Yau Tin Man v. Aitken Enterprises Ltd and Others
Read the full judgment text of HCCW 202/2018 on BabelCite. This High Court CFI judgment was delivered on 21 September 2022.
1. These proceedings concern a shareholders dispute. The Petitioner in the Re-Amended Petition seeks an order that the 2 nd to 4 th Respondents buy out the Petitioner’s shares in the 1 st Respondent (“ Company ”) pursuant to sections 724 and 725 of the Companies Ordinance , Cap. 622; alternatively a winding up order on the just and equitable ground pursuant to section 177(1)(f) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance , Cap. 32. Although, in the Re-Amended Petition a
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HCCW 202/2018 [2022] HKCFI 2870 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES WINDING-UP PROCEEDINGS NO 202 OF 2018 ________________
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________________ Before: Hon Harris J in Court Dates of Hearing: 1 – 2, 4 August 2022 Date of Decision: 21 September 2022 _________________ D E C I S I O N _________________ Introduction 1.These proceedings concern a shareholders dispute. The Petitioner in the Re-Amended Petition seeks an order that the 2nd to 4th Respondents buy out the Petitioner’s shares in the 1st Respondent (“Company”) pursuant to sections 724 and 725 of the Companies Ordinance, Cap. 622; alternatively a winding up order on the just and equitable ground pursuant to section 177(1)(f) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap. 32. Although, in the Re-Amended Petition a buy-out order is sought against the 2nd to 4th Respondents it became clear at trial that the Petitioner had never anticipated a buy-out order being made against either the 3rd and 4th Respondents and that the dispute was between the Petitioner and the 2nd Respondent. The 2nd Respondent did not dispute the Petitioner’s case before me at trial that if I find in the Petitioner’s favour on liability the appropriate remedy was a winding up order. 2.The Petitioner, Yau Tin Man (“Mr Yau”), is the registered owner of 15% of the Company’s shares; 10% of which he holds on trust for Sy Yau Yan (“Sy Senior”). Tsoi Po Ki Poggy (“Mr Tsoi”), the 4th Respondent, is the registered owner of 30% of the Company’s shares. He also holds his shares on trust for Sy Senior, who has been a director of the Company from the time it was acquired as a shelf company in 1983. Mr Tsoi did not wish to be a Petitioner and was joined to be bound by the court’s judgment. He did not take an active role in the proceedings. A registered shareholder, who holds shares as a nominee, may bring proceedings for unfair prejudice relying on conduct, which is prejudicial to the interests of the beneficial owner of the shares[1]. It is thus sufficient for Mr Yau to have presented the Petition in order for in substance Sy Senior to ask the court to determine the complaints advanced by Mr Yau on his behalf and, assuming those complaints are made out, grant relief either pursuant to sections 724 and 725 of the Companies Ordinance or a winding up order pursuant to section 177(1)(f) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance. 3.Sy Chung Ping, the 3rd Respondent and Sy Senior’s younger Brother (“Sy Junior”), was believed by Mr Yau and Sy Senior to be the registered owner of 15% of the Company’s shares when the Petition was issued; 10% of which they understood he held on trust for a Fung Hung Chow (“Mr Fung”) and/or a To Wing Fu (“Mr To”). Sy Junior purported to transfer all his shareholding to Lockwell Limited (“Lockwell”), the 2nd Respondent, on 16 April 2018. The validity of this transfer is disputed in the Re-Amended Points of Reply, but nothing turns on this. Sy Junior is not on good terms with his older Brother. He also was joined in order to be bound by the judgment. Like Mr Tsoi he has taken no part in the proceedings. 4.Lockwell is currently the registered owner of 40% of the shares. Mr Fung was the beneficial owner of Lockwell until the time of his death in 2014. Lockwell is currently owned by Mr Fung’s daughter, Fung Pik Shuen. When Lockwell was first established in 2009 its 2 bearer shares were held by Mr To on trust for Mr Fung until Mr To transferred the 2 shares to Miss Fung in 2013. Lockwell first became a shareholder in the Company on 11 November 1997, holding 600,000 shares (30%) of the Company as nominee for Mr Fung upon the transfer to it of 600,000 shares at the time registered in Mr To’s name, although held by Mr To as nominee for Mr Fung. On 9 March 2000, 200,000 shares (10%) of the Company then registered in the name of Chan Chiu Fong, who held them as nominee (says Mr To) on behalf of her Husband, Lau Shu Wong, who is the Brother of Mr Fung’s Wife, were transferred to Lockwell to hold as nominee for Mr Fung. As I have already mentioned a further 300,000 shares (15%) of the Company held by Sy Junior were also transferred to Lockwell on 16 April 2018. Currently, Lockwell holds 1,100,000 shares (55%) of the Company. 5.The Parties fall into two camps: (A) Mr Yau, Sy Senior and Mr Tsoi and (B) Lockwell and Sy Junior, although Mr Tsoi and Sy Junior were not represented at trial. Substantively, the dispute is between Sy Senior and Lockwell. 6.At trial Mr Yau was represented by Vincent Lung and Alice Lau and the 2nd Respondent by Kwan Tong Lee. Establishment of the Company 7.The Company was incorporated as a shelf-company in 1983. Although [8] of the Re-Amended Petition (“Petition”) says that the Company was founded on 29 March 1983 by Mr Fung and Sy Senior, and in Sy Senior’s witness statement it is suggested slightly differently, that it was acquired in 1983 by Mr Fung and Sy Senior as a corporate vehicle to trade electronic components, it is clear from the totality of the evidence, and was not disputed by Mr Yau and Sy Senior at the trial, that in fact it was Mr Fung, who instigated the acquisition of the Company and provided its initial capital. The following is also uncontroversial:
8.Much of the remainder of the history of the ownership and control of the Company is in dispute. The central dispute concerns the basis on which Sy Senior and Mr Fung agreed to establish the Company’s business and the nature of their respective interests in the Company. 9.Sy Senior’s case in respect of the basis upon which he and Mr Fung agreed to establish and operate the business of the Company is as follows. Sy Senior and Mr Fung had known each other since around 1975, when they worked together at Jeckson Electric Company Limited (“Jeckon”). Jeckson manufactured and traded electrical home appliances. Sy Senior started his employment as a stock-keeper. He was subsequently promoted to purchasing manager and overtime he acquired substantial experience in handling suppliers’ requests and built up a good relationship with the suppliers of electronic components to Jeckson and its associated company, Jecko. Mr Fung was Sy Senior’s supervisor. They had a good business and personal relationship. Mr Fung left Jeckson in about 1979 or 1980 to establish his own businesses, which included Kolvin Industries Limited (“Kolvin”), which he set up with other ex-employees of Jeckson. Kolvin’s corporate records suggest it had four or five shareholders initially and Mr Fung held 20% of the issued capital. The two of them stayed in touch. Sy Senior developed his own business plan to establish his own business trading electronic components. He discussed his plan with Mr Fung, who suggested that they set up a company to develop this business with Sy Senior responsible for operations and Mr Fung dealing with general management and administration. This they did in 1983. As I have explained at the outset Sy Senior was the registered owner of 50% of the Company. The remainder was held by Ms Woo as Mr Fung’s nominee. It was Sy Senior’s evidence that Mr Fung told him that he chose to have his interest held by a nominee to hide his interest in the new business from his partners in Kolvin. This evidence is disputed by Madam Lau Wei Yue (“Madam Lau”), who gave evidence on behalf of Lockwood and is Mr Fung’s widow, but she does not explain why Mr Fung did not have any part of the shares registered in his name. The fact that Mr Fung chose to use nominees to represent his interest at both shareholder and board level is consistent with Mr Fung’s role being in the background and limited to administrative and accounting matters as is Sy Senior’s uncontested evidence that Mr Fung introduced him to a Mr Lo, who he understood was Mr Fung’s classmate, who dealt with the establishment of the Company; in practice the acquisition of a shelf-company and the changing of shareholders and directors. Basis upon which the Company was established 10.As is all too common in cases of this sort, Sy Senior and Mr Fung did not reduce their understanding about the basis on which they would conduct business to writing. However, they must have had some discussions about the business that the Company was to carry out and how it was to be run. Sy Senior alleges in [20] of the Petition that they did have such discussions and reached the following agreement.
11.As I have already mentioned, Mr Fung died in 2014. There are no contemporaneous documents recording what, if any, understandings Mr Fung and Sy Senior reached about their respective roles and interests in the Company. The only evidence that I have from anybody involved in the running of the Company for the early period from 1983 to 1987 is that of Sy Senior. The Argument 12.Mr Kwan’s written Opening Submissions refer to Mr Yau’s case having to overcome the following hurdles:
Mr Kwan did not supplement his written Opening Submissions before calling Lockwell’s witnesses. With his, just over four pages, written Closing Submissions (I should note that I had made it clear I preferred the written submissions to be in bullet point form) Mr Kwan submitted a slightly revised version of his written Opening Submissions, which added to [6(4)] “as ‘member’, registered member”, and did little more than repeat the points I have just quoted. Mr Kwan’s oral closing was very short, running to only six pages of transcript. 13.In his oral submissions Mr Kwan made the following particular points. First, pleadings points, namely, that it had never been pleaded that the Sy Senior had been an employee (as he was) or that he held an equal shareholding with Mr Fung in the Company. It does not seem to me that anything turns on the first of these two matters as it is normal for executive directors, as Sy Senior clearly was, also to be employees. It has also never been part of Sy Senior’s case that the precise shareholding had been agreed or that subsequently the shareholdings changed in a way inconsistent with the FBC. The more substantial point that emerges from Mr Kwan’s submission is that the pleaded case and Sy Senior’s evidence does not mention money, salaries and profit sharing, which is inconsistent, Mr Kwan argued, with the Company being a joint venture between Mr Fung and Sy Senior. This argument seems to me to work both ways. If Sy Senior was merely, as Madam Lau suggests, an employee I would have expected the Company to have more than the tax return, which was put to Sy Senior in cross-examination, recording the basis on which he worked for the Company. In my experience it is common for local business partners in small and medium size enterprises to agree orally how to run their companies. At an intuitive level it might initially seem paradoxical, but employees are far more likely to have something in writing: an employment agreement or at least (in 1983) something on physical paper recording salary and other basic terms of employment. The common problem in determining local shareholder disputes is that businesses, even financially successful ones, are run informally and little that should be recorded in writing is so. The court is left to determine what probably took place from piecing together a picture from what contemporaneous documents are available, the surrounding circumstance, experience and an assessment of the credibility of the witnesses and the veracity of their testimony. In my view the first of Mr Kwan’s points in his final address is of little assistance in assessing what Sy Senior and Mr Fung agreed. 14.The second point arises from Sy Senior’s evidence in cross-examination that he signed the corporate documents Mr Fung asked him to sign without questioning the purpose of, for example, the changes in shareholdings. This I deal with in detail in [35]. 15.Thirdly, Mr Kwan submitted that “So for the so-called prejudicial conduct, I fail to see how the conduct alleged in part C amounts to prejudicial conduct against SY or Yau as members in the absence of the FBC, and for the so-called cross examination point I believe it also applies to Mr Lung whenever he did not cross examine my witnesses, my witnesses evidence in chief of course stands”. It is correct, and Mr Lung expressly accepted it, that if I do not find that the FBC or something similar was agreed, the Petition fails. Mr Kwan did not, however, argue that if I do find that the FBC had been agreed that the matters, which I describe in [44] were not inconsistent with the FBC. 16.As will be apparent from the immediately preceding paragraphs Mr Kwan did not address me on the four “hurdles”, to which I refer above. However, I shall deal with them:
17.As I have already explained the fact that Mr Yau rather than Sy Senior has brought the Petition is not an impediment to the court finding that if (to use the defined term quoted above) the FBC were agreed and the matters occurred, which Mr Yau and Sy Senior argue were inconsistent with the FBC (I explain these matters in [44]–[45]) the Company should be wound up on the just and equitable ground. It was also not argued that if I find that the FBC, or something substantially the same, had been agreed since about 2018 Lockwell had not caused the Company to be managed in a manner inconsistent with the FBC. The matters relied by Mr Yau and Sy Senior were not contested at trial either in the sense of it being disputed that they had occurred or it being disputed that if they had occurred they were inconsistent with the FBC. 18.In [12] of his written Opening Submissions Mr Kwan submitted that the following questions had to be answered:
Mr Kwan did not develop these points. The answer to the 2nd question is simple. Lockwell was Mr Fung’s company at the time it acquired its initial 40% shareholding. It must be taken to have acquired the shares with any knowledge of any agreement or understanding reached by Mr Fung with Sy Senior. The fact that subsequently Lockwell’s ownership changed makes no difference. 19.In my view, it is important that Sy Senior’s evidence that he was responsible for building the business and managing its commercial operations is not disputed and he was not cross-examined about the operations of the Company. The only relevant evidence I have from the 2nd Respondent are repetitive and sweeping statements in the witness statements of Madam Lau and Mr To to the effect that Sy Senior was Mr Fung’s nominee and Mr Fung controlled and managed all aspects of the Company. However, this does not tell me anything about, who built the business into the profitable entity that it became. Although in [24] of his witness statement Mr To describes the Company’s business he does not refute Sy Senior’s evidence that he developed the business and ran the Company’s revenue generating activities. Paragraph 24 reads:
20.Sy Senior’s role and activities in the building of the Company’s business is, I would have thought, obviously relevant to an assessment of the likelihood of what he says was the agreement he reached with Mr Fung when the Company was established being true. As I have already mentioned Sy Senior was not cross-examined on the way in which the business developed and his role in that process. It was not put to him that he was exaggerating his description of his role in building the business. It was not suggested to Sy Senior in cross-examination, that Mr Fung had an active role in building the Company’s business operations by, for example, introducing customers. Mr Kwan’s cross-examination of Mr Fung was limited to quizzing Sy Senior on his recollection of the agreement he and Mr Fung reached in 1983 and trying to draw out inconsistences or lacunae in his evidence in cross-examination and the evidence in his witness statements. Other factors suggesting the Basis of Cooperation was agreed/not agreed 21.Lockwell called Sze Shun Hin, who through his company Cybertech System Limited had been providing IT support services to the Company for 10 years prior to the date of his witness statement, 18 June 2021. He had, therefore, been providing IT services at the time Mr Fung was still alive. It was his evidence that until 2018 when Mr Tsoi instructed him to change the password for access to the Company’s server only Sy Senior had the password and access to the Company’s records stored electronically on the server and Mr Sze had to obtain it from Sy Senior each time he wished to access the server. This is consistent with Sy Senior having a rather more significant role in the Company than merely Mr Fung’s underling. Mr Sze was able to change the password after it had been obtained from Sy Senior, who was not aware that this was the purpose of asking for it and this is one of the matters of which he complains. 22.Sy Senior repeatedly said in answer to questions in cross-examination that he signed documents that Mr Fung asked him to sign and that he did not pay much attention to the changes in the shareholdings in the Company. It has never been part of Sy Senior’s case that the FBC included the allocation of shares or that the regular changes of legal and beneficial ownership was inconsistent with his understanding of what he had agreed. Mr Kwan submitted that Sy Senior’s willingness to sign documents changing the shareholdings without demur suggested that, as is Lockwell’s case, the Company was in reality Mr Fung’s and Sy Senior understood that. However, it seems to me that Sy Senior’s willingness to go along with Mr Fung’s requested changes of shareholding is equally consistent with him genuinely trusting Mr Fung and it is relevant that for the 30 years from 1983 to 2012 Sy Senior and Mr Fung seemed to have worked successfully together. The matters of which Sy Senior complains only occurred after Mr Fung’s death. It is also not, as Mr Kwan argued, correct to say that Sy Senior never owned 50% of the Company. From 1983 to 1985 he was the registered owner of 50% of the issued shares and there is nothing other than Madam Lau’s evidence, which for reasons I explain later I consider unreliable, to suggest he was not the beneficial owner of those shares. There is no explanation by Madam Lau of why if Mr Fung viewed himself as the beneficial owner of all the shares held by Sy Senior and Ms Woo they were registered in Sy Senior and Ms Woo’s name, which it seems to me is more consistent than not with Sy Senior being intended to hold them beneficially. 23.In 2012 Mr Fung agreed to sell the Company and related companies to Sy Senior. Although of limited probative value it is more consistent with Sy Senior having a significant role in the Company’s management than the 2nd Respondent’s suggestion that Sy Senior was from the outset little more than an employee, who, to use an expression frequently repeated in the witness statements, served at Mr Fung’s pleasure. 24.Evidence was given on behalf of the 2nd Respondent by Mr Fung’s Wife, Madam Lau and Mr To. At the time of presentation of the Petition the 2nd Respondent was the registered and beneficial owner of 60% of the Company’s shares and remains so. Madam Lau purports to give detailed evidence about the circumstances in which the Company came to be established and on what basis. However, as she admitted in cross-examination she had no role in the Company, never took part in the operations of the Company and never took part in the management of the Company. 25.Madam Lau had worked with Mr Fung and Sy Senior at Jecko; as had Sy Senior’s future Wife, Choi Bik Yu. Madam Lau left Jecko and joined Kolvin, which Mr Fung had set up when he left Jeckson in around 1979. It was her evidence that her explanation of the basis on which the Company was set up and managed from 1983 was based on what Mr Fung told her. Mr Fung and Madam Lau married in 1986. Although Madam Lau would have known who Sy Senior was as they had worked together at Jecko it does not follow that Mr Fung, who married Madam Lau some three years later, would have had a reason to describe to her in the detail, which Madam Lau records in her witness statement the establishment of the Company and the arrangements that Mr Fung entered into with Sy Senior; or that almost four decades later she would have the detailed recollection of the discussions she purports to have. 26.In [20] of her 2nd supplemental witness statement Madam Lau says that as far as she can remember Mr Fung never discussed any business plan or his intention to set up the Company with Sy Senior. Madam Lau was cross-examined on her basis for saying this:
27.There are various unsatisfactory features of Madam Lau’s evidence. First, the witness statements do not explain, as it clearly should have done, that she has almost no first-hand knowledge of the matters which she purports to explain. Secondly, given that:
Madam Lau’s evidence lacks credibility. In my view little weight can be attached to the evidence contained in Madam Lau’s witness statement, which reads like a carefully crafted presentation of the 2nd Respondent’s case rather than an honest explanation of what Madam Lau can now recall about events that took place almost 40 years ago. Evidence was also given by Mr To, who is an accountant and joined the Company in 1987 at Mr Fung’s instigation to take charge of administrative and accounting matters. He, of course, also had no knowledge of the basis upon which the Company was established. His understanding of the position is summarised in his answer to a question in cross-examination: “Mr. Fung was the only big boss. He could appoint anybody he likes. Everybody knows that. The company was Mr. Fung’s”. 28.Only four documents were put to witnesses at trial and they were put to Sy Senior. None of them shed light on what had been agreed, if anything, in 1983. The only information available for testing the alternative narratives about the basis upon which the Company was established, is the shareholding and constitution of the Board from 1983 onwards. This is quite complicated and is most effectively introduced in tabulated form:
29.Madam Lau explains in her witness statement the reasons why these changes of shareholding took place.
30.It is clear that if Sy Senior was the beneficial owner of the shares registered in his name in 1983 that the increase in share capital and the allotments on 10 October 1985 had the consequence of diluting his interest from 50% to 25%. However, on 7 January 1986 Ms Woo transferred the 25% shareholding registered in her name to Mrs Sy. The Company’s share capital was increased by HK$500,000 on 20 June 1987. On 24 November 1987 the additional shares were allotted to Sy Senior and Mrs Sy giving them a 60% registered interest in the Company. 31.On 10 July 1987 Sy Senior and Mrs Sy executed declaration of trusts stating that they held 125,000 shares and 175,000 shares on trust for Madam Lau respectively. As Mrs Sy only had 125,000 shares registered in her name this suggests that her declaration of trust was prepared in anticipation of the increase in share capital and a further allotment to her. The effect of these changes would appear to be that between 10 July 1987 and 23 November 1987 Sy Senior ceased to have a beneficial interest in the Company (on the assumption that his Wife was his nominee) and then on 24 November 1987 Sy Senior and his Wife had allotted to them a further 350,000 shares, which taking into account the declarations of trust, resulted in Sy Senior having a 30% beneficial interest in the Company in November 1987; which is the 2nd Respondent’s case. 32.On 18 June 1992 there was a further increase in the share capital to HK$2,000,000 and the additional shares were allotted pro rata. On 18 June 1992 Mrs Sy executed a new declaration of trust stating that she held the additional 300,000 shares allotted to her on trust for Madam Lau. 33.In September 1994 Nam Bik King (“Madam Nam”) transferred her shares (600,000) equally to Sy Senior’s younger brother, Sy Chung Ping, and Mr Yau. Sy Senior says in [66] of his witness statement that he transferred 100,000 shares to Mr Yau in recognition of his contribution to the Company. Given what is recorded in the documents this would only be correct if Madam Nam held the shares registered in her name for Sy Senior. Sy Senior says, which Mr Yau agrees, that of the 300,000 shares he received he held 200,000 as Sy Senior’s nominee. This being the case Sy Senior’s beneficial interest is 10% more than the 2nd Respondent contends. The 2nd Respondent says that Sy Senior is the beneficial owner of 40% of the Company. 34.Sy Senior says that he understood that of the 300,000 shares Madam Nam transferred to Sy Junior, 200,000 were held for Mr Fung. Following discovery Sy Senior become aware for the first time, he says, of a declaration of trust dated 26 September 1994, which states that Sy Junior held 200,000 shares on trust for Madam Lau rather than Mr Fung. 35.As one can see from the table both Sy Senior and Mrs Sy transferred their shares to Mr To and Mr Tsoi (Mrs Sy’s elder Brother), who was the finance manager of the Company, on 2 October 1995. Sy Senior explains that this was done after discussions with Mr Fung because of plans Sy Senior had to emigrate to Canada prior to 1997. Mr Tsoi executed a trust deed on 26 July 2018 confirming that he held the 600,000 share registered in his name on trust for Sy Senior. Sy Senior did not know until it was disclosed that Mr Tsoi had executed a trust deed in his favour on 2 October 1995. The explanation for this, he says, is that the way in which the shares were dealt with was handled by Mr Fung, who he simply trusted to deal with things in accordance with their agreement. Sy senior does not suggest that the declaration is not genuine or that he was tricked into signing it. He says that he trusted Mr Fung and that if he was asked to sign something Mr Fung requested he did so without paying much attention to what it was. 36.Sy Senior is not complaining that he is diluted. His complaint is that he was meant to have an equal say in the management of the Company and he has been marginalised. The first issue that I have decide is whether or not agreements or understandings alleged by Sy Senior were reached between Sy Senior and Mr Fung at the time the Company was acquired and used to establish the business I have described. Principles that guide the court in determining just and equitable petitions 37.Many authorities explain the principles that guide the court in determining a petition to wind up a company on the just and equitable ground. They have most recently been explained by Lord Briggs JSC in an appeal arising from litigation, which has troubled the courts of both the British Virgin Islands and Hong Kong businessmen, between Lau Wing Yan and Chu Kong. On 29 June 2017, in the Eastern Caribbean Supreme Court (High Court of Justice (Commercial Division)), sitting in the Territory of the Virgin Islands, Roger Kaye QC J(Ag) granted an application by Mr Lau for the appointment of liquidators over Ocean Sino Ltd on the ground that it was just and equitable that the company should be wound up. The Court of Appeal of the Eastern Caribbean Supreme Court allowed Mr Chu’s appeal. Mr Lau appealed to the Privy Council. Lord Briggs explains the relevant principles in [14]–[21] of his judgment[3]. Lord Briggs explains that there are two related, but distinct situations in which a just and equitable winding up maybe ordered. It is the second that is relevant in the present case, which Lord Briggs explains in [15]–[17]:
Lord Briggs then goes onto to quote from Lord Wilberforce’s well-known judgment in In Re Westbourne Galleries Ltd; Ebrahimi v Westbourne Galleries Limited[4] by way of a summary of the circumstances in which the relationship between the members of a company may cause their strict legal rights to be subjected to equitable considerations. These include, and I quote from Lord Wilberforce’s judgment at page 380 “The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements …an agreement, or understanding, that all, or some … of the shareholders shall participate in the conduct of the business…”. 38.What, therefore, Mr Yau and Sy Senior are required to demonstrate is first, that an agreement or understanding was reached by Mr Fung and Sy Senior at the time they established the business for which the Company was the corporate vehicle, that the Company’s business was to be managed with equal participation by each of them and, secondly, that this understanding has been breached by those currently in control of the Board of the Company, namely, Mr To and Mr Lau, who are Lockwell’s nominee directors. The First Issue 39.It does not seem to me that in order to determine the first issue in Sy Senior’s favour I need to be satisfied that each alleged component of the FBC pleaded in the Re-Amended Petition has been established or that the relevant components need to be proved with the precision required to establish a legally binding contractual obligation. We are here concerned with the imposition of equitable considerations and what is relevant is whether the court is satisfied that facts and matters have been proved that engage equitable considerations. 40.I am satisfied that Sy Senior and Mr Fung established the business and acquired the Company in order to develop the business on the basis that Sy Senior would be primarily responsible for the operational aspects of the Company, which it has not been disputed by Lockwell was the case until 2018, and that they would be able to participate equally in the management of the Company, which was the position at Board level until Mr Lau was appointed a director on 26 March 2018, giving Lockwell for the first time control of the Board through its nominee directors. 41.As I have explained it has never been Sy Senior’s case that he was to have an equal shareholding with Mr Fung in the Company. It does not seem to me that the unusually complicated shareholding arrangements tell me much about what understandings were reached by Sy Senior and Mr Fung in 1983. The evidence of Mr To and Madam Lau is unhelpful in this regard, because they had no involvement in the affairs of the Company at that time and their evidence before me seemed both partial, scripted and consequently unreliable. What is more helpful is what seems to have happened. Mr Kwan did not cross-examine Sy Senior or Mr Yau on the development of the business or how it was operated and Lockwell adduced no material evidence to gainsay Sy Senior’s case that he was primarily responsible for both. Until 2018 the Company had only two directors one of which was Sy Senior. This is consistent with Mr Fung and Sy Senior having agreed that each was entitled to participate equally in the management of the Company. 42.Although, of less significance the fact, which is not in dispute, that in around 2012 Mr Fung agreed to sell his shares in the Company to Sy Senior with the value determined at 31 December 2013 suggests Sy Senior had a significant role in the Company rather than being little more than an employee, which is how Mr To and Madam Lau characterised his position. The sale did not go ahead because Sy Senior chose not to progress the acquisition at that time. 43.Although Sy Senior’s evidence was on occasions clumsy I found him to be honest and I accept his evidence that he and Mr Fung had agreed, albeit probably in loose terms, that Sy Senior was responsible for operations and they would jointly be responsible for the management of the Company. The Second Issue 44.Mr Yau and Sy Senior rely on the following matters as being inconsistent with FBC and justifying the court winding up the Company:
In general terms what Sy Senior says is that Mr To and Mr Lau, representing Lockwell, have taken control of the management of the Company and marginalised him. 45.Sy Senior was not cross-examined at all on these matters. Neither did Mr Kwan make any submissions in relation to the Second Issue other than the following which appears in his Written Opening Submissions “How are the acts pleaded in part C of the Petition ‘unfairly prejudicial’? to P in particular…”. The answer to that question is that they were inconsistent with Sy Senior having equal participation in the management of the Company and being responsible for its operations. Disposition 46.I am satisfied that since 2018 Lockwell and its nominee directors have caused the Company to be managed in a manner inconsistent with the understanding reached by Mr Fung and Sy Senior when the Company was acquired. Lockwell was Mr Fung’s company at the time it began to receive shares in the Company as a consequence of transfers from Mr Fung’s nominees. In my view Lockwell is clearly bound by the understanding reached by Mr Fung. I am satisfied that it has been demonstrated that it just and equitable to wind up the Company for the reasons I have explained. I will make an order that the Company be wound up and a costs order nisi that the 2nd Respondent pay the Plaintiff’s costs with a certificate for one counsel.
Mr Vincent Lung and Ms Alice Lau, instructed by Ince & Co, for the petitioner Mr Kwan Tong Lee, instructed by Chui & Lau, for the 2nd respondent Attendance of K T Lo & Co, for the 1st respondent, was excused The 3rd respondent was not represented and did not appear The 4th respondent was not represented and did not appear Attendance of the Official Receiver was excused | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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