Ronald Li Kai Chu and Another v. Deacon Te Ken Chiu and Others

CACV000199/1985

Civil Appeal No. 199 of 1985

Company law - derivative action by shareholder on behalf of company - whether well founded.

Equity - account of profits - principles to be applied.

Interest - breach of fiduciary duties - whether compound interest recoverable.

Costs - whether successful plaintiffs should be awarded costs on an indemnity basis.

Mr. R.C. and Mr. D.C., associates for many years in the cinema business, owned  the Y.L. Theatre as tenants in common in equal shares.  Mr. and Mrs. R.C. and the personal representatives of other members of their family held half the shares in a private company, "Asia", and Mr. and Mrs. D.C. the other half. They were all directors of "Asia". In 1975 "Asia" licensed the Theatre to another private company, "Far East", for 3 years at a monthly fee.  Mr. and Mrs. D.C. each held half the shares of "Far East" and they, and two of their sons, were directors.

Upon the expiry of the licence in 1978, "Far East" continued to operate the Y.L. Theatre, without paying any fees to "Asia", for a further 51/2 years. The efforts of Mr. R.C. to license the Y.L. Theatre to another company, and later to procure Asia to terminate "Far East" occupation and to demand arrears of licence fees, were frustrated.

Mr. and Mrs. R.C. brought a derivative action, on behalf of "Asia", claiming an account of the profits made by Mr. and Mrs. D.C. in breach of their fiduciary duties to "Asia". Mr. and Mrs. R.C. also claimed an account of profits from "Far East" as constructive trustees.

The central issue at the trial was whether "Asia" had licensed the Y.L. Theatre to "Far East" as agents for the co-owners Mr. R.C. and Mr. D.C. (as Mr. D.C. claimed) or whether "Asia" was a tenant of the co-owners at all material times, and had licensed "Far East" in their capacity as tenants of the premises (as Mr. R.C. claimed).

The trial judge found that "Asia" had licensed "Far East" as tenants of the co-owners, and held that the derivative action was well founded. Mr. and Mrs. D.C. were therefore liable to account to "Asia" for the profits they had made in breach of their fiduciary duties.  "Far East" were also liable to account as constructive trustees. The judge took the account himself at the trial and directed that the amount he found should carry compound interest. He ordered costs in favour of Mr. and Mrs. R.C. to be taxed on an indemnity basis.

(ii)

Held: (allowing the appeal in part):

IN THE COURT OF APPEAL

BETWEEN

Coram: Fuad & Kempster, JJ.A. and Penlington, J.

Dates of Hearing: 27th - 30th May and 2nd - 6th June 1986

Date of Handing Down Judgment: 27th June 1986

___________

JUDGMENT

__________

Fuad, J.A.:

1. This is an appeal from the decision of Macdougall J. dated 18 November 1985 given in a reserved judgment after a hearing which lasted 17 days.  The controversy which brought the parties before him concerns the use, between May 1978 and December 1984, of a cinema, the Yuen Long Theatre, of which Mr. Deacon Chiu and Mr. Ronald Chu are co-owners as tenants in common in equal shares.

The Parties and their Counsel

2. The Plaintiffs are Mr. Ronald Chu and his wife Madam Sun Chih Ming.  Mr. Henry Litton, Q.C. appeared for them in the lower Court, and before us.

3. The 1st Defendant is Mr. Deacon Chiu and the 2nd Defendant is his wife Madam Ju Ching Lan. They were represented at the trial by Mr. Kemal Bokhary, Q.C.. He is led, before us, by Mr. Denis Chang, Q.C., and they now appear also for the 3rd Defendant, for whom Mr. Francis Eddis, Q.C. had acted in the lower Court.

4. The 3rd Defendant is Far East Theatres Management Limited ("Far East"). Far East is a private company and has an issued share capital of $50,000 divided into 500 shares of $100 each. Mr. and Mrs. Deacon Chiu hold 250 shares each, and they and their sons Dick and David are the directors.

5. The 4th Defendant is another private company, Asia Motion Picture Development Limited ("Asia"). Asia was incorporated in 1956. It has an issued share capital of $2m. divided into 20,000 shares of $200 each. The shareholding is as follows: -

6. By an agreement in writing in May 1973 the parties agreed that Asia should be managed by Mr. Ronald Chu and Mr. Deacon Chiu as joint managing directors, and that there should be no chairman. Their wives are also directors.

History of main events

7. Mr. Deacon Chiu and Mr. Ronald Chu have been business associates for many years. They were friends. About 15 years ago serious misunderstandings occurred between them and as a result a number of proceedings were instituted in the High Court. There was an action by Far East against Mr. Ronald Chu, and Mr. Ronald Chu filed six actions against Mr. Deacon Chiu and companies in which he was interested.  In addition, Mr. and Mrs. Deacon Chiu petitioned for the winding up of Asia.

8. An elaborate compromise was worked out to resolve their difficulties, evidenced by an agreement in writing dated 21 May 1973. Paragraph 1 of Article 11 of the agreement was in these terms: -

"It is agreed that the parties shall appoint Asia Motion Picture Development Ltd. as their agent to collect rents or income from the tenants or occupiers of Waldorf Theatre Building and all other properties held by the parties hereto as tenants-in-common and all moneys received by Asia Motion Picture Development Ltd. shall forthwith be deposited into a new current account to be opened by Ronald Chu and Deacon Chiu as joint-signatories with the FNCB Hong Kong Head Office and shall be applied first in payment of the costs and expenses of collection second in payment of Crown rents, rates, Property Tax and other outgoings in respect of Waldorf Theatre Building and other properties held by the parties hereto as tenants-in-common thirdly in payment of interest payable under Mortgage Memorial No. relating to Waldorf Theatre Building and subject thereto pay one half of the balance thereof to Deacon Chiu and the remaining one half to Ronald Chu such payments to Deacon Chiu and Ronald Chu to be made monthly on the last day of each calendar month."

9. On 16 July 1975 Asia and Far East entered into a licence agreement ("the Far East Licence") under which Asia licensed Far East to use the Yuen Long Theatre for three years from 1 June 1975 at a monthly fee of $60,000. This licence was executed by Mr. Deacon Chiu and Mr. Ronald Chu for Asia, and by Mr. Deacon Chiu for Far East.

10. On 30 May 1978 Mr. Ronald Chu, on Asia note-paper, wrote to Far East reminding them that the Yuen Long Theatre licence agreement would expire on the following day, and that they must accordingly give up vacant possession. He also demanded $720,000 in unpaid licence fees. Mr. David Chiu, signing as a director of Far East replied on 6 June, saying that matters should wait until his father returned to Hong Kong a few days later. He added that he had been advised by his solicitor that he, Mr. Ronald Chu, "cannot solely act for Asia .... since it is a partnership."

11. Mr. Ronald Chu told the Court that on three or four occasions during the years 1978 and 1979 he had held discussions with Mr. Deacon Chiu urging him to procure Far East to vacate the Yuen Long Theatre but to no avail. It is common ground that Far East continued to occupy the Cinema until 31 December 1984, paying nothing for its use, and that Far East still owed $30,000 for the last two weeks or so of the licence period.

12. On 21 March 1980 Mr. Ronald Chu wrote to Mr. Deacon Chiu informing him that Hong Kong Riviera Limited ("Riviera") was offering to take a licence of the Yuen Long Theatre. He referred to an arrangement reached the month before whereby Riviera had taken a licence of the Waldorf Theatre. The terms would be similar, and include the payment of a bonus, but Riviera were willing to pay a higher licence fee, $5,800 per day.

13. I pause hereto mention that the Waldorf Theatre is owned in equal shares by Mr. Ronald Chu and by Far East Consortium Limited, a public company in which Mr. and Mrs. Deacon Chiu have interests. They, their three sons and three strangers are its directors.

14. In his letter, Mr. Ronald Chu expressed the opinion that this was a favourable offer and asked Mr. Deacon Chiu if he would" join in as a party to the contract". In the Waldorf Theatre licence, Asia had not been involved and this is why Mr. Ronald Chu wrote: "In the case of Waldorf Theatre you required the licence agreement to be signed by the co-owner [s] of the property, by-passing Asia .... I am prepared to agree to this procedure if it is desired by you".

15. Mr. Ronald Chu enclosed a copy of the "Chinese Temporary Agreement" which contained the Riviera offer, and added that a cheque for $100,000 was being held by Asia as "stakeholder". The agreement would be for two, years from 1 April 1980, with an option for extension. Riviera would pay $5,800 per day for the first year and $6,300 per day for the second. They would pay a refundable deposit of $360,000 on the day the agreement was signed. They would also pay 50% of the box office receipts after stipulated deductions. There were other terms into which it is not necessary to go.

16. On 25 March 1980 Mr. Ronald Chu sent a letter to Mr. Deacon Chiu urging him to give the offer his immediate attention. On 28 March, in a telephone conversation, Mr. Deacon Chiu said that he agreed to Riviera's terms. This was followed by a letter on the next day to Mr. Ronald Chu confirming his acceptance.

17. Mr. Ronald Chu acknowledged this letter on 1 April 1980 and suggested that Mr. William Kwok (of Messrs. Fairbairn & Kwok) should prepare the licence. On the same day Riviera wrote to Mr. Ronald Chu saying they were willing to extend the deadline for the acceptance of their offer to 5 April.

18. On 2 April 1980 a number of letters were exchanged:

19. Also on 3 April 1980, Mr. Ronald Chu and a Mr. Yuen Man, representing Riviera, waited until 6.00 p.m. in the offices of Messrs. Fairbairn & Kwok, hoping that Mr. Deacon Chiu would come, but he did not.  Mr. William Kwok could not recall the events of 2/3 April when he came to give evidence over five years later, but his diary showed that he had appointments with Mr. Ronald Chu at 5.00 p.m. on 2 April and at 5.30 p.m. on 3 April, and he did remember meeting Mr. Yuen Man of Riviera in his office on more than one occasion.

20. Still on 3 April 1980, a number of telexes were exchanged between Mr. David Chiu (as we know, he is one of Mr. Deacon Chiu's sons, and a director of Far East) and Riviera. The first telex, from Mr. David Chiu to Riviera, was in these terms:

21. All these telexes were exchanged on the same day - 3 April 1980. For completeness sake, I will read a telex dated 8 April from Riviera to Far East. The Plaintiffs were never given discovery of the telex referred to in it. This is the telex:

"ATTN: MR DAVID CHIU

THIS IS TO ACKNOWLEDGE RECEIPT UR TLX AT 5:30 PM CONTENTS OF WHICH WERE ADDRESSED TO MR YUEN MAN.

RGDS

KITTY TAO

EXECUTIVE SECRETARY"

22. On 1 April 1980 Mr. William Kwok, of Fairbairn & Kwok, sent a copy of the proposed licence agreement to Mr. Deacon Chiu on Mr. Ronald Chu's instructions.  On the same day Mr. Ronald Chu wrote a long letter to Mr. Deacon Chiu asking for an early indication of his intentions.

23. In reply to their letter of 3 April 1980, Mr. Ronald Chu sent a letter on 14 April to Far East's solicitors explaining about the deposit cheque for $100,000 and pointing out that it had not been cashed, adding that both he and Riviera were most anxious to know whether their client would now sign the licence agreement.

24. It was on 15 April 1980 that Mr. Deacon Chiu replied to Mr. Ronald Chu's letter of 10 April. He said he had asked his staff to go through the licence agreement and "I am quite satisfied that no point has been missed. I therefore have no objection to signing it."

25. On 17 April 1980 Riviera wrote to Mr. Ronald Chu saying ".... due to the fact that you have not come to any agreement with your partner concerning the lease ... we ... have therefore decided to give up the above lease."  They asked for the return of their deposit.

26. On 30 April 1980 Mr. Ronald Chu (who had been away from Hong Kong in the meantime) wrote a long letter to Mr. Deacon Chiu passing on what Riviera had said. He set out his account of the reasons for the deal falling through and ended his letter in this way:

"       I can endure this situation no longer and I must insist that Far East Theatres Management Ltd. cease using the captioned theatre immediately and pay tome all moneys owing by them to me for the use and occupation of the captioned theatre. If Far East Theatres Management Ltd. wishes to continue to operate the theatre it is necessary for them to come to terms with me as well as with you. For my part I would be prepared to accept the same terms as were offered by Hong Kong Riviera Ltd. but nothing less. And in respect of the use and occupation of the last 2 years I would require to be paid for my half share of the property, one half of the market value prevailing at the time.

I am not prepared to have the matter dragged out any longer on vague promises that you will discuss and settle this matter with me. Please state your position clearly on the subject as soon as possible as I feel that this problem must be resolved one way or other in the very near future."

27. Two years passed, and on 18 March 1982, Mr. Ronald Chu and his wife as shareholders of Asia, issued a notice calling on their Board to convene an E.G.M. to pass resolutions:

28. The meeting was not held. Mr. Deacon Chiu told Mr. Ronald Chu by his letter of 26 March 1982 that the notice was invalid for Asia had no authority to call a meeting to discuss the affairs of the Yuen Long Theatre, "property of which does not belong to Asia ...." It was true, he said, that Asia had acted as agent for them both, but the agreement concerning the Yuen Long Theatre had expired three years and ten months ago, and Asia had no right to concern itself with the affairs of the cinema.

29. Mr. and Mrs. Ronald Chu tried again on 13 April 1982 to have an E.G.M. called for 19 April 1982 to pass the same resolutions. On that day a meeting of the Board of Asia was held at which Mr. and Mrs. Deacon Chiu, and Mr. and Mrs. Ronald Chu were present. I will not recount all that is recorded in the minutes, but Mr. Deacon Chiu said that the contents of the notice were wrong since the Yuen Long Theatre had never belonged to Asia. Allegations and counter-allegations were made and none of the Chu's resolutions were passed.

30. There was another E.C.M. held on 28 April 1982 at the behest of Mr. and Mrs. Ronald Chu, to discuss the same resolutions. This meeting, as the minutes show, was particularly acrimonious, and at one stage the police had to be called in. Mr. Deacon Chiu did not attend and his wife was his proxy. The proposed resolutions were not passed.

The discontinued action No. 4753 of 1982

31. Then on 6 June 1982 Mr. Ronald Chu commenced proceedings in the High Court (Action No. 4753 of 1982) against Mr. Deacon Chiu and Far East. This action was discontinued on 23 November 1982 on the institution of the present action. By the former action, Mr. Ronald Chu, principally, claimed possession of the Yuen Long Theatre and mesne profits for Far East's trespass since 31 May 1978.

32. Interestingly, in their pleadings in the earlier action, the two main protagonists each took a position directly contrary to the cases they now plead in the action with which we are concerned in relation to what may be called the crucial issue.

33. In that action, Mr. Ronald Chu had pleaded that he and Mr. Deacon Chiu, by the 1975 agreement, had licensed the Yuen Long Theatre, acting through their agent, Asia. Mr. Deacon Chiu made no admission as to this in his Defence, but Far East pleaded that the 1975 agreement was a tenancy agreement made between Asia, as landlord, and Far East, as tenant, and that throughout their occupation of the cinema, they were Asia's tenant. They relied on the protection afforded by Part V of the Landlord and Tenant (Consolidation) Ordinance, Cap.7, in that the notice required by s.122 had not been served upon them. It is not necessary to go any further into the pleadings of the discontinued action.

The pleadings in the present action

34. The Re-Amended Statement of Claim is introduced by an account of the shareholdings etc. in Asia and Far East.  After setting out the shareholders and directors of Far East, paragraph 8 concludes: "The acts complained of herein below are acts done by Deacon Chiu and/or Deacon Chiu and the members of his immediate family on behalf of Far East". This is denied by the Chius in their Defence.

35. Facts are then pleaded to justify the bringing, by Mr. and Mrs. Ronald Chu, of their derivative action, and then paragraph 10 states the following:

36. The Statement of Claim continues by stating that at all material times prior to July 1975, Asia was the monthly tenant of the co-owners in respect of the Yuen Long Theatre and conducted there the business of a cinema operator. The film projection equipment and cinema seats in it were (and are) the property of Asia. The Chius make no admission regarding the monthly tenancy before July 1975, and expressly deny the rest of this averment, and state that new film projection equipment and cinema seats had had to be installed by Far East.

37. The Statement of Claim then pleads the basic terms of the 1975 agreement under which Far East took possession of the Yuen Long Theatre. The pleader calls it a licence agreement and pleads that Asia granted the licence either as agents for the co-owners or alternatively in right of Asia's status as a monthly tenant. The Chius admit the making of the agreement but no more.

38. The Chus then claim that in breach of the licence agreement Far East failed to pay the $30,000 due for the period 16 May to 31 May 1978. The Chius admit they have not paid but deny the breach of the licence agreement. They also admit the receipt of a letter of 30 May 1978 from Asia demanding, inter alia, vacant possession of the cinema but make no admission as to the truth of the letter's contents.

39. The Chius admit the averment that Far East has continued to occupy the cinema and has paid nothing since 16 May 1978. They deny, however, that the possession was unlawful and that Far East failed to provide any consideration in respect of their occupation; the consideration was the provision, for the cinema, of new projection equipment and new seating.

40. The Statement of Claim goes on to plead the Riviera offer, and that Mr. Ronald Chu had considered it should be accepted in the best interests of Asia; and further that Mr. Deacon Chiu had confirmed his acceptance of the offer. Mr. Deacon Chi u admits that the terms of the Riviera offer were referred to him but states that the offer had been made to him and to Mr. Ronald Chu as co-owners.

41. The next averment made by the Chus is in the following terms:

"17.         On or about 2nd April 1980 wrongfully capriciously and in breach of his fiduciary duties to Asia, Deacon Chiu as director of Asia and with intent to benefit himself, his wife and Far East, refused to execute the draft Agreement when called upon to sign the same. In acting as aforesaid Deacon Chiu intended to perpetuate the unlawful occupation of Yuen Long Theatre by Far East, without payment of any licence fee or other consideration by Far East, to the profit of himself, his wife and Far East and to Asia's detriment. According,Deacon Chiu is liable to account to Asia or a is profits derived from said unlawful occupation." [The words underlined were added an amendment on 22 December 1984]

42. This averment is wholly denied. The Chius state that the proposed agreement had no connection with Asia but was intended, and expressly stated to be, as one between Mr. Deacon Chiu and Mr. Ronald Chu as licensees, and Riviera as licensees. It is said, further, that Mr. Deacon Chiu did not sign the agreement because Riviera, at the material time, was insolvent and unable to pay the licence fees. This fact, which was known by Mr. Deacon Chiu and had been communicated by him to Mr. Ronald Chu, meant that the agreement, if executed, would have been valueless.

43. By the second amendment to their Defence, on 13 May 1983, Mr. and Mrs. Deacon Chiu, plead that Mr. Deacon Chiu had acted reasonably in having reservations about signing the proposed agreement, in view of the uncertain financial health of Riviera.  Further, or alternatively, Mr. Deacon Chiu was entitled to defer signing the agreement until his staff had gone through it Reference is made to the letters of 15, 17 and 30 April which I have summarised earlier in my judgment, and to the fact that Mr. Ronald Chu had been out of Hong Kong from 19 to 27 April. It was therefore denied that Riviera's offer was made bona fide, or if so, that it was of any value. It was not Mr. Deacon Chiu's fault that the offer was lost; if anyone were to blame it was Mr. Ronald Chu in failing, after 15 April 1980, to conclude the agreement with Riviera before it had been withdrawn two days later.

44. The Statement of Claim goes on to plead the market rate for the use of the cinema and its fittings, and that Far East, by their wrongful occupation of the cinema since 1 June 1978, had caused Asia, or alternatively, Mr. Ronald Chu as a co-owner, severe loss and damage .

45. The next averment by the Chus is in these words:

"19.         By virtue of the fact that Deacon Chiu, having put Far East into the position of using and occupying the Yuen Long Theatre, caused and/or assisted Far East to use and occupy its unlawfully after 31st May 1978 to the detriment of Asia, he (Deacon Chiu) is in breach of his fiduciary duty to Asia and is accountable to Asia for all profits which be has derived therefrom as a constructive trustee."

This is denied.

46. Then, the Statement of Claim, by the December 1984 amendment, pleads that Madam Chiu, as a director, owed fiduciary duties to Asia. In her capacity as a 50% shareholder and director of Far East, she had caused and/or, assisted Far East in their unlawful occupation and had thereby acted in breach of those fiduciary duties. Accordingly she was liable to account to Asia to all her profits derived from the unlawful occupation.

47. In the Defence of the Chius, by an amendment, that averment is denied save in so far as it is accepted that Madam Chiu owed fiduciary duties to Asia. It is then pleaded that Madam Chiu at all times acted as a nominee, and took orders from her husband, in relation to both Asia and Far East. For these reasons, it is said, she had never acted in breach of the fiduciary duties she owed Asia. If she was found to have been in breach, since she had acted honestly and reasonably, in all the circumstances she ought fairly to be excused from her breach of duty in the exercise of the Court's discretion under s.358 of the Companies Ordinance, Cap.32.

48. I would mention here that there was a Counterclaim by Mr. Deacon Chiu but this does not feature in the appeal.

49. The central feature of the original Defence filed by Far East, who were then represented by different solicitors from those acting for Mr. and Mrs. Deacon Chiu, was, as it had been in the discontinued action, that they were Asia's tenants and that Part V of the Landlord and Tenant (Consolidation) Ordinance applied.

50. This Defence has been amended a number of times.  By one amendment, Far East plead the 1973 agreement between Mr. Deacon Chiu and Mr. Ronald Chu and that they were licensees of the cinema. The Defence refers to letters in June 1984(two), September 1984 and April 1985 from their solicitors offering to pay Mr. Ronald Chu reasonable and fair damages to be assessed by a Master for their occupation and use of his interest in the cinema. They were still willing to do so, subject to deductions which were itemised and totalled some $902,000.

51. The claim for these deductions was later abandoned and in their place other items of expenditure by Far East were inserted regarding repairs and replacements to the projection and sound equipment, and to the air-conditioning system of the cinema. We were told that Mr. Eddis explained to the trial judge that the sums represented (which totalled some $157,600) were not claimed as permissible deductions by Far East, but they were there merely to assist the Court. I must confess that I am at a loss to understand what was intended by the inclusion of these sums in Far East's Defence. Far East also sought to set off from the sum found to be due from them certain amounts they had paid by way of rates and property tax.

The reliefs sought by Mr. and Mrs. Ronald Chu

[Against Mr. Deacon Chiu as director and/or co-owner and Madam Chiu as director]

[Against Far East]

[Against all the Defendants]

Summary of the trial judge's main conclusions

52. Before I address the issues arising out of this appeal, it will be convenient to summarise Macdougall J.'s main conclusions - and I remark here that of all the individuals concerned with this case (in their personal capacities or as shareholders or directors of Asia and Far East) the only one to give evidence at the hearing was Mr. Ronald Chu. The learned judge concluded:

The judgment and the order for costs

53. The learned judge gave judgment for Mr. and Mrs. Ronald Chu against Mr. and Mrs Deacon Chiu in the sum of $12,521,633 with interest as he had already indicated, less:

54. He ordered that the judgment sum be paid to Mr. Ronald Chu as trustee for Asia and that all sums paid into Court be paid out to Mr. Ronald Chu or his solicitors.

55. The judge went on to note Counsel's undertaking on behalf of Mr. and Mrs. Ronald Chu that the judgment would not be perfected or drawn up for 14 days to enable Far East to apply for a variation of the judgment sum to take into account any provision for taxation that ought to have been made in the judgment and he granted Far East liberty to apply generally to submit the computation of the figure for compound interest.

56. After hearing Counsel, the judge awarded costs to Mr. and Mrs. Ronald Chu in respect of their successful claim and Mr. Deacon Chiu's unsuccessful counterclaim, on an indemnity basis.

57. The formal Order drawn up to reflect the learned judge's decision shows the judgment sum to be $18,951,761.

The derivative action

58. The judge cited the decision of the English Court of Appeal in Wallersteiner v. Moir (No.2)⁽¹⁾ and referred to passages from the judgment of Lord Denning, M. R. in that case. He concluded that although Mr. Deacon Chiu and his wife held no more than 50% of the shares in Asia there was no reason why the principle stated by Lord Denning should not apply with equal force in such a situation. They were in a position to vote down any suggestion that Asia should sue Far East. Their votes at the E.G.M. held on 28th April 1982 clearly demonstrated that they would block any action by the Chus to obtain redress against Far East through Asia.

59. Mr. Chang, on behalf of Mr. and Mrs. Deacon Chiu, makes no complaint about the procedure adopted, and concedes that if the averments pleaded were proved, the derivative action was properly brought.

60. It is common ground (i) that if Asia had retained an interest in the Yuen Long Theatre (by being the tenant of the co-owners at all material times) subject to the exercise of the Court's discretion whenever equitable remedies are sought, Mr. and Mrs. Deacon Chiu are liable to account for their profits derived from the use of Asia's property and, conversely, (ii) that if Asia had no such interest, the derivative action would not lie.

Did Asia have a tenancy of the Yuen Long Theatre?

61. The judge observed that until several days into the trial, Mr. and Mrs. Deacon Chiu had admitted by their Defence and Amended Defence that at all material times prior to June 1975, Asia had been the monthly tenant of the co-owners in respect of the cinema, exhibiting films to the public. That admission had been withdrawn and replaced by a non-admission. He felt it was also significant that until they had amended their Defence on 30 July , Far East had averred that the licensing agreement between Asia and Far East was a tenancy agreement made between Asia, as landlord, and Far East, as tenant, for a period of three years at a monthly rental of $60,000. Far East had also stated in their Amended Defence that they were willing to pay Asia reasonable and fair damages for their use of Asia's interest in furniture and equipment in the cinema from 1 June 1978 to 31 December 1984.

62. The judge then said that while these admissions had now been withdrawn, there was the positive evidence of Mr. Ronald Chu that the co-owners had rented the cinema to Asia, and that Asia had installed its own equipment (including seating, air conditioning plant, screen, stage curtain, all electrical facilities, and sound and projection equipment) and had operated the building as a cinema from the time that it had been erected until Far East had entered under the licence agreement in mid 1975. He noted that Mr. Chu had, while giving evidence, demonstrated by the accounts that Asia had paid rent for the use of the cinema, and that he had been able to produce a rent deposit dated 6 January 1961 for $200,000, showing that the two co-owners had acknowledged by their signatures that they had received that sum as guarantee money "for leasing of the Yuen Long Theatre".

63. The judge also referred to a payment voucher signed by Mr. Deacon Chiu for $12,000 rent, and an accompanying document showed that this was rent that Asia had paid for the month of April 1963, and on its reverse were conditions referable to a tenant and landlord relationship.

64. Macdougall J., then turned his attention to the July 1975 licence agreement, and referred to the "preamble" indicating that Asia was operating the cinema and agreed to give a licence to Far East to show films. He also made mention of clause 17 which declared that possession was, and at all times would be, vested in Asia, a surprising clause, in his view, if Asia had been the mere agent of the co-owners and not their tenant. The judge also found some significance in the fact that the correspondence showed that Far East and Mr. Deacon Chiu conducted their dealings with Asia and not the co-owners.

65. The judge, in referring to paragraph 1 of Article 11 of what I will call "the compromise agreement" dated 31 May 1973, said:

"...... I accept that the wording is so broad that it means that the co-owners had agreed that they would appoint Asia as their agent to collect rents and income from even YLT.

However, whatever may be the correct legal interpretation of the words of an agreement, it is always open to the parties to that agreement to ignore totally what they have agreed or to apply only such part or parts of it as they see fit. They may also apply it on the basis of their own understanding of its terms. Indeed, when cross-examined as to his understanding of paragraph 1 of Article 11, Ronald Chu firmly stated that it had no application to YLT. He explained that Asia had collected the rental from that theatre in its own right because it had rented it and had installed its own equipment in order to operate it, but that it had collected, as agent for the co-owners, the rentals from the shop spaces and sweet shop which were attached to the theatre but were not operated by Asia."

66. Remarking that he had not had the benefit of hearing what Mr. Deacon Chiu had understood by that article, the judge said that he had no doubt on the evidence, that at all times Mr. Chiu would have made it his business to receive, and had in fact received, the annual profit and loss accounts and balance sheets for Asia and the Yuen Long Theatre and knew that Asia was paying rent for the cinema after the 1973 agreement. The judge went on to say that if Mr. Deacon Chiu had neither received, nor had access to the accounts, but had wanted to see them, he would have had no difficulty, as joint managing director of Asia and co-owner of the cinema, in obtaining them. "I consider that his belated complaints in the correspondence that he had not received the accounts to be both self-serving and without justification."

67. The judge accepted that Mr. Ronald Chu was telling the truth about the oral agreement in 1975 between him and Mr. Deacon Chiu that the rent to be paid by Asia for the Yuen Long Theatre should be increased from the $144,000 per annum at which it had stood for a long time, to $360,000, remarking that Mr. Deacon Chiu had not sought to contradict Mr. Chu by giving evidence.

68. In dealing with a submission from Mr. Bokhary about a paragraph in an affirmation made by Mr. Ronald Chu in connection with the present proceedings (that on 16 July 1975 Mr. Deacon Chiu and he, acting through Asia had granted a licence to Far East in respect of the cinema), and the fact that at one stage of his evidence at the hearing Mr. Chu had said that that paragraph was correct, the judge observed that having heard Mr. Chu testify he had reached the conclusion that Mr. Chu was speaking of the reality of the situation as a layman might see it.

69. The judge concluded his consideration of this issue, thus:

"I am satisfied on all the evidence that at all material times the co-owners had rented YLT to Asia and that, notwithstanding the strict legal interpretation of paragraph 1 of Article 11 of the 1973 agreement, Ronald Chu did not understand it to mean that Asia was to be a mere agent for the co-owners for the collection of rent and income from YLT, and that neither of the co-owners ever treated Asia as being their agent in relation to YLT or regard Asia in any light other than as tenant in respect of the theatre."

70. Mr. Chang contended that the learned judge, in finding that Asia had a tenancy of the Yuen Long Theatre, so as to found the derivative action, had relied on evidence which fell short of establishing that which Mr. and Mrs. Ronald Chu had set out to prove and had failed to place sufficient weight upon evidence which pointed the other way.

71. I will say at once that although the changes of front by the Defendants in their pleadings, both in the discontinued action, and in the present action as it proceeded, certainly called for comment, in my view it would not be safe to regard these changes as weakening their case. It is, of course, on the evidence that a case has to be decided and it must be noted that the Plaintiffs, too, indulged in significant alterations in the stand they were taking at various stages.

72. I accept Mr. Chang's submission that even if it were proved that Asia had earlier had a tenancy of the theatre, it does not follow that this status continued throughout the relevant period: 1 June 1975 to 31 December 1984, but so far as I can discover from the quite excellent note of the evidence taken by the judge, it was never suggested to Mr. Ronald Chu that even if there had been a tenancy it had been determined in one way or another.  As I understand the case put to Mr. Chu, it was that Asia had never had a tenancy of the cinema at any time.

73. About the 1975 licence agreement, certain terms of which were relied upon by the judge as indicating Asia's status  in their own right, Mr. Chang suggests that the recitals deal with the position before the agreement was entered into, and do not make it clear whether Asia is operating the cinema on its own account or as agent for the two co-owners.   As to clause 17 (which it will be recalled declares that possession of the cinema remains vested in Asia) Mr. Chang makes two points: first that it is a standard clause in licence agreements, to make it clear that the licensee does not enjoy exclusive possession and, second, that its terms cannot determine whether the premises are vested in Asia, in their own right as tenants, or as agent for the owners.

74. I entertain no doubt that the language employed in the licence agreement is highly significant and tends to provide strong support for the case put forward by Mr. and Mrs. Ronald Chu.  Without benefit of knowledge of the matrix of facts in which the document was drawn up and executed, it seems to me that no one reading it could possibly have any doubt about the capacity in which Asia were acting; and there was no indication whatever that they were granting the licence to Far East as agents for the owners. I would note here that the agreement was drawn up by solicitors on behalf of parties who were well aware of the difference between their individual and corporate personalities as the correspondence demonstrates.

75. I now draw attention to certain clauses in the agreement which, in my view, tend to show that it reflected the true position, recognising Asia's own interest in the cinema premises.  Clause 3 gives Far East the right to use "all the furnitures and equipments" in the cinema which "are the property of [Asia]".   I pause here to comment that it would be a strange agreement which in the same breath, and without differentiation, granted a licence of the premises as agent and of the equipment as owner. Then there is Clause 17 which clearly asserts Asia's own right to possession.  Clause 20 (which states that Far East shall not be deemed an agent of the company so as to bind Asia) shows that the parties had the agency concept well in mind.  And I think it is of some slight significance that Clause 22 (which refers to the way in which the agreement is to be terminated if re-development is intended) refers to the "Landlords"' intention.

76. As to the 31 May 1973 compromise agreement, we have Mr. Ronald Chu's evidence concerning the factual background against which Article 11 was drafted, and nothing from Mr. Deacon Chiu. It seems to me quite plain that, as a matter of pure construction, it cannot be read as terminating any tenancy that Asia might have had in any property co-owned by the parties to the compromise. Certainly Asia was to be appointed as agent to collect "rents or incomes" from "the tenants or occupiers" of "all properties held by the parties .... as tenants in common" but this provision would not cover rent owed as a tenant by Asia itself. The compromise agreement was long, detailed and very carefully drafted by solicitors, and when read as a whole it is clear that if Asia had then had an interest in the nature of a tenancy in the Yuen Long Theatre, and the parties were intending to alter the position, this matter would have been expressly dealt with.

77. The fact that "theatre rent" was being paid by Asia for the cinema is reflected in the accounts for the period covering 6 January 1961 to 31 March 1979. It is true that they were not signed by Mr. Deacon Chiu after 1967, and in correspondence he protested about not having received the accounts for the years 1977 - 1979, ( and we have the judge's conclusions on the matter, not, perhaps, surprising, in view of the fact that Mr. Chiu had not given evidence) but what I feel is of the greatest possible significance is that Mr. Ronald Chu gave evidence which was not challenged and which was accepted by the judge, that some time in 1975, in discussions between the parties when they were still on friendly terms, they agreed that Asia's rent obligation should be put up from $144,000 per annum to $360,000 per annum, which became effective, as the accounts show on 1 April 1975.

78. Mr. Ronald Chu did not just say that they agreed that the rent should be increased. He gave a detailed account of what had occurred and he was closely cross examined on it.   He explained that some time in 1975 he had received a rate demand which showed a considerable increase from previous years. He had shown it to Mr. Deacon Chiu and suggested that the rent should be increased since it had stood at a fixed figure for a long time. Mr. Chiu had agreed and had himself suggested the new amount for the rent, having regard to the fact that the rating authority had arrived at a rateable value of over $310,000.

79. If Asia, after the 1973 compromise agreement, had been intended merely to be the agent of the co-owners to collect any rent due for the use and occupation of the Yuen Long Theatre, it is difficult to understand why all this happened.

80. I do not think it can be seriously doubted that in 1961 Asia had a tenancy in respect of the Yuen Long Theatre. There was the rent deposit receipt for $200,000 located by Mr. Ronald Chu after an order for discovery  made in October 1985, during the hearing. The document made mention that the money had been deposited as a "guarantee for the leasing of the Yuen Long Theatre". This item (with the sum slightly increased, as Mr. Ronald Chu said, to include deposits for water rates and electricity charges) appeared regularly in the accounts of the Theatre - it was still shown in the latest statement of accounts shown to the Court (31 March 1981). Then there were vouchers, cheque stubs, rent receipts, paying-in slips and bank statements supporting Mr. Chu's evidence that Asia was a tenant and paying rent. He gave evidence, too, that the reason why there were no rent receipts etc. after the early stages of this agreement was that Mr. Deacon Chiu had said that he did not want to be bothered with them any more.

81. Mr. Chang said that the fact that Asia, at all material times, had been the agent of the co-owners in respect of the Yuen Long Theatre was to some extent supported by a paragraph in Mr. Ronald Chi's affirmation made on 10 January 1983, in connection with the present proceedings, to which I have already referred, where he had said that the co-owners, acting through Asia had granted the licence to Far East in respect of the Theatre, a statement which he confirmed on oath during his cross-examination at the trial as the truth.

82. I think it is helpful to refer to the judge's careful notes on the relevant exchange between Mr. Bokhary and Mr. Chu; at pages 163-164 (R.A. 293-294 of the Appeal bundle):

83. I have recounted what the judge said about this. As I read this passage, it s not entirely clear to me that the witness was confirming that what he had said in his affirmation was the true position, rather than merely acknowledging that his earlier pleadings and his affirmation had indeed contained the passages pointed out to him. Be that as it may, it must be remembered that this exchange occurred towards the end of his testimony, after he had been subjected to a lengthy and severe cross-examination lasting five days, during which he had stoutly maintained that Asia had been his and Mr.  Deacon Chiu's tenant all along.  I am not suggesting for one moment that Mr. Bokhary, having got what he wanted, should have asked any further questions on the matter, but in the light of his testimony as a whole, if the witness had been asked "Well, if you say that the contents of paragraph 4 of your affirmation is the truth, how can you now say that Asia was not merely your agent?", it is not really possible that he would have retracted all his earlier testimony. In fairness to Mr. Chang, I must record that he readily conceded that the passage I have set out, read in isolation, "did not give the whole picture".

84. As to the fact that during the currency of the 1975 agreement, Mr. Ronald. Chu was accepting his share of the licence fee ($30,000) direct, Mr. Chu explained how it happened, and I will only say that his evidence was accepted by the judge. The same applies to the fact that "theatre rent" was omitted from the accounts for the financial years 1980 and 1981, and Mr. Chu's explanation for this.

85. This issue, which is so central and important to the result of this appeal, is one of mixed law and fact. I have reached the conclusion that the judge's decision on the oral evidence and the material placed before him, that at all times relevant to the derivative action, Asia was the tenant of Mr. Ronand Chu and Mr. Deacon Chiu is amply justified and should not be disturbed.

Breach of fiduciary duties to Asia by the Chius and their liability to account

86. The judge noted that there was no dispute that Mr. and Mrs. Deacon Chiu, as directors of Asia, owed a fiduciary duty to the company to act in its best interests. He then dealt at length with Mrs. Deacon Chiu's Defence: that she had not in fact acted in breach of her duties, and if she had, she should be relieved in the Court's discretion under s.358 of the Companies Ordinance, and held that even if her averments had been proved by evidence, they would not excuse her. There is no challenge to this finding, nor (as we have seen) to the judge's general conclusion on this issue if the derivative action is well founded. This is what Macdougall J. said:

"         It is plain that Deacon Chiu and his wife owed fiduciary duties to both Asia and Far East. These interests came into conflict when the licence expired and Far East unlawfully remained in occupation of YLT. Deacon Chiu and his wife clearly decided to resolve the conflict in favour of Far East; and their decision was made with a view to their own financial advantage. The obvious consequence was that Asia would suffer financial loss. They are therefore liable to account to Asia for the profits they made as a consequence of that lawful occupation.

The general rule of equity is that no one who has duties of a fiduciary nature to perform is permitted to enter into engagements in which he has or can have a personal interest conflicting with the interests of those whom he is bound to protect: Regal (Hastings) Ltd v. Gulliver & Ors. [1967] 2 A.C. 134, per Viscount an Sankey at p.137."

87. Mr. Chang has submitted that in all the circumstances, even if the derivative action were well founded, the Court should; in its discretion, award damages against Mr. and Mrs. Deacon Chiu, and not an account of profits.

88. I have no doubt that the Court has this discretion in deciding whether or not to order an account of profits in exercising its equitable jurisdiction, although I note that no such submission was made to the judge.

89. Mr. Chang suggests that the fair and just award to make is an award of damages - for a number of reasons:

90. I see the force of these arguments but on the evidence, Asia was very real, and Mr. and Mrs. Ronald Chu, although the main, were not the only shareholders. I am unable to discern any sufficient reason why the normal consequences should not follow, so that Mr. and Mrs. Deacon Chiu, as directors of, and therefore in a fiduciary relationship with, Asia should be required to account for the profits they have gained, to Asia.

The appropriate relief against Far East

91. Relying on passages, which he cited, from the judgment of Ungoed-Thomas J. in Selangor United Rubber Estates Ltd. v. Cradock & Others (No.3),⁽²⁾ Macdougall J. reached the conclusion that on the application of equitable principles, Far East, too, were liable to account for their profits on the basis that they were constructive trustees.

92. Mr. Chang submitted that no cause of action lay against Far East for an account of profits, and the judge's order was fundamentally wrong. Far East, he suggested, were merely trespassers, who had been let into occupation of the Yuen Long Theatre lawfully.

93. Mr. Chang gave the example of a friend of a trespasser who refused to pass a resolution to obtain vacant possession of a company's land, thus enabling the trespasser to hold over. This, he argued, would not expose the trespasser to an order to account for profits, for he had not participated in the refusal to pass the resolution. Here it had not been demonstrated that Far East had participated in the alleged breach of duty by the directors of Asia, on the basis of which an account could be ordered.

94. Mr. Chang also complained that the pleading was not sufficient to justify the Court's order against Far East.  Far East's complicity in any fraud or conspiracy had not been distinctly pleaded.

95. He relied on Stroud v. Gwyer ⁽³⁾ where one of the questions addressed by Sir John Romilly, M.R. was whether a person who borrows funds which he knows to be trust funds and employs them in trade or business, is subject to the same obligations to the beneficiaries as the trustees would have been if they had carried on trade with the funds for their own benefit.  At pp. 142-3 of the report, Sir John Romilly said:

"No doubt the cases fully established that a cestui que trust has a right to follow the trust funds into the possession of the persons who took it knowing it to be trust money.  But it is a different thing to say that beyond the contract and the replace ment of the fund, the cestuis que trust can derive any advantage from the subsequent employment of the fund, or that they are entitled to any account other than according to the terms of the contract. The cases so frequently brought before the Court of following trust funds and for making trustees liable for breaches of trust in the employment of trust money have certainly never been carried to that extent. If the trustees, at the instance of the tenant for life, have lent the money to the tenant for life for the purpose of being employed in trade the tenant for life must make it good; and if the tenant for life is unable to do so, the trustees must; but I have never yet found a case, nor have I heard it suggested in such a case, that if the tenant for life has made greater profits than the capital would have produced if it had been invested, the excess of those profits should be turned into capital for the. benefit of the parties in remainder, or that the trustees could be made liable in that respect."

96. In my view, that case affords Mr. Chang no assistance, for there was no suggestion that the tenant for life had knowingly assisted in the breach of trust. I think that the true principle applicable to the facts before us to be found in those authorities which hold that a stranger to a trust will be regarded as a constructive trustee, and therefore, personally liable to account, if he knowingly assists in a dishonest design by the actual trustees to misapply the trust fund: see, for example, the remarks of Buckley L.J. in Belmont Finance v. Williams Furniture (No.2) ⁽⁴⁾ at p.405 between letters b. and f.

97. This is the principle upon which the Selangor case ⁽²⁾ proceeded, and at p.1582 of the report, Ungoed-Thomas J. pointed out that where is such circumstances a person is treated as a trustee, it is merely a formula for imposing upon him a personal liability, in equity, to account to the beneficiaries for any gains or losses which result for his wrongful activities.

98. In my opinion, the evidence that the judge accepted, and was entitled to accept, led inevitably to the conclusion that since Mr. and Mrs. Deacon Chiu were two of the directors of Asia, and of Far East, their knowledge of what was taking place to the detriment of Asia must be imputed to Far East so that Far East, too, are liable to account.

99. I am bound to say that I did not find the pleading which sought to lay a proper foundation for the order for an account of profits from Far East entirely satisfactory. Where knowing assistance in a dishonest design by trustees or others in a fiduciary capacity is relied upon, I think it would be far better to plead this averment distinctly, but I am inclined to accept Mr. Litton's submission that the final sentence of paragraph 8 of the Re-amended Statement of Claim ("The acts complained of herein below are acts done by Deacon Chiu and/or Deacon Chiu and the members of his immediate family on behalf of Far East") coming as it does before all the material facts pleaded on which the derivative action on Asia's behalf is based, was sufficient to allow the claim by Asia for an account of profits to go forward.

100. Mr. Chang urged us, even if his submission were not accepted, to exercise our discretion to award damages against Far East (mesne profits) instead of making an order for an account of profits. He suggested that to make that order against Far East would be to recognise a fiction even more artificial than that which allows Asia to claim profits and that it would be entirely fair and reasonable, and meet the dictates of justice, if only mesne profits were awarded in respect of Far East's trespass on the premises of the Yuen Long Theatre. He invited us to have particular regard to the fact that it was only after the trial had begun that an amendment was prayed for, and allowed, to permit the higher claim to be made.

101. After due consideration, I find myself unable to agree to such a course. I must say however, that in practical terms I doubt if it will make much difference since the taking of the account of profits in respect of Far East will be precisely the same operation as that in respect of Asia and as we know, Mr. and Mrs. Deacon Chiu are the sole shareholders of Far East.

Ascertainment of the quantum of profits

102. The learned judge accepted Mr. Litton's submission that there was sufficient evidence before the Court to enable him to quantify the profits which Far East had made as a consequence of their unlawful occupation of the cinema.  He referred to Far East's audited accounts for the relevant period; the licence fees reflected in the Riviera offer; a valuation report produced by a chartered surveyor on behalf of Far East; evidence from the auctioneer who had conducted a public auction in February 1985 where both Mr. Deacon Chiu and Mr. Ronald Chu had bid for the Yuen Long Theatre, the latter making the winning bid; the amounts involved in the 1975 licence agreement; the amount mentioned by Mr. Deacon Chiu in a June 1982 letter where he suggested a figure as being appropriate for the lease of the cinema.

103. After analysing the evidence, the judge said he would base his award on the figures in Far East's accounts and that his calculation would be founded on operating income less direct operation expenses. In reaching the amount of $12,521,633 the judge adopted an approach which I will attempt to summarise. However, it is necessary to go to some detail regarding the evidence and the submissions upon which the judge reached that figure.

104. The judge had before him the audited accounts and relevant account documents of Far East for the period 1 June 1978 to 31 March 1984. These had been produced in evidence by Far East's auditor on the first day of the trial. Then there was the evidence, upon which the judge relied so heavily, of Mr. Lam Wai Kay who was called by the Plaintiffs towards the close of the trial.  Counsel then appearing for Mr. and Mrs. Deacon Chiu and Far East objected to the calling of Mr. Lam at such short notice but the judge overruled the objection and allowed him to give evidence.

105. We are told that as a result of what Mr. Lam had said in his examination-in-chief, Counsel for the Defendants considered applying for an adjournment. However, all the Counsel concerned put their heads together, and since everybody was anxious to avoid an adjournment, a somewhat unusual agreement was reached which was later recorded in the following terms:

"The witness [Mr. Lam] has extracted figures and made calculations.

The figures have been extracted and the calculations made from documents before the Court (P3, P4 & P5) and audited statements of accounts of Far East for the years ended 31/3/83 and 31/3/84 produced by Kenneth Lo, Far East's auditors on subpoena after commencement of the trial (P6).

The Defendants propose to challenge the results produced by this witness. To do so by cross-examination would involve an application for adjournment (which all parties desire to avoid).

It can also be challenged by taking the Court through the documents by way of Counsel's submission. This course would not necessitate any adjournment. Accordingly this is the course which all parties accept should be adopted herein."

106. Mr. Lam produced an exhibit which he had prepared from the accounts etc.. This contained his figures and calculations. In one part of this document there were figures which, he said, he had extracted or projected from the accounts of Far East for the purpose of producing what he considered to be the profits made by Far East during the period covered by the accounts he used.

107. He used two methods of extraction and calculation. In respect of that period (1 June 1978 to 31 March 1984) the accounts of Far East showed figures under "income" and "expenses".  In relation to income, Mr. Lam included every single item, from whatever source, as being the income of the Yuen Long Theatre. In respect of expenditure, Far East's accounts showed two separate heads: "operating expenses" and "charges".  Mr. Lam regarded the operating expenses as "direct operating expenses", and the charges as "administration expenses".   While including nearly all the items under "operating expenses", he only included some items under "charges", excluding many of them. The excluded items came to about $1.6m.

108. It seems that the reason why Mr. Lam thought it right to exclude these items was because he considered them as administration expenses, although it is common ground that he had no experience whatever of operating cinemas. It is difficult to understand the basis upon which he included some of the "charges" and excluded others of them, and it is even more difficult to appreciate how he felt able to include specific items as "charges" for some of the years and deduct precisely the same items for other years. He was thus both selective and arbitrary.

109. When the audited accounts of Far East for the period covered by those accounts were produced on the first day of the trial the audited accounts for the period 1 April to 31 April 1984 were not yet ready. Even though Mr. Lam had not seen those accounts, and had had no access to any of the account books for that period of nine months, he felt able to estimate the profits for those months as being 9/12ths. of his own figure for the net profits of Far East for the last financial year for which he had accounts, from 1 Apri1 1983 to March 1984.  Even if such speculation were justified, his figures were flawed because of his earlier arbitrary exclusions.

110. We are also told that later during the trial, the audited statement of the Far East accounts for the period from 1 April to 31 December 1984 were produced by Counsel then appearing for Far East, without objection, and marked as an exhibit. When Mr. Litton came to make his closing submissions, he produced another document to the judge with calculations upon it, and submitted that the accounts for those last nine months should be looked at with suspicion because they had been approved by the Board of Far East some three months after it had ceased to have any interest in the Yuen Long Theatre. He also drew attention to the fact that the audited accounts for that period showed a jump in respect of salaries, for no apparent reason, from some $146,076 to $337,064.

111. The bare account of what took place and the material that was put before the judge is, in my respectful judgment, sufficient of itself to indicate that the judge's figure of some $12.6m. cannot possibly stand.  Mr. Litton very fairly conceded as much, but did not go far as to concede that he had made an error of judgment (if I may be permitted so to call it) in inviting the judge to approach the accounts in the way that he did, and I mean no discourtesy to Mr. Litton when I say that it was not right to seek to challenge the audited accounts for the second period in tthat speculative manner

112. Moreover, the losing parties, it seems, were not heard again before the judge arrived at the figure of $18,951,761 which appears in the formal order, a sum which it is now conceded, did not take into account items which fell to be deducted on common ground, and which included the compound interest computed on a faulty basis. This, in itself, was unfortunate.

113. It is quite apparent that the learned judge, by doing the accounting exercise himself there and then, was doing his best to assist the parties, to save them time and costs, but I must say with very great respect that his approach was misconceived and, perhaps, at the end of a long trial, it is understandable that he allowed himself to be swayed by Mr. Litton's advocacy.

114. We have not been asked to correct the figures ourselves, nor do I think it would be proper to attempt that exercise. I would set aside the judge's ascertainment of the profits for the whole period (and, necessarily, the judgment for the sum appearing in the order drawn up) and direct that the matter be remitted to the High Court for the account of profits to be taken in the usual way under the Rules of Court.

115. I have had the advantage of reading, in draft, the judgment my Lord Kempster J.A. is about to deliver and I respectfully agree with all that he says concerning the manner in which the account should be taken.

Interest

116. In considering this issue, the judge set out the competing arguments of Counsel. He cited a passage from GORE-BROWNE ON COMPANIES (now repeated in paragraph 26.62 of the 44th Edition) and extracts from the judgments in Wallersteiner v. Moir (No.2)⁽¹⁾ and O'Sullivan and Another v. Management Agency & Music Ltd. and Others, ⁽⁵⁾ and held that it was proper to award compound interest at the rate of 1% per annum above the minimum lending rate in operation from time to time during the relevant period, and with yearly rests.

117. That the Court has jurisdiction, in an appropriate case in the exercise of its equitable jurisdiction to award interest, simple or compound, against a person who has improperly profited from his fiduciary position, is well established. Interest is never awarded by way of punishment. The question we are called upon to decide is whether the judge was justified in making the award he did make.

118. The leading authorities are reviewed by the three Lords Justices who heard the appeal in the Wallersteiner case.⁽¹⁾ Lord Denning M.R. dealt with the matter at page 388 and said that since a person in a fiduciary position is not allowed to make a profit out of his trust, "he is liable to account for the profit or interest in lieu thereof" [Emphasis added]: Buckley L.J., at page 397, adverting to the same principle, said: "Where a trustee has retained trust money in his own hands, he will be accountable for the profit which he has made or which he is assumed to have made .... The defaulting trustee is normally charged with simple interest only, but if it is established that he has used the money in trade he may be charged compound interest ... ".

119. Going back to some of the authorities referred to in Wallersteiner,⁽¹⁾ I turn first to Jones v. Foxa11.⁽⁶⁾ There the Master of the Rolls of the day said this at p.392:

"The rules which apply to the cases in which executors are charged with interest on the balances retained by them are subject to a good deal of difficulty, arising, not so much from any doubt as to the principles themselves, as from the practical application of them to particular cases.   Generally it may be stated, that if an executor has retained balances in his hands which he ought to have invested, the Court will charge him with simple interest at four per cent on these balances; if, in addition to such retention, he has committed a direct breach of trust, or if the fund had been taken by him from a proper state of investment in which it was producing five per cent., he will be charged with interest after the rate of five per cent. per annum; if, in addition to this, he has employed the money so obtained by him in trade or speculation, for his own benefit and advantage, he will be charged either with the profits actually so obtained by him from the use of the money, or with interest at five per cent. per annum, and also with yearly rests, that is, with compound interest."

120. In Burdick v. Garrick ,⁽⁷⁾ at p.241 Lord Hatherley, L.C. had this to say:

"..... the Court does not proceed against an accounting party by way of punishing him for making use of the Plaintiff's money by directing rests, or payments of compound interest, but proceeds on this principle, either that he has made, or has put himself in a position as that he is to be presumed to have made, 5 per cent, or compound interest, as the case may be.

121. In the course of his speech in Vyse v. Foster,⁽⁸⁾ at page 336, Lord Cairns said:

"It is the universal practice of the Court in a case of this kind, that if relief is sought, and if relief can be obtained on the footing of an account of profits, it must be an account of profits and nothing else, and it must be an account of the profits for the whole period, and in respect, as it appears to me, of the whole sum ......."

122. At the hearing before the Court of Appeal in that case,⁽⁹⁾ at page 329, James L.J. stated the principle in this way, a statement not dissented from in the House of Lords:

"If an executor or trustee makes profit by an improper dealing with the assets or the trust fund, that profit he must give up to the trust.  If that improper dealing consists in embarking or investing the trust money in business, he must account for the profits made by him by such employment in such business; or at the option of the cestui que trust, or if it does not appear, or cannot be made to appear, what profits are attributable to such employment, he must account for trade interest, that is to say, interest at 5 per cent."

123. In my judgment, the true principle to be derived from this line of authority is as stated in UNDERHILL'S LAW OF TRUSTS AND TRUSTEES (13th Edition) at page 702:

124. About the authorities, the learned authors of HALSBURY'S LAWS OF ENGLAND (4th Edition) say this in paragraph 957 of Vol. 48:

"Liability to account. Where a trustee makes a profit by an improper employment of trust money or property, he is liable to make good to the trust estate the amount of that profit in addition to the money or property improperly employed. Where he makes a profit by improperly employing trust money in trade or speculation, he is liable at the beneficiary's option to account for the  trust estate either for the profit actually made or for compound interest at 1 per cent above the clearing banks' base rate from time to time on the amount of the trust money improperly employed.”

125. As Mr. Litton has pointed out, none of the authorities to which we were referred concerned a situation similar to that which we have here. How are the principles drawn from the cases to be applied to this action? To follow the language of the paragraph from HALSBURY just cited, in our case it is not trust money that has been improperly employed, and it is therefore not easy to envisage a notional fund which has to be made good to the trust estate upon which compound interest can be awarded.

126. It may be that the true position on the facts is this - at the option of the beneficiaries, the directors are liable to account:

127. If the Yuen Long Theatre had simply been locked up and not used for the five years, a claim under paragraph (a) above might have been appropriate. However, in the circumstances it is not surprising that the Plaintiffs have gone for an account of the profits. What cannot be done, it seems to me, is to treat the profits as though they were a trust fund and then to award compound interest on top of the profits actually made.

128. However, the profits have to be regarded as being due to the beneficiary as and when they are made and so, in my judgment, it would not be at variance with the principles I have attempted to deduce from the authorities, for a Court, in the circumstances we have here, to award simple interest to the beneficiary on the sums found due on taking the account, crystallized at the end of each of the relevant financial years. Such an award would, I feel, be just and in accordance with ordinary principles, treating the money as having been wrongfully withheld.

129. I would, therefore, vary the judge's order in the manner proposed by Kempster, J.A. for it seems to me that we have reached the same result by different routes.

130. Before I take leave of this issue, I would mention a view that I expressed during the hearing of the appeal, for which I have now found some support. At page 368 of ATKIN'S COURT FORMS (2nd Edition, 1984) occurs the following: “…and if compound interest is sought the indorsement on the writ should expressly claim it, and state the period of the rests." Although no authouity is cited for this proposition, in my respectful opinion, to follow this course would be good practice.

The basis upon which the costs of the action should be awarded

131. Mr. Litton had submitted to the judge that given the effect of the judgment the successful Plaintiffs should have their costs on a scale more generous than party and party costs.   Costs should at least be awarded on a common fund basis, he argued, but the Court might feel that in view of the deliberate and calculated infringement of the Plaintiffs' rights, costs on an indemnity basis would be the appropriate order. Counsel for the Defendants resisted this application.

132. This is how the learned judge dealt with the matter:

"I have, I hope, made it plain from my judgment that I consider the behaviour of the unsuccessful defendants to have been particularly outrageous. This case has never been simply one of quantum. At all times there has been a denial of liability to account on the basis of a constructive trust and as Mr. Litton observes the defendants have been guilty of a deliberate and calculated infringement of plaintiffs' rights. In my view this is a case where the plaintiffs are entitled to recover all the costs of and incidental to the proceedings subject only to the qualification that they may be reduced by anything that the taxing master considers to be either of an unreasonable amount or unreasonably incurred. I have come to the conclusion that the plaintiffs should get the benefit of any doubt that may exist in the mind of the taxing master, Accordingly I award costs to the plaintiffs on an indemnity basis as sought by Mr. Litton."

133. The basis upon which costs are awarded is, of course, very much a matter for the discretion of the trial judge, and although the Rules of Court do not provide for costs on an indemnity basis, it is well established, both in Britain and in Hong Kong, that in an appropriate case indemnity costs will be ordered.

134. If I may say so with respect, Sir Robert Megarry, in. E.M.I. Records Ltd. v. Ian Camera Wallace Ltd. and Another, ⁽¹⁰⁾ gives a very useful analysis of the five main heads under which costs' orders are made, and the effect of the orders made under the different bases upon the paying party. I will not attempt to summarise all that he said, but will cite one passage from his judgment at pp. 71-2:

"On a party and party taxation, nothing will be included unless the taxing master reaches the conclusion that it satisfies the requirement of 'necessary or proper'. Similarly, where the taxation is on the common fund basis, the taxing master will include nothing unless he considers that it satisfies the requirement of 'a reasonable amount in respect of all costs reasonably incurred.' On neither basis do the rules give the benefit of any doubt to the party in whose favour the order has been made. Nothing is included unless it satisfies the words of inclusion. The indemnity basis, as I would construe it, is the other way round. Everything is included unless it is driven out by the words of exclusion, namely, 'except in so far as they are of an unreasonable amount or have been unreasonably incurred.'  I should add that in applying to an opposing party a sub-rule intended for taxations as between a solicitor and his own client, I think that it is open to the paying party to take any point and make any objection which the client could have raised, had he been taxing the bill."

135. The learned judge's order was a very severe one, and was intended to be. He plainly indicated that he was influenced by what he called the Defendants' particularly outrageous behaviour, and with respect, I can well understand his approach. I appreciate that depending on the result of this appeal it may be that the lower court's order for costs will have to be adjusted and some allowance made in the Defendants' favour (which will have to be the subject of further submissions from Counsel). However, I do not consider that this would affect the basis upon which costs should be ordered.

136. The judge stressed the fact that at all times there had been a denial of liability to account on the basis of a constructive trust but, with respect, this issue was by no means an easy one to resolve for, as we have seen, it all depended upon whether or not Asia's tenancy was established, a matter upon which there was much respectable competitive argument. Moreover, at one time during the controversy, Mr. and Mrs. Ronald Chu were maintaining that there was no tenancy at the material time. In all the circumstances, though not without some hesitation, I have reached the conclusion that the proper order should have been that the costs should be taxed on a common fund basis.

137. Before leaving this issue, I would respectfully echo what Sir Robert Megarry said at p.76 of the E.M.I. ease,⁽¹⁰⁾ in concluding his judgment:

"It seems to me that ........ some amendment should be made to the present Order 62 which would put the position of inter partes orders for  costs on an indemnity basis and on a solicitor and own client basis beyond doubt. As I have indicated, I would welcome the disappearance of the solicitor and own client basis as between opposing litigants, keeping it only for what it is designed for, namely, taxation between a solicitor and his own client. But I say this on the footing that the rules will properly define the indemnity basis, and confirm it as being available inter partes."

Conclusions

138. For convenience, I will summarise my conclusions. I would uphold the learned judge's finding (i) that the derivative action was well founded against Mr. and Mrs. Deacon Chiu, and that they are liable to account for the profits they made in breach of their fiduciary duties and (ii) that Far East are also liable to account as constructive trustees.

139. However, I would allow the appeal to the following extent: the judgment against Mr. and Mrs. Deacon Chiu, and Far East, for $18,951,761 would be set aside, as would be the basis upon which the order for costs in favour of Mr. And Mrs. Ronald Chu was made. Instead, I would order:

(1)    [1975] 1 Q.B. 373

(2)   [1968] 1 W.L.R. 1555

(3) 28 (1860) Beav. 129

(4)    [1980] 1 All E.R. 405

(2)    [1968] 1 W.L.R. 1555

(2)    [1985] 1 Q.B. 428

(6)    (1882) 15 Beav. 388

(7) (1869-70) 5 Ch. App. 233

(8) (1874) L.R. 7 H.K. 318

(9)    (1872) L.R. 8 Ch. App. 309

(10)    [1983] 1 Ch. 59

Kempster J.A.:

140. The hearing of this appeal took some nine days and I hope it will not be thought discourteous to counsel who have advanced many cogent points in the course of argument if I do not specifically allude to all of them.

141. In Prudential Assurance Co. Ltd. v. Newman Industries Ltd. (No.2) ⁽¹⁾ Vinelott J. held that a minority shareholder could initiate a derivative action for wrongs done to a company; which in the usual course of events would be the only proper plaintiff, albeit the wrongdoers were only in effective as opposed to legal control of its activities.  The Court of Appeal indorsed this view but went on to hold that a plaintiff should normally be required at the outset of such proceedings prima facie to demonstrate the wrongdoer's effective control: Prudential Assurance Co. Ltd. v. Newman Industries Ltd. ⁽²⁾.  The substantive defendants in the instant action did not seek, either below or before us, to question the approach of Vinelott J.; to complain of the absence of a preliminary application or to challenge the relevant facts, as already described by Fuad J.A. in the judgment just delivered and which I had the advantage of seeing in draft, save and except that they disputed and dispute the existence of a tenancy vested in Asia. If there was a tenancy the facts relevant to Far East's wrongful occupation of the Yuen Long Theatre ineluctably demonstrate breaches by the personal defendants of their fiduciary duties to act in good faith in the best interest of Asia and to avoid any predicament whereby conflict might arise between their personal interests and those of that company.

142. The first issue of substance in this appeal is, therefore, whether or not there was factual evidence upon which Macdougall J. could find as a matter of law, as he did, that at all material times Asia was the tenant of the co-owners. In my opinion, reached after making all due allowance for the radical shifts in the respective attitudes to the facts adopted by the various parties from time to time, the recitation of material evidence by Fuad J.A. in itself determines this issue in favour of the judge's finding and of the existence of a tenancy. I would add a reference to the way in which direct payments to Ronald Chu by Far East were entered into his director's loan account in the books of Asia.

143. The second issue of substance is whether or not the judge properly exercised his discretion in ordering the personal defendants to account to Asia for the monies accruing to them from the unlawful occupation of the theatre by Far East.  As trustees of Asia's interest in the property they were obliged to exploit it to the company's best advantage and precluded from making a personal profit from the discharge and, a fortiori, from the neglect of such obligations. It in no way assists the second defendant to assert that she always did what her husband told her. To their credit the personal defendants have made no attempt to excuse their calculated breach of such duties or to plead hardship. If an account betaken on a proper basis Asia will recover no windfall while the personal defendants can hardly complain of disadvantages resulting from the somewhat cavalier conduct of business through limited liability companies which has enabled them to enjoy corresponding benefits. I am satisfied that the judge's exercise of discretion in this regard cannot reasonably be challenged.

144. The third issue of substance is whether or not an account of profits should have been ordered in favour of Asia as against Far East. Here it is to be observed that the relevant knowledge of the personal defendants, who were directors of both companies, is to be imputed to Far East who were thus aware of and certainly participated in what the judge found, on ample evidence, to have been the fraudulent design of those defendants: Belmont Finance Corporation v. Williams Furniture Ltd⁽³⁾ ; Belmont Finance Corporation v. Williams Furniture Ltd. (No.2) ⁽⁴⁾; Rolled Stee Products Ltd. v. British Steel Corporation & Ors. ⁽⁵⁾ . Looking at the other side of the coin, as pleaded by the plaintiffs, the personal defendants were at all material times acting for and on behalf of Far East, strangers to Asia, and thus fixed with Far East's corporate knowledge and mind: Selangor Rubber Estates v. Cradock⁽⁶⁾.  Accordingly Far East were accountable to Asia as constructive trustees and the relevant order of the judge cannot be impugned. It is accepted that they owed Asia $30,000 by way of arrears of licence fees in any event.

145. The foregoing conclusions obviate the necessity of considering the way in which the alternative relief of an award of mesne profits should be assessed whether by reference to the offer of Riviera or to valuation reports or both; including the report of Knight, Frank, Kan and Baillieu which was disclosed by the plaintiffs pursuant to order but not adduced in evidence by them. It was properly so adduced, pursuant to R.S.C. Order 38, r. 42, by Far East who procured its production on subpoena duces tecum.

146. As to the basis for the relief granted it is common ground that the only persons beneficially entitled to the profits reaped by Far East in consequence of their trespass upon the Yuen Long Theatre premises, whensoever distributed, were the personal defendants and that there is no call for more than one account; thereby eliminating the risk of double recovery.   It should, in my opinion, be based on Far east's audited accounts covering the relevant period albeit the personal defendants may, in addition, have to account for profits deriving from the payment of "Management Fees" to Rex Entertainment Ltd. Unfortunately the judge accepted the plaintiffs' invitation to take this account himself as well as their proferred computation which, it is now conceded, was wrong in important respects. Looking at "Yuen Long Theatre - Comparative Statement for the six years ended 31st March 1984" the figures for "Sundry Income, Management Fee Received; Film Delivery, Service Income and Interest Received" for the years ending 31st March 1982, 1983 and 1984 should not have been included while the appropriate figures for "Operating Expenses - Telephone, Travelling and Sundry Expenses'' for all six, rather than only for the last three, years should have appeared. Further, an appropriate proportion of Far East's administrative expenses should have been deducted from the profits in each of such six years. At such times as Far East was managing theatres other than that at Yuen Long apportionment will be necessary. It is still in issue between the parties, however, whether the "Management Fees" paid to Rex Entertainment Ltd. as from the year ending 31st March 1980 and mentioned above constitute genuine deductions for services actually provided whether or not a colourable device for transferring monies from one of the personal defendants' collective pockets to another and rendering them liable to account therefor. The figures for salaries over the last 9 months of the trespass are also challenged. I do not think that this court is in a position itself to resolve such disputes and agree that the judgment should be set aside and an account be taken before a Master in the ordinary way pursuant to R.S.C. Order 43 rules 4,5 and 6. I would direct that Far East's books of account shall be evidence of the matters contained therein with liberty to the plaintiffs to take such objection to the "Management Fees" and to the salaries said to have been paid during the last 9 month period as they think fit.

147. The judge ordered that the movies which he found due from the substantive defendants to Asia should "bear interest at the rate of one per cent per annum above the minimum bank lending rate in operation from time to time during the relevant period and with yearly rests" save that interest should not run on monies paid into court, including part paid out for property tax, or for rates or for irrecoverable profit tax. He did not order that these sums or the $120,000 deposited with Asia at the outset of the licence period should be set-off against profits for the relevant years so as to reduce the sum on which interest was to be calculated. On the contrary, he again unquestioningly accepted and embodied in his formal order, dated and entered on the 18th November 1985, the plaintiffs' calculation which allowed interest on the whole of the profits and arrears of licence fees as from 1st June 1978. The total award amounts to $18,951,761.

148. Mr. Chang submitted that there was no warrant for the award of interest, simple or compound, on profits accounted for albeit in equity a defaulting trustee may be charged with compound and, a fortiori, simple interest on monies which he has employed in trade in lieu of an account. He relied upon passages in Ex parte Watson ⁽⁷⁾ per Lord Eldon L.C.; Jones v. Foxall ⁽⁸⁾ per Sir John Romilly M.R. and Wallersteiner v. Moir (No.2)⁽⁹⁾ per Lord Denning, M.R., However, in Regal (Hastings) Ltd. v. Gulliver ⁽¹⁰⁾ the House of Lords held directors in breach of fiduciary duty liable both to  account for profits and to pay simple interest  thereon. The Court of Appeal made similar orders in O'Sulliven v. Management Agency Ltd. ⁽¹¹⁾.   In my opinion such an order for interest is adequate to prevent the unjust enrichment of the substantive defendants here and should be substituted for the order for compound interest which could result in over-compensation. I would so vary the order of the judge as to allow interest at the rate of 1 per cent per annum above the minimum bank lending rate in operation from time to time on the $30,000 arrears of licence fees from 1st June 1978 and on such profits as are respectively assessed, after allowances have been made as indicated above, for the years ending 1st April, 1979,1980, 1981, 1982 and 1983 and for the nine month period ending on 1st January 1985, when Far East vacated the Yuen Long Theatre premises, as from those dates which notionally mark the times when the various sums should have been paid to Asia.

149. The judge also awarded the successful plaintiffs costs against the substantive defendants on an indemnity basis; his resulting order introducing the qualification that the costs "maybe reduced by anything that the taxing master considers to be either of an unreasonable amount or unreasonably incurred." This wording follows the terms of R.S.C. 0.62, r.29(1) and in applying the exceptions the receiving party will be given the benefit of any doubt: EMI Records Ltd. v. Ian Wallace Ltd.⁽¹²⁾ Although not mentioned in the Rules of the Supreme Court such an order was arguably within the judge's statutory discretion. as conferred by Section 12(2) of the Supreme Court Ordinance but the examples of its exercise appear for the most part tote confined to cases of contempt. For my part I am not satisfied that the circumstances of the action warranted a departure from one of the settled types of order and would direct that the plaintiffs' costs below, if not agreed, should be taxed and paid by the substantive defendants, who have been fixed with fiduciary wrongdoing, on a common fund basis pursuant to R.S.C. 0.62, r.28: Bartlett v. Barclays Trust Co. (No.2) ⁽¹³⁾. Should this order leave them out of pocket in respect of costs and expenses reasonably incurred they are entitled to be indemnified by Asia: Wallersteiner v. Moir (No.2) ^(14).

(1)    [1981] Ch. 257

(2)    [1982] Ch. 204

(3)    [1979] Ch. 250

(4)    [1980] 1 All E.R. 393

(5)    [1985] 2 W.L.R. 908

(6)    [1968] 1 W.L.R. 1555

(7)    (1814) 2 V. & B. 414 at p. 415

(8)    (1852) 15 Beav. 388 at p. 392

(9)    [1975] Q.B. 373 at P.388

(10)  [1967] 2 A.C. 134

(11)  [1985] 1 Q.B. 428

(12)  [1983] Ch. 59 at p.74

(13)  [1980] Ch. 515 at p.547

(14)  [1975] Q.B. 373 at p.391

Penlington, J.:

150. I have seen in draft the judgment of Fuad J.A. which sets out the circumstances of this matter fully and clearly. I agree with the conclusions which he and Kempster J.A. have reached on the main issues of whether a derivative action lies and on the Respondents' claim for an account of profits. There is nothing I can usefully add.  I am also in agreement that the proper order for costs was on a common fund basis and indeed that seems to be what is contained in the order actually made. I agree with Kempster J.A. when he says that is the normal order against a party who is in breach of a fiduciary duty and   there is no reason here to depart from that.

151. What has, however, caused me concern is the question of interest. Though there are earlier authorities which suggest that a beneficiary is entitled to claim either profits or interest (Jones v. Foxall⁽¹⁾ and Vyse v. Foster ⁽²⁾ ) the recent cases make it clear that in appropriate cases there can be an order for both. Here I am satisfied that there should be an order for an account of profits and for payment of interest on the profits wrongfully withheld. What is more difficult is the question of whether it should be compound, as ordered by Macdougall J. or simple interest.

152. The two cases cited extensively by Macdougall J. are Wallersteiner v. Moir⁽³⁾ and O'Sullivan v. Management Agency Ltd. ⁽⁴⁾. While in the later case an award of compound interest was made only in respect of some overseas royalties received by the defendants I consider that both cases support the award of compound interest made by Macdougall J..

153. I am satisfied on those authorities that while the award of interest is discretionary and must be considered in the light of the facts of the case and the conduct of the parties, compound interest will normally be awarded if the funds for which the defaulting party must account have been used in trade . In Wallersteiner v. Moir⁽³⁾ that was the position and the award of compound interest there seems to have been approved in O'Sullivan v. Management Agency Lt d.⁽⁴⁾. In that later case simple interest only was awarded but the reason for that was because the funds had been used for the mutual benefit of both the plaintiff and the defendant. Dunn L.J. said at p. 461 "In the present case, accepting that the money was used for their business purposes, part of it must have been used for the benefit of O'Sullivan himself”. At p.473 Waller L.J. said "I am of opinion therefore that this being a joint venture with one reservation I would not award compound interest" (my emphasis).  As Macdougall J. said it is also significant that in respect of overseas royalties which had not been used for the joint venture compound interest was awarded and indeed that award had been conceded.

154. Here Far East was owned entirely by the personal Respondents and was in no way a joint venture. I can see no reason to differ with the decision reached by Macdougall J. in awarding compound interest. I do consider that on the evidence before Macdougall J. such an order would do no more than see that the Respondents do not benefit from the breach of their fiduciary duties.

______________

Fuad, J.A.:

155. We are handing down these judgments under R.S.C. 0.42, r.5B so that Counsel are afforded an opportunity of perusing them before addressing us further.  Arrangements should be made for this Court, as presently constituted, to be re-convened on a date to be fixed in consultation with Counsel so that we may hear argument on:

(1)    (1882) 15 Beav. 388

(2)    (1872) L.R. 8 Ch. App. 304

(3)    [1975] Q.B. 373

(4)    [1985] 1 Q.B. 428

(3)    [1975] Q.B. 373

(4)    [1985] 1 Q.B. 428

Representation:

Mr. Denis Chang, Q.C., Mr. Kemal Bokhary, Q.C. and Mr. Daniel Fung (Messrs. Poon & Sum) for the Appellants.

Mr. Henry Litton. Q.C. and Mr. Allen Yau (Peter Mark & Co.) for the Respondents.