Pearl Link International Ltd and Another v. Recruit Co Ltd and Others

HCCW841/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.841 OF 2003

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BETWEEN

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Before : Deputy High Court Judge Poon in Court

Dates of Hearing : 11, 12, 13 and 14 April 2005

Date of Judgment : 13 May 2005

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J U D G M E N T

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1.This is a petition brought under section 327(3)(c) of the Companies Ordinance to wind up PPG Investments Limited (“PPGI”) on just and equitable grounds.

THE PARTIES

2.The petitioners are Pearl Link International Limited (“Pearl Link”) and Polygold Commerce & Investment Limited (“Polygold”).

3.The respondents are Recruit Company Limited (“RCL”), formerly known as Recruit Holdings Limited; Highview Assest Limited (“Highview”); The Great Eagle Co. Limited (“Great Eagle”); Salespost Limited (“Salespost”); Chan Family Investment Corporation Limited (“CFI”) and PPGI.  Those respondents that defend this petition are RCL, Highview and Great Eagle, that is, the 1^st to 3^rd respondents only.  Salespost and CFI are absent throughout these proceedings.  PPGI, being the subject company, is a nominal party.

4.At the very centre of the disputes is PPGI’s only subsidiary, Premier Printing Group Limited (“PPG”).  It is owned equally by PPGI and Cross Board Group Limited (“Cross Board”).  Cross Board is in turn a wholly owned subsidiary of Singtao Holding Limited.

THE PROTAGONISTS

5.The protagonists are Mr Robert Chow Yung (“Mr Chow”) and Mr Billy Woo Chung Keung (“Mr Woo”) from the petitioners’ camp and Dr Vincent Lo Ka Shui (“Dr Lo”), Mr Hogan Loh (Mr Loh”) and Mr Adrian Lee Ching Ming (“Mr Lee”) from the respondents’.

6.At the trial, only Mr Chow, Mr Loh and Mr Lee gave evidence.

RECRUIT THE MAGAZINE

7.The background circumstances leading to this petition are summarized in paragraphs 8 to 33 below.  They began with Recruit the magazine.

8.Recruit was a bilingual recruitment-advertising magazine aiming at white-collar job seekers.  First distributed free of charge in all MTR Stations in July 1992, it soon became a huge success.

9.The distribution of Recruit was initially undertaken by a company called Hong Kong Transit Publishing Limited (“HKT”) pursuant to a distribution agreement granted by MTRC in April 1992.  Acquired in March 1992 for the purposes of Recruit,HKT had four shareholders :

(1) Martin Clinch & Associates Limited (“MC&A”);

(2) Mr Chow;

(3) Century Faith Investment Limited (“Century Faith”); and

(4) Pearl & Dean Limited (“P&D”).

10.In January 1994, HKT’s shareholders set up Recruit Holdings Limited to take over HKT’s business.  HKT then became its wholly owned subsidiary.  RCL’s director at the time were Mr Martin Clinch (“Mr Clinch”) of MC&A, Mr Chow, Dr Lo of Century Faith and Mr Peter Christofis (“Mr Christofis”) of P&D.  Mr Lee was Dr Lo’s alternate director.

PPG

11.PPG was a joint-venture vehicle in printing business for the purposes of publishing Recruit and other newspapers.  It was formed pursuant to a shareholder’s agreement dated 31 October 1994 (“the 1994 Agreement”) between Century Faith, RCL (then known as Recruit Holdings Limited), Highview, Pearl Link and Polygold.

(1)  Shareholding

12.The issued share capital of PPG was HK$10,000,000 divided into 10,000,000 shares each and held by the shareholders thus :

(1)	Century Faith	25%
(2)	RCL	20%
(3)	Highview	25%
(4)	Pearl Link	15%
(5)	Polygold	15%

13.Subject to certain exceptions which are not relevant for present purposes, none of the shareholders shall have the right to transfer any of its shares : see Clause 5.1 of the 1994 Agreement.

(2)  Directorship

14.As to directorship, Clause 11 of the 1994 Agreement provided :

(1)	The maximum number of directors shall be 10 (Clause 11.1).
(2)	The first directors representing the respective shareholders were Dr Lo for Century Faith; Mr Clinch for RCL; Mr Loh for Highview; Mr Chow for Pearl Link; and Mr Woo for Polygold (Clause 11.1A(a) read together with Schedule 2).
(3)	For the first year of PPG’s operation, Century Faith shall only be entitled to nominate a representative (but not a director) to attend all board meetings (Clause 11.1A(a)).
(4)	A director is entitled to nominate an alternate director (Clause 11.8).
(5)	A director nominated by a party pursuant to the provisions of the 1994 Agreement shall only be removed by such nominating party who shall be entitled to nominate any other party to fill the resulting vacancy from such removal (Clause 11.9).

15.Since its inception until the formation of PPGI, the first directors had remained on the board with the only exception that on 18 July 1997, Mr Clinch was replaced by Mr Christofis.  The directors had also appointed their alternate directors.  They were Mr Lee (to Dr Lo), Mr Cowen Loh (to Mr Loh), Mr Calvert Goodridge (to Mr Christofis) and Mr Norman Cheng Tung Hon (to Mr Woo).  Contrary to what Mr Chow had said in paragraph 9 of his 3^rd affirmation filed on 23 June 2004 (“Mr Chow’s 3^rd Affirmation”), he did have an alternate director, Ms Ifan Chan, between 18 January 1996 and 28 February 1998.  Ms Chan is his wife.

16.Throughout the years, Dr Lo himself did not attend PPG’s board meetings.  Mr Lee did.

17.The change in directorship of PPG’s board brought about by the formation of PPGI is described in paragraph 25 below.

PPGI

18.In or about March 2000, Cross Board became interested in PPG’s business.  The five shareholders of PPG agreed to Cross Board’s participation.  To this end, PPGI was incorporated on 9 March 2000 in British Virgin Islands as a private company limited by shares with an authorised share capital of US$50,000 divided into 50,000 shares of US$1 each.

(1)  Shareholding

19.Pursuant to a sale and purchase agreement dated 31 March 2000 (“the 2000 SP Agreement”), the five shareholders of PPG transferred all their shares to PPGI.  In return, they together acquired 10,000 ordinary shares in PPGI in the same proportion as their respective shareholdings in PPG : see paragraph 12 above for the ratio.  PPGI then became a vehicle for the five shareholders to hold the 10,000,000 shares in PPG.  By virtue of Clause 6 of the 2000 SP Agreement, the 1994 Agreement was terminated forthwith.

20.At around the same time, 10,000,000 new shares in PPG of HK$1 each were allotted to Cross Board.  Thus PPGI and Cross Board became equal shareholders in PPG.

21.The shareholding structure of PPG and PPGI at the time may be represented as follows :

22.Under Clause 6.6 of PPGI’s memorandum of association, registered shares in the company may be transferred subject to the prior or subsequent approval of the company as evidenced by a resolution of the directors or by a resolution of members.  PPGI’s articles of association did not impose any restrictions on transfer of shares by a member.

(2)  Directorship

23.Clause 12 of PPGI’s articles of association dealt with directorship.  The provisions there appeared to be standard.  They did not contain any provision allowing the shareholders to nominate and remove their own directors.  The maximum number of directors is 20.

24.The directors of PPGI are and were at all material times Mr Loh, Mr Chow, Mr Woo, Mr Lee and one Mr C.K. Lau (“Mr Lau”).

PPG’S DIRECTIONSHIP AFTER THE FORMATION OF PPGI

25.PPGI and Cross Board entered into a joint-venture agreement dated 16 March 2000 (“the 2000 Agreement”) regarding PPG.  Clause 4.1 of the 2000 Agreement provided that PPGI’s affairs shall be managed by the board, which shall consist of eight directors.  Each of PPGI and Cross Board is entitled to appoint four directors to PPG’s board and to remove and replace any director they so appointed (“the PPGI Directors in PPG” and “the CB Directors in PPG” respectively”).

26.The PPGI Directors in PPG were at all material times until July 2003 Mr Loh, Mr Chow, Mr Woo and Mr Lau.

LISTING IN THE GEM

27.By 2000, RCL had already branched out into other business activities through a number of subsidiaries.  A floating exercise at the Growth Enterprise Market in Hong Kong Stock Exchange (“GEM”) was then afoot.  It involved a restructuring of the group of companies.  In short, the ultimate holding company of the group, Panda-Recruit Limited (“Panda-Recruit”) was incorporated in Cayman Islands.  It wholly owned a subsidiary called Panda-Recruit (BVI) Limited, a BVI company (“Panda BVI”).  In May 2000, all the shares in RCL except one retained by Mr Chow were transferred to Panda (BVI).  Thus Panda-Recruit, through Panda (BVI), held RCL, which in turn held all the subsidiaries in the group.  The GEM floating exercise involved the listing of 20% of its issued share capital.  The balance of the shares was distributed among various shareholders including Century Faith and Mr Chow.  Eventually, the exercise was completed.

28.In 2003, Recruit Holdings Limited changed its name to Recruit Company Limited, and Panda (BVI) to Recruit Holdings Limited.

CHANGE OF SHAREHOLDING IN PPGI

29.Century Faith was at all material times owned by Great Eagle (66.77%), Salespost (22.22%) and CFI (11.11%).  In 2001, Century Faith went into voluntary liquidation.  On or about 11 October 2001, it transferred all its shares in PPGI to Great Eagle, Salespost and CFI in the ratio of 6:2:1, that is, in accordance with their respective shareholding ratio in Century Faith.  Since then and up to now, the shareholding structure of PPGI is as follows :

REMOVAL OF MR CHOW AND MR WOO FROM PPG

30.On 24 July 2003, an extraordinary general meeting of PPGI was convened.  The resolution that Mr Hubert Chan Chee Yim (“Mr Chan”) be appointed a director with immediate effect was passed although Pearl Link and Polygold (through Mr Chow and Mr Woo respectively) voted against it.

31.Immediately after the EGM, a board meeting of PPGI was held.  It was resolved that Mr Lee and Mr Chan were to replace Mr Chow and Mr Woo as PPGI Directors in PPG with immediate effect.  On the same day, the shareholders of PPG removed Mr Chow and Mr Woo from its board of directors with immediate effect.  Since then and up to now, the PPGI Directors in PPG are Mr Loh, Mr Lee, Mr Chan and Mr Lau.

32.By letter dated 29 July 2003, PPG informed Mr Chow that his employment with PPG as consultant ceased with effect from 25 July 2003.  By another letter dated 31 July 2003, PPG informed Mr Woo that he was removed as managing director of PPG with immediate effect.

33.It was the removal of Mr Chow and Mr Woo from PPG’s board that triggered this petition.

THE PETITIONER’S CASE

34.In the amended petition, the petitioners allege :

(1)	PPG was formed as a quasi-partnership based on mutual trust and confidence.
(2)	It was an express understanding/oral agreement between the shareholders of PPG that each of them had an equal right of to participate in its management notwithstanding the difference in shareholding (“the Understanding”).
(3)	When PPGI was formed, it was the common understanding of all the shareholders that the Understanding was to be similarly extended and applicable to PPGI’s management and also that PPGI was likewise to be run as a quasi-partnership based on mutual trust and confidence.
(4)	The wrongful removal of Mr Chow and Mr Woo from PPG’s board was a breach of the Understanding and had caused an irretrievable break-down of the mutual trust and confidence between the petitioners on the one hand and the 1st to 5th respondents on the other.

35.In a moment, I will look at these matters in turn.  However, I will like to preface my discussions with some general observations on three preliminary points arising from counsel’s submissions.

SOME GENERAL OBSERVATIONS

36.The first two preliminary points stemmed from the submissions of Mr Ng, counsel appearing for the respondents.  The first is on the question whether as a matter of law, a quasi-partnership can exist between corporate shareholders.  I will call this the Law Point.  The second is on the question whether evidence extrinsic to the 1994 Agreement is admissible to prove the alleged quasi-partnership in respect of PPG.  I will call this the Evidence Point.  The third point arose from the submissions of Mr Yee, counsel appearing for the petitioners.  It relates to the general approach to the “just and equitable” jurisdiction.  I will call this the Approach Point.

37.I will deal with the Law Point first.

(1)  The Law Point

38.As can be readily seen from the petition, it is the petitioners’ case that the alleged quasi-partnership existed among the five corporate shareholders of PPG and PPGI, and not the individuals behind them.  This stance is repeated and maintained by Mr Yee, counsel appearing for the petitioners in his closing submissions.

39.Mr Ng submitted that as a matter of law, this is misconceived.  For equitable considerations that give rise to a quasi-partnership are of a personal character arising between individuals and cannot have existed between corporate shareholders unless they are the agencies of the individuals concerned.

40.No doubt the authorities do emphasis that the equitable considerations to which the court subjects the exercise of the shareholders’ legal right are of a personal character arising between one individual and another : see Ebrahimi v.Westbourne Galleries Ltd [1973] 360, per Lord Wilberforce at p.379D; Re Saul D Harrison & Sons plc [1995] 1 BCLC 14, per Hoffmann LJ (as he then was) at p.19; Re Astec (BSR) plc [1988] 2 BCLC 556, per Jonathan Parker J (as he then was) at p.588.  Thus, in Ng Yat Chi v. Max Share Ltd & Another [2001] HKLRD 561, the Court of Appeal rejected the notion that a quasi-partnership could exist between a State-owned enterprise and other individuals, whatever relationship those individuals might have with person who controlled the management of such enterprise.  Rogers VP said at p.571 :

“I consider that it is stretching the concept of a quasi-partnership too far to consider that a State could be such a partner.  It seems to me impossible for a State to exhibit the qualities of mutual trust and confidence for that to happen for the reason that these are personal qualities and the State is impersonal.”

41.However, it does not necessarily follow that a quasi-partnership can never exist among corporate shareholders.  For example, in Re Five Lakes Investment Co. Ltd [1985] HKLR 273, on an application for appointment of provisional liquidators, Clough J (as he then was) was satisfied that there was a prima facie case of a quasi-partnership between two corporate shareholders of the companies, which were formed on the basis of an association of the shareholders depending upon the personal relationship between their representatives.

42.More recently, in Re Money Facts Ltd, HCCW880/2001, unreported, 2 February 2004, one of the shareholders was a company wholly owned and controlled by the person behind it.  Kwan J concluded that a quasi-partnership could and did exist between the company and another individual shareholder.  She said at paragraph 47 :

“Mr Ismail submitted that the relationship of a quasi-partnership could only have existed as between individuals, quoting the dictum of Lord Wilberforce in Re Westbourne galleries, supra. at p.379D that the equitable considerations are ‘of a personal character arising between one individual and another’.  I do not think the speech of Lord Wilberforce should be read in such a restrictive light.  There is no reason why a permanent relationship involving mutual confidence could not have been formed between individuals acting through the agency of entities, at least where the entity is not an impersonal state-owned company as in the case of Ng Yat Chi v Max Share Ltd, supra.”

43.For my part, I accept that given the personal character of the equitable considerations, it would be rare for corporate shareholders to have formed a quasi-partnership based on a personal relationship of mutual trust and confidence.  But as demonstrated by the authorities, circumstances in which equitable considerations may arise are so varied that in some cases, such a finding is justified on the facts.  I respectfully share Kwan J’s observation that it would be too restrictive to read Lord Wilberforce’s dictum in the way as suggested by Mr Ng.  Rare as it may appear, whether a quasi-partnership exists between corporate shareholders still need to be determined by the court after examining all the circumstances of the case.

(2)  The Evidence Point

44.I next turn to the Evidence Point.  Ng submitted that in light of the entire agreement clause in the 1994 Agreement and the parol evidence rule, extrinsic evidence is not admissible to prove the alleged quasi-partnership for PPG.  I am unable to accept this submission.

45.The “just and equitable” provision enables the court to subject the exercise of legal rights, which are defined in the articles of association or shareholders’ agreement, to equitable considerations, which usually are to be found outside these formal documents.  The proper approach to the “fair and equitable” jurisdiction plainly entails an enquiry beyond the scope of the articles of association and the shareholders’ agreement, rendering the so-called extrinsic evidence admissible.  I wish to add that a similar approach is also adopted in the parallel jurisdiction of winding-up based on unfair and prejudicial conduct : see Re Ching Hing Construction Co. Ltd, HCCW889/1999, unreported, 23 November 2001, at paragraph 41.

(3)  The Approach Point

46.I finally come to the Approach Point.  In Re Westbourne Galleries Ltd, Lord Wilberforce identified at p.379E to G three typical factors that gave rise to equitable considerations.  They are :

(1)	An association formed or continued on the basis of a personal relationship, involving mutual confidence (“the Personal Relationship Factor”).
(2)	An agreement, or understanding, that all, or some (for there may be “sleeping partners”), of the shareholders shall participate in the conduct of the business (“the Participation Factor”).
(3)	Restriction upon the transfer of the members’ interest in the company so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere (“the Restriction Factor”).

47.Mr Yee seemed to have submitted that once one or more of these three factors are present, the court will inevitably find in favour of a quasi-partnership.  This approach is, however, not supported by authority.  The existence of one or more of those factors may,and not must, bring the just and equitable provision into play : see Ng Yat Chi v. Max Shares Ltd, supra, per Rogers VP at p.569J to 570A.

WHETHER PPG A QUASI-PARTNERSHIP

48.I now return to the matters raised by the amended petition.  The first is whether PPG was formed as a quasi-partnership.

49.Mr Yee contended that the Personal Relationship Factor, the Participation Factor and the Restriction Factor are all present in the present case.  I first look at the Personal Relationship Factor.

(1)  The Personal Relationship Factor

50.The petitioners contended that PPG was formed on the basis of a personal relationship among the five corporate shareholders, RCL, Century Faith, Highview, Pearl Link Polygold.  In support, Mr Chow deposed in his 3^rd Affirmation :

“	13.	PPG was set up principally for purpose of providing printing services to [RCL] for its very popular publication entitled Recruit.  I was then the Chief Executive Officer of [RCL] and I was in friendly terms with Dr Lo, who was the managing director of [RCL].  I agreed with Dr Lo to form PPG so that [RCL] did not need to rely on other printing companies for the publication of Recruit which might not always be trustworthy.
	14.	With a view to forming PPG, I looked for other partners and eventually our friends Hogan Loh and Billy Woo agreed to join us.  Pearl Link was my company and Polygold was Billy Woo’s.  Highview Assets was a company of Hogan Loh and Century Faith was essentially a company owned by Dr Lo.  Four of us agreed that we should become the founding members of PPG through our companies as our nominees.  As regards [RCL], of course if joined as a member as the business of PPG would be closely connected with those of [PCL].
	…
	16.	Thus, looking at the entire arrangement and circumstances, it is clear that PPG was formed on the basis of a very much personal relationship amoing Dr Lo, Hogan Loh, Billy Woo and me involving mutual trust and confidence as a quasi-partnership.  I strongly disagree that the association of PPG was a purely commercial one.”

51.Mr Chow placed much emphasis on two matters : (a) the personal relationship among the individuals; and (b) the corporate shareholders being “their companies”.  At a first glance, Mr Chow seemed to have suggested that the alleged quasi-partnership existed among the individuals concerned through “their companies” as agencies.  This is reinforced by his oral testimony.  Under cross-examination on paragraph 14 above, he said to the effect that it is a person to make a decision to invest and he finds a company to do so but the company does not supersede the individual.

52.Not surprisingly, Mr Ng complained, and rightly so, that the petitioners are not entitled to run it because it is not so pleaded in the petition.  In his closing submissions, Mr Yee expressly disavowed such a case.  The petitioners’ case, he contended, is that there existed a close personal relationship among the representatives of the corporate shareholders, which formed the basis of the quasi-partnership : see Re Five Lakes Investment Co. Ltd, supra.

53.In light of Mr Yee’s clarification, it is not necessary to consider if the corporate shareholders of PPG were the agencies of the individuals named by Mr Chow.  It thus renders the question if they were “their companies” irrelevant.  In any event, upon a closer scrutiny of the undisputed evidence, in respect of four out of the five corporate shareholders of PPG, that was simply not the case at the time of the 1994 Agreement.

54.Highview was not Mr Loh’s company.  He was a 60% beneficial owner.  The balance of 40% was held by his business associates.

55.Polygold was not Mr Woo’s company.  Mr Woo was only one of the three equal shareholders and one of the three directors.

56.Century Faith was not essentially a company owned by Dr Lo.  As noted above, it was owned by Great Eagle, Salespost and CFI.  Great Eagle was in turn a wholly owned subsidiary of Great Eagle Holdings Ltd, a public listed company.  Thus Century Faith was an investment of Great Eagle Holdings Ltd through its subsidiary.  Dr Lo was at all material times a director of Century Faith and the Managing Director of Great Eagle Holdings Ltd.

57.RCL was owned by three corporate shareholders, viz, MC&A, Century Faith and P&D, and one individual shareholder, Mr Chow.

58.That disposes of any suggestion that the corporate shareholders were the companies of the individuals concerned and its relevance to the petitioners’ case on PPG being a quasi partnership.  I now come to the focus of enquiry, which is this : whether at the time when PPG was formed in October 1994, there existed a close personal relationship of mutual trust and confidence among “the representatives of the corporate shareholders”, as contended by Mr Yee. 

59.Mr Chow’ personal relationship with Dr Lo and Mr Woo at the time when PPG was formed is not disputed.  In his oral testimony, Mr Chow went back to the history of HKT and RCL to make good the case that he and Dr Lo, through their corporation in these two companies since 1992, had become good friends by then.  On the other hand, Mr Chow and Mr Woo had all along been very good friends, having known each other since high school.  At that time, Mr Woo was the Production Manager of RCL.  I accept Mr Chow’s evidence up to this point.

60.However, I am unable to accept Mr Chow’s evidence on Mr Loh’s position.  Contrary to what was said in paragraph 14 of Mr Chow’s 3^rd Affirmation, neither Dr Lo nor Mr Chow was a friend of Mr Loh before the parties negotiated the 1994 Agreement.  In fact, Mr Loh did not even know either of them by then.  Mr Chow readily conceded in his oral testimony that what he had described in paragraph 14 about Mr Loh being a friend was misleading.

61.According to the undisputed evidence, Mr Loh came into the picture in this way.  One of Mr Loh’s companies used to supply paper to Mr Woo’s ex-employer, Far Eastern Economic Review.  Through this, Mr Woo came to know Mr Loh and found him to be an honest and trustworthy person.  When Mr Chow asked Mr Woo to locate possible parties interested in investing in PPG, he introduced Mr Loh to Mr Chow, who in turn introduced him to Dr Lo.  After conducting further negotiations, the parties formed PPG.

62.The above is entirely consistent with Mr Loh’s evidence, which I accept, that Highview participated in the negotiations for the 1994 Agreement purely on commercial reasons.  He was just a business associate of Mr Chow, Mr Woo and Dr Lo.

63.To overcome this difficulty, Mr Yee submitted that even if the court does not find a quasi-partnership existed among all the shareholders, it could nevertheless exist among some of them.  He sought to rely on Re Taipao Resins Chemical Co. Ltd, HCCW590/1998, unreported, 13 March 2000, Le Pichon J (as she then was).

64.I am unable to accept this submission for two reasons.  First, it is not the petitioners’ case.  Secondly and more importantly, Re Taipao Resins Chemical Co. Ltd, on a proper analysis, does not support Mr Yee.  There, 80% of the company concerned was owned by two camps of protagonists.  The balance of 20% was “scattered” in that it was held by various employees who were independent investors but associated with one of the camps.  Le Pichon J, after considering other factors, found that there was a quasi-partnership in respect of the company as an entity concerned.

65.In my view, Mr Yee’s submission does not assist the petitioners’ case a bit.  If a so-called quasi-partnership exists only among some of the shareholders and some other shareholders are not a party to it, it must follow that there is no quasi-partnership in respect of the entire company.

66.Mr Chow’s evidence on personal relationship is also deficient in another material respect, which relates to RCL.  Paragraph 8 of the amended petition alleged in substance that it was Mr Chow on behalf of RCL who had had the personal relationship with the others.  But in his 3^rd Affirmation, Mr Chow did not identify the representative of RCL with whom the other four individuals had the personal relationship.  Under cross-examination, he first said that it was not an individual in RCL.  It was the four individuals in RCL, that is, Mr Clinch, Mr Christofis, Dr Lo and he himself decided to invest in PPG.  He even suggested that Mr Clinch and Mr Christofis were a party to the quasi-partnership through Recruit.

67.Two points arose from his oral testimony.  First, Mr Chow seemed to have suggested that the quasi partnership was formed among the individuals concerned using the companies as agencies.  This is simply not the petitioners’ case.  Second, to put it mildly, he was confused as to who actually was the representative said to have the personal relationship with the others.  Such confusion casts great doubt on the veracity of the petitioners’ case that the alleged personal relationship did exist as alleged.

68.When the genesis of PPG and the surrounding circumstances are viewed objectively, the following picture emerges.  By 1994, Recruit was a success.  Two of the shareholders in RCL, the vehicle carrying the Recruit project, wished to branch out to the printing business.  One of the reasons was no doubt to serve Recruit.  In this regard, Mr Chow came up with the idea of forming PPG, which was approved by Dr Lo.  RCL naturally agreed to participate as in Mr Chow’s own words, “PPG’s business would be closely connected with those of [RCL]”.  Mr Chow asked Mr Woo to look for other parties who might be interested in the printing venture.  Upon Mr Woo’s recommendation, Mr Loh, a hitherto complete stranger to Mr Chow and Dr Lo, was introduced to them.  After negotiations, PPG was formed among the five corporate shareholders.  In the circumstances, the association of the shareholders was plainly commercial.  It did not involve any personal relationship based on mutual trust and confidence of their representatives as alleged by the petitioners.

69.For the above reasons, I rule against the petitioners on the Personal Relationship Factor.  I find that PPG was not formed on a personal relationship based on mutual trust and confidence as alleged.

(2)  The Participation Factor

70.I next turn to the Participation Factor.

71.To recap, the petitioners’ case is that pursuant to the Understanding, each of the five shareholders had an equal right to participate in the management of PPG through the appointment of one director by each of them respectively.  The main if not the only piece of evidence that the petitioners relied on to make good this allegation is Clause 11.9 of the 1994 Agreement : see paragraph 14(5) above.

72.At a first glance, Clause 11.9 seemed to have guaranteed each shareholder a seat on the board.  But it does not necessarily follow that each shareholder had an equal right to participate in PPG’s management as alleged for two reasons.

73.First, implicit in the Understanding is an equal representation of each shareholder on the board.  For if the number of directors representing each shareholder was not equal, the right to participate in PPG’s management could not be said to be equal.  Nothing in the 1994 Agreement or PPG’s articles of association, however, precluded a shareholder from appointing more directors than others to the board.  Thus there was no guarantee of equal representation at all.

74.Second, the Understanding did not sit well with the service agreement dated 14 December 1994 made by PPG and one Polyking International Limited, a service company of Mr Woo, to secure Mr Woo’s service as PPG’s managing director.  Pursuant to Clause 12.4 of this agreement, PPG could terminate Mr Woo’s service by giving three months notice or payment in lieu.  Upon such termination, Polyking had to cause Mr Woo to resign from PPG’s board of directors, failing which PPG might do it by itself : see Clause 12.5.  Thus, despite Clause 11.9, PPG could in such circumstances remove Mr Woo.  And in such event, nothing in the 1994 Agreement or PPG’s articles of association provided that Polygold could successfully appoint another director to replace Mr Woo.

75.For the above reasons, I am not satisfied that the Understanding existed as alleged.

76.Even if I am wrong and the Understanding did exist, the equal right to participate in PPG’s management was but a mere commercial bargain struck by the parties at the time when PPG was formed.  It did not alone turn PPG into a quasi-partnership as contended.

(3)  The Restriction Factor

77.In light of the clear provision in Clause 5.1 of the 1994 Agreement, I rule in favour of the petitioners on the Restriction Factor.  But again, it was a mere commercial deal.  It alone was not sufficient to turn PPG into a quasi-partnership.

(4)  Conclusion

78.In light of my findings above, I conclude and find that PPG was not formed as a quasi-partnership as alleged.

79.My finding is consistent with what was stated in the prospectus for the GEM listing in 2000 concerning PPG.  And it was Mr Chow who was responsible for preparing the prospectus.  In the part dealing with the history of the business of the group, it was stated :

“In October 1994, the Group, together with Century Faith, Mr Chow (through his affiliates) and other independent third parties, established PPG to undertake the printing projects of [Recruit] and other newspaper in Hong Kong.” 

On a fair reading of this statement, there is simply no room for any suggestion that PPG was at the time a quasi-partnership among the corporate shareholders as the petitioners now contend.

WHETHER PPGI WAS A QUASI-PARTNERSHIP

80.I next come to PPGI.

81.The petitioners’ case is that when PPGI was formed, it was the common understanding of all the shareholders that PPGI was a continuation of PPG, as demonstrated by the fact that the parties did not enter into a new shareholders’ agreement for PPGI.  Thus the quasi-partnership formed in respect of PPG extended to PPGI.

82.Even if it was the board intention of the parties that PPGI was a continuation of PPG, it does not help the petitioners at all.  In light of my earlier finding that PPG was not a quasi-partnership, PPGI, its continuation, could not have been a quasi-partnership either.

WHETHER ANY EQUAL RIGHT TO PARTICIPATE IN PPGI

83.The petitioners allege that all the shareholders had an equal right to participate in the management of PPGI, including the management of its only business, PPG.  Again, their case is based on a continuation of or extension of the Understanding to PPGI.

84.The crux of the petitioners’ complaint is that the equal right to participate in PPGI must include the equal right to participate in its subsidiary PPG.  Although Mr Chow and Mr Woo remained on PPGI’s board, it would be meaningless if they could not sit in PPG’s board.  Thus the question is really this.  Was there an equal right to participate in PPG among the PPGI’s shareholders?  I think not for a number of reasons.

85.First, insofar as the petitioners’ case is based on the continuation or extension of the Understanding after the formation of PPGI, it must fail in view of my earlier finding that the Understanding simply did not exist.

86.Second, the Understanding, if it ever existed at all, must have come to an end when the parties entered into the 2000 SP Agreement which terminated the 1994 Agreement forthwith.  The parties must have intended that after the formation of PPGI, they were no longer bound by the 1994 Agreement and hence the Understanding enshrined in Clause 11.9.

87.Third, PPGI and Cross Board as equal partners were each entitled to nominate four directors to PPG’s board.  To that extent, there was equal participation between PPGI and Cross Board in PPG.  However, it does not necessarily follow that there was an equal participation of PPGI’s shareholders in PPG’s management.

88.Fourth, there were only four seats for PPGI Directors in PPG while there were five shareholders in PPGI.  This discrepancy prima facie does not support the petitioners’ case of equal participation in PPG.  Mr Chow did offer an explanation as to why there were four and not five seats for the PPGI Directors in PPG.  In essence, he said that Dr Lo for his own reasons did not want to participate in PPG’s board.  But he could not recall when and the circumstances under which this conversation with Dr Lo took place.  And there is no reason why he would not have spoken to Mr Lee about it.  After all, Mr Lee was Dr Lo’s alternate director and had actively participated in PPG’s affairs since 1994.  Mr Chow also said that Mr Christofis for RCL did not wish to participate as Cross Board was going to appoint four local directors who spoke Punti.  He did not wish to force others to speak English.  Further, he did not think he had much contribution to make.  Mr Christofis, in an e-mail sent to Mr Lee on 12 April 2005, denied that he had such conversation with Mr Chow.  I find Mr Chow’s evidence hardly convincing.  For one of the four CB Directors in PPG was in fact a Mr Nigel Oakins, who most likely than not spoke only English.  In sum, I find Mr Chow’s evidence on this topic unsatisfactory and I reject it.

89.On the other hand, I prefer and accept the evidence of Mr Loh and Mr Lee as to why PPGI and Cross Board decided to each nominate four directors to PPG’s board.  In gist, they said that Mr Woo (PPG’s managing director), Mr Chow (PPG’s executive director), Mr C.K. Lau (PPG’s financial director) and Mr Loh (PPG’s chairman) were more closely involved in the operations of PPG.  Further, Mr Chow and Mr Lau were involved in the negotiation of the contract with Cross Board.

90.Finally, the undisputed evidence showed that any of the PPGI Directors in PPG were there to represent PPGI and not the individual shareholders of PPGI : see the minutes of the board meeting of PPG dated 30 March 2000, at paragraph 11.  This accords with the commercial deal between PPGI and Cross Board on equal representation on PPG’s board.  That being the case, there can be no room for suggestion that each of the PPGI shareholders must have an equal right to participate in PPG.

91.In the circumstances, I find that there is no equal right to participate in PPGI or PPG as alleged.

WHETHER REMOVAL OF MR CHOW AND MR WOO FROM PPG JUSTIFIED

92.Absent any quasi-partnership or equal right of participation in PPG as alleged, the removal of Mr Chow or Mr Woo from PPG’s board itself cannot possibly ground the present petition.  I do not propose to go into the evidence in this aspect or to make any finding if their removal was justified or wrongful in the circumstances.

UNILATERAL WITHDRAWAL NOT ALLOWED

93.I wish to add one observation after considering all the evidence in the round.

94.Mr Chow may well feel that he was instrumental in setting up PPG and he had made significant contributions to its success.  But he has now been ousted from PPG’s management and lost his say in its daily operations.  His relationship with other protagonists in particular Dr Lo has turned sour.  Further, his investment in PPG through Pearl Link’s participation in PPGI may worth little and hence commercially unattractive to any potential investor if Pearl Link does not have a seat in PPG’s board as one of the PPGI Directors in PPG.  In short, he may well feel aggrieved as he is now trapped.  That is perhaps why he wishes to withdraw from PPGI by presenting this petition.  But the law simply does not allow such unilateral withdrawal.

CONCLUSION

95.For the above reasons, I will dismiss the petition.  I will also make an order nisi that the petitioners are to pay the costs of this petition to the 1^st to 3^rd and 6^th respondents, to be taxed if not agreed.

96.Finally, I wish to point out that the parties have prepared an agreed list of issues but counsel had not made use of it at all in their final submissions.  I therefore did not make reference to it in this judgment either.  But I believe I have already covered and adequately dealt with all the main issues identified in the list.

Mr Kent Yee, instructed by Messrs S.K. Lam, Alfred Chan & Co., for the Petitioners

Mr Lawrence Ng, instructed by Messrs Wilkinson & Grist, for the 1^st to 3^rd Respondents

4^th Respondent : Salespost Limited, absent

5^th Respondent : Chan Family Investment Corporation Limited, absent

6^th Respondent, PPG Investments Limited, represented by Messrs Lily Fenn & Partners, excused from attendance

Official Receiver, excused from attendance