LAW SIU HONG ALBERT AND OTHERS v. CHEUNG KIN PING AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMPANIES WINDING UP NO. CWU 103 OF 1995

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J U D G M E N T

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1. This was a Petition seeking the winding up of Gold Colour Limited (which I shall refer to as "the Company") and relief under Section 168A of the Companies Ordinance.

2. In December last year the Respondents indicated that they were withdrawing their opposition to an Order for winding up. The Petitioners nevertheless indicated that they intended to continue with their application for relief under Section 168A. The primary relief sought by the Petitioners is that the Respondents should be ordered to purchase their shares in the Company. The Petitioners also seek relief in respect of a declaration of dividend which has never been paid and loans made to the Company which have not been repaid.

History of the Company

3. Despite the concession by the Respondents that they would not resist an order for compulsory winding up on the just and equitable ground it is necessary to examine the history of the Company.

4. The Company was incorporated in September 1990. Quite whose idea it was to form the Company is not certain at this stage. It seems however, that the leading lights in the formation were the 1st Petitioner and the 1st Respondent. All the people involved in the formation were concerned in the photo-processing business or somehow connected thereto and I have no reason to doubt that they were all experienced in that business. Some of them seem to have had specialist skills but nothing really turns on that.

5. The intention was to set up a company that could produce what are called display prints, that is photographs with a minimum size of 20 by 30 inches, and customer prints, those are smaller photographs. A company specialising in both aspects was, apparently, something of a novelty and the prospects seemed quite encouraging. The intention was to use the skills of those who were involved in founding the Company.

6. The 1st Petitioner was appointed General Manger. He had special responsibility for sales and marketing. The 2nd Petitioner was a professional photographer. He was apparently acquainted with the 1st Respondent. The 2nd Petitioner worked in the laboratory in the Company processing photographs.

7. The 3rd Petitioner had previously worked with the 1st Petitioner in a well known processing company. His duties in the Company included making shots and graphic illustrations for advertising customers.

8. The position of the 4th Petitioner is somewhat different from the other parties to the Action. In the first place she is the wife of Tang Wing Hong. Mr. Tang was likewise a former colleague of the 1st Petitioner. Although the 4th Petitioner was the shareholder and a director of the Company it was Tang who was involved in the business. For personal reasons he had his interest in the Company held in the name of the 4th Petitioner. He had another business and his involvement in the Company's business appears to have been in giving technical support as and when required.

9. The 1st Respondent was again a former workmate of the 1st Petitioner, although not at the same time as the Petitioners. He had a special skill in soft edge masking. At the time of the formation of the Company he had his own business which he operated under the name Bardie Masking. In that business he was assisted by the 2nd Respondent, who was his brother. The 2nd Respondent was a nurse but he invested in his brother's business and seems to have been of considerable assistance on the secretarial side. The 1st Respondent had the title of Laboratory Manager. The 2nd Respondent seems to have acted as company secretary, taking minutes at Board Meetings and so forth but was really only available during those times when his full time employment left him free.

10. The 3rd Respondent ran a photo retouching company. He seemed to work in close collaboration with the 1st Respondent and it was said that the masking effects produced by the 1st Respondent could only be perfected by the 3rd Respondent's skills. He like the 4th Petitioner kept his own company after the formation of the Company. The intention was that he would transfer some of his skills into the Company but he did not become heavily involved in the day to day operations of the Company.

11. Finally the 4th Respondent was, at the time of the formation of the Company, the Art Director of a well known advertising company. He again kept his job there and his involvement consisted of his acting as a consultant. He was not in the office on a day to day basis, but he attended Board Meetings. There is a slight divergence between the Petitioners and Respondents about the extent of the role expected to be played by the 4th Respondent. In the event I do not consider that that matters very much. The 3rd and 4th Respondents were clearly not "hands-on" as far as operations were concerned but they took part as directors.

12. Thus it was left to the 1st, 2nd and 3rd Petitioners and the 1st Respondent to operate the company on a day-to-day basis.

13. The 6th Respondent was formed later really as the operating part of the Company. The shares in the 6th Respondent were held as to all but 100 in the name of the 5th Respondent. The 1st Petitioner held the remaining 100 shares. He acknowledges, however, that he held those shares on trust for the 5th Respondent and nothing further turns on that. It seems that money was kept in the name of the 6th Respondent as well as in the name of the 5th Respondent.

Shareholdings and Directorships

14. Having seen the witnesses giving evidence and listened to what they had to say, my conclusion is that the Petitioners and Respondents were optimistic and forward looking when they formed the Company but did not think through what would happen if and when one or more of them wished to leave the business.

15. Talk seems to have been made of there being a brotherhood. That, to a certain extent, seems to me to encapsulate the way in which the shareholders approached the new venture. The 2nd Respondent says that "brotherhood" was a term which Lam Yuk Fai, the 3rd Respondent, was fond of using. He used it in a sense to give encouragement to all those working in the business. The 4th Respondent agreed that brotherhood was a term which was used at the commencement of the business. He said that he also made reference to that term, but he went on to point out that he considered it was just a kind of "spiritual encouragement and support".

16. The early proposals which eventually matured into the formation of the Company contain the expressions "partners" and "partnership". Documents containing those expressions came from both the 1st Petitioner and the 1st Respondent.

17. I glean from the evidence that the Company was formed on the basis that certainly the 4 individuals who I have identified above would take an active part in the running of the business and indeed all shareholders would participate in one way or another in the operation of the business and would have a say in the management. The 1st Respondent himself said in evidence that the investors made their investment in the Company because of mutual trust. But it went further than that as the 1st Respondent agreed in cross-examination. It was agreed initially that there would be 7 directors. They would be the 1st to 4th Petitioners and the 1st, 3rd and 4th Respondents. I have already noted above that the 4th Petitioner in effect held her office and shares on behalf of her husband. In saying this I do not read too much into those minutes over the course of time which referred to "brotherly leadership", "brotherhood image" and "brotherly-team structure". As was pointed out during the evidence the full import of that might not have been a matter of real agreement. Nevertheless, I do glean from the evidence that at the commencement and indeed right through up until the events which eventually led to the presentation of the petition, it was the intention that all the investors would participate, as the 1st Respondent said, in the management of the Company. The efforts of counsel in pointing out the lack of particulars as to exactly when and what was said and as to the difficulty of formulating precisely what the arrangement as to directorships would be, does not, in my view, detract from the overall picture that this was a company which would involve hands-on work and management by the investors.

18. As so often happens, the enthusiasm which surrounds the initial arrangements does not include an effective agreement as to what should happen when one or more of the investors decides to withdraw his investment. In this respect, I consider that there is more difficulty in formulating what was the expectation of the investors. The Articles of Association of the Company are in standard form. These gave no right of pre-emption to any existing shareholders. The formulation of the expectations which the Petitioners say they had has the difficulty that they refer inter alia to allotment. There had been an allotment of further shares but, so far as this case is concerned, the question of allotment was not a live issue.

19. What is an expectation as opposed to an agreement is a very difficult thing to formulate. An expectation must be that which it could be said that all the participants would either assume or take for granted given the background and spirit with which they were co-operating. When it comes to the expectation of the shareholders of what would happen should one of the shareholders wish to sell his shares, I consider that it is illegitimate to approach it on the basis that this was a company which was formed where, as I have said, all the investors would, or at least could if they so wished, participate both in the operation and in the management of the Company. In these circumstances it would be surprising if a retiring shareholder would consider foisting an outsider on those who remained unless, of course, they were agreeable.

20. That that was indeed the expectation amongst the shareholders seems to me to be borne out by at least two pieces of evidence from the Respondents. In the first place, the 1st Respondent was asked about what he considered the right of every shareholder to buy the 3rd and 4th Respondents' shares when they wanted to sell them. He said that he considered that every shareholder had a right to buy those shares. In a passage in his cross-examination, he said that it never occured to him that the 3rd and 4th Respondents could sell their shares to him without first making the offer available to all the shareholders. The 4th Respondent did not directly deal with this question although he did indicate that it was his original intention that all shareholders would be able to buy his shares when he sold them in 1994 but, as a result of events which happened, he changed his mind and only wished to sell them to the 1st and 2nd Respondents.

Start of the breakdown

21. It is difficult to pinpoint the events which first caused the breakdown between the parties. Although the parties did not themselves seek to identify the particular factors which caused the eventual breakdown, it emerges that there was indeed friction between the Petitioners and at least the 1st and 2nd Respondents and this may have been one of the factors which, to use a neutral expression, did not deter the 3rd and 4th Respondents from wishing to sell their shares. It is possible that one of the matters which caused friction was the request by the 2nd Respondent to become a director of the Company. He made that request at the annual general meeting in January 1994 and the matter was deferred over until the next meeting of shareholders. Naturally, the 1st Respondent was supportive of the idea. It appears, however, that the Petitioners were not supportive. Whether this was the factor that was causing real trouble between the parties is difficult to say. The vehemence with which the 1st Respondent gave his evidence in this respect leads me to believe, however, that this at any rate in his mind, was an important matter. On the Petitioners' side I gained the impression that although they were not anxious to have the 2nd Respondent as a director in the end they may well have conceded it.

22. One of the other matters of note which emerged from the annual general meeting in January 1994 was that the estimated profits were reported to be HK$1.2 million and that the profits for 1994 were targeted at HK$184,000.00 per month. The shareholders approved in principle that on that basis the dividends would be 30% of the profits in 1994.

23. Be that as it may, in August 1994 the 3rd and 4th Respondents informed the 1st Respondent that they were apparently "dissatisfied" with their treatment in the Company and felt that they were not respected. They wished to remove their investment. The 3rd Respondent was intending to emigrate and the 4th Respondent wished to buy a property. The 3rd and 4th Respondents indicated to the 1st Respondent that they wished to have an agent to sell their shares. The 1st Respondent was slightly evasive about the nature of the meeting which he had with the 3rd and 4th Respondents about the sale. What seems to be the position is that the 3rd and 4th Respondents favoured selling their shares to the 1st and 2nd Respondents unless it transpired that one of the Petitioners was prepared to offer more, in which case they would sell to them. It seemed to me from the way that the evidence came out that it would have had to have been, in the terms that the 1st Respondent used, a very good offer from one of the Petitioners for the sale to the diverted from the 1st and 2nd Respondents.

24. The details of who was responsible for what took place thereafter are slightly confused. Nevertheless, it seems to me that it is clear that the Respondents, and primarily the 1st and 2nd Respondents, arranged matters so that the Petitioners would not be aware of the sale of shares until the very last moment. The first notice which was given to all the directors and, hence specifically the Petitioners was simply a notice calling a directors meeting. That was signed by the 4th Respondent and dated the 28th August. All that notice said was that the affairs of the company would be discussed. That meeting was to be held at 2:00 p.m. on Sunday the 18th September 1994.

25. It was not until the 14th September that the 3rd and 4th Respondents gave written notice that they were intending to assign their shares to the 1st Respondent who in turn had agreed to assign the shares to the 2nd Respondent. They named the wife of the 1st Respondent and the girlfriend of the 2nd Respondent as being the agents for the sale of their shares. On my reading of this notice it would not indicate to the recipients that any of the shareholders was in a position to bid for those shares. According to the 1st Petitioner's evidence, which is confirmed by the 2nd Petitioner, the 2nd Petitioner telephoned the 3rd Respondent on the 17th of September and inquired about the proposed transfer of shares. The 3rd Respondent replied that he would sell his shares to the 1st Respondent only and that other shareholders who might be interested might purchase the shares from the 1st Respondent.

26. Another matter which was canvassed as being a cause for disagreement was the appointment of the 1st Respondent's sister, Cheung Wai Man as an accounting clerk. When it came to it, however, it appears to me from the evidence and the way the witnesses gave their evidence that a misleading impression may be given from the affidavits as to the importance that this matter featured in the parties' minds. She was appointed in April of 1994. Perhaps the manner of her appointment did not meet with the 1st Petitioner's approval, particularly as she was appointed after the post had been advertised but she had managed to circumvent the recruitment process.

The Meeting of 18th September

27. The meeting on the 18th September was undoubtedly a stormy affair. The 3rd Respondent had purported to appoint the wife of the 1st Respondent as his representative to attend not only the shareholders' meeting on the 18th September but also the directors' meeting. Likewise the 4th Respondent had purported to appoint the girlfriend of the 2nd Respondent as his representative for both meetings.

28. The Petitioners appear to have lost little time in consulting solicitors. By a letter dated 16th September those solicitors wrote what appears to me to be a remarkably sensible letter given what must have been the time constraints. That letter was addressed to the Company. There is no doubt that the Petitioners used this as the basis for the stand which they took at that meeting. That letter made clear, inter alia, that the power to appoint an alternate director was limited to occasions when the director was overseas; whilst proxies could be appointed for shareholders that had to be in the prescribed form and in any event 21 days notice of a general meeting was required. The drift of the meeting was that the Petitioners were unhappy with the arrangements for the sale of the 3rd and 4th Respondents' shares. The 1st and 2nd Respondents and their respective wife and girlfriend, seemed to be adamant that the 5 day period for discussion prescribed in the notices of the 14th September were fixed and final and at the expiry of that 5 day period, which was due to happen at 12:00 midnight that day, the matter would be closed. One has to bear in mind that this discussion was apparently proceeding at about 8:00 o 抍 lock on a Sunday evening. The likelihood of the Petitioners being able to put together a reasonable offer in those circumstances was, no doubt, negligible. Given the brush-off which the 2nd Petitioner had had when he spoke to the 3rd Respondent previous day, no doubt reality dawned upon the Petitioners that there was no chance of their being able to obtain any of the 3rd and 4th Respondents' shares.

29. Despite the Petitioners' objections the Respondents proceeded to attempt to hold the general meeting immediately following the directors' meeting. The Petitioners took the view that they would not participate in that meeting. There is no clear agreement between the parties as to what took place at the purported annual general meeting on that day. It is, however, agreed between the parties that some days later, on the 24th September, the 1st Respondent indicated that he accepted that the annual general meeting which had been purportedly held by the Respondents on the 18th September, was invalid.

30. The Petitioners were very anxious that together they should have at least 50% of the shares of the Company. It is agreed between the parties that on or about the 21st September there was a discussion in which they asked for 10% of the shares to be transferred to them so that there would be a balance of 50% between the Petitioners and the 1st and 2nd Respondents. The 1st Respondent was apparently unwilling to allow that to happen because he felt that he and the 2nd Respondent would be in a minority on the Board once the 3rd and 4th Respondents had left.

Distrust between the shareholders

31. It seems to me that after the meeting of the 18th September and, in particular, after the discussion which took place on the 21st September, the parties had reached the stage where trust between them was clearly very difficult. The 1st, 2nd and 3rd Petitioners handed their resignations into the company on 22nd September but it seems that this was more with a view to putting pressure on the Respondents than with any settled intention of resigning.

32. The 1st and 2nd Petitioners gave notice of a meeting of the directors to be held on the 5th October. To be discussed at that meeting was the appointment of Mr. "Tang Wing Hong to be a director of the Company in place of his wife, the 4th Petitioner. Then the matter of their resignations was to be discussed and a question of an offer of shares which the 1st Petitioner held in the 6th Respondent was also to be discussed.

33. At the meeting on the 5th October, Mr. Tang was appointed a director in place of his wife. The 1st, 2nd and 3rd Petitioners withdrew their resignations, that was accepted although the 1st Respondent objected. It was decided that there would be an annual general meeting to be held on the 30th October and the 3rd Petitioner was appointed the Company's representative to attend all meetings of Prolab, the 6th Respondent. Finally, it would be noted that dividends of some HK$700,000 were declared to be distributed to all the shareholders on or before the 30th October 1994.

Declaration of Dividend

34. I approached the question of the declaration of the $700,000 dividend with some degree of scepticism. On looking at the draft accounts which were made up to the end of July, it appeared to me that there was insufficient cash to pay such dividends. However, it was the 1st Petitioner's evidence that there were indeed substantial cash balances in the Company's and in the 6th Respondent's bank accounts to enable such dividends to be paid. The reason for that was that the business, particularly since July of that year, had been booming and it was a busy time of year. The profits were clearly there. Most of the money, approximately $650,000.00, was already in saving accounts. The fact that money was in savings account rather than a current account was an indication, apparently, that it was not needed to be used for the Company's purpose. The Petitioners were anxious to see that the profits which the Company had made both itself and through the 6th Respondent should not be lost and should be available to them. They considered themselves justified in voting for a dividend of that amount. There was clearly money coming in. The declaration of the dividend was consistent with the indication which had been given in the general meeting in January of that year. The amount of dividend accorded with both the estimated profit and the declared intent of distributing 30%.

35. Whilst therefore I initially approached the matter of declaration of a dividend of this size as being, perhaps, an indication of recklessness, in view of the 1st Petitioner's evidence I consider that this is not so and that the Company was able to declare and pay a dividend as voted. Indeed, it seems that the 2nd Respondent at least was in favour of declaration of this dividend and the 1st Respondent, whilst initially not objecting, only objected later in the meeting and then not on the grounds that the dividend could not be paid but simply that further consultation was necessary.

36. It might be noted that the final accounts for 1994 would not indicate a capacity to pay such a dividend but I note that those accounts included the months of October, November and December when the business of the Company was affected by the events which followed the meeting of the 5th October.

37. After the meeting of the 5th October co-operation between the parties clearly fell apart.

Prolab Limited

38. The 1st and 3rd Petitioners held an extraordinary general meeting of Prolab on the 6th October. They resolved to change the Articles so that the quorum for general meetings was to be increased to three and that the voting in general meetings was to be replaced by a show of hands. Severe criticism as to this was levelled by Mr. Maurice Chan on behalf of the Respondents. He pointed out that the effect of that would be to diminish the 5th Respondent's voting powers in general meetings from a 99 to 1 majority to a minority.

39. Later in the afternoon of the 6th October the 1st and 3rd Respondents held a board meeting of the 6th Respondent in which they resolved to transfer 3 shares which the 1st Petitioner held in the 6th Respondent to the 2nd and 3rd Petitioners and Mr. Tang. Those three persons were also to be appointed directors of the 6th Respondent. The 1st and 2nd Respondents called for a board meeting of the Company in the evening of the 6th October but the Petitioners refused to attend. The Respondents, however, were not standing by idle. The 2nd Respondent by circular of the 6th October gave notice that at the annual general meeting which was coming up resolutions would be proposed to remove the Petitioners and put in their place members of the 1st and 2nd Respondents' family. It appears that there may have been a meeting of the board of the Company held by the 1st and 2nd Respondents on the 6th October. At the meeting the 1st and 2nd Respondents might have purported to appoint the 2nd Respondent, the 1st Respondent's wife, the 2nd Respondent's girlfriend and Miss Cheung Wai Man as directors. The validity of this meeting is disputed because of the absence of notice and the exact details of it are not precise. In the event I do not consider that its occurrence or otherwise makes any difference.

40. On the 7th October the 1st Respondent took away 3 boxes which were the accounting and company records for the 2 companies and, apparently, in the afternoon applied to have the bank accounts for the 6th Respondent frozen.

41. On the 12 October the 1st Respondent gave notice, first of all, of a directors' meeting of the 6th Respondent at which the 1st Petitioner was to be dismissed as General Manager and a similar notice of a directors' meeting of the Company at which, again, the 1st Petitioner was to be dismissed as General Manager. There is a notice on the 6th Respondent's headed paper purported to be signed on behalf of the Company stating that the 1st Petitioner had been removed from his employment as of the 12th October.

42. There was a directors meeting in the evening of the 12th October which was apparently attended by the 1st, 2nd and 3rd Petitioners a Madam Susanna Cheung on behalf of Mr. Tang and the 1st and 2nd Respondents together with their respective wife and girlfriend and Cheung Wai Man. The latter four persons claimed to be directors and despite opposition the meeting purported to remove the 1st Petitioner as General Manager.

43. On the 30th October, at the annual general meeting of the Company the 1st, 2nd and 3rd Petitioners and Mr. Tang were removed as directors and replaced by the 1st and 2nd Respondents' family members in respect of whom notice had been given previously. At that meeting the transfer of the 3rd and 4th Respondents' shares to the 1st and 2nd Respondents was approved.

44. The net effect of all these machinations was that the Petitioners and Mr. Tang were removed from their positions in the Company. Thereafter they took no part in it. Mr. Maurice Chan on behalf of the Respondents tried to lay the blame for this upon what had taken place on the 6th October and in particular the Petitioners' efforts to take control of the 6th Respondent despite the fact that the 6th Respondent was really an extension of the Company. I accept that what the Petitioners sought to do in dealing with the 6th Respondent's shares and that company's affairs was to preserve the position. I accept that they were concerned that events might take place which might prevent them from receiving what they were entitled to out of the Company. That had been the guiding factor in making sure that those profits which were in the Company and the 6th Respondent would be distributed as dividends namely the declaration of the dividend of $700,000.00. What they did on the 6th October I accept was really to ensure the position would be preserved.

Magic Match

45. Counsel on behalf of the Respondents sought to rely upon the formation of the Magic Match business by the Petitioners as indicating that they had by the 1st October already set up a rival business to which they were transferring customers and goodwill of the Company. In the event that was not made out. I accept the 1st Peititoner's evidence.

46. The 1st Petitioner said that he had tendered his resignation on the 22nd September not with an intention to conduct business in other directions but because he felt that that might be a way of trying to resolve things with the 1st and 2nd Respondents. He said in evidence that he accepted that the resignation letter was a negative way of handling things.

47. I accept what the Petitioners says that it was only the events which took place on the 7th October which finally caused him to register Magic Match as a business on the 11th October. By that time he had made no preparations with regard to running a business. No leases had been signed and he had no opportunity and no cause to tell clients he was leaving. It was not until the 12th October that he stop working at the Company, it was on that day the 1st Respondent had told him he was dismissed.

48. In my view, the conduct of the 1st and 2nd Respondents in dismissing the 1st Petitioner on the 12th October and the conduct of inter alia the 1st, 2nd, 3rd and 4th Respondents at the directors' meeting on the 30th October in confirming the dismissal of the 1st Petitioner and in removing the Petitioners as signatories to the bank accounts was clearly prejudicial to the Petitioners. Just as the 1st Respondent said in evidence that one of the major factors which influenced him in forming the Company was the desire to have a steady job so the 1st, 2nd and 3rd Petitioners were also were entitled in my view, to look upon the Company as providing them with steady jobs. All the Petitioners (treating the 4th Petitioner for this purpose as Mr. Tang) were furthermore entitled to have a say in the control of the Company. That, as I have indicated, was the understanding when the Company was formed. In my view, there is no doubt that this prejudicial conduct in relation to the Petitioners and Mr. Tang was unfair. I do not accept counsel's submission that the conduct was justified because of the conduct of the Petitioners. I consider that all the Petitioners did was to try to protect their own interests as best as they could. They never sought to remove the Respondents from the Company. Their acts in relation to the 6th Respondent were, in my view, reactive and protectionary. I also consider that the Respondents have wholly failed to make out any case based upon the formation of Magic Match.

49. Various allegations of impropriety have been made by the 1st Respondent against the Petitioners. Based on that it is said that the Petitioners should be debarred from relief. Most of the major allegations I have already dealt with. There are some other allegations and for completeness I will mention them briefly, but I would add that by the end of the case they were either not being persued or certainly not with any vigour. I would say however, at the outset that I do not consider that the Respondents have made out any sufficient case of misconduct on the part of the Petitioners or any of them to debar them from relief.

50. It is said that the 1st Petitioner failed to carry out his duties of producing monthly financial statements. Having heard the evidence, if and in so far as there was delay in their production I consider that that was no more than might have been expected in a busy company which seems to have been expanding rapidly and therefore where the staff were under pressure. The 1st Petitioner seems to have been doing his job as best he could with the staff that the directors decided he should have to assist him.

51. Allegations of offering secret commissions, and failing to sign cheques were simply not made out. Moreover I examined the cheques which were said not to have been signed and in my view they were probably made out after the time when the co-operation between the parties had already become non-existent. In any event the 1st Petitioner said that he had been on leave in the relevant period. Given the acrimony at the time that was no doubt a judicious thing to do. The evidence in my view was too vague about this. I am not satisfied on the evidence as to exactly when it is said that the 1st Petitioner was aked to sign the cheques. The best conclusion I can come to is that if he was asked to sign cheques it must have been at a time after the relations between the parties had broken down and it is not surprising in view of the events which I have listed and the attitude particularly of the 1st Respondent towards him and in relation to his position in the comapny that he refused to sign the cheques.

52. The suggestion that there had been deliberate over-ordering with an aim to ruin the Company and the 6th Respondent seemed of frightening proportions. When examined however, in the light of the evidence I am satisfied the intention behind Tong Chi Wah telling the staff to put in a bigger order was simply to ensure that there would be a sufficient supply of materials in the event that there would be any cash flow problems. Having looked at the size of the order I do not consider that the approach taken by Mr. Tong was necessarily unreasonable.

53. Some attempt was made to suggest that the 1st Petitioner had attempted to acquire the "walk-in" customers for himself. Again I do not consider that there was anything sinister about this. It was simply office procedure that "Walk-in" customers should be put down to the 1st Petitioner. As the 1st Petitioner said it meant nothing and his remuneration was in no-way geared to the number of customers put down to his name. I accept that he had no intention to take these customers with him when he left.

54. The allegation of misusing the IDD telephone account seems to me to be no more than petty bickering. Finally, the payment of $18,000 which was received the 3rd Petitioner from a customer has in my view been adequately explained. There was no intention to deprive the Company or the 6th Respondent of this money. The money was received at the very end of business hours on the last Saturday that the Petitioners were at the Company's premises. By the time it could have been handed over to the Company the Petitioners had been ousted from the Company. The money was returned at the time that the Petitioners were attempting to retrieve their salaries through the intervention of the Labour Department.

Relief

55. The question then remains as to what relief should be given to the Petitioners. There are three major items: first, is the question of the $700,000.00 dividend which had been declared. Second, is the question of the directors' loans which the Petitioners had made to the Company. Thirdly, is the value of the shares.

56. I considered at first that if a buy-out were to be ordered the question of the valuation of shares was going to be extremely difficult. Even if an accountant or other expert were asked to do that, the basis on which it could be done was by no means clear. The Company was a service company. Its value lay in its goodwill and in its capacity to earn money by providing a service. This to a large extent depended upon those who worked in the Company. As events transpired, once the Petitioners left the profitability of the Company seems to have dropped. It would therefore be a most difficult exercise for anybody to put a value on the shares of the Company as at the 30th October 1994.

57. I consider, however, Mr. Samuel Chan is correct in his submission that the price paid namely HK$300,150.00 for the shares of the 3rd and 4th Respondents respectively is a true and fair indication of what the shares in the Company were worth as at the end of October 1994 between a willing buyer and a willing seller. It seems to me entirely just that the 1st and 2nd Respondents having divested the Petitioners of their effective participation in the Company should be required to purchase their shares. In my view, the price at which that should be done should be the same price at which they were prepared to buy out the 3rd and 4th Respondents. If that be so there is no need to make any separate order in respect of the dividend since the price at which the 3rd and 4th Respondents were bought out included the dividend.

58. In evidence the 4th Respondent said that he was not concerned about the loan which had been made to the Company. Whilst he did not deny that the existence of such a loan it was not a matter to which he had given thought. Whatever attitude the 4th Respondent took in respect of his director's loan I do not see why the Petitioners should be forced to take the same attitude. I consider that they should be entitled to the loans which they had made to the Company. In this regard although some half-hearted challenge was attempted to be made as to the quantum of those loans it seems to me that the audited accounts confirm the ledgers which had been produced which show that the following loans existed namely:

1st Petitioner 2nd Petitioner 3rd Petitioner 4th Petitioner

HK$173,000.00; HK$110,613.47; HK$194,050.90; and HK$52,918.00.

I therefore, propose to make an order that the 1st and 2nd Respondents do purchase the Petitioners' shares in the Company at the same rate namely: $6.67 per share plus in respect of each of the Petitioners their directors' loans as indicated above. I propose to make an order nisi that the 1st and 2nd, Respondents do bear the Petitioners' costs. I consider that the 3rd and 4th Respondents do not appear to have taken a sufficient part in the proceedings to justify their inclusion as parties bearing costs. If the parties wish some order to be made in respect of them I will hear the parties as to that. I consider that the sums ordered to be paid should be as of the 30th October 1994 and that interest should be paid at judgment rate thereafter. I will hear the parties as to any consequential orders following upon this.

[FURTHER ARGUMENT]

59. In view of the conduct of the 3rd and 4th Respondents in acquiescing in the conduct of the 1st and 2nd Respondents and in particular in view of their attendance at and participation in the final meeting on the 30th October I consider that the Petitioners are entitled to relief against those parties also. Because they have taken no part in these proceedings I propose to give them 14 days from the date hereof in which to make any representations. In the circumstances I make the like Order Nisi against the 3rd and 4th Respondents as I make against the 1st and 2nd Respondents.