RE GOLDBAHT LTD

IN THE SUPREME COURT OF HONG KONG

COMPANIES (WINDING UP)

CWU NO. 12 OF 1989

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J U D G M E N T

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1. This is a motion to strike out a petition for the winding up of Goldbaht Limited (the company) on the grounds that it is frivolous or vexatious or is otherwise an abuse of the process of the Court.

2. The petition was presented on the 31st January 1989 on the just and equitable ground. The petition came before Master Perrior on the 1st March 1989 when he pave leave to the company to file evidence in opposition and adjourned the hearing to my list on the 13th March 1989 when I gave further directions. The present motion was filed on the 30th March 1989.

3. The company was incorporated on the 6th November 1927 with a nominal capital of S10,000 divided into 1.000 shares of $10 each. The amount of the paid up capital is $20. There are two shareholders, Chan Kwong Fai (the petitioner) and Ma Shing-chun (Ma), both of whom hold one share. The petitioner and Ma are also directors of the company together with Tiu Lap Kwan (Tiu) and Lui Tin-Shing (Lui). The company commenced business in June 1988 for the purpose of washing and bleaching of denims. It is not in dispute that the parties agreed that the shareholdings would be in the following proportions : the petitioner 38%, Ma 28%, Tiu 28% and Lui 6% whilst Ma has made a contribution of $240,000, Tiu $174,000 and Lui $88,000 towards the capital of the company. The petitioner states that he has made a total contribution of $561,200, hut Ma contends that the figure is $498,000.

4. By the petition, the petitioner alleges that there has been a breach of fiduciary duty by Ma resulting in a breakdown of mutual trust which has caused a state of deadlock. The principal allegation arose in September 1988 when Ma's brother Ma Shin-Kwan and a cousin, Wong Nun-ching, commenced business under the name Goldbaht Trading Co. (GT) with its office next door to that of the company. Apart from the similarity in the names both the letterheads and logo used by GT are very similar to those of the company. The petitioner learnt from customers of the company that Ma had told them that GT was owned by the company whereas in fact it is owned by Ma Shin-kwan and Wong Mun ching. It is the petitioner's case that payments for work done by the company had been paid to Ma upon invoices presented to customers in the name of GT. The petitioner also complains that shares have not been allotted and that, when he and Lui asked Ma to allot shares in accordance with the agreed percentage shareholdings, Ma claimed that he was entitled to 50%. Although the petitioner alleged that the directors are divided with Lui supporting him and Tiu supporting Ma it appears from the evidence that Lui has since changed his allegiance to Ma.

5. According to Ma, Wong Mun-ching (Won) was originally asked to work for the company as a sales representative for which he would be paid a commission and said that the petitioner was aware of this arrangement. Later as the company had difficulty in paying Wong his commission, it was agreed that instead of working for the company be would he allowed to operate a trading business and deal with customers direct.

6. On the 1st August 1988, an agreement was signed by Tiu and Lui on behalf of the company whereby it was agreed that the company would carry out sub-contract work for GT. The work obtained by Wong was sub-contracted to the company at a lower price. Wong received payment from customers for the work done and would account to the company after deducting the difference. Ma explained that the similarity of the name of the company and the printing of business books and invoices was in order not to lose customers who had already done business with the company through Wong's introduction and to facilitate Wong's work in the future. It appears that Ma is involved in the affairs of G.T. for the petitioner produced a copy of one of G.T.'s cheques dates the 25th October 1988 which bears his signature as a co-signatory.

7. After he discovered the existence of G.T. the petitioner withdrew from the company at the beginning, of November 1983, but Ma has stated that the potitioner can return if he wishes to do so or in the alternative he would be prepared to consider buying him out at a reasonable price.

8. The thrust of Mr Allman-Brown's argument on behalf of the company is that the petitioner has not come to court with clean hands as defined in Re Westbourne Galleries Ltd. [1973] A.C.360 for in the petition the petitioner claims that shares should be allotted to him on the basis of his contribution of $560,000 which reflects an interest of over 50%. However, the petitioner has conceded that this allegation was not correct in his affirmation of the 17th February 1989 before Ma's affirmation in reply was even filed. In any event upon Ma's own evidence, the petitioner has paid just under 50% of the capital that has been contributed although the petitioner agrees that $181,200 was by way of a loan. As a result, I do not see anything sinister in the evidence given by the petitioner that justified the strictures of Mr Allman-Brown. The further agrument that the petitioner should have availed himself of an alternative remedy for the purchase of has shares has no merit for no shares have been allotted nor has any actual offer been put forward by Ma. Indeed Ma gave no reason why the shares have not been allotted nor did he provide an explanation for his signature on the cheque of G.T. to which I have referred.

9. There is clear evidence if the petitioner's evidence is accepted that G.T. was formed without his knowledge and with the object of benefiting G.T. at the expense of the company. There is, therefore, prima facie evidence that there has been a breach of fiduciary duty by the other directors that has resulted in the present deadlock. I do not therefore accept the submission that the petitioner has not come to court with clean hands. The petition is neither vexatious nor frivolous nor is it an abuse of the process of the court. Accordingly the motion is dismissed and there will be an order nisi for costs to the petitioner.