Bright and Well Peace in place of Constella, has already been considered earlier in this judgment.  For the reasons that I have given, I would not regard Mr Wong’s side as being to blame for any damage to the relationship that was done as a result of this episode.  I turn to consider the rest of Mr Wan’s complaints.

90.  The second complaint related to the engagement by Mr Wong’s side of Well River as a consultant to provide staff for the car parks operated by Mr Wong’s side.  It was said that this involved a conflict of interest on the part of Mr Wong, as his brother, Mr Ong Chung Hing, was a director of Well River, and that it was therefore improper for him to have made use of Well River’s services.  It was also suggested that staff supplied by Well River would have a tendency to be more loyal to Mr Wong’s side than to the companies.  Mr Wan said that he had, from the outset, objected to the use of Well River’s services, and when Mr Wong failed to heed his complaints, he finally lost patience and gave instructions to his staff to refuse to sign cheques in payment of Well River’s charges in respect of the car parks operated by Mr Wong.

91.  Mr Ng submitted that this complaint was not well founded.  He suggested that given that it had been agreed that each party should have a free hand in operating the car parks allocated to it, there was no reason why Mr Wong should not have made use of the services of Well River on such terms as he thought appropriate.  Further, and in any event, it was submitted by Mr Ng that there were positive advantages to the use of Well River’s services, as it enabled staff to be employed at a cost that was less than that achieved by Mr Wan in staffing the car parks operated by his side. It was also submitted that Mr Wan’s side had, through their conduct in issuing cheques for the payment of Well River’s charges in the first few months of the operation of the car parks, informally agreed to the use of Well River.

92.  Mr Shieh responded that this notion of complete autonomy was misconceived, as it was always the intention that each side would be in a position to keep an eye on the way in which the other was running the car parks which it had been allocated, through the mutual supply of daily income statements, periodic checking of records and the need for joint signature on cheques.  He reiterated that the objection to the use of Well River as a source of staff was that their loyalties would lie with Mr Wong’s side, so that it was not simply a matter of cost.  As for the making of payments in respect of Well River’s charges in the first few months, it was submitted that no agreement could be constructed out of this, as Mr Wan had all along made clear his objections to the use of Well River.

93.  In my view, this complaint is not well founded.  I am satisfied that the initial agreement between the two sides was that each would have a substantially free hand in the running of the car parks allocated to them.  It does not seem likely that there was any specific prohibition on the use of the services of Well River – had that been discussed and agreed, it is unlikely that Mr Wong would have used its services in the first place.  Moreover, had there been such a prohibition, it would have prevented Mr Wan from using the services of companies associated with him in connection with the supply of staff to the car parks operated by his side.  Yet it was accepted that Mr Wan’s side made use of the services of a similar sort of company (called On Park Parking Limited) to provide relief staff to the car parks operated by them.

94.  I also consider that the expressed concern as to staff loyalty was exaggerated, and of relatively little concern.  It must be borne in mind that the staff in question were essentially car park attendants, whose job was to collect parking fees from customers, and keep basic records.  I do not think that the issue of loyalty of such staff to one or other camp was truly a matter of consequence.  Such staff were much more likely to follow the instructions of whoever was operating the car park at which they were employed – if the car park was one operated by Mr Wan’s side, it would have been supervised by persons employed by Mr Wan or his companies, and the car park attendants would be likely to act in accordance with their instructions.  Similarly, in the car parks operated by Mr Wong’s side, one would expect the attendants to broadly follow the instructions of Mr Wong’s employees who were charged with supervising the operation of the car parks.  In either case, staff at that level were likely to regard their employers as being the persons who had hired them and who were responsible for the terms on which they were employed – this would be the side that was responsible for operating the car park at which they were employed.

95.  That this was not a real concern is also, I think, illustrated by the fact that Mr Wan’s side itself made use of companies associated with him to supply staff to the car parks that they operated.  Although the ongoing supply of staff for which these companies were paid related to relief staff who were needed to cover for full-time staff on their rest and leave days, there was also evidence which showed that these companies were also the source of a number of full time staff employed at the car parks which were operated by Mr Wan’s side.  Had the concern been a real one, I would have expected Mr Wan to have been careful not to employ staff from a company with which he was associated.

96.  I also accept Mr Wong’s evidence that there were cost and efficiency advantages in employing staff through Well River.  Up until about October 2005, the monthly cost of employing a car park attendant through Well River was about HK$5,800.  Thereafter, Well River charged HK$6,800 per month per employee.  Both of these sums were lower than the staff costs achieved on Mr Wan’s side, which were about HK$6,800 per month throughout, with an additional month’s pay for year end bonus on top of that (a charge which was incorporated in the amount charged by Well River).  In addition, there was evidence to show that there was a fairly high level of staff turnover in respect of car park attendants – this would have been a matter of greater inconvenience at the car parks operated by Mr Wan’s side, which employed the attendants directly, whereas in the case of the car parks operated by Mr Wong’s side, the inconvenience of replacing staff who had left fell not on the companies, but on Well River.  Although Mr Wong’s reason for allowing Well River to charge more, being his feeling that it was no longer necessary to try to demonstrate to Mr Wan that his side was able to operate the car parks allocated to them more economically, is not a particularly praiseworthy one, the fact remains that even after the increase, it was still the case that staff supplied by Well River were more economical than those directly employed at the car parks operated by Mr Wan’s side.

97.  Finally, I am not satisfied that Mr Wan had from the outset complained to Mr Wong about the use of Well River.  There is no record of any such complaint before October 2005, when Ms Lee wrote to complain about this, and to state that Mr Wan’s side would refuse to authorise payments to Well River after the end of that month.  Had this been a matter of real or serious concern, I would have expected such complaints to have been made earlier and in writing.  In any event, even if Mr Wan had made such complaints earlier, I do not think that they would have been valid ones, for the reasons given above.

98.  In these circumstances, I do not think that there was anything improper about the use of Well River to supply staff to the car parks operated by Mr Wong’s side, and I do not think that this is a matter which would justify the winding up of the companies at the instance of the Petitioners.

99.  This leads on to the third complaint, which relates to the refusal of Mr Wong’s side to sign various cheques in respect of payments which were required to be made by Well Peace – particular complaint was made in respect of Mr Wong’s side’s refusal to sign cheques for payments to staff which resulted in a Labour Tribunal claim being brought by a number of staff of Well Peace against that company.

100.  Mr Wong admits that he gave instructions to his employees to decline to sign such cheques, and other cheques that were needed to settle amounts that had to be paid by Well Peace in respect of the car parks operated by it.  However, Mr Wong says that he was provoked to do so by Mr Wan’s prior refusal to sign cheques for Thousand Bright and More Elegant in respect of the car parks operated by Mr Wong’s side.

101.  There is no dispute that Mr Wan’s side was the first to refuse to sign cheques in respect of car parks operated by the other side.  However, Mr Wan sought to characterise his refusal as being based on principled objections – he said that (at least until January 2006) he had only withheld his side’s signature on cheques for payments to Well River and in respect of refunds of deposits to customers of More Elegant.

102.  So far as refusing to effect payments to Well River is concerned, for the reasons which I have given above, I do not think that Mr Wan was entitled to do this.  As for refunds of deposits to customers of More Elegant, although the refusal to sign such cheques may have been triggered, as Mr Wan says, by his suspicions that Mr Wong’s side may have been seeking to persuade some customers to move to other car parks in which Mr Wong was interested, it seems to me that whatever the reasons for the customers leaving, More Elegant was under an obligation to refund the deposits paid by them on their departure, and Mr Wan’s actions in refusing to authorise the signing of cheques to effect such refunds was an action which could not be justified, and which was calculated to cause inconvenience to Mr Wong’s side in the operation of the car parks allocated to them by More Elegant.

103.  That said, this does not provide an excuse for Mr Wong’s refusal to sign cheques for Mr Wan’s side on an indiscriminate basis, simply to (as Mr Wong acknowledged) give Mr Wan’s side a taste of its own medicine.  It therefore seems to me that both sides were in the wrong in relation to their refusal to sign cheques for each other, and for this reason, this too is not a factor that would justify making a winding up order on the application of the Petitioners.

104.  Much the same is true of the fourth complaint, which is also related to the previous two complaints, in that it follows on from them.  This complaint relates to the withholding of cash by Mr Wong’s side at the car parks operated by them, so as to circumvent the problems that were being caused by Mr Wan’s side’s refusal to sign cheques required to make payments to Well River and car owners who had moved away from More Elegant’s car parks (and later, his refusal to sign cheques for various expenses on an indiscriminate basis).  Although it is fair to say that the withholding of cash to meet expenses was not an entirely satisfactory method of operation, it does appear to me that given Mr Wan’s intransigence in relation to Well River and refunds to More Elegant’s customers, the course adopted by Mr Wong’s side was excusable.  I would also note that a similar course was in fact adopted on Mr Wan’s side when it was faced with the similar difficulty.  All things considered, I do not think that this complaint would justify the making of a winding up order in respect of the companies either.

105.  Turning to the fifth complaint relating to the withholding of daily income statements, it seems to me that both parties must bear the blame for this equally.  It is not clear which party was the first to withhold such statements – Mr Wong says that Mr Wan’s side was the first to do so from about 21 December 2005, while Mr Wan says that it was in fact Mr Wong’s side who had started withholding daily income statements a few days earlier.  In my view, this, like the mutual refusal to sign cheques, was an example of a tit for tat retaliation which reflected poorly on both sides.  However, in the context of an application to wind up on the just and equitable ground, it seems to me that as both sides were more or less equally to blame in relation to this, it would not provide a sufficient basis for winding up on the Petitioners’ petitions.

106.  This leaves the sixth (and last) ground of complaint, relating to alleged attempts by Mr Wong’s side to divert business from the jointly owned car parks operated by them to other car parks in which Mr Wong (or persons associated with him) had an interest.

107.  This complaint was in two parts.  The first related to the one Well Peace car park that was operated by Mr Wong’s side, at Ta Chung Kiu Road.  The second related to the Kai 3 and Kai 4 car parks operated by Mr Wong’s side for More Elegant in the Kai Tak area.

108.  As to the former, the complaint was that on about 24 January 2006, Mr Wong (through his employees) gave instructions that the rental at the Ta Chung Kiu Road car park was to be raised, but that cars that transferred to another car park in the area (known as Car Park No. 11), would be charged a concessionary rate for monthly parking.  It was alleged that this other car park, operated by a company called Nanjing Limited, was one in which Mr Wong had an interest.  The instructions were contained in a notice which Mr Wan’s staff said they saw in the car park attendant’s cabin at the Ta Chung Kiu Road.

109.  As to the latter, the complaint was that from about November 2005, Mr Wong’s employees began informing customers at Kai 3 that the car park would be closing down, and suggesting that they move to other car parks in the area, while discouraging them in various ways from moving to the other More Elegant car park, Kai 4.

110.  Mr Ng submitted that the evidence did not sufficiently establish these allegations, but even if they did, given that there was no prohibition on operating car parks in competition with those operated by the companies, there was nothing to stop Mr Wong’s side operating car parks and competing with those operated by the companies, whether by their side or Mr Wan’s.

111.  There is some force in Mr Ng’s suggestion that in the absence of some specific agreement setting the limits of what could or could not be done by way of competition, it is difficult to know where to draw the line, particularly if the parties were, as is evident from the fact that they did operate car parks independently of each other in the areas in which the companies’ car parks were to be found, prepared to accept that each side could compete with the other.  This would be even more the case if, as I think, the parties were not in a quasi-partnership situation.  I would accept, however, that if they were (contrary to my view) involved in a relationship of trust and confidence, for one side to make use of its position as operator of a car park to actively divert business away from that car park to others controlled by it, in which the other side had no interest, might well be corrosive of that relationship, and might, if sufficiently serious, provide a basis for winding the company up on the just and equitable ground, all other things being equal.

112.  When one considers the evidence in this case, however, I do not think that the actions of Mr Wong’s side would justify the making of a winding up order, particularly when these are put in the context of the other disagreements and difficulties that existed, for which Mr Wan’s side was either more to blame (such as the Vera Lee/Constella issue, and the various issues arising out of the complaint about Well River), or as much to blame as Mr Wong’s side (such as the withholding of daily income reports).

113.  In relation to the Ta Chung Kiu Road car park, I am prepared to accept that, having regard to the fact that Mr Wong did not, either in correspondence at the time, or in his affirmations, suggest that the notice which Mr Wan’s staff said they found at the attendant’s office was in fact put up with the knowledge or approval of Mr Wong’s staff.  Although there were some discrepancies in the notice, such as the wrong Chinese character being used in the name of Mr Wong Hak Kong, one of Mr Wong’s staff, I do not think that these are sufficient to require me to conclude that the notice was a put-up job on the part of Mr Wan’s staff.  Moreover, whether or not Nanjing Limited was in fact beneficially owned by Mr Wong, even Mr Wong accepted that it was at least associated with him, through the fact that it was (according to him) owned by his relatives, and managed by him.

114.  That said, however, the evidence of any actual or successful attempts to divert business away from the Ta Chung Kiu Road car park is, in my view, inconclusive.  The car park attendant who gave evidence for the Respondents at the trial, Mr Lam Hing, said that he was not given instructions along the lines of the notice.  The only evidence to support the allegation that there was actual diversion was a drop in the income of the car park.  However, this is not conclusive, given that it was accepted on both sides that customers would not have any particular loyalty to a particular car park, and would switch to a different car park if it seemed advantageous to them to do so, and that there appear to have been other reasons that might explain the drop in income, such as a reduction in the rentals charged at the On Muk car park operated by Mr Wan’s side.

115.  So far as the Kai 3 car park operated by More Elegant is concerned, there is some evidence from customers that they were told (as was the case) that the car park would be closing (as it had to do, since the terms of the short term tenancy in respect of its site did not permit its use as a car park).  However, it is not clear that Mr Wong’s staff actually sought to divert them to car parks operated by Mr Wong’s side independently of Mr Wan’s side, in that all that seems to have been done was to direct them to car parks in a different part of the Kai Tak area, variously described as the “big piece of land” or the “flea market”.  This area was in fact subdivided into a number of car parks, some of which were operated by companies controlled by Mr Wan and Mr Wong respectively which had entered into a profit sharing agreement, and others operated by companies in which Mr Wong appears to have had interests, but in respect of which no such arrangements were in place.  It was not established whether such customers were directed specifically to a car park in which Mr Wong had an interest, but no profit sharing arrangement with Mr Wan.

116.  I am therefore of the view that the allegations of diversion of business are not as serious as Mr Wan has made out, and that they are insufficient to call for the making of a winding up order against the companies.

117.  It is, I think, also pertinent to note that the complaints as to diversion of business all postdate the initial problems that arose between the two sides, these having started with Mr Wan’s refusal to sign cheques for the management fees payable to Well River.  It is also notable that they came after the discovery by Mr Wong of the substitution of Constella as a director of Thousand Bright by Vera Lee.

118.  Thus, even if the companies were quasi partnerships, and there has been a breakdown in such trust and confidence that may have existed between Mr Wong’s side and Mr Wan’s side, the blame for this, in my view, lies more with Mr Wan’s side, and sufficiently so as to disentitle them from the making of a winding up order on their petition.

Deadlock

119.  So far as the allegation that the companies should be wound up on the basis that they are deadlocked is concerned, it seems to me that in the light of my conclusion that the blame for any breakdown in the relationship lies more with Mr Wan’s side, the same would be true of any deadlock that has arisen, so that it would not be appropriate to accede to the petitions on this ground either.

Unreasonable rejection of offer?

120.  Finally, it is to be noted that Mr Wong’s side in fact made various offers to purchase Mr Wan’s side’s shares in Thousand Bright and More Elegant, and to have Well Peace wound up or deregistered.  All of these offers were rejected.  Mr Shieh submitted that their rejection was not unreasonable, having regard to the fact that there was no offer in relation to Mr Wan’s side’s costs.  However, in the light of the conclusions to which I have come above, particularly my view that Mr Wan’s side bears the greater responsibility for the problems which arose, it seems to me that the absence of any costs offer is not something which would render the offers made by Mr Wong’s side insufficient.  On this ground too, therefore, I would have thought it inappropriate to order the winding up of the companies on these petitions.  Further, it will be apparent that I do not think that this is a case in which the companies should be would up to enable a liquidator to investigate (at what may well be considerable expense) what are likely to prove to be, at the end of the day, relatively minor transgressions.  Finally, although it is true that the companies are not carrying on any significant business any longer, I do not think that this factor is sufficient to call for the making of winding up orders on these petitions.

Disposition

121.  For all of the foregoing reasons, I have come to the conclusion that the appropriate course would be for me to dismiss the petitions with an order nisi that the Petitioners are to pay the Respondents’ costs, such costs to be taxed if not agreed.