Lai Yuet Chun v. Super Deluxe International Ltd and Others

HCCW000186A/2001

HCCW 186/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 186 OF 2001

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Coram: Hon Kwan J in Court

Dates of Hearing: 27 to 29 May 2003

Date of Handing Down of Decision on Costs: 3 June 2003

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DECISION ON COSTS

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The hearing and general approach

1.The proceedings herein arise out of a petition presented by Madam Lai Yuet Chun ("the petitioner") to wind up Super Deluxe International Limited ("the Company") on the just and equitable ground, alternatively for relief under section 168A of the Companies Ordinance, Cap. 32 that her shares in the Company be purchased by the 2nd, 3rd and 4th respondents ("the respondents" in this decision refers only to these respondents collectively, the 1st respondent being the Company).

2.The substantive reliefs sought in the petition have already been dealt with, as the petitioner, her husband Mr Ng Ho Ming Sherman ("Mr Ng") and the respondents have entered into a Deed of Settlement on 11 February 2002, by which the respondents agreed to purchase the petitioner's shares in the Company at the price of HK$309,811.00 and to procure the Company to repay the loans made by the petitioner to the Company in the sum of HK$439,998.00. They have not, however, reached any settlement regarding costs. Pursuant to the Deed of Settlement, the parties applied for a Tomlin order and an order was made by consent on 20 February 2002 by which all further proceedings herein, save and except proceedings relating to the question of costs, are stayed on the terms as set out in the schedule to that order except for the purpose of carrying the said terms into effect. After the respondents have fulfilled their obligations in the Deed of Settlement, a joint application was made for the dismissal of the petition with the exception of the claim for relief in respect of the costs of the proceedings. An order to this effect was made by consent on 5 March 2003, it was further ordered that the question of costs was adjourned to a date to be fixed, with directions on the filing of evidence in relation thereto and a list of issues for the costs application. On 11 November 2002, leave was given to set the matter down for hearing with four days reserved and the parties would be at liberty to rely on the affirmations filed subject to the deponents being made available for cross-examination.

3.The hearing before me is to resolve the outstanding question of costs. The costs that I have to deal with fall into three areas:

(1) the costs of an application issued by the respondents on 5 October 2001 to strike out or stay the petition, alternatively the prayer for winding up in the petition, as an abuse of the process of the court ("the respondents' strike out summons");

(2) the costs of an application issued by the petitioner on 18 October 2001 for specific discovery of 13 items of documents listed in the schedule to the summons ("the petitioner's discovery summons"); and

(3) the costs of the petition generally, which are not within the above two areas and which have not been awarded to any party.

4.I should mention that evidence was filed in respect of the respondents' strike out summons and the petitioner's discovery summons pursuant to directions given by the court, but as neither application was proceeded with owing to the settlement negotiations, the costs incurred in respect of these applications have not been determined by the court.

5.Insofar as the costs for these two summonses are concerned, I have to form a view as to the prospects of success of the respective applicant in each summons so that I can properly exercise my discretion to make an appropriate order for costs. This involves mainly legal arguments and as far as the evidence goes, I will only look at the evidence on affidavit filed on both sides for the purpose of that particular application.

6.As for the costs of the petition generally, it was recognised by both parties that even though the other prayers for relief have become unnecessary for adjudication, it is still necessary for the petitioner to bring the proceedings for hearing for the purpose of obtaining costs (Ta Tung China & Arts Ltd. v. Fontana Restaurant Ltd. [1999] 1 HKLRD 404). The Court of Appeal held in that case that it was impossible to have the costs liability issue resolved without having the action disposed of in one of two ways, namely, by seeking leave to discontinue the action and asking for the costs to be determined, or by going to trial and having the costs dealt with after the trial. Godfrey JA has this to say at 407F to G:

"Where a plaintiff seeks to recover costs against a defendant in an action in which the substantive issues have been determined in one way or another before the trial, the only way which the plaintiff can recover his costs (if the defendant refuses to pay them) is to bring the action to trial for the purpose of doing so. The issues at the trial will be limited and no additional expense should be incurred by adopting that course ..."

7.Mortimer VP also observed at 407A that the issues on such a trial would be "extremely limited", and like Godfrey JA, he did not elaborate as to the extent to which the issues might be limited or whether it would be necessary in all cases for the court to make a determination of the issues in the proceedings on the merits. The third member of the Court of Appeal, Rogers JA, gave a concurring judgment, and stated at 409C that "there is no alternative but to resolve the action".

8.It was contended by Mr Godfrey Lam, who appeared for the petitioner, that I do not need to resolve the factual disputes arising in the petition and I could simply have regard to the fact that the petitioner had issued letters before action which were completely ignored by the respondents and that she had to bring these proceedings to seek, inter alia, buy-out relief under section 168A. As the respondents did subsequently agree to buy out the petitioner's shares, the respondents ought prima facie be held responsible for the petitioner's costs unless it could be shown that the petition is demurrable or it does not disclose a prima facie case, citing Burgess v. Hill (1858) 26 Beav 244 in his written submission. I do not think Burgess v. Hill is authority for the proposition advanced by Mr Lam. It was held by Sir John Romilly, MR at 249 that the plaintiff could not have the question of costs decided without moving for judgment as the court had "no power to do anything but to adjudicate on the rights of the parties".

9.Mr Lam also sought to rely on the unreported decision of Re Chinese United Establishments Ltd., CWU No. 391 of 1994, 5 October 1995, a case referred to by Mr Rimsky Yuen, SC, who appeared for the respondents. That was a decision on costs by Rogers J (as he then was). The court was concerned with a petition to wind up the company on just and equitable ground and alternatively for buy-out relief of the petitioners' shares. At the second day of the hearing of the petition, the respondents made an open offer to purchase the petitioners' shares and that resulted in a consent order for the purchase of the petitioners' shares. The order provided that it was made without admission that either party was entitled to costs and without prejudice to either party seeking costs against the other. Immediately after the order was made, the petitioners applied for costs on the simple footing that they had substantially obtained the relief for which they had to come to court to get. The respondents resisted costs on the basis that there was no determination upon which the court could order costs as there was no admission of any allegation being well-founded in the consent order, nor was there any finding that the petitioners would be entitled to relief. The respondents' submission was rejected by the court.

10.This decision was upheld by the Court of Appeal in CACV No. 214 of 1995, 24 April 1996. The Court of Appeal did not think it germane to the case there had been no determination on the merits of the issues ventilated in the petition, or that the judge had erred in principle or was manifestly in error in the exercise of his discretion by considering what the petitioners had achieved.

11.I do not think the above decision is necessarily in conflict with the subsequent case of Ta Tung. Costs are a matter of judicial discretion. What materials are to be taken into consideration in the exercise of that discretion would depend on the circumstances of a particular case. It is not apparent from the decision in Chinese United Establishment whether the court was asked to receive evidence and make a determination of the petitioners' entitlement to relief before it was to rule on costs, or whether the court was asked to adjudicate on costs simply on the basis of what was put forward by the petitioners as the parties were anxious to avoid the costs of a three to five week trial of the petition on the merits. I do not think anything was said in the judgments of the Court of Appeal in Chinese United Establishment or in Ta Tung that would tie the hands of the court as to what evidence it should or should not receive and what findings it should or should not make in a particular case for the purpose of adjudicating on costs.

12.In the present case, I was asked by the respondents to receive evidence and make a finding on the petitioners' entitlement to the reliefs sought for the purpose of ruling on the costs liability of the petition generally. It is up to the parties to put forward such evidence as is helpful to their case for the purpose of seeking adjudication on any matter. And if the evidence put forward were such that the court would need to resolve factual disputes with the benefit of cross-examination, then that exercise would have to be undertaken.

13.In view of the evidence filed for the purpose of this hearing, I accept Mr Yuen's submission that I should rule on the petitioner's entitlement to the reliefs sought. To do so, it would be necessary to resolve the factual disputes arising in the petition and the evidence filed in opposition. For that purpose, the parties have served notice to cross-examine the other side's deponents on their affirmations, pursuant to directions given by the court on 11 November 2002, and I have to assess the evidence given on affirmation in the light of the cross-examination of these witnesses.

The background

14.The background matters relating to the Company and giving rise to the petition may be briefly stated as follows.

15.The Company was acquired as a shelf company by the parties in about December 1998 for the retail business of golf equipment. It is not in dispute that Mr Ng and the 2nd respondent, who are both experienced in this trade and have known each other since about 1985, got the idea of forming a company and they approached the 3rd respondent to join in the business venture. It is also not in dispute that the petitioner, who is a housewife with no experience in this trade, took no part at all in the discussions leading to the formation of the Company or in the affairs of the Company thereafter.

16.At all material times, only six shares in the Company were issued. There were three groups of persons with a stake in the Company, they were (i) Mr Ng and the petitioner (the petitioner holding two shares); (ii) the 2nd respondent (holding two shares); and (iii) the 3rd respondent (with one share held by himself and one share held by the 4th respondent who is his wife and who was not involved in any way in the business of the Company). On 15 December 1998, the petitioner and the 3rd respondent were appointed the first directors of the Company and the 3rd respondent became the company secretary. The 2nd respondent was appointed a director on 1 June 1999.

17.In February 1999, the Company opened a shop for golf equipment in Causeway Bay and in October 1999, a second shop was opened in Tsimshatsui. It is not disputed that Mr Ng had participated in the setting up of the two shops and that he was jointly responsible with the 2nd respondent in running the business of the shops. The 3rd respondent was responsible for the accounting, administrative and company secretarial matters.

18.It is the petitioner's case that the Company was formed on the basis of an understanding that Mr Ng would have a right to participate in the management and control of the Company. The respondents' contention is that there was an agreement or understanding, at the time the Company was formed, that Mr Ng was merely to invest in the Company and he was not to participate in the management.

19.On 4 December 2000, the 2nd respondent served a notice dated 2 December 2000 on behalf of the Company to terminate Mr Ng's employment with immediate effect. On 12 January 2001, a board meeting was held at which the 2nd and 3rd respondents passed a resolution purporting to ratify or confirm a resolution of the board on 2 December 2000 to terminate Mr Ng's employment and the notice of termination issued to Mr Ng. One of the main complaints in the petition is the exclusion of Mr Ng from participating in the management of the Company. The respondents' case is that Mr Ng's employment was terminated because he had engaged in activities that caused serious prejudice to the interests of the Company.

20.Before the presentation of the petition on 22 February 2001, the petitioner had by her solicitors written to the respondents' solicitors on 13 December 2000, 22 December 2000 and 8 January 2001 offering to sell her shares to the respondents or to purchase the shares of the respondents at a price to be agreed. There was no response from the respondents to her proposal. It was only on 2 April 2001 that the respondents came back with an offer to purchase the petitioner's shares. Thereafter, negotiations were conducted in correspondence between solicitors and it was only in February 2002 that a settlement was reached, except as to costs.

Costs of the respondents' strike out summons

21.I will deal with the costs of this summons first. The respondents' application was made on the basis that the whole petition should be struck out or the proceedings stayed as the continuation thereof constituted an abuse of the process of the court, the reason being that an offer had been made in open correspondence for the purchase of the petitioner's shares in the Company. Alternatively, the respondents sought to strike out the prayer for winding up in that the petitioner had acted unreasonably in seeking a winding-up order.

22.The petitioner seeks costs of this application against the respondents on the basis that the summons would not succeed. The respondents seek costs of the summons against the petitioner contending that the application was well founded. However, if I should be of the view that the respondents would fail to strike out or stay the entire proceedings and would only succeed in striking out the prayer for winding up, it was submitted that the respondents should be awarded half of the costs of the summons or the costs attributable to that part of the summons for striking out the winding up prayer or that the court should make no order as to costs.

23.I remind myself that it is for an applicant in a strike out application to make out a plain and obvious case. This test applies to an application to strike out on the ground that an offer to purchase the petitioner's shares has been made (Re Prudential Enterprises Ltd. [2002] 2 HKC 375 at 383C to 384B). An applicant would not succeed in striking out if he fails to show that his offer is plainly reasonable or if the reasonableness of his offer is open to question (O'Neill v. Phillips [1999] 1 WLR 1092 at 1107C; CVC/Opportunity Equity Partners Ltd. v. Demarco Almeida [2002] 2 BCLC 108 at 117h). The respondents here must show that a plainly reasonable offer had been made to the petitioner and that the petitioner had acted unreasonably in refusing to accept the offer and in continuing with the litigation.

24.The guiding principles regarding the contents of a reasonable offer in this context are established in O'Neill v. Phillips, supra. at 1107D to 1108B and applied in Prudential, supra. at 382H to 383B and they are as follows:

(1) the offer must be to purchase the shares at fair value;

(2) the value, if not agreed, should be determined by a competent expert;

(3) the value should be determined by the expert as an expert; the objective should be economy and expedition, even if this carries the possibility of a rough edge for one side or the other compared with a more elaborate procedure;

(4) the offer should provide for equality of arms between the parties; both should have the same right of access to information about the company which bears upon the value of the shares, and both should have the right to make submissions to the expert; and

(5) the offer should make suitable provision for the question of costs.

25.I have been taken to the open correspondence regarding the offers made and the negotiations between the parties. There were changes in the offers between 2 April 2001 and 29 September 2001. The summons for striking out was issued on 5 October 2001. After that, revised offers were made in November 2001 and the settlement was reached eventually in February 2002. I do not propose to go into the details of the offers. I have no difficulty in coming to the view that the offer made by the respondents, which had altered over the course of negotiation, was not shown to be plainly reasonable in that the guiding principles of a reasonable offer have not been met.

26.Firstly, as regards equality of arms, the petitioner had from the start requested for access to documents of the Company. This was rejected by the respondents. It was not until 7 September 2001 that the respondents offered equal right of access to documents which bore upon the value of the shares and equal right to make submissions to the independent auditor.

27.Secondly, it was not until 12 November 2001, which was after the summons was issued, that the respondents made provision in their offer regarding the repayment of the shareholder's loan of the petitioner, having persisted for some time that the Company's indebtedness to the petitioner was a matter solely between the petitioner and the Company and should not be taken into account in the offer for the purchase of her shares. Even after 12 November 2001, the respondents had refused to accept the quantum of the petitioner's loan, notwithstanding this had previously been acknowledged on behalf of the Company through its auditors and was also recorded in the management accounts prepared by the Company for the early part of 2001.

28.Mr Lam has referred me to Re a Company, ex p Shooter [1991] BCLC 267, in which Harman J in ordering the controlling shareholder to transfer his shares to the petitioner having found that the affairs of the company had been conducted in a manner unfairly prejudicial to the petitioner, made it a condition of the transfer of shares that the petitioner should pay or procure the repayment of the advances made by the controlling shareholder to the company. The condition was imposed notwithstanding that the court was of the view that if there was an action by the controlling shareholder against the company to recover the money advanced, there were defences which would defeat the claim. This was because the substantial payments which the controlling shareholder did make to the company had plainly conferred a benefit on the company, and it would be a "grave injustice in the ordinary sense of the word to force [the controlling shareholder] to give up his interest in the company but allow the company to keep moneys paid to it by [the controlling shareholder] because of that interest" (at 287e to f). It was held that the powers of the court under section 461(1) of the Companies Act 1985 (equivalent to section 168A(2) of Cap. 32) are sufficiently wide to enable an order to be made for the transfer of shares to be conditional upon the repayment of loans, as it would not be "proper equitable relief to compel the transfer of the controlling shares without arranging for the repayment of the advances" (at 269f).

29.Mr Lam submitted that in the present case, given that the objective of a buy-out remedy is to achieve a fair and clean break between the parties and a fair return to the petitioner of her investment in the Company, the petitioner should not be left in a vulnerable position with a personal remedy for an unsecured debt against the Company over which she would no longer have any control, whilst the respondents, who choose to remain in the Company, would continue to enjoy the benefit of the loans provided to the Company by the petitioner.

30.It is not necessary for the petitioner to establish that in the event that an order for the purchase of her shares were made, this would be conditional on the repayment of the shareholder's advances. The issue is whether the reasonableness of the respondents' offer, which made no provision for the repayment of the petitioner's loans until 12 November 2001 and with no acceptance of the quantum after this date notwithstanding the earlier acknowledgment in the Company's own records, is open to question. I have no hesitation that such an offer cannot be regarded as plainly reasonable.

31.Thirdly, the petitioner had sought a basis of valuation of her shares that would take account of the going concern nature of the Company, the prospects and profitability, as the Company had a good core business and the respondents had proposed to carry on the business after the petitioner was to be bought out. This basis of valuation was refused by the respondents. Eventually, on 8 November 2001, the petitioner gave way and did not insist on this basis of valuation. The fact that the petitioner had agreed to make the concession in an attempt to reach a settlement did not mean that the respondents had made a plainly reasonable offer as regards a fair valuation of the shares.

32.Fourthly, no provision was made for the petitioner's costs. The first offer made on 2 April 2001 was inadequate. This was revised on 7 September 2001, 29 September 2001 and 12 November 2001, long after the affirmations on the disputes in the petition were filed and costs had been incurred. In such circumstances, the respondents' offer could not serve as a ground for striking out the petition unless it also contained a reasonable offer as to costs (O'Neill v. Phillips, supra. at 1106F to H, 1107H to 1108C).

33.For the above reasons, I am of the view that the respondents' application to strike out or stay the entire proceedings cannot be regarded as well founded and that the appropriate order of costs for that part of the summons is that costs should follow the event. I turn to consider the respondents' application to strike out only the prayer for winding up.

34.The respondents' contention here is that there was no real possibility that the court might order the Company to be wound up on the just and equitable ground in view of these matters. The Company was at all material times solvent and profitable and the respondents had expressed their intention to continue with the business. It would not be in the interest of any shareholder to wind up the Company and a pending petition for winding up was and would continue to be harmful to the Company's business. The petitioner was willing to sell her shares and the respondents were willing to purchase, so there was no real interest in the petitioner to have the Company wound up. There was no suggestion, let alone evidence, that the respondents would not be able to pay for the petitioner's shares at a fair value. The petitioner had not adduced evidence to explain why she should or could insist on proceeding with the winding up petition. Reliance was placed by the respondents on Re Wong To Yick Wood Lock Ointment Ltd. [2001] 2 HKC 618 and [2003] 1 HKC 484.

35.The question here is whether it was reasonable for the petitioner to seek a winding-up order as an alternative to relief under section 168A. I again remind myself that in striking out the prayer for winding up, the court must be satisfied that it is a plain and obvious case that the petitioner has behaved unreasonably in seeking this remedy (Re a Company, ex p S-P [1989] BCLC 579 at 586i; Wong To Yick, supra. at 623I).

36.Mr Lam submitted that at the stage of striking out one cannot rule out the possibility that the petitioner might be entitled to a winding-up order but not relief under section 168A, citing Re R A Noble & Sons (Clothing) Ltd. [1983] BCLC 273 at 289i to 292b and Jesner v. Jarrad Properties Ltd. [1993] BCLC 1032. Mr Yuen has referred me to Re Guidezone Ltd. [2000] BCLC 321 in which it was held that the jurisdiction to make a winding-up order on the just and equitable ground was not wider than the jurisdiction to grant relief under section 459 of the Companies Act 1985 and insofar as R A Noble was considered to be authority for the proposition that conduct which is not unfair for the purposes of section 459 can found a case for winding up on the just and equitable ground, the court was of the view that this decision was inconsistent with O'Neill v. Phillips (at 357g to h). For present purpose, I do not think it is necessary to resolve these conflicting decisions, as Mr Lam has not been able to show me how it could be envisaged, on the allegations raised in the petition (which are the same to establish entitlement to both types of relief), that the petitioner might possibly succeed in getting a winding-up order but would not be entitled to relief under section 168A. It seems to me that the possibility of succeeding in one but failing in the other is wholly speculative.

37.Mr Lam referred me to the evidence on the financial position of the Company in the management accounts from January 2001 to April 2001, filed by the respondents in support of the strike out application. The balance sheet as at 30 April 2001 gave the net assets at HK$490,852.45. Losses were suffered in January, February and April 2001 and March 2001 had a net profit of HK$12,322.22. The point was made that the Company's financial position could not be regarded as very strong so that it would have been extremely unlikely for the court to order the Company to be wound up.

38.Mr Lam also relied on the potential problem of recovering the shareholder's loans of the petitioner from the Company in that arguments might be raised that the loans were in the nature of contribution towards working capital and not repayable on demand, particularly in view of the earlier stance taken by the respondents that it was not their responsibility to arrange payment of the petitioner's loans. Although Shooter would appear to be an authority in favour of the petitioner that a condition might be imposed requiring repayment of the loans in the event the respondents were ordered to buy out the petitioner under section 168A, it was not apparently accepted by the respondents until 12 November 2001. The other alternative to recover the shareholder's loans is to have the Company wound up on just and equitable grounds, when the assets would be realised and the creditors and contributories would be paid.

39.I am persuaded that the respondents have not made out a plain and obvious case that the petitioner had acted unreasonably in seeking a winding-up order in the alternative to relief under section 168A. The respondents should pay the petitioner the costs incurred in the entire summons in any event, to be taxed if not agreed.

Costs of the petitioner's discovery summons

40.The petitioner seeks the costs of her summons for specific discovery issued on18 October 2001. The respondents' stance is that the costs of this summons should be awarded to them as the summons would have been dismissed in that the documents sought are not relevant to the issues in dispute, they are not necessary for disposing fairly of the dispute or for saving costs, the ambit of the discovery is so wide as to be oppressive, and the application is a fishing expedition.

41.On 7 May 2001, the court gave directions for the conduct of the petition and made an order for the filing of list of documents and inspection. The parties filed their respective lists of documents in July 2001. Prior thereto, and not long after the petition was presented on 22 February 2001, the petitioner's solicitors had written to the respondents' solicitors on 5 March 2001 seeking copies of 13 items of documents, for the purpose of enabling the petitioner to verify the contents of the draft report and accounts of the Company for the period from 27 October 1998 (which was the date of incorporation) to 31 March 2000 prepared by the auditor and sent to her by the respondents on 20 February 2001. It was stated by the petitioner's solicitors that as one of the allegations in the petition is inaccurate or false accounting, the petitioner was concerned about each and every payment made by the Company and she wanted to see supporting invoices and documents. These 13 items are the same documents listed in the schedule to the discovery summons and the period for which these documents were sought was from 1st February 1999 (when the first shop commenced business) up to the date of the application in October 2001. They relate to the sales and purchases made by the Company, the bank statements, various accounting records and supporting documents, and minutes of directors' meeting.

42.Letters were sent by the petitioner's solicitors to the respondents' solicitors seeking disclosure of these documents in April, May, June, August and September 2001. The reply from the respondents' solicitors was that they failed to see how the documents requested could have any bearing on the petition other than to assist in the determination of the value of the petitioner's shares, which should be left to the independent auditor who would be given access to the books and records of the Company. Eventually, the respondents agreed to allow the petitioner inspection of the books and accounts at the office of the respondents' solicitors without prejudice to their stated position and an inspection took place on 24 September 2001. However, only the petitioner and her solicitor were allowed to inspect the documents, not Mr Ng or the auditor engaged by the petitioner. The inspection was terminated when difficulty arose about the petitioner's request for photocopies of some of the documents.

43.I do not propose to go into each of the individual items of documents listed in the schedule to the summons. I am satisfied that with the exception of items 7 and 11 all the other items are relevant documents in that they relate to one or more of the following issues:

(1) the complaint made by the petitioner in paragraphs 17 and 18 of the petition concerning the discrepancies in the records kept by the Company concerning sales and purchases;

(2) the extent of Mr Ng's participation in the management; and

(3) the determination of the true valuation of the petitioner's shares and whether a reasonable offer for her shares had been made by the respondents so that she should be liable for the respondents' costs incurred after the date of the offer.

44.I do not accept Mr Yuen's submission that just because the petitioner had specified two particular instances in paragraphs 17 and 18 of the petition in support of her allegation that there were questionable transactions and discrepancies in the records of the Company, the scope of specific discovery should be confined to these two specific transactions. It was part of the complaint in the petition that Mr Ng's services were terminated when he confronted the 2nd and 3rd respondents with the transaction he had discovered upon checking the ledger in November 2001 and there was unreasonable refusal of access to the books and records when this was requested in December 2001. Further, I do not think it would be oppressive to order discovery for the period for which the documents were sought.

45.In my view, the petitioner's discovery summons is justified and she should have the costs of this application in any event.

Costs of the petition generally

46.The petitioner seeks the costs of the petition and costs in respect of directions hearings that have been reserved. The primary position of the respondents is that the petitioner should be ordered to pay all the costs of the petition as the petition was doomed to fail in that she would not have succeeded in establishing entitlement to a winding-up order or to relief under section 168A. Alternatively, there should be no order as to costs as the petitioner would not have succeeded in establishing most of her complaints. In the further alternative, she should be awarded costs up to 2 April 2001, alternatively, 7 September 2001 by reason of the offers made by the respondents on those dates.

47.I will first dispose of the last alternative posed by the respondents. In my view, the offers made by the respondents on 2 April 2001 and 7 September 2001 do not constitute reasonable offers for the reasons I have given earlier.

48.An important part of the petitioner's case is the wrongful exclusion of Mr Ng from the management. I have already referred to the different versions of both sides whether there was agreement or understanding for Mr Ng to participate and whether his exclusion was justified. There is no dispute as to the experience and expertise of Mr Ng in this trade and that the petitioner being a housewife was not expected to and did not in fact play any part in the management. It is also not in dispute that Mr Ng had played an important part in the setting up of the two shops, that he had participated in the business after the shops were set up, and that he had acted as one of the guarantors in respect of the credit facilities provided by a supplier to the Company. According to the petitioner, Mr Ng provided the money for the shareholder's loan made by her to the Company. It would have been the most natural thing for Mr Ng to want to participate in the management, in view of his financial stake in the Company and the efforts he had put into the business. Even the 2nd respondent has admitted in cross-examination that it was only fair to allow Mr Ng to participate in the Company since he had a stake in it.

49.It is alleged by the respondents that there was an express agreement or understanding that Mr Ng would not participate in the management after he had helped to set up the two shops. The reason, according to the respondents, was that Mr Ng was, at all material times, a shareholder and director of Golf Master International Limited ("Golf Master"), which carried on the same business as the Company. Because of Mr Ng's connection with Golf Master, to avoid putting himself in a position of potential conflict, he did not become a shareholder and director of the Company and it was his wife the petitioner who took up the two shares allotted and was made a director and one of the signatories of the Company's bank accounts. Golf Master was set up in early 1997 with four shareholders, being Mr Ng, the 2nd respondent, Mr To Yiu Hung Gabriel ("Mr To"), and another. The 2nd respondent had sold his shares in Golf Master and the formalities of the transfer were completed in June 1999.

50.Mr Ng has denied the above allegations and asserted that his association with the Company was known to Mr To from the beginning and Mr To had not raised any objection to his involvement with the Company. It may be that he has not given an entirely credible account when he was cross-examined as to why his wife and not himself was nominated as the director and a registered shareholder. The fact remains that it would have been difficult for Mr Ng to hide his involvement in the Company from Mr To, in the same way that his association with Golf Master was known to the 3rd respondent, as it is common ground that the golf equipment retail business is a small circle. The continued active participation of Mr Ng in the business even after the two shops were set up, for more than a year, without any objection on the part of the 2nd or 3rd respondents, would also belie their allegation that there was an agreement Mr Ng was not to participate in the management. I do not accept the respondents' evidence that Mr Ng was at all material times just a part-time employee or their explanation why they allowed Mr Ng to continue to be involved in the business of the Company. The 2nd respondent admitted that the staff had regarded Mr Ng as one of the bosses. I also reject the 3rd respondent's evidence that Mr Ng's participation was "extremely limited".

51.I find that the Company was set up on the basis of personal relationship and trust between Mr Ng, the 2nd and 3rd respondents and there was an understanding or agreement that these three persons were to participate in the management of its business.

52.I turn to the circumstances in which Mr Ng's services were terminated. The notice of termination was served without forewarning. No mention was made in the notice of the grounds for immediate termination. The 3rd respondent said in his evidence that "we", meaning himself and the 2nd respondent, had told Mr Ng the accusations when the notice of termination was served. The 2nd respondent's evidence is that he did not confront Mr Ng with the accusations and he cannot recall if the 3rd respondent had done so.

53.The petitioner had, through her solicitors, repeatedly asked for the justification for dismissing her husband in four letters to the Company and its solicitors in December 2000 and January 2001. The Company did not give any grounds for termination in the letters in reply except to say that Mr Ng's employment was "duly terminated by the Company in compliance with the laws of Hong Kong and/or the terms of the employment agreement between the Company and the said Mr Ng". It was not until the respondents served their evidence in opposition to the petition in June 2001 that there was any mention in writing of the grounds for terminating Mr Ng's service.

54.According to the 3rd respondent, the employment of Mr Ng was terminated summarily because he had learned from Mr To that some confidential information and trade secrets of the Company were made known to Mr To and the 3rd respondent had come to the conclusion that it must have been Mr Ng who had disclosed the information to Mr To. The respondents have not adduced any evidence from Mr To. The 3rd respondent's testimony is not even direct hearsay evidence. The 2nd respondent did not offer a satisfactory explanation as to why he had not confronted Mr Ng about the alleged unauthorised disclosure, of which he claimed to have taken a "very serious view".

55.I reject the respondents' case that there was proper justification for terminating the employment of Mr Ng and excluding him from the management of the Company. The allegation of the respondents that the petitioner did not come to court with clean hands also falls away, as it is founded on the alleged unauthorised disclosure of information by Mr Ng.

56.There are other allegations in the petition to support the contention of loss of confidence in the management and that the affairs had been conducted in a manner unfairly prejudicial to the interest of the petitioner. As I am satisfied that the wrongful exclusion of Mr Ng from the management is proved, and that would be sufficient to establish entitlement to the reliefs sought in the petition, I do not propose to go into the other allegations in any detail except in one respect.

57.Since I have heard evidence relating to the discrepancy between the purchase price and the actual number of merchandise consigned alleged in paragraph 18 of the petition, it might be appropriate to state what my findings are in this respect. Documents relating to this transaction are in the possession, power and custody of the Company and the 3rd respondent's company, Nelson & Company, which was the seller of the goods to the Company. The 3rd respondent had only dealt with this transaction in a cursory manner in his affirmation in opposition without exhibiting any documents. The documents relating to this transaction were not disclosed in the respondents' list of documents filed in July 2001. Documents were disclosed for the first time in a supplemental list of the respondents served on the petitioner less than a week before this hearing. Even then, not all the relevant documents for this transaction were disclosed. I do not regard the 3rd respondent's evidence as satisfactory in view of the fact that crucial supporting documents have not been disclosed to explain the short delivery.

58.As I am of the view that the petitioner has established her entitlement to the reliefs claimed, she should have the costs of the petition. I should also mention that I do not think this is an appropriate case to deprive the petitioner of any part of her costs, as I was urged to do by Mr Yuen who cited Re Elgindata Ltd. (No. 2) [1993] 1 All ER 232 at 237g. The rule that Mr Yuen has prayed in aid is that where the successful party raises issues or allegations on which he fails and that has caused a significant increase in the length or costs of the proceedings, he may be deprived of the whole or part of his costs. In determining the question of costs in the proceedings, I am prepared to go into the question whether the petitioner is entitled at all to the reliefs claimed, in view of the contention and the evidence filed by the respondents that she is not so entitled. Having come to the view that the petitioner would succeed on the petition, I do not think it necessary to examine each and every issue in the petition so as to come to a view whether the petitioner would succeed in establishing each of the allegations raised. In my view, the court is entitled to take a broad view on the merits of the case in making a determination on costs in this situation.

Orders

59.I make the following orders:

(1) the 2nd to 4th respondents do pay the petitioner's costs in the respondents' strike out summons in any event;

(2) the 2nd to 4th respondents do pay the petitioner's costs in the petitioner's discovery summons in any event; and

(3) the 2nd to 4th respondents do pay the petitioner's costs of the petition, including the costs reserved on 5 March 2002 and 11 November 2002.

60.Regarding the costs of this hearing, I make an order nisi that the petitioner's costs are to be paid by the 2nd to 4th respondents, as it is right that costs should follow the event.

Representation:

Mr Godfrey Lam, instructed by Messrs Winston Chu & Co., for the Petitioner

Mr Rimsky Yuen, SC and Mr Anson Wong, instructed by Messrs Pang, Wan & Choi, for the 2nd to 4th Respondents

Remarks:

Application for leave to appeal by the 2nd and 4th Respondents to Court of Appeal. Application refused. Please refer to the appeal judgment of HCMP003140/2003.