Leung Lai Yuen v. Taiwa Land Investment Co Ltd and Others

HCMP000961/1980

Company law - minority shareholder's petition under s.168A Companies Ordinance - legislative history of provision - meaning of "unfairly prejudicial" - whether equitable principles applicable - whether conduct complained of must still be continuing at time of petition.

Building (Planning) Regulations - meaning of "class B site" and "Class C site" in reg. 2

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Coram: Fuad, J.

Date of Judgment: 10th April 1981

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JUDGMENT

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1. This is a petition brought under section 168A of the Companies Ordinance by Mr. Leung Lai Yuen ("the petitioner" or "Mr. Leung") on the grounds that the affairs of the Taiwa Land Investment Co. Ltd. ("the Company") of which he is a Director and a minority shareholder, are being conducted in a manner unfairly prejudicial to his interests.

2. The Company was incorporated in Hong Kong in 1939 as a private company limited by shares. Until March 1954 the shareholders were Mr. Leung's father, mother and uncle, who held 3,500 shares between them, and a Mr. Nemazee who was the holder of the remaining 3,500 issued shares. Mr. Leung's mother and uncle held their shares as nominees for his father.

3. Upon its incorporation, the Company bought the site of the Majestic Cinema in Nathan Road, Kowloon, and the "Kowloon Cinema Company" was formed, with Mr. Leung's father as its sole proprietor, to operate the cinema as tenants of the Company. The sole income of the Company at that time was the rent from the cinema and from two shops on Nathan Road. The site upon which the cinema and the shops stood was conveniently referred to in the petition and in evidence as "the Old Site".

4. In 1954 Mr. Leung's father and Mr. Nemazee decided to sell the Old Site. They sold the whole of the issued share capital of the Company for $1m. Of the 7,000 shares, Mr. Leung bought 2,100, the Kwong Hing Investment Company ("Kwong Hing") 4,898, and Mr. Fu Yum Chiu ("Mr. Y.C. Fu") one; the remaining share was registered in the name of Mr. Ma Chi Huen, who was Kwong Hing's accountant of the day.

5. Kwong Hing was incorporated in 1947 with a share capital of $5m., which was increased to a sum just short of $20m. in 1955. The shares are presently held by Mr. Y.C. Fu, his six brothers, and his son Mr. Adrian Fu Hau Chak ("Mr. Adrian Fu"). Mr. Y.C. Fu is the Chairman and Managing Director of Kwong Hing. That Company has a large holding of land acquired over the years. Apart from Fu House, it owns a multi-storeyed apartment block, a wharehouse, property in Wanchai, and has shares in numerous other companies.

6. When in 1954, the Old Site was purchased, Mr. Leung and Mr. Y.C. Fu (who were then brothers-in-law) decided to form a partnership with a 30% and 70% interest respectively, to take over and run the Majestic Cinema. The name they chose was "The Majestic Entertainment Corporation" and the partnership still subsists in the same proportions. The initial issued and paid up capital of the partnership was $50,000, of which Mr. Leung subscribed $15,000 and Mr. Y.C. Fu $35,000. The sum of $40,000 had to be paid to the previous operators of the cinema which was borrowed from Kwong Hing, and the partnership paid the Company $11,000 per month as rent and assumed responsibility for all the outgoings and expenses in connection with the cinema premises.

7. The partnership prospered, for the cinema did well. There was no change in rent paid to the Company between 1954 and 1979, and the net profits increased dramatically over the years. Although Mr. Leung did not receive a salary for managing the cinema, his share of the profits of the partnership, between 1959 and 1980, was $4,105,285.

8. To return to the affairs of the Company, in 1955 its capital was reorganised and increased to consist of $3m. A further 98,000 shares were issued, credited fully paid as bonus shares, bringing the issued capital up to 105,000 shares. Thus Kwong Hing held 73,470 shares, Mr. Leung 31,500; and Mr. Y.C. Fu and Mr. Ma Chi Huen, 15 shares each. This is the present position save that as a result of Mr. Ma's death in 1974, Kwong Hing's holding was increased by 15 to 73,485 shares. Since December 1979 the nominal capital of the Company has been $20m. divided into 2m. shares of $10 each, of which 105,000 shares have been issued as fully paid.

9. The present Directors of the Company are Mr. Y.C. Fu, Mr. Adrian Fu, one of Mr. Fu's brothers and the petitioner. The petitioner and Mr. Y.C. Fu have been Directors ever since they acquired part of the share capital of the Company in 1954. It might be convenient here to note that the three respondents to this petition are the Company, Kwong Hing and Mr. Y.C. Fu.

10. In 1955 the Company bought the adjacent site ("the New Site") upon which there were pre-war tenement houses, nine on Saigon Street and nine on Mau Lam Street. Saigon Street is a turning off Nathan Road, while Mau Lam Street, which is parallel to Saigon Street, is a cul-de-sac off Chi Wo Street, to which there is only pedestrian access from Nathan Road. The sum of $485,000 was paid for the New Site and the overdraft which financed the purchase was paid off within nine months.

11. From the outset, once the Company had acquired both the sites, it was intended that both should be redeveloped. In 1961 plans were drawn up by an architect to put up a commercial building in which would be incorporated two new cinemas, one on top of the other, but the plans were rejected by the Building Authority. About four years later, another set of plans were prepared for the erection of a new cinema and offices, and this time they were approved. However, in view of the uncertain economic climate then prevailing, to which the recent riots had contributed, the development was put off once again.

12. In 1973 the nine tenement houses facing Mau Lam Street were demolished after being declared dangerous by the Public Works Department, and the area they had occupied was utilised for a time as a car park. In mid-1975 after successful proceedings taken in the Tenancy Tribunal, the Company obtained vacant possession of the other nine houses on the New Site. The plans that had been submitted to the Tribunal featured a supermarket on the ground floor with car parking facilities on top, but these were later altered and, eventually, upon the New Site a building was put up containing a cinema, restaurants, shopping arcades and offices. Everyone concerned called this "Phase I". In due course, for all the premises which comprised Phase I were found tenants, and the new cinema was run by the partnership, the Majestic Entertainment Corporation, the Company receiving rent of $120,000 per month.

13. It is over the development of the Old Site ("Phase II"), that areas of dispute arose between the Directors of the Company which led to the filing of this petition. Mr. Leung's complaints relate to five matters-

14. Complaints (iii) and (iv) were raised at the hearing by way of amendment to the petition, and the relief now sought is as follows-

15. I now turn to consider the legislative provision under which relief is sought. Section 168A was inserted into the Companies Ordinance (Cap. 32) by a 1978 amending Ordinance, and the Explanatory Memorandum published with the Bill which preceded its enactment states that the relevant clause implements recommendations contained in the Second Report (1973) of the Companies Law Revision Comittee. Both the Memorandum and the Report make reference to proposals made by the Jenkins Committee (Cmnd. 1794). The Hong Kong Committee recommended, inter alia, that a section similar to s.210 of the United Kingdom Companies Act of 1948 should be included in the Ordinance, with the amendments that had been proposed by the Jenkins Committee. I would remark in passing that a recent, so far unreported, decision of the Court of Appeal, Cheng Chung-wai v. The Queen (Cr. App. No. 388 of 1980) confirms that a court may have regard to objects and reasons attached to a Bill for the purpose of ascertaining the mischief sought to be remedied, but not for the purpose of interpreting the words. Since the two Reports are expressly mentioned in the Memorandum, it seems to me legitimate to refer to them also for that limited purpose.

16. However that may be, by a note in the margin to s.168A, as permitted by s.168 of the Interpretation and General Clauses Ordinance, the reader is enjoined to compare it with s.210 of the United Kingdom Companies Act of 1948 (while ceased to have effect on the coming into force of s.75 of the Companies Act 1980). Section 168A is in the following terms-

17. A comparison with s.210 of the United Kingdom Act of 1948 reveals the following essential differences between the two sections. In the Hong Kong provision-

18. Mr. Wright submits that the legislative history of s.168A clearly indicates that it imposes a lower burden on a complainant. Under s. 210 of the United Kingdom Act a petitioner had to establish oppressive conduct, and the use of the expression "unfairly prejudicial" therefore provided a lower threshold for relief. Conduct might be unfairly prejudicial and yet fall short of conduct so oppressive as to justify a winding up order. It followed that in circumstances where orders for winding up or where relief under s.210 1had been refused in the past, relief under s.168A might now be granted and, therefore, all the old authorities had to be reconsidered.

19. Mr. Leggatt, for the respondents, contended that there is little difference between "unfairly prejudicial" and the meaning given to oppressive conduct by the authorities as they had developed, and that in practical terms most of the cases which had failed under s.210 because oppression could not be established might also fail under s.l68A. He submitted that by eschewing the term "oppressive" in favour of the expression "unfairly prejudicial" the legislature had not materially widened the scope of the application of the section; it had merely rendered more explicit the nature of the conduct in relation to which the section was intended to operate.

20. It may well be that the Jenkins Committee did not envisage any significant change to this aspect of the law as interpreted by the cases, and was in effect recommending its clarification, for while it is true that in para. 202 of the Report reference is made to a suggestion advanced to the Committee that "'oppressive' was too strong a word to be appropriate in all cases in which applicants ought to be held entitled to relief under the section", para. 204 is as follows-

"204. In Elder v. Elder & Watson Ltd. 1952 S.C. 49, it was said by Lord Cooper (at page 55) with reference to the meaning of oppression in section 210 "the essence of the matter seems to be that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely". This statement accords with our own view as to the intention underlying section 210 as originally framed, namely that it was meant to cover complaints not only to the effect that the affairs of the company were being conducted in a manner oppressive (in the narrower sense) to the members concerned but also to the effect that those affairs were being conducted in a manner unfairly prejudicial to the interests of those members. We think that the section should be amended to make this clear, and also to make it clear that it is to cover particular acts which are oppressive to or unfairly prejudice the interests of the complaining members as well as to courses of conduct having those effects."

And in para. 212 (in terms adopted by the Hong Kong Committee), the Report states-

21. Whatever may have been in the minds of the two Committees of whose Reports I have made mention, the task that faces me is, of course, to interpret s.168A according to its terms and to further its purpose. Before I attempt to construe the meaning of the expression "unfairly prejudicial" I will refer to a number of cases where what is meant by oppression in the context of s.210 has been discussed. I have already mentioned Lord Cooper's interpretation in Elder v. Elder and Watson Ltd. 1952 S.C. 49 quoted by Jenkins Committee. In Re Jermyn Street Turkish Baths Ltd. [1971] 1 W.L.R. 1042, Buckley L.J., in giving the judgment of the Court of Appeal, reviewed the authorities and, at 1059, had this to say-

"We are not concerned in this case to consider whether the minority shareholders could succeed wither in misfeasance proceedings against the directors or in a minority shareholders' action in the name of the company. We are concerned only to consider whether the affairs of the company were, when the petition was presented, being conducted in a manner oppressive to some part of the members of the company. What does the word "oppressive" mean in this context? In our judgment, oppression occurs when shareholders, having a dominant power in a company, either (1) exercise that power to procure that something is done or not done in the conduct of the company's affairs or (2) procure by an express or implicit threat of an exercise of that power that something is not done in the conduct of the company's affairs; and when such conduct is unfair or, to sue the expression adopted by Viscount Simonds in Scottish Co-operative Wholesale Society Ltd. v. Meyer [1959] A.C. 324, 342 "burdensome, harsh and wrongful" to the other members of the company or some of them, and lacks that degree of probity which they are entitled to expect in t he conduct of the company's affairs: see Scottish Co-operative Wholesale Society Ltd. v. Meyer and In Re H.R. Harmer Ltd. [1959] 1 W.L.R. 62. We do not say that this is necessarily a comprehensive definition of the meaning of the word "oppressive" in section 210, for the affairs of life are so diverse that it is dangerous to attempt a universal definition. We think, however, that it may serve as a sufficient definition for the present purpose. Oppression must, we think, import that the oppressed are being constrained to submit to something which is unfair to them as the result of some overbearing act or attitude on the part of the oppressor. If a director of a company were to draw remuneration to which he was not legally entitled or in excess of the remuneration to which he was legally entitled, this might no doubt found misfeasance proceedings or proceedings for some other kind of relief, but it would not of itself amount to oppression. Nor would the fact that the director was a majority shareholder in the company make any difference, unless he had used his majority voting powers to procure or retain the remuneration or to stifle proceedings by the company or other shareholders in relation to it."

22. The difficutly of attempting to give a comprehensive definition of oppression had earlier been stressed by Jenkins L.J. in Re. H.R. Harmer Ltd. [1959] 1 W.L.R. 62 when he said, at 75:

23. When construing an Australian statute drawn in similar terms, Joske, J. in Re Associated Tool Industries Ltd. [1964] A.L.R. 74, at 82, discussed the principles upon which the court will determine whether acts complained of amount to "oppressive" conduct, and applied Re H.R. Harmer Ltd, Elder v. Elder Watson & Co. Ltd. and Scottish Co-operative Wholesale Society Ltd. v. Meyer [1959] A.C. 324. The same three authorities were discussed and followed by the Full Court of the Supreme Court of Victoria in Re Bright Pine Mills Pty. Ltd. [1969] V.R. 1002, at 1012; and all these cases were reviewed and applied by Menhennitt J. in Re Tivoli Freeholds [1972] V.R. 445.

24. There is no statutory guidance to the meaning of "unfairly prejudicial" in s.168A and so the expression must be applied in its ordinary sense. The Shorter O.E.D. tells us, if we need to look up the word "unfair", that it means "not fair or equitable; unjust". "Prejudice" is defined as "injury, detriment, or damage, caused to a person by judgement or action in which his rights are disregarded; hence, injury to a person or thing likely to be the consequence of some action" and generally "injury, damage or loss." The verb is defined thus: "to affect injuriously or unfavourably; to injure or impair the validity of (a right, claim, statement etc.)" The definition given of "prejudicial" is "causing prejudice; detrimental, damaging (to rights, interests etc.)."

25. Although there has yet to be a judicial pronouncement on the meaning of "unfairly prejudicia|" either as used in s.168A of the Hong Kong Ordinance or in s.75 of the United Kingdom Companies Act of 1980, that expression occurs in s.252 of the Companies Act of South Africa and there have been decisions interpreting that section. One such was Donaldson Investments v. Anglo-Transvaal Collieries [1979(3)] S.A. 713 where Preiss J. referred to a number of South African authorities which had construed s.252 as contrasted with a provision in a previous Act that had required oppressive conduct to be established. It is necessary, perhaps, to note that South Africa's section speaks of an act or omission which is "unfairly prejudicial, unjust or inequitable" and as regards the additional words which do not appear in the Hong Kong section, Preiss J. held that the word "unfairly" qualified only the word "prejudicial", for it would be tautologous to speak of any act or omission as being unfairly unjust or unfairly inequitable. In a sense, therefore, it can be said that the s.168A is not so wide, in that conduct which is unjust or inequitable, without being prejudicial, will not suffice to found a claim for relief. Preiss J., in discussing local authorities on the predecessor to s.252 noted, at 720, that the courts had from time to time given differing opinions as to the meaning of "oppressive conduct". In some of the cases the view had been expressed that oppressive conduct meant tyrannical conduct or a tyrannical abuse of power, while in other cases, a less stringent test had been applied, it being held that oppressive conduct involved no more than a visible departure from the standards of fair dealing, or a violation of the conditions of fair play, on which every shareholder who entrusted his money to a company was entitled to rely. He held that this less stringent level was appropriate for the application of the new section and said at 722-

"Couched in another form, I agree that the applicants must establish that the majority shareholders are using their greater voting power in a manner which does not enable the minority to enjoy a fair participation in the affairs of a company. The emphasis is upon the unfairness of the conduct complained of. It must be conduct which departs from the accepted standards of fair play, or which amounts to an unfair discrimination against the minority. Of course, this is little more than an enunciation of the text; the circumstances of each case must be examined in order to decide whether it is such conduct entitling the court to intervene under s.252."

26. If I were to attempt a similar enunciation of the general purport of the expression "unfairly prejudicial" in s.168A, while recognising the slight difference in the wording of the South African statute, I would respectfully follow the approach by Preiss J.

27. However difficult it may be to imagine circumstances where it would make any practical difference, it seems clear that elements of both unfairness and prejudice must co-exist for the section to come into play. Conduct which is intrimsically prejudicial to the interests of a shareholder, without also being unfair, will not be enough; conversely the section cannot be relied upon if the conduct of which complaint is made is merely unfair.

28. At the end of his speech in Scottish Co-operative Wholesale Society Ltd. v. Meyer, Lord Denning stated that in reaching its decision the House of Lords was interpreting s.210 in a liberal spirit to advance the remedy, for it had been designed to suppress an acknowledged mischief. In Hong Kong the general principles of interpretation are laid down by statute, for s.19 of the Interpretation and General Clauses Ordinance is to the following effect-

"An Ordinance shall be deemed to be remedial and shall receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Ordinance according to its true intent, meaning and spirit."

This, of course, I have endeavoured to do.

29. I will now refer to what the petition calls "a basic understanding" which forms the basis of some of them and upon which considerable reliance is placed. The petition states that the basis upon which Mr. Leung and Mr. Y.C. Fu agreed to acquire the share capital of the Company in 1954 was that the Company would be developed by borrowed money and out of its accumulated income and not by the issue of new shares. Such basic understanding, it is averred, had been reached in numerous discussions between the petitioner and Mr. Y.C. Fu before the share capital was acquired, of which Mr. Leung could not now give particulars. The basic understanding had been reflected in the course of business of the Company down to the passing of a resolution on 10th December 1979, in that income had been accumulated, with the exception of one dividend paid in December 1966 whereby he had received $37,000 (Mr. Leung accepted that he had overlooked a second dividend paid to him in November 1968, amounting to $15,750). No Directors' remuneration had been paid. The New Site had been paid for out of the rental income of the Company. The basic understanding had continued up to the December 1975 resolutions in that the development of Phase I had been completed out of accumulated funds and borrowed money, with no suggestion that the share capital should be increased until Mr. Adrian Fu made a proposal to that effect in September 1979. Another, and independent, branch of the basic understanding was put forward and it is that the Company's property would be developed for realisation for a capital profit other than long term investment. I would mention here that the respondents deny the existence of a basic understanding of the kind alleged.

30. It will be convenient now to consider whether, assuming the averment that there was a basic understanding is established, its existence would affect the issues before me. Mr. Wright submits that the principles approved by the House of Lords in Ebrahimi v. Westbourne Galleries Ltd. and Others [1973] A.C. 360 are indeed applicable and that every one of the three factors given by Lord Wilberforce as importing equitable principles into the management of a company is present here. After reviewing the authorities, in his speech Lord Wilberforce had this to say, at 379-

31. One of the cases referred to with approval ("The whole judgment is of value") by Lord Wilberforce was Re Wondoflex Textiles Pty. Ltd. [1951] V.L.R. 458 and he read the following passage which occurs at page 467 of the judgment of Smith J.-

"It is also true, I think, that, generally speaking, a petition for winding up, based upon the partnership analogy, cannot succeed if what is complained of is merely a valid exercise of powers conferred in terms by the articles: ..... To hold otherwise would enable a member to be relieved from the consequences of a bargain knowingly entered into by him: ...... But this, I think, is subject to an important qualification. Acts which, in law, are a valid exercise of powers conferred by the articles may nevertheless be entirely outside what can fairly be regarded as having been in the contemplation of the parties when they became members of the company; and in such cases the fact that what has been done is not in excess of power will not necessarily be an answer to a claim for winding up. Indeed, it may be said that one purpose of (the just and equitable provision) is to enable the court to relieve a party from his bargain in such cases."

Re Wondoflex was applied in Tivoli Freeholds (p.468 of the judgment of Menhennitt J.).

32. It seems to me to be essential to bear in mind that Westbourne Galleries was decided on a petition under s.222(f) of the Companies Act 1948, a provision in precisely similar terms to our s.177(f), which provides that a company may be wound up by the court if it is "of the opinion that it is just and equitable that the company should be wound up". This is made clear by the passage from the speech of Lord Wilberforce that I have just read out, and earlier, at p.375, he had said-

"One other signpost is significant. The same words 'just and equitable' appear in the Partnership Act 1892, section 25, as a ground for dissolution of a partnership and no doubt the considerations which they reflect formed part of the common law of partnership before its modification. The importance of this is to provide a bridge between cases under section 222(f) of the Act 1948 and the principles of equity developed in relation to partnership."

33. It is also apparent that Lord Cross of Chelsea founded his speech on the "just and equitable" provision in section 222(f). Re Wondoflex was decided on similar statutory provisions, and so was Tivoli Freeholds. Section 186 of the Uniform Companies Act of Australia (asdid s.210 of the 1948 Act of the United Kingdom) requires the petitioner to establish, inter alia, that to wind up the company would unfairly prejudice the members who have cause to complain but that otherwise the facts would justify a winding up order on the "just and equitable" ground. The Australian section, however, goes further and gives a residual power to the court to make an order (other than a winding up order) if the court is of the opinion "for any other reason it is just and equitable to make an order."

34. In my view the equitable principles as stated in Westbourne Galleries could also be said to apply to petitions founded on provisions drawn in terms similar to s.210 of the Companies Act of 1948. But s.168A of the Companies Ordinance (and, I note, s.75 of the 1980 English Companies Act) omits the winding up limb with its reference to "just and equitable" and I have to consider whether the equitable principles can nevertheless be prayed in aid by the petitioner.

35. Mr. Leggatt has contended that since this is not a petition for a winding up under the "just and equitable" clause and since s.168A makes no mention of "just and equitable" considerations, equitable principles of the kind which were successfully relied upon in Westbourne Galleries have no application to the present case. While reserving his stand on this proposition, he acknowledged that it could be argued that the use of the words "unfairly prejudicial" allowed equitable principles to be imported.

36. It seems to me that a court adjudicating upon a petition under s.168A must subject both the conduct complained of, and the result of such conduct, to an objective examination taking all the facts and circumstances into account, including the nature of the company and the relationship of the parties. Conduct which might be incapable of being put forward as "unfairly prejudicial" in the context of a large corporation might assume a quite different complexion where a small commercial enterprise is involved. It will, however, be recalled that in the passage I have read from Lord Wilberforce's speech (page 379) in Westbourne Galleries, before giving examples of circumstances in which considerations of an equitable nature might arise, he said: "Certainly the fact that a company is a small one, or a private company, is not enough. There are very many of these where the association is a purely commercial one, of which it can be said that the basis of association is adequately and exhaustively laid down in the articles."

37. I regard the following factors as being relevant to this aspect of the case-

38. The conclusion I come to is that in such circumstances, for the Company to depart from any general intention and common understanding which is proved to have existed when the association was formed and the joint venture embarked upon, could be regarded as "unfairly prejudicial" to the petitioning shareholder within the meaning of s.168A. In effect, therefore, but by a different route, I hold that the Westbourne Galleries principles are applicable to this case. I now go on to outline the complaints.

39. The first complaint: a purposed rights issue in December 1979. This is urged upon me as being a general complaint of unfairly prejudicial conduct, as well as a breach of the basic understanding. The proposal was first made at a Board Meeting on the 12th September 1979. The finances of the Company had been discussed and the minutes record that Mr. Adrian Fu's proposal "to increase the Company's capital was adopted and details were to be discussed at a later stage." At the next meeting of the Board of Directors on the 10th December 1979, Mr. Y.C. Fu, as Chairman, explained that to raise the necessary capital for Phase II, the Company proposed to call an Extraordinary General Meeting of its shareholders to consider a resolution that the share capital of the Company should be increased to $20m. By the creation of 1,700,000 new shares of a nominal value of $10 each ranking pari passu with existing shares.

40. Mr. Leung objected to the proposal, and his comments, which he had reduced into writing, were incorporated in the minutes. They were as follows-

"I object to the proposed increase of capital and issue of shares for the following reasons, most of which I have said before.

41. Under this arrangement Kwong Hing would receive an additional 73,485 shares, Mr. Leung 315,000 and Mr. Y.C. Fu 15 shares. Mr. Leung voted against the motion but it was carried by the votes of the other three Directors, Mr. Y.C. Fu, Mr. Adrian Fu and Mr. Fu Yum Chiu. Despite Mr. Leung's objections, repeated and amplified in a letter from his solicitors, the proposal went forward and was adopted by the Extraordinary General Meeting of shareholders, by a majority, on the 18th December 1979. On the following day the Company offered Mr. Leung his entitlement of the new shares for which payment (amounting to $3.15m.) had to be made by the 2nd January 1980. Mr. Leung's solicitors took up the matter again on the 19th December, and on that day, the offer was rescinded, and in his affirmation in opposition to the petition, Mr. Y.C. Fu states that the Company is prepared to abandon all plans to finance Phase II by capital in order to accomodate Mr. Leung.

42. For the petitioner, Mr. Wright contends that the additional capital was not immediately required, and that the period given to take up the rights issue was both unnecessarily short and unrealistic with the Christmas and New Year holidays in mind. Apart from that, he pointed out that on the evidence the full value of each share was in the region of $4,000 and submitted that in a private company of this nature, if a rights issue was justified, it must be at full value. If the shares were issued at par value only, it discriminated against a minority shareholder. The majority controlled the Company and could get the full benefit of their investment. The minority could only do so by courtesy of the majority. Moreover, the more the shares were offered at an undervalue, the greater was the number of shares that would have to be issued to produce the required amount. And the greater the number of shares issued, the more the interest of a minority shareholder would be diluted if he did not take up his entitlement.

43. To demonstrate this argument, Mr. Wright calculated that if one assumed each share to be worth $4,000, then only 2,625 new shares would be required; adding that to the number of existing shares, a total of 107,625 would be reached. If Mr. Leung had declined to take up the shares, he would still hold 29.27%, sufficient to block a special resolution. However, if the shares had been issued at par, as had been intended, Mr. Leung would only be left with 2.7% if he had rejected the offer. In September 1979 Mr. Leung had been worried about the financial provision he would have to make his wife in pending divorce proceedings, which had not been finalised by December. In opening the petition Mr. Wright said that the court would be invited to infer in all the circumstances that the proposed issue was not made for the purpose of raising capital, even if it could be assumed that it was a proper method, but for the improper and collateral purpose of forcing Mr. Leung to allow his interests in the Company to be diluted by taking advantage of his temporary financial embarrassment caused by the divorce proceedings.

44. In his affirmation, Mr. Y.C. Fu states that there is no truth in the suggestion that the increase in share capital by a rights issue was proposed in order to put pressure upon Mr. Leung. This was never intended. At the Board Meeting of the 20th September 1979, Mr. Leung had discussed his personal affairs with his fellow Directors, asking that no record of that discussion should appear in the minutes, and it was on account of the friendly relationship that had been built up over the years that the Board agreed to postpone Phase II until his matrimonial problems had been resolved. As regards the withdrawal of the rights issue, this was done to limit the areas of dispute in an effort to avoid further unpleasantness, and in deference to a long standing and happy business and family relationship.

45. By his affirmation, and in evidence before me, Mr. Y.C. Fu denied the existence of any form of basic understanding as regards the way the Company would be financed or developed and re-iterated his repudiation of any suggestion that he or the Company attempted to put pressure on the petitioner. He also explained why he felt it was necessary to raise the money by means of the rights issue when the offer was made, despite that fact that the final form of the development of Phase II had not been agreed upon. Balance sheets had to be drawn up to raise additional finance from the Bank and they had to be ready for a meeting of the Tenancy Tribunal on the 28th December, 1979, later postponed to the 9th February 1980.

46. In his affidavit of the 3rd March 1981, Mr. Leung accepted that he did not object to the proposed new issue on the grounds that he could not afford to take up the shares. He said "I could have managed to take my shares if forced to do so. I objected to the proposed issue on principle because it was contrary to the basis upon which I entered into the venture, and because in any case in a small private company a minority shareholder should only be compelled to invest more share capital to maintain his position if a further issue of shares is absolutely essential. It is not in this case". It is here necessary to note that it was not put to Mr. Y.C. Fu (or indeed to Mr. Adrian Fu) in cross-examination that his actions were prompted by a deliberate desire to put pressure on Mr. Leung at a time when he was worried about his financial future and once the oral evidence had been given, on behalf of the petitioner, Mr. Wright abandoned the averments that the Fu's actions were prompted by sinister motives.

47. The second complaint: the proposed development of the Old Site by building an hotel. The minutes of a Directors Meeting held on the 10th December 1975 show that Mr. Y.C. Fu, Mr. Adrian Fu and Mr. Leung were present and that the following resolutions were passed-

48. At the 20th September 1979 meeting of the Board, according to the minutes, the Chairman (Mr. Y.C. Fu) invited discussion on the Phase II development. After the financial position of the Company had been explained by Mr. Adrian Fu to Mr. Leung, the latter is recorded as having "enquired whether it was feasible for the Company to participate with an interested party in the hotel development" and the minutes show that "(a)fter much deliberation, members agreed in principle to set up an operating company to manage the hotel project and simultaneously, to look for suitable partners to jointly develop the proposed hotel." The minutes also record that a certain firm was confirmed as the architects for the Phase II project and that the Company's solicitors would be "authorised to amend the Company's Articles of Association to include clauses in respect of the investment and operation of hotels".

49. I have already read out the written objections Mr. Leung made at the Board Meeting on the 10th December 1979, and paragraph 1 includes the nature of his objection to the hotel project. Mr. Leung deals with these objections in very considerable detail in paragraph 26 of the petition. Apart from a number of what can conveniently be categorised as commercial considerations, Mr. Leung also complains of breaches of the basic understanding that the property would be developed for realisation and capital distribution. The paragraph is difficult to summarise and so I will read it out in full-

"26. At the meeting of directors aforesaid held on the 10th December 1979 Mr. Fu as. Chairman stated that the purpose of the proposed issue was to raise necessary capital for the development of Phase II. The shareholders present other than your Petitioner concurred in this opinion. The development proposed by the majority was the erection of a 250 to 300 rooms hotel on the Old Site. By compelling the Company to embark upon such a development the majority shareholders would not be acting in the interests of the Company and would be engaging in conduct which was unfairly prejudicial to your Petitioner or further or in the alternative oppressive of your Petitioner in each case as a minority shareholder for any one or more of the following reasons in addition to or supplemental to the reasons given in the last preceding paragraph:-

50. In his affirmation of opposition, Mr. Y.C. Fu answers the points made by Mr. Leung seriatim, and puts forward arguments as to why the proposed hotel project was at one time commercially sound and feasible. Certainly, I would note in passing, the Hong Kong Tourist Association thought it was an excellent idea, for the hotel project received enthusiastic support in a letter addressed by the Association's Executive Director, and dated the 6th June 1979, to the Company's architects. Mr. Y.C. Fu adds that late in 1979, before the petitioner had voiced any objection, and notwithstanding the views of the Hong Kong Tourist Association, he had begun to wonder whether the delay in embarking on the project had affected its viability, for several hotels were going up in the area and with the substantially increased competition, supply might exceed demand. He had mentioned his doubts only to his son, Mr. Adrian Fu, and had privately, and at his own expense, instructed the Company's architects to prepare figures to indicate what floor area could be obtained if Phase II were to be developed as a commercial/office building. Sketch plans for a commercial building had been tabled for discussion at a Board Meeting held on the 19th September 1980, and comparative floor areas were produced for comparison. As shown by the minutes, a more accurate set of figures was called for and he, as Chairman, had said that the policy of the Company as to which form the redevelopment should take, obviously depended on the outcome of the further study.

51. The third complaint: the valuation of the Company's property in November 1980. At the 19th September 1980 meeting of the Directors, the subject of commissioning a valuation report of the Company's property was brought up for discussion. This meeting had been adjourned from the 5th September 1980 and the notice for that meeting had mentioned the proposed valuation. In reply to a letter from Mr. Leung's solicitors about the proposal, the Company's solicitors had explained that the Company felt it to be desirable for everyone concerned "that a professional valuation of the site is obtained in the hope that the value of the site may be a settled element between the parties." At the adjourned meeting itself, Mr. Leung again produced written notes which were reproduced in the minutes. They were as follows -

52. The meeting agreed that reputable valuers should be approached and Mr. Adrian Fu undertook this task. Eventually Messrs. Jones Lang Wootton were selected, and they produced their report in November 1980. Under the heading "General Comments and Valuation" occurs the following passage -

"In addition, redevelopment of part of the site only will result in less desirable planning and lower efficiency in the use of both retail and office space. The value of the property will accordingly be further depressed. Although your instructions are for us to provide you with our opinion of the open market value of the property taking into consideration the effect of the existence of the new M² building, we nevertheless feel that should the property be disposed of, attempts should be made to secure surrender of the tenancies so that the entire site could be redeveloped to achieve higher plot ratio, better planning and therefore higher sale price."

53. In evidence, Mr. Adrian Fu acknowledged that he had instructed the firm to make the valuation on the assumption that the new cinema and its shops (referred to as the "M² building" in the report) would remain. Mr. Wright submits that only a formal decision of the Board could have varied its previous decision to obtain the current open market value. It was wrong and a breach of confidence between the shareholders, and unfairly prejudicial conduct on the part of the majority to give what amounted to depreciatory instructions without informing or consulting Mr. Leung. He suggested that the wrong basis of the valuation might never have come to light but for the valuers' frankness.

54. Mr. Leung sought an independent valuation of the current market value of the whole of the property from Messrs. F.Y. Kan, after he had received the Jones Lang Wootton valuation. This was obtained on the 17th February 1981 and three days later, Mr. Leung, through his solicitors, offered to buy or sell at a price based on the figure of 560 m. mentioned in that valuation, an offer which is still open. Mr. Leung has stated in evidence that he would prefer to buy. The petition, explained Mr. Wright, had therefore been amended to ask, in the alternative, for an order that the majority shareholders should sell to Mr. Leung, indicating the petitioner's belief that the F.Y. Kan valuation was fair and reasonable.

55. Mr. Adrian Fu told the Court that he had given instructions to Messrs. Jones Lang Wootton to value the property on the assumption that the M² building would remain because he thought that this was what the Board had intended.

56. The fourth complaint: an offer made by third parties in 1973 to purchase the property of the company. This complaint was made by an amendment to the petition, and arose in this way. In Mr. Y.C. Fu's affirmation, when countering the allegation that there had existed a basic understanding that the property of the Company would be developed for realization for a capital profit, he pointed out that in 1973 two enquiries had been made by developers about the possibility of buying the land belonging to the Company at prices in excess of $100 m. He remembered having discussed the two offers with the shareholders of Kwong Hing, and with Mr. Leung, when the idea of selling had been rejected. If there ever had been any intention to realise the Company's capital growth, that would have been an ideal opportunity, for a sale then would have meant a return of over 100 times the parties' respective initial investments. After adverting to Mr. Y.C. Fu's affirmation, the relevant paragraph of the petition, as amended, reads -

"Mr. Fu failed (prior to his affirmation) to disclose to your petitioner that such enquiries had been made and he failed to discuss with your petitioner whether the same should be accepted or whether further negotiations should take place upon them. Mr. Fu should have disclosed to your petitioner as a shareholder and director of the company that such enquiries had been made, and should have consulted your petitioner before rejecting such enquiries or any proposals to sell at that time."

57. It is contended on Mr. Leung's behalf that if he was not informed of the offer which provided "an ideal opportunity to sell", this was conduct unfairly prejudicial to him. It showed a cavalier approach tithe affairs of the Company, and indicated that Mr. Y.C. Fu and Kwong Hingwere treating the Company as if it were their own, making important, decisions which should instead have been laid before the Board for careful assessment. Another limb of this argument is that even if Mr. Leung was consulted informally, Mr. Fu was still open to criticism. While much depended on the course of the discussion, if Mr. Fu had made it clear that the majority would not sell in any event, Mr. Leung's opposition would have served no purpose; informal discussions were not a proper vehicle for important decisions.

58. In his evidence Mr. Y.C Fu told the Court that one of his friends, a Mr. Leung Cheung, had verbally offered $100 m. for the Company's property sometime in 1973. He remembered telling the petitioner about it who had not reacted one way or the other. He himself had not thought it worthwhile to investigate the possibilities of selling at that time and the matter had been discussed no further.

59. The fifth complaint: "A capital commitment of $55 m." This complaint arises out of an item in the accounts of the Company for the year ending 31st December 1979. The Company's auditors, a firm of certified public accountants, reported in writing in the usual way that in their opinion the accounts to which their report was attached complied with the law and gave a true and fair view of the state of affairs of the Company. Notes were included which were stated to form an integral part of the accounts, and note 4(a) was in the following terms -

"4. There were capital commitments at 31st December 1979 as follows:-

60. The accounts were sent to Mr. Leung and he refused to sign them on account of this entry and referred the matter to his solicitors. The Company's solicitors later offered an explanation to the effect that the note to which exception had been taken referred to the estimated redevelopment cost of Phase II on the basis of a hotel project as estimated by the Company's architects and they suggested that despite Mr. Leung's subsequent objection to a hotel project, it was generally good accounting practice to make a provision for a projected major capital expenditure such as the one under discussion. Mr. Wright submits that since the entry was made without Board authority it showed a total disregard for the rights and interests of the petitioner and for the due process of administration, and that it indicated an attitude of mind on Mr. Fu's part that he could treat the Company as his own. It was further suggested that it was the more reprehensible in all the circumstances because had Mr. Leung been so foolish as to approve the accounts, it would be said that he had accepted the hotel project.

61. I now return to the basic understanding and to" consider whether the petitioner has established its existence. I have already referred to some of the circumstances put forward as indicating that such an understanding formed the basis upon which Mr. Leung invested in the Company. As regards the first branch - that the property should be developed for realisation for a capital profit - Mr. Wright also argued that since the Company was a private one, with unusually severe restrictions on the transfer of shares (he drew my attention particularly to Articles 22(l) and 22(7)), a minority shareholding in such a company was particularly vunerable. It conferred no control over the investment and could not, in practice, be sold. While such a holding might be satisfactory in the short term pending development, it was highly unsatisfactory in the long term. It was contended that in relation to the second branch of the understanding (that the company should be developed out of accumulated income and borrowing rather than out of fresh share capital) the circumstances pointed to Mr. Leung's averment being correct. Nobody investing in a minority position in a company with such drastic restrictions on the right to transfer shares would be willing to be forced into a position where he would be compelled to choose between putting in more money or having his proportionate interest diluted. Moreover the course of development in two Phases had been consistent with the averment.

62. Mr. Leggatt points out that however plausible may be the grounds set out in the petition on this aspect of the matter, it is the oral evidence that is all important, and he drew attention to admissions and concessions made by Mr. Leung in cross-examination that, in his submission, plainly indicated that there was in fact no basic understanding of any kind -

63. Mr. Leggatt also submitted that Mr. Leung's answers in cross-examination showed the reality of the matter. It was only when the petitioner had appreciated for the first time the difficulty he might have in realising his investment that he had begun to reflect on the disadvantages of being a minority shareholder - namely that he could not be certain of disposing of his interest at his own whim.

64. Mr. Wright contended that there had been no occasion to mention the understanding at all from the time of the acquisition of the Company until the cash offer had first been mooted in September 1979, and not even then because the matter had been postponed at Mr. Leung's request. It would, in his submission, be unjust to infer that there was no understanding because he had not earlier brought it to notice. Mr. Leung had raised the point when he might have been expected to do so, when the Board had finally decided to issue the shares.

65. As regards development for capital growth, Mr. Wright submitted that this was common ground, and since Mr. Leung had invested in the Company as an individual, in contrast to Kwong Hing, it was a reasonable inference that he would expect to get the benefit of capital growth. The fact that Mr. Leung had not objected to a development which included the M² cinema could not be held against him, for Phase I had had to be developed quickly because of the constrictions imposed by the tenancy protection law.

66. Mr. Wright also put forward the argument that it was perfectly reasonable that the petitioner had not objected to the hotel project in September 1979 - he had not had sufficient financial data to form a view, Moreover the fact that Mr. Leung had accepted that he had been prepared to consider any opportunity as it arose, provided there was money in it, did not point against the existence of an understanding. Nor was the fact that he had enquired about the feasibility of others participating in the hotel operation any indication that there was no understanding; Mr. Leung was merely considering the options that were open.

67. It is, of course, for the petitioner to satisfy me on the balance of probabilities that there was a basic understanding of the kind he urges upon me at the inception of his relationship with Mr. Y.C. Fu. There can be no doubt on the authorities that the presence of a basic understanding can be inferred, and the Company's course of conduct will be relevant for this purpose. On the other hand if the only material before the court is evidence of the nature that has been placed before me, and from which I am called to draw inferences, it seems to me of vital importance to examine the petitioner's own conduct to see whether it is consistent with his claim, especially where, as is the case here, it is strongly contested and the facts relied upon are capable of more than one explanation, in that they do not necessarily point one way. And it must be remarked that one of the difficulties facing a petitioner who seeks to establish a basic understanding that the property of a company should be developed for realisation for a capital profit is that it will inevitably be a matter upon which there will be room for legitimate differences of opinion as to the right moment to sell.

68. I am prepared to accept that Mr. Leung has now convinced himself that a basic understanding existed, but I have reached the conclusion that it did not. In my judgment his conduct over the years is wholly inconsistent with the case he has put forward. I will not rehearse all the reasons which have led me to this view, but it seems to me quite inconceivable that if there had been any such understanding Mr. Leung would have waited so long to bring it to notice. I found Mr. Leggatt's submissions cogent and compelling, and I regard the Board meeting of the 20th September 1979 as particularly crucial to both branches of the alleged basic understanding, quite apart from what had earlier transpired. Mr. Leung is, if I may say so, an intelligent and articulate person, and he would not have raised the possibility of joint participation in the hotel project, and agreed in principle with the other Board members that an operating company should be set up to manage the hotel project, if he had understand that the property would only be developed for realisation for capital profit. Nor does it seem credible to me that Mr. Leung would have agreed in principle with a proposal that the Company's capital should be increased, if he had always understood that he would never have to put more money into the Company by subscribing to new shares. He would have objected there and then.

69. If seems to me that none of the factors put forward with such eloquence on the petitioner's behalf, taken together (and they are all in a sense of an equivocal nature) can stand in the face of the conduct of the petitioner which he could not deny and which, in my view, he did not adequately explain.

70. The first complaint (the purported rights issue) loses much of its force now that I have found that there was no basic understanding upon which the petitioner can rely. And it is also very materially affected by the fact that the petitioner, very properly in the circumstances, has abandoned the averment that the rights issue was prompted by ulterior and base motives, although it is clear that if conduct of which complaint is made is in fact "unfairly prejudicial" the motives which prompted it are immaterial (see Donaldson Investments v. Anglo-Transvaal Collieries [1973 (3)1 S.A. 713, at p.720). When a company needs more money many options are, of course, open to it. I accept without hesitation what the Fu's, father and son, said about this matter in their evidence. Mr. Reynolds has told us that it is not uncommon for a private company to raise money by a rights issue at par. Mr. Leung accepted in cross-examination, all the suggestions put to him that indicated that a rights issue could be regarded as a commercially sensible way of raising money. In the absence of improper motives, I am not able to accept that the complaint can amount to unfairly prejudicial conduct within the meaning of S.168A. It seems to me that to find the complaint valid in the form that it now stands would be, in effect, to acknowledge a proposition that it is always unfairly prejudicial to a minority shareholder of a private company with articles of the kind here whenever he is asked to take up more shares, unless there is no other way to raise the money. I do not believe that such a proposition is maintainable. I will deal later with the point that it is now accepted that the Fu's will keep their word and not resurrect the idea of a rights issue. The first complaint has not been made out and therefore fails.

71. Stripped of the plank of a basic understanding the second complaint (which concerns the hotel project) as outlined in the petition seems to me to amount to no more than objections of a commercial nature. Mr. Wright linked this complaint with the fifth complaint (the "capital commitment of $55 m."). He drew attention to the fact that by the time of the Board meeting of the 10th December 1979, Mr. Y.C. Fu had serious misgivings of his own about the hotel idea but did not reveal them to Mr. Leung, sharing them only with his son. Although this was an important matter of policy involving the form of future development, the majority had pressed on with the hotel plan before the tenancy tribunal - and for that purpose approved plans had to be produced - before the Board had approved the project. Time and costs had been wasted. Mr. Y.C. Fu had obtained his own feasibility study while Mr. Leung had been sent the Company's accounts showing a capital commitment for the hotel. The only conclusion that could be drawn from all this, Mr. Wright contended, was that in acting in this way Mr. Fu was treating the Company as if it were his own and excluding Mr. Leung from the management of the Company's affairs in a way that was unfairly prejudicial to him. I accept that Mr. Y.C. Fu's and Mr. Adrian Fu's explanation as to their conduct in relation to these matters and even viewed from the standpoint of the petitioner, I do not find that any element of unfair prejudice has been made out to justify the complaint. It will be recalled that it has been accepted by all the parties that the hotel project will not go forward and I will deal later with the effect of this decision.

72. As regards the third complaint, the November 1980 valuation, I understand Mr. Wright is not now pressing the point he made in his opening that but for the frankness of Messrs. Jones Lang Wooton, the wrong basis of valuation might not have come to light. And so what is left? Mr. Wright submits that by the instructions Mr, Adrian Fu gave to the valuers they were prevented from doing what they should have been instructed to do as a result of the Board's resolution that "the present market value of the Company's property" should be ascertained. That method of valuation had been agreed in correspondence between the solicitors so that a "settled element" could be reached between the parties. The instructions which Mr. Leung expected to be given should not therefore have been altered without consultation with him. I have no doubt that Mr. Adrian Fu genuinely believed that he was reflecting the Board's decision when he spoke to Messrs. Jones Lang Wootton. His instructions, to my mind, displayed no sign of a cavalier approach to the petitioner, and no breach of confidence or disregard of his interests was involved. This complaint also fails.

73. In connection with the fourth complaint (the offer made by third parties in 1973 to purchase the property of the Company), while I have no doubt that the petitioner was being truthful when he testified that he had not been told about it, and could not have forgotten had he been told, I prefer Mr. Y.C. Fu's recollection even though he could not be certain where it was that he had mentioned the matter to Mr. Leung. It may be that Mr. Leung forgot about it because it was in nobody's contemplation in 1973 that the property should be sold. I do not regard it as a tenable proposition that even if Mr. Leung had been told of the offer, by not discussing it at a formal meeting of the Board, the Fu's displayed a cavalier attitude to the minority shareholder. I see no reason at all why that tentative, unrepeated offer should have put before a Board meeting. I find no foundation for this complaint, and it is rejected.

74. I now turn to the fifth and final complaint, "the capital commitment of $55 m.", and with all due respect to the petitioner, I am bound to say that I merely mention it again to dismiss it. I do not see how, even when linked to the hotel project complaint, what occurred could possibly be regarded as unfairly prejudicial to Mr. Leung.

75. As I mentioned earlier, the majority has now abandoned the proposals which formed the basis of the first and second complaints. Can those proposals therefore still be relied upon as evidence that "the affairs of the company are being conducted in a manner unfairly prejudicial" to the interests of the petitioner? The authorities (see Re Jermyn Street Baths [1971] 1 W.L.R. 1042 as an example) indicate that in construing the same words in s.210 and its derivatives, the conduct complained of must still be continuing at the time of the petition. It is to be noted that s.75 of the U.K. Companies Act of 1980 speaks of a petition on the ground "that the affairs of the company are being or have been conducted in a manner which is unfairly prejudicial". In Re Kong Thai Sawmill (Miri) Sdn. Bnd. 2 M.L.J. 227, the Judicial Committee of the Privy Council had to interpret a section of the Malaysian Companies Ordinance, which though different is many respects from both s. 210 and our s.168A, contained the words "are being conducted. In giving the advice of the Board, at p. 229, Lord Wilberforce had this to say -

"Thirdly, in a number of United Kingdom decisions it has been held that for section 210 to apply the complainant must show oppression continuing up to the date of proceedings (e.g. In re Jermyn Street Turkish Baths Ltd.); where there has been oppression in the past, the section does not bite. Their Lordships agree that the wording of the section (and the same is true of section 181(a)(a)) relates to a present state of affairs: "are being conducted", powers "are being exercised" are grammatically clear: the language may be contrasted with that of section 181(1)(b) which refers to an act of the company which has been done or threatened. But this argument must not be taken too far. What is attacked by sub-section (1)(a)) is not particular acts but the manner in which the affairs of the company are being conducted or the powers of the directors exercised. And these may be held to be "oppressive" or "in disregard" even though a particular objectionable act may have been remedied. A last minute correction by the majority may well leave open a finding that as shown by its conduct over a period, a firm tendency or propensity still exists at the time of the proceedings to oppress the minority or to disregard its interests so calling for a remedy under the section. This point is well brought out in Re Bright Pine Mills Pty. Ltd. [1969] V.R. 1002."

76. On this point, Mr. Wright submits that the cause for the complaints had not been "purged" because neither of the Fu's had acknowledged that they had been wrong in making the proposals which had now been abandoned. I think that this is putting the matter much too high and imports requirements of contrition not supported in my view by any authority. This aspect of s.168A presents some difficulties, for after using the present tense in reference to the conduct of the affairs of the company, it goes on to say "whether or not such conduct consists of an isolated act or a series of acts" and states that the court may make orders "with a view to bringing to an end the matters complained of". However, on the authority of the passage I have quoted from Lord Wilberforce in the Malaysian case, I hold that if particular objectionable acts are remedied, they can only be relied upon at the hearing of a petition if a company's conduct over a period indicates that "a firm tendency or propensity" still exists to conduct the affairs of a company in a manner that would be unfairly prejudicial to the petitioner. Since it has been acknowledged on Mr. Leung's behalf that the Fu family will not go back on their word, I would have been inclined to dismiss the first two complaints on this ground alone. Indeed, the other three complaints would also fail on the same ground.

Taking the complaints singly and together I find that the petitioner has not discharged the onus of satisfying me that there are valid grounds for the court to intervene under s.168A of the Companies Ordinance in the affairs of the company or in the decisions taken by the Board which were within the law, and were reached in the bona fide belief that they were in the best interests of the Company as a whole. I find that the Fu family have not taken unfair advantage of their dominant position, and that no breach of faith or confidence has been made out. Feelings of annoyance, frustration and exasperation at being outvoted are clearly not enough, and while I do not wish to be unkind to Mr. Leung, it does seem to me that all that the petition has revealed is that he was in disagreement with the majority, a situation that inevitably faces minority shareholders from time to time. His sense of grievance, which was a burning one, was I believe genuine enough, but in my judgment it was not justified on the facts presented to me.

77. Before I take leave of this case, in the event that it does not end here, I have to record that an unfortunate misunderstanding occurred between Counsel for the parties. Mr. Wright told me from the Bar that his purpose in leading evidence on the valuation was to establish the erroneous basis of the valuation reached by Messrs. Jones Lang Wootton and to give some justification in hard figures for the open offer which found reflection in the petition as amended. He had allowed certain documentary evidence to go in without objection, although it was in contravention of the consent order made about valuers' reports, on that basis. He had not cross-examined witnesses or argued the case on the understanding that the court would fix the price at which the shares of the minority or the majority should be sold. His expert had had to deal virtually extempore with important matters. If the petition succeeded and the court were to rule that shares should be purchased, then there should be an order for a subsequent determination of the price by a proper authority, and he had expected the court to do no more than to give directions in the nature of guidelines as to the proper basis for assessment, if the parties, after the petition had been determined, could not come to terms.

78. Mr. Leggatt protested and, from the Bar, informed me that all this was contrary to his understanding of the position. The petition had prayed the court to fix the price, there had been a consent order for the exchange of valuation reports and the court had all the information before it that was necessary to make a proper assessment of the figures involved. It would be an abrogation of the court's duty in all the circumstances if it were not do so. A great deal of court time had been spent on the issue of valuation both in hearing evidence and listening to argument and it was only when the matter had been adverted to in Mr. Wright's closing address, that he had realised that another stand would be taken.

79. There is much force in Mr. Leggatt's arguments, but since Mr. Wright has assured me (an assurance which I accept, of course, without question) that he was under a misapprehension following consultations in London, and feels that his case might be prejudiced as a result, I am most reluctant to pursue a course which would leave the petitioner with a possibly justified sense of grievance. After anxious consideration and in all the circumstances I conceive it to be my duty not to fix a price but to indicate what directions I would have issued for a valuation by the Registrar if I had granted the petition, and after a reasonable time, the parties had been unable to agree. I will say at once that I would not have contemplated ordering the majority to sell to Mr. Leung, I would have directed -

80. The value of the petitioner's shares in the Company would be affected by a finding as to whether the site is a "class B site" or a "'class C site' within the meaning of those expressions in the Building (Planning) Regulations. Regulation 2(l) defines them as follows-

The words "corner site" are not defined, but reg. 2(2) is in the following terms -

81. It is common ground that all the relevant streets are more than 4.5 m. wide". The map shows that the site has a corner made up by Nathan Road and Saigon Street and that part of the site is on Mau Lam Street. Mr. Leggatt submits that it is a Class B site because only the first two streets form a corner, Mau Lam Street playing no part in its creation. Since Mau Lam Street did not extend to Nathan Road (being a cul-de-sac with access to Nathan Road being limited to pedestrians) it could not properly be said to abut on the site; the whole of the relevant side of the site should abut on a street for that street to De taken into account for the purposes of the definition. To say that a site must abut on three streets to be a Class C. site was only another way of saying that only one of the four sides of the site was irrelevant for the purposes of the definition, in particular for the purpose of rendering the site a corner site.

82. In the absence of any further guidance than is offered by the words in the definition, read with reg. 2(2), it seems to me that the ordinary sense of the words used must be applied. The Company's site is a corner site in that Nathan Road and Saigon Street form one of its corners. It abuts on three streets: Nathan Road, Saigon Street and Mau Lam Street. The definition does not say that a street must be disregarded if the whole of the relevant side of the site does not abut that street. As I understand the Regulations, reg. 2(2) is intended to have a limiting effect and, by virtue of its provisions, a corner site will not be a Class C site despite the fact that it abuts on three streets, unless not less than 60% of the boundary of the site abuts on those three streets. That is the position here, and I therefore reach the conclusion that for the purposes of the Regulations, the site is a Class C site.

83. For the reasons I have attempted to give, the petition is dismissed with costs to the respondents.

Representation:

Mr. R.A.K. Wright, Q.C. and Mr. D.A.L. Wright (F. Zimmern & Co.) for Petitioner.

Mr. Andrew Leggatt, Q.C., Miss Elizabeth Appleby, Q.C. and Mr. Winston Poon (J.S.M.) for Respondents.