RE BONDWOOD DEVELOPMENT LTD.

Headnote

    Petition under S. 168A of the Co. Ord. C. 32.

    A consideration of what conduct constitutes oppression to minority interests.

    Also a consideration of a wide range of relief needed to protect the interests of the Petitioners and other investors.

    Also a consideration of the role which could be assumed by manager to run the business and take necessary remedial measure.

M.P. No. 1100 of 1989

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. This is a Petition which is made pursuant to S. 168A of the Co. Ord. C. 32. The Petitioners are shareholders in Bondwood Development Ltd. (The Company). The company operates a restaurant and nightclub at premises in Wanchai trading under the name the Guilin Garden Restaurant and Nightclub.

2. Up to the present time the de facto control of the business of the company has been exercised by Mr. Anthony Fung. It is alleged in the Petition that Mr. Fung has been conducting the business in a manner which is oppressive to the petitioners and others.

3. This case has not been without its difficulties. When the hearing first commenced before me, the company was unrepresented. Mr. Petrus Chan represented Mr. Fung and made it clear that he had no instructions to represent the company. I felt obliged to advise Mr. Chan that if the company continued to be unrepresented, I would have no alternative but to proceed upon a basis that so far as the company was concerned, I would only have to be satisfied that the Petitioners had proved their case. It would not be my intention to permit Mr. Chan on benalf of the company to proceed as though Mr. Fung had the carriage and conduct of the affairs of the company in as much as they impinged upon the issues arising in this litigation.

4. Shortly after this Miss Wong was instructed to represent the company separately.

5. She found herself in some difficulty and sought an adjournment of the hearing. I was not prepared to grant this as the company had been fully aware of the position concerning the litigation from the outset. I strongly gained the impression that Mr. Fung was prepared to do anything he could to put off the evil day and I did not think that the interests of justice would be well served if I were to permit the proceedings to be adjourned.

6. What particularly impressed itself upon my mind was the fact that the restaurant was and is at the present time still trading. In essence one of the main complaints made by the Petitioners is that Mr. Fung has effectively taken to himself the management of the company to the exclusion of other shareholders and directors and has failed to keep any satisfactory accounts.

7. One consequence of this was to make it imperative that the litigation should be proceeded with as expeditiously as possible in the hope that at its conclusion there would still be sufficient assets left to justify the continuance of the company.

8. The problems I have referred to were compounded by the fact that it was acknowledged by both Miss Wong and Mr. Chan later before me that the company had failed to comply with Mr. Justice Jones' order for discovery.

9. During the currency of the proceedings the company introduced as evidence a set of accounts prepared by Messrs Lui and Mak Public Accountants. It was obvious from the evidence which was given by Mr. Chan, the Accountant who prepared the said accounts that the companies accounts were in a chaotic state when he was first requested by Mr. Fung to undertake work on the accounts in August.

10. Indeed Mr. Chan gave evidence that notwithstanding a great deal of work being undertaken it had taken him from August until the middle of October to even prepare accounts up to the end of April 1989.

11. Even then the accounts which were prepared were riddled with qualifications and Mr. Chan expressed the opinion in the witness box that the situation reflected by the accounts was only 70 to 80% accurate.

12. It was accordingly the case that a lot of time was wasted in attempting to reconstruct the financial position before me.

13. As a result of complaints which were made by the Petitioners and others on 21st April the Commercial Crimes Bureau raided Mr. Fung's offices and seized various papers. Photocopies of these papers were made available to me and Mr. Fung was subjected to a lengthy cross-examination which was largely based upon the material contained in these papers.

14. It will of course be appreciated that the essential feature of S. 168A Petitions is that it is in the petitioners contemplation that the company should continue trading. The present case is a striking example of the application of the features of S. 168A. I say this because it is obvious that a lot of capital is required to decorate a restaurant particularly one the size of this one offering a variety of different styles of presentation of food and entertainment.

15. If the company were to be would up all of this capital expenditure would be wasted as it is a standard term of leases of business premises that they must be rendered up to the landlord in their original condition at the expiration of the term granted.

16. All of this means that it is important to work out a scheme at the end of the day whereby the restaurant can continue to operate notwithstanding the antagonisms which exist between different investors and the allegations of past improprieties.

17. I have been mindful of all of this throughout the course of this hearing which has lasted 17 days before me. My task has not been made simpler by the fact that evidence has been forthcoming during the hearing which would indicate that the financial situation would appear to be parlous.

18. Mr. Lee Fai, the then manager of the restaurant gave evidence that the restaurant was losing somewhere between HK$600,000 to HK$1 million per month. Notwithstanding this I have been advised that the Petitioners and some other samller investors are anxious to keep the business going as they are confident that if it was to be efficiently operated and assets were not to be dissipated the financial prospects are reasonably good. They were sufficiently confident of the position that they were prepared to consider investing further funds so as to keep the business going.

19. On the 16th day of the hearing before me I heard evidence to the effect that Miss Winnie Wong, Mr. Fung's mistress had convened a meeting that same afternoon the purpose of which was to consider an offer which had allegedly been made by the owner of an adjoining restaurant to purchase the undertaking of the company for HK$5 million. Needless to day the Petitioners had not received notice of his meeting.

20. On the basis of this evidence and having regard to all the other evidence which had been given before me, I granted an injunction restraining any such sale.

21. I outline these difficulties so as to give a background of the overall situation and the compelling need to deal with the fast shifting scenario in a pragmatic and expeditious manner and the necessity for protecting the interests of everyone concerned.

22. Having outlined some of the inherent difficulties which were encountered, I will how consider the case which was advanced by the Petitioners.

23. Miss Pamela Pak is a Director of one of the Petitioners Mutual Power Ltd. She made an affirmation in support of the Petition and gave lengthy evidence before me. She described how in the latter part of the last year, She met Mr. Fung and was a guest of his at the Guilin Garden Hotel in China. Mr. Fung had led her to believe that he and members of his family owned the hotel. Mr. Fung informed her that it was his intention to open a restaurant in Hong Kong and to use a similar name to his hotel name. One of the objects of the exercise was to generate favourable publicity in Hong Kong in the hope that this would further the interests of his hotel in Guilin.

24. The proposal which was put to Miss Pak was that Mr. Fung and his family would put up the majority of the capital of the venture. Miss Pak and her friends were also invited to participate. The rationale of his was that Miss Pak and her friends would be able to assist the business as Miss Pak is a well known personality in the entertainment field. It was envisaged that she would introduce her friends who would also assist in publicising the venture.

25. One matter which Miss Pak was adamant upon was that Mr. Fung held himself out as a person of financial substance and clearly represented to her that he and his family would be investing the majority of the capital of the business.

26. Mr. Fung had claimed that he had been able to obtain the lease of suitable premises at a very favourable rent and that this would be an important factor in reducing the overheads which would have to be borne by the company. He painted a rosy picture of the future financial prospects of the venture.

27. These discussions took place over a period of some months and Miss Pak was persuaded of the attractiveness of the proposition. She was persuaded to such an extent that she introduced Mr. Fung to some of her friends.

28. In particular she introduced Mr. Fung to Mr. Leslie Lam who is a prominent Hong Kong businessman also gave evidence at some  length before me.

29. Both Miss Pak and Leslie Lam described how matters proceeded. They both decided that they wished to invest moneys in the project. It was agreed that Mr. Leslie Lam would make use of a company called trade Empire Ltd. as a vehicle for his investment and Miss Pak and her other friends would use two companies Mutual Power Ltd. and Mutualbest Ltd. in a similar way. They also understood that although the Fung family would be putting up their part of the capitalisation personally, it would nonetheless take the form of using Fung family company's for that purpose. Mr. Fung also said that Zhu Hai Trading a Chinese organisation would be given a small share by Mr. Fung. He represented that this was really in the form of a douceur or sweether so as to make life simpler for him in China. Also a small number of shares would be given to senior Executives of the company who would thereby be given an incentive to make the investment successful.

30. The original proposal made by Mr. Fung was that the capital needed would be HK$7.2 million. During the course of time this figure escalated. A figure was eventually arrived at of $12 million. The idea was that Miss Pamela Pak and her friends would put up $5.4 million and the Fung family would put up $6.6 million. It was further agreed that so far as Miss Pamela Pak's interests were concerned Mutualbest Ltd. would invest $1.2 million Mutual Power Ltd. $1.8 million and Trade Empire Ltd. $2.4 million.

31. Particulars of the payments made by Pamela Pak and Leslie Lam in respect of the share capital of the Petitioners are contained in para. 26 of the Petition. It would be noted that some of the payments made by Pameld Pak were in cash some by cheque and one payment of $100,000 was a credit given for a light mixing machine which was sold by Pamela Pak to the company.

32. Issue was taken in respect of some of these payments and I will deal later in this judgment with this. Suffice it to say at this juncture I am entirely satisfied that these payments were made as claimed by Pamela Pak.

33. At this time Pamela Pak trusted Mr. Fung and indeed the relationship was sufficiently close that Mr. Fung gave Pamela Pak the use of an office at his company's premises at 17/F Malaysia Building. Mr Fung proceeded to make the necessary plans and arrangements for the lease of the premises to be entered into and for decoration work to be undertaken. She did not herself actively supervise all of this as she trusted Mr. Fung.

34. Work proceeded on the basis that it was anticipated that the restaurant would open at the end of March.

35. A further agreement which was concluded was that the investment for both parties would be divided into units of $600,000 and each such unit would entitle the holder thereof to one Directorship in Bondwood.

36. Leslie Lam gave evidence that at this time he was becoming concerned at the sudden and substantial increases which Mr. Fung was proposing for the capitalisation of the venture.

37. This concern was expressed by his company Trade Empire Ltd. on 25th January 1989 when they paid $1.8 million for the shares which wee being issued to them. At that point of time the paid up capital had been increased from $7.2 million to $9 million.

38. It is helpful to observe the contents of the letter Trade Empire wrote on that day to Andrew Lam, a solicitor who was also an investor in the project and generally assisting with legal advice.

"Re: Investment in Bondwood Development Limited

Enclosed please find a Liu Chong Hing Bank Ltd. check no. 308178 in the amount of HK$1,800,000.00 being our investment in Bondowood Development Limited which is said to establish a Night Club Restaurant Project subject to the following terms and conditions :-

1) The authorized capital of Bondwood Development Limited will be HK$10 million and paid-up capital will be HK$9 million.

2) Bondwood Development Limited will own and operate one Chiu Chow Food Restaurant, one Night Club Cantonese Food Restaurant and one music lounge at the three floors of about 10,000 sq.ft. each located at 41 Lockhart Road, Wanchai, Hong Kong.

3) The lease of the above premises will be for 6 years and the rental rate shall be HK$23.00/sq.ft. per month for the first 4 years and HK$29.90/sq.ft. for the additional 2 years.

4) Trade Empire Limited will invest HK$1.8 million or HK$2.4 million in Bondwood Development Limited subject to final confirmation.

5) Bondwood Development Limited will have 5 to 7 directors of which Trade Empire Limited will have two corporate directorship.

6) This Restaurant Project will be operated in the name of Guilin Garden and managed by O'Phee (China) Limited at a management fee of 2% of the gross revenue.

Should there be no deviation from any of the above-said terms and coniditions, please send us the relevant share certificates. However, failure of any of the above terms and conditions will constitute us the immediate right to withdraw from this investment.

Many thanks for your attention on this matter."

39. Mr. Fung knew about this letter as he wrote a Fax in the following terms on 27th of January :

"Please instruct Mr. Andrew Lam of T.C. Foo & Co. to deposit Trade Empire Ltd. cheque HK$1,800,000 into Bondwood Development Limited A/C No. 003-415-000-3409-3 with Standard Chartered Bank, Sugar St. Branch. Or release to us for deposit the said cheque. Except point No. 4, all other points from 1-6 are hereby confirmed."

40. Shortly after this Mr. Fung told Leslie Lam that the capital would have to be increased to $12 million.

41. This prompted Mr. Leslie Lam to call a meeting of interested parties so as to contain the situation. Mr. Andrew Lam drafted a Deed which was intended to regularize the position and in particular secure the agreement of everyone concerned to limit the capital of the venture to $12 million and maintain the proportionate shareholdings to the proportions I have earlier indicated.

42. A draft of the Deed was sent to Mr. Fung some days before a meeting which was held at the Rigoletto Restaurant on the 15th of March. I regard this meeting as being a very important one. What is particularly significant is that Mr. Fung signed the document which in my mind clearly evidences the fact that he held out to the other investors present that he accepted the terms of the document. The document records the agreement of the parties to limit the capital to $12 Million and recites the shareholding I have referred to. It contains no scope for Mr. Fung to maintain that he was entitled to introduce other investors or increase the capital beyond $12 million.

43. The opening of the restaurant was marked by an inauguration ceremony. This was attended by Miss Pamela Pak, Leslie Lam, Mr. Andrew Lam and other interested parties.

44. Both Pamela Pak and Leslie Lam gave evidence that it became apparent to them at the party that other people who they did not know were holding themselves out as being the hosts. Naturally this caused them great disquiet.

45. Shortly after this Pamela Pak, Leslie Lam and Andrew Lam agreed that it was essential for them to go into the whole situation in some detail so that they could satisfy themselves that Mr. Fung had not done anything which was contrary to their interests.

46. In particular they were anxious to see vouchers in respect of expenditure which had been incurred by Mr. Fung so that they could be satisfied that the moneys they had invested had not been dissipated.

47. They were further disturbed at this time by the fact that Mr. Fung was saying that all investors would have to make what he described as being 'obligation loans'.

48. Mr. Andrew Lam decided that it was essential to have a meeting when these issues could be ventilated. However so as to ensure that Mr. Fung would know what was required of him, he sent him a letter in the following terms:

"Confirm receipt of your fax dated 3rd April, 1989 requesting for the "obligation loan". Shareholders would like to meet you on 13th April, 1989 at 8:00 pm at Guilin Garden Night-Club and Restaurant to discuss the operation of the business in general. Please avail yourself with the following documents for inspection and discussion during the meeting:-

1. all vouchers and receipts regarding payment of HK$12 million being capital fund paid to Bondwood by various shareholders,

2. documentary proof of all payments paid to the Landlord as various deposits,

3. documentary proof of all payments paid to various contractors and/or suppliers in respect of the docoration works and supply of furniture and utensils etc.

4. a budgetary report on the operation of the business as originally promised by you to be ready by the opening date of the business;

5. a list of all shareholders, whether beneficiaries behind a trust or otherwise, of Bondwood (as far as the 3 companies, namely Trade Empire Ltd., Mutualbest Ltd. and Mutual Power Limited, are concerned, they are ready and willing to disclose ALL the shareholders' names);

6. a list of all food-stuff supplier to the restaurant;

7. a list of all key position employees of the restaruant and the salaries break-down payable to them,

8. a list of all bank accounts in the name of Bondwood or Guilin Garden Night-Club and Restaurant together with the list of the signatories to them;

Looking forward to meeting you on 13th April, 1989."

49. A short meeting was held on the 13th of April which was inconclusive as Mr. Fung claimed he had had insufficient time to prepare the material which had been requested. He did however write to Andrew Lam on 17th April:-

"Guilin Garden Restaurant & Nightclub

With reference to your faxed letter dated 10th and further to our meeting dated 13th inst., we write to response to your said letter and supply you the information requested accordingly.

Please find herewith the following schedules for you reference:

1. An up-to-date profit & loss forecast which is incorporating the Janpanese restaurant,

2. A list of shareholders of Bondwood Development Limited,

3. A schedule of investment expenditure summary;

4. A list of all food-stuff suppliers to the restaurant;

5. A list of all bank accounts and signatories.

6. A list of key personnels of the Restaurant.

You will appreciate it that it would be impracticable for each individual investor of the Restaurant to review and inspect the supporting documents regarding the capital expenditure and operation. For you record, we are proposing the American Appraisal, a respectable firm of valuers, to carry out the evaluation of the investment expenditure."

"We would be grateful if you could distribute the enclosed documents to respective investors at you earliest convenience. We look forward to your response to our faxed letter dated 3rd April, 1989.

Thanking you in anticipation for your co-operation.

Antony Fung

Managing Director"

"BONDWOOD DEVELOPMENT LIMITED

SUMMARY OF SHARE HOLDINGS

"GUILIN GARDEN RESTARUANT & NIGHTCLUB INVESTMENT SUMMARY

Notes :

1. The landlord has specifically appointed regarding air conditionings; plumbing, electrical installations & fire precaustions.

2. Includes kitchen equipments; tables; chairs; lightings; telephone & cash registrar system.

3. All silver & goldwares; signages; tablecloths; kitchen utensils; staff uniforms etc.

4. 4% on fixtures, fittings & accessories to cover designing fee; drawing & project management.

5. Deposits with landlord on rental, signage fixture installations, accountancy & legal costs.

6. Cash flow for working capital. This is to cover cash outflow for wages; purchasing & any unexpected events or overheads. The amount is estimated to be the maximum requirement. It is envisaged that the cash flow requirement would be substantially reduced inversely with turnover."

50. Obviously this was not satisfactory. It raised more questions than it answered.

51. It indicated that the share capital had been increased contrary to the 15th of March agreement and no attempt was made to account for expenditure which had been incurred. Mr. Fung's suggestion of arranging for an appraisement of the investment was irrelevant and not called for.

52. A further meeting was arranged on the 20th of April. The situation by then had deteriorated considerably. Prior to the meeting Mr. Andrew Lam had caused a search to be made at the Companies Registry of the company. It was apparent from this search, inter alia, that the returns of allotment of shares were incomplete so far as the Petitioners were concerned and it was evidence that other parties had had shares alloted to them. Over and above this other people who are referred to in the Petition had come forward and claimed to have invested capital in the company.

53. The meeting on the 20th of April was not a happy one. It took place in the afternoon. It would appear that at some stage around 6 pm, Mr. Fung absented himself from the meeting on the pretext of having to answer an urgent telephone call. He was not seen again by Pamela pak and Leslie Lam or Andrew Lam for some days.

54. A decision was then made for the people present to go to Mr. Fung's office on the 17/F Malaysia Building. This attendance was of no avail as there was no one present who could render any assistance or explain where accounts or vouchers were kept.

55. It was around this time that Pamela Pak decided that she would no longer continue to use the office which had been made avialable to her on the 17/F Malaysia Building. When she went there to collect her belongings, she saw that someone had broken the lock of her desk and removed the papers she kept there including one of the receipts which had been given to her by Mr. Fung evidencing the payment of some of her share capital.

56. A collective decision was made shortly after this to report the whole matter to the Commercial Crime Bureau. A report was made on the 21st of April and as a result of this a raid was made on Mr. Fung's offices and the documents which were before me were seized.

57. During the course of preparation for the hearing of this Petition, the Petitioners obtained copies of the documents which were seized by the Commercial Crime Bureau.

58. The material obtained from these documents nearly all supported the fears of the Petitioners. It appeared that very large capital sums had been transferred to a number of different companies and there was little or no data available to satisfy the Petitioners or those advising them to lead them to a conclusion that the capital sums which had been transferred had in any way satisfactorily accounted for.

59. Searches were undertaken at the Companies Registry which indicated the companies which had received payments were interconnected and there was every reason to suppose that all of these companies were in fact controlled by Mr. Fung or members of his family. Particular examples of such companies were Northshore Developments Ltd. and Guilin Garden Hotel which appeared to be the trading name of a Chinese company called China Handicap Association.

60. What is perhaps most important about the documents seized is that in all important respects the documents tend to support the contentions advanced by the Petitioners and to militate against the case being put forward by the company and Mr. Fung.

61. As I have mentioned earlier a number of witnesses were called by the company before Mr. Fung went into the witness box. Amongst these was Mr. Andrew Lam, the solicitor who had given advice to the Petitioners and the company before the 20th of April. In my opinion he was an excellent witness. Far from assisting the companies case his evidence entirely supported Miss Pamela Pak and Mr. Leslie Lam's version of the events which had transpired.

62. I have no doubt whatever that Mr. Andrew Lam was an honest truthful and reliable witness and where his evidence is in conflict with that of Mr. Fung I have no hesitation in accepting Mr. Andrew Lam's as being the correct version.

63. He himself had invested the comparatively small sum of $180,000 in the venture. He described now Miss Pamela Pak and Mr. Leslie Lam had both been anxious to obtain evidence from Mr. Fung as to now the expenses which had been incurred for the company had been vouched.

64. He had been the draftsman of the Deed which had been the subject of the discussions at the meeting in the Rigoletto Restaurant on the 15th of March. The main purpose of the Deed had been to secure agreement amongst the shareholders to limit the capital of the venture to $12 million and to retain the same proportionate holdings of shares amongst interested parties.

65. He gave evidence that he had submitted a draft of the Deed to Mr. Fung some days before the meeting. Mr. Fung had attended the meeting with others and had signed the Deed for and on behalf of the companies which had be used by Mr. Fung as vehicles of his and his families investment.

66. Mr. Fung had not raised any difficulties. The only matter which remained outstanding was the affixing of the various company seals. What is important to remember in this connection is what was evidenced by the agreement. I have no doubt that when Mr. Fung signed the document he was acknowledging to all parties who were present that he intended to be bound by its terms.

67. There is further evidence to support this view of the matter. Only a matter of days later he put in hand action to implement one of the terms of the agreement namely the appointment of O'Phee (China) Ltd., one of his company's to act as managers for the restaurant and night club.

68. Mr. Andrew Lam's evidence concerning the attempts by Pamela Pak and Leslie Lam to obtain satisfaction from Mr. Fung were entirely consistant with their evidence.

69. I have no doubt whatever that Mr. Fung was simply endeavouring to evade the issue and fob off Pamela Pak and Leslie Lam with specious excuses. Equally I have no doubt that it was never Mr. Fung's intention to make anything approaching a satisfactory disclosure of affairs which existed at that time.

70. In support of this view of the matter I have borne in mind the evidence of another witness called by the company Mr. Chan. He was the Public Accountant who was appointed to audit the accounts in August.

71. It was transparently clear from his evidence that even if all parties had accepted an invitation to inspect the company accounts during office hours, it would have been quite impossible for them to obtain any meaningful information from them. It took Mr. Chan who is an experienced accountant months to obtain anything approaching a clear picture of the company's affairs up to the relevant time.

72. Incidentally in this connection I do not for one moment accept Mr. Fung's evidence to the effect that any such invitation was ever extended to the parties.

73. Before concluding this very short summary of the evidence supporting the Petitioners case it may be helpful for me to make some general observations.

74. I found both Miss Pamela Pak and Mr. Leslie Lam to be excellent witnesses. In my opinion they were both telling the truth and they did not in any way exaggerate their evidence. What is also significant is that it all came together in a logical and conerent way. There was no inherent improbabilities.

75. With the wisdom of hindsight it is possible to say that they were both perhaps rather too prepared to trust Mr. Fung. Having regard to the overall background and the representations which had been made by Mr. Fung this is entirely understandable.

76. I do not think that it is likely to be helpful for me to go into a great deal of detail concerning each and every allegation which has been made. I say this because what I am concerned with is the question whether the Petitioners have succeeded in making out a sufficient case to justify me in granting the relief sought in the Petition under S. 168A of C. 32.

77. This does not mean that I do not accept the veracity of the other allegations which have been made. An example of this is the complaint that on numerous occasions Mr. Fung's described himself both verbally and in correspondence as being Managing Director of Bondwood notwithstanding the fact that this was untrue. It was plain and obvious that this allegation had been made out. All one needs do is look at the letter Mr. Fung wrote which is one of the letters I have cited in this judgment on p. 16.

78. What I am attempting to do is to adopt a broad brush approach and confine myself to what I regard as being the most important issues which arise.

79. I will now comment upon Mr. Fung's evidence. As I have said he was a reluctant witness. Indeed it was necessary after a succession of minor witnesses were called by the company to order that unless Mr. Fung came forward himself to given evidence, I would decline to hear further evidence for the company.

80. Unfortunately Mr. Fung has had trouble with the law previously. He admitted that some years ago when operating a Travel Agency called Cosmos Tourist Service, he had been convicted of conspiring with his employees to forge documents with a view to deceiving the Australian Immigration authorities.

81. For this he was sentenced to serve a term of imprisonment. I fear that Mr. Fung has not learnt from his past mistakes. It was very strongly my impression that Mr. Fung is a congenital or compulsive liar. He has a glib tongue and I do not think that he made any attempt at all to tell the truth. What he attempted to do was to give answers which in his view would best serve his interests.

82. This was particularly borne out in his cross-examination when he was confronted with documentary evidence which was in direct conflict with the evidence he was giving.

83. One of the problems which is encountered with his evidence is the impossibility of reconciling his 2 affirmations with the evidence he gave from the witness box. At an early stage in his evidence he adopted the truth of the contents of his 2 affirmations. Both in examination in chief and cross-examination he proceeded to given evidence which was directly at variance with the contents of the affirmations. I will attempt to deal with some of the more serious aspects of Mr. Fung's evidence.

84. One of the main lines of defence being advanced by the company was that Pamela Pak and her companies had not paid for the shares they had applied for. It was particularly easy for Mr. Fung to make such an allegation as some of the share capital had been paid for in cash by Miss Pamela Pak. It will be remembered from her evidence that one of the receipts which had been issued by Mr. Fung to her had been in the drawer in the office occupied by her on the 17th floor of Malaysia Building which according to her had been broken open and its contents removed while she was absent.

85. However the answer to this is not difficult to find. Mr. Fung did not raise this topic when correspondence was being exchanged when he was being pressed to vouch expenses which had been incurred. More significant than this is the computer print out which was amongst the papers which were seized by the Commerical Crime Bureau. It is clear from this document which purports to show the capitalisation of the company that shares are credited to Mutual Power Ltd. and Mutualbest Ltd. on the basis that they had been fully paid for.

86. If this was not enough it is also necessary to look at the accounts being exhibit J which were produced by Mr. Chan which attempted to reflect the true position of the company at the end of April. It is of course necessary to take cognisance of the fact that these accounts were prepared after August. It is clear from these accounts that Mutualbest Ltd. and Mutual Power Ltd. are recorded as having fully paid up their shares. When confronted with this evidence, Mr. Fung was unable to give any plausible explanation. I have no doubt that on this important issue he was deliberately telling lies.

87. The next important issue I will deal with is the question of the agreement between the parties for the capitalisation of the venture. Mr. Fung gave evidence that there had been agreement between all interested parties to increased the share capital to $15 million. In support of this contention he produced minutes of a shareholders meeting which it was claimed took place on the 5th of March 1989. These minutes read as follows:-

"PRESENT    : Dalerich investment Limited (represented by Mr. Anthony T.S. Fung)

       Counting Industries Limited (represented by Mr. Anthony T.S. Fung)

Trade Empire Limited (represented by Mr. Leslie Lam)

Multualbest Limited (represented by Ms Pamela Pak)

Multual Power Limited (represented by Ms Pamela Pak)

CHAIRMAN    : Mr. Anthony T.S. Fung representing Dalerich Investment Ltd. and Counting Industries Ltd. was duly elected chairman for the meeting.

AGENDA    : Additional funding for the re-decoration and fitting out of Guilin Garden Restaruant & Nightclub (the "Restaurant").

RESOLUTION    : It was resolved that the Company needs to raise further capital fund to complete the re-decoration and fitting out of the Restaurant in time for the planned opening on 28th March, 1989. Due to unforeseen expenditures such as the demand of approximately HK$5 million by the landlord as collateral for the repairable damages done to the premises, it is envisaged that HK$12,000,000 capital would be insufficient if the re-decoration and fitting out of the Restaruant was to be completed within a month.

It was resolved that a new company to be called "Guilin Garden Restaurant & Nightclub Ltd." was to be set up to take up 5 million each of HK$1 "B" share of the Company. All existing 12,000,000 shares will be ranked as "A" shares. The "A" shares will take preference to a 10% dividend on profit available after all charges or a HK$100,000 lump sum, whichever is greater. The "B" shares, however, will be entitled to dividends on the same arrangement after dividends have been paid to "A" shares.

There being no further business to attend to, the chairman declared the meeting closed."

88. The first point to note about these minutes is that they are only signed by Mr. Fung and not by anyone else.

89. Perhaps more importantly the agreement recorded therein is in direct conflict with the contents of the Deed which Mr. Fung signed at the meeting on 15th of March - 10 days later when the main term of the Deed was to limit the capital to $12 million. As I have said previously Mr. Fung had a draft of this Deed some days before the meeting. To me it is inconceivable that Mr. Fung would have signed the draft Deed if indeed there had only a few days previously been a shareholders meeting when a Resolution had been passes which would have the effect of increasing the share capital of the company.

90. I have regretfully come to the conclusion that no meeting took place on the 5th of March. Mr. Fung at some subsequent date prepared the minutes of the meeting knowing full well that they recorded a fictitious position. I further believe the document to be a forgery.

91. I have no doubt as to the correctness of the evidence given by Pamela Pak and Leslie Lam that Mr. Fung represented to them that he and his family would be the majority sharenolders and it was never contemplated by either Pameld Pak or Leslie Lam that substantial interests would be acquired by 3rd parties. They and their friends invested their moneys on that basis.

92. What in effect Mr. Fung has done is to play one group of investors off against another. During the course of his cross-examination he admitted that he had never invested a cent of his own money in the venture. He claimed that various members of his family had invested moneys but there was no documentary evidence amongst the documents seized by the Commercial Crime Bureau or from any other source which supported this contention.

93. As the hearing continued it became increasingly obvious to me that whatever happened in the future it would be necessary to scrutinize with care whatever evidence was available in support of payments claimed to have been made by investors in this venture.

94. I accept without hesitation that the Petitioners have fully paid up their share capital. What I do not accept is that other parties have done likewise. In particular it seemed almost certain from the accounts which was seized that Counting Industries Ltd. had not paid for the shares which were recorded as being paid for in Dalerich Investment Ltd. which in term held the majority of the shares in Bondwood.

95. I do not think it appropriate for me on an application of this nature to attempt to get to the bottom or all of this. It will be borne in mind that the main issues contended before me are between the Petitioners and the company any Mr. Fung. The interests represented by Dalerich Investments and Counting Industries may wish to make representations which fall outside the scope of a S. 168A Petition.

96. Mr. Fung gave evidence to the effect that Mr. Lee Chu and other investors introduced by him were the main beneficial owners of Dalerich Investments Ltd. It is not appropriate for me to attempt to resolve this on this Petition.

97. I would add that a considerable amount of time was spent on the subject of investment made by Zhu Hai Trading. Mr. Fung claimed that Zhu Hai had expressed a wish to invest moneys in Dalerich Investments Ltd. No sensible explanation was given why they would prefer to invest indirectly in Dalerich Investments rather than investing direct in the company.

98. In this connection I would observe that Zhu Hai have taken legal action against Mr. Fung and Dalerich Investments and this litigation is still outstanding.

99. Suffice it to say on this important aspect of the matter that I am satisfied on the balance of probabilities that Mr. Fung has acted fraudulently and that it is imperative that remedial measures be taken to regularise the whole question of the capitalisation of the company.

100. I will turn next to the whole question of the absence of any satisfactory or acceptable accounting records.

101. Despite Mr. Justice Jones' order for discovery there was still very limited accounting details.

102. Perhaps one of the most serious lacunas was the absence of any satisfactory accounts in respect of moneys which were transferred between different companies controlled by Mr. Fung.

103. A total of approximately $8.3 million was transferred to Northshore Developments Ltd. and the Guilin Garden Hotel in the early part of the year.

104. Mr. Fung's explanation for these transfers was that these companies had in fact paid for the decoration work at the restaurant. No satisfactory explanation was given as to why it was necessary for these companies to given instructions to the contractors. Most importantly, despite repeated requests to do so no acceptable evidence was given providing a breakdown and details of alleged expenditure.

105. Perhaps most ominously Mr. Fung admitted in cross-examination that at the time in question companies he was involved in owed very large debts to other parties in China. One debt in particular was in the sum of US$3.2 million. It was to be repaid by 5 equal installment over a 12 month period. Interest alone on this debt amounted to US$185,000.

106. Miss Wong submitted that moneys must have been applied towards the decoration costs. She referred to the evidence given by one of the architects to the effect that the lowest possible cost of decorating a restaurant and nightclub would be $400 to $500 per sq.ft. It was common ground that the area of the restaurant was 30,000 sq.ft. and accordingly approkimately $15 million must have been spent on decoration.

107. I am afraid that this will not do. The Petitioners were fully entitled to receive particulars of all receipts and payments made by the company. Certainly in the context of the complaints made in the Petition, it was incumbent upon the company to provide full particulars of all payments made together with supporting vouchers.

108. There is a further dimension of this matter which is disturbing. Miss Pamela Pak gave evidence that she had no knowledge of the fact that the companies undertaking the decoration work would have any interests or connections with Mr. Fung. There is every reason to suspect that some of the companies which undertook the work were companies in which Mr. Fung, his relatives or the myriad companies over which he exercised control, did indeed have an interest in these companies and may have made a secret profit unknown to some or all of the investors. This is a separate matter which in my opinion should be subjected to scrutiny.

109. The failure to supply this information is of itself a serious matter. When this is taken in conjunction with the absence of any proper working accounts during the period when the restaurant was being operated, there are indeed grounds for grave disquiet.

110. It is difficult to avoid coming to a conclusion that Mr. Fung from the outset took over the management of Bondwood to the exclusion of all other parties.

111. I have attempted to outline just a few of the areas where I consider Mr. Fung has oppressed the interests of shareholders in the company. As can be seen they are all of a most serious nature.

112. The test which has to be adopted to determine whether a Petition under S. 168A can succeed has been satisfactorily laid down in the Court of Appeal in Re Jermyn Street Turkish Baths Ltd. [1971]1W.L.R. 1042 at 1059:-

"Oppression occurs when shareholders, having a dominant position in a company, either (1) exercise that power to procure that something is done or not done in the conduct of the company's affairs or (2) procure by an express or implicit threat of an exercise of that power that something is not done in the conduct of the company's affairs, and when such conduct is unfair or, to use the expression adopted by Viscount Simonds in Scottish Co-operative wholesale Society Ltd. v. Meyer, 'burdensome, harsh and wrongful' to the other members of the company or some of them, and lacks that degree of probity which they are entitled to expect in the conduct of the company's affairs: see Scottish Co-operative Wholesale Society Ltd. v. Meyer and Re H. R. Harmer Ltd. ... Oppression must, we think, import that the oppressed are being constrained to submit to something which is unfair to them as the result of some overriding act or attitude on the part of the oppressor."

113. I have no doubt whatever that the Petitioners have been able to satisfy this criteria.

114. I advised the parties of my conclusions at the end of the hearing. One reason for this was the urgent situation facing the company and the need for immediate steps to rectify the situation if there was to be any reasonable prospect of the company continuing to trade on a viable basis in the future.

115. I then with the assistance of counsel attempted to work out the terms of an order which I though might meet with immediate requirements.

116. The first matter to be dealt with was granting an injunction restraining Mr. Fung and companies he controlled from continuing to exercise any role whatever over the companies affairs. I granted an injunction in sufficiently wide terms to achieve this objective.

117. The next matter for consideration was the appointment of a manager to manage the affairs of the company. The Petitioners put forward the names of Mr. Daniel Kwok and Mr. Lawrance Chung who are both Public Accountants with relevant experience.

118. I appointed them to manage the affairs of the company. I also ordered that there should be discovery of the records of the companies controlled by Mr. Fung which had a direct involvement with Bondwood. These companies were all enumerated in the draft order which was prepared.

119. I consider that it was essential if any meaningful reconstruction of the situation was to be effected that the managers should have access to all necessary information available. Inevitably it would be necessary for them to undertake a tracing exercise if there was to be any realistic prospect of recovering assets which had been dissipated by Mr. Fung.

120. I also ordered that they should entertain claims from persons who had invested moneys in the project so that in due course consideration could be given to the share register of the company being rectified.

121. I made various other consequential orders details of which I do not need to given here.

122. On the question of costs I was satisfied that the conduct of Mr. Fung had been such as to justify a more stringent order than the ususal order which is given. I ordered that Mr. Fung should bear both the Petitioners and the companies costs personally and that costs should be assessed on a common fund basis.