Chau Hung Kau v. Texgar Ltd. and Others
Read the full judgment text of HCMP 1372/2000 on BabelCite. This High Court CFI judgment was delivered on 24 December 2001.
1. This is a petition pursuant to section 168A of the Companies Ordinance, Cap.32 for a buy out order and other relief.
Cited by 4 cases · Cites 1 case
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HCMP001372B/2000 HCMP1372/2000 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO.1372 OF 2000 ---------------------
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--------------------- Coram: Deputy High Court Judge Poon in Court Dates of Hearing: 4-7, 11-12 and 17 December 2001 Date of Handing Down Judgment: 24 December 2001 --------------------------- J U D G M E N T --------------------------- Introduction 1.This is a petition pursuant to section 168A of the Companies Ordinance, Cap.32 for a buy out order and other relief. 2.The 2nd respondent was a Mainlander. He used to work as a manager in the Plastics Division of the Kwangtung Province Light Industries Import and Export Company. In early 1988, he and his family applied for one-way permit to settle in Hong Kong. Later that year, he met the petitioner in Hong Kong through the introduction of a friend. The petitioner helped to expedite the approval of his application for one-way permit. On 23 December 1988, the 2nd respondent and his family came to settle in Hong Kong. The two of them then went into business together. 3.Texgar Limited ("the Company") was accordingly incorporated on 1 April 1989 with a paid up capital of $1 million divided into 1 million shares of $1 each. The petitioner held 700,000 shares and Mr Kwang Sir Wah ("Mr Kwang"), the accountant of the Company at the material times, held the remaining 300,000 shares as 2nd respondent's nominee. On 3 September 1991, Mr Kwang transferred all the 300,000 shares to the 2nd respondent at no costs. On 5 February 1993, the petitioner transferred 300,000 shares to the 2nd respondent also at no costs. As a result of the transfer, the petitioner holds 400,000 shares whereas the 2nd respondent, 600,000 shares. The two directors are and at all material times the petitioner and the 2nd respondent. 4.Initially, the Company traded in plastic products. Since the early 1990s, its principal business had been the supply of wireless communication equipments to various authorities in the Mainland. The supplier of the communication products was a New Zealand company called Tait Electronics Limited ("Tait"). The business was a success until about 1996. A breakdown of the annual turnover as at 31 December for the years between 1989 and 1998 appears as follows :
5.Despite the difference and change in shareholdings, the profits of the Company had been shared between the petitioner and the 2nd respondent on an equal basis since its incorporation. 6.Disputes arose between the petitioner and the 2nd respondent in 1996. The petitioner complains that the 2nd respondent is guilty of unfair and prejudicial conduct and in total disregard for the interests of the Company and the petitioner. The 2nd respondent is alleged to have committed flagrant breaches of his fiduciary duty to the Company since about 1996 by wrongfully directing all or substantial part of its business to other companies surreptitiously set up by him using the same trade names of the Company and by misappropriating assets of the Company to his own companies for his own benefit. Interim relief 7.As the proceedings developed, the petitioner obtained a number of interim relief. They included :
8.On 2 April 2001, Chu J found the 2nd respondent in contempt by deliberately failing to comply with the two orders of disclosure above. The 2nd respondent was committed to 21 days' imprisonment. But he has not provided any further documents pursuant to the orders to date. The petitioner's locus 9.At the hearing before me, the 2nd respondent sought to raise a preliminary point concerning the locus of the petitioner. He contended that all the 1 million shares of the Company were in fact paid up by him and that the petitioner has been all along holding the shares issued in his name as nominee. There is little dispute that at the time of the Company's incorporation, all the 1 million shares were paid up by funds arranged by or through the 2nd respondent and that the petitioner himself had not used his own money to pay for any of the shares issued to him. The petitioner said in his oral testimony that he regarded the loan as a loan to the Company which then turned it into working capital. The entire sum was subsequently repaid by the Company. However, he was unable to refer to any of the documents evidencing such payments by the Company. The 2nd respondent said the loan was repaid by him. In this connection, he relied on the record in two cheque books (Exhibits D1 and D2). The record alone did not appear to be sufficiently clear or conclusive. Mr Kwang said in his oral evidence in effect that the loan was repaid by the 2nd respondent on behalf of the Company. 10.On the evidence before me, I am prepared to accept that it was the 2nd respondent who repaid the loan. However, I am also satisfied that he did it on behalf of the Company. In any event, it is immaterial how the shares were paid up. For the 2nd respondent's contention that the petitioner holds the shares as his nominee does not fit well with the other evidence, including some contemporaneous documents prepared by him. I will explain why hereinbelow. 11.Firstly, I note the absence of any document showing that the petitioner was a nominee of the 2nd respondent. 12.Secondly, the petitioner acted as a co-guarantee pursuant to two letters of guarantee dated 16 November 1992 and 7 October 1994 guaranteeing the Company's liability under the banking facilities advanced by the Bank to the extent of $1 million and $3 million respectively. A nominee who had no real interest in the Company certainly would not expose himself to such personal liability. 13.Thirdly, the petitioner and the 2nd respondent had been sharing the Company's profits on an equal basis. In his oral testimony, the 2nd respondent asserted that payments were made to the petitioner at the end of the Chinese New Year for each year. He seemed to have suggested that the payments made to the petitioner were not profits but were mere ex gratia payments in return of the favour the petitioner gave him when assisting him in his application for the one-way permit. That I reject. The respondent was clearly making it up as he went along. 14.Fourthly, the 2nd respondent had prepared operation plans of the Company for the years 1992, 1993, 1996 to 1998. Those operation plans gave the petitioner a supervisory role, set progress targets for the 2nd respondent, imposed budget constraints and limited the 2nd respondent's emoluments and loans. The 1992 plan was in fact signed by both the petitioner and the 2nd respondent. If the 2nd respondent did wholly own the Company, there was clearly no reason why he had to and did prepare these plans. His explanation that he prepared them for his own use and consulting the employees is unconvincing and I reject it. 15.Fifthly, the petitioner as shareholder in his own right was clearly acknowledged by the 2nd respondent in the plans for 1992 and 1997. In the 1992 plan, the 2nd respondent wrote :
In the 1997 plan, the 2nd respondent stated thus :
He did not point out in the plans that the petitioner was just his nominee. 16.Sixthly, the petitioner was concerned about the operation of the Company and in particular, its expenditure incurred by the 2nd respondent : see the extract of board minutes dated 8 July 1996. The 2nd respondent also took the trouble to respond in writing on 10 July 1996. The petitioner instructed a solicitor to make further enquiry by letter dated 9 October 1998. A nominee would not raise such concerns about the Company. And the 2nd respondent would not need to answer the queries raised by his own nominee. 17.Thus, despite the fact the petitioner did not personally paid for his shares, the evidence shows overwhelmingly that he is not a nominee of the 2nd respondent as alleged. All along the 2nd respondent treated the petitioner as a genuine shareholder of his shares in his own right. In fact, this point was not raised until the present proceedings commenced. At the beginning of the hearing before me, the 2nd respondent even abandoned this point. But he sought to revive it when cross-examining the petitioner. In these circumstances, I agree with Mr Chan, counsel for the petitioner, that it was only a recent fabrication by the 2nd respondent. I rule against him on this preliminary point. The law 18.Before dealing with the complaints, it is useful, I believe, to set out the relevant legal propositions. They are well settled. 19.Section 168A of the Companies Ordinance, Cap.32 provides :
20.The legislature in enacting section 168A intended to free the court from technical considerations of legal right and to confer a wide power to do what appeared to be just and equitable :
21.The words "unfairly prejudicial" are general words and they should be applied flexibly to meet the circumstances of the particular case : In re Saul D Harrsion & Sons plc, [1995] 1 BCLC 14, per Neill LJ at p.30f. However, the concept of "unfairness" for the purposes of section 168A is not to be judged by reference to subjective notions of fairness, but rather by testing whether, applying established equitable principles, the majority had acted, or was proposing to act, in a manner which equity would regard as contrary to good faith : per Lord Hoffmann in O'Neill v. Phillips at pp.1098E and 1099H, Re Guidezone Ltd [2000] 2 BCLC 321, per Jonathan Parker J at p.355i. 22.The conduct complained of must be both prejudicial (in the sense of causing prejudice or harm to the relevant interest of the petitioner) and also unfairly so. Conduct my be unfair without being prejudicial or prejudicial without being unfair, and it is not sufficient if the conduct satisfies only one of these tests : Re a Company, ex p Schwarcz [1989] BCLC 427, per Peter Gibson J at p.437, In re Saul D Harrsion & Sons plc, per Neill LJ at p.31c. 23.Diverting corporate opportunity from the company is a recognised form of unfair prejudice. In Cook v. Derry [1916] AC 554, HL, Lord Buckmaster LC said at p.563 :
24.Making secret profits and misappropriating the company's assets are likewise recognised forms of unfair prejudice : see Hong Kong Company Laws, Butterworths, Vol 1, paras.8352 to 8353; and Re Tai Lap Investment Co. Ltd [1999] 1 HKLRD 384 where the company's funds and assets were used to subsidise businesses carried out by the majority shareholder's children to the detriment of the company. 25.With these principles in mind, I now turn to consider the evidence relating to the complaints to see if they are made out. The burden is on the petitioner to substantiate his complaints. The complaints can be conveniently grouped under the following heads : (1) siphoning off business from the Company; (2) misappropriating the Company's assets; and (3) failing to account for other Texgar entities set up by the 2nd respondent. I will deal with them in turn. Siphoning off business from the Company 26.Most of the evidence pertaining to this head of complaint is not in dispute. It is common ground that since about 1993, the petitioner did not involve in the business and management of the Company, which were vested with the 2nd respondent. The petitioner however remained one of the co-signatories to banking and accounting documents. His name chop was kept by Mr Kwang on his behalf, who would affix the chop on documents if necessary. In 1996, disputes over the expenditure incurred by the 2nd respondent purportedly on behalf of the Company arose between the petitioner and the 2nd respondent. As a result, the petitioner took away his chop and refused to sign the 1997 accounts and some other documents pending the 2nd respondent's clarification on the matters he raised. 27.It is the 2nd respondent's allegation that because of the petitioner's uncooperative attitude and in order to maintain the business of supplying communication products to customers in the Mainland, he started his own business vehicle. On 23 July 1996, the 3rd respondent was incorporated. (The petitioner said he became aware of its existence only when he saw a reference to it in the Company's 1997 accounts. The petitioner did not seek to dispute this point.) According to the company search record, of the 1 million shares in the 3rd respondent, the 2nd respondent holds 800,000 shares, his wife Wong Yam Ling holds 100,000 shares and his brother Tsui King Hoi holds the remaining 100,000 shares. Both his wife and brother are and were at all material times full time employees of the Company. The 3rd respondent has at all material times been a director and shareholder of Texgar Technology Limited which shared the same address for its registered office as that of the Company. 28.The 2nd respondent readily admitted that that he run the business of the 3rd respondent, which engaged principally in the same business with the same supplier, namely, Tait, and same type of customers as the Company. The Company used to be Tait's exclusive distributor. Its exclusive distributorship ended in January 1998. In March 1998, the 3rd respondent became Tait's exclusive distributor in place of the Company. The 3rd respondent's turnover can be found in its profit and loss account for the year ended 31 May 1999. For the period between 23 July 1996 and 31 May 1998, it was some $105 million. For the year ended 31 May 1999, it was more than $57 million. According to the summary of transactions between Tait and the 3rd respondent between June 1997 and end of April 2001 produced by Mr Wong Ming Kam ("Mr Wong"), the general manager of Tait's sales and marketing department (Exhibit P2), the sales volume Tait had with the 3rd respondent for the periods between June 1997 and May 1998, June 1998 and November 1998, December 1998 and May 2001 were respectively in the region of US$3 million, US$1.8 million and HK$13 million. The majority of these transactions, according to Mr Wong, were on cash basis. 29.It is apparent that even before March 1998 and irrespective of the exclusivity the Company enjoyed, the 3rd respondent had been conducting business with Tait, a point readily admitted by the 2nd respondent under cross-examination, although he said in paragraph 31 of his 1st affirmation dated 31 March 2000 that the 3rd respondent only started business in 1998 when all his efforts to salvage the Company were in vain. This can also be confirmed by the volume of the monthly trade between June 1997 and February 1998 as summarized in Exhibit P2. The total sales volume for this particular period was in the region of US$2 million. It clearly suggests that the 3rd respondent was then actively trading with Tait. 30.According to Mr Wong, Tait conducted business with the 3rd respondent despite its agreement with the Company had not expired yet because of a letter dated 26 June 1997 from the 2nd respondent purportedly written on behalf of the Company (Exhibit P1). The letter read :
Mr Wong's understanding of the letter was that it was just a change in name. He carried out the instructions as requested by the letter. He could not recall if Tait had conducted any business with the Company thereafter. Mr Wong went on to say that in about mid-2001, Tait started supplying communication products to a company called Texgar Communications Accessories Limited. The contact person of this company was the 2nd respondent's brother. Mr Wong was not cross-examined by the 2nd respondent. 31.In his oral testimony, the 2nd respondent explained that he wrote the letter with the intention of negotiating with Tait so that the exclusive distributorship of the latter products would be granted to the 3rd respondent after the expiry of its agreement with the Company in January 1998. It was a suggestion and it was up to Tait to agree or not. He agreed that the Company had not changed its name as suggested in this letter. He said it was written in English and he did not understand it. Perhaps the typist got it wrong. The correct wording should be to the effect that the distributorship granted to the Company would expire soon, it should be given to the 3rd respondent. Under cross-examination, the 2nd respondent said that he treated the two companies and their business very much as his own. Thus whichever company was to be used to obtain the distributorship, it was just the same thing and Tait would approve it. He however accepted that Tait regarded the two companies as the same entity because he had told them so. 32.The 3rd respondent's trade with Tait on cash basis after 11 August 2000 was in apparent breach of the Injunction Order : see paragraph 7(3) above. When it was put to the 2nd respondent, he appeared to be rather evasive. He accepted that the effect of the order had been explained to him by his legal advisers but his understanding was that it would freeze the assets and he was not sure if cash used to effect the trade with Tait was part of the 3rd respondent's assets. 33.In my view, the evidence of the 2nd respondent's diverting the corporate opportunity in the form of the exclusive distributorship with Tait and its telecommunication business from the Company is overwhelming. He had committed flagrant breaches of his duty as a director for his own personal gain to the prejudice of the Company and the petitioner. The 2nd respondent justified his conduct essentially by contending that contrary to the petitioner's allegation, it was he who developed the business of supplying telecommunication products to customers in China; that the Company and the 3rd respondent and their business were his own and they were just the same to him; that he could accordingly did whatever he thought fit when conducting business through them; and that he started the business of the 3rd respondent only after he fell out with the petitioner in mid-1996. These excuses are all unmeritorious. 34.First, whether it was the petitioner or the 2nd respondent developed the business in question is immaterial. It is the business of the Company. He is not at liberty to divert it to companies set up by him for his own benefit. 35.Secondly, contrary to the 2nd respondent's contention, the Company is not his company. Whatever view he might have on the 3rd respondent, the Company remains a separate legal entity with the petitioner and him as shareholders. (I have already ruled that the petitioner is not his nominee.) The 2nd respondent as a director entrusted with the management of the Company's affairs is not entitled to conduct himself in the total disregard of the interest of the Company and the other shareholder. He could not sacrifice their interests for his own personal gain. 36.Lastly, he might have some genuine grievance on the petitioner's way of dealing with the dispute in mid-1996 and his conduct thereafter. But that hardly justifies his wrongful conduct. If he was really aggrieved and the affairs of the Company had come to a standstill as alleged, he could and should bring the matter to the court. What he could not do is to take over the Company's corporate opportunity and business by his own corporate vehicles. Misappropriating the Company's assets 37.The evidence pertaining to this head of complaint is more controversial. On 3 February 1989, the Company became the registered and beneficial owner of a property known as Flat 1, 11/F, Block A, Ventris Place, Nos.19-23 Ventris Road, Hong Kong ("the Property"). It was mortgaged to the Bank for general banking facilities granted to the Company. The petitioner complained that since 5 October 1998, the 2nd respondent caused the Company not to pay the mortgage instalments and allowed the same to fall into default. It would appear that this complaint is invalid. According to the minutes of a board meeting on 27 November 1998 attended by the petitioner and the 2nd respondent (Exhibit D3), it was resolved that as the Company did not have money to repay the mortgage, the only resolution was to sell the Property as soon as possible. 38.Upon default, the Bank on 20 April 1999 sold the Property at HK$7,800,000 to the 3rd respondent. The balance of the sale proceeds of HK$4,206,623.09 was deposited into the Company's account with the Bank. However, on 2 November 1999, the 3rd respondent commenced HCA No.17117 of 1999 against the Company for various loans allegedly advanced between 19 December 1997 and 22 April 1999 totalling more than HK$4.5 million. No defence was filed and default judgment was entered subsequently. On 19 January 2000, the 3rd respondent obtained a garnishee order absolute over the balance of the sale deposits in the Company's bank account. Thereafter, the money was transferred to the 3rd respondent's account with the Bank. The petitioner contended that the entire proceedings were bogus in that the Company did not owe the 3rd respondent the loans as alleged. 39.All the loans did not appear in any of the accounting documents of the Company and the 3rd respondent produced in these proceedings. But the 2nd respondent maintained that the Company did owe the 3rd respondent as alleged. He gave the particulars of the loans in paragraph 10 of his 4th affirmation filed on 13 June 2000. The largest loan of all was made on 19 December 1997 in the region of HK$2.5 million. It was the purchase by the Company from Ng Fung Hong Limited ("NFH") of telecommunication products. In his oral testimony, the 2nd respondent said that the Company took delivery of the goods from Tait in April and May 1997. At that time, the Company did not have sufficient funds to pay Tait as the Bank had already withdrawn its banking facilities. He thus asked NFH to pay Tait for the Company first. On 15 September 1997, the 3rd respondent issued a letter of credit in favour of NFH to effect repayment. 40.According to the invoice issued by NFH dated 22 September 1997, the original purchaser was the 3rd respondent. It was then changed to the Company by deleting the word "Holdings". The 2nd respondent said it was a mistake. He said by after July 1997, the Company was still in operation to deal with some outstanding matters presumably, including the transaction in question. When asked why he did not effect payment by the 3rd respondent directly to Tait on behalf of the Company, the 2nd respondent said that it did not make much difference as the two companies were the same and by that time the exclusive distributorship the Company had had not expired yet. It was done in his way so that there would be some profit to deal with the usual expenditure of the Company. I must confess I have considerable difficulty in understanding what he exactly meant. 41.Further, the goods described in the invoice issued by NFH were 320 pieces of T2040-713-001 Trunked Mobile and 280 pieces of T3030-70110H10 Handportable. Two invoices issued by the Company to the 4th respondent were relied on by the 2nd respondent as evidence of the delivery of the goods to the Company. The invoice dated 30 April 2997 referred to 280 pieces of T2035-713-000 Mobile. On the face of it, the goods were not the same as covered by the NFH's invoice. The 2nd respondent could not give a satisfactory explanation on the discrepancy. 42.The other loans were allegedly in connection with repayments of loans for the Company to the bank, mortgage repayments of the Property for the Company, telephone bills of the 2nd respondent's mobile phone and residential line, hire-purchase instalment of a car registered in the name of the Company and used by the 2nd respondent, management fees of the Property, rental of the Company's office shared by the 3rd respondent, and salaries of staff shared by the 3rd respondent. The deposit slips showed that the 3rd respondent deposited money into the bank account of the Company to meet payments from time to time. The 2nd respondent said that the Property was staff quarters provided by the Company. Thus the management fees were to be properly borne by the Company. He further said that the 3rd respondent did not have to share the salaries and expenses in connection with the Company's office because the 3rd respondent had already paid more than HK$2 million commission to the Company and the Company agreed not to charge the 3rd respondent such expenditure, despite the Company was already defunct around June 1998. He agreed that the decision was after all made by him alone and that the alleged agreement between the two companies was not recorded in the documents. Finally, the 2nd respondent agreed that when the High Court Action was commenced, the Company was already defunct. The writ was nevertheless sent to its registered office which was also the 3rd respondent's office. The acknowledgement of service was filled in by an employee of the 3rd respondent. He said the action and the garnishee proceedings were taken out upon legal advice. There is little doubt that it was the 2nd respondent as a director acting for the Company who decided not to defend the action. 43.Having considered the evidence, I am satisfied that the sums advanced by the 3rd respondent to enable the Company to repay the bank loans, mortgage instalments and management fees of the Property, and hire-purchase instalments of the car were loans to the Company. I accept that the Property was staff quarters provided by the Company to the 2nd respondent rent-free. Mr Chan complained that it was the 2nd respondent's decision not to pay rent. But apparently, that was accepted by the petitioner all along until the present proceedings. However, on balance, I do not accept the 2nd respondent's evidence in connection with the NFH transaction. As I have observed above, the unexplained discrepancy on one of the invoices casts considerable doubt if the Company did take delivery of the goods in question with financial assistance by NFH as alleged. The alleged loan is not of an insignificant amount. I see no reason why it is not properly reflected in the accounting documents of the Company and the 3rd respondent. The explanation by the 2nd respondent why the payment of the goods was not effected by the 3rd respondent for the Company direct was far from satisfactory. The NFH invoice was issued to the 3rd respondent in the first place. Apparently NFH then changed it to the Company. The 2nd respondent said it was a mistake by NFH. But he could not satisfactorily explain why NFH made such a mistake. Lastly, I see no reason why a letter of credit had to be issued to effect repayment to NFH for the Company. It is the 2nd respondent's case that the Company had already taken delivery of the goods some months ago and the price was paid by NFH to Tait on its behalf. It was therefore in effect a loan by NFH to the Company. In those circumstances, it would appear that a cheque from the 3rd respondent to NFH to discharge the Company's debt would do. It would not be necessary to issue the letter of credit and prepare the supporting documents as if it was a sale by NFH to the Company or the 3rd respondent. I am therefore satisfied that the alleged loan by the 3rd respondent to cover the sale with NFH was not genuine. I also find that the 2nd respondent had caused the Company to bear expenses incurred for the benefit of the 3rd respondent, namely, salaries and rental of the office and expenses for the benefit of his own, that is, the telephone bills. I reject his evidence on the alleged agreement whereby the Company would pay salaries and office rental for the 3rd respondent. He was making it up as he went along. Accordingly, the Company clearly had a legitimate defence to a substantial part of the claim. It is therefore wrong for the 2nd respondent to cause the Company not to defend those parts of claim. His conduct clearly constituted unfair prejudice within the meaning of section 168A. Mr Chan further submitted that it was an abuse of process on the 2nd respondent's part. In light of my finding, I do not think I need to address this point any further. Failing to account for other Texgar entities 44.It is not in dispute that the 2nd respondent had caused the setting up in the Mainland of one Guangzhou Plastics Company Limited in December 1990 and the 4th respondent in June 1994. The corporate documents showed that the Company was the sole proprietor of both companies and the 2nd respondent, their general manager. The 2nd respondent admitted under cross-examination that the 4th respondent conducted the same kind of business as the Company and indeed the business of selling the telecommunication products in China was done through the 4th respondent. The 4th respondent according to record employed about 200 employees. The 1997 accounts of the Company revealed that a sale volume of about $9.8 million with the 4th respondent, which constituted a significant part of the turnover for 1997 : see paragraph 4 above. 45.The 2nd respondent did provide some documents in connection with the 4th respondent including various invoices and documentary credits. But I am of the view that is not sufficient to discharge his duty to account for these two companies in the circumstances. In particular, I note that the 2nd respondent was found in contempt by Chu J and he had not provided any further documents pursuant to the disclosure orders after serving the 21 days imprisonment : see paragraph 8 above. Continuous misfeasance 46.Mr Chan submitted that the 2nd respondent had failed to comply with the Receivers' request to provide information. In this regard, counsel referred to the Receiver's report dated 20 April 2001 where the Receiver stated at paragraph 4 :
Mr Chan submitted that the real reason for the 2nd respondent's failure was because he has been siphoning off the assets and receivables of the 3rd respondent in breach of the Injunction Order : see paragraph 32 above. He relied on a copy fax dated 30 November 2001 from one Chengdu Siwi Electronic Inc. ("Chengdu Siwi") in connection with its contracts with the 3rd respondent in March 2000. When pressed under cross-examination, the 2nd respondent said he did instruct Chendu Siwi to pay the 4th respondent instead of the 3rd respondent. He said the transactions were in RMB and due to currency restriction in the Mainland, payment had to be so effected. He did explain to the Receiver but the Receiver did not believe him. I do not find the 2nd respondent's explanation satisfactory. I accept counsel's submission in this regard. Indeed, I am of the view that the 2nd respondent's conduct was an attempt to deprive the petitioner of the fruit of any judgment that he may obtain against the 3rd respondent. 47.Mr Chan further submitted that the 2nd respondent had intermeddled the Company's money with his own money. He submitted that there were huge movements of funds identifiable from his bank accounts which the 2nd respondent had not provided any explanation with. I do not propose to deal with this aspect of the complaint as it is not pleaded in the re-amended petition. A point not pleaded cannot be relied on : see Re Technion Investments Ltd [1985] BCLC 434, Re Tourmaline Ltd [2000] HKC 348. Conclusion 48.For the foregoing reasons, I hold that the 2nd respondent had committed fragrant breaches of his duty as a director of the Company by siphoning off corporate opportunity and business from the Company to the 3rd and 4th respondents and misappropriating the Company's assets by means of the garnishee proceedings in HCA No. 17117 of 1999. The 3rd and 4th respondents, under the control and management of the 2nd respondent, were vehicles used by him to perpetuate his wrongs and had hereby benefited at the expense of the Company. They are liable to account to the Company. The 2nd respondent had failed to account for the 3rd and 4th respondents to the Company as well. All in all, it is beyond doubt that his conduct constituted unfair prejudice. The petitioner is in the circumstances entitled to a buy out order of his shares in the Company to be valued by an independent valuer by reference to the assets, profitability and future prospects of the Company at the date of the petition without discounting to the fact that his shareholding was a minority shareholding and that the valuation be made on the footing that the improper and unfairly prejudicial conduct as found above had not occurred : see Re Tai Lap Investment Co. Ltd, above, per Le Picheon J (as she then was) at pp.443-447. He is also entitled to other relief prayed for in the re-amended petition. 49.As to the appointment of valuer, the petitioner proposed the Receiver. The 2nd respondent did not have any proposal but argued that the Receiver might not be neutral as he was proposed by the petitioner. I find the 2nd respondent's objection misconceived. If appointed, the Receiver is an independent expert to conduct the valuation. Further, having been handling the accounts of the Company since his appointment under the Receiver Order, the Receiver is obviously in the best position to value its shares. 50.In the circumstances, I will enter judgment for the petitioner and make the following orders :
Representation: Mr Pat Chan, instructed by Messrs Kwok & Yip, for the Petitioner 1st Respondent : Texgar Limited, in person, absent 2nd Respondent : Tsui King Yeung, in person, present 3rd Respondent : Texgar (Holdings) Ltd represented by the 2nd respondent, in person, present 4th Respondent : Guangzhou Texgar Electronics Company Ltd, in person, absent |
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