BEATRICE TSANG SAU HING AND ANOTHER v. YUENG MAN LOONG MAXLY AND OTHERS

HCCW 49-52/2006
& HCCW 130-133/2007
HCCW 49/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 49 OF 2006

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HCCW 50/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 50 OF 2006

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HCCW 51/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 51 OF 2006

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HCCW 52/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 52 OF 2006

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HCCW 130/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 130 OF 2007

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HCCW 131/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 131 OF 2007

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HCCW 132/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 132 OF 2007

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HCCW 133/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 133 OF 2007

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J U D G M E N T

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Introduction

1.  In 1957, Mr Tsang Hon Kong (“Tsang Senior”) and Mr Yeung Tung Shing (“Yeung Senior) formed a partnership with Tsang Senior’s brother, Mr Tsang Man Kong (“MK Tsang”) and a Mr Mou Wah (“Mou”), with a view to carrying on a trading business.  Each of them held a 25% interest in the partnership.  Not long afterwards, the partnership began trading.  The business upon which they embarked was the manufacture and sale of inflatable products, such as rubber and plastic inflatable swimming rings, other swimming aids and inflatable toys which are typically used in swimming pools and at the beach.  They started with a capital of HK$50,000.  Over the years, there were changes in the structure of the partnership, and from the 1970s onwards, a number of companies were set up to operate various parts of the business.  By 1985, only Tsang Senior and Yeung Senior remained involved with the business, and at about the same time, a second generation of Tsangs and Yeungs began to participate in the management of the business.  From that point on, each family retained a 50% interest in the business.  Throughout these years, the business continued to prosper and grow – so much so that by mid-2005, a few months before these proceedings commenced, it boasted an annual turnover of over HK$200 million, and was, according to Yeung Senior’s son, Mr Maxly Yeung (“Maxly”), one of the five largest producers of inflatable leisure products in the world.

2.  Unfortunately, by that time, differences had begun to emerge between the two families, and, as these became more serious, they found it increasingly difficult to continue to work together harmoniously.  Each says that the other is to blame for the problems that arose.  In the result, on 1 February 2006, the Tsang family shareholders in the companies presented petitions seeking to wind up the four Hong Kong companies which then carried on the business.

3.  By their petitions, which were in materially identical terms, the Tsangs claimed that there had been a complete breakdown in the trust and confidence that had formerly existed between them and the Yeungs, and that the companies were in a state of deadlock.  According to the Tsangs, the fault for this unhappy state of affairs lay with the Yeungs, and details were given of various actions taken by the Yeungs which were said to have resulted in the breakdown of trust and deadlock, on the basis of which it was contended that the companies should be wound up on the just and equitable ground under section 177(1)(f) of the Companies Ordinance.

4.  The Yeungs opposed the Tsang’s petitions.  In their affirmations in opposition, they placed the blame for the breakdown and deadlock on the Tsangs.  Eventually, in March 2007, about 2 months before the trial of the Tsangs’ petitions was due to commence, the Yeungs presented cross petitions in respect of each of the four companies by which they sought orders under section 168A of the Ordinance requiring the Tsangs to buy out their interests in the companies, at a suggested price of HK$60 million, contending that the Tsangs had been guilty of unfairly prejudicial conduct in relation to the affairs of the companies.  As an alternative, the Yeungs contended that the companies should be wound up, also on the just and equitable ground, having regard to the breakdown of trust between the two families, and the consequent deadlock in the management of the companies, which was said to be the fault of the Tsangs.

5.  Following the presentation of the Tsangs’ petitions, the Tsangs sought the appointment of provisional liquidators in respect of the four companies.  On 17 February 2006, I made an order appointing Mr Derek Lai and Mr Darach Haughey as the provisional liquidators of each of the companies.

The history of the relationship prior to 2005

6.  The history of the relationship between the Tsangs and the Yeungs from 1947, when they first formed their partnership, and 2005, when their relationship rapidly deteriorated, is not the subject of much dispute.

7.  From the outset, when the original partnership first commenced its manufacturing and trading business, there was a broad division of responsibility between the partners, with the Tsangs (Tsang Senior and MK Tsang) being responsible for administration, finance, sales and marketing, and Yeung Senior and Mou Wah being responsible for purchasing local raw materials and manufacturing.

8.  In the late 1960s, the partners entered into a venture with a Taiwanese businessman by the name of Tien Pei Zee (“TP Zee”), setting up a factory in Taiwan which was called Ming Tat.  Each of the original partners held a 10% interest in Ming Tat, with the Taiwanese partner holding the remaining 60%.  Yeung Senior moved to Taiwan to manage the factory there, while Tsang Senior and Mou Wah remained in Hong Kong.  Shortly afterwards, in about 1970, MK Tsang retired from the partnership, and the remaining partners’ interest in the partnership increased to a one-third interest each.

9.  Also in 1970, the remaining partners purchased a property in Hong Kong, at 7^th floor, Zung Fu Industrial Building (“the Zung Fu property”).  From the time of its acquisition until the present, this property has been used as an office for the business of the partnership, and later the various companies which were formed to operate that business.

10.  In August 1971, the first of the companies which are the subject of these petitions and cross-petitions was formed.  This was Sunville Investment Company Limited (“Sunville”).  At the end of 1971, the three remaining partners transferred the Zung Fu property to Sunville.

11.  In 1973, the second of the companies which are the subject of these petitions and cross-petitions was formed.  This was Boville Industrial Company Limited (“Boville”).  The shareholding in Boville was initially divided equally between the three remaining partners, Tsang Senior, Yeung Senior and Mou Wah.  Thereafter, between 1973 and 1976, 50% of the shares in Boville were held by companies associated with TP Zee.  However, in 1976, disagreements arose between the Hong Kong and Taiwanese interests, and they disengaged from their association with one another.  Ming Tat was formally dissolved, and the Hong Kong partners set up a new company in Taiwan known as Goldville.  The Taiwanese companies returned their shareholding in Boville to the Hong Kong partners, so that Boville was, once again, owned by Tsang Senior, Yeung Senior and Mou Wah in equal shares.  At this time, the proceeds of the dissolution of Ming Tat payable to the Hong Kong partners were, it seems, remitted to Boville, which recorded the receipt of the proceeds as a credit to a ledger account in its books which was designated the “K Kwok” account.  It does not appear that this related to any real person or entity, but was simply a name chosen for the particular ledger account in Boville’s books.

12.  In 1984, Tsang Senior, Yeung Senior and Mou Wah agreed to enter into an arrangement with the local government authorities of Tang Li in Feng Gang Town in Guangdong province to provide funding for the building of, and installation of machinery in, a factory which would serve as a processing factory for Boville.  When the factory was built, Boville moved its Hong Kong manufacturing activities to the new factory on the Mainland.  Boville’s Hong Kong employees were assigned to work at the new factory, although they remained employees of Boville, which paid their wages.  This factory was in operation from around 1985 until 1994, when it was closed down.

13.  In 1985, Mou Wah withdrew from the business.  His shares in Sunville and Boville were acquired equally by the Tsangs and the Yeungs.  Following his withdrawal, therefore, the Tsangs and the Yeungs had equal shareholdings in the two companies.  Also at about this time, a second generation of Tsangs and Yeungs came into the business.  Two of Yeung Senior’s sons, Maxly and Edward, assisted Yeung Senior in running the business of Goldville in Taiwan, while one of Tsang Senior’s daughters, Beatrice, became a director of Boville.  Maxly subsequently returned to Hong Kong about a year later, after which he also worked at Boville.  Edward moved to the United States, where the families set up a company called Sunco Products Inc. (“Sunco”).  Although there was initially another shareholder in Sunco, he later withdrew, leaving the Tsangs and Yeungs as equal shareholders in Sunco, as they were in Sunville and Boville.

14.  Also at this time, as the business was increasing, the third of the companies which are the subject of these petitions and cross-petitions was formed.  This was Gold Pleasure Industrial Company Limited (“Gold Pleasure”).  Initially, like Sunco, it too had a third shareholder, but when he withdrew from the business, his shares in Gold Pleasure were also taken up by the Tsangs and the Yeungs so as to leave them with equal shareholdings in that company, too.

15.  In 1989, the last of the four companies which are the subject of these proceedings, Topville Industrial Company Limited (“Topville”), was incorporated.  At about the same time, a second factory was established on the Mainland, and Goldville in Taiwan was closed down, with its plant and machinery being moved to the new factory, and many of its Taiwanese employees also moving to the Mainland to work at the new factory.  From then on, the wages of such Taiwanese employees were paid by Topville.  Apart from receiving salaries, some or all of these Taiwanese employees were given an interest in Topville, in part to recognise the fact that they had made financial contributions towards the purchase of machinery and equipment by Goldville.  It is common ground between the parties that some 15.4% of the shareholding in Topville, although held by members of the Yeung family, are in fact held by them on behalf of these Taiwanese staff.  Apart from this 15.4% shareholding, the balance of the shares in Topville were owned by the Tsangs and the Yeungs in equal proportions.

16.  Following the closure of Goldville, a new Taiwanese company, Goldlily, subsequently renamed Happylily, was formed with a view to handling the purchase of raw materials for the Hong Kong companies to use in the manufacturing process.

17.  In 1990, Tsang Senior suffered a stroke.  Following his recovery, he had to reduce the amount of time he spent at work, and worked at the office in the Zung Fu property on a half-day basis.

18.  Although the Tsangs and the Yeungs had, as I have indicated, equal shareholdings in the various companies, the identity of the shareholders changed from time to time.  Initially, Tsang Senior and Yeung Senior were shareholders, but by about 2002, both had ceased to be shareholders, leaving members of the second generation of the two families as the shareholders.  In each of the four Hong Kong companies, the Tsang family’s shares were held by Beatrice and her sister Luana, while the Yeung family’s shares were held by Maxly, his wife Madam Lo Wai Yin, and his sister Yeung Man Fung, who also held the shares in Topville attributable to the Taiwanese staff.  However, notwithstanding their ceasing to be shareholders, Tsang Senior and Yeung Senior continued to be directors of the companies, which each had (at all material times from about the late 1980s or their incorporation, if later) four directors, Tsang Senior, Beatrice, Yeung Senior and Maxly.

19.  In 1994/1995, the families agreed to set up a Sino-foreign joint venture with Chinese partners.  This was done under a joint venture contract dated 14 April 1994, which provided for the setting up of a joint venture company which I shall refer to as Dongguan Boville.  Under the joint venture contract, Dongguan Boville was to have a registered capital of HK$90 million.  Gold Pleasure was to have a 75% shareholding in the joint venture, and was to contribute its share of Dongguan Boville’s capital by the provision of machinery and equipment to be used in the manufacture of inflatable products.  The Chinese partner was to have a 25% shareholding, which it was to contribute by way of land and buildings.

20.  In fact, the Chinese partner never did contribute the land and buildings that it was required to contribute under the joint venture agreement.  Instead, Gold Pleasure provided these as well.  Although the Chinese partner remained on the record as a 25% shareholder of Dongguan Boville, it entered into a side agreement with Gold Pleasure dated 31 May 1995, by which it acknowledged that it had not in fact contributed any of the land and buildings, and thus had not contributed any of the capital that it was supposed to.  By the side agreement, the Chinese Partner ceded to Gold Pleasure all profits and losses of Dongguan Boville that would otherwise have been attributable to its shareholding, subject to the payment by Gold Pleasure to it of a sum of HK$300,000 per year, to be adjusted annually in accordance with a formula set out in the side agreement.  Thus, despite appearances, Gold Pleasure was in fact the beneficial owner of the entire shareholding of Dongguan Boville.  Since 1995, Tsang Senior, Beatrice, Yeung Senior and Maxly have all been directors of Dongguan Boville, together with a number of other directors nominated by the Chinese partner.

21.  Following the commencement of operations by Dongguan Boville, its factory and the second factory to which the Taiwanese staff and machinery had been transferred carried out all of the manufacturing for Gold Pleasure, Boville and Topville.

22.  Sunville owned the Zung Fu property, which served as the offices in Hong Kong of the four companies.  All of the administrative and accounting staff appear to have been housed within the Zung Fu property, and the accounting books and records of the four Hong Kong companies were kept there.  As we shall see, Sunville also appears to have acted from time to time as a conduit for the making of payments to directors and shareholders of the other three companies, and also the Taiwanese staff.  So far as the three operating companies are concerned, the position is that there are internal sales by Topville and Boville to Gold Pleasure (and, it seems, by Topville to Boville), and external sales to outside customers by Gold Pleasure and also Boville.  Sunco made sales to customers in the United States, obtaining the goods sold by it from Gold Pleasure.  In respect of these goods, Sunco maintained an open account with Gold Pleasure, with goods being supplied to Sunco by Gold Pleasure essentially on credit, with no fixed terms as to the time by which payment should be made.

Accounts and financial statements

23.  Although the four Hong Kong companies were clearly connected by their common shareholders and directors, they did not have a group structure.  Instead, each had its own operations, and each prepared its own set of accounts and financial statements.  Nor did they adopt a common year-end date for accounting purposes.  Instead, Sunville used 31 March of each year as its financial year-end, Gold Pleasure and Topville used 30 June as their financial year-end, while Boville used 31 December for this purpose.

24.  So far as the Tsangs’ and Yeungs’ roles in the business of the Hong Kong companies and Dongguan Boville is concerned, it was common ground that there was a broad division of functions between them.  The Tsangs had responsibility for accounting, finance and administrative matters in relation to the Hong Kong companies, while the Yeungs were involved with manufacturing and sales.  So far as Dongguan Boville is concerned, this was very much the province of the Yeungs.  Yeung Senior was the legal representative of Dongguan Boville, a position of considerable importance in Mainland companies.  Although Tsang Senior was the general manager of Dongguan Boville, it seems that this position was something of a nominal one, as it is accepted by both sides that he seldom visited the factory, or participated in decision making as to its operations.  Indeed, it seems that the board of Dongguan Boville never formally met after it commenced operations, leaving Yeung Senior and other staff to run its operations largely on their own.  The factory manager in charge of Dongguan Boville’s factory was a nephew of Yeung Senior.

25.  So far as the accounts and accounting records of the companies are concerned, those of Gold Pleasure, Boville and Topville were handled by a number of accounting staff, under the general supervision of Tsang Senior.  Sunville’s accounts were, however, handled largely by Tsang Senior himself.  The chief accountant was, until about May 2005, Mr Tsang Bing Kong (“BK Tsang”), another brother of Tsang Senior.  The cashier, whose role was to arrange all payments on behalf of the four companies, and to deal with the bank statements and reconcile them on a regular basis with the banking ledgers of the four companies, was Mr Yeung Chau Shing (“CS Yeung”), a brother of Yeung Senior.  There were also three accounting clerks, Messrs. Yau Tai Chin, Cosmos Kwok and Wong Him.  All of these persons shared a room at the Zung Fu property, and, with the exception of the ledgers of Sunville, all the ledgers and other accounting records and vouchers of the four companies were kept in the room that they occupied.  In the case of Sunville, its ledgers were written up by Tsang Senior personally, and were kept in his office.  They were, however, accessible to the other staff and (should they have wished to look at them) Yeung Senior and Maxly, as his office was not kept locked, and it would appear that CS Yeung, at least, knew where they were to be found.

26.  The audited accounts of each of the four Hong Kong companies were put in evidence at the trial.  In respect of Gold Pleasure, Boville and Topville, audited accounts for the financial years ending in 1999 through to 2004 were produced, while for Sunville, audited accounts for the financial years ending in 2000 through to 2005 were available.  In every year, Tsang Senior and Yeung Senior each signed the Chairman’s report included in the accounts for two of the companies, and one director from each of the Tsang and Yeung families signed the balance sheet of each company.

27.  One accounting inconsistency which should be noted relates to the position of Gold Pleasure, Boville and Topville on the one hand and Dongguan Boville on the other.  Although Dongguan Boville was in fact a subsidiary of Gold Pleasure, as it was a separate company incorporated on the Mainland in which Gold Pleasure held shares (75% legally, and effectively 100% beneficially), it should have been accounted for in Gold Pleasure’s accounts as such, with Gold Pleasure treating its shareholding in Dongguan Boville as an asset – an interest in a subsidiary.  However, this was not in fact done.  Instead, the land occupied by the factories of Dongguan Boville was treated as an asset of Boville (which was the long term tenant of the land according to public records on the Mainland), and the inventories of Dongguan Boville were treated as belonging to one or other of the Hong Kong operating companies.  By contrast, Dongguan Boville maintained its own set of accounts, produced on the basis (as was the case) that it was a separate legal entity.  Its accounting records were kept at its factory premises.  Tsang Senior’s evidence (which was not disputed) was that he did not handle or supervise the preparation of the accounts of Dongguan Boville, this being something that was done by staff of Dongguan Boville.  Although the two sets of accounts should be capable of being reconciled, it appeared that this was not in fact possible, there being a significant discrepancy between the inventory levels shown in the Hong Kong companies’ accounts and those shown in Dongguan Boville’s accounts, with the latter’s accounts recording a substantially higher level of inventories.

The Joint Account, Kwok Kee and the K Kwok Account

28.  It is also necessary to mention certain matters relating to the finances of the Yeungs, Tsangs and (it was contended by the Yeungs) the companies, and the accounts of the companies.  I shall at this stage simply advert to their existence, as they are relevant to the narrative which follows, in which the events which caused the deterioration in the relationship between the Tsangs and the Yeungs are set out.

29.  The first matter relates to a US Dollar bank account in the joint names of Tsang Senior and Yeung Senior (account no. 624504087134) (“the Joint Account”) maintained with the Belgian Bank (which later became the Industrial and Commercial Bank of China)  (“ICBC”).  The Yeungs say that the understanding between the two was that the funds standing to the credit of the Joint Account were intended for the use of the various companies in the event that they encountered cash flow problems.  The precise basis of this understanding (which is denied by the Tsangs) was the matter of some discussion during the proceedings.  The Tsangs case is that the Joint Account was precisely what it appeared to be – a joint personal account of Tsang Senior and Yeung Senior, into which additional bonuses and remuneration derived from the businesses were paid, so that the money in it was their personal money, which they could deal with as they liked.  Tsang Senior did accept, however, that it was understood that the funds in the Joint Account could be used to help out the companies if that was thought necessary.

30.  The second matter relates to what became known as the Kwok Kee Account.  There was in fact no account or ledger of this name in the books of any of the companies.  However, Sunville maintained a ledger which was entitled “Current Account”, in which it recorded various accounting entries relating to current accounts which it maintained with other persons or entities.  There appear in this ledger a number of entries which bear the narration “Kwok Kee incoming funds” and “Kwok Kee outgoing funds”, with the former representing payments received by Sunville (and thus a credit to Kwok Kee) and the latter representing payments made by Sunville (and thus a debit to Kwok Kee).  Over the course of the period between 1 April 1999 and 31 March 2005, a total of HK$77 million was recorded as “Kwok Kee incoming funds”, with the exact same amount being also recorded as “Kwok Kee outgoing funds”.  In effect, therefore, Kwok Kee (which was no more than a name used in Sunville’s current account ledger) was merely a conduit for such funds, which served to obscure the origins and destination thereof.  According to the Yeungs, they were wholly unaware of the existence of these entries until some time in the latter part of 2005 (this lack of awareness on their part is denied by the Tsangs).  There was in fact no dispute at the end of the day as to the movement of funds represented by these entries – the funds represented by the entries originated from Gold Pleasure, Boville and Topville, and were accounted for in their ledgers variously as “direct labour bonus”, “indirect labour bonus” and “directors’ bonus”.  Nor was there any dispute as to their ultimate destination – they were paid out to the directors of the companies, the Taiwanese staff and to the Joint Account in differing amounts each year.

31.  The third matter relates to a ledger account in Boville’s ledgers which was named the “K Kwok Account”.  This ledger account had existed since prior to January 1999, when it had an opening balance of some HK$22.2 million.  Between 1 January 1999 and 31 December 2005, some HK$5.4 million was credited to this account by Boville under the description “rental and management fee”, while a similar amount of HK$5.5 million was debited to this account in respect of what have been described as PRC expenditures.  In addition, there were other cash receipts, the nature of which cannot now be traced, of HK$3.2 million, together with payments of HK$2.8 million described as “staff bonus” to Beatrice, Maxly and three other employees of the companies, and further payments totalling HK$8.2 million that cannot now be accounted for.  In the result, there remained by the end of 2005 (and remains) a credit balance in K Kwok’s favour of some HK$14 million.  It was common ground that the origin of the K Kwok account was that it was created as a receptacle for the monies received on the dissolution of Ming Tat in Taiwan.

32.  These matters underlay a major part of the complaints made by the Yeungs against the Tsangs in their cross-petitions, and I shall return to them below, when dealing with those complaints.

The deterioration and breakdown in the relationship

33.  From around April or May 2005, however, the relationship between the Tsangs and the Yeungs took a turn for the worse.  What follows in this section is a broad chronological summary of events as they occurred.  Specific aspects of these events which are relevant to particular allegations and issues in these proceedings will be examined further when I deal with those issues later in this judgment

34.  According to the Tsangs, towards about the end of 2004, they became concerned about operating losses that were being incurred by the Hong Kong companies and Dongguan Boville, and, having reviewed the accounts, suggested that the PVC production line on the Mainland should be shut down, and some staff laid off, in order to reduce production costs.  The Yeungs, it is said, did not agree.  An alternative suggestion, to freeze wages for the time being, was also, according to the Tsangs, rejected.

35.  Also at about this time, the Tsangs say that they became concerned at the fact that the Yeungs were proposing to provide assistance to former employees of one of Gold Pleasure’s major customers, a German company known as Wehncke-Friedola (“Friedola”), who were planning to leave Friedola to start their own business in competition with it.  The Tsangs say that they were concerned that this might lead to Friedola terminating its relationship with the companies.

36.  These early concerns do not, however, appear to have triggered any immediate problems.

37.  In about April or May 2005, Tsang Senior, whose health was deteriorating, indicated to Yeung Senior that he wished to retire from the business given his age and poor state of health.  With this in mind, he suggested that the Yeungs should buy out the Tsangs’ interest in the companies, or the two families should jointly dispose of their interests in the companies to a third party, or the Tsangs should be allowed to dispose of their interests to a third party.  The Tsangs’ case is that the Yeungs initially appeared to be willing to consider all of these options, but that Yeung Senior shortly afterwards came back to Tsang Senior and told him that the Yeungs did not want to sell out to a third party or to have the Tsangs do so, as his children wanted to carry on the business in which they had been working for many years.

38.  In May 2005, Tsang Senior and Beatrice engaged a firm of financial consultants, Thomas Lee & Partners, to review the accounts of the companies.  Although it was said in the petitions that the purpose of this review was to identify the reasons for the companies lack of profitability in recent years, it seems clear (and was not, I think seriously disputed by the Tsangs) that another purpose of the engagement was to seek to place a value on the companies with a view to a sale of their shares in them, to the Yeungs if they were willing to buy them, or otherwise to a third party if possible.

39.  Thomas Lee & Partners indicated that the companies as a whole were worth about HK$120 million.  In the second half of June 2005, this was made known by the Tsangs to the Yeungs.  The Tsangs also indicated to the Yeungs that they wished to visit Dongguan Boville’s factory with staff of Thomas Lee & Partners, with a view to identifying steps that might be taken to improve the companies’ profitability.  Yeung Senior was not receptive to this request, but Beatrice said nonetheless that they wished to visit the factory on 4 July 2005.  Yeung Senior also said that he would consider the valuation that had been given and would obtain his own valuation for the Tsangs’ consideration.  In the event, no such other valuation was ever provided.

40.  According to the Yeungs, on about 29 June 2005, Maxly learnt from Cosmos Kwok that the K Kwok Account had a credit balance of HK$14 million, and thereupon raised the matter with Yeung Senior, Tsang Senior and Beatrice.  The Joint Account was also discussed at this meeting, when Tsang Senior said that it was a personal account of his and Yeung Senior’s, a view in which Yeung Senior did not concur.  As for the K Kwok Account, the Yeungs say that Tsang Senior did not explain it at the meeting, but later that day proposed that the money should be divided between himself and Yeung Senior personally, a course which the Yeungs rejected.

41.  On 4 July 2005, Beatrice, together with staff of Thomas Lee & Partners, went to Dongguan Boville’s factory and sought to enter to inspect it.  However, while the factory staff permitted Beatrice to enter, the staff of Thomas Lee & Partners were denied entry.

42.  Thereafter, on 13 July 2005, Tsang Senior withdrew slightly over US$1.6 million from the Joint Account, transferring it to another account with ICBC which belonged to the Tsangs.  At the beginning of July 2005, there had been some US$2.7 million odd in the Joint Account, of which US$300,000 had been transferred to Boville on 6 July 2005.  At least US$500,000 had also been transferred to Boville earlier, in January 2005.  Subsequently, in early August 2005, a further US$500,000 was transferred to Boville.  Tsang Senior has said that he regarded the US$1.6 million which he withdrew as being his share of the funds in the Joint Account, treating the earlier transfers from the Joint Account to Boville as being for the account of Yeung Senior alone.  He says that he left a note explaining this, together with a calculation showing why (in his view) he was entitled to US$1.6 million, with CS Yeung, assuming that he would pass it on to Yeung Senior.

43.  On 20 and 22 July 2005, Maxly’s solicitors wrote to the Tsangs, raising questions in relation to the Joint Account and the K Kwok Account.  The Tsangs’ solicitors responded by stating that the Yeungs were well aware of these accounts and the manner in which they were operated, so that there was no need for the Tsangs to provide any explanation.

44.  Tsang Senior then went on sick leave in order to undergo heart surgery.  Following his surgery, he has not been well enough to return to work.  Also from about the beginning of August 2005, Beatrice returned to work less frequently.

45.  On 17 August 2005, the Tsangs’ then solicitors wrote to the Yeungs.  They referred to the losses that the companies had incurred in recent years, and alleged that the Yeungs had been guilty of acting in a manner detrimental to the interests of the companies, although they did not give details of the Tsangs’ complaints.  They said there had been a breakdown in the relationship between the two families, and mentioned the discussions which had taken place in June 2005 concerning a buyout, and pointed out that the Yeungs had promised to provide financial information concerning the companies and a valuation for the purpose of negotiating a buyout, but had not done so within the time they had promised.  They ended by asking the Yeungs to make a reasonable offer to acquire the Tsangs shares in the companies, or to agree to a valuation by a neutral valuer, and that if this were not done by the end of August, the Tsangs would present petitions to wind up the companies.

46.  The Yeungs responded through their solicitors on 31 August 2005, denying any wrongdoing on the Yeungs’ part, and indicating a willingness to discuss the terms of a buyout.  But this was made conditional on resolving the issues relating to the Joint Account and the K Kwok Account, and the provision by the Tsangs of a warranty that the books and accounting records of the companies were complete and properly kept, and that all tax matters had been duly dealt with.  On 2 September 2005, the Tsangs’ solicitors responded, expressing the view that the Yeungs were in a position to estimate the value of the companies, and questioning what issues existed in relation to the conditions which the Yeungs had raised.

47.  Also during this period, two other matters were developing, which continued to underlie and exacerbate the tensions that were growing between the two families.

48.  The first related to a matter which I have already referred to – the dealings between the companies and a company called Divine Concepts set up by the two former employees of Friedola mentioned in paragraph 35 above.  According to the Tsangs, their requests that the companies should not deal with Divine Concepts, for fear that this would jeopardise the relationship between the companies and Friedola, were brushed aside by the Yeungs, who insisted that they would provide Divine Concepts with assistance, and accept orders from it.  According to the Tsangs, the Yeungs took the view that they would be able to keep the companies’ dealings with Divine Concepts hidden from Friedola, and did not regard warnings which Friedola had given about the consequences of dealing with Divine Concepts as being serious.  The Yeungs say that it was in the companies’ interests to broaden their customer base, and that at the end of the day, Friedola did not take any action adverse to the companies even though it had knowledge of their dealings with Divine Concepts.

49.  The other matter related to an investigation of Dongguan Boville’s factory by the Chinese customs authorities.  According to the Tsangs, Beatrice was informed by Maxly in August 2005 that Dongguan Boville was being investigated by the PRC Customs and Anti Smuggling Bureau for suspected sales of imported materials without a valid domestic sales permit.  It appears that while the PRC Customs were investigating the affairs of a customer of Dongguan Boville known as Liven Company (“Liven”), documents had come to light which suggested that Dongguan Boville may have supplied some raw materials to Liven without the necessary permit.  A manager of Dongguan Boville by the name of Chan Ngai Shing was said to have absconded following the commencement of the investigation.  Also in August 2005, some other management staff of Dongguan Boville were detained by the PRC Customs authorities to assist with investigations.  According to Beatrice, Yeung Senior had told her, in response to a request by her for the promised valuation of the companies, that there was little point in obtaining one given that Dongguan Boville, which was ultimately the only supplier of products to the companies, was under investigation and at risk of being closed down for alleged violations of Chinese customs and import regulations.  On the other hand, she also says that Maxly told her that the problem was a minor one, which should be resolved shortly.  At the time of the trial, some two years later, it seems that the PRC Customs investigation was still not concluded, with the outcome still unknown.

50.  Thereafter, a deadlock developed between the Tsangs and the Yeungs.  On 8 September 2005, Beatrice issued a notice convening a directors’ meeting of Gold Pleasure for the next day, proposing to discuss the PRC Customs investigation of Dongguan Boville, and to lay off staff, reduce orders of raw materials and stop taking new orders having regard to the risk that Dongguan Boville’s factory might be closed down.  A meeting of Gold Pleasure’s directors was held the next day, but the Yeungs voted against all of the proposed resolutions, which were accordingly not passed.

51.  Towards the end of October 2005, Yeung Senior called on Tsang Senior to repay the US$1.6 million odd which he had withdrawn from the Joint Account on 13 July 2005.  Tsang Senior declined, whereupon Maxly asked the staff of the companies to write to Tsang Senior to call for the return of the money.

52.  On 10 November 2005, Maxly caused Gold Pleasure and Boville to apply for temporary facilities of HK$4.5 million from ICBC, against the security of letters of credit belonging to those companies, and his own personal residence.  This was done without a board resolution.  It appears that prior to this, the Tsangs had written to ICBC indicating that they were not in favour of obtaining additional facilities for the companies, given their desire to withdraw from the business.  When the facility was discovered, Beatrice took the matter up with ICBC and at board level.  The result was that ICBC terminated the facility and other facilities which it had made available to the companies, and demanded their immediate repayment in the latter part of December 2005.

53.  Also in November 2005, Maxly served notices under section 121 of the Companies Ordinance seeking to inspect the accounting books and records of the Hong Kong companies.  The Tsangs agreed to this inspection, but when it took place on 21 November 2005, it was found that Sunville’s entire set of ledgers and part of the accounting documents and ledgers of the other three companies were missing.  Maxly reported the fact that the documents were missing to the police.  In fact, it later transpired that Maxly had earlier obtained access to the Sunville ledgers and made copies of them, which were produced in these proceedings.

54.  On 6 December 2005, Beatrice issued notices convening further board meetings, this time of Boville and Sunville, to discuss various matters.  The proposed board meeting for Boville was to discuss the possibility of ceasing to take new orders in the light of the ongoing PRC Customs investigation, the proposed employment of a Mr Dennis Chan and a Mr Raymond Lo to serve as consultants to the four companies with a view to advising on means of improving their financial management and thus to improve (or at least to arrest the decline in) their profitability, to resolve that all future applications for banking facilities should be made only upon the passing of an appropriate board resolution, to take steps to obtain the release of the security provided for the temporary facilities from ICBC, and to provide for there to be two signatories (one from the Tsangs and one from the Yeungs) for all banking transactions in future (by contrast to the situation then prevailing, in which a single signatory from either family could operate the companies’ various bank accounts).  So far as Sunville was concerned, the board meeting was called to consider the proposals relating to the future conduct of the company’s banking facilities and bank accounts.

55.  On 7 December 2005, the Tsangs and the Yeungs met.  It proved impossible to agree on a chairman for the meetings, and they proved abortive.  The Yeungs declined to recognise the meeting as board meetings of the two companies.  In any event, apart from Maxly agreeing that he would not in future seek banking facilities without board approval, little of substance was achieved.  The Yeungs refused to agree to the appointment of Dennis Chan and Raymond Lo, refused to curtail the operations of the companies, and refused to countenance any changes to the existing banking arrangements.

56.  Notwithstanding the Yeungs’ disagreement, Beatrice purported to employ Dennis Chan and Raymond Lo as consultants to the companies.  However, although they reported for duty, it seems that Maxly instructed the companies’ staff not to cooperate with them.  In the event, they were not able to operate effectively, and the Tsangs employed them instead as their personal consultants, to advise them as to the affairs of the companies.

57.  On 16 December 2005, Dongguan Boville applied to Boville for funds for expenses which were due to be paid in the coming weeks.  The amount involved was HK$1.3 million.  Until this point, payments by the Hong Kong companies had been almost entirely handled by the Tsangs.  On this occasion, Beatrice asked for supporting documentation to support the request for funds.  This was not provided, and instead, on 19 December 2005, the monies requested were remitted to Dongguan Boville on the authority of the Yeungs (who were, as I have said, authorised signatories of the relevant bank accounts).  Subsequently, a number of further remittances were made to Dongguan Boville in a similar manner.

58.  One other matter that occurred in December 2005 related to a customer of the companies called Pool Master Inc. (“Pool Master”).  It seems that a Mr Lee Tager, who was the person at Pool Master who dealt with the companies, informed Beatrice that he had been asked by Ms Daisy Ho (an agent of Gold Pleasure’s based in Taiwan) to place future orders with a new, Taiwanese company rather than the existing companies.  Mr Tager subsequently denied having said this.  Ms Ho also denies that any such thing ever happened.

59.  In December 2005 and early January 2006, Beatrice made attempts to persuade the companies’ bankers to freeze their bank accounts until the question of the number of signatories was resolved.  On 13 January 2006, Beatrice convened a third set of board meetings, this time of Gold Pleasure and Dongguan Boville.  She proposed that she should be authorised to inspect the books and records of Dongguan Boville, particularly with a view to looking into the position in relation to raw materials, as she felt that there had been excessive inventory of raw materials for some time.  She also proposed that steps should be taken to recover the amount outstanding from Sunco to Gold Pleasure, which by now had reached a level of some US$1.5 million, as compared to an average level of less than US$1 million in the past.  The meeting was held the next day, but once again ended in deadlock, with no resolutions being passed, as the Yeungs opposed the proposals put forward by Beatrice, and Yeung Senior, who was elected as chairman of the meeting, used his casting vote against her proposals.  Although Tsang Senior offered to lend the companies the US$1.6 million he had withdrawn from the Joint Account the previous year if Beatrice were allowed to undertake the proposed inspection of Dongguan Boville, this was rejected by the Yeungs, who said that Dongguan Boville’s documents and information were confidential in nature.

60.  On 20 January 2006, the Yeungs made a report to the police in relation to the US$1.6 million that Tsang Senior had transferred out of the Joint Account the previous July, alleging that this amounted to theft.  As a result, Tsang Senior and Beatrice were required to attend at the police station on a number of occasions to assist the police with their inquiries.  At the end of the day, the police took no further action.

61.  Towards the end of January 2006, with the Chinese New Year approaching, staff of the companies were expressing concern as to whether they would be paid their wages and new year bonuses.  On around 22 January 2006, a number of staff met Beatrice to discuss this.  Beatrice promised them that although the companies were losing money, she would ensure that they were paid, if necessary out of the Tsang family’s personal funds.  On 26 January 2006, Beatrice went to the Zung Fu property with personal cheques to make these payments, and told the staff that she was paying them personally as there were disputes concerning the companies between the Tsangs and the Yeungs.  While they were there, Maxly brought in a number of creditors who demanded payment of debts which were outstanding to them, and called on Beatrice to sign cheques which had been prepared in their favour.  A number of staff were also brought in and they called on Beatrice to sign cheques for them as well.  Beatrice declined to do so, saying she was concerned that the companies should not pay some creditors in preference to others.  When Beatrice (and Dennis Chan and Raymond Lo, who had accompanied her) tried to leave, she was prevented from doing so, resulting in the police being called.  It seems that eventually the staff accepted Beatrice’s personal cheques in payment of their wages and year-end bonuses.

62.  Meanwhile, at about this time, the Yeungs eventually agreed to have joint signatures in relation to one of the companies’ bank accounts.

63.  Following the making of the police report, and the events of 26 January 2006, the Tsangs presented their petitions in respect of the companies.  As I have noted, the Yeungs presented their cross-petitions in March 2007.

The issues arising on the Tsangs’ petitions

64.  In the Tsangs’ petitions, the following matters are identified as causes of the breakdown in trust and confidence between the parties which are attributable to the actions of the Yeungs:-

(1)	The failure of the Yeungs to take steps to recover the outstanding balance owed by Sunco to Gold Pleasure;
(2)	The Yeungs’ insistence on dealing secretly with Divine Concepts;
(3)	The actions, or lack of proper supervision of the affairs of Dongguan Boville, by the Yeungs, which led to the investigation by the PRC Customs;
(4)	Maxly’s obtaining of temporary facilities from ICBC in November 2005 for Gold Pleasure and Boville without proper board authorisation;
(5)	Yeung Senior and Maxly’s actions in remitting funds to Dongguan Boville in late December 2005 and early January 2006 despite the Tsangs’ objections to this being done in the absence of the provision to them of further supporting information or documents in respect of the need for such funds to be remitted;
(6)	The diversion of business to be conducted with Pool Master away from Gold Pleasure to a new company;
(7)	The unfounded allegation concerning missing books and ledgers of Sunville and the other Hong Kong companies in November 2005; and
(8)	The complete deadlock in relation to the management of the companies’ affairs, which is illustrated by the inability to hold effective board meetings from September 2005 onwards.

65.  Apart from these matters, it seems to me that reliance is also placed on the refusal of the Yeungs to allow the Tsangs to inspect the Dongguan Boville factory from as early as July 2005.

66.  At the trial and in closing submissions, reference was also made to the continued refusal to permit inspection in relation to Dongguan Boville’s factory in January 2006, and to the Yeungs’ actions in reporting Tsang Senior’s withdrawal of funds from the Joint Account to the police, and to the events of late January 2006 when creditors and staff were encouraged to press the Tsangs for repayment of those funds.

The complaints in the Yeungs’ cross-petitions

67.  The Yeungs’ complaints can be divided into two broad groups – matters relating to the accounts and finances of the companies and other complaints of misconduct by the Tsangs.

68.  So far as the matters relating to accounts and finances are concerned, these are as follows:-

(1)	The Yeungs complain that the withdrawal of the US$1.6 million from the Joint Account by Tsang Senior was a misappropriation of funds;
(2)	The transfers to and from Kwok Kee represented by the Kwok Kee incoming funds and Kwok Kee outgoing funds call for explanation, but none has been provided;
(3)	Payments of direct and indirect labour bonuses, which are described as suspicious intra-group transfers;
(4)	Transfers to the K Kwok Account in Boville’s ledgers which are said to be suspicious (these seem to relate principally to the regular transfers of some HK$60,000 per month from Boville to the K Kwok Account); and
(5)	What is said to be the forgery of vouchers in respect of the direct and indirect labour bonuses in the vouchers of Dongguan Boville.

69.  All of these matters are said to have amounted to the manipulation of the accounts of the companies and a misappropriation of their funds, so as to jeopardise the companies’ financial position and cash flow.

70.  The non-accounting complaints consist of allegations to the effect that:-

(1)	The Tsangs were guilty of a dereliction of their duties by failing to report to work at the companies’ offices after August 2005;
(2)	There were obstructive acts by Beatrice and Tsang Senior in relation to the business of the companies, these being:-
	(a)	The unnecessary proposal to appoint Dennis Chan and Raymond Lo as consultants to the companies;
	(b)	Complaining to ICBC about the grant of the temporary facilities to Gold Pleasure and Boville without proper board authorisation, which had the result of ICBC calling in all of the facilities that it had extended to the companies;
	(c)	Refusing to approve remittances to Dongguan Boville in December 2005 and January 2006;
	(d)	Beatrice’s actions in January 2006 in writing to the banks seeking the freezing of the companies’ bank accounts unless there was a change of bank mandates so as to require two signatories, one from each camp;
	(e)	Delaying the payment for certain raw materials ordered by Maxly for Dongguan Boville in November 2005, resulting in delays in obtaining such raw materials from storage; and
	(f)	Proposing that the companies should stop taking on new orders.

71.  These matters (both accounting and non-accounting) are said to have constituted unfairly prejudicial conduct on the part of the Tsangs against the Yeungs, so as to provide a basis on which the court should make an order pursuant to section 168A of the Companies Ordinance requiring the Tsangs to acquire the shares of the Yeungs in the four companies at a price of HK$60 million, this being the value placed by the Tsangs on their 50% interest in the companies in June 2005.  Alternatively, failing the making of a buy-out order, it is said that these acts were responsible for the total breakdown of trust and confidence as between the Tsangs and the Yeungs.

The witnesses and their evidence

72.  For the Tsangs, the main affirmation evidence in support of their petitions was filed by Beatrice and Tsang Senior.  Dennis Chan and Raymond Lo also filed affirmations in relation to the petitions, as did one of the companies’ accounts clerks, Mr Yau Tai Chin.  In relation to the cross petitions, the Tsangs’ evidence was to be found in affirmations filed by Beatrice and Raymond Lo, Tsang Senior by this time not being able, by reason of ill-health, to make an affirmation himself.  All of the deponents attended to give evidence, with the exception of Tsang Senior.  Having regard to his state of health, he was excused from giving oral evidence, but his affirmation evidence was admitted in evidence, subject to submissions as to the weight to be attached to it.

73.  As will become apparent from the discussion of the various issues which follows, I have, by and large, found Beatrice and Tsang Senior to be truthful witnesses.

74.  Although Beatrice tended to repeat herself in cross-examination, and repeated the evidence contained in her affirmations, and also gave long, occasionally rambling answers, rather than focussing on the actual question which she was asked, I did not find her to be untruthful.

75.  So far as Tsang Senior is concerned, I have come to the conclusion that he too, was for the most part a truthful witness.  Mr Ng S.C., appearing for the Yeungs, submitted that little weight should be given to his evidence in comparison to that of Yeung Senior, given that he did not attend for cross-examination.  I do not agree with this submission – the reason for Tsang Senior’s non-attendance was due to his ill health, and his failure to attend was clearly justified.  In the circumstances, while bearing in mind that his evidence is untested, and therefore must be treated with caution, I do not think that it must ipso facto be given less weight than that of Yeung Senior, regardless of the undisputed facts and inherent probabilities which may support his version of events rather than that put forward by Yeung Senior.

76.  However, one area in relation to which I have had some difficulty in accepting his evidence relates to the basis on which he withdrew the sum of US$1.6 million from the Joint Account in July 2005.  In relation to this matter, he said only that he withdrew that sum because he regarded it as his money.  As will become apparent, I do not think that, if that was what he believed, he was justified in doing so.  I also have some doubts as to whether that was a belief which he genuinely held, although I would be prepared to accept that he may have genuinely thought that he was justified (or at least had some reason which seemed to him to be valid) in acting as he did, notwithstanding that in my view he should not have regarded that amount of money as his own.

77.  Raymond Lo gave evidence in relation to a number of matters.  He dealt with the accounting entries relating to Kwok Kee, the K Kwok Account and with the history of the Joint Account.  He did so on the basis of books and records he had examined, and on discussions with, and information obtained from, Tsang Senior, to whom he had access.  Most of this evidence was uncontroversial, and I found it to be helpful in assisting my understanding of the way in which these various ledger and bank accounts were operated.  He also dealt with an investigation by the tax authorities into the profits reported by the companies, to which I shall have occasion to refer below.

78.  Finally, shortly before the trial, he prepared various tables which sought to draw together the audited accounts of the different companies, including Dongguan Boville, with a view to seeking to present an overall picture of the financial position of the companies, in order to support the Tsangs’ case that the companies were operating on very low (and in the later years, negative) gross margins (and thus that they were well justified in seeking to address the question of production costs, whereas the Yeungs were wrong to refuse to address this matter), and their further contention that the companies, and Dongguan Boville in particular, had unusually high levels of inventories, judged by reference to the inventory turnover ratio derived from figures appearing in these “consolidated” accounts.  Mr Ng submitted that the value of his evidence in relation to this aspect of the matter was relatively slight, given that none of these “consolidated” accounts were matters which it was suggested were available to, much less known to the Yeungs at the material times, in 2005 and early 2006.  Nor was it suggested that these were matters which should have been known to them.  Further, it was submitted that the exercise was an artificial one, of limited value or validity, given that the various companies did not have a common accounting period.  There is much force in these submissions, and I agree with Mr Ng that while it may be of interest to have this information available, it is not something which, at the end of the day, is of great assistance in seeking to reach conclusions about the issues which arise.

79.  As far as Dennis Chan’s evidence is concerned, while this was of some help in relation to a limited number of factual matters, I did not find his evidence otherwise to be particularly relevant.  I think that much the same can be said of the evidence of Yau Tai Chin.

80.  For the Yeungs, the main evidence was given by Maxly and Yeung Senior, both on affirmation and at trial.  Affirmation evidence was also provided by Daisy Ho (of Goldlily/Happylily, in relation to the Pool Master allegations), CS Yeung, Wong Him (another of the companies’ accounts staff) and Cheng Chung (in relation to ordering of raw materials, in relation to which he stated that Tsang Senior was kept informed of orders placed).  In the event, only Yeung Senior and Maxly were required to attend to be cross-examined at the trial.

81.  As will become apparent, I am afraid that I found myself unable to accept the evidence of Yeung Senior in a number of important respects, for reasons which I explain below.  So far as Maxly’s evidence was concerned, while I would be prepared to accept his evidence on particular events, there were also some aspects of his evidence which I had difficulty in accepting.

The Law

82.  There was not, in fact, a great deal of dispute as to the legal principles to be applied, save in certain limited respects.

83.  Thus, it was, I think, common ground that in order to provide a basis for the court to exercise its discretion under section 168A of the Companies Ordinance, it was necessary for the Yeungs to demonstrate that the Tsangs had conducted the affairs of the companies in a manner that was objectively unfair to the Yeungs, and in a way that was prejudicial to them or to the companies.  It was accepted on both sides that unfairness and prejudice were distinct concepts, both of which were required to be established.

84.  There was, however, a dispute as to the way in which, assuming unfairly prejudicial conduct to have been established, the court should exercise its discretion in this case.  Mr Neoh S.C., appearing for the Tsangs, submitted that it would be contrary to principle to require the Tsangs to buy out the Yeungs, when the Tsangs were, at least by the time the proceedings commenced, in no real sense in management of the companies.  Alternatively, he submitted that this was a powerful factor against the exercise of the discretion so as to grant that remedy in the circumstances of this case.  There was also a dispute as to whether or not it was open to the court to make a buy out order against Tsang Senior, who was not at the material times a member of any of the companies, although he was one of their directors.

85.  Further, it was accepted on both sides that, as the companies were quasi-partnerships, having regard to the history of the business cooperation between the Tsang and Yeung families, the court could wind up the companies on the just and equitable ground on the basis of a complete breakdown in trust and confidence between the parties, or on the basis of a deadlock between the parties that was incapable of being resolved, so that the companies could not carry on business.  While each party blamed the other for such a breakdown, it was I think accepted by both Mr Neoh and Mr Ng that in the event that I did not consider it appropriate to make a buy-out order, the almost inevitable consequence would be that the companies should be wound up and placed in the hands of liquidators, who could either dispose of them as going concerns, or wind up their affairs.  In this event, the principal relevance of the resolution of the disputed issues would be that they would throw light on which party was at fault (whether entirely or in larger part), which would be a relevant consideration when considering the appropriate costs order to make in respect of the proceedings.

The origin of the problems

86.  In their petitions, the Tsangs suggest that the problems started when they, having noticed that the companies’ profitability had been declining for a number of years, began to raise questions about this more seriously in about May or June 2005.

87.  However, in her oral evidence, Beatrice stated that the problems first began when Tsang Senior informed Yeung Senior of his desire to retire from the business, and to realise the Tsangs’ investment in it.  Although this was characterised by Mr Ng as a major shift in position by the Tsangs, I think that this is to overstate the significance of this point.  The desire of Tsang Senior to retire from the business because of his deteriorating health was understandable.  Given that, of his daughters, Luana was not at all involved in the business, and Beatrice, who assisted him, would appear to have been less familiar with the workings of it than he was, and certainly not involved in the aspects of the business from which the profit was generated (manufacturing and sales having been, since Tsang Senior’s stroke in the early 1990s been handled by the Yeungs), it is not surprising that he should have considered it desirable for the Tsangs to withdraw fully from the business, and to realise their interest in it.  The declining profitability of the business was no doubt an important factor in this thinking, as it would make it less worthwhile for the Tsangs to seek to maintain their shareholding in the companies.

88.  Thus, although I would accept that declining profitability of the businesses was a factor that underlay the problems which were to arise, the immediate factor which appears to have precipitated the problems was, in my view, Tsang Senior’s stated intention to retire and realise the Tsangs’ investment in the companies, and the Yeungs apparent unwillingness to cooperate in this.

89.  As I have said, this intention was not one that can be characterised as unreasonable.  However, it is a matter that can, and often does, result in tensions and difficulties between the shareholders who face the prospect of disengaging from a relationship which has lasted for many years.  Unfortunately, in this case, it was to trigger a series of difficulties that would ultimately lead to the presentation of the petitions by the Tsangs.

The opposing views of what underlay the breakdown in the relationship

90.  At the trial, the pictures painted by Mr Neoh and Mr Ng of the way in which, and the reasons for which, the relationship between the Tsangs and the Yeungs so rapidly sunk to a nadir were in stark contrast to one another.

91.  Mr Neoh suggested that what had happened was that, the Tsangs having indicated their desire to retire from the business and realise their investment in it, the Yeungs were determined to place the Tsangs under pressure to sell out to them at the lowest possible price, and with this in mind, exploited what Mr Neoh called their dominant position in the relationship, arising from the fact that they were the ones who were in control of the income-generating aspects of the business, so as to place the Tsangs at an increasing disadvantage in monitoring the businesses and their progress through the general or broad oversight that they had by virtue of their responsibility for accounting and financial matters.  In doing so, says Mr Neoh, the Yeungs made unfounded accusations against the Tsangs, in relation to the dealings with the Joint Account, the manner in which the books were kept, and in relation to the proper custody of the accounting records, all of which were designed to, in effect, placed the Tsangs under pressure, and thereby to force them to sell out to the Yeungs at a price advantageous to the Yeungs.

92.  Mr Ng, on the other hand, contended that the boot was firmly on the other foot.  It was the Tsangs, said Mr Ng, who, having decided to withdraw from the business, raised unreasonable demands and made unfounded allegations against the Yeungs, with a view to making the running of the businesses by the Yeungs so difficult that they would buy out the Tsangs at an enhanced price.

93.  Which of these rival versions of events is closest to the truth lies at the heart of these petitions and cross-petitions.

The Yeungs’ accounting allegations

94.  In my view, the Yeungs’ accounting allegations, which I have outlined above, form a critical part of the picture in relation to the disputes between the parties.  Before dealing with each of them in turn, however, it is necessary to say something about the relevance of the audited accounts.

The relevance of the audited accounts

95.  Mr Neoh emphasised that the accounts of Gold Pleasure, Boville, Topville and Sunville had all been audited.  As I have noted, audited accounts of these companies were available for the periods between 1999 and 2004 or (in the case of Sunville) between 2000 and 2005.  Each of the sets of accounts had been audited by Messrs Fung & Yu, Certified Public Accountants.  They gave a clean audit opinion in relation to each set of accounts.  They thereby expressed it to be their view that the accounts complied with the requirements of the Companies Ordinance, and presented a true and fair view of the financial position of each company as at the date of the accounts.  Moreover, each of the audits was conducted in accordance with current auditing standards, which required the auditors to consider the underlying accounting records of the companies in forming their audit opinion.  It followed, said Mr Neoh, that the auditors must have considered the underlying books and ledgers of the companies, and have come to the view that they were properly maintained and kept, and could be relied on.

96.  Mr Neoh went on to submit that as the Yeungs had signed each and every balance sheet, they could not now be heard to disown the audited accounts.  Although the Yeungs had said that they did not pay attention to the accounts, and simply signed them in reliance on their belief that Mr Tsang would have caused them to have been prepared properly, and that the auditors would have drawn attention to anything unusual, this, said Mr Neoh, was not good enough.

97.  In my view, there is some force in what Mr Neoh says.  However, in the context of this case, that force is limited.  It is fair to say that the Yeungs must have realised certain things from the audited accounts.  These included such matters as the fact that, Sunville apart, none of the companies declared dividends in any of the years for which audited accounts were available; the level of declared profits in any given year; and the amount of tax paid by the companies in any given year.  Similarly, I think it is fair to say that the Yeungs would have to accept that in the opinion of the auditors, the accounts showed a true and fair view of the companies’ financial position, and that adequate books and records had been kept to explain the transactions which the company had undertaken during the year.  However, I do not think that it follows from this that the Yeungs have to accept that every single transaction was properly recorded – in forming their views, auditors are required to consider the underlying accounting material, but are not (and cannot be expected to be) required to examine each and every entry in each and every ledger.

98.  Further, in this case, it should be borne in mind that in relation to the entries relating to Kwok Kee in the Sunville general ledger for its current accounts with others, that ledger would have shown a zero balance in respect of the Kwok Kee entries at each year end, as all Kwok Kee incoming funds in any given accounting year were in fact disbursed within the same period.  Thus, it is far from certain that this would have been a matter that would have been focussed on, or given particular attention, by the auditors.  The position in relation to the K Kwok Account in Boville’s ledgers is similar.  The evidence before me showed that while the K Kwok account existed in Boville’s ledgers and contained a large number of entries, the credit balance on the K Kwok Account was transferred out of Boville shortly before every accounting year end, to a ledger account in one of the other companies, and was transferred back to Boville during the first month of the new accounting period.  The effect of this was that at the accounting year-end, which was the point in time by reference to which the auditors were required to consider the accounts of Boville, there would have been no balance on the K Kwok Account, so that it would again have been something which the auditors might well not have paid particular attention to.

99.  For these reasons, while I would accept that there are a number of legitimate points that can be made by the Tsangs on the strength of the audited accounts, I do not think that they can be said to be conclusive of matters against the Yeungs.  What is necessary is to consider, in relation to each of the complaints, what (at least on a balance of probabilities) was the state of knowledge of the Yeungs, and in the light of that, to come to a view as to whether or not the complaint in question has real substance.  It will then be necessary to consider, in the light of those findings, whether the matters complained of amount to unfairly prejudicial conduct on the part of the Tsangs, or of conduct on their part that was responsible for the breakdown in the relationship between the two families.

The Yeung’s knowledge of the system of bonuses

100.  As we will see from the section below dealing with the Kwok Kee entries in Sunville’s current account ledger, there was in place a system by which additional payments were made from each of Gold Pleasure, Boville and Topville in respect of what were described as direct and indirect labour bonuses.  These additional payments were channelled through Sunville, via the use of the Kwok Kee entries in Sunville’s current account ledger, and distributed to three destinations – the directors of the companies (that is, Tsang Senior, Beatrice, Yeung Senior and Maxly), payments in respect of Topville (to Tsang Senior, Beatrice, Yeung Senior and the Taiwanese staff), and payments to the Joint Account.

101.  Raymond Lo carried out an analysis of the entries in the Sunville current account ledger relating to Kwok Kee incoming and outgoing funds.  He was able to match each entry in respect of incoming funds to a payment into Sunville’s bank account by Gold Pleasure, Boville or Topville.  Each such payment was recorded in the books of those companies as a “direct/indirect labour bonus”, and was in this way treated as an expense of those companies.  When the sums were paid out to one or other of the destinations mentioned in the previous paragraph, they were recorded as “Kwok Kee outgoing funds” in the Sunville current account ledger.  Raymond Lo was able to identify cheques made payable to Tsang Senior, Yeung Senior, Beatrice and Maxly in relation to the additional payments to directors (which totalled HK$7.3 million for the period covered by the available ledgers), cheques payable to Tsang Senior and Yeung Senior and telegraphic transfer instructions for the remittance of funds to Taiwan in relation to the payments in respect of Topville (which totalled HK$25.1 million over the same period) and transfers or payments into the Joint Account (totalling HK$44.6 million over the same period).  Further, the payments out were traced also to vouchers from Dongguan Boville, which bore a notation in Chinese which was translated as “bonus for cadre” or workers’ or workforce bonus.  At the end of the day, these matters were not disputed, and the Yeungs accepted that these payments were recorded and had been made and received as described above, although they maintained that they were unaware of them.

102.  The question therefore is: what did the Yeungs know about these additional payments?

103.  I am satisfied that the Yeungs, or at least Yeung Senior, was well aware of the fact of these payments, and of their nature, despite his protestations to the contrary.  Yeung Senior’s evidence was that he left all accounting matters to Tsang Senior, and never enquired as to them.  He also maintained that he left all payment and remuneration arrangements to Tsang Senior to deal with, and did not concern himself with them.

104.  Although, as I have mentioned, Mr Ng submitted, that given that Yeung Senior attended and gave oral evidence at trial, his evidence, which Mr Ng described as “unshaken”, should be preferred over that of Tsang Senior, who was unable to attend at the trial, I do not think that this is determinative in this case.  Where a witness gives oral evidence on a matter that is not readily susceptible to challenge on the basis of, for example, contemporary documentary evidence, it may well appear to be the case that his evidence appears to remain firm and unshaken.  Even where there are alternative versions of events put forward, whether on the basis of the evidence of other witnesses or of relevant documentation, a witness may stick to his guns and seek to brazen it out, in the hope that his evidence will be accepted.  Thus, it is always necessary to consider the evidence which is given against the totality of the other evidence, including the background facts.  It is also, I think, important to consider such evidence against the inherent probabilities that arise when the other evidence and background facts are taken into account.

105.  When this is done, I do not think that Yeung Senior’s version of events can be taken at face value.  There are a number of reasons for this.

106.  First, it must be borne in mind that Yeung Senior and Tsang Senior were two of the original partners in the enterprise which grew into the business being carried on by the four Hong Kong companies and Dongguan Boville by the mid to late 1990s.  This business was their life’s work.  It would appear to have been the original and primary source of what was, by the 1990s and early 2000s, their no doubt not inconsiderable personal wealth.  It is, I think, inherently improbable that two persons who have worked closely, and apparently harmoniously, together for a period of some more than 40 years, would not have consulted with each other in relation to so important a matter as the way in which the fruits of their endeavours should be dealt with.  The purpose of embarking upon a business is, after all, the pursuit of profit.  It strains credulity to suppose that one equal partner should be content to leave entirely in the other’s hands all decisions in relation to the way in which such profits as are generated by the efforts of both partners should be dealt with.

107.  This is particularly so when one considers the scale of the profits or surpluses involved.  For the years in which the Sunville ledgers are available (the six years ended 31 March 2000 to 31 March 2005), the amount of what might be loosely termed profits or surpluses that were channelled through Kwok Kee to Tsang Senior, Yeung Senior, Beatrice and Maxly, and the Taiwanese staff amounted to some HK$77 million.  This was, by any standards, a large amount of money.  In the last three of those years, the amounts involved were very much less (some HK$3.5 million, HK$4 million and HK$4.5 million respectively, HK$12 million in total).  In the first two years, when the business of the companies was, perhaps, at the peak of its profitability, some HK$26.2 million and HK$25 million were channelled through Kwok Kee for onwards distribution.  For Yeung Senior to maintain, as he did, that he was somehow uninvolved in these transfers, and left matters largely to Tsang Senior is not, in my view, credible.

108.  I have no doubt that Yeung Senior was keenly interested in the level of profitability of the various companies which the Yeungs and the Tsangs operated.  So much is evident from his own admission that he focussed on the figures for net profit in the audited accounts of the companies.  This is only natural.  But this suggests strongly that he would have been just as keenly interested in how the profits from their operations were distributed and dealt with.

109.  Certainly, in relation to the profits generated by Topville, which were to be shared out among the various groups of interested parties, there is clear evidence that Yeung Senior was personally involved in the determination of the amounts to be paid.  This takes the form of the calculation sheets on which, in each year, Yeung Senior worked from what he described as “actual” profits, the level of which was, he said, notified to him by Tsang Senior, to determine the amount that should be distributed to the beneficial shareholders in Topville, with the Yeungs and the Tsangs receiving payments in accordance with their beneficial interests in Topville after the deduction of an amount to be paid to the Taiwanese staff, who were afforded a double rate of payment in respect of their beneficial interests, which were notionally doubled for the purpose of calculating what share of the Topville pie they should get in any given year.  These calculations have, to my mind, two significant aspects to them.  First, they show that Yeung Senior was closely involved in the process of working out the amount to be distributed by way of additional remuneration or bonus from the profits of Topville to its various stakeholders.  Second, they show that he must at some stage have been involved in discussions as to the basis, or principle, that underlay the particular pattern of distribution adopted (viz. the fact that the Taiwanese employee stakeholders were to get a double share of the funds available for distribution).  Both of these aspects tend to belie the general contention of the Yeungs that they were unaware of the system for distribution of bonuses from the companies as a whole.

110.  Further, the description by Yeung Senior in his calculation sheets of the profits available for distribution in relation to Topville as “actual” profits strongly suggests that he was aware that the reported profits of Topville in its audited accounts were not (and were less than) the amount of surplus funds actually available for distribution in any given year.  This would, in any case, have been apparent from the fact that the amount disclosed in the audited accounts as the net profits of Topville (the one figure in those accounts that Yeung Senior, on his own admission, took a keen interest in) were substantially less than the amounts which he was indicating in his calculation sheets should be distributed to himself, the Tsangs and the Taiwanese staff for the same periods.  This fact too, points to the Yeungs’ (or at any rate, Yeung Senior’s) knowledge of the distribution system of surplus income of the companies being far more extensive than he was prepared to accept.

111.  That being the case in relation to Topville and the distributions that were based on the shareholdings in it, it seems to me more probable than not that Yeung Senior was no less aware of the other distributions made through Kwok Kee, whether to the directors or to the Joint Account.

112.  Further, it is, I think, fair to point out (as Mr Neoh did) that given their position in charge of the manufacturing, marketing and sale operations of the companies from the 1990s onwards, the Yeungs must have had a fair (if not exact) idea of the scale of the profits being generated from the business.  They must have had a rough idea at least of the level of gross profits being earned, and from their knowledge of the turnover or level of sales, would have been able to make a fair assessment of the profits generated.  These would clearly have been substantially greater than the net profits disclosed by the companies in their annual accounts.

113.  Against this background, it is also appropriate to bear in mind that the Yeungs, on their own case, did not ask questions of Tsang Senior about these matters.  Although the Yeungs have sought to explain this as being the result of the implicit trust which they placed in Tsang Senior to deal with the finances and profits of the companies fairly and equitably, it is, in my view much more likely that their silence and lack of questioning in respect of this key aspect of any business relationship was because they were, in fact, well aware of what was being done.

114.  Before I leave this aspect of the matter and turn to the specific accounting allegations made by the Yeungs against the Tsangs in their cross-petitions, I should make it clear that where in this section of my judgment, I have spoken of profits and surpluses of the companies, I have done in a loose sense, and have not used the term “profits” in this context to mean the net profits of the companies on which they were chargeable to tax.  On the basis of the evidence that was available before me, it is clear that the companies themselves treated the payment out of the bulk of these surpluses as expenses that they incurred, so that they would form deductions from their income to be taken into account when arriving at the net amount of their profits on which tax would have to be paid.  In itself, there is nothing wrong with taking such a course.  It is not uncommon for bonuses or additional remuneration to be paid out to staff, executives and directors of companies which have performed well.  Such payments are, of course, taxable in the hands of the recipients.  In this case, it would appear that the recipients of these additional payments did not declare them as part of their income for tax purposes.  This came to light when Maxly made a report to the Inland Revenue Department after the commencement of these proceedings, suggesting that there may have been some impropriety in the recording of the companies’ profits.  This led to substantial additional assessments to profits tax being raised against each of the companies.  However, the Tsangs have since been in contact with the tax authorities, and Tsang Senior has accepted that he had failed to declare to such authorities his income from the companies received through Kwok Kee and paid the back taxes due on such income, together with a not insignificant penalty.

115.  Given the conclusions which I have reached as to the Yeungs’ knowledge of and agreement to the course of distribution of profits (or, more accurately, surpluses or income) from the business, I do not see that there was anything improper in the companies deducting the payments made through Kwok Kee as expenses which should be taken into account before arriving at the net profit earned by them, on which they should pay tax, a treatment that appears to have been accepted and recognised by their auditors.

116.  One other matter can conveniently be considered at this stage – this relates to whether or not the Yeungs knew of the specific accounting treatment of these additional distributions.  All of the additional distributions were vouched and were fully recorded under Kwok Kee in the Sunville current account ledger.  Mr Neoh submitted that the companies’ accounting records were in fact at all material times available to the Yeungs, and they either knew of the accounting treatment, or if they did not, failed to make use of information and sources of information that were open to them.

117.  I think that Mr Neoh is right to say that the Yeungs could have discovered the accounting treatment of these additional payments (and of the other accounting matters which they complain of as being irregular) had they wished to do so, having regard to the facts that the accounting records of the companies were kept, for the most part, in the room occupied by the accounting staff and were readily accessible, that Sunville’s ledgers, although kept in Tsang Senior’s office, were accessible since that office was not kept locked, that CS Yeung who was the group cashier was Yeung Senior’s brother and could have informed him of any matters of which he wished to know, that monthly management accounts were prepared and supplied to, among others, Maxly, and that Maxly in fact was able to obtain a copy of the Sunville ledgers in about August 2005 without difficulty, and was given prompt access to the other ledgers (so far as they were available) in November 2005.

118.  It seems to me more likely than not that the Yeungs in fact knew of the accounting treatment that was used.  Certainly the system of how such bonuses were to be centralised through the use of Sunville would be a matter that I would expect to have been discussed between at least Tsang Senior and Yeung Senior, particularly as I am satisfied that Yeung Senior was well aware of the fact that such bonuses were being paid.  Quite apart from the fact that the books were available to the Yeungs, it seems to me inherently likely that this would have been agreed between Yeung Senior and Tsang Senior.  However, I do not think in the end that it matters much whether or not they did, as long as they had (as I have found) knowledge of and agreed to the granting of such additional payments or bonuses and the basis on which they were paid and received.  In those circumstances, I do not think it makes a difference whether or not they knew of the precise system that was used for effecting the payments, or the precise details of how they were recorded in the companies’ books.

119.  I can turn now to the specific accounting allegations made by the Yeungs in their cross petitions.

The Joint Account

120.  The Joint Account was, as I have noted, a bank account maintained in the joint personal names of Yeung Senior and Tsang Senior.  Tsang Senior’s case as to this account is that it was an account which was beneficially owned by him and Yeung Senior personally, and that the money in it belonged to them in equal shares.  He accepted that the money in it might from time to time be used for the benefit of the companies, if it was thought desirable to do so.  He said that Yeung Senior was fully aware of these matters.

121.  The Yeungs’ position as to the Joint Account was very different.  On their case, while acknowledging that the Joint Account was a personal account of Yeung Senior and Tsang Senior in the sense that it was held in their personal names, their position at the end of the day was that the money in it was (presumably beneficially) the property of the companies.  Although their cross-petition does not state this in terms (it being said only that Yeung Senior disagreed with the contention by Tsang Senior that the money in the Joint Account was their personal asset), this emerges from the evidence filed by the Yeungs, and from their actions in inciting staff and suppliers to chase or put pressure on the Tsangs to repay the US$1.6 million withdrawn from the Joint Account by Tsang Senior in July 2005, which was premised on the basis that the sum withdrawn was money which belonged, in some way, to the companies.  It also underlay their allegation of theft against Tsang Senior which was made to the police (albeit not in the clearest of terms) in January 2006.

122.  Mr Ng submitted that the funds in the Joint Account were in fact the property of the companies, and as an alternative, submitted that if that were not the case, Tsang Senior was not in a position to deny that such funds were the property of the companies, as a result of an estoppel by convention which arose as between himself and Tsang Senior as a result of their alleged common understanding that the funds were to be held by them for the use of the companies in time of need.

123.  I do not think that, on either of these bases, the funds in the Joint Account can be regarded as belonging to the companies.

124.  First, for the reasons I have explained in the preceding section, I am satisfied that Yeung Senior was well aware that the payments made out of the companies, through Sunville and the Kwok Kee entries in its current account ledger, were additional remuneration paid to himself and Tsang Senior, which were treated as expenses so far as the companies were concerned.  Having that character, such funds could not, in my view, be regarded as remaining somehow the property of the companies.

125.  Second, the manner in which the money in the Joint Account was in fact used is also inconsistent with its being regarded as the property of the companies.  Raymond Lo’s examination of the movements from the Joint Account over the years revealed several occasions on which funds in it were used to provide temporary funding to Boville.  However, on each occasion, such temporary loans were clearly regarded by Boville as loans from Tsang Senior and Yeung Senior.  On each occasion (at least until the disputes between the parties arose), Boville repaid the amounts advanced.  This is inconsistent with the money in the account being the property of Boville.  Raymond Lo’s said examination of the account also showed regular payments out to other personal accounts of Tsang Senior and Yeung Senior in equal amounts.  So far as one can tell, the moneys so paid out appear to have been kept by the two senior family members as their own property.  This, too, is inconsistent with the money in the Joint Account being the property of Boville or one of the other companies.

126.  In this context, it is significant that over a period of some four years, sums totalling US$2.5 million were paid out to Yeung Senior.  This is a large amount.  I have had considerable difficulty in accepting Yeung Senior’s evidence that he was unaware of these payments.  Although he asserted that he did not give much thought to them, and might or would have assumed they represented proceeds of other investments of his, he did not provide any information as to such other investments.  One would also think that if this were truly the case, he would himself be likely to have given the instructions leading to such proceeds being generated, and would be aware of the source of the funds.  The vagueness of his answers in this respect was, in my view, telling.  Given the magnitude of the receipts by him, I do not accept that he can seriously have thought that these were in fact funds belonging to the companies.

127.  Mr Ng made a number of points which he said supported the proposition that the money in the Joint Account was the property of the companies.

128.  First, he said that the setting up of the Joint Account was inconsistent with the money being the personal money of the Tsang Senior and Yeung Senior.  He suggested that if that were the position, it would have been simple enough to have paid the additional remuneration, as and when it was paid, in equal shares to personal accounts of each of them individually.  This is true, but if the intention was that the money, even though belonging to the individuals, might be used as temporary financing for the companies from time to time, it may well have been more convenient to keep the money in the Joint Account on an interim basis, distributing it when Tsang Senior and Yeung Senior were satisfied that it would not be needed.  I do not think, therefore, that this point can outweigh the other factors which I have identified above.

129.  Next, he suggested that the mode of operation of the account, with regular and comparatively frequent payments to Boville, and more or less annual payments to Yeung Senior and Tsang Senior, suggested that the money in the Joint Account belonged to the companies.  But this is to overlook the fact that all the payments to Boville were treated as loans, which were repaid in due course.  It is also to overlook, or disregard, the significance of the payments to the individuals – if the money were truly the property of the companies, there would be no apparent basis on which it could be paid out to the individuals.

130.  Mr Ng also argued that the fact of payments in equal amounts at the same time to Tsang Senior and Yeung Senior was somehow indicative of the money not being their own property, as the Joint Account was not operated as a normal bank account, where the owners of the account might be expected to withdraw money as and when required, rather than in identical amounts at more or less annual intervals.  But this is, with respect, to ignore the fact that even though it was (as I think) a personal account of the two individuals, it had special characteristics, in that it represented their bonuses from the operation of their business, in which they had an equal interest.  In those circumstances, it was, I think, not surprising that payments out to the individuals should be identical and simultaneous.  This was necessary as a matter of equality and fair dealing as between them.  It was not a joint account such as might be maintained between, say, husband and wife, where the arrangement might be that each could access it freely for their own requirements.

131.  Another point made was that it was surprising that when queried about the withdrawal of US$1.6 million from the Joint Account in July 2005, the Tsangs’ solicitors simply responded that the Yeungs should know the nature of the account and declined to elaborate.  It was suggested that if the account was truly the personal property of Tsang Senior and Yeung Senior, there was no reason why this would not have been pointed out.  As to this, Mr Neoh contended that it was not surprising that the Tsangs should have taken this line, having regard to the fact that by this time, the Yeungs had already caused problems over the inspection of the factory of Dongguan Boville, and were not responding promptly to the Tsangs request to be bought out.  The query was, he suggested, viewed as a pressure tactic by the Tsangs.  There may be some truth in this.  However, it may have been just as much caused by a difficulty in explaining why Tsang Senior should have felt it right to take out a sum of money for himself, and not pay out the same sum of money to Yeung Senior, as had always been done hitherto.

132.  This was Mr Ng’s final point.  He suggested that the explanation eventually put forward, through Raymond Lo, for Tsang Senior’s withdrawal of US$1.6 million in July 2005 was unbelievable, and as such, cast doubt on the whole of Tsang Senior’s evidence as to the nature of the Joint Account.

133.  The explanation proffered was that although at the time when Tsang Senior withdrew US$1.6 million from it, there was slightly over US$2.4 million in the Joint Account, so that US$1.6 million represented two thirds, and not half of that balance, there had been earlier advances to Boville (which totalled US$800,000), on 7 January 2005 and 6 July 2005, and Tsang Senior considered in the light of the circumstances then prevailing (i.e. his wish to retire from the business given his state of ill-health, and his hope or expectation that the Yeungs would buy out the Tsangs) that it was fairer that those advances should be treated as having been made by Yeung Senior alone, so that there was notionally US$3.2 million in the Joint Account, of which his half share was US$1.6 million.

134.  In the course of the trial, and during the parties’ final submissions, I suggested to Mr Neoh that this appeared to represent an attempt on the part of Tsang Senior to rewrite history, by treating advances already made by the two senior individuals jointly as having been made in effect by Yeung Senior alone.  Mr Neoh demurred, suggesting that it was not so much a rewriting of history, as a recognition of the fact that history “had changed” as a result of the desire of Tsang Senior to retire, and the concerns that had arisen on his clients’ side as the result of the abortive attempt to inspect Dongguan Boville’s factory on 4 July 2005.  I do not think that these matters justified Tsang Senior in seeking to foist the credit risk in respect of advances already made, which must have been made on the basis of the common understanding that loans would be made jointly (and distributions made equally), upon Yeung Senior.  I therefore do not think that it was justified for Tsang Senior to have removed the US$1.6 million in its entirety.  Had there merely been a departure from the principle of simultaneous distribution, say by the withdrawal of US$1.2 million, this would have been less serious, as there would then have remained the same amount in the Joint Account for Yeung Senior’s use.  Instead, Tsang Senior took for himself what must, I think, be regarded as more than his fair share of the funds in the Joint Account, whatever may have been his own view of the matter.

135.  However, even on this basis, I do not think that this episode materially assists the Yeungs on the question of the ownership of the funds in the Joint Account.  All that it shows is that Tsang Senior has taken away an amount (of US$400,000) that should properly be regarded as belonging to Yeung Senior, and not the companies.  It may, however, have significance in other respects, as I discuss below.

136.  So far as Mr Ng’s argument that there was a common assumption that the money in the Joint Account should be regarded as belonging to the companies, so as to give rise to an estoppel by convention to prevent the Tsangs from denying this, I do not think that such an argument is well-founded either.

137.  No such estoppel was suggested prior to its being raised in Mr Ng’s final oral submissions.  But, more importantly, it seems to me that the factors which militate against the money in the Joint Account having been the money of the companies as opposed to the two individuals, point just as firmly against the existence of any common assumption to the like effect.  In particular, the fact that payments to Boville from the Joint Account were treated as loans to be repaid, and which were in fact repaid, and the regular withdrawal of sums by equal payment to Yeung Senior and Tsang Senior are inimical to any common assumption or agreement that the money in the Joint Account should be regarded as the property of the companies.

138.  However, although the money in the Joint Account was not, in my view, the property of the companies, it will be apparent that I do, nonetheless, think that it was not proper for Tsang Senior to have helped himself to far more than his fair share of it in July 2005.  That conduct was, I think, unfair to Yeung Senior, and was no doubt prejudicial to him.

139.  However, I do not see that it can be regarded as unfairly prejudicial conduct in relation to the affairs of the companies so as to give the court jurisdiction to make an order under section 168A of the Ordinance.  Given that the money did not belong to the companies, any mishandling of it was at best a matter between Yeung Senior and Tsang Senior personally.  Section 168A(2) refers to the court being of opinion “that the specified corporation’s affairs are being or have been conducted in a manner unfairly prejudicial to the interests of the members generally, or of some part of the members …”.  In this case, I do not see that this can have been the case in relation to the withdrawal by Tsang Senior of funds from an account which was the property of himself and Yeung Senior.

140.  In this regard, I do not think that any assistance can be gained (as Mr Ng sought to do) from cases dealing with private examinations under section 221 of the Companies Ordinance.  The purpose of that section is very different from that of section 168A.  It provides a power which should be broadly construed in order to assist liquidators who often face difficulties in understanding the affairs of the companies to which they have been appointed.  In any event, while it may be fair to say that the payment out of the bonuses to the two senior members of the families concerned the companies affairs, I do not think that, once it is accepted, as I think it must be, that they thereafter were the beneficial owners of those bonuses, what they chose to do with them, or how they dealt with them could properly be regarded as somehow relating to the companies’ affairs.

141.  Thus, I do not think that such impropriety as there was in Tsang Senior’s withdrawal of US$1.6 million from the Joint Account could form the basis for awarding relief under section 168A of the Ordinance.

142.  That said, I am of the view that it could have been a contributing factor to the breakdown of trust and confidence between the parties, and is therefore of relevance to the winding up relief sought by both parties pursuant to section 177(1)(f).  It seems to me that where a company is in effect a quasi-partnership, founded on a mutual relationship of trust and confidence between its shareholders, acts by one shareholder may potentially be destructive of that mutual trust and confidence even if they do not relate to the affairs of the company.  In such cases, if the result of such acts is that the parties cannot be expected to continue to work together, there may be no alternative but to wind up the company in question.  Having come to the view, as I have, that Tsang Senior’s actions in relation to the withdrawal from the Joint Account were unjustified and improper, I think that they are properly a factor to be taken into account in that context, and I shall return to the significance of this later.

143.  Finally, it was suggested that the payment out of the bonuses was itself prejudicial conduct, in that it left the companies short of funds.  However, given that I have found that the payment of such bonuses was something which Yeung Senior was well aware of, and that he must be taken to have approved their payment, there does not appear to me to be any real substance in this complaint.  Further, the amount of the bonuses paid out varied from year to year, and was significantly less in the later years, when the companies were less profitable.  I am therefore not satisfied that this was the case.

Allegedly suspicious transfers to Kwok Kee.

144.  The Yeungs’ argument here appears to be that the use of Kwok Kee was itself a matter that called for explanation, and that the Tsangs’ refusal to give an explanation when asked for one was a factor that contributed to the breakdown in trust and confidence between the parties.

145.  I have already expressed the view (see paragraph 118 above) that the Yeungs more probably than not were aware of the accounting treatment adopted in relation to the payment of bonuses.  On this basis, I do not think that this was a factor that in reality contributed to the breakdown in trust and confidence between the parties.  Given the Tsangs (in my view well-founded) belief that the Yeungs were well aware of these matters, I do not think that they can be criticised for being disinclined to engage the Yeungs in discussion about this sort of matter given the deterioration in the relationship between them.

Suspicious inter group transfers

146.  This relates to the payments of direct and indirect labour bonuses recorded in the books of Gold Pleasure, Boville and Topville.  However, for the same reasons that I have rejected the suggestion that the failure to provide an explanation of the use of Kwok Kee was a factor that should be taken into account as being somehow causative of the breakdown of trust and confidence between the parties, I am of the view that this alleged factor too cannot be regarded as causative of that breakdown.

147.  In respect of this and the last complaint, I should add that I did not understand from Mr Ng’s submissions that these were relied upon as unfairly prejudicial conduct in relation to the affairs of the companies.  However, insofar as this may have been suggested, I would agree with Mr Neoh that given that the accounting entries in relation to Kwok Kee and the direct and indirect labour bonuses were but part of the system for distribution of additional bonuses which had been agreed between Tsang Senior and Yeung Senior, there can be nothing unfair or prejudicial about the arrangement, or the accounting entries recording transactions pursuant to it.

Suspicious Transfers to K Kwok Account

148.  The complaint as to transfers to the K Kwok Account in Boville appears to relate principally to the payments of approximately HK$60,000 per month to this account by Boville over a period of time.  It is said for the Yeungs that there was no justification for such payments, as the K Kwok Account was simply an account used to hold funds arising from the disposal of Yeung Senior and Tsang Senior’s interests in Goldville when that operation in Taiwan was closed down in the early 1990s.  As such, it was said that there was no basis for payments to be made to it.

149.  If that were where matters rested, there might be some cause for concern at the fact that Boville was paying money to the K Kwok Account for no apparent reason.  However, it is clear that the whole of the amount paid to this account by Boville over the relevant period was paid out again, against vouchers authorised by Yeung Senior, who accepted that he was aware that the account was used to pay for some elements of expenditure in the Mainland.

150.  It seems to me that if the K Kwok Account represented, as the parties seemed to agree, funds from the disposal of Goldville that were not injected as capital in the Hong Kong companies, and therefore represented in effect a loan by Yeung Senior and Tsang Senior (as the surviving partners with an interest in Goldville) to Boville (where the funds were held), there was nothing particularly unreasonable in Boville putting that account in funds in order to enable withdrawals from it to be made for payments on the Mainland for the purposes of the business of Boville.

151.  It was next pointed out by the Yeungs that even if this were accepted, it was not possible to account for withdrawals of HK$8.2 million odd from the K Kwok Account.  This is correct.  However, I do not see that this is a relevant matter, given that the K Kwok Account represented a liability of Boville to (in effect) Yeung Senior and Tsang Senior.  The reduction of the balance of the account by HK$8.2 million meant that Boville’s debt to it was correspondingly reduced, which would not appear to be a disadvantage to Boville.  Even if the payments were for reasons entirely unknown, this would not seem to have affected Boville’s financial position, as the expenditure of its funds for such unknown purposes would have resulted in a matching reduction of its liability in respect of the K Kwok Account.  I do not see that this can realistically be regarded as unfairly prejudicial behaviour, or as something that would result in the breakdown of trust and confidence between the two families.

Forged Vouchers

152.  Finally, in relation to the forged vouchers, this was not a matter that was specifically mentioned in Mr Ng’s final written submissions.  In any event, on the evidence, the vouchers with the notation “bonus for cadre” or worker’s bonus were real vouchers of Dongguan Boville, which were used to record payments which ultimately found their way to the various persons who received additional remuneration or bonuses through Sunville by way of the Kwok Kee entries in Sunville’s current account ledger.

153.  In the circumstances, I do not see how the raising of such vouchers could have constituted unfairly prejudicial conduct, or contributed to the breakdown in the trust and confidence between the Yeungs and the Tsangs.

The Yeungs’ non-accounting complaints

154.  The Yeungs’ non-accounting complaints do not, in my view, add to the strength of their case against the Tsangs.

Dereliction of duties

155.  In their cross-petitions, the Yeungs complain that Tsang Senior and Beatrice were guilty of dereliction of their duties towards the companies by failing to turn up to work (in the case of Tsang Senior virtually failing to turn up at all, and in the case of Beatrice, often failing to attend) from about August 2005 onwards.  It is also alleged that the Tsangs have neglected their duties to be responsible for the finance and administration of the companies.

156.  So far as Tsang Senior is concerned, I think the allegation of dereliction of duty stemming from his failure to attend at the office was effectively withdrawn by Maxly when giving evidence, when he recognised that it was not reasonable to expect Tsang Senior to play an active role in the management of the companies in the light of his very real health problems.  As for Beatrice, it was never very clear what role she had to play in the companies beyond signing cheques to make payments as and when necessary.  With the exception of her refusal to cooperate in making transfers to Dongguan Boville from mid December 2005 onwards, and her refusal to sign cheques in January 2005 when she was seeking to have the arrangement changed so that one representative of each family should have to sign before any cheques could be issued, there was no real evidence of any dereliction of duties on her part either.  Her non-cooperation from mid December 2005 onwards forms a distinct complaint, which I shall deal with separately below.

157.  In the circumstances, I do not think that there is any substance to this complaint.

Obstructive acts by the Tsangs

Proposed appointment of consultants

158.  It was suggested that the proposal in December 2005 to appoint Dennis Chan and Raymond Lo as consultants to the companies was an obstructive act on the part of Beatrice, which hampered the running of the companies.  However, this complaint has little merit, given that the Yeungs simply flatly refused to consider the proposal when it was made at the meeting on 7 December 2005, and thereafter instructed the staff of the companies not to cooperate with Dennis Chan and Raymond Lo.  In those circumstances, I have real difficulty in seeing how it was that this attempt by Beatrice caused any disruption, let alone any real disruption to the affairs of the companies.

159.  Further, it does not seem to me to have been particularly unreasonable for Beatrice to have put forward this suggestion, having regard to the fact that the companies did appear to be suffering from declining gross profit margins.  In those circumstances, where the companies had begun to suffer losses, it does not seem to me to be particularly unreasonable for one of the shareholders in the companies to propose for consideration the appointment of consultants or professionals who might be able to assist in identifying areas of weakness and make proposals for improvement.  If anything, it seems to me that the Yeungs peremptory refusal to even consider the matter, or countenance the suggestion made by Beatrice, was a matter which would have been something that contributed to the destruction of the mutual trust and confidence between the two families.

Complaint to ICBC about the temporary facility

160.  The Yeungs seek to characterise Beatrice’s complaints to ICBC regarding the temporary facility of HK$4.5 million obtained by Maxly without board approval in November 2005 as being an obstructive act.  However, given that all previous facilities had been the subject of board resolutions, and that there had recently been an agreed upon reduction in the amount of the overall facilities granted by ICBC, it is not, to my mind, particularly surprising that Beatrice should be concerned, not to say alarmed, by the obtaining of such facilities without proper board approval being obtained in advance (or indeed shortly afterwards, if it were a matter of such urgency as to make it impossible to call a meeting in advance), at a time when the Tsangs were seeking to withdraw from the business and realise their investment in it.  I do not think, therefore, that there was anything improper in her seeking an explanation for the matter from Maxly and from ICBC.  To the extent that this caused problems for the companies because of ICBC’s reaction to Beatrice’s questioning, this was brought upon them by Maxly’s act in obtaining the facilities without proper approval in the first place.  I therefore do not think that this is a factor that amounts to obstruction on the part of the Tsangs, or something that can properly be regarded as destructive of the mutual trust and confidence between the families for which the Tsangs can be blamed.

Refusal to approve remittances to Dongguan Boville

161.  It seems to me that this complaint stands in a similar position to the previous one.  Beatrice’s refusal to agree to the proposed remittance of about HK$1.9 million to Dongguan Boville in mid December 2005 came after the Yeungs had declined to provide underlying documentation to justify the request for funds.  This came at a time when the relationship between the parties was already strained, and when the Tsangs were concerned at the level of losses and expenses being incurred.  In these circumstances, it does not seem to me to have been unreasonable for Beatrice to have sought further information as to the expenses for which the funds were said to have been required, and to have declined to agree to the transfer or to effect it until such information was provided.  Indeed, in his evidence at the trial, Maxly accepted that this was not an unreasonable request on Beatrice’s part.

162.  In relation to the refusal to make further remittances thereafter, given that the Yeungs ignored Beatrice’s request for supporting documentation or information, and went ahead and made the remittance themselves by availing themselves of their ability to do so as signatories of the relevant bank account with the power to operate it by their sole signature, it is not surprising that Beatrice should not have been agreeable to the making of further remittances to Dongguan Boville thereafter.

163.  Thus, this is not in my view a matter that gives rise to legitimate cause for complaint by the Yeungs against the Tsangs.

Attempts by Beatrice to freeze the companies’ bank accounts

164.  The same is true, I think, of Beatrice’s writing to the companies’ bankers in January 2006 seeking to prevent further payments by the Yeungs until such time as they agreed to a system of joint signatures.  Having regard to the fact that the Yeungs were utilising their power to operate the companies’ bank accounts with their signatures alone to make payments which Beatrice was understandably reluctant to agree to, and thereby effectively sidelining the Tsangs altogether, I do not think that Beatrice can be seriously criticised for seeking to protect the Tsangs’ interests and seek to retain some vestige of control over the companies’ finances in this way.

Delay in payment for raw materials

165.  As for the complaint that Beatrice delayed payment in respect of a batch of raw materials which Maxly had ordered, resulting in delay in delivery and the incurring of storage charges, I would likewise accept that her taking this stance was due to her concern at the fact that the Tsangs were being sidelined and their views disregarded, and therefore would not accept that this was a justifiable cause for complaint against the Tsangs.

Proposal that the companies should cease taking orders

166.  It is true that Beatrice proposed, on a number of occasions, that the companies should stop taking fresh orders and ordering further materials.  Her explanation for this was that she was concerned by what she had been told by Yeung Senior about the risk of Dongguan Boville being closed down by the PRC customs authorities, and did not wish to find the companies saddled with orders they could not complete, or materials they could not use, in the event that the worst happened and Dongguan Boville was indeed closed down.  Although the course that she proposed was an extreme one, which was in all probability not one which was really justified, given that Dongguan Boville appeared to be operating more or less normally notwithstanding the PRC customs investigation, I do not think that these proposals in fact disrupted the companies’ business one iota, given that they were given short shrift by the Yeungs, who ignored them completely and carried on running the businesses as they always had done.  Thus, this is again not a complaint with any real substance.

167.  Given that I have found the non-accounting complaints by the Yeungs to be unfounded, it is not necessary to consider whether or not they would have been capable of constituting unfairly prejudicial conduct had there been any substance to them.

The Tsangs’ complaints

168.  The Tsangs’ complaints are not matters that are relied on as unfairly prejudicial conduct.  Rather, they are matters which are relied on as being causative of the breakdown in the trust and confidence between the parties, and resulting in the complete deadlock between the Tsangs and the Yeungs in relation to the affairs of the companies.

Failure to seek to recover outstanding debt from Sunco

169.  This was a matter which was alluded to in the Tsangs’ petitions, but which did not appear to be a matter that was particularly relied upon as a factor leading to the breakdown in the relationship or the deadlock between the parties.  However, it did feature in Mr Neoh’s submissions.

170.  It seems to me that although there is some force in the complaint, this is not the Tsangs’ strongest point.  While Sunco was undoubtedly indebted to Gold Pleasure, it had always operated on the basis of an open account with Gold Pleasure.  The increase in the balance of that account would appear in part to have been due to Sunco’s own financial difficulties.  However, the decision whether or not to carry on trading with Sunco (which was after all the main channel for the companies’ sales of their own Sunco branded products in the United States) was to some extent, at least, a matter of commercial judgment, in relation to which the court is generally reluctant to interfere.  That said, however, the disagreement over how the Sunco debt should be dealt with was symptomatic of the difficulties besetting the relationship between the Tsangs and the Yeungs, and undoubtedly exacerbated the tensions between them.

Dealings with Divine Concepts

171.  Although the Yeungs contended that there was nothing untoward in their dealings with Divine Concepts, these protestations rang somewhat hollow in the light of the contemporaneous documentary evidence.  It seems clear from memos and correspondence at the time that the Yeungs were anxious that Friedola should not become aware that they were dealing with Divine Concepts or assisting Friedola’s former employees who had set it up.  So much seems clear from the terms of instructions emanating from Yeung Senior to ensure that evidence of such dealings and cooperation should be kept firmly out of Friedola’s view.  It was suggested that this was done more for the purpose of preserving the confidentiality that Divine Concepts (like any other customer) was entitled to expect in relation to its transactions with the companies, but it seems to me that this explanation is not reflected by the documents which were referred to, which express concern at the consequences of being found out, and with records of threats by Friedola to cease dealing with the companies if it were found that they were doing business with Divine Concepts.

172.  The Yeungs also sought to rely on what was, in effect, a testimonial provided by the management of Friedola to the Yeungs shortly after the petitions were presented.  Maxly said in his evidence at trial that by the time the testimonial was given, Friedola was aware of the fact that the companies were dealing with Divine Concepts.  However, this was not mentioned in any of his earlier affirmations.  Nor does it sit well with the concerns expressed by other staff of the companies in the correspondence to which I have referred, which spanned a period from May 2005 to November 2005.  It seems to me much more likely that Friedola were not aware of such dealings at the time that the testimonial letter was written.

173.  In my view, this course of conduct was a legitimate cause for concern.  Friedola was one of the companies’ largest customers, and the loss of its business should have been a matter of concern to the Yeungs.  Even if it were felt that as a matter of business development for the future, it was desirable to deal with Divine Concepts, it seems to me that to do so carried a degree of risk which the Tsangs were entitled to view with some alarm.  To have their concerns brushed aside and ignored was, I think, a matter which would lead to their relationship with the Yeungs being damaged.

Mismanagement by the Yeungs of Dongguan Boville

174.  The Tsangs complaint is that under the Yeungs’ management, Dongguan Boville was exposed to the risk of prosecution, with potentially serious consequences (whether of being closed down, or downgraded in such a way as to seriously hamper its operations) because of their actions in ordering raw materials on the black market, and of failing to supervise staff so as to allow a sale of raw materials without appropriate authorization to take place.

175.  Although the Yeungs accept that there was an incident of a purchase of materials on the black market, this took place as long ago as 2003, and did not in fact have any real impact on the business of Dongguan Boville and was, in any event, agreed to by Tsang Senior at the time.  So far as the more recent incident in August 2005 was concerned, they say that this was an isolated incident involving a lower ranking member of the management of Dongguan Boville, of which they were unaware at the time.

176.  The first incident appears to me to be water under the bridge.  I do not think that it had, or could have had, any real impact on the parties’ relationship.

177.  As for the August 2005 incident, there is, despite the Tsangs suspicions, no real evidence that the Yeungs were somehow complicit in the transgression which sparked the investigation.  I do not think that the fact that the Yeungs were managing Dongguan Boville is sufficient to saddle them with responsibility for any and all wrongdoing on the part of that company’s staff.  I would not, therefore regard this allegation as a matter which justified the Tsangs in losing trust and confidence in the Yeungs.

178.  That said, the manner in which the Yeungs responded to the Tsangs’ enquiries about these issues is a different matter, to which I shall have to return.

Obtaining of temporary facilities from ICBC

179.  I have discussed this matter in paragraph 160 above, where I concluded that Beatrice was legitimately concerned at the obtaining of this facility without proper board authorization.  It follows that this was a matter which in my view justifiably led to a loss of confidence in the Yeungs on the part of the Tsangs.

Making of remittances to Dongguan Boville in December 2005 and January 2006

180.  This matter is discussed in paragraphs 161 to 163 above.  For the reasons I have explained, it is my view that Beatrice was also legitimately concerned at the actions taken by the Yeungs in relation to these remittances, and these actions by the Yeungs were matters which also led to a justifiable loss of trust and confidence in them by the Tsangs.

Diversion of business

181.  The Tsangs also allege that the Yeungs sought to divert business from Pool Master, an established customer of the companies, to another company the identity of which is not entirely clear.  This complaint is founded on information provided to Beatrice by Mr Lee Tager of Pool Master.  Mr Tager has, however, denied having provided such information to Beatrice, and has, moreover, denied that Pool Master has dealt with any company other than one of the companies in relation to purchases of the companies’ products.  In these circumstances, I do not consider that this complaint is in fact made out.

Report to police concerning missing accounting documents

182.  The report by Maxly to the police that accounting documents of the companies, in particular the Sunville ledgers, were missing resulted in the police making inquiries of the staff of the companies, and the Tsangs, including Tsang Senior who was still not in good health, as to the allegedly missing documents.  Given that Maxly had a complete set of copies of the Sunville ledgers in his possession, which were eventually disclosed in these proceedings, one might wonder why it was felt necessary to take the step of making a police report.  Whatever his reasons for doing so, it was in my view a step which was calculated to exacerbate the tensions which already existed between the Tsangs and the Yeungs, and one which contributed, albeit in a smaller way than many of the other matters which I have considered and will consider, to the breakdown in their relationship with the Tsangs.

Refusal to permit inspection of Dongguan Boville

183.  The refusal by the Yeungs to permit the Tsangs to inspect the Dongguan Boville factory, or later to try to examine its records, was in my view a turning point in the relationship between the parties.  The request by Beatrice to inspect the factory, accompanied by the Tsangs’ professional advisers, in July 2005, when the Tsangs were hoping to negotiate a sale of their interests in the companies to the Yeungs, and had some concerns about the declining profitability of the companies and their operations, was to my mind a legitimate one.

184.  The stated reason for the refusal of permission for Beatrice to be accompanied in her inspection by professional advisers does not withstand scrutiny.  Yeung Senior’s reason for his refusal was apparently that the processes of the factory were confidential, and he feared that to allow “outsiders” to inspect them might be detrimental to Dongguan Boville’s interests.  He suggested that as the Tsangs were anxious to sell, and had indicated interest in selling to outside buyers, they (or their advisers) might disclose such confidential information to potential buyers.

185.  However, at that point in time, there had been brief discussions about the possibility of a sale of the Tsangs’ stake in the companies.  Although the Tsangs had indicated a willingness to sell to outside investors, they did not persist in this approach when Yeung Senior indicated that he was not in favour of this, as his family wished to carry on operating the business.  Instead, they agreed to wait for him to provide them with his own valuation, prepared by his own advisers, in response to that which they had obtained from Thomas Lee & Partners.  It therefore does not seem to me that there was any real basis for the professed fear of disclosure of confidential information.

186.  It is not possible, nor is it necessary, to guess at the reasons why Yeung Senior was reluctant to allow anyone to accompany Beatrice for an inspection of Dongguan Boville, when it must have been plain to him that she would not be able to glean much from an inspection on her own, without the benefit of appropriate advice.  However, I am satisfied that this refusal, for no obviously good reason, was something which led to justifiable concern on the Tsangs’ part.

187.  It is noteworthy that this refusal to permit Beatrice to inspect the Dongguan Boville premises continued.  When, in January 2006, Tsang Senior indicated that he would be prepared to lend the US$1.6 million which he had taken from the Joint Account in July 2005 to the companies, thus in effect returning the money and equalising the loans which he and Yeung Senior would have made to Boville from their funds in the Joint Account, so long as Beatrice was permitted to inspect Dongguan Boville’s premises with the benefit of the presence of her advisers, this was again turned down, on a similar pretext.

188.  Finally, even during the course of these proceedings, when attempts were made to obtain documentation of Dongguan Boville for the purpose of the petitions, this was resisted by the Yeungs, on the pretext that the Chinese partner objected to this being done.  This was, in my view, clearly a pretext, given that the Chinese partner had, by virtue of the side agreement entered into in 1995, effectively given up any equity interest in Dongguan Boville, and as such, could have little real basis for being concerned as to the security and confidentiality of its documents.  When an approach was made to Mr Yeung shortly before trial for his consent, in his capacity as Dongguan Boville’s legal representative, seeking disclosure of such documents, he refused, citing a similar pretext.

Accusations of theft of the funds in the Joint Account

189.  Finally, it seems to me that the accusations by the Yeungs that Tsang Senior had misappropriated money belonging to the companies by removing US$1.6 million from the Joint Account in July 2005, made to employees (in October 2005 and January 2006) and suppliers and police (in January 2006) were quite unfounded, given that I have found that the Yeungs were well aware that the money in question was not the property of the companies.  The making of such allegations was clearly a matter which would have destroyed the last vestiges of any remaining confidence that the Tsangs could possibly have had in their ability to continue to cooperate satisfactorily with the Yeungs.

Deadlock

190.  So far as the Tsangs’ allegation of deadlock in the companies is concerned, it is clearly the case, as illustrated by what occurred at the various abortive board meetings called by Beatrice, that there was a complete deadlock between the Tsangs and the Yeungs.  The existence of such a deadlock was not disputed.  What was in issue, was with which camp the fault for it substantially lay.  As will be apparent, I am satisfied that the substantial fault for this sorry state of affairs lay with the Yeungs and not the Tsangs.

Conclusions on the petitions and cross-petitions

191.  So far as the Tsang’s petitions are concerned, for the reasons which I have given, I am satisfied that there was a complete breakdown in the mutual trust and confidence that had previously existed between the Tsangs and the Yeungs, and a deadlock between them, in relation to the affairs of Gold Pleasure, Boville, Topville and Sunville.  I am also satisfied that the Yeungs were to a very substantial extent the cause of the breakdown and the deadlock.  Although I would accept that the breakdown in the relationship of trust and confidence was contributed to by Tsang Senior’s taking of the US$1.6 million from the Joint Account, I do not think that this matter, which is the only element of the Yeungs’ complaints that I have found justified (although not on the basis on which they put it), is such as to prevent me from granting the winding up relief which the Tsangs seek by their petitions.  Overall, it is clear that the Yeungs bear by far the greater responsibility for the breakdown in the relationship and the consequent deadlock.

192.  The position in relation to the cross-petitions is very different.  I have rejected the Yeungs’ allegations of unfairly prejudicial conduct, and accordingly there is no basis for making any buy out order against the Tsangs.  I am bound to say that in any event, notwithstanding Mr Ng’s submissions to the contrary, I would have been extremely disinclined to make such an order in this case, given that the Yeungs have been running the business operations of the companies throughout, the Tsangs are not in a position to and have no desire to run the companies, and may not in any event have the means to acquire the shares at the price proposed by the Yeungs or something near it.  I also have doubts as to whether it would have been open to me to make such an order against Tsang Senior, who was not a shareholder of the companies at the time of the cross-petitions, or for some years before that.

193.  So far as the alternative prayer for winding up relief is concerned, it seems to me that in the light of my conclusions that the Yeungs are very substantially to blame for the breakdown in trust and deadlock that arose between themselves and the Tsangs, it would not be appropriate to make such an order on their petition.

Disposition

194.  I shall therefore make a winding up order in respect of each of the four companies on the Tsangs’ petitions, and will dismiss each of the Yeungs’ cross-petitions.

195.  So far as costs are concerned, I do not propose to make an order nisi in this case.  The parties are requested to make arrangements to fix a date for a hearing on the question of costs, and to exchange and file written submissions in that regard seven days before the date fixed for that hearing.