DENNIS KWOK HON MING v. POON SUI CHEONG ALBERT AND OTHERS

HCMP 1526/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1526 OF 2013

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HCMP 1527/2013

MISCELLANEOUS PROCEEDINGS NO 1527 OF 2013

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AND

HCMP 1528/2013

MISCELLANEOUS PROCEEDINGS NO 1528 OF 2013

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J U D G M E N T

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1. By three petitions dated 20 June 2013 issued pursuant to s.168A of the former Companies Ordinance (Cap 32), the Petitioner, Mr Kwok ("P") seeks a share buy-out and other relief on the basis of unfairly prejudicial conduct by four other shareholders ("the Majority Shareholders").

2. The three petitions are brought in respect of three companies: Minloy Limited ("Minloy"), Top Master Limited ("Top Master") and Wealth Island International Limited ("Wealth Island")(together "the Companies").

3. The Majority Shareholders are Mr Albert Poon ("R1"); Asian Adventure Limited ("R6") which is the corporate vehicle of Ms Irene Tseng ("R2"); Enchantment Properties Limited ("R7") which is the corporate vehicle of Mr Norris Yang ("R3"); and China Funds Development Limited ("R8"), which is the corporate vehicle of Mr William Lo (“R4”).

4. The remaining shareholder is Helen Law ("R5"), against whom no allegations of unfairly prejudicial conduct are made and no relief is sought.

5. In each of the petitions, the company was the ninth respondent at the time of issue of the petitions.  I was informed by counsel that the company was removed as a party by an earlier order of Mr Justice Harris.

6. At the start of the trial, I granted an application pursuant to Order 15, rule 7 of the Rules of the High Court for Mr Tseng Solomon Chih Kuo (Irene Tseng's son) to carry on these proceedings as executor of the estate of R2, to be made a party to the proceedings and to be substituted as R2.  Accordingly, the order made as a result of this judgment should reflect the same.  However, references herein to R2 during the material times leading to the issue of the petitions are references to Irene Tseng.

Background

7. In or about late 1991, P and R5 identified an opportunity for the acquisition of 900,000 sq. ft of land in Lantau ("the Land").  They negotiated the acquisition price of the Land to HK$6.8 p.s.f., which required acquisition funds of HK$7 million.

8. P and R5 introduced the Lantau investment to other potential investors.  P invited his colleague of many years, R1; R5 invited her friend R2, who in turn introduced R4, who in turn introduced R3.

9. After some meetings of the potential investors, and site visits to Lantau, an agreement was made to pursue the Land investment, and to that end, the investors agreed to invest on the basis of an undated shareholders' agreement in or about January 1992 ("the Shareholders' Agreement").

10. Notwithstanding the Respondents' Points of Defence challenging the validity of the Shareholders' Agreement, such challenge was not pursued at trial; and Mr Lam SC confirmed in closing that he in fact relied on the Shareholders' Agreement.  The terms of the Shareholders' Agreement are of critical importance and I will return to those below.

11. The investment proceeded on the basis that Minloy would acquire the Land, and the investors would contribute the necessary funds by way of equity and shareholders' loan.

12. Upon completion of the Land acquisition, the investors decided to divide the investments between three companies, and to that end they also became shareholders and loan creditors of each of Wealth Island and Top Master.

13. Accordingly, the initial shareholders of each of the three Companies were:

(a) R1 as to 21.429%;

(b) R6, the corporate vehicle of R2: 35.714%;

(c) R7, the corporate vehicle of R3: 7.143%;

(d) R8, the corporate vehicle of R4: 7.143%;

(e) P (using a nominee, Man Pui Fong, R5's mother): 10.714%

(f) R5 (using a nominee, Man Pui Fong, her mother): 17.857%.

14. It is common ground that the Shareholders' Agreement applies equally to all three Companies.

Alleged Unfairly Prejudicial Conduct

15. P's case of unfairly prejudicial conduct is based on 5 areas of conduct by the Majority Shareholders:

(a) The Majority Shareholders' threat to usurp P's powers and entitlements to Manager's bonus under the Shareholders' Agreement by blocking the Chun Wo deal in 2006, by requiring amendment of the Shareholders' Agreement and abolition of the role of Managers as a condition for proceeding with any more Non-Core Land sales: POC 23-28.

(b) The removal of P as manager and director, and exclusion from management, in respect of all three companies on 9 May 2008: POC 29-32, 42-43.

(c) The unlawful removal of P as manager without compensation: POC 33-36.

(d) Frustration and breach of the short-term objective of the Shareholders' Agreement by preventing the recuperation of shareholder loans plus interest from sales of Non-Core Land by, in particular:

(i) Blocking sales of Non-Core Land at Shui Hau by Wealth Island in July 1997;

(ii) Blocking the intended sale of Non-Core Land at Shui Hau by Wealth Island to Chun Wo in October 2006, with a threat to amend the Shareholders' Agreement and abolish the position of Manager;

(iii) Attempting to block the resumption of Non-Core Land in Mui Wo from Top Master by the Government, and payment of compensation for it, in July 2007;

(iv) No repayment to shareholders out of such resumption monies;

(v) Failing to pursue sales of Non-Core Land after 2008: POC 37-41.

(e) Malicious criminal accusations relating to P's drawdown of Top Master funds to pay for cashier orders in favour of all shareholders: POC 46-51.

16. In oral submissions, P clarified that he relied on the Shareholders' Agreement principally as giving rise to the relevant obligations between shareholders; but he also claimed that the three Companies were quasi-partnerships based on the personal relationship between the investors.

Amendment Summons

17. In opening, P (acting in person) indicated that he was also complaining about the invalidity of his removal as director as being unlawful or invalid on the basis that the resolution proposed and carried to achieve it was too ambiguous.  At that time, Mr Lam SC for the Majority Shareholders raised the objection that this was a new unpleaded allegation.

18. Subsequently, P took out an amendment summons dated 5 September 2016 (1 week into the trial).  Clearly a proposal to amend pleadings once the trial is already underway (at a stage when P's case had already been presented, with only the Majority Shareholders' case to be opened) would face an uphill struggle and be closely scrutinised.

19. Mr Lam SC submitted that to defend such a new allegation they would advance two lines of defence: (1) that there was no invalidity on the face of the resolution, alternatively (2) that the irregularity principle would apply such that a technical defect in the resolution would not invalidate the resolution if, in the circumstances, the intention of the resolution was clear.  To address the second line of defence, it would be necessary to examine at least the discussions before and at the EGM relating to P's removal as director.  Such evidence was not before the court.

20. I was initially troubled by the fact that parallel to the amendment application, new discovery was being produced in light of P's oral evidence including a recording of the EGM of 9 May 2008 made by Mr Poon (R1).  I was concerned that the Majority Shareholders had failed in their discovery obligations and that P might not have had available in discovery such recording which might have enabled the new allegation to be made earlier.  However, it transpired that the pleadings did not indicate an issue as to what happened at the EGM (as opposed to why), so that in this respect discovery was not apparently defective.  Further, P (who was legally represented until shortly before trial) was aware of the existence of the recordings, but had not himself asked for them in trial preparation or indicated that they would be relevant.

21. I accepted that a trial of the new allegation would require the type of factual evidence outlined by Mr Lam SC, which could not be produced without an adjournment of the trial; and that P had been legally represented prior to trial and had already had ample opportunity to advance this new allegation, and it was now raised too late.  I accordingly dismissed the amendment summons with costs.

Conduct of Trial

(a)  Representation

22. Although P had legal representation prior to the trial, there were no solicitors on the record for him at the trial.  He informed me during his opening submissions that he would have some assistance during the trial from a junior solicitor from his previously instructed solicitors, although he would represent himself.  It was clear during the trial that he had assistance in the location of documents, and in note-taking.  I consider that indirectly this was of assistance to the court.

23. P chose to use English at the trial.  His English is good, but he is not a native speaker, and his English is not fluent.  From time to time he was assisted by the Court interpreter.  He is also hard of hearing and informed the court during his evidence that he wears hearing aids in both ears.  It was apparent during the trial that without eye contact, he did miss some of what was being said to him and there were some misunderstandings for that reason.  I mention it because I have felt it appropriate when considering his evidence to bear in mind that these frequent misunderstandings, and lack of fluent English, mean that some answers as recorded may not properly bear their literal meaning, although clarification was sought as often as practically possible.

24. R5 was not legally represented.  R5 stated at the outset of the trial that she took a neutral position, would make no submissions, and would not cross-examine other witnesses, but she did intend to give evidence.  Although no relief is sought against her, she will be bound by the decision in these Petitions, and there was no objection to her calling herself as a witness.  R5 attended much but not all of the trial, being excused for work reasons.

25. The Majority Shareholders were represented by Douglas Lam SC leading Justin Ho.

(b)  Witnesses

26. The witnesses who gave evidence were:

(a) P on his own behalf;

(b) R5 on her own behalf; and

(c) R1 on behalf of the Majority Shareholders.

27. The material events took place long ago, with the original investment made in about 1992 i.e. 25 years ago.

28. Where the events have taken place a long time ago: (1) the contemporaneous documents are to be accorded very substantial weight; and (2) the significance of oral evidence is not necessarily in demonstrating the truth of the matter, but as a means of subjecting the documentary evidence to scrutiny.  As stated by Leggatt J in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm) §22:-

"... the best approach for a judge to adopt in the trial of a commercial case is to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose - though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth."

29. These principles have been applied by the Hong Kong courts.  For instance, in Esquire (Electronics) Ltd v Hongkong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439, Stock JA said (at §135):-

"Comparison with contemporaneous documentation is always an aid to reliability of oral testimony, unless there is reason to believe that the documentation is contrived or materially incomplete; but where the passage of time between events and trial is as long as it was in the present case, and where there is such a host of contemporaneous documentation, as there was in this case, the documentation must, I would have thought, assume a special importance ...

“... I do not say that an assessment of the character of a witness plays no part in the fact-finding process, but it is a task that may sometimes be elusive even to the best trained eye and ear, and I would venture to suggest that the truth, in so for as one is able to reach it or, as is sometimes the case, to reach a version of it that is more likely to be correct than not, can best be tested by reference to contemporaneous documentation where it exists, or to its absence where one could expect it to have been created, as well as to inherent improbabilities (though bearing in mind that there may be occasions where the truth may run against that particular grain) having regard to all the facts that are known ...  This is not to say that the documentation should have been treated as if it stood on its own, not to be explained, contradicted or supported by oral testimony.  It is however to say that in this case the approach adopted to assessment of the facts placed far too much emphasis on character impression and too little upon what was suggested by the documentation and by the inherent improbabilities in their historical context.  That documentation, as well as conflicts within the evidence, inherent probabilities, and a study of how matters were originally pleaded and asserted in witness statements - these are the factors which in a trial such as this, so long removed from the time of the events in question, were likely to be of particular use in assessing the facts ..."

30. Bearing these principles in mind, I must in this case place most reliance on the documents, and whether the witnesses' version of events is accurate in light of those documents.  Having seen P, R5 and R1 give oral evidence, I will record my impression of the witnesses' personality, motivations and working practices later in this judgment.

(c)  The documents

31. The pre-trial discovery was not entirely satisfactory in this case.  Where relevant events occurred about 8-10 years ago, proper pre-trial discovery of contemporaneous documents was critical.  At trial, both P and the Majority Shareholders produced documents not previously disclosed.  In respect of such documents, the general approach I took, not objected to by the parties, was that documents which should have been disclosed and of which all shareholders had possession, where relevant, would be allowed to be disclosed late and added to the hearing bundles.  For instance, in the cross-examination of P, Mr Lam challenged P as to the date upon which he received the minutes of the EGM held on 9 May 2008.  P insisted he had not received them until December 2008, and later found and produced an email from the Majority Shareholders to P supporting his position.  Without objection from Mr Lam, I allowed that email to be disclosed and admitted. In a few instances, P sought to introduce documents which he said he had in his own papers, not previously disclosed, where it was not apparent that the other shareholders had seen the documents at material times and there was no evidence on the matter.  The Majority Shareholders objected to the admission of such documents, and I agreed that they could not be properly addressed at this late stage, and I did not allow late disclosure.

The Shareholders' Agreement

32. It seems to me to be critical to start with the Shareholders' Agreement in order to see what were the shareholders' mutual obligations.  In particular, that is necessary in order to determine the obligations (1) relating to the sale of Non-Core Land, and (2) relating to the position of and compensation of the Managers.

33. It is trite that the meaning of the Shareholders' Agreement is a matter of law, and is not what, as a matter of fact, any of the shareholders subjectively believed it to mean.  The Shareholders' Agreement must be construed having regard to the agreement as a whole, the relevant factual and legal background, and the context in which words were used.

34. I set out the Shareholders' Agreement in full below, subject to my own addition of numbering of sub-clauses for easier identification, and my own addition of bold highlighting.

"Minloy Limited

Shareholders' Agreement Concerning the Land Acquisition on Lantau Island

1) Land Ownership

Minloy Limited (hereinafter, "Minloy") is the legal entity acquiring approximately 900,000 s.f. of land on Lantau Island (for details regarding the land lots, see Attachment 1). The names of shareholders and their respective shareholdings in Minloy are listed at the end of this Agreement.

2) Funding

The total cost for this land acquisition project, including legal and transaction cost, working capital etc, is estimated to be HK$7,000,000, to be funded through:

1% - HK$70,000 paid up share capital (divided into 70 equal shares of HK$1,000 each, and each share having equal voting right of one vote per share)

99% - HK$6,930,000 shareholders' loan, interest bearing at 2% per month compounded monthly.

Shareholders must prescribe to the loan pro-rata to their shareholding percentage. In the event the above amount is insufficient to fund the project upon approval of the new budget at a shareholders' meeting, all shareholders will be required to subscribe to the additional loan amount pro-rata to their shareholding percentages.

3) Objective of this Project

The objective of Minloy to engage in this project is NOT for short-term gain through immediate disposal of its entire land assets.

3.1 Short-term: to allow shareholders to recuperate their initial investments with interest (on the loan), through the sale of certain "Non-Core land" parcels.

3.2 Medium-term: to provide land for shareholders to enjoy as a recreational facility.

3.3 Long term: to realize the appreciation in land value on Lantau.

4) The Managers

[1] All shareholders agree to appoint Irene Tseng, Helen Law and Dennis Kwok as the Managers, responsible for:

- liaising and monitoring the progress of all relevant matters;

- commissioning an annual valuation of the land retained within the company;

- evaluating development projects for the shareholders' approval.

[2] The Managers will receive no remuneration for their work except for reimbursement of expenses. However, when the cumulative cash receipts from sale of land/assets have reached the original investment of HK$7.0 million, the Managers are entitled to receive a bonus of 15% (to be shared equally by the 3 Managers) on perpetual basis of any future cash receipt (or payment in kind for the land sale) from sale of land/assets.

5)  The "Core Land"

[1] The "Core Land" means those lots to be retained within Minloy for the medium term, to be recommended by the Managers and as agreed upon by the shareholders from time to time.

[2] The Managers will commission an annual valuation of the "Core Land" and any other lots still retained within Minloy, and report to the shareholders.

[3] In case proposals are submitted to Minloy for developments on the "Core Land" (or any other lots retained by Minloy), the Managers will try their best to establish a fair market price to be recommended to Minloy as the selling price (or transfer price). In case no agreement can be reached as to what the fair market price should be, all shareholders agree to accept the latest annual valuation (as explained above) as reference for the selling price.

[4] Such development proposals can come from any shareholders, but in any case, a separate "Development Company" must be used for the development projects.

6)  "Non-Core Land"

[1] All lots except the "Core Land" will be termed "Non-Core Land". The Managers will use their best effort to dispose of the "Non-Core Land" as soon as possible, with the aim of allowing the shareholders to recuperate their investment and interest thereon in full.

[2] In selling any land parcels, when an "outside buyer" submits an offer, the shareholders will have to approve of the sale first. The shareholders also have the first option to match the purchase offer within 7 days. If no shareholders match the offer within the period, the land will be sold to this outside buyer.

[3] Similarly, for any shareholder who wishes to purchase any of the Non-Core Land, the person can make an offer to Minloy, and the other shareholders have a 7-day first option to match the offer or to find an outside buyer who must pay at least a 10% premium over the offer price. In case more than one shareholder is interested in the same lots, the decision will be made by close tender. In any event, the selling price must be at least HK$10/s.f. or the latest valuation price, whichever is higher.

7)  Commission

The shareholders agree to pay a five percent (5%) commission to any agent, including any shareholder or Manager, for the successful sale of land to any external party other than to the shareholders.  The commission percentages, set to be five percent for the time being, is subject to revision by the shareholders through a shareholders' meeting.

8)  Decision Making Process

[1] The Managers can make operational decisions on behalf of Minloy, except for those decisions which require shareholders' approval:

-   sale of any land asset;

-   raising debt;

-   payment of shareholders' loan interest and principal;

-   declaring and paying dividend;

-   development projects;

-   annual valuation of the land assets;

-   transfer of shares and/or changing the share structure.

[2] Before the shareholders' loan is fully repaid with interest, any of the above decisions require 100% agreement amongst shareholders. In the event a decision is discussed but disapproved by the same shareholder at least 2 times, on the condition that 75% of the share votes are in favour, Minloy has the right to buy back the shares from this shareholder at book value provided that his/her loan is repaid in full plus monthly interest at 2% compounded monthly. However, if the latest valuation of the land assets falls below the book value, such buy-back arrangement will not apply. In this case, 75% vote is sufficient for approving any of the above decisions, subject to other clauses as stated in this Agreement.

[3] After HK$7 million (cumulative) has been recuperated from land sales, a 60% vote is sufficient to approve any decisions.

9)  Sale of Shares

If any shareholder wishes to sell his/her shares, the other shareholders have a 7-day first option to purchase the shares.  If more than one shareholder is interested in the purchase, all those interested will jointly decide to make any offer to the selling party within 7 days.

If no shareholder is interested, the shares can be offered to any outside party, subject to all other shareholders' approval of such a party becoming the new shareholder.

10)   Disputes

All shareholders agree to resolve any disputes in good faith and friendly manner.  In case any disagreements cannot be resolved otherwise, an Arbitration Committee consisting of 3 members (one being a non-shareholder, one being a Manager of Minloy, and the third being either a Manager or shareholder of Minloy, all 3 members to be accepted by the 2 disputing parties concerned) will be formed and all shareholders agree to be binded by the Committee's decision."

Analysis of the Shareholders Agreement

(i)  Sales of Non-Core Land

35. Clause 3 quite clearly on its face sets out the objectives for Minloy (at that stage prior to incorporation of the other two companies into the project) which were not to immediately sell all the Land, but to sell some of the Non-Core Land parcels in order to repay the shareholders' loans plus interest in the short term, and to retain the balance of the Land for medium term and long-term objectives.

36. For present purposes, I am only interested in the shareholder obligations concerning Non-Core land, not Core Land.

37. By Clause 6 sub-clause [1], the Managers are charged with using their best efforts to dispose of the Non‑Core Land as soon as possible, with the aim of allowing the shareholders to recuperate their investment and interest thereon in full.  In the context, the "investment" refers to the shareholder loans.  I will call this obligation "the Managers' Mandate".

38. By Clause 6 sub-clause [2], the procedure for Non-Core Land sales is prescribed.  Namely (1) if an outside buyer makes an offer, the shareholders must approve of the sale first; (2) shareholders have the first option to match the purchase offer within 7 days; (3) if no shareholders match the offer within the period the land will be sold to this outside buyer.  I will refer to this obligation as the "Shareholders' Mandate".

39. Clause 6 sub-clause [3] sets out an alternative procedure for the situation where a shareholder wishes to initiate an offer to buy Non-Core Land.  Significantly, it concludes with "In any event, the selling price must be at least HK$10/s.f. or the latest valuation price, whichever is the higher".  Notwithstanding the placement of this sentence, it seems to me that it must have been intended that the floor price apply to sales to both outside buyers and shareholders.

40. I note that the Managers were obliged by Clause 4 to commission an annual valuation of the Land retained.

41. Clause 8 provides generally that a decision to sell any land asset is a decision requiring 100% shareholder approval (until such time as the shareholder loans are fully repaid).

42. In my view, the Shareholders' Mandate in Clause 6 creates a specific obligation on shareholders (whose task it is to decide whether to approve a land sale) such that if an outside buyer makes an offer for Non-Core Land exceeding the floor price, and no shareholder matches the offer within the 7-day period, then the shareholders are required to approve the sale.

43. I do not accept, in the light of the Shareholders' Mandate, that the shareholders have an entirely unfettered discretion as to how they vote on a proposed sale of Non-Core Land, as urged by the Majority Shareholders.  That would not only be inconsistent with the wording of Clause 6 sub-clause 2, but would be inconsistent with the objectives stated at Clause 3 for sales as soon as possible of Non-Core Land to repay shareholder loans with interest, supported by and further evidenced by the Managers’ Mandate.  I am conscious that Clause 3 itself does not use the words "as soon as possible" but having regard to Clause 3 and Clause 6, and the wording of the Managers' Mandate, I have no doubt that "short term" was intended to mean as soon as possible.

44. I also note the onerous interest rate attaching to the shareholders' loans of 2% per month compounded monthly.  It seems to me that this can only have been consistent with an intention that the shareholder loans be repaid as quickly as possible, rather an intention to saddle the non-income-producing Companies with crippling debt.

45. In my view, the obligation contained in the Shareholders' Mandate is straightforward.  If a shareholder does not perform that obligation, it is irrelevant whether he acted in good faith or not, or whether the breach was deliberate or intentional.

(ii)  Managers' Position and Compensation

46. Clause 4 provides that all shareholders agree to appoint R2, R5 and P as the Managers; it provides for their responsibilities; and it then provides for their remuneration (to which I will return).

47. Mr Lam SC submitted that Clause 4 did not provide an entrenched right for R2, R5 and P to be Managers but implicitly must mean that they were to be the initial managers, and they could be removed, whether for cause or not, as the shareholders wished.

48. I am unable to accept that submission.

(a)   It is not at all clear to me that was what was obviously intended.  Rather, R5 and P were (and this is undisputed) the only two shareholders with knowledge and experience in Lantau property.  It seems to me to have been one of the factors underlying the whole investment project that it would have the advantage of R5 and P's knowledge and experience.  Indeed, R1 positively did not want to have any operational role and invested on that basis.

(b)   R2 did not have the same Lantau property expertise, but she was the largest investor, and therefore it is not clear and obvious that she was to be an "at will" manager rather than an entrenched manager.

(c)   I can perfectly see that it may have commercial appeal to have the ability to remove managers under Clause 4.  However, as stated above, there was also commercial justification for giving P, R5, and R2 entrenched manager roles.

(d)   I cannot read Clause 4 as containing an implied right of removal of the Managers, let alone the basis on which that would be possible, eg for cause or otherwise, with notice or otherwise, with compensation or otherwise.

49. As to Managers' remuneration, Clause 4 provides that the Managers would receive no remuneration save for reimbursement of expenses; but that when cumulative cash receipts from land sales reached the original investment sum of HK$7 million, the Managers would be entitled to a bonus.  That bonus would be 15% (to be shared equally by all 3 Managers), on a perpetual basis of any future cash receipt or payment in kind from land sales.

50. It is quite clear then that the Managers would have to achieve all or most of the short-term objective of repayment of shareholder loans (subject to interest) before they received any compensation for their efforts.  Thereafter they would receive a bonus on all future receipts.  Whilst this was potentially risky for the Managers who might receive no reward for their efforts, if they bridged the hurdle of achieving recuperation of the shareholders' investment, then they would benefit on a perpetual basis.

51. This reinforces my view that the position of Manager is entrenched rather than "at will" because it must have been implicit that successful Managers would not be removed from their post immediately before the threshold for receiving bonuses was reached, or shortly thereafter, in which case they could not reap the benefits of their efforts.

Directorship

52. There is no provision in the Shareholders' Agreement addressing directorship.  Accordingly, the Articles and Companies Ordinance (Cap 32) regulate directorships.

53. Article 12 provides that a director shall hold office until he is removed from office by special resolution of the Company, or by ordinary resolution at an AGM with 7 days' notice by a member to the company.

54. However, s.157B of the Companies Ordinance provides that a company may remove a director by ordinary resolution notwithstanding anything in its articles, if special notice is given (i.e. 28 days' notice to the company, and then 21 days' notice by the company to the members: s.116C).

55. S.157B on its face cannot be abrogated by a company's articles.

Quasi-partnership

56. I have had regard to the passage of Lord Wilberforce's judgment in In Re Westbourne Galleries[1973] AC at 379E-G which lists some factors which may give rise to treating the association between the shareholders as not purely commercial but as giving rise to the superimposition of equitable considerations.  I have also considered the passage in Hollington: Shareholders' Rights (7^th ed.) paras 7-107 to 7-118 giving examples of purely commercial companies and those which have been labelled quasi-partnerships.

57. In my view, the Companies were established with articles of association and the Shareholders' Agreement which sets out key mutual obligations and rights, with no relevant pre-existing association between the shareholders in respect of the Companies' business.  P has not established any obligations or expectations between the shareholders of the Companies (over and above those in applicable law and the Companies' articles) save those set out in the Shareholders' Agreement.  I regard the Companies as having been established on a purely commercial basis.

Key events up to 2008

(a)  Non Core Land offers before 1998

58. On 10 February 1992, part of the Land at Pui O was sold for approx. HK$672,804.

59. On 30 March 1992, the Managers reported to all shareholders on the sale of land in Pui O; and, pursuant to some shareholders' requests, sought agreement for surplus cash of $900,000 to be distributed as partial repayment of the shareholder loans, attaching a financial report, seeking a written resolution of all shareholders to approve the payment.

60. An unaudited financial report for Minloy as at 28 February 1993 showed that there had been no further assets sales, that the $900,000 raised had been used for shareholder loan repayment, and that some professional fees had been incurred.

61. On 19 March 1993, an AGM for all three Companies was held.

(a) It was noted that P and R5's shareholdings were held on their behalf by R5's parents, and that R5's parents planned to leave Hong Kong.  It was resolved that the shares would be transferred into P and R5's names.  This resolution was recorded in the AGM minutes.  All shareholders were aware of P's beneficial ownership of shares in the Companies from (at least) as early as 1993.

(b) It was noted that the Government Valuation Department had informed the Companies that the Government valued the Land at HK$24.5 million at the time of purchase on 1 January 1992, whereas stamp duty had only been paid on the actual purchase price of HK$6.2 million, so that extra stamp duty of about HK$500,000 was payable, irrespective of the appeal which R5 had requested be lodged.  It was resolved that the shareholders repay part of their earlier shareholder loan repayment in order to cover the tax.

(c) I note that there is no record of any complaint about this extra tax liability.  Indeed, it indicates that P and/or R5 had managed to acquire the Land at a price substantially lower than the Government's valuation.

(d) Also recorded in the minutes was a resolution that the Non-Core Land be sold off to realise cashflow, and that shareholders be given one month's option to purchase the land at a lower price than that offered to outsiders.  The resolution included a list of the parcels of Non-Core Land in question, and the prices available to shareholders and the prices available to outsiders.  The minutes recorded the need for interested shareholders to contact R5 before 19 April 1993.  (The minutes also confirmed the term in the Shareholders' Agreement for payment of a 5% commission payable to anyone who successfully brought about a sale).  This seems to me to indicate a one-off variation of the Shareholders' Agreement in respect of sales of Non-Core Land parcels, but none of the parties submitted that the Shareholders' Agreement was varied at this or any other time; and this resolution is not material for present purposes.

62. On 10 May 1994, the Board of Wealth Island resolved that the transfer of shares from Joe Law (R5's father) to P be approved and be registered.  (I see from the bought and sold notes that stamp duty was not paid until May 2008, so it seems that non-registration of the share transfer in 1994 may have been due to the failure to pay stamp duty i.e. an administrative failure for which P was responsible; although it was clear to all shareholders that P rather than Mr Law was at least the beneficial owner of the relevant shares).

63. On 12 August 1994, the Board of Top Master resolved that the transfer of shares from Man Pui Fong (R5's mother) to P be approved and be registered.

64. A valuation report from Vigers dated 30 November 1994 valued the Land at HK$30 million, on a ready buyer basis (according to a summary prepared by R5 on 31 March 1995).

65. On 31 March 1995, R5 circulated to all shareholders an agenda for a meeting on 2 April 1995, referring to the Vigers' valuation.  I regard this email as an important contemporaneous document.  R5 recorded that in the last 3 years, sales offers had been received but had been declined on the basis of immature timing.  She stated that the expectations of various shareholders had changed in relation to levels of interest in development projects.  She pointed out that it was difficult for the group (in the absence of manpower and funds) to actively initiate and implement development projects.  She proposed selling land to recuperate the initial investment and give shareholders a choice of keeping certain parts of the land in their own name, for those interested in the long-term, or to realise cash immediately.  (I note that R5's proposal is consistent with the Shareholders' Agreement, and it is significant because it evidences some shareholders in March 1995 having wishes inconsistent with the Shareholders' Agreement).

66. A Vigers valuation report dated 30 May 1997 shows the value of the Land as HK$38.6m.

67. On 24 September 1997, R5 circulated all shareholders with details of two purchase offers for parts of the Land:

(a)   an offer of just over HK$2.2 million for a plot at Ngau Ku Long (source of offer stated to be R1), and

(b)   an offer of HK$15,165,414 for land at Shui Hau with some plots priced at $125/sf, others at HK$70/sf. ("the 1^st Shui Hau offer")

68. R5 requested the shareholders to sign written resolutions in respect of whether they accepted or did not accept either offer.

69. On 29 September 1997, R5 wrote to all shareholders referring to their meeting on 27 September and the 1^st Shui Hau offer.  She stated she had requested the potential buyer to hold the offer for another 15 days, meanwhile they could all try to secure a better offer.  She stated in the event that no other offers were put forward by 13 October, they would accept the offer received at HK$15,165,414.  (I note that this approach by R5 was consistent with the Shareholders' Mandate, pursuant to which all shareholders were required to approve the sale if they did not match the offer).

70. There is no documentation (so far as I am aware) showing what happened to the 1^st Shui Hau offer thereafter.  R5's evidence is that all three Shui Hau land offers received between 1995 and 1998 were rejected because the other shareholders wanted to wait for better offers.  R1's evidence at trial was that the offer remained under consideration by the shareholders as at 13 November 1997 when the next offer was circulated, but that does not address or explain R5's letter of 29 September 1997 giving a 13 October 1997 deadline for a response.

71. On 13 November 1997, R5 informed all shareholders of another offer for a slightly larger area of land in Shui Hau at the same price per square foot as the previous offer, showing the gross selling price to be over HK$27 million, less a consultant's fee of HK$12 million, with receipt to the company of HK$15,348,430 ("the 2^nd Shui Hau offer").  R5's letter stated that an independent land consultant Vatex Enterprises Co was involved in helping to secure the deal, and the consultant's fee would be payable to them; stating R5's interest would be the usual 5% commission which she would split with the agent.  R5 asked shareholders to sign the attached resolution.

72. On the same day R3 (apparently on behalf of R3 and R4) returned the resolution agreeing to the proposed sale subject to certain conditions, including, in view of the high consultants' fee, a requirement that every shareholder sign an affidavit declaring that they would not receive any benefit from the consultant or the buyer.

73. The 2^nd Shui Hau offer was not accepted.  R1 stated in his evidence that this was because none of the Managers signed the requested affidavit.  However:

(a)   I have seen a fax to all shareholders dated 13 November 1997 (the same day as R3's request) from R5 in response to R3's comments which states that it encloses drafts of declarations to be given by all shareholders as to their lack of interest in the Land Consultant (inter alia). 

(b)   P's evidence (in response to R1's evidence) was that all three Managers gave the necessary affidavits, attaching those of R2 and R5, although he could not locate his own (and that of R2 is not legible save for her signature).  P's evidence was not challenged.

74. It is apparent that the offers exceeded the floor price as stated in the Shareholders' Agreement (given Vigers' valuation of these lots at $100/sf as at May 1997).  Although the floor price may well have been increased from time to time by shareholder unanimous approval, I am not aware of it.  It was not suggested by any of the parties that the offers did not meet the necessary floor price.

75. It is common ground that neither the 1^st or 2^nd Shui Hau offers were accepted.  It is clear that R5 at least wished to accept the offers.  I am aware that P pleaded (Points of Claim para 37(a)) that the Majority Shareholders blocked a Shui Hau land offer in July 1997, whereas the evidence shows that the 1^st Shui Hau land offer was in September 1997.  I do not regard this as a material discrepancy.  If necessary, I would have permitted an amendment of the pleading - as the essential allegation was clear, there is contemporaneous documentation before the court, and, whilst P’s evidence simply verified the pleading, R5 had given direct evidence on the point to which R1 had expressly responded.

76. R5 submitted (by way of annotation to her witness statement) that even the lowest offer of September 1997 would have been sufficient to discharge the shareholder loans plus interest ($6.939 million) in full, using the Majority Shareholders’ own calculations of the outstanding loan plus interest amount contained in a schedule to their Supplemental Opening Submissions.

77. R5's witness statement asserts that there was a 3^rd Shui Hau offer of HK$31.36 million before 1998.  I have not seen contemporaneous documents to support that.  However, I have seen R5’s email dated 20 October 2006 to all shareholders which supports her recollection.  So far as is necessary, I accept that it is more likely than not that there was a 3^rd Shui Hau offer of HK$31.36 million in the late 1990's which was not accepted by all shareholders.  However, I do not need to place any particular weight on it for the purposes of my decision.

(b)  Events prior to the Chun Wo offer

78. On 12 March 1999, R5 updated the shareholders as to the Companies' financial position.

(a)   She referred to the retention in October 1995 of HK$100,000 for expenses, and stated that there was now a current bank balance of HK$28,000 before paying a number of payables and preparing audited accounts.

(b)   She estimated annual expenses would be approx. HK$10‑12,000 per company.

(c)   She noted that it was always the group's intention to realise non‑core land to repay original capital and thereafter concentrate on long term strategies for core land.  She stated that P and R5 recommended selling land to realise some cash to cover regular expenses as well as repaying shareholders.

(d)   She referred to the 1994 Vigers' valuation and proposed:

(i)    a floor price (to be valid for the next 6 months) at 50% of the 1994 valuation or HK$17/sf, whichever is higher (noting the acquisition cost of HK$7/sf);

(ii)   a land sale mechanism which differed from that in the Shareholders' Agreement, to provide an alternative solution to share buy‑out where 70% shareholders approved a sale.

(e)   I have seen no evidence that these proposals to vary the floor price or to vary the Shareholders' Agreement received shareholder approval.

79. On or about 6 April 2000, there appears to have been put to the shareholders (1) revised floor prices and (2) a proposal to amend the scheme for disposing of Non-Core Land.  Whilst one document indicates that floor prices for Non-Core Land of Wealth Island and Top Master were approved on 6 April 2000, the evidence is far from clear on this point, and no witnesses addressed it directly.

80. I note that P gave evidence that there were periodic agreements as to the floor price although he did not remember them exactly.  I have not seen clear evidence on agreed floor prices.  That is not material however for my decision, as there is no suggestion that offers being made for Non Core Land were rejected for not meeting floor prices.

81. None of the parties suggested that the Shareholders' Agreement was varied at any time and I proceed on the basis that it was not.

82. A later email of 14 August 2006 refers to a shareholders' meeting having taken place in June 2005, however I have seen no contemporaneous documents nor any witness evidence concerning such a meeting.

(c)  Chun Wo

83. By an agreement dated 11 July 2005 between Chun Wo Construction & Engineering Co Ltd ("Chun Wo") (as employer), Levett & Bailey International Ltd ("L&B") (as consultant) and Wealth Island (as vendor), Chun Wo appointed L&B as consultant in respect of a proposed development plan for land at Shui Hau owned by Wealth Island ("the L&B Consultancy Service Agreement").  The L&B Consultancy Service Agreement provided that:

(a)   L&B would carry out a preliminary enquiry regarding the feasibility of developing the Shui Hau land.  If the result was positive, and all the subject lots were feasible for being surrendered and regranted for the development, Chun Wo agreed to purchase, and Wealth Island agreed to sell, the subject land at HK$220 psf; Wealth Island was still able to sell the land to a third party but would bear the expenses for the consultancy services;

(b)   The professional team led by L&B would include a land consultant CM Mo Consulting Surveyors Ltd ("CM Mo"), Lantau property consultants R5 and P, and L&B as quantity surveyors.

84. In June 2006, the draft consultants' report on the development feasibility of the Shui Hau land was ready.  That report was circulated to other Wealth Island shareholders by P or R5 on about 15 June 2006.

85. By email dated 29 June 2006, R5 emailed the other shareholders as a follow-up to her report of 11 June (I have not seen such a report).  She stated that as the shareholders may recall, they had a standing agreement to sell the regroupable land to Chun Wo at HK$220 psf and, as per the land consultant's report, the draft of which had been circulated, certain lots of the land could be regrouped, and on that basis Chun Wo had indicated its interest in purchasing those lots, and working further with the land consultant to regroup the remaining lots.  R5 stated she expected a written offer from Chun Wo within a few days.  She continued to say that the consultants were still negotiating with Chun Wo for a better price, and that although there was an agreement to sell at $220 psf, if Chun Wo decided to break up the acquisition into two transactions, then there would be good reason to negotiate a higher price for sale in future.  She stated that she and P proposed that the consultants be incentivised to achieve a higher price for the first batch of land by giving them 35% of any increase they achieved above $220psf.  R5 stated that time was of the essence, that comments should be provided by 30 June, otherwise she would assume that everything could follow the original plan, i.e. accept $220 psf from Chun Wo.

86. R1 responded by email dated 29 June 2006, stating he had no objection to providing some incentive to the consultant to negotiate a better price of the 1^st lot of lands but 35% seemed exceptionally high to him; stating they could negotiate directly with Chun Wo and had good reason to get higher than 220psf as R5 said.  He also suggested there was no need for the agent in between.  I note that what is clear from R1's email is that R1 did not challenge the fact that he knew that there was a standing agreement to sell to Chun Wo at $220 psf.  That standing agreement is to be found in the L&B Consultancy Service Agreement of July 2005.

87. By email dated 9 July 2006 to all shareholders, P attached a draft conditional offer from Chun Wo for the Shui Hau land at $220 psf subject to a survey and land exchange application. P set out his proposals, having taken legal advice.

88. By emails dated 9 and 10 July 2006, R1, R3 and R4 raised queries on the Chun Wo offer.  R3 also mentioned the possibility of another buyer for the whole package of land, but with no promises.

89. By email of 11 July 2006, P replied to say that the points made were well taken, they would hold the deal until next Monday while demanding a more favourable closing arrangement.  He asked if anyone had news on alternative buyers or wanted him to hold longer.

90. By email of 14 July 2006 to all shareholders, P (at R5's request) referred to a discussion that day with R1 and R3 in respect of Chun Wo's latest offer.  (I note here that I have not seen an offer dated 14 July 2006, but I have seen a draft offer of $220 psf which R5 indicated was the offer under discussion, and an offer dated 17 July 2006 also of $220 psf.  It was not suggested that there was any material change in terms of the offer being advanced by Chun Wo in this period).  P's email also stated that it had been agreed that they should not wait indefinitely for a new buyer but proceed to work out terms acceptable to the shareholders.  He set out the proposed revised terms and explained them.  He stated "As our objective is to sell‑off the non-core Shui Hau lots for cash for development in Shan Shek Wan [Core Land]", he asked them to consider the terms of the Revised Offer attached and let him have comments by 17 July, otherwise he would proceed with R5 to accept the Revised Offer.

91. On 15 July 2006, R1 and R3 responded with some queries, including R3's request for a copy of the land consultants' report which he accepted he may have missed.

92. On 17 July 2006, Chun Wo's subsidiary made a written offer to Wealth Island to purchase part of the Shui Hau land for just over HK$10 million (at $220 psf) with completion within 2-3 months.

93. By email of 17 July 2006 to all shareholders, P responded to queries raised (including an estimate that the professional costs of the application process would be $200,000 to 400,000) and enclosed the consultancy report that R5 had copied to all of them, stating that the attachments to the report had been faxed to R3 who was going to email them to all shareholders.  P reminded the shareholders that the information therein was proprietary and should not be circulated externally.

94. R3 replied to P and R5 on 17 July, copied to all shareholders, expressing his views on the commerciality of the deal in light of having read the land consultancy report. He proposed waiting for the results of a Lantau land auction on 18 July; negotiating an option to sell to a third party before Chun Wo's 6-month completion period expired; negotiating with Chun Wo for a 2-month completion period, and if they refused, then they should refuse to sell and the shareholders should find $400,000 development fees.

95. By email of the same day, R1 agreed with R3.

96. What is quite clear is that, having an offer from Chun Wo on the table, with there being no question of it being below a floor price, R1 and R3 wanted (commercially) to try to get a better offer from the outside buyer.  There was no suggestion of any of the shareholders or other outside buyer matching or improving on the offer.  What is also clear, is that R1 and R3 were proposing development of Non-Core Land in order to achieve a better price.  This was inconsistent with the stated objectives of, and the Shareholders' Mandate in, the Shareholders' Agreement.

97. By reply email to all shareholders dated 17 July, P stated:

(a) They had been negotiating with Chun Wo for 5 weeks and it should take as long as necessary to achieve the Objective, which was to sell the Non-Core Land to recoup cash for other developments.

(b) R3's fall-back proposal for development of the Non-Core Land was not the shareholders' intent, and was contrary to the consensus of all shareholders.  (I note here my agreement with P's statement).  P suggested that any shareholders interested in development should purchase the subject lots.

(c) R3's proposal to negotiate an option to sell to a third party would turn the formal sales agreement to a conditional sales agreement which was not the shareholders' intent.

(d) P had no problem with waiting a couple more days for the Lantau land auction, but the land being sold at auction was entirely different as it was residential rather than raw agricultural land, so a comparison was misleading.

(e) P suggested waiting until after the auction to consider acceptance of the terms of the Revised Offer; but that the length of completion period was something on which their views differed but did not really matter; requesting that they "will not be so stupid again to mess the deal on personal and trivia matters".

98. On 18 July 2006, P wrote to all shareholders stating that he would be meeting R1 and R3 that day to consider the auction results and to endorse the terms of the offer sent on 14 July, enclosed again.  P stated that Chun Wo had stated their deadline was 19 July.

99. From 28 July 2006, P, R1 and R3 corresponded about having a meeting with CM Mo, the land consultant, with the meeting fixed for 2 August.

100. By email dated 7 August 2006 from P to all shareholders:

(a) P reported that he, R1 and R3 (amongst others) had met CM Mo on 2 August. CM Mo had reported that the cost of the application process so far for Chun Wo was $22,000 and there was likely to be a further $200,000 to $400,000 to get basic terms and premium from the Government.  P would leave it to R3 to report as to exact cost and time to get there, and impact on the value of the land.

(b) P stated that Chun Wo had been told 2 weeks ago on 24 July that Wealth Island was reviewing its future, and would revert to Chun Wo in due course.  P stated that they either needed a negotiation strategy or keep ignoring Chun Wo as some shareholders had suggested.

101. By email dated 7 August 2006 to all shareholders, R3 reported on the meeting with CM Mo.

(a) He summarised the further work and cost estimated for the land regrouping process.

(b) He stated that CM Mo was unable to estimate the value of the land when regrouped, but that he currently estimated the value to be over $100, perhaps $150 or above.  R3 expressed surprise at this in light of the Chun Wo offer of $220.

(c) He stated that P had mentioned in the meeting that P and R5 had received payment from L&B as consultants on the land regrouping matter, and asked for details.

(d) R3 stated he had introduced Patrick Yip to try to sell the land for them, so that he would have a conflict of interest when voting on any sale introduced by Mr Yip.

(e) R3 reminded all shareholders to disclose any conflict of interests.

(f) R3 suggested that the 1992 Shareholders' Agreement might be out of date and require revision.

(g) R3 stated that pursuant to a meeting of the Majority Shareholders only, the Majority Shareholders proposed 8 action points to the other shareholders i.e. P and R5, which included:

(i) authorising CM Mo to make the application as soon as possible (I note P submitted and I agree that such would be a development process in respect of Non-Core Land);

(ii) dealing with the $80,000 cheque issued in favour of Wealth Island which could not be cashed due to the lack of a bank account, with payment to be made to CM Mo (I note P asserted this would result in non-payment to P and R5, but I do not accept that the Majority Shareholders necessarily knew this even if they were not aware of the terms of the L&B Consultancy Service Agreement);

(iii) P should email Chun Wo directly to state that Wealth Island would not be taking any initiatives regarding its land, but they should contact R1 or R3 for further communication (I note P submitted and I accept, particularly in light of R1’s previously expressed opinions, that indicated an intention of the Majority Shareholders to bypass the agent.

102. By email dated 8 August 2006 from P to R3, copied to all shareholders, P responded that:

(a) His objective was to see how to package the non-core land and sell the non-core land at a fair market price so that they could have the financial resources to develop the core land and revert the company to a normal company managed by the majority shareholders.  P stated that the Chun Wo price was a fair price and that CM Mo’s estimate of $100 or $200 was consistent with the Vigers’ valuation of $150 last year.  (I note that P’s stated position shows his observance of the Shareholders’ Agreement, in particular the Managers’ Mandate).

(b) Chun Wo had commissioned L&B, R5, P and CM Mo to do the feasibility study; and Wealth Island was not to interfere in that commercial arrangement.  The preliminary study was completed in May 2006 and circulated to all shareholders.

(c) P reminded all shareholders of the bitter encounters experienced in dealing with missed sales opportunities in the past.

(d) P responded to R3's suggested 8 action points:

(i) P suggested that a development company be formed for Shui Hau development with finance for development, with proper arrangements for shareholders who did not want to be involved in the new investment;

(ii) P and R5 would check with L&B as to their ability to disclose commercial arrangements for hire of sub‑consultants (I note that this indicates that the L&B Consultancy Service Agreement had not already been previously disclosed to shareholders as at 8 August 2006, otherwise no such consent from L&B would be needed).

(iii) Suggesting that R1 and R3 form a study group in respect of the Shui Hau land to report to all shareholders within 2‑3 weeks on how to move forward.

(iv) Suggesting a third party legal opinion as to potential moves by Chun Wo.

(v) Concluding that it was absolutely wrong to take no initiative to negotiate an acceptable deal; that if there was no desire to negotiate, then they were not sincere in trying to sell, but hoping that a higher price would turn up at some point.  Stating he did not understand such a stance, and that the shareholders now had a good chance to sell a small non‑core land parcel on a fair and reasonable basis and put the company back in the hands of major shareholders, but that was being discouraged.  (I note P’s position shows his wish to observe the Shareholders’ Mandate in the Shareholders’ Agreement and his understanding that was not the Majority Shareholders’ intent).

103. By email dated 8 August 2006, R3 replied that he had no desire to take an active role or be manager or usurp the role of manager; asking to see the L&B arrangement with Wealth Island; and suggesting again that the Shareholders’ Agreement be reviewed.

104. P replied on the same day noting that voluntary efforts by shareholders were appreciated; recording that efforts in the past years through the many attempts to sell the non‑core land had gone through many, many setbacks; suggesting an AGM to review outstanding issues such as the Shareholders’ Agreement and the Shui Hau situation; attaching the consultancy agreement with CM Mo.

105. By email dated 9 August, R3 stated he had not previously seen the consultancy agreement with CM Mo; he chased for the consultancy agreement with L&B, P and R5 for the sake of transparency; he noted other shareholders’ declarations as to conflict of interests; and he agreed to an AGM.

106. By email dated 10 August 2008:

(a) P apologised for not previously providing the CM Mo agreement and explained that he did not think it necessary as it was not relevant to the questions being asked;

(b) P declared his own interest in respect of the L&B consultancy service, for which he was owed $25,000 in respect of consultancy work on the feasibility study, which work had been reported to shareholders before the consultancy commenced; stating there was no agreement other than the L&B Consultancy Service Agreement which had been emailed to all shareholders.

107. By email dated 14 August 2006 from R5 to all shareholders, R5 provided details about how the L&B Consultancy Service Agreement came about, R5 and P’s involvement, the compensation structure, the problems caused by Wealth Island not having a bank account, and the costs savings on outside professionals.  R5 concluded that she hoped this addressed all queries, but if not to let her and P know.

108. On 16 August 2006, L&B re-issued cheques for the consultancy services, one for HK$30,000 payable to R5, and one for $50,000 payable to P (in respect of his and CM Mo’s fees).

109. On 18 August 2006, an AGM was held for shareholders of the three Companies.  The only contemporaneous evidence of the AGM is an agenda for the AGM annotated by R1.

(a) As to the agenda item to report on current status of "Chun Wo, Patrick Yip and other buyers", R1 has noted "no progress, no others".

(b) As to the agenda item to discuss an action plan for the Shareholders’ Agreement, management and the way forward — there is no annotation.

(c) As to the agenda item to discuss an action plan for non‑core land disposal, there is also no annotation.

(d) There appears to have been a discussion of the profitability of the Companies, drawing an unfavourable comparison with a hypothetical investment in HSBC (which tends to indicate that the Majority Shareholders were considering the commerciality of their investment at large, without reference to the restrictions contained in the Shareholders’ Agreement).

110. I am not aware of any relevant documents providing contemporaneous evidence as to what happened in the next two months.  It is clear that there was no unanimous agreement to sell Non Core Land to Chun Wo, notwithstanding the Shareholders’ Mandate.

111. By email dated 20 October 2006, R5 emailed the other shareholders.

(a) She stated it was many days since her last email and it was not in the company's interest to let things drag on.

(b) She proposed that if Chun Wo would accept the terms as per their draft written resolution, then they accept the offer.

(c) She stated that, in the three Managers' opinions, it was in the best interests of the company because:

(i) Since the formation of the company, it had been their top priority to sell the Non-Core Land to repay their original investment and provide seed money for repackaging the Core Land to enhance its value.

(ii) In her opinion they had already missed the best timing to dispose of their land which was pre-1997, and it was a pity that the board had voted against accepting the 3 offers she had brought to the company around that time (being offers of $24.8 million, $27.36 million, and $31.36 million respectively).

(iii) She stated that Government regulations for the development of land had become much more stringent, and land values would be unlikely to exceed the pre‑1997 value in the near future.  Professional consultants CM Mo, Vigers and Proper Trip confirmed that opinion, and that their lots were worth about $120+, under $200 psf.

(iv) The $220 offer represented 13% more than the Government's deemed value for resumed land.

(d) She stated that if any shareholders doubted the true value of the land, then she had proposed an “escape clause” in case anyone found a better offer within the next 6 months.

(e) She stated that she examined the pros and cons of the offer in her report of 9 October.

(f) She proposed moving ahead with the Chun Wo offer, but if anyone had concerns they were asked to list and explain them.

(g) She stated that for those shareholders who wished to revise the Shareholders' Agreement, that was an internal matter separate from the land sale; and the proposed changes should be circulated and the subject of a separate shareholder meeting.

(h) She stated that P had completed the latest set of accounts.

112. I have not seen emails dated a few days before 20 October 2006, nor have I seen R5's 9 October 2006 report.  However, I note R5 was clearly seeking to observe the Managers’ Mandate and Shareholders’ Mandate, and indirectly recording the non‑observance of the Shareholders’ Mandate in the late 1990’s.

113. By email dated 24 October 2006, R1 replied that he did not see any benefit in charging ahead without first obtaining the unity among all shareholders.

114. R5 replied the same day with a reminder that:

(a) Selling the Non‑Core Land was one of the basic principles of the company and the only way for shareholders to recoup their investment, so the most important point to consider for any offer was the price and terms of sale.

(b) The Shareholders' Agreement required consensus amongst all shareholders to be varied, so there was no reason to make it a pre‑condition for the Shareholders’ Agreement to be varied before the Non‑Core Land could be sold.

(c) Selling Non‑Core Land and revising the Shareholders' Agreement could be worked on in parallel, but one should not be made a pre‑condition for the other.

115. I entirely agree with the sentiments expressed by R5 in light of the obligations in the Shareholders' Agreement.

116. R1 replied by email dated 24 October, the same day, stating “Without a unity among Shareholders, I cannot see how you can force the unready Shareholders to accept your sales ideas.  To me, internal harmony is the only way to success in business in the long term.” Clearly, R1 did not state that R5 had misunderstood his position; rather he was saying that he was sticking to his position, which was apparently that the shareholder agreement situation had to be resolved before land sales could be pursued.  In other words, he was failing to observe the Shareholders’ Mandate.

117. By email also dated 24 October 2006, R3 stated that:

(a) He agreed with R1 and that they must resolve internal matters once and for all;

(b) He did not agree with R5's suggestion to proceed with the sale to Chun Wo (also stating his understanding that R2 had given her proxy to R1 so that only two of the managers proposed sale).

(c) He stated that at their last meeting he had proposed, as he had for some years, that all decisions of “both” [sic] companies be resolved by majority decision.

(d) He stated that R2 had suggested they should not have the 3 Managers as the whole purpose of the managers was to sell some land quickly and get cash to do some development work, and the Managers would "have a great added value in the development process".  However, sales of land would be remunerated by a 5% commission.  He said their inability to sell was no doubt due to the nonsensical 100% approval requirement.  He stated R5 and P and worked hard to bring in the Chun Wo offer but that must be put in perspective as they had received remuneration (albeit small) from Chun Wo for some expenses and they would have got 5% if the sale went through. He stated he agreed with R2.

(e) He proposed:

(i) 1^st proposal: amendment of the Shareholders' Agreement to allow any decision of the company to be made on a 60% approval basis;

(ii) 2^nd proposal: the Managers' positions and their bonuses be eliminated henceforth, and the question of bonus can be discussed on a case by case basis if they decided to develop any of their holdings.

118. In my view, R3 was at this point failing to observe the Shareholders' Mandate and was proposing a removal of the Managers in breach of the Shareholders' Agreement.  For him to seek to vary the Shareholders’ Agreement (by unanimous agreement) was perfectly permissible, but it was in breach of the Shareholders' Mandate to block sales until the same was achieved.

119. By email dated 20 November 2006, R3 explained his proposals further (at P's request).

(a) In particular, he set out his views on what the Managers had done to date, and, taking into account the 5% commission awarded for completed sales, he opined that the work done did not justify a 15% bonus.  (In my view, it is not necessary to consider R3's reasoning.  The opinion he expressed is simply not relevant in the face of the Manager compensation entitlement in the Shareholders’ Agreement).

(b) R3 also recorded that by this time, there was no agreement by even a majority of shareholders to the Chun Wo sale.

120. It is undisputed that pursuant to the L&B Consultancy Service Agreement, P and R5 were on the L&B team preparing the feasibility study on the Shui Hau land for the benefit of the prospective buyer Chun Wo, which work took about a year, for which they were paid HK$25,000 and/or expenses.  It is unclear exactly when the Majority Shareholders became aware of this consultancy work by P, but it is accepted in the Majority Shareholders’ closing submissions that they knew by 2 August 2006, which was shortly after the Chun Wo offer of 17 July 2006, and it was disclosed to the Majority Shareholders before any decision was to be made by Wealth Island in respect of the Chun Wo offer.

121. The Majority Shareholders would later (in 2008) point to the non‑disclosure of the L&B Consultancy Service Agreement as having been impermissible conduct by the Managers.

122. My own view is that there was no impermissible conflict of interests of P or R5 as at August 2006 because they disclosed their “interest” at the time Wealth Island was considering the Chun Wo offer.  Frankly, it is not clear to me that their involvement in the feasibility study was in conflict with their interest as shareholder‑managers of Wealth Island at all.  All the shareholders had outside business interests. P and R5 as managers of the company would be remunerated for their manager roles on the terms of the Shareholders’ Agreement.  I am unable to agree with P’s submission that the preparation of the feasibility study on the Shui Hau land was part of the Manager role, given that it was something P and R5 clearly agreed to do on behalf of L&B, and ultimately for Chun Wo.  However, I agree that it was in the company’s interest that such a study be prepared to assist prospective purchasers in evaluating the land.  The Majority Shareholders did not want Wealth Island to fund the study (P stated, and was not challenged, that P and R5 had previously asked but the other shareholders did not want to bear the cost).  L&B agreed to do the study for Chun Wo, who would fund it. L&B wanted to have P and R5 contribute to the study due to their expertise.  So, P and R5 had been paid by a third party for their expert opinion as to the Shui Hau Land. I can see that Chun Wo might have been concerned that P and R5 would have a conflict of interests when preparing the report on the basis they were owners/sellers of the land and the report would be used by a prospective buyer to decide whether to buy.

123. However, the above views are not directly relevant because I am prepared to accept that the Majority Shareholders were concerned (in my view, misguidedly) that there might be a conflict of interests between P/R5’s role in the feasibility study and their role as shareholder‑managers of the company.  P himself accepted that the Majority Shareholders were sceptical and thought something was being hidden from them, and sought an explanation. P felt he provided a satisfactory explanation, but the mistrust lingered. 

(d)  2007 Resumption

124. By letters dated 25 June 2007 addressed to Top Master, the Government referred to notices of resumption dated 7 May 2007 in respect of two plots of land in Mui Wo, Lantau and stated that the land had been resumed on 9 June 2007.  The Government made offers of compensation to Top Master, seeking acceptance within 28 days.

125. By email dated 17 July 2007, R3 referred to his earlier email regarding compensation from the Government and stated he had received two further letters from the Government regarding compensation.  He stated that he had spoken to Knight Frank who stated that the price was reasonable; but Knight Frank were prepared to put in a protective claim without charge to the company.  R3 enclosed the Knight Frank email dated 10 July 2007 and stated he would send the two Government letters separately.  He stated that the downside would be not getting money immediately; but the upside was that they might get a higher price and in any event they could always opt to receive the stated compensation.

126. By email dated 20 July 2007, P asked whether R3 would draft a reply to the Government prior to the deadline; stating that if the company was going to use a reply from Knight Frank it would need to appoint Knight Frank, and their charges would come out of the compensation; expressing concern that deferring compensation may not be in the best interests of all shareholders.

127. R3 replied the same day to say he had reported what he did and the action to be taken was for the shareholders to decide.

128. By email dated 21 July 2007, P replied, setting out the information which he had obtained from the Lands Department; and proposing a decision as to whether to appeal or to accept the offer.

129. By email dated 22 July 2007, P stated that he would accept the offer before the offer expired, and not appeal.

130. On 23 July 2007, P wrote to the Lands Department to confirm their agreement that the date for acceptance of the compensation offers be extended to 30 July 2007.

131. By email dated 24 July 2007, R5 stated that she voted to accept the Government’s offer for immediate payment.  She stated she voted against an appeal as there was no guarantee of obtaining a higher price, but there would be delay in receiving payment, and they needed funds to operate the company so it was in the company’s interest to receive immediate payment from the Government for use as working capital and dividend pay out.  She voted against engaging an outside agent to represent the company in handling the case.  She asked for other shareholders’ responses as they needed to get back to the Lands Department as soon as possible.

132. R1 gave inaccurate oral evidence to the effect that P and R5 claimed the Government offer was acceptable but that the Majority Shareholders considered the offer to be below market value.  This was inaccurate because the contemporaneous documents show that R3 obtained Knight Frank’s opinion that the Government offer was reasonable but that the Majority Shareholders wanted to see if they could get more.  The approach of the Majority Shareholders was contrary to the Shareholders Mandate’ in the Shareholders’ Agreement to approve the land sale if no shareholder matches the price (assuming for present purposes, without deciding, that resumption constitutes a land sale for the purposes of the Shareholders’ Agreement, which is the Majority Shareholders’ case).

133. R1 claimed in his oral evidence that Knight Frank had advised that if they tried to negotiate, they might get a higher offer, and in support of that assertion referred to Knight Frank’s email of 10 July 2007.  This email did not support R1’s assertion.  It merely said that the Government offer was not unreasonable but that the company could put in a protective claim.

134. On 15 October 2007, the Lands Department provided Top Master with the compensation agreements to be executed within 2 weeks.

135. By an email of 13 December 2007 from P to the shareholders, P stated that he had been talking with some of the directors over the past few weeks and it was necessary to discuss and decide on certain issues which had been long outstanding: the future direction of the companies; the managers issue; the pending open‑end land sale with Chun Wo; and the result of price negotiation with the Government for the Mui Wo land.  He suggested a meeting date on 20 December 2007.

136. By email dated 18 December 2007, R5 stated that she could not attend a meeting on that date.

137. By an email with an illegible date, R1 stated that if the meeting would only be attended by R1 and P, it should be rescheduled.

138. By email dated 19 December 2007, P suggested a meeting on 26 December, asking for others’ availability.

139. By email dated 20 December 2007, R2 stated that she could not attend the meeting on 26 December but R1 could have her proxy, and she agreed with R1 to try one more time to negotiate with the Government.

140. By email dated 24 December, P confirmed the meeting would be on 26 December, and to advise immediately if they wanted to make an alternative arrangement.

141. There was apparently no further communication before 26 December 2007 when P and R5 attended the meeting.  R1 who was expected to attend with R2’s proxy did not attend.  No response at all was apparently received from R3 or R4.

142. P and R5 accordingly proceeded with the board meeting on 26 December 2007, noting that it had been postponed from 20 December due to directors’ unavailability. In the circumstances, I believe P and R5 did what they could to convene a board meeting which all directors could attend.

143. At the meeting on 26 December 2007:

(a) It was resolved that the board should discuss and propose revisions to the Shareholders’ Agreement for presentation to a shareholders’ meeting.

(b) It was noted that the Chun Wo agreement for the Shui Hau land remained outstanding; and that in accordance with previous agreement, the shareholders were invited to match the offer within 3 months (although I note the Shareholders’ Agreement provides 7 days) but no counter‑offers had been received.  It was agreed that negotiations for selling the Non‑Core Land in Shui Hau to Chun Wo or others should resume so as to allow the companies to recover their original investment.

(c) P reported on meetings with the Lands Department, and that there had been no news of progress from R1 or R3 as to R3’s negotiation with the Land Department.  It was noted that the Managers had obtained the opinion of land professionals that the Government offer price for the resumed land was a fair price.

(d) It was agreed that the offer be accepted so that the company could receive payment as soon as possible.  It was resolved that P be authorised to execute the necessary agreements.

144. My own view is that when Clause 8 requires 100% shareholder approval for the sale of any land asset, it means voluntary sales based on offers which were capable of being matched by shareholders i.e. land which could be sold to shareholders rather than the offeror; not compulsory sales at market price with a statutory mechanism for regulating the price.

145. After disclosure of the documents showing P’s attempts to call a meeting which all directors could attend, the Majority Shareholders advanced a new case in closing that there had been inadequate notice of the 26 December 2007 meeting in terms of time and substance.

(a) I see nothing to suggest that the recipients of the notice did not have adequate time to present themselves at the meeting - they certainly did not suggest at the time that they would not be able to attend;

(b) It is true that the notice of the December 2007 board meeting given did not make it clear that the meeting would consider a resolution to accept the Government resumption offer.  However, the agenda included the item “the result of our price negotiation with Government on land holding in Mui Wo”.  I consider in the circumstances at the time that it was obvious to all that the Government resumption offer was a matter for immediate consideration.

(e)  The final breakdown

146. By way of two cashier orders dated 28 January 2008, the Government paid HK$1,270,863 to Top Master pursuant to the compensation agreements.

147. On 1 February 2008, P withdrew HK$1,260,050 from Top Master’s account and deposited it in his own account.  P stated in oral evidence for the first time that he had telephoned R1, R2 and R5 a few days later to inform them of the acceptance of the Government offer, and the withdrawal of funds.  This was not mentioned in the witness statements, nor was it put to R1 in cross‑examination.  However, it is corroborated by an email dated 2 April 2008 addressed below.

148. On 23 February 2008, P emailed the other shareholders notifying them of the receipt of HK$1.27 million in respect of the resumed lands, asking shareholders to advise him of any expenses on behalf of the Companies so that the financial positions could be updated.

149. By email dated 7 March 2008, P stated that “as requested” a board meeting had been scheduled for 14 March 2008, with agenda items to include the distribution of proceeds from the Government.

150. The bundles contain two similar emails dated 12 March 2008 timed 8 minutes apart from R3 to R1, R2 and R4. No explanation was provided for the two similar emails.  I proceed on the basis that the later one in time is the one actually sent, as that is apparently complete with R3’s sign‑off, and that the earlier one was a draft.  By the email, R3 asked if anyone had asked P to call the meeting, as P’s secretary had indicated that R2 had requested it.  (It is not necessary to decide whether R2 requested the board meeting be called although there is such a possibility).  R3 asserted that P had been derelict in his duties as, amongst other things, he had not been authorised to collect the resumption money from the Government, and that there had been no unanimous shareholder approval or board resolution or board meeting (I note he was mistaken in the latter regard).  R3 stated that it was high time to deal with the issue of the managers and the inequitable shareholder agreement.  (It seems to me most likely that R3 did not know about the acceptance of the resumption money before 23 February 2008, but it is not clear whether R1 or R2 had been told, as P claimed in oral evidence, as there is no response by them to R3’s email).

151. R4 replied by email on the same day to say that he and R3 had already agreed they should seek arbitration to get rid of the existing managers, and did not know why that had not been actioned.

152. By email dated 13 March, 7pm in the evening, to all shareholders, R3 queried P’s authority to proceed with acceptance of resumption monies without even informing the other shareholders and directors, and asked about the location of the monies.  R3 stated that he believed none of the other shareholders and directors could attend the board meeting, asserting that P had no authority to make any binding decisions on behalf of the Companies.  (That appears to have been an inaccurate statement as P clearly had certain powers as Manager).

153. By email dated 14 March, P responded that he had intended to update all directors at the board meeting, and he was aware that some shareholders were interested to know but could not attend.  He suggested a briefing session on 17 March.  He noted that the Companies required board meetings to operate and suggested nomination of alternate directors.

154. R3 replied by email the same day requesting a written response to his queries.  R1 supported that request for a written report by the Managers by email of the same day.

155. On 27 March 2008, P redeposited HK$1,260,464.83 into Top Master’s account.

156. By email dated 28 March 2008, P emailed all shareholders stating that he had just returned from his Easter holiday but had briefed R1 (who also represented R2 and R4) by phone from the airport on 20 March before his departure.  He stated he would reply in more detail shortly.

157. R1 replied immediately to say he had not understood everything P had said to him on the phone, and he still required a written report from the Managers on the points raised by R3.

158. By email dated 31 March 2008, P stated that this was not the first time that the Companies had received government payment on land resumption, and each time it had been handled by the Managers with the board resolution, with the proceeds being paid into the bank account, and there was no exception this time.  He referred to the board resolution of 26 December 2007, and the receipt of payment by cheque on 31 January 2008, and stated that that the monies were in the company bank account pending board recommendation and shareholders’ resolution on distribution.  P requested board and shareholder meetings the next week to consider resolutions for distribution.

159. I believe P and R5 knew that the Majority Shareholders were delaying a decision as to acceptance of the resumption price and were therefore not in favour of acceptance even in December 2007, but I believe they tried to obtain a decision properly by calling a board meeting, and then made a decision at the quorate board meeting.

160. The Majority Shareholders’ reaction when they found out in late February/early March 2008 about the acceptance of the resumption offer indicates they genuinely did not know that such a decision was made in December 2007.  I do believe that the Majority Shareholders considered land resumption did require 100% shareholder approval, in light of their correspondence when they found out about the acceptance, and after hearing R1’s oral evidence.  R1 also pointed in his oral evidence to a written shareholders’ resolution in 1994, showing there had been an earlier land resumption where all shareholders had been asked to approve the price, and 100% had approved it.  This clearly came as a surprise to P at the trial when R1 referred to the resolution during P’s cross‑examination of R1.  I do not think P remembered that had been done in the past. P’s email of 31 March 2008 indicates he believed that previous land resumptions had been handled by board resolution.  I find that P and R5 in December 2007 considered that land resumption was not a sale of land, and did not require 100% shareholder agreement.  P has shown me authority on land resumption which supports his view, although I do not know whether he considered such authority back in 2007.  In any event, such authority may not directly assist with the meaning of land sales for the purposes of the Shareholders’ Agreement.  On the other hand, I am not sure that the Majority Shareholders remembered in 2007/2008 that 100% shareholder approval had been obtained in 1994 for land resumption (as opposed to having found such a resolution during trial preparation) because that earlier resolution was not mentioned in the 2007/2008 correspondence.

161. I do consider, however, that there was a genuine difference of shareholder views in December 2007 to March 2008 as to whether 100% shareholder agreement was required for land resumption.  P and R5 proceeded on the basis there was not, I believe correctly (for reasons stated at paragraph 144 above); and the Majority Shareholders genuinely but incorrectly considered that to be a breach of the Shareholders’ Agreement.

162. By email dated 1 April 2008 from R3 to all shareholders, R3 set out a list of complaints against P and R5 including (1) shareholder approval was required for sale of land, declaring and paying dividends and development projects; (2) none of the board meetings called in recent months had been valid and the resolutions by P and R5 were accordingly invalid — asserting that he had stated that these meetings should not be held and he had tried to use good faith and a friendly manner to resolve differences; (3) gross negligence of P and R5 in the management of the Companies;  (4) repeated refusal to make written reports to which the shareholders and directors were entitled which indicated gross mismanagement and perhaps conspiracy to deal with company matters without regard to the wishes of the other directors and shareholders. Whether or not these complaints were honestly made, I do not know; however at least some of them appear to be unjustified.

163. As to these allegations:

(a) I have stated above my view that the December 2007 board meeting was duly held, and duly decided whether or not to accept the Government resumption offer.

(b) As to gross negligence, I note the Majority Shareholders plead that P had failed to maintain the operational expenses of the Companies by failing to pay accountants’ fees, Company Registry filing fees and Government rates. 

(i) I see that accountant’s invoices from 1999 to 2000 totalling approx. HK$20,000 were unpaid as at 8 March 2000 and apparently were only paid in April 2008 according to the Top Master general ledger.

(ii) There is some indication in the evidence that the accountants (hired by R2) filed some annual returns late eg the 1992 annual return was not filed until 1995.

(iii) For a period of time after R5 moved to Shanghai, in approx. 2002, it is undisputed that R3 took over some company secretarial responsibilities until about 2007.  R5 provided some written submissions, but not fully substantiated by documents in the bundles, and challenged by the Majority Shareholders in written submissions filed after the trial, indicating that R3 may have been responsible for some late filings.

(iv) I accept P’s oral evidence that general corporate matters such as calling meetings and filing returns were the responsibility of the board of directors, of which he was one, but was not solely responsible.

(v) Frankly, the evidence is insufficient to enable me to decide whether the accountants or Managers or directors were responsible for the late payments and late filings.  I do not consider that it was established at trial that the Managers rather than R3 were responsible for any corporate administration failures as at May 2008.  There may have been corporate filing lapses but none of this was in my view significant or material to the real dispute as to non‑observance of the Shareholders’ Agreement.

(c)   I was not made aware of any agreement that the Managers should provide “full written reports”, as opposed to the informal email reports which are to be found in the evidence.

164. I will nevertheless assume that R3 genuinely believed the contents of his email, mistakenly or otherwise.

165. It seems from a letter of Fung Wong Ng & Lam solicitors to R3 dated 2 April 2008 that R3 had met with them on 1 April 2008 with a view to retaining them in respect of partnership disputes regarding Minloy.  (R3 counter‑signed the letter on 3 April 2008 to indicate acceptance of the solicitors’ terms of engagement).

166. By email dated 2 April 2008, P responded (politely and respectfully in the circumstances, given R3’s serious allegations).  P referred to having reported to R2 during Chinese New Year as to the receipt of the government funds and being told of her wish that the monies be distributed; and having talked to R1 a few days later who stated he wanted P to arrange a meeting.  (I note that the Chinese New Year holiday in 2008 was 7 to 9 February. The email of 2 April corroborates P’s oral evidence that he spoke to R1 and R2 about the receipt of the resumption monies in early February 2008.  That is particularly so where I have seen no email from R1 or R2 challenging the facts set out in P’s email of 2 April).

167. P’s email of 2 April 2008 apologises for missing any corporate procedures or guidelines, but urges all shareholders to work together going forwards and asks for a meeting with proper representation to decide how to proceed.

168. By email dated 3 April 2008, P sent all shareholders the minutes of the board meeting on 26 December 2007, and recorded that it was rescheduled in order to accommodate others.  P stated that it had been resolved to accept the compensation at the meeting; that this was not a sale that would require unanimous shareholder approval; noting all shareholders had agreed the amount was fair and reasonable back in July 2007; stating that, having received no report from R3 as to any progress on negotiation, the board meeting had proceeded on the basis of getting the earliest return in the interest of all shareholders.  P set out the procedure for the acceptance of the resumption in detail.  He suggested some respect be shown to the Managers who had worked for 15 years without yet receiving any compensation.

169. The only matter (so far as I am aware) that P did not mention was that he had temporarily withdrawn the monies from Top Master’s account to his own account then redeposited the monies.  P’s witness statement claimed that this had been done to maximise interest and minimise the costs of making distributions, and to facilitate payment of cashier orders to the shareholders where R5 had only counter‑signed two cheques.  In oral cross‑examination, P added the further reason that he did not trust the Majority Shareholders who he thought were already developing a “freezing out” strategy, to abolish the Managers and the bonus, and he wanted to ensure the money could go to the pockets of the shareholders rather than funding R3’s development plans.  This latter reason seems to be the most likely.  It is also evidence of P’s feeling of being oppressed by the Majority Shareholders and not receiving his entitlement as a shareholder or manager under the Shareholders’ Agreement.  In any event, the Majority Shareholders were not aware of this temporary removal of funds at any material time, no harm was caused and indeed the company did earn extra interest.

170. P honestly accepted in cross‑examination that he had deliberately not sent the minutes to the other shareholders until after the payment had been received from the Government, stating he considered he was acting within his powers and he wanted to get the money safely in the bank and was concerned the other shareholders would try to prevent that.

171. It appears from an email dated 7 April 2008 from P to all shareholders that a board meeting was held on 7 April 2008.  P records his frustration that the board meeting did not discuss distribution of funds according to the agenda, but discussed matters apparently previously arranged between R2, R3 and R4.  P asserted that any resolutions passed were not valid; however, that is not a relevant matter for consideration now in 2016.

172. By email dated 7 April 2008 from R5 to all shareholders, R5 apologised for missing the board meeting that day, but suggested that HK$1 million be paid out to shareholders, and the balance be maintained for expenses.  She also set out the annually recurring costs for the Companies, totalling HK$90,000. It is not clear to me whether the email reached the shareholders before the meeting or not.  In any event, it demonstrates that P and R5 were concerned about the return of funds to shareholders pursuant to the Shareholders’ Agreement; whereas the Majority Shareholders were concerned with changing the Shareholders’ Agreement and the Managers before doing anything else.

173. On 7 April 2008, notice was given to the shareholders and directors of Minloy, Top Master and Wealth Island of (1) EGMs of each company to be held on 9 May 2008 to consider resolutions to remove P and R5 as directors and/or managers of the company and (2) of board meetings of each company with agenda items including the appointment of additional directors, and company accounts and disbursements paid by shareholders or managers.

(f)  The May 2008 EGMs and consequences

174. The Majority Shareholders plead that their reasons for seeking to remove P and R5 as Managers/directors were (1) removal of Top Master funds in January to March 2008; and (2) failing to maintain the Companies’ operational expenses.  As to the first ground, it was accepted by the Majority Shareholders that they did not know of the funds withdrawal until after the EGM.  (I note I am considering the truth of the stated reason for seeking removal, not whether the removal was justified by known and unknown reasons).  As to the second reason, I have addressed that at paragraph 163 above.

175. The Majority Shareholders also plead that after the EGM, they learned of further conduct which (ex post facto) justified the removal of P and R5 as Managers/directors: (1) non‑disclosure of a conflict of interest arising from P and R5’s retention under the L&B Consultancy Service Agreement and (2) several adverse possession claims against the Companies were incurred during P’s tenure (I note immediately that the Majority Shareholders did not establish that such claims arose due to P’s mismanagement).

176. I refer to my analysis of the Managers’ role and their entrenched position above at paragraph 48; and to the ability to remove directors with an ordinary resolution on special notice at paragraph 54 above.  Hence the question of any mismanagement would be irrelevant. In any event, I do not find that the Majority Shareholders have established any pleaded ground of mismanagement.

177. EGMs and board meetings of the Companies were held on 9 May 2008.

178. The EGM minutes were in the trial bundles.  It was only during the cross‑examination of P that it became apparent that the EGM minutes were not provided to P until December 2008.  It was only after P had given his oral evidence that Rs sought to disclose a recording of the EGM made by R1, along with a partial transcript and a partial English translation prepared overnight by the Majority Shareholders’ solicitors.  P agreed to the text of the translation and to the late disclosure of the transcript.  I allowed P to be recalled to give evidence on the transcript alone.

179. The EGM minutes along with the transcript plainly show that:

(a) A majority of the shareholders voted in favour of removing P and R5 as Managers and/or directors of the Companies; the Chairman declared the resolutions passed.

(b) The resolution proposed by P and R5 to distribute $1.2 million to the shareholders and leave $70,000 for expenses was voted down.

(c) Their further proposed resolution that Top Master should within 30 days clarify queries relating to the concern about paying dividends was voted down.

180. Having heard evidence from P and R1, I am satisfied that the stated position of the Majority Shareholders at the EGM was that, as at the EGM, they wished to consider the Companies’ financial position and were not yet ready to consider a dividend distribution (or shareholder loan repayment — the shareholders appear to have used this language interchangeably although of course there is a legal distinction), and they were not agreeable to being bound to consider the matter within 30 days; however, they had said they would consider the matter of payment to shareholders when the company’s financial position was clear.

181. I note that it was again recorded in the 9 May 2008 EGM minutes that discrepancies between the Companies’ records and the Companies’ Registry records as to the true shareholders should be reflected, with R2 noting the error in respect of P’s shares and that the Company had always recognised the ultimate beneficiaries of the shares.

182. By email dated 11 June 2008, P referred to the passage of 1 month since the EGM, to Top Master having over $1.2 million in its account, and asking for the 3 largest shareholders R1, R2, R5 to sort out how they wished to deal with the funds.  P noted that the proposal to distribute about $1.15 million was voted down at the EGM and stated that it was against the interests of all shareholders to have blocked funds in the company.  This email is consistent with P’s mistaken recollection (without the benefit of the EGM minutes or transcript) that the Majority Shareholders would consider the issue of dividends within 30 days.

183. By email dated 16 June 2008, P chased the other shareholders and directors about how to deal with the idle funds.

184. By email dated 4 July 2008, R3’s secretary sent P and R5 extracts of minutes of the board meetings of the Companies on 9 May 2008, (although only the extract for Top Master is in the bundles).  The board minutes note the EGM resolutions to remove P and R5 as directors and/or managers; and that the board resolved to appoint R1 as director, to delete P and R5 as bank signatories, and to amend the bank mandate so that any two of R1, R2 and R3 be authorised to operate the account.

185. By email dated 8 July 2008 from R5 to all shareholders:

(a) R5 stated that R1 had made a commitment at the EGM that dividends for Top Master would be paid out within 30 days, and as 60 days had now passed, she asked to know when dividends would be paid.  She also asked for a copy of the EGM minutes and the recording taken by R1. (Notwithstanding this reference to R1’s recording in this document, there was no disclosure of the recording until the trial was underway).

(b) R5 referred to extracts of minutes of board meetings of the Companies on 9 May 2008, after the EGM.  She queried the validity of certain resolutions. In particular, she stated that she and P had been appointed managers by all shareholders and they were responsible to shareholders only.

186. By email dated 18 August 2008, P sent a “final reminder” to all shareholders and directors of Top Master about the idle funds and the need for shareholder agreement on dividend pay‑out.  He referred to the proposal at the EGM to pay out $1.1 million to all shareholders, and that the motion had been deferred 30 days.  He asked to hear from parties who wished to further extend the deferral of the motion before the end of August 2008.  He stated that if there was no objection by the end of August 2008, the dividend would be paid out on a pro rata basis as in the past.  P also said he had heard there was a proposal to engage professional management, and asked for a budget proposal, stating that the journal accounts for the past 10 years and shareholder documents were with him, no accountant had yet contacted him, but any queries should be directed to P.

187. By another email dated 18 August 2008, P asked the board of directors for confirmation as to whether he and R5 had been terminated as managers as the shareholder resolution wording was not clear and the board minutes did not help.  I have not seen any response to that email.

188. By email dated 26 August 2008, P emailed the other shareholders on behalf of himself and R5. He referred to the Shareholders’ Agreement, and its appointment of the Managers, and the need for unanimous shareholder consent to remove the Managers; and that a breach of contract would necessitate compensation.  He urged the board to reconsider or clarify its resolutions.  P stated he would hand over all documents once a compensation package was agreed, otherwise documents were accessible at his office.

189. On 2 September 2008, R1 visited P’s office with two accountants to look at the Companies’ documentation. R1 accepted in oral evidence that on 2 September 2008 he had received a ledger showing the Companies’ financial positions as at April 2008, and that he had gone through the ledger making markings.

190. By email dated 4 September 2008 to all shareholders, R5 set out the conclusion of a telephone call with R2 to the effect that $1.1 million should be distributed to shareholders as soon as possible; and that the Managers’ compensation issue should be resolved as the bonus could not be wiped out completely.  R5 requested that a written resolution for a distribution be circulated to all shareholders.

191. I note that R1 in his oral evidence did not hesitate to accept that P and R5 were entitled to compensation in respect of their role, or the termination of their role, as Managers. 

192. On 4 September 2008, P arranged the preparation of cashier orders out of Top Master’s bank account for pro rata distributions to all shareholders of HK$1.1 million.

193. By email dated 8 September 2008 from P to all shareholders of Top Master:

(a) P referred to his proposal for payout of excess funds in Top Master and that the EGM had resolved to pay out the dividends 30 days after the EGM.  P stated that despite his follow‑ups in emails and telephone calls, a reasonable amount of time had elapsed and the issue remained outstanding.  P asserted that in the absence of any objection by the end of August, the proposal had been passed by all shareholders and he attached a resolution for pay‑out of HK$1.1 million, requesting confirmation of the calculations.

(b) P also stated that he continued to take responsibility as manager until receiving official notice of termination as manager or the board of directors actively attending to shareholder issues.

(c) P expressly sought justification for any use of the shareholder funds in Top Master other than a return to shareholders, noting different shareholder priorities.

194. By email dated 9 September 2008:

(a) R1 stated that the boards of the Companies had not made any resolutions regarding dividend pay‑out, and that the monies in the bank accounts could not be touched without valid board resolution.

(b) R1 stated that P and R5 had been removed as directors, managers and bank signatories of the Companies on 9 May 2008, referring to the EGM and board minutes (although it has subsequently become clear that the EGM minutes were not provided until December 2008).

195. By email dated 17 September 2008, P re‑sent his email of 26 August 2008, seeking reconsideration of the shareholder relationship and the 9 May 2008 resolutions, and reminded them to consider the dividend pay‑out issue.

196. On 20 September 2008, R1 emailed P to say that whilst the boards had some understanding of the financial position since 2002, they wished to have more information about the period from incorporation until 2002.

197. By email dated 22 September 2008, P replied to say that such earlier financial information was reported by R5 in her management reports and confirmed during the shareholders meeting in 2005. 

198. By letter dated 23 October 2008, Chan & Man, CPAs, sent a letter of confirmation to Top Master stating that they acted for Top Master and confirmed having examined the shareholdings, accounts, balance sheet and “all books and records of Top Master”, and that Top Master was a private company.  In light of this letter to the new board of directors of Top Master, I do not accept R1’s assertion that the records to which the Top Master board had access were materially deficient.

199. By email dated 24 November 2008, P informed all shareholders that, despite a statement by R1 at a meeting with R1 and R2’s son on 4 November 2008 that R1 would send an email to commence negotiations on manager compensation, no offer had been made 3 weeks later.  P also stated his disappointment at the funds of $1.2 million sitting in the bank since February 2008, and the missed opportunities to sell non‑core land, and that he wished to protect his own shareholder interests if the board continued to fail to protect them.  He asked shareholders to voice any objections to pay‑out before 1 December 2008, and to recommend compensation to each of the managers.

200. By email of the same date, R5 informed all shareholders that she sympathised with P’s disappointment.  She stated it was every shareholder’s right to recuperate their original investment by demanding dividends, and there was no sound reason why money should continue to remain idle in the company’s account.

201. I note that P and R5 were asserting their rights under the Shareholders’ Agreement for repayment of their investment.

202. By email dated 5 December 2008, R1 referred to P and R5’s emails and stated there were a number of issues to be resolved before the Companies could resolve their cash position and the possibility of pay‑out.  R1 stated these issues to be the return of all records and original documents of the Companies, and satisfactory settlement of the manager compensation issue.

203. R1 also suggested that there was insufficient financial information on the Companies to allow a decision to be made about making payments to shareholders.

204. In light of the email correspondence, I do not regard R1’s explanations for not considering a pay‑out to shareholders as genuine.

(a)   The email correspondence shows that P had been chasing for an offer on manager compensation, but apparently received no response;

(b)   It is undisputed that R3 was responsible for corporate administration matters from about 2002‑2007.

(c)   The Majority Shareholders did apparently have access to adequate financial information in light of R1’s own oral evidence in respect of the ledger provided on 2 September 2008 and Chan & Man’s opinion.

205. R1 in cross‑examination advanced for the first time an alternative explanation for not considering shareholder pay‑outs, namely that the Majority Shareholders’ biggest concern was why the Managers signed the land resumption agreements with the Government when R3 was doing a study on the land.  This was not a concern raised in the contemporaneous correspondence.  P’s evidence recorded that R3 had said he was going to do further investigations several months before December 2007 but did not report any progress on this to the Managers/shareholders.  Indeed, I am not satisfied that anything R3 might “study” would affect the market price for the land at the time of resumption, which was all that mattered. I do not accept R1’s late oral explanation for the lack of consideration of shareholder pay‑outs.

206. So far as I can see, there were no board meetings to consider whether any payment should be made to shareholders between May 2008 and 2016.

207. By email dated 6 December 2008, P emailed all shareholders asserting that it was beyond his authority to reverse the shareholders’ resolution passed at the end of August 2008 to distribute HK$1.1 million to all shareholders.  P stated that cashier orders had been prepared for the pro rata distribution of such amount.  He asked how each shareholder would like to receive their cashier order.

208. By email of the same date, R1 expressed his surprise at removal of funds from the Companies’ accounts without board approval; asserting that this was a criminal act.

209. P replied on the same day, effectively stating that there should be cash return to all shareholders, and it had been held up for many months; and should the Companies have any need for financial resources in the future, then shareholders could make capital contributions as needed as had been done before.  P also referred to R1’s request that day for a meeting with P and R5 to discuss manager compensation, and suggested a meeting on 8 December.

210. R1 replied to confirm he would meet P and R5 on 8 December 2008.  I have not been made aware of the outcome of such meeting.

211. It was only on 11 December 2008 that R3 sent P and R5 the EGM minutes of 9 May 2008.  This means that P and R5’s emails prior to 11 December 2008 to other shareholders as to what happened at the EGM was without the benefit of the minutes.

212. By email dated 19 December 2008, R1 wrote to P and R5 on behalf of the Companies (copied to R2, R3 and R4), making a monetary offer in order to settle the manager compensation claim at about HK$300,000 for both of P and R5.

213. Jumping ahead in the chronology a little, P responded by email dated 21 January 2009 that he had been unable to get in contact with R5 to find out her response to the manager compensation offer.  P made a counter‑offer, subject to R5’s approval.  Clearly, at the time of writing that email, P was not aware of R1’s actions a few days earlier.

214. A few days earlier, on 18 January 2009, R1 (authorised by a board resolution of Top Master dated 17 January 2009, attended by R1 and R3) made a report to the police alleging theft against P.  The report notably makes false statements to the police as follows:

“Q10: …does your company have any periodical dividend, salary or bonus distributed to the shareholders/directors?

A10: No, we have always been agreeing to keep the money earned in the company as capital.

Q11: Does your company owe any money to [P] and [R5]?

A11: No.”

215. Clearly, this statement was made at a time when R1 was personally involved in negotiating managers’ compensation with P and R5.  When asked about this in cross‑examination, R1’s response was not satisfactory.  He conceded the identified statements to be inaccurate, having already agreed that he knew that compensation would be payable to the Managers when they were terminated.  R1 tried to excuse his conduct on the basis that he had given the statement to the police at about midnight.  When it was pointed out to him that the statement was made at 4pm, R1 attempted to excuse himself again by saying that the debt to pay manager compensation was not yet money owed to P, although he was at the time in negotiation about the proper amount owed to P.  This explanation holds no water.  Frankly, R1 had no excuse for the false statements to the police; and he did not immediately accept in the witness box that he was at fault but tried to justify his statements.  This is one example of his willingness to maintain his position when it is obviously bad, even when he is under oath.  There is no allegation of R1’s dishonesty, and therefore that is not a matter I have to decide.

216. R1 used the Companies to make accusations against P and R5 with the assistance of counsel.

217. P found out about the police report by 12 July 2009, as indicated in an email of 14 July 2009 to the other shareholders which stated that whilst the manager compensation issue was being negotiated, someone had made a report to the police.  P referred to the Companies’ funds being held in cashier orders in favour of the shareholders and stated he was awaiting suggestions.

218. R1 wrote to P and R5 on behalf of Top Master on 11 November 2009 stating that P and R5 had stolen approx $1.1 million from Top Master on 4 September 2008, that it had been reported to the police in January 2009, and demanding the return of the money.  No mention was made by R1 of P having clearly stated that the funds were held in cashier orders in favour of the shareholders.

219. By letter dated 17 November 2009, P replied, stating (inter alia) the Managers had agreed to the issue of the cashier orders pursuant to the shareholders’ resolution, as informed to all shareholders, so that the funds became the property of the shareholders and there had been no theft.

220. After over 2 years, the police investigation resulted in their finding (as recorded in a letter dated 9 November 2011) that there was insufficient evidence to support a charge.

(g)  2012 and thereafter

221. P renewed his claim for compensation for removal as manager on 23 April 2012, and chased on 25 May 2012 and 27 August 2012.  R1’s response by email of 13 September 2012 was to continue to assert theft, despite the police closing the case.

222. After repeating his position in further emails in September 2012, to no avail, P finally wrote an email on 22 November 2012 referring to the impasse on negotiating the managers’ compensation and the future of the Companies, and requested that the Majority Shareholders buy out his shares and/or repay his shareholders’ loan with interest.

223. It appears that on or about 23 January 2013, P arranged for the cashier orders to be forfeited and the proceeds paid into his own bank account.

224. I certainly do not believe that P intended to steal the HK$1.1 million which he had converted into cashier orders.  However, I do not accept that P really believed on 4 September 2008 or thereafter that there had been an effective resolution by Top Master to distribute such funds to the shareholders.  I think he was frustrated and saw no option, other than a self‑help remedy, in the face of the breaches of the Shareholders’ Agreement by the Majority Shareholders (namely, the failure to use surplus cash received from non‑core land sales to repay shareholders as quickly as possible, and the removal of the Managers without unanimity or compensation).  I believe P when he says that he did not appreciate the legal remedies open to him at the time.  I believe P’s actions were with the wishful thinking that once things were set in motion all shareholders would agree to receive the pay‑outs (consistently with the Shareholders’ Agreement).  Whatever P’s arguments about improper removal as a manager, he was aware that the Majority Shareholders had through the EGM resolved to remove him as manager, and that the board of Top Master had subsequently resolved to remove him as bank signatory, so that he was (at least at face value and subject to a successful challenge of the 9 May 2008 resolutions) not authorised to deal with Top Master’s funds.

225. P’s action in January 2013 in appropriating the proceeds of the cashier orders was clearly unauthorised.  Notwithstanding P’s claim against the Companies for manager compensation, and P’s understandable frustration with the Majority Shareholders’ breaches of the Shareholders’ Agreement, such action cannot be condoned.

226. However, P retains that money and accepts that it forms part of the general picture to be considered in any division of property.  I do not consider that P’s action negates the breaches of the Shareholders’ Agreement by the Majority Shareholders.

227. By email dated 29 April 2013, P asked the Majority Shareholders (amongst other things) for the current status of the Companies, and whether or not non‑core land sales could be resumed since such activity had stopped since the EGM in 2008.

228. P issued the Petitions on 20 June 2013.

(h)  Post‑petition conduct

229. By email dated 19 October 2015, R1 informed all shareholders including P and R5 that the Companies were in severe financial crisis and needed an immediate cash injection to continue operations. This attached two options for shareholder resolutions: either new shareholders’ loans totalling HK$3 million, or failing unanimous consent for such fundraising, then a resolution “by default” that the board be authorised to sell sufficient non‑core lands to meet the funding requirement, on the basis of a minimum sale price.

230. On 23 April 2016, R1 sent the shareholders a draft valuation report by Vigers valuing the Land at about HK$160 million.  (I note that there has been no suggestion throughout the trial that anything was done by the Majority Shareholders in the period 2008 to 2016 to increase the value of the Land.  Accordingly, the increased value of the Land must be attributable predominantly to the identification of the Land for investment by P and R5 when the Companies were founded and the passage of time).

231. The Majority Shareholders submit that since that date there have been sales of 30 parcels of land for approx. HK$6.1 million.  The Majority Shareholders only claim to have notified P and R5 of the sales; so the sales were not with the prior approval of 100% of the shareholders as required by the Shareholders’ Agreement. This is prima facie a further breach of the Shareholders’ Agreement (post‑Petitions).

232. By emails dated 4 May, 17 May, 24 June and 5 July 2016, R1 advised all shareholders including P and R5 that there had been resolutions to pay out HK$4 million and HK$3 million, and stated that no payment would be made in respect of P’s shares pending the outcome of these Petitions.

Impressions of personality, motivations and working practices of the witnesses

233. An examination of the documents alone raises an issue as to how people with clearly‑stated common goals could have found themselves so far apart.  Notwithstanding the inherent difficulty in a court assessing a person’s personality, motivations and practices where these matters are not directly in issue, I consider that I am able to make the following observations.

234. P is a mild‑mannered man who had been genuinely excited about the coming‑together of the 6 investors on the Lantau land‑holding project, who regarded it not just as a business arrangement but a project with people he respected and considered friends (new or old).  When things soured, his feelings were truly hurt.  He went into self‑protection mode, and did foolish things in relation to the cashier orders without investigating what other legal remedies he had available to him.  There were points in his cross‑examination where he was challenged, and where his witness statements were not accurate, I felt that P generally accepted that.

235. R5 struck me as a strong, no‑nonsense businesswoman.  She was P’s partner for a time during the early 1990’s when the project was put together.  She left Hong Kong in about 1993.  She feels just as strongly as P about having been wronged by the Majority Shareholders, but took the pragmatic view that she did not wish to waste time, energy and money on litigation so she did not herself bring proceedings.  However, she has attended most of the trial — ostensibly on the basis that she is neutral and was going to simply tell her side of the story.  As it transpires, her story generally supports P’s complaints.

236. R1 gave evidence on behalf of the Majority Shareholders.  I regarded much of his oral evidence as not entirely reliable.  He appears to be a man who sees things his way, and his way only; who is not open to seeing things from different viewpoints; and who is dogmatic in pursuing things from his own point of view, even where it seems objectively clear that he is wrong or mistaken.  Two particular areas of oral evidence at the start of his cross‑examination led me to this view; and it was confirmed by his subsequent explanations of the documents relating to the real issues in this case.  I have addressed his evidence in respect of the documents as to key events above.  The two areas of oral evidence I refer to are (1) his reasons for getting involved in the project and (2) his reasons for not accepting that P was the owner of shares in the Companies.

237. As to the reasons for getting involved in the project.  R1 confirmed his witness statements in full.  He then asserted in oral evidence for the first time that when his colleague, P, approached him with an idea for the project, he decided to get involved because he was promised a 2% compounded monthly interest rate, which would be a 27% p.a. return, and he insisted that was a promised return on investment rather than a projection.  This was in contrast to his witness statement which stated that the 2% p.a. monthly interest was to underline the short‑term nature of the investment and ensure early repayment, as such an interest rate was unsustainable on a medium or long term basis.  That latter explanation is much more credible, as a 2% monthly compounded interest rate is obviously onerous; and highly questionable for a company about to engage on speculative land investment rather than a high turn‑over business.  R1 went so far as to insist in oral evidence that his main reason for investment in the project was the 27% p.a. return.  This assertion is not only incredible, but extraordinary in the face of the documents and R1’s own witness statement. 

238. As to R1’s attitude to P’s shareholding.  Before trial, the Majority Shareholders had disputed that P was a shareholder with locus to bring the Petitions.  This was an extraordinary position to take in light of the fact that (as may be seen from the contemporaneous documents) P had been accepted to be the shareholder at all shareholder meetings and had voted as such.  The only possible basis for a dispute as to P’s status as shareholder was that P was not a registered shareholder.  However, it had long been made clear (well before 2008) that P held his shares through nominees Ms Man and Mr Law.  Indeed, even at the EGM dated 9 May 2008, it had been resolved, after consideration of the evidence showing that Ms Man and Mr Law had transferred the relevant shares to P, that the shareholders’ register should be corrected.  That was the EGM at which P was removed as director and manager.  R1 accepted that although he remained a director, there has been no correction of the share register.  He claimed that this was because P had not provided the old share certificates of Ms Man and Mr Law.  When challenged, he accepted that (1) the shareholders had never been issued with a share certificate and (2) he/the board had never told P that he should produce further evidence of ownership to allow his shareholdings to be registered.  R1 said P’s shareholding position was unsatisfactory because (i) P’s solicitors had informed the companies that the transfer instruments were incorrectly dated 1991 and that the transfers happened on 9 May 1994, and (ii) there was an unexplained delay between the date of the transfer in 1995 and the day they were stamped; and this had to be investigated to protect the interests of Ms Man.  R1 however accepted that the board had not done such investigation, had not asked P for more information, and had not contacted Ms Man to find out her position.  In cross‑examination he accepted the board had done nothing to accept P as being shareholder until a few days before trial upon receiving counsel’s opinion, in order to save time and costs — and without mention of any concern at that stage about protecting Ms Man’s interest.  In a nutshell, R1’s position on why the shareholding register had not been corrected and/or why P’s locus as shareholder had been challenged was wholly unsatisfactory.  That failure to deal with the shareholders’ register is not a pleaded issue.  However, this conduct and belligerence provides some insight as to R1’s personality and way of conducting himself.

Conclusions on unfairly prejudicial conduct

239. P and R5 as Managers caused the Companies to obtain the Land in early 1992 for HK$7 million.  The value of the remaining Land held by the three Companies as at 4 January 2016 in Vigers’ opinion was HK$163,643,000.  On the basis of the lack of any development of the Land, the increase in value is attributable to the choice of Land by P and R5, the passage of time, and the state of the Lantau property market.

240. P and R5 as Managers brought non‑core land sales offers to the other shareholders, as they were supposed to do.  In breach of the Shareholders’ Mandate, the Majority Shareholders did not match the offer or approve the sales; but declined to approve the proposed sales.  I find that this happened in September 1997, November 1997, and July‑October 2006.  As a consequence, there was no revenue to the Companies and repayment of the shareholder loans, but a continued incurring of a very high rate of interest.  If there had been no breach of the Shareholders’ Mandate, then the shareholder loans would have been repaid in full shortly after September 1997.  Instead, at face value, the shareholder loans including interest, across the three Companies, amount to HK$1,784,211,574 as at August 2016.

241. In breach of the Shareholders’ Agreement, the Majority Shareholders removed P (and R5) as Managers in May 2008.

(a) This was a breach of the requirement that Managers could only be removed with unanimous agreement of the shareholders.

(b) It was also a breach because there was a failure to pay the Managers any compensation.

242. If there had been no breach of the Shareholders’ Mandate and the shareholder loans had been repaid in full shortly after September 1997, then the three Managers would have become entitled to receive a bonus of 15% on a perpetual basis of any future cash receipt from sale of land/assets.

243. I agree that the failure to agree to make repayment to shareholders when the Companies had funds to do so (after receipt of the resumption monies in January 2008) is also established.

244. P has not established his complaint relating to the unsuccessful attempt to block the acceptance of the resumption monies.  Nor has P established that the Majority Shareholders failed to make Non Core Land sales after 2008.

245. I do not consider there was any breach of mutual obligation in the removal of P as a director.  The requirements under s.157B for removal of a director were satisfied, as notice of the resolution was given at the 7 April 2008 Board Meeting 28 days in advance of the 9 May 2008 EGM.

246. Strictly speaking, I accept that P’s claim of malicious prosecution might more properly be the basis for a tortious claim by P against R1, rather than the basis for a complaint of a breach of the Shareholders’ Agreement within the unfair prejudice proceedings.  However, where R1 and/or the Majority Shareholders have been in breach of their Shareholders’ Agreement obligations to P and R5 as Managers, their subsequent conduct in causing the police report, with R1’s attendant false statements, makes their breaches more egregious in my view.  It seems to me to have been oppressive conduct designed to undermine P’s position.

247. I consider that P has established unfairly prejudicial conduct by the Majority Shareholders. 

(a) It is clear that he has been prejudiced as a shareholder: he has not received full repayment or growth on his equity contribution or shareholder loan, and he has not received remuneration or compensation as a shareholder Manager.  I consider that P, R5 and R1 were Managers in their capacity as shareholders not as mere employees.

(b) It is also clear that the prejudicial conduct of the Majority Shareholders was unfair as it was in breach of the Shareholders’ Agreement.

Relief

248. I accept the following submissions of law by Mr Lam SC:

(a)   Because relief under s.168A of the Companies Ordinance is discretionary, the onus is on the petitioner to establish that relief ought to be granted to him.  A successful petitioner will not necessarily be granted a remedy: Joffe: Minority Shareholders: Law, Practice and Procedure (5^th edn, 2015) §§6.283; Re Full Cup International Trading Ltd [1995] BCC 682, 694C‑E (Ferris J); Re Sunrise Radio Ltd [2010] 1 BCLC 367 §10 (Judge Purle QC).

(b)   Once the Court has decided to grant relief, it can include in its order any terms which it thinks appropriate in respect of the matters of which complaints has been made: Re Bird Precision Bellow Ltd [1986] Ch 658, 669e‑f.

(c)   In granting such relief, the Court has a wide discretion and, if it does decide to make an order, it will assess the appropriateness of any particular remedy as at the date of the hearing and not as at the date of the presentation of the Petition.  The Court is entitled to look at the reality and practicalities of the overall situation, past, present and future: Grace v Biagioli [2006] 2 BCLC 70 §73.

(d)   The essence of the Court’s approach is to achieve a result which is fair.  That is, fair to both parties.  The Court does not penalise an unsuccessful respondent, nor simply adopt an approach which will give the petitioner the maximum possible monetary award that the circumstances will bear. This approach can be seen from:‑

(i)    Profinance Trust SA v Gladstone [2002] 1 BCLC 141,where the English Court of Appeal held that where a company has been reconstructed or its business changed significantly, an early valuation may be required in fairness to one or both parties; and a petitioner is not entitled to a one‑way bet;

(ii)   Re London School of Electronics Ltd [1986] Ch 211, 225, where the valuation date was chosen to avoid unfairness to the respondents;

(iii)   The element of fairness attaches not only to the valuation date but all aspects of the order: see, e.g., Re a Company (No 00789 of 1987), ex p Shooter (No 2) [1991] BCLC 267, where it was a term of the purchase order that the respondent’s loans to the company be repaid.

249. This was not a split trial, but as I stated at the end of the trial, I considered I may not have been provided with sufficient factual information to finally determine the remedies in this case.  I will identify where my orders are final, and where I need further submissions.

250. I note that P filed further submissions dated 20 September 2016 without leave after the close of the trial.  These submissions addressed remedies.  The Majority Shareholders objected to such submissions, relying on To Pui Kui v Ng Kwok Piu, CACV 281/2012 (unrep. 21 Aug 2014), §56.  I read the submissions in order to see whether their content justified leave being granted.  I do not believe they contained any matters which could not have been advanced before the close of the trial.  I have accordingly not had regard to such submissions.

251. I note that I have a discretion as to the relief to be granted, and that I may if I wish take into account conduct of all the parties, including conduct after the presentation of the Petitions.

(a)   It is clear from the post‑Petition Land sales that the breaches of the Shareholders’ Agreement by the Majority Shareholders continue, and that there is no prospect of the Companies being operated in the future pursuant to the Shareholders’ Agreement, at least whilst P remains a shareholder. 

(b)   As stated above, I consider that P’s payment of Top Master funds into his own account in January 2013 was wrong.  However, I consider it an ill‑advised act of self‑help where his shareholder rights were being flagrantly ignored.  It  post‑dated, and does not negate, the unfairly prejudicial conduct of the Majority Shareholders.  I do not consider that I need to vary the relief I would otherwise order, save that account must be taken of the monies already in P’s custody.

252. I consider it appropriate that orders be made to reflect both the breach of the Shareholders’ Mandate, and breach of the Managers’ rights clause in Clause 4 of the Shareholder’s Agreement.

253. I accept that Clause 4 provides for the Companies’ assets to be used to pay the Managers’ bonus. However, where all the shareholders have agreed in the Shareholders’ Agreement that such payment will be made but it is not made due to unfairly prejudicial conduct of some shareholders, then I consider I have jurisdiction under s.168A(2)(b) of the CO to order those shareholders to make payment of lost remuneration by way of damages to P following his unlawful removal as Manager.

254. I order the Majority Shareholders to buy out P’s shares in each of the Companies.

255. I accept the following submissions of law by Mr Lam SC:

(a)   In Re Sparkle Consultants (Hong Kong) Ltd [2002] 4 HKC 107 §33, Rogers VP held:‑

“Clearly the choice of an appropriate valuation date is a matter of discretion which has to be exercised in the light of the circumstances of the case and also the other aspects of the order. This would include the basis upon which the valuation is to be made.”

(b)   In Profinance Trust SA, the English Court of Appeal held that subject to the overriding requirement that the valuation should be fair on the facts of the particular case, the starting point should be the general proposition stated by Nourse J in Re London School of Electronics Ltd [1986] Ch 211, 224.

“Prima facie an interest in a going concern ought to be valued at the date on which it is ordered to be purchased.”

256. The Majority Shareholders laboured the submission that a buy‑out was of no value to P because the Companies were hopelessly insolvent in light of the accrued interest on the shareholder loans.  Such interest has only accrued because the shareholder loans were not repaid as soon as possible pursuant to the Shareholders’ Agreement.  That is attributable to the Majority Shareholders’ conduct.  There is no reason at all why the value of the shareholding of P should bear the burden of the interest accrued after the breach of the Shareholders’ Mandate.

257. I must also bear in mind the reality of the situation which is that, with P out of the picture as a shareholder, the Majority Shareholders could easily waive the extortionate interest on the shareholder loans and/or it is of no commercial concern to them whether they waive the loan interest and receive larger dividends from the Companies or they receive repayment of loans plus extortionate interest before dividends.

258. Accordingly my first order is:

(a) The Majority Shareholders buy out P’s shares in each of the Companies at a value to be fixed by the court.

(b) The valuation should be as at the date of the buy‑out order.

(c) The valuation of P’s shareholding should be on the basis that all the shareholder loans were fully discharged shortly after September 1997.

(d) The valuation should be on an undiscounted basis, as P acquired his shares on an undiscounted basis and, were it not for the unfairly prejudicial conduct, P would have benefited from the shares on an undiscounted basis.

(e) The valuation should be on a going concern basis, as there are no creditors other than shareholders.

(f) The valuation should also take account of Manager remuneration which should have been paid (so that there is no double recovery to P), and is the subject of my next order.

259. If necessary, I will hear further submissions as to other directions required for the valuation.

260. By way of second order, I order the Majority Shareholders to cause the Companies to pay remuneration to P pursuant to Clause 4 of the Shareholders’ Agreement as if P remained Manager until the date of the share buy‑out pursuant to my first order (failing which the Majority Shareholders will be personally responsible for making such payment).  I am told that R2 has waived her entitlement to remuneration as Manager.  My preliminary view is that means that the Companies are only required to pay 10% bonus on all sales after the first notional realisation of HK$7 million following the notional September 1997 sale until the date of the buy‑out order, which amount must be divided between P and R5 equally pursuant to Clause 4.  If necessary, I will hear submissions on the appropriate amount of remuneration.

261. Also to be taken into account are the following:

(a)   The amounts due to P by way of shareholder loan repayment or dividend from the Companies which have not yet been paid to P and are held in escrow, including dividend pay‑outs in or about May 2016 and July 2016.  Clearly P’s shares would have a greater value as at the date of this order if such dividends had not been paid.

(b)   The amount owed by P to Top Master (approx. HK$1.1 million) after he paid the proceeds of the cashier orders into his own account in January 2013.

262. I invite the parties to try to agree appropriate orders to take account of these matters.

263. I do not make an order for the Majority Shareholders to repay P’s shareholder loan and interest.  This is not because I think the Companies rather than the Majority Shareholders are responsible, where the latter have assumed responsibility under the Shareholders’ Agreement. Rather, it is because the Companies retain the valuable Non-Core Land which should have been sold in 1997 (in order to repay the investment).  P will recover this value in the buy-out which will include value for the retained land.  To order repayment of the shareholder loan as well would be double recovery, in my view.

264. I make a costs order nisi that (subject to express orders previously made within the Petitions), the costs of the Petitions be paid by the Majority Shareholders to P.

265. If the parties consider that further submissions should be made, and further directions or rulings obtained, before finalising a form of order to reflect this judgment, the parties should inform the Court within 28 days as to the matters which still require resolution, with proposals for directions.