Re Taipao Resins Chemical Co. Ltd.

HCCW 590/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.590 OF 1998

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J U D G M E N T

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1. This is a minority shareholders' petition to wind up the Company on the just and equitable ground. On the first day of the hearing, the petition was amended to add a buy-out as an alternative relief to a winding-up. No amendments were made to the body of the petition itself.

2. Taipao Resins Chemical Company Limited ("the Company") was incorporated on 22 July 1988. The issued share capital consists of 20 million shares of $1 each. The eight petitioners are members of the Yin family or persons associated with them. The latest annual return of the Company in evidence is dated 22 July 1997 ("the 1997 return"). Based on that return, the petitioners together hold 29.2% of the issued share capital. The 1st petitioner Mr Mark Yin ("P1") holds approximately 10.67% of the issued capital. His father Yin Jen Ching ("Mr Yin Sr.") holds a further 0.78%. Although a member of the Yin family, Mr Yin Sr. is not a party to these proceedings.

3. The 2nd to 11th respondents (collectively "the respondents") are the substantive respondents, the Company being a nominal respondent. They are members of the Huang family of Taiwan and the majority shareholders of Nan Pao Resins Chemical Company Limited ("Taiwan Nan Pao"), a Taiwan company under their management and control. According to the 1997 return, the respondents together hold 50.1% of the issued capital. The remaining 19.92% was originally allotted to employees of Taiwan Nan Pao who or some of whom became employees of the Company.

4. Broadly speaking the shares were held as follows :

The Yin family	30%
The Huang family	50%
Employee shareholders associated with the Huangs	20%

Certain of these employee shareholders sold their shares to the respondents after the date of the 1997 return, such sales occurring both before and after 24 August 1998, the date of the petition. But for present purposes, these sales are not material.

THE ISSUES

5. The issues which fall for determination are as follows :

(1) whether the Company was a quasi-partnership between the Yin family (and persons associated with them) and those of the Huang family (and persons associated with them); if so,

(2) whether mutual trust and confidence have irretrievably broken down; if so,

(3) who was responsible for the breakdown; and

(4) what (if any) remedy is to be granted.

THE EVIDENCE

6. The principal witnesses were P1 and the 9th respondent ("R9"). P1 who is a shareholder and a director until his removal on 5 June 1999 was actively involved with the setting up and management of the Company. Though R9 has been a shareholder since the end of 1989, he was not so involved. He was in the construction industry and only became a director of the Company in 1997. He acknowledged that he has no first hand knowledge of matters occurring prior to his involvement in 1997. For reasons best known to themselves, those among the respondents who were involved in the negotiations with the Yin family and/or in the management of the Company prior to 1997 did not file any evidence. On the eve of the trial, the respondents sought leave to put in witness statements. Those from R2, R3 and R10 were disallowed but those from Zhong Wei Yen ("Mr Zhong"), Lin Ching Nan ("Mr Lin") and Hsieh Chun Fat were admitted and directions were given for their attendance for cross-examination. Surprisingly, Mr Zhong who was the general manager of the Company for seven years until 31 March 1997 did not attend for cross-examination.

QUASI-PARTNERSHIP

7. Business dealings between the Yin family and the Huang family go back many years to the seventies if not the sixties. Englandbough International Limited was a Yin family company which traded under the name of Hong Kong Nan Pao Trading Company ("HK Nan Pao"). Its business included the marketing in the PRC of resin products manufactured by Taiwan Nan Pao. The trade name of the products manufactured by Taiwan Nan Pao was Nan Pao Resins.

8. In July 1988, the Yin family caused the Company to be incorporated. P1 and his parents together held 54% of the initial allotment of 3 million shares. There were five other shareholders three of whom, together with P1 and his parents, were the original directors. The intention was that the Company would not only market but also manufacture resin products under the brand name of "Taipao Resins". The Yin family did not have and needed to acquire the technical know-how for the manufacture of resin products. P1's evidence was that they approached the Huang family first. As the Huangs did not appear to be interested, the Yins approached Chan Shing Hung who was not connected with the Huangs but who apparently had the requisite know-how. Mr Chan was one of the original allottees holding 10% of the initial allotment of 3 million shares.

9. In the early part of 1989, the Yins set about establishing and constructing a factory in China known as the Char Tai Manufacturing Factory (also known as Jia Tai Shoe Material Product Factory) ("Char Tai"). P1 stated that it was at about that time that the Huangs expressed an interest in the venture. Discussions were then held between P1, Mr Yin Sr. and R10. It was P1's evidence that an understanding was reached sometime between August and December 1989 to the following effect. The Huangs would provide the technical know-how and the Yins would do the marketing. Taiwan Nan Pao would supply raw materials and half finished products to the factory and provide technical know-how for the same to be manufactured into resin products. Staff would be deployed from HK Nan Pao by the Yins and from Taiwan Nan Pao by the Huangs to work in the Company. The Yins were willing to forego majority control in return for the ability to preserve their marketing through their retention of the brand name.

10. On 28 December 1989, 10.5 million fully paid up shares were allotted. All but 1.68 million were allotted to the Huangs and persons associated with them. A further allotment took place subsequently, bringing the total issued capital up to $20 million.

11. Shortly before the December allotment three of the original directors who were not part of the Yin family resigned. It would appear that by 5 January 1990 R2 had become chairman. There are board minutes approving, inter alia, the transfers of shares from the original non-Yin shareholders signed by R2 as chairman. The other directors present were P1 and P3 as well as Mr Zhong and Mr Lin both of whom were associated with the Huangs. Mr Zhong became the general manager and, as we shall see later, Mr Lin was the person who designed the trade mark.

12. The Company became fully operational as from March 1990. Char Tai was manned and operated by the Huangs. The day-to-day management and control of the Company was handled by a general manager and a deputy general manager. Until 31 March 1997, Mr Zhong was the general manager and P1 the deputy general manager. On 1 April 1997, P1 became the general manager until he was relieved from that post with effect from 1 July 1998. According to the director's report dated 25 March 1992 for the period from 22 July 1988 to 31 March 1991, by 15 April 1991, there were altogether ten directors, three representing the Yin family and seven representing the Huangs and the employee shareholders.

13. Leading counsel for the respondents submitted that those facts are consistent with the Huangs being ordinary investors entering into an arms-length commercial arrangement. First, the articles of the Company did not contain any restriction regarding the transfer of shares. Secondly, the setup was different from the then existing arrangement between the Yins and the Huangs, i.e. production by Taiwan Nan Pao in Taiwan and sale to the Mainland through HK Nan Pao. In other words, the Company was not an incorporation of the pre-1989 relationship between the Yins and the Huangs. Thirdly, the Huangs had majority control. Fourthly, the shareholding was "scattered" in that 20% of the share capital was held by various employees who were independent investors.

14. Although restrictions on share transfer is one of the elements identified by Lord Wilberforce in Ibrahimi v. Westborne Galleries [1973] AC 360 at 379E which give rise to equitable considerations, the absence of such a restriction is not necessarily fatal to the existence of a quasi-partnership. The existence of two of the typical factors, namely, an association formed or continued on the basis of a personal relationship involving mutual confidence and an agreement or understanding that all or some of the shareholders should participate in the conduct of the business has been held sufficient to bring into play the just and equitable provision : see Re Five Lakes Investment Company Limited v. Multiford [1985] HKLR 273. The other matters relied on by the respondents are hardly dispositive of the question as to the existence or otherwise of a quasi-partnership between the Yins and the Huangs.

15. The following exchange during R9's cross-examination is significant :

"Q: In the past, for many years, the Huangs and Yins had a long and fruitful association with each other?

A: Yes.

Q: This association was based on mutual trust and confidence?

A: Yes.

Q: For a long time, the Company was like a big happy family?

A: Yes.

Q: It was always the intention that the Yins would have a role participating in the management of the Company?

A: Yes.

Q: The practical effect of a transfer of shares by one family to an outside party could be enormous?

A: Yes."

Those answers, more than anything else, encapsulated the basis of the association.

16. In my judgment, the facts viewed objectively point to a quasi-partnership and I so find.

BREAKDOWN OF MUTUAL TRUST AND CONFIDENCE

17. In cross-examination, R9 sought to deny that mutual trust and confidence, the foundation of the association between the Yins and the Huangs, have irretrievably broken down. It would appear to have been based on the view that Mr Yin Sr. who is part of the Yin family is not one of the petitioners. Not only is he still a director, he is the vice-chairman although quite when he became vice-chairman is a matter of dispute. As noted above, Mr Yin Sr. holds approximately 0.8% of the issued share capital whilst the petitioners between them hold 29.2%. The extent of Mr Yin Sr.'s involvement in the Company is unclear save that he is a director and was involved in the negotiations when the Huangs took up an interest in the Company. On the other hand, from inception and until his dismissal as general manager in 1998, P1 played an active, if not a pivotal role in the negotiations as well as the day to day management of the Company. With his departure, any suggestion that the working relationship between the petitioners and the respondents has not irretrievably broken down is unsustainable.

18. The question of substance to be determined is not so much whether the relationship has broken down but who was responsible for the breakdown. This is considered below.

CAUSE OF THE BREAKDOWN

19. The petitioners and the respondents have made numerous complaints against each other, one or more of which could have been the cause of the breakdown. These are considered below and, insofar as possible, in chronological order.

Huang Jiang Nan Pao ("HJNP")

20. HJNP is a joint venture between Taiwan Nan Pao and Yue Yuen Shoes Factory, one of the Company's major customers. It appears to have been set up in 1993 since HJNP obtained the requisite licence to operate as from 27 December 1993. Its factory is situated within an hour from Char Tai. It would appear that HJNP was and is a direct competitor of the Company, at any rate, to the extent of at least 40% of its business. So much is common ground.

21. P1's evidence was that the Company (and not P1) was offered a 10% stake in HJNP at the very last minute. He explained that the offer was not taken up due to the fact that Yue Yuen, one of the joint venturers, was the Company's largest client and difficult ethical problems would therefore very likely arise. As a co-joint venturer, Yue Yuen would have access to confidential information such as the Company's costs and that would create difficulties in their relationship as supplier and customer. P1 was unhappy with the setting up of HJNP as a competitor and he made complaints, though not in writing since he wanted to preserve the working relationship with the Huangs.

22. Although the respondents through R9 contended that P1's complaint about HJNP was a recent phenomenon (made to bolster the petitioners' case), R9 was not involved with the Company at the time. So, effectively, the respondents were not in a position to challenge P1's evidence. As to whether HJNP adversely affected the Company's profits to warrant any cause for 'unhappiness' on his part, there is prima facie evidence that it did. The audited accounts show that the Company's profits for the financial years ended 31 March 1992 and 1993 increased by 30% and 20% respectively. After HJNP became operational at the end of 1993, profits started to level off. They dropped to increases of 7.3% and 5.5% for the financial years 1994 and 1995 respectively. Whilst the substantial drop in profits may have been attributable to other factors, it is significant that in the minutes of a meeting of the employee shareholders of the Company (namely those holding approximately 20% of the issued capital) held on 22 March 1997 it was recorded that the Company's sales volume would decrease by about 20% as a result of the Po Shing Group (which includes Yue Yuen) purchasing from HJNP and competition from Po Tai, a company formed by Mr Zhong, the former general manager and others in 1997.

23. On this evidence it is reasonable to draw the inference that competition from HJNP was at least a factor that adversely affected the Company's profits and I so find.

Chung Pao

24. P1 caused Chung Pao Resin Chemical Co. Ltd ("Chung Pao") to be incorporated on 18 July 1995. Its business consists of trading in and supplying raw materials used in the manufacture of resin products. P1's explanation for the setting up of Chung Pao was that it was possible to source raw materials more cheaply than the prices charged by Taiwan Nan Pao. Unlike HJNP, Chung Pao was not the Company's competitor. Rather, it competed with Taiwan Nan Pao and supplied raw materials to manufacturers like the Company. P1 accepted that Chung Pao's profit margin was about 10%.

25. No clear picture emerges from the invoices in evidence as to whether raw materials supplied by Taiwan Nan Pao were over-priced. But if Chung Pao was able to supply raw materials more cheaply, then, inferentially, Taiwan Nan Pao's prices must have been high or above market. So whilst Chung Pao may have taken business from Taiwan Nan Pao, the Company does not appear to have been disadvantaged as a result. Inasmuch as taking profits away from Taiwan Nan Pao through establishing Chung Pao may have been a source of unhappiness for the respondents, when viewed against HJNP, it was no more than 'tit for tat'.

26. As Mr Zhong was the general manager until 31 March 1997, it is unlikely that purchases from Chung Pao would have been made during his tenure. In all probability, purchases would only have been made after March 1997. As will become apparent below, by this time, the respondents was already in negotiations with Henkel Asia-Pacific Limited ("Henkel") to dispose of their shares in the Company.

27. The real complaint appears to be that no disclosure pursuant to article 92 of the Articles of Association was ever made by P1 to the board that he had an interest in the orders placed with Chung Pao. However, P1 stated that R2, the chairman of the board and with whom he was on good terms, knew of his involvement in Chung Pao and if the chairman knew, the other respondents would also have known or must be deemed to have known. Indeed, it was R2's staff who introduced the supplier to P1. That aspect of P1's evidence is not contradicted by any reliable evidence. As a factual matter, since raw materials supplied by Chung Pao were delivered directly to Char Tai, it would have been obvious to the employees of Char Tai, deployed as they were from Taiwan Nan Pao, what goods had not been supplied by Taiwan Nan Pao. Therefore the respondents could not but have known that there was an alternative source of supply and that P1 was associated with it. They made no complaint to P1 who was never dismissed from his post by reason of his involvement with Chung Pao. So whilst P1's breach of article 92(1) is not to be condoned, the breach was technical rather than substantive. In any event, it might have created ill-will but in my judgment, it did not cause the breakdown in relationship.

Henkel

28. Henkel entered into negotiations with the Huangs to acquire the chemical business of all the companies in which the respondents had a share, including their interest in the Company. P1 first knew of the negotiations in the second half of 1996. He was told about it by R2 who was the chairman of the Company but it was never raised by the respondents directly with him. Instead, they sent an accountant to Hong Kong to seek to obtain the information that Henkel required.

29. On 24 January 1997, the solicitors for Henkel sought information from P1 relating to Char Tai. On 8 August 1997, Henkel's accountants sought information in connection with their financial due diligence review of the Company and of Char Tai. When asked to reveal the identity of the potential buyer of the Company's shares and the offered price, they stated that they were not at liberty to disclose the identity of their client. A letter dated 22 January 1998 from Taiwan Nan Pao to Henkel to the effect that it was envisaged that the transaction would be completed by 1 July 1998 came into P1's possession. Whilst the exact date when P1 became aware of this is not entirely clear, it was certainly sometime before 14 May 1998 when his solicitors wrote to the Huangs about the Henkel transaction, seeking an offer for the petitioners' shares.

30. It is common ground that P1 refused to divulge any information to either Henkel's lawyers or accountants. He took the view, not unreasonably, that the information sought was confidential and a matter between the shareholders. There was never any board resolution authorizing the release of the information to Henkel.

31. The respondents' case is that the petitioners were never kept in the dark. Indeed, P1 had heard about it through R2. That of course was hardly the same as raising the matter directly with P1 with a view to identifying and resolving the implications flowing from a potential acquisition. When he first knew about the potential sale by the respondents of their interest in the Company, P1 felt "that the Huangs no longer had any sincerity in doing business with [the Yins]". Although R9 also stated that the Yins were kept informed through dinners held by him in Hong Kong, it is to be rejected as it was never put to P1 in cross-examination and is not part of R9's evidence-in-chief. The truth of the matter is that whilst P1 was made aware of the existence of a potential purchaser for the Huangs' interest in the Company, of protracted negotiations between Henkel and the Huangs, and P1 was pressed by the potential acquirer for confidential information, he was left entirely ignorant of the specifics of the transaction and the Yins were effectively abandoned by the Huangs. P1 had no reason to believe that the potential acquisition would extend to the Yins' interest : no approach to that effect was ever made. In that connection, I reject R9's evidence that the respondents were willing to sell their shares jointly with the petitioners to Henkel. Not only was this never part of his evidence in chief, it was never put to P1 in cross-examination.

32. Faced with a potential sale by the respondents to Henkel, the petitioners' preference was to sell to Henkel at the same price as the Huangs. The only viable alternative was to sell their shares to the Huangs. By letter dated 14 May 1998, P1's solicitors invited the respondents to make an offer for the petitioners' shares. The letter went on to mention a winding-up petition as a last resort. By then P1 was already aware that the anticipated completion date for the Henkel deal was July 1998. As no approach had been made by Henkel to acquire the petitioners' shares and time appeared to be running out, viewed in its context, the May letter was unexceptionable and not a reason for the respondents to complain.

33. Given my finding that a quasi-partnership existed, was the respondents' conduct regarding Henkel in keeping with the mutual trust and confidence upon which relationship was founded? Plainly not. The Henkel transaction took place some eight years after the Company had been jointly operated by the parties. Prior to that, there had been a business relationship going back many years. The Company was a Chinese concern with Chinese shareholders manufacturing and marketing products in the PRC. The potential acquisition would have major implications for the petitioners as remaining minority shareholders for it meant that a European company would become the major shareholder. P1 frankly acknowledged that he "didn't know if [he] could cope".

Exclusion from management

34. As noted above, P1 has had an active management role from inception. Until 31 March 1997, he was deputy general manager and thereafter general manager until he was relieved of his duties with effect from 1 July 1998.

35. P1's removal from management came about in the following way. A board meeting was held on 23 June 1998. P1 did not attend as he was travelling on business at the time. Various motions were passed at the board meeting including one to the effect that P1's appointment as general manager would be terminated after 30 June 1998. The reason recorded in the board minutes was that Mr Yin Sr., representing the 30% shareholding interests of the Yin family, had reached an agreement to sell those shares. But there was a further motion to the effect that if the agreement for the sale and purchase of the shares held by Mr Yin Sr. and those represented by him could not be reached, a shareholders' meeting would be convened for the winding-up of the Company.

36. The events from mid-May to July 1998 are important and deserve closer scrutiny.

37. The June board meeting took place some five weeks after Liu, Choi & Chan's letter dated 14 May 1998 inviting an offer for the petitioners' shares. There was never any response to that letter much less any discussion of a buy-out between P1 and the respondents during the five weeks that elapsed between the May letter and the June board meeting. In fact, on 15 May 1998, the day after the May letter, a board meeting was held in Taipei City. It was attended by five directors, including one who had apparently already tendered his resignation. The three Yin directors were not present. Whether they were given notice of the meeting is unclear but it would seem not. One of the matters discussed related to P1 acting as chairman of Chung Pao, allegedly "engaging in the same kind of business" as the Company, i.e. a competitor. Pausing there, the accuracy of the statement that Chung Pao was engaged in the same business as the Company is questionable since Chung Pao did not obtain authorization from the relevant authorities to operate a factory until 22 July 1998, more than two months later.

38. The board minutes of the June board meeting are themselves a little curious. Although these stated that an agreement had been reached for the sale and purchase of the Yin family shares, it was nonetheless contemplated that the sale might not go through. The agreement was signed by Mr Yin Sr. allegedly also representing P1 and P3. It was stated that they held 30% of the shares of the Company in the aggregate. The agreement was to transfer those shares to R3 or at his direction. But according to the 1997 return (which was the latest annual return then available), between them, P1, P3 and Mr Yin Sr. only held 12.22% of the issued capital. That fact must have been known to the respondents.

39. The agreement was conditional upon compliance with paragraph 3(1), namely that the transfer of those shares would include the trade mark. It further provided that Mr Yin Sr. would act as general manager (presumably, pro tem), that P1 would be prohibited from operating the business of Chung Pao for a period of four to six months and, with effect from 1 July 1998, the position of general manager would be taken over by someone assigned by the board. Given those terms and conditions, Mr Yin Sr.'s authority to act (quite apart from the fact which the respondents must have known that the shareholding of those three members of the Yin family could not possibly have been 30%) was crucial. No evidence of Mr Yin Sr.'s authority to act was adduced, nor was there evidence of any steps taken by the respondents at the time to verify the existence of that authority. In those circumstances, the removal of P1 from his office as general manager based solely on an agreement with Mr Yin Sr. puts the bona fides of the respondents into question.

40. The sale did not take place. P1said that he never authorized Mr Yin Sr. to enter into any agreement to sell his shares in the Company. He was given a copy of the agreement several days after the board meeting and learnt of his removal.

41. Leading counsel for the respondents sought to justify the fact that no attempt was made to re-instate P1 upon the sale falling through. He pointed to the mass exodus of marketing staff from the Company which the respondents only discovered on 2 July 1998 when the staff did not report for work. In fact most of them joined Chung Pao. On the preceding day, Chung Pao had moved into the unit adjoining the Company. As P1 was chairman of Chung Pao which, according to the respondents, was a competitor, they did not feel able to reinstate him. But as noted above, Chung Pao was not licensed to operate a factory until 22 July 1998.

42. Was P1's dismissal or exclusion from management justified? Although R9 sought to suggest in cross-examination that P1 was dismissed for "various reasons" and that the directors were unhappy with him, that was inconsistent with his evidence-in-chief and contradicted by contemporaneous board minutes. Further, in the absence of reasonable grounds for believing that Mr Yin Sr. did have the requisite authority to enter into the agreement, the removal of P1 from office was plainly precipitous and unjustified. Viewed objectively, it was an event that could not but have ruptured such mutual trust and confidence as were still extant.

Conclusion

43. HJNP and Chung Pao may have been mutual 'irritants' and contributed to the final breakdown in the relationship. However, they would not have been sufficiently serious to cause the quasi-partnership to break down. I have no doubt that the true cause lay in the Henkel transaction and P1's dismissal or exclusion from management. It would follow that the respondents rather than P1 must bear responsibility for it.

44. Having come to that conclusion, I now turn to consider the appropriate remedy.

RELIEF

45. The Company is solvent and actively trading. The petitioners do not oppose a buy-out on a court valuation and the respondents are prepared to buy them out. In those circumstances, it would be in the interest of all concerned for the court to order a buy-out.

Valuation

46. It now remains to consider various matters arising from the valuation.

Ownership of the trade mark

47. P1 was directly involved in the negotiations with the Huangs in 1989. The negotiations were conducted with R10 who represented the Huang interest. It is P1's evidence that the parties reached an understanding as to the ownership of the brand name. At the time of the negotiations, there was a brand name although the trade mark itself was not designed until about September 1989. P1's evidence on the ownership issue appears from the following extract of his cross-examination :

"Q : Was anything discussed between you and Mr. Huang about the preservation of marketing?

A : Yes, we did discuss. It was agreed that the brand name should be ours. If that is not agreed, there was no co-operation. We knew Huang is a big company. If it became the majority shareholder of the company, at the end we would have nothing if we cannot preserve our marketing.

Q : You anticipated that marketing might be swallowed by the Huangs?

A : Yes.

Q : It was in such anticipation that you wanted to keep something to yourself like the brand name or the trademark?

A : Yes.

Q : All you were concerned about was to be able to keep the ownership of this brand name or trademark?

A : The trademark goes with marketing.

Q : In 1989, when talking to the Huangs, you were already expecting they might take over this marketing thing; you wanted to keep something, i.e., the trademark.

A : Yes."

48. The trade mark was designed by Mr Lin who at the relevant time was an employee of Taiwan Nan Pao. P1 knew Mr Lin. Mr Lin's evidence was that he was asked by Mr Zhong to design the trade mark in September 1989. By that time negotiations between the Yins and the Huangs had been going on for some time. Mr Zhong failed to attend for cross-examination and R10 never filed any evidence. In the absence of evidence from the respondents on this issue, there is no reason why I should not accept P1's evidence which stands uncontradicted.

49. The respondents submitted that it made no commercial sense from the Huangs' point of view to agree to such a term. Rhetorically, they asked 'what was there for the respondents to gain from such an arrangement?' They supplied the know-how without which the goods could not have been produced. But that has nothing to do with the question of the ownership of the trade mark since the profitability of the Company arose not from ownership of the trade mark, but from profits realized from sales of the Company's products. Further, the respondents were paid for their know-how under technical agreements entered into with the Company. As a matter of law, the parties were at liberty to make whatever arrangements they liked concerning ownership of the trade mark. There is no legal requirement that the trade mark be an asset of the company producing the goods.

50. The respondents further relied on the fact that by late August 1989, the Huangs were already in key positions as would appear from minutes of the second preparatory meeting dated 23 August 1989 which made no reference to the ownership of the trade mark. It was also suggested that the name 'Tai Pao' came from the first and last characters of 'Taiwan Nan Pao'.

51. In my judgment, neither of these matters is of any substance. First, the absence of any reference to the trade mark in the minutes does not mean that the parties could not have reached an understanding as is P1's case. Second, 'Taiwan Nan Pao' has been used in the proceedings as a shorthand description for the company owned by the Huangs in Taiwan whose name is in fact Nan Pao Resins Chemical Company Limited (南寶樹脂化學工廠股份有限公司). The word or character 'Tai' (台) is not part of the name of the respondents' company whether in English or Chinese.

52. It is also significant that no fees or expenses in relation to the registration of the trade mark Tai Pao Resins appears in the Company's audited accounts. Had it been the Company's property, it would have been surprising that the Huangs, as majority shareholders and in control of the Company, would not have caused the mark to be registered. As general manager during the relevant period, Mr Zhong was in a position to throw light on this issue. But, as noted above, he failed to attend for cross-examination.

53. For all these reasons, I accept P1's evidence as to the understanding that was reached between the Yins and the Huangs relating to ownership of the brand name/trade mark. In my judgment, the trade mark is not an asset of the Company and is not to be taken into account for the purposes of the valuation.

Date of valuation

54. The petitioners are content that the valuation be made as at the date of the petition. The respondents do not agree. They submitted that the Company is worth far less today than the date of the petition. It is their position that the Company should be valued as of today.

55. The petition date is a convenient date and one that is frequently adopted. See Tai Lap Investment Co. Ltd [1999] 1 HKLRD 384 at 398J-399G and the cases therein cited. The question therefore is whether good reasons exist to justify the adoption of a different date. The respondents relied on the loss of employees to Chung Pao and the fact that Chung Pao is a competitor. For the reasons set out above, the Chung Pao issue does not have the significance that the respondents seek to attach to it. Rather, the main reason for the breakdown was Henkel together with P1's exclusion from management. The respondents further sought to rely on allegations made in HCA16246/1998 against P1 for dissipating the Company's assets and for making secret profits. Those matters could have been raised in this petition, but the respondents chose not to do so. In those circumstances, it would hardly be right or fair to defer the question of valuation until such time as those matters have been adjudicated in the High Court action. In all the circumstances, in order to do justice to the petitioners who have been wronged, the appropriate valuation date is the date of the petition.

Discount

56. As noted in Tai Lap Investment Co. Ltd (supra) at 402D, in the case of a private company, valuation orders do not normally provide for a discount for a minority shareholding. Where responsibility for the breakdown lies not with the minority shareholders but the majority shareholders, there is no basis for requiring such a discount. See In re Bird Precision Bellows Ltd [1984] Ch 419 at 431 F-G.

Interest

57. Applying the reasoning set out in Tai Lap Investment Co. Ltd (supra) at 403F to 404A, interest is to be awarded as from the date of the petition. In the present case, having regard to the interest rates prevailing since August 1998, interest is to be at 7%.

Identity of the valuer

58. It the parties are unable to agree upon the identity of the chartered accountant who is to carry out the valuation within 14 days of the judgment, the valuer shall be such chartered accountant as the President for the time being of the Hong Kong Society of Accountants shall appoint upon the application of either party.

Order

59. The petitioners' shares shall be purchased by the respondents within 14 days of the date of the valuation at their fair market value determined by reference to the assets, profitability and future prospects of the Company as at 24 August 1998 without discount for the fact that they constitute a minority holding. For the purpose of valuation, the valuer shall have complete and unimpeded access to all the books, accounts and documents of the Company. The petitioners and the respondents shall have the right to make submissions to the valuer in such form as may be determined by the valuer. The costs of the valuation shall be borne by the petitioners and the respondents in proportion to their respective shareholdings.

60. In the event of the respondents failing to complete the purchase within the time specified, the Company shall be wound up.

61. The costs of the petition are reserved.