SUEN KWOK KEUNG v. LAW WAI CHUNG AND ANOTHER

HCMP 778/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 778 OF 2004

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J U D G M E N T

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Introduction

1.  The Petitioner, Mr Suen Kwok Keung (“Mr Suen”), and the 1^st Respondent, Mr Law Wai Chung (“Mr Law”), are equal shareholders in and the only directors of Vidgo Trading (Hong Kong) Limited (“the Company”).  Unfortunately, from about mid-2003 onwards, disputes arose between them, the end result of which has been that the Company is now, for all practical purposes, defunct.  By these proceedings, Mr Suen petitions the court for an order requiring Mr Law to sell all of Mr Law’s shares in the Company to him, or alternatively for an order requiring Mr Law to buy all of his shares in the Company from him, in each case at a price to be determined by the court, or at a proper value to be determined in such manner as the court might direct, pursuant to section 168A of the Companies Ordinance (Cap. 32) (“the Ordinance”).  However, no winding up relief is sought, and the failure to seek such relief was, as appears from paragraphs 38 and 39 of the petition, a deliberate decision.

2.  The general background as to how Mr Suen and Mr Law came to do business together, and as to how the Company came into existence, is not in dispute.  At the trial, both sides also agreed that it was impossible for them to continue working together, and that their relationship as shareholders and directors of the Company had irretrievably broken down.  However, the circumstances and events which led to the breakdown in the relationship are the subject of controversy.  Mr Suen places the blame for the breakdown in the relationship firmly on Mr Law.  Mr Law, on the other hand, suggests that if anyone is to blame for the breakdown, the blame lies more with Mr Suen.

3.  It is common ground that, while it was still operational, the Company carried on the business of trading in plastic cases for video casettes, compact discs and digital video discs (“DVDs”).  Both parties are also agreed that in about the 1980s, they individually carried on similar businesses as sole proprietors, and that they came together to form a partnership business dealing in such products in about 1990.  However, between about 1991 and 1994, Mr Suen withdrew from the partnership.  Although Mr Suen suggested in his affirmations filed for the purposes of these proceedings that he remained in partnership with Mr Law during this period, notwithstanding that the business registration records of the business indicated that Mr Law was carrying on business as a sole proprietor, at the trial, he accepted that he was during this time carrying on a business of his own, selling compact discs.  However, in 1994 Mr Suen joined forces with Mr Law once again, and a fresh partnership was formed.  This partnership continued until about 1998, when Mr Suen and Mr Law decided to incorporate the Company as the vehicle through which they would carry on their business.

4.  The Company was incorporated on 27 May 1998, with Mr Suen and Mr Law as its subscribers.  They eventually each took up 5,000 shares in the Company, and were from the outset its only directors.  They then carried on business through the Company until things went wrong towards the middle of 2003.  Although there was some disagreement on the affirmations as to the nature of each person’s clientele (it being suggested by Mr Law that the clients with whom he dealt and which he brought in for the benefit of the partnership business and later the Company were mainly corporate customers, whereas Mr Suen’s clientele consisted more of small businesses and street traders), I do not think that anything really turned on this, as both parties accepted at trial that each brought to the business customers of significant value, and each made real contributions to the customer base of the partnership, and later, the Company.

5.  From the time when they started carrying on business together for the first time, Mr Suen and Mr Law acquired various assets which, although used for the purposes of the business, were held by them in their own names.  These included two office premises, at Rooms 1 and 3 on the 7^th floor of Block A, Goodview Industrial Building, Lot 213 Kin Fat Street, Tuen Mun in the New Territories (“Room 1” and Room 3” respectively).  It appears that these premises were acquired from a relative of Mr Suen’s, and were funded by a mortgage from the Yien Yieh Commercial Bank Limited, repayments being made out of profits earned from the partnership business.  The title to Room 1 was registered in the name of Mr Law, while that of Room 3 was registered in the name of Mr Suen.  Initially, Room 1 was used as the office premises of the partnership (and later the Company), while Room 3 was let out.  Apart from these properties, two light goods vehicles were also acquired, with registration numbers GV5398 and HG1466.  As with the properties, Mr Suen and Mr Law were each registered as the owners of one of the vehicles, Mr Suen being registered as the owner of GV5398, while Mr Law was registered as the owner of HG1466.  It was common ground that the vehicles were used for the purposes of the partnership (and later the Company), principally for transporting goods and making deliveries.  In addition to these vehicles, a further goods vehicle was later acquired and registered as being in the ownership of the Company.

6.  In addition, between the time when Mr Suen started business on his own and about 2000, various bank accounts were opened which were used for the purposes of the businesses carried on, first by Mr Suen alone, later by the first and second partnerships, and finally by the Company.  Of these, the following bank accounts have figured in these proceedings:-

(1)     An account (described in the petition as a savings account, but which appears in fact to have been a current account) numbered 014-681-0-006276-7, maintained with the Yien Yieh Commercial Bank Limited, in the name of Vidgo Company (which was the trading name under which Mr Suen carried on business as a sole proprietor, prior to his joining forces with Mr Law).  This was, it seems, the first to be opened, having been opened while Mr Suen carried on business on his own.  It was referred to at the trial as “the Sole Proprietorship Account”.

(2)     A passbook savings account numbered 031-3821024-1028, maintained with the Sin Hua Bank Limited, in the joint names of Mr Suen and Mr Law.  This was opened in about 1991, presumably during the currency of the first partnership between Mr Suen and Mr Law.  It was referred to at the trial as “the Joint Savings Account”.

(3)     A current account numbered 014-681-0-007598-7, maintained with the Yien Yieh Commercial Bank Limited, in the name of Vidgo Trading Company (which was the trading name under which the partnership carried on business, at least from 1994 when Mr Suen re-joined Mr Law).  This was opened in 1994, during the currency of the second partnership between Mr Suen and Mr Law.  It was referred to at the trial as “the Partnership Account”.

(4)     A current account numbered 031-382-0-005757-2, maintained with the Sin Hua Bank Limited, in the name of the Company.  This was opened in 1998, shortly after the incorporation of the Company.  It was referred to at the trial as “the Company Account”, or “the Limited Company’s Account”.

(5)     A current account numbered 031-382-000-6800-0, maintained with the Sin Hua Bank Limited, in the joint names of Mr Suen and Mr Law.  This account was opened in 2000.  It was referred to at the trial as “the Joint Current Account”.

7.  The way in which these accounts were utilised, and their status in the context of the affairs of the Company, was the subject of considerable evidence and discussion at the trial.

8.  It was common ground that the Company was in the nature of a quasi-partnership, and that it represented the carrying on, in an incorporated form, of the business that Mr Suen and Mr Law had, prior to 1998, carried on as partners.  It was also common ground (as I have noted) that they could now no longer carry on business together, and that the mutual trust and confidence which they once had in each other had been destroyed.  The issue in these proceedings was whether or not this was the result of unfairly prejudicial conduct on the part of Mr Law, which would call for the making of one or other of the forms of buy out order prayed for by Mr Suen.  Mr Law’s position was that he was not guilty of unfairly prejudicial conduct as against Mr Suen, and that in consequence, no buy out order should be made.  Instead, it was submitted, the proper course would have been to wind up the Company pursuant to section 177(1)(f) of the Ordinance, on the ground that it would be just and equitable to do so, the mutual trust and confidence which the shareholders had formerly enjoyed in each other having gone.  As no such relief was sought, it was submitted that the court should simply decline to order any of the relief sought by the petition and dismiss it, leaving it to one or other of the parties to petition for the winding-up of the Company thereafter.

The allegedly unfairly prejudicial conduct

9.  The complaints made by Mr Suen against Mr Law can be summarised as follows:-

(1)     Between April and August 2003, Mr Law delayed in causing the Company’s accounts to be prepared and audited, and when he eventually procured such accounts to be prepared and audited, he did so on a basis that did not provide a true view of the Company’s financial position, since the accounts so prepared were based solely on the Company’s turnover and assets which were reflected in the Company Account, and left out altogether a substantial part of its turnover and assets which were recorded in the Sole Proprietorship Account, the Joint Savings Account, the Partnership Account and the Joint Current Account.  It was said that this was likely to cause prejudice in that there would be a risk that the Company, Mr Law and Mr Suen would be liable to be prosecuted for filing false accounts for the Company with the Inland Revenue Department, and might be exposed to fines or penalties in consequence.

(2)     From about August 2003 onwards, Mr Law had deliberately refused to sign cheques drawn on the Company Account to settle debts due to the Company’s suppliers, resulting in a number of such suppliers repossessing goods which they had supplied to the Company and threatening to bring legal proceedings against the Company.  It was said that such refusal was notwithstanding that Mr Suen had (i) provided to Mr Law all relevant documentation to enable him to satisfy himself that the proposed payments were proper and should be made, and (ii) had arranged for the Company’s creditors to attend a meeting to which Mr Law was invited so that they could deal directly with any queries which Mr Law might have concerning the amounts claimed by them.  It was said that this was likely to be prejudicial to the Company in that its suppliers were likely to repossess goods supplied by them and to refuse to supply further goods, thus making it more difficult for the Company to meet orders from its customers, and exposing the Company to claims for non-payment brought by its suppliers.  It was also said that this was likely to have a deleterious effect on the Company’s commercial reputation.

(3)     Since about 23 August 2003, Mr Law had effectively failed to perform his duties as a director of the Company, by absenting himself from its offices, refusing to sign cheques that were required for the purpose of making payment to the Company’s suppliers in respect of goods supplied and to its staff for their wages, and returning his warehouse keys to the Company’s warehouse keeper.  This was said to be likely to prevent the Company from operating or being managed effectively, as Mr Law and Mr Suen were its only directors.

(4)     Mr Law had set up another company, Jin Wai Hong Kong Company Limited (“Jin Wai”), to trade in competition with the Company, and had sought to mislead the Company’s customers and suppliers into thinking that the Company had been renamed Jin Wai.  This improper competition was likely to damage the Company by taking away its customers and damaging its business prospects.

(5)     Mr Law had caused two sums of HK$218,486 each (totalling HK$436,972) to be withdrawn from the Joint Savings Account and Joint Current Account on about 16 September 2003, leaving those accounts with virtually no funds, thereby severely affecting the Company’s cashflow.

(6)     Mr Law had also wrongfully misappropriated one of the Company’s light goods vehicles (that bearing registration number HG1466) and had wrongfully taken away various items of office equipment belonging to the Company, thus hampering the Company in its operations.

(7)     Finally, Mr Law had wrongfully terminated the employment of a number of the Company’s employees.  It was alleged that he had terminated the employment of Ms Suen Yee Wah (“Ms Suen”) on 31 July 2003, and that of four other employees on 2 December 2003, resulting in their taking proceedings against the Company in the Labour Tribunal, and leaving the Company bereft of staff and unable to carry on its operations for this reason also.

Mr Law’s response

10.  For his part, Mr Law denied that he had acted in a way that was unfairly prejudicial to Mr Suen’s interests.  His position in relation to the complaints made by Mr Suen was as follows:-

(1)     In relation to the alleged delay in causing audited accounts to be prepared, Mr Law said that both Mr Suen and he were to blame for this.  He said that contrary to what was alleged by Mr Suen, he (Mr Law) was not the director with sole or even primary responsibility for the preparation of the accounts.  Rather, he suggested that both of them shared the responsibility for this, although for the most part they left the day to day bookkeeping to be carried out by an accounting clerk employed by the Company, and employed an independent bookkeeper (a Mr William Tang) to write up the accounts for submission to the Company’s auditors for audit.  Mr Law said that the initial set of accounts provided to Mr Tang was in fact prepared under the supervision of Mr Suen and Ms Suen, although he accepted that, as a director, he shared the responsibility for the preparation of the accounts.  So far as the failure to include reference to the transactions and assets reflected in the various accounts other than the Company Account, he said that it was the understanding between himself and Mr Suen that these transactions and assets were not to be treated as assets of the Company, this being a course adopted on the basis of advice from a sister of Mr Suen, who had suggested doing this in order to reduce the disclosed extent of the Company’s business, turnover and profits, and thus to reduce the amount of profits tax that might be payable by the Company.

 (2)    Mr Law denied that he had unreasonably refused to sign any cheques that were required for the purpose of making payment to the Company’s suppliers.  He agreed that there had been delay in making such payment after about the end of August 2003, but said that this was because he was unable to satisfy himself of the propriety of the proposed payments, as the Company’s books and records had been removed from Room 1 to Room 3 on 23 August 2003 by Mr Suen, after which Mr Law had had difficulty in obtaining access to the books and records.  As a result, he was not prepared to sign the cheques which were put before him, but there was nothing unreasonable in this.  Although Mr Suen had caused some documents to be sent to him towards the end of September 2003 which Mr Suen claimed were sufficient to demonstrate the propriety of the payments proposed, the documents were in fact not sufficient.  As for the meeting with creditors, this had been unilaterally arranged by Mr Suen, allowing insufficient time for Mr Law to consider the documents which had been supplied (which were, in any case, ultimately found by Mr Law to be insufficient).  Subsequent attempts by Mr Law to inspect the Company’s documents were unsuccessful, having been hampered by Mr Suen’s refusal to allow inspection unless Mr Law signed each document inspected, which Mr Law was unwilling to do.  Mr Law said that the fact that he was willing to cooperate in relation to justified payments was demonstrated by the fact that out of nine suppliers involved, seven were eventually paid within about two months.  The only suppliers who were left unpaid were involved in transactions which Mr Law considered to be questionable, since the documentation which he had seen, and information he had obtained, suggested to him that these suppliers may have supplied the goods for which payment was sought, not to the Company, but to another company called Hoard Trading Limited (“Hoard Trading”) which was owned and controlled by Mr Suen.

(3)     Mr Law denied having absented himself from management of the Company, saying that it was in fact Mr Suen who had effectively ousted him from management, by removing the Company’s books and records to Room 3 on about 23 August 2003, and thereafter placing obstacles and unreasonable restrictions on Mr Law’s access to Room 3.

(4)     In relation to the allegation of improper competition, Mr Law said that it was agreed between himself and Mr Suen, in about late June or July 2003, that they should each go their separate ways and set up their own companies to carry on business on their respective accounts, as they had had a serious disagreement over the continued employment of Ms Suen, and had concluded that they could no longer carry on business together thereafter.  He denied trying to mislead the Company’s suppliers and customers as alleged, saying that all that he had done was to inform them that he had set up his own company, Jin Wai, and was no longer with the Company.

(5)     Mr Law admitted that he had effectively emptied the Joint Savings Account and Joint Current Account.  However, he said that the funds so withdrawn were in fact divided so that an equal amount was paid to Mr Suen and himself.  He said that he had done this because he no longer trusted Mr Suen by this point, and thought that it would be better to divide up these funds, which in any event belonged to them jointly.  As to the suggestion that this left the Company short of funds, he said that he had spoken to Mr Suen before effecting the withdrawal, and that Mr Suen had agreed to it, or at least had not objected to it, and that he (Mr Law) did not know or think that making the payment would cause undue difficulty for the Company.

(6)     Mr Law also admitted that he had taken and made use of the lights good vehicle, HG1466, and various items of office equipment that had been in Room 1.  However, as to this, he said that the vehicle was in fact his and was not the property of the Company, which was only hiring it from him (in the same way as it had hired the other light goods vehicle from Mr Suen), and that he did not think that the office equipment was needed by the Company, as it had been left in Room 1, after Mr Suen had removed the Company’s operations to Room 3 on 23 August 2003.

(7)     As to the dismissal of staff, Mr Law agreed that he had dismissed Ms Suen and the other staff members.  As to Ms Suen, he said that this was because of her unsatisfactory performance, and that in any event, by the time of the dismissal, it had already been agreed between himself and Mr Suen that they would go their separate ways, and that Mr Suen had indicated that he would be employing Ms Suen to work for him.  As to the other staff members, Mr Law said that by December 2003, the Company was effectively non-functional, and there was no purpose in its retaining staff and continuing to pay their salaries.

The evidence

11.  At the trial, the parties’ evidence consisted of two affirmations filed by each of Mr Suen and Mr Law, and their further evidence given orally at the hearing.  Each of them was cross-examined fairly extensively.  While a considerable quantity of documentation was placed before me, as will be apparent from the discussion of the various allegations which follows, there were other documents which might have thrown further light on the dispute which were not made available.  Further, each of Mr Suen and Mr Law relied on contemporaneous correspondence between their respective solicitors in support of their respective cases.  Such correspondence was, I fear, of no real assistance in establishing the truth or otherwise of either parties’ case, since it consisted largely of tendentious debate, with the parties making accusation and counter-accusation against each other.  There was little, if anything, in the correspondence that was of probative value.  No independent witnesses were called.  However, notwithstanding these limitations, I have been able to come to a clear view on the allegations that have been made by Mr Suen.  As will become apparent, for the most part (although not in every case), I have preferred Mr Law’s evidence to that of Mr Suen, for the reasons which I give when discussing each of the complaints made against Mr Law.

12.  I turn now to consider each of the allegations made against Mr Law.

Delay in preparing audited accounts

13.  So far as the delay in preparation of the audited accounts for the financial years ending on 31 March 2000, 2001, 2002 and 2003 are concerned, it is clear that there was substantial delay in causing such accounts to be prepared and audited.  However, the question is whether the failure to do so can properly be laid entirely at the door of Mr Law.  According to Mr Suen, Mr Law was the person who was responsible for the financial management and accounts of the Company, and the primary responsibility for the preparation of the Company’s accounts lay with him.  Mr Law, however, said that initially, the Company’s accounting records were kept by the Company’s bookkeeper, a Ms Irene Tang, who was dismissed from the Company’s employment in about the first quarter of 2003.  Thereafter, according to Mr Law, the bookkeeping and preparation of accounts was handled by Mr Suen, with the assistance of Ms Suen.

14.  The parties’ evidence on this matter is flatly contradictory.  No independent evidence has been put forward by either party to support their respective cases.  However, it seems to me that the surrounding circumstances indicate that both Mr Suen and Mr Law were to blame for the failure to prepare accounts of the Company on a reasonably prompt basis.

15.  First, both parties agreed that when their business relationship first began, each had their own business of a similar nature, and each had their own customers.  Mr Law said that after they joined forces, he and Mr Suen both continued to deal with their customers, and that both of them spent most of their time dealing with sales and generating business for the partnership, and later the Company.  Mr Suen did not suggest otherwise.  It seems to me unlikely that where both parties were, to a large extent, salesmen who appeared to have a hands-on approach to the conduct of the underlying business of the Company, dealing directly with their own customers, that one of them would be left to handle all of the Company’s paperwork to the complete exclusion of the other.  In my view, it is tolerably clear that both parties concentrated more on the business itself, and devoted the bulk of their energies towards generating business for their mutual benefit, leaving the paperwork and record-keeping to be done by an employee, acting in accordance with instructions of which both were aware and must be taken to have approved (I deal with this aspect further below, in the context of the status of the various bank accounts other than the Company account).

16.  Even if the primary responsibility lay with one of the parties, it seems to me that, as both Ms Ma (who appeared for Mr Suen) and Mr Vaughan (who appeared for Mr Law) accepted in their respective closing submissions, both Mr Suen and Mr Law, as directors of the Company, had a responsibility to ensure that financial statements were prepared in respect of it.

17.  In these circumstances, I am not satisfied that the fault in relation to the failure to prepare financial statements for the Company for the financial years in question can be said to be entirely that of Mr Law, and I do not consider this complaint by Mr Suen to be justified.

Failure to prepare accounts on a proper basis

18.  Turning to the question of whether or not the accounts were prepared on an incorrect basis, by being prepared initially on the basis of the transactions, income and funds reflected in the Company Account alone, without regard to those transactions, income and funds reflected in the Sole Proprietorship, Partnership, Joint Current and Joint Savings Accounts, having regard to my conclusion that the responsibility for preparation of the Company’s accounts did not lie solely with Mr Law, Mr Suen is in some difficulty in making good this allegation.

19.  However, this is not the only, or indeed the principal, basis on which I reject Mr Suen’s attempt to cast the blame for the omission of these matters on Mr Law.

20.  In her submissions, Ms Ma suggested that it was important for the court to make a finding as to whether or not the Sole Proprietorship, Partnership, Joint Current and Joint Savings Accounts formed part of the Company’s assets.  She suggested that this was because the determination of this question would have a decisive effect on the question of whether or not it was wrong for Mr Law to have left these matters out of the Company’s financial statements, and also because it would be of importance in the context of the complaint (which I deal with later) as to the division by Mr Law of the funds in the Joint Current and Joint Savings Accounts between himself and Mr Suen on 16 September 2003.  Mr Vaughan, however, while accepting that this question might have some bearing on these two issues, suggested that it was not strictly necessary to make any finding as to this.

21.  In my view, the evidence available does enable me to make a finding as to this issue.

22.  Perhaps the best evidence that could have been made available on this issue would have been the Company’s accounts for the period from its incorporation in May 1998 until 31 March 1999.  These may well have thrown considerable light on how the various accounts other than the Company Account were treated, at a time when the parties were on good terms.  It appears from both Mr Suen’s and Mr Law’s affirmations that such accounts were prepared.  Unfortunately, however, neither party sought to put them in evidence.

23.  Nonetheless, it is quite clear from the various ledgers that were produced by Mr Suen that each of the four accounts was used, to a greater or lesser extent, to receive income that was generated from the Company’s business, and that at least the Joint Current and Joint Savings Accounts were also used to make payments for the purpose of the Company’s business, in particular to make payments to suppliers and to make payments on behalf of both Mr Law and Mr Suen of various personal expenses which appear to have been regarded by both as a form of director’s drawings, to be eventually reflected in a current account for the director concerned.  Both parties were able to confirm that in relation to the payments in to these accounts, the names recorded in the ledgers as the persons from whom such payments were received were customers of the Company.

24.  Neither party suggested that after the incorporation of the Company, they continued to carry on the business of the partnership.  It was common ground that from that point on, the only business that they carried on together was conducted by the Company.  In these circumstances, it is clear that both parties treated the four accounts as being in reality accounts of the Company.  That said, however, it does not follow that the failure to have them (and the transactions reflected by them, and profits deriving therefrom) included in the Company’s financial statements when these were initially prepared was wrongful and unfairly prejudicial (even assuming, which I do not accept was the case, that the responsibility for the preparation of the accounts lay solely with Mr Law).

25.  This is because it seems to me to be important to have regard to the reason why the four accounts were operated in this way.  Mr Suen’s position was that the operation of these accounts in this way was simply for the sake of convenience.  He claimed that it was the practice or habit of a number of customers of the Company, who had previously traded with the partnership or sole proprietorship, to make payment by way of cheques which were handed to him or Mr Law on which the name of the payee was left blank.  He said that this was done by the customers on their own initiative, without being asked to do so by either himself or Mr Law.  He went on to suggest that this might have been done by the customers as a matter of convenience, or because the invoices or delivery notes supplied to them were, in some cases, on plain paper without the name of the Company as seller of the goods (this was said to be done at the request of its customers where the goods had been on-sold by the customers, but were delivered directly by the Company to the end buyer, the intention being to avoid disclosure to the end buyer of the fact that the goods were supplied not by their immediate seller, but by another company).  Where such cheques were received, the Company’s staff would fill in the payee as himself and/or Mr Law, and would generally pay the cheque into the Joint Savings Account, or sometimes the Joint Current Account.  Mr Suen also said that some customers of long standing would provide cheques in the name of either the partnership or sole proprietorship business out of habit, and rather than ask for fresh cheques to be made out to the Company, the practice had developed of simply paying such cheques into the relevant account, which remained in existence.

26.  Mr Law said that he was aware of the practice of making payments into the four accounts other than the Company Account.  He said, however, that so far as customers with whom he dealt were concerned, all sales documentation bore the Company’s name, and cheques received were made out to the Company and paid into the Company Account.  He said that the practice of making payments into the other accounts was based on advice received from one of Mr Suen’s sisters, who had suggested that this be done so as to make the Company’s turnover and profits appear smaller than in fact they were.  Mr Suen denied that this was the case.

27.  I do not think that Mr Suen’s version is credible, and I reject it.

28.  First, it seems to me inherently unlikely that customers would provide cheques with the payee left blank unless they were requested to do so.  The suggestion that they did so out of habit is one which I am unable to accept.  Moreover, while there might be something in the suggestion that delivery notes (particularly where deliveries were made directly to a customer’s own buyers) might not indicate the source of the goods being delivered, there would seem to be no reason why invoices (which would be sent to the Company’s customers, and not their sub-buyers) should be prepared in the same way.  Even if they were, the Company’s customers would know who it was that they were dealing with.

29.  Second, and in my view more importantly, even if cheques were provided by buyers with the name of the payee left blank, there was nothing to prevent such cheques being paid into the account of the Company, as opposed to the Joint Current or Joint Savings Account.  Although Mr Suen said that this was done by the Company’s bookkeeper, I cannot see any reason why an employee of the Company should take it upon herself to pay cheques representing the Company’s income into accounts other than that of the Company without instructions to do so.  If, as appears to be the case, this was done, it must, in my view, have been done on the instructions of Mr Suen and Mr Law.

30.  It was quite clear from Mr Suen’s evidence, that he had considerable familiarity with the ledgers.  This strongly suggests that he was well aware of the practice of paying income of the Company into the other accounts.  I do not accept his explanation for why this was done, and on the contrary, find the explanation offered by Mr Law to be far more credible, and have little doubt that Mr Suen, too, was well aware of it, and was a party to this way of doing things.

31.  Although Mr Law’s evidence as to the status of the accounts other than the Company Account was not altogether unsatisfactory, as he was reluctant to commit himself to whether or not they should be considered to be assets of the Company, it seems to me that his hesitation in doing so is not altogether surprising, when it is remembered that the reason for the continued use of the other accounts in this way was to disguise the true turnover and income of the Company.

32.  Ms Ma also suggested that two valuation reports of the Company’s net worth, prepared on behalf of Mr Suen after the dispute between the parties had blown up, provided further evidence that the other four accounts were in fact assets of the Company.  As I have indicated, I accept that they were assets of the Company, but I do not think that this is conclusive in relation to this issue.  Moreover, I do not think that the valuation reports have the weight that Ms Ma seeks to ascribe to them - they were clearly prepared on the basis of instructions provided by Mr Suen, and are therefore self-serving.  Nor were they accepted as accurate by Mr Law.  It is quite clear from correspondence emanating from his solicitors that they were not considered to be accurate.  The fact that Mr Law was prepared to make an offer to buy out Mr Suen’s shares on the basis of the reports does not take matters any further, since that was clearly no more than an attempt to resolve the matter without the necessity for litigation, and cannot be taken to be an acceptance of the truth or accuracy of the contents of the reports themselves.

33.  I am therefore satisfied that while the four other accounts should have been treated as assets of the Company, and the transactions passing through them should have been treated as those of the Company, the use of the accounts to receive payments which should have been made to the Company was for the purpose described by Mr Law, and that purpose was one which was subscribed to by both Mr Law and Mr Suen.  In those circumstances, it does not seem to me that it is open to Mr Suen to complain of unfair prejudice when the Company’s financial statements were prepared on this basis, whoever may have been responsible for their being prepared in this way.  I therefore do not consider that this complaint is well founded either.

Refusal to cooperate in making payment to suppliers

34.  I turn next to the complaint that Mr Law unreasonably refused to cooperate in effecting payment to the Company’s suppliers.  Mr Law accepted, I think, that there had been delay in effecting payment to the Company’s suppliers, and that two of the Company’s suppliers (companies or entities called Parkie and Golden Age, respectively) were left unpaid.  However, he said that this was because Mr Suen had, on 23 August 2003, removed the Company’s records from Room 1 to Room 3, and had thereafter made it difficult for him to inspect the Company’s records.  Mr Law said that while he had no objection to making such payments to the Company’s suppliers as ought properly to be made, he was not prepared to sign cheques to effect payments where he was not satisfied that the payment was in order.  He said that he was not satisfied with the documents that were sent to him by the Company’s staff together with the cheques for his signature, and wished to satisfy himself by looking at the Company’s records that everything was in order.

35.  It is the fact that Mr Law did, in the end, sign cheques for all payments except those to Parkie and Golden Age.  To understand why he did not agree to effect payment to those two suppliers, it is necessary to look at the relationship between the parties as at about September 2003.  It is clear that by around 10 September 2003, when the parties’ solicitors began corresponding with each other, that the relationship between them had already foundered.  Although in his petition, Mr Suen complained of poor management by Mr Law from about May 2003 onwards, at the trial, Mr Suen said that the breakdown actually dated from about early September 2003, when Mr Law refused to cooperated in making payments to suppliers.  Mr Law, however, said that the relationship broke down by about the end of June 2003, and that the breakdown was due to a disagreement over whether or not to continue to employ Ms Suen.  Mr Law said that he had received numerous complaints from his customers about Ms Suen, and proposed to Mr Suen on around 23 June 2003 that her services should be dispensed with.  According to Mr Law, Mr Suen refused to agree to this, and that following further discussions, the parties agreed to bring their relationship to an end, and each set up their own companies to carry on business on their own.  He says that he told Mr Suen that in addition to dealing in compact disc and DVD cases, he would also try to build up a business providing a packaging service for manufacturers of pre-recorded music and video discs. Matters came to a head again in July 2003, when Mr Law purported to terminate Ms Suen’s employment with the Company.  Thereafter, Mr Law says that he took steps (with Mr Suen’s assistance) to set up Jin Wai.  He says that on about 23 August 2003, Mr Suen removed most of the Company’s documents to Room 3, and that thereafter, they saw little of each other.  Mr Suen disagrees with this account.  He says that there was no problem about Ms Suen, and that it was in fact Mr Law who came to him in August 2003, and told him that he wished to withdraw from the Company and start a new business of his own, providing packaging services to others, something which Mr Suen said he was content with, since this meant that Mr Law might well buy plastic cases from the Company for this purpose.  Mr Suen says that he moved documents out of Room 1 to Room 3 in order to make space for Mr Law to carry on his own business there, and never sought to prevent him from inspecting the Company’s documents.

36.  So far as the circumstances in which Mr Law and Mr Suen parted ways is concerned, I prefer the evidence of Mr Law.  It seems unlikely that Mr Law would, out of the blue, have decided to strike out on his own, and give up a business that he had carried on, whether on his own or together with Mr Suen, for well over 10 years.  Further, the fact that there was, as both parties accept, a purported dismissal of Ms Suen by Mr Law in July 2003, also suggests that there was indeed a difference of opinion between them as to whether she should stay or go.  I also have difficulty in seeing why Mr Suen should have thought (or Mr Law should have suggested) that Mr Law would purchase plastic cases from the Company, rather than directly from the manufacturers or suppliers which whom he had dealt for many years.  In the circumstances, I find that it was in fact agreed between them in about late June or July 2003 that they should go their separate ways, and that each should carry on his business through his own company.

37.  At all events, it is clear that by mid-September 2003, Mr Law and Mr Suen were not working cooperatively together.  The inter-solicitor correspondence reveals that they were unable to agree about most things, and that Mr Suen was unwilling to provide Mr Law with keys to Room 3, or to give him free access to it.  As payment to the suppliers became increasingly delayed, Mr Suen caused his then solicitors to send to Mr Law nine folders which were said to contain all the documentation necessary to enable Mr Law to satisfy himself that the proposed payments to the nine suppliers were in order.  This was done on 25 September 2003.  Shortly after that, Mr Suen informed Mr Law that a meeting had been convened with the suppliers for 29 September 2003, at which Mr Law could raise directly with the suppliers any queries that he might still have.  Mr Law responded that there was insufficient time for him to review the documentation provided, and declined to attend the meeting.  Thereafter, his solicitors wrote to Mr Suen’s solicitors, expressing the view that the documentation was incomplete.

38.  There followed correspondence in which Mr Suen’s representatives insisted that adequate documentation had been provided, while those acting for Mr Law were just as adamant that this was not the case.  Unfortunately, no record appears to have been kept as to what precisely was sent to Mr Law on 25 September 2003.  Although this was pointed out to Ms Ma during the opening of Mr Suen’s case, no steps were taken until half way through Mr Law’s cross-examination to produce what were said to be copies of the folders that were sent to Mr Law.  This was highly unsatisfactory, as Mr Suen had not himself given evidence as to such folders, beyond giving a general description of the nature of the documents contained in them.  It eventually transpired that the folders that were produced during the trial were not in fact copies of the ones which had been sent in 2003, but reconstructions, in relation to which there was no evidence as to how they had been prepared.  At the end of the day, the attempt to rely on these documents was abandoned.  The position was therefore as it was at the beginning of the trial, that there was no actual evidence of what had been sent to Mr Law.

39.  In these circumstances, I am unable to find that Mr Law had in fact been sent all necessary documents to satisfy himself as to the propriety of the proposed payments to suppliers.  Further, given the short time available between his receipt of the documents sent to him and the proposed meeting, I do not think that it was unreasonable for him to decline to attend and seek more time to consider the documents.  Having done so, Mr Law made it clear through his solicitors that he was not satisfied with the information so far provided.

40.  Thereafter, there were a number of attempts by Mr Law to inspect the originals of the Company’s records at Room 3.  However, Mr Suen insisted that Mr Law should sign each and every document that he looked at, failing which he would not permit Mr Law to look at them.  Mr Law was reluctant to do so, and in the event the impasse could not be resolved, and Mr Law left without inspecting the documents.

41.  Mr Law did himself meet the suppliers concerned, and after that was satisfied as to the propriety of effecting payment to six of the nine suppliers, who were eventually paid.  Thereafter, following discussions with a seventh supplier, Kam Fat, he agreed to payment being made to them as well.  However, he remained unwilling to permit payment to be made to Parkie and Golden Age.  He said that this was because he considered there were discrepancies in the documentation which he had seen, as it seemed that while the Company was being asked to pay for the goods, they were in fact invoiced and delivered to Hoard Trading and not the Company.  Mr Suen agreed that Hoard Trading was interposed between the Company and these suppliers, but said that this was because the suppliers were unwilling to deal with the Company directly, due to the delays in payment.  He therefore used Hoard Trading, which he had incorporated, to buy the goods, using his own funds, with a view to obtaining reimbursement from the Company.

42.  Mr Suen was not able to demonstrate from the documentation produced at trial that Mr Law’s concerns were unreasonable.  Mr Suen having failed to produce in any reliable form the documents which were supplied to Mr Law, I am unable to conclude that Mr Law was acting unreasonably or maliciously in declining to approve payment to Parkie and Golden Age.  While it might be that both parties were guilty of a degree of unreasonableness in the manner in which they failed to resolve this difficulty, I do not think that it can be said that in failing to agree to make immediate payment to the Company’s suppliers, Mr Law was acting so unreasonably as to have been guilty of conduct that was unfairly prejudicial to Mr Suen.

Neglect of duties as a director of the Company

43.  So far as the allegation of neglecting his duties as a director of the Company is concerned, I do not think that this complaint is made out either.  Insofar as it is based on Mr Law’s failure to cooperate in effecting payment to the Company’s suppliers, I have rejected the complaint for the reasons set out in the preceding section of this judgment.  As for the complaints about failing to make arrangements to pay the staff, and relinquishing his set of keys to the Company’s warehouse, it is, as I have said, clear from the correspondence from mid-September 2003 onwards, that the relationship had by this point broken down to the extent that neither Mr Law nor Mr Suen was able to cooperate with the other, and were unable to agree on almost all aspects of their relationship, including the basis on which Mr Law could enter and work at Room 3.  In these circumstances, I do not think that these acts on Mr Law’s part constitute conduct that would justify the making of an order that he should purchase Mr Suen’s shares in the Company.

Wrongful competition with the Company

44.  The next complaint is that Mr Law wrongfully set up Jin Wai to compete with the Company.  However, as I have already explained, I accept Mr Law’s version of the circumstances in which the relationship between himself and Mr Suen broke down, and that it was agreed between them that they should go their separate ways, and do not accept that Mr Law indicated that he would not be carrying on a business that overlapped with that which had up to then been carried on by the Company.  I therefore do not consider that the setting up of Jin Wai, and the use of that company by Mr Law to carry on a business similar to that of the Company was such as would entitle Mr Suen to the relief sought.

45.  So far as the allegation that Mr Law sought to mislead suppliers and customers into thinking that Jin Wai had taken over the Company’s business is concerned, Mr Law explained that the notice of which complaint was made was not intended to give any such impression, but was simply intended to inform his customers and contacts that he was no longer with the Company, and was carrying on business through Jin Wai instead.  The document in question was in Chinese, but was translated at the hearing.  It can, I think, be understood as conveying that Mr Law, of the Company, has transferred or moved to a new company, Jin Wai.  While it might be read as stating that the Company has become Jin Wai, I do not think that this is the most natural reading of the notice, and I accept Mr Law’s explanation for the document.

Withdrawing funds from the Joint Savings and Joint Current Accounts

46.  As to the effective emptying of the Joint Current and Savings Accounts, Mr Law’s position was that by 16 September 2003, matters had reached the point where he no longer trusted Mr Suen, and the relationship had deteriorated to the extent that he felt that the money in these accounts should simply be divided between them.  He says that he spoke to Mr Suen and informed him of his intention to do this, and that Mr Suen did not dissent.  He says that he assumed that Mr Suen thereby agreed, and that Mr Suen must have been satisfied that there would be enough money left in the Company for it to meet its obligations.

47.  In relation to this matter, I have to say that Mr Law’s explanation is not satisfactory.  While I would accept that the relationship between him and Mr Suen had already reached a point where he had concluded that they could no longer work together, it seems to me that it was inappropriate for Mr Law to have effectively emptied out these accounts by dividing the funds in them between himself and Mr Suen.  If his concern was that the funds might be accessed and used by Mr Suen without his consent, there was nothing to stop him causing the funds to be deposited in the Company Account so as to be available to the Company.  Even accepting that he did inform Mr Suen of his intentions (which seems unlikely given the state of the relationship between them), I do not think that he was justified in treating what was at best a non-committal response from Mr Suen as agreement to what he was proposing to do.  Nor do I think that, knowing as he must have done that these accounts were used to settle payments on behalf of the Company from time to time, that it was reasonable for him to deplete them entirely without ascertaining positively whether there were any outstanding payments pending from them - as it turned out, two cheques which had been drawn on the Joint Current Account in favour of suppliers were dishonoured as a result of his actions.

48.  That said however, I do not think that this incident, taken on its own, and viewed against the state of the relationship between the parties at that point in time, was so detrimental to the Company and thus to Mr Suen’s interest in it, as to justify the making of the orders sought against Mr Law.

Misappropriation of the Company’s assets

49.  So far as the complaint about the light goods vehicle HG1466 is concerned, Mr Law’s case was that whereas the third vehicle was acquired and registered in the name of the Company, and was the Company’s property, this and the other light goods vehicle were registered in the names of himself and Mr Suen, with the intention that they should be the beneficial owners of the vehicles as well.  He agreed that the vehicle was used for the Company’s business, but said that this was in effect by way of hire of the vehicle to the Company, in consideration of the Company paying to him hire charges which were equivalent to the amount of the hire purchase instalments payable in respect of the vehicle.  The vehicle registration document does indicate that Mr Law was registered as the owner of this vehicle.  The summary of payments in respect of the hire purchase instalments put forward by Mr Suen, which indicates that funds for the instalment payments came not only from the Company Account, but also from the other accounts which I have mentioned does not, in my view, point towards any particular conclusion.  As I have observed, the first set of accounts of the Company (which might have thrown some light on this matter) was not produced at the trial.  Although Mr Law’s evidence as to how the initial down payment was paid was not altogether clear or consistent, I do not think that this takes matters much further.  Nor do I think, for reasons which I have given in relation to the four bank accounts, that the valuation reports prepared on Mr Suen’s instructions are of any probative value in this respect (the propriety of including this vehicle as an asset of the Company was specifically challenged in correspondence by Mr Law’s solicitors).

50.  In all of the circumstances, therefore, I am not satisfied that the light goods vehicle bearing registration number HG1466 was in fact an asset of the Company, and that by retaining it, Mr Law misappropriated it.

51.  So far as the other items of equipment are concerned, these seem likely to have been of relatively modest value, and having been left behind in Room 1, I do not think that Mr Law can be criticised for keeping them and making use of them for himself.

Dismissal of employees

52.  That leaves the dismissal of the Company’s staff.  So far as Ms Suen is concerned, her dismissal (or purported dismissal) in July 2003 was, as I have found, a major factor in the breakdown of the relationship between the parties.  This aspect of this complaint was not really pursued.  The focus was on the dismissal of the other employees.  However, by the time that this happened, on 2 December 2003, the relationship between Mr Law and Mr Suen had long broken down, and the Company was by then no longer operational in any real sense.  In those circumstances, I do not see that Mr Law’s actions in dismissing the Company’s remaining staff could be said to be conduct that was unfairly prejudicial to Mr Suen’s interests in the Company, and I reject this complaint also.

Conclusion

53.  I therefore am of the view that Mr Suen has failed to establish that Mr Law has acted in a manner that was unfairly prejudicial to his interests in the Company, so as to make it appropriate for the court to order Mr Law to acquire Mr Suen’s shares in the Company.  Although the relationship between Mr Law and Mr Suen has broken down to the extent that they can no longer be expected to work together, it seems to me that the fault for this does not lie so much with Mr Law that it would be appropriate for Mr Law to buy out Mr Suen.  Rather, the appropriate course would, in my view, be for the Company to be wound up.  This was in fact suggested by Mr Law as early as October 2003, soon after the breakdown in the relationship.  For reasons best known to Mr Suen and his advisers, however, they did not accede to this suggestion and this relief is not sought by the petition.  Accordingly, I dismiss the petition.

Costs

54.  So far as the costs of the proceedings are concerned, the petition having been dismissed, I see no reason why costs should not follow the event, and make an order nisi that the Petitioner should pay the 1^st Respondent his costs of the petition, to be taxed on the party and party basis if not agreed.