Yip Shiu Ching and Another v. Wah Tat Fundation & Engineering Ltd and Another

/.IHCCW 176/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 176 OF 2003

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BETWEEN

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Before : Hon Kwan J in Court

Dates of Hearing : 31 May, 1 to 3, 6 and 7 June 2005

Date of Handing Down of Judgment : 14 July 2005

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J U D G M E N T

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1.This petition was presented on 13 February 2003 by Yip Shiu Ching (“Mr. Yip”) and Kung Cheung Fai (“Mr. Kung”) (collectively “the petitioners”) against Wah Tat Foundation & Engineering Limited (“the Company”) and Ng Lee Chin (“Mr. Ng”).  The petitioners seek relief under section 168A of the Companies Ordinance, Cap. 32, alternatively an order to wind up the Company on the just and equitable ground under section 177(1)(f).

The background matters

2.I will first relate the background matters that are not in dispute.

3.The petitioners and Kam Kin Bun (“Mr. Kam”) are qualified engineers.  They used to work together for an engineering company and became acquainted with Mr. Ng in the course of their work.  Mr. Ng did not have such professional qualifications, but he has been active in the engineering and foundation industry since the 1980s, and has cultivated widespread contacts with employers and main contractors within the industry.

4.In 1996, the petitioners, Mr. Kam and Mr. Ng established a partnership under the name of Wah Tat Engineering Company (“the Partnership”).  The Partnership was engaged in engineering and foundation works and later acquired the status of a registered contractor of the Buildings Department.  Of the partners, only the petitioners and Mr. Kam were qualified to certify matters as authorised signatories concerning compliance with the Buildings Regulations on behalf of the Partnership as a registered contractor.

5.The Company was incorporated on 12 August 1998, with a registered share capital of HK$2 million divided into 2 million shares of HK$1.00 each, all of which were issued.  The shareholders at the outset were Mr Ng holding 1,020,000 shares (51%), Mr. Kam holding 600,000 shares (30%), Mr. Yip holding 280,000 shares (14%) and Mr. Kung holding 100,000 shares (5%).  The four shareholders and another were appointed directors of the Company.

6.On 29 April 2002, Mr. Kam transferred all his shares in the Company to Mr. Ng at a nominal consideration of HK$1.00.  Mr. Ng’s shareholding was thus increased to 1,620,000 shares (81%).

7.Mr. Ng was and is the only shareholder who has made contribution to the capital of the Company.  The petitioners and Mr. Kam did not pay for the shares allotted to them.

8.The main business of the Company was that of a contractor for foundation works.  It was set up to build a track record so that it would eventually be eligible to apply for a licence as a registered contractor.  It would then be used to obtain work in lieu of the Partnership, as a person cannot be an authorised signatory for more than one registered contractor at the same time.

9.At the same time the Company was established, there was a re-organisation of the Partnership, as a result of which Mr. Kung left the Partnership.

10.The registered office and the principal place of business of the Company was the same as that of the Partnership.  Also sharing the premises were two entities established and substantially owned by Mr. Ng, namely, Ng Lee Chin (Nelson) Engineering & Construction Company (“NLCN”) and Falcon Construction Company Limited (“Falcon”).  NLCN was and is a partnership of Mr. Ng, his wife, and his son Ng Yeuk Cheung (“Ng junior”).  Falcon was then owned by Mr. Ng as to 60% and Leung Yuk Wah Edmond (“Mr. Leung”) as to 40%.  NLCN and Falcon were also engaged in engineering and foundation works.  In about May 2001, all four entities moved to new office premises at Hoi Bun Road, Kwun Tong.

11.At all material times, the Partnership was the only entity that had acquired the registered contractor status.  The Company, NLCN and Falcon did not have this status.  Both the Partnership and the Company had sub-contracted works to Falcon and NLCN in a number of instances in the past.  Mr. Ng had the capital, assets, labour and equipment to carry out many types of piling work through these entities.

12.From March 2000 to December 2001, Mr. Yip was employed by NLCN as an engineer at a monthly salary of HK$50,000.00.  From May 2001 to December 2001, Mr. Kung was employed by NLCN as a consultant at HK$35,000.00 a month.  At all times, Mr. Kung also carried on his own consultancy practice as an engineer.  He moved into the new office at Hoi Bun Road in May 2001 at the invitation of Mr. Ng.

13.The dispute between the parties arose out of the petitioners’ claims that would give them a share in the profits of a contract for the design and construction of foundation works of a residential development in Inland Lot No. 8840 at Wah Fu, Hong Kong (“Project 8840”).  The contract sum was HK$17.3 million.  It was through Mr. Ng’s personal contacts with the employer, Better Wealth Development Limited (“Better Wealth”), that an invitation to bid for the main contract in Project 8840 was received in March 2001.  Mr. Kung was asked by Mr. Ng to design the foundation system and Mr. Yip was asked to prepare the necessary cost estimate for tender based on Mr. Kung’s design.  Mr. Kung used the raft footing system, which is more cost-effective, for the foundation of the high-rise residential block.  The Company’s bid for the main contract was successful.  This was the first time that the Company had obtained work as a main contractor instead of a sub-contractor; the potential for making profit would be much greater for a main contractor.  Work on the project commenced in May 2001 although the Company only signed the articles of agreement of the main contract in July 2001.  Mr. Kung was appointed the project director and Mr. Yip the project manager.  They supervised the work for the project.

14.As the Company did not have the status of a registered contractor, it nominated the Partnership as the registered specialist contractor for the foundation works of Project 8840.  Moreover, as the Company did not have sufficient assets, plant or equipment to undertake the project, it sub-contracted the work to NLCN.  The extent to which the Company had sub-contracted the project to NLCN is in dispute.  Mr. Ng claimed it was a “wholesale sub-contracting arrangement”, in which the Company was to be the main contractor only in name, all the work of the main contractor would be carried out in substance by NLCN and all the profits of Project 8840 would go to NLCN.

15.The parties fell out in December 2001 and January 2002.  Mr. Kam and Mr. Yip also received notice from Mr. Ng’s solicitors on 10 January 2002 that dissolution of the Partnership was being contemplated.  There was an attempt to compromise their differences, as evidenced by a letter of Mr. Ng’s solicitors dated 21 January 2002.  In February 2002, the petitioners and Mr. Ng reached an agreement in principle, subject to contract, on inter alia, the following terms:

(1)	the petitioners were to transfer all their shares in the Company to Mr. Ng or his nominee for the nominal consideration of HK$1.00 in each instance;
(2)	they would forthwith resign as directors but would serve as the consultant engineers of the Company, in the capacity as independent contractors, in respect of Project 8840 only;
(3)	in consideration of providing the aforesaid service, they would be paid HK$1.9 million as remuneration, of which HK$1.4 million would be paid on 26 February 2002, provided that the petitioners had submitted to the Buildings Department the amended footing plans for Project 8840 with relevant documents as requested by Mr. Ng, and the balance would be paid upon their submission to the Buildings Department of BA 14 for the project, being a notice of completion of works;
(4)	Mr. Yip was to execute in escrow a deed of assignment transferring all his share in the Partnership for the nominal consideration of HK$1.00, this deed was to take effect immediately after the submission of BA 14 for the project; and
(5)	the petitioners would forthwith resign as employees of NLCN.

16.The amended footing plans were necessitated because the loading plans were revised in January 2002 when the employer decided to add two storeys to the building.

17.On 4 March 2002, the petitioners wrote to the Company with respect to the consultant services agreement discussed with Mr. Ng’s solicitors and confirmed their agreement on the payment terms, that HK$1.4 million would be paid on receipt of approval by the Buildings Department of the amended plans and HK$500,000.00 on completion of works as confirmed by the signing of BA 14 by the authorised signatory.  Further, the Company was notified that the petitioners would submit the amended plans on or before noon 5 March 2002 and if the Company should have any objection to the aforesaid arrangement, it should inform the petitioners before 10 a.m. that day.  This letter was copied to Mr. Ng’s solicitors and Better Wealth.  The Company replied by a letter of its new solicitors dated 5 March 2002 merely stating that the consultant services agreement had not been finalised and agreed upon by the parties and that they were in the process of finalising the same, which would be forwarded to the petitioners for their approval once this was done.

18.The petitioners submitted the amended footing plans and design calculations to the Buildings Department on 5 March 2002.  They were approved by the authority on 28 March 2002.  Prior to the submission of the amended plans, and to the knowledge of the petitioners, Mr. Ng had deposited with Better Wealth four bank drafts in the total sum of HK$1.9 million as stakeholder, to be released to the petitioners as and when certain conditions were fulfilled.

19.On 7 March 2002, the new solicitors for the Company, now acting for NLCN, wrote to the petitioners giving immediate notice that they were no longer required to carry out any works for Project 8840.  On 11 March 2002, these solicitors wrote to the petitioners on behalf of the Company stating that the parties were merely in discussion of entering into a consultant services agreement and as there was no need to appoint them as consultants for the project, no agreement would be signed.  On 12 March 2002, the petitioners made a report to the police alleging fraud on the part of Mr. Ng. Mr. Ng provided a statement to the police in June 2002. The police did not take further action.

20.In or about February 2002, when the petitioners were still directors of the Company, they became the majority shareholders and directors of a newly formed company known as Wai Tat Foundation & Engineering Limited (“Wai Tat”).  Mr. Kung had already moved out of the office in Hoi Bun Road in January 2002, Mr. Yip also left the office on 12 March 2002.

21.At a directors’ meeting of the Company held on 14 March 2002, it was resolved to convene an extraordinary general meeting on the requisition of Mr. Ng to consider a resolution to remove the petitioners as directors.  The extraordinary general meeting was held on 6 April 2002 and the removal resolution was passed.

22.The Partnership ceased to be the registered specialist contractor for foundation works of Project 8840 from 31 July 2002.  The project was completed on 7 August 2002.  Since August 2002, the Partnership had ceased to contribute to the office expenses of the premises at Hoi Bun Road.  By then, Mr. Kam, who had sold his shares in the Company to Mr. Ng, had also left the office.  Mr. Ng did not cause a notice of dissolution of the Partnership to be issued and gazetted until January 2003.  In October and November 2002, he had caused five actions to be brought against the Partnership by NLCN and the Company, and obtained judgments in default after the writs were served on himself on behalf of the Partnership at the office at Hoi Bun Road.  Two further actions were brought against the Partnership by Falcon and the Company in February 2003.  Mr. Ng sought to levy execution on the default judgments by obtaining garnishee orders against the Partnership and statutory demands were issued against Mr. Kam and Mr. Yip.  In some of the instances, the default judgments were set aside.

23.It would appear from the audited financial statements of the Company as at 31 March 2003 that the Company was solvent, although it would have no substantial assets without taking into account the profits attributable to Project 8840.  I have indicated to the parties at the outset that I would not attempt a valuation of the shares of the Company at this hearing.  If the petitioners should succeed in establishing their case and if I should rule that their shares should be bought out by Mr. Ng instead of ordering the Company to be wound up, I would order an independent valuation of the shares.

24.Mr. Ng has not resisted buying out the shares of the petitioners.  He made an open offer to the petitioners in May 2003 to purchase their shares at the value of HK$0.019 per share, after taken into account the outstanding amount of HK$380,000.00 due to the Company (being the sums which the petitioners should have paid when shares were issued and allotted to them for cash at par in 1998), and without taking into account the profits attributable to Project 8840.  This offer was rejected by the petitioners.

The petitioners’ complaints

25.The petitioners’ allegations against Mr. Ng may be summarised as follows:

(1)	in breach of an oral agreement (“the Profit Sharing Agreement”) made by Mr. Ng with the petitioners to share profits with them in respect of Project 8840, to the exclusion of the then other shareholder Mr. Kam, in the ratio of 60% to himself and 40% to the petitioners, Mr. Ng had refused to share any profits with the petitioners;
(2)	contrary to an oral agreement between the parties that an account opened by the Company at the Dah Sing Bank Limited No. 7430075027 (“Account No. 2”) was to be operated jointly by Mr. Ng and Mr. Yip, without the knowledge and consent of the petitioners, Mr. Ng had procured a bank mandate so that he could withdraw money on his own for an unlimited amount, and that his son was added as a co-signatory with Mr. Yip and their authority to draw cheques was restricted to a limit of HK$200,000.00;
(3)	he was reluctant to disclose the books and accounts of the Company to the petitioners; and
(4)	he had wrongfully diverted the Company’s profits for Project 8840 to NLCN.

26.Mr. Ng denied that there was any agreement or understanding that he was to share the profits of Project 8840 with the petitioners.  His case was that the project was sub-contracted entirely to NLCN and the petitioners were responsible for the supervision of the works in their capacity as employees of NLCN, for which they were already remunerated with the salaries paid to each of them by NLCN.  They had no entitlement to share in the profits at all, besides the profits had belonged to NLCN, not to the Company.

27.As for the bank mandate, Mr. Ng denied that Account No. 2 was opened specially to segregate the receipts and payments attributable to Project 8840, as alleged by the petitioners, or that it was agreed that this account should be operated by him and Mr. Yip jointly.  He alleged that Mr. Yip had known all along the terms of the bank mandate and that Ng junior had signed on the bank mandate on the same occasion when he and Mr. Yip signed.

The witnesses

28.Other than the petitioners, Mr. Kam gave evidence for them.  Mr. Ng was the principal witness for the other side.  He called Ng junior, Mr. Leung and his secretary Charmaine Law Wing Ha (“Miss Law”) to testify.  Miss Law has been working for Mr. Ng for over ten years and is an experienced secretary.  Mr. Leung’s evidence is not controversial.

29.The credibility of the witnesses is the decisive factor in this case.  I bear in mind that allegations as to oral agreements are easily made and that I should examine carefully the evidence as to how the Profit Sharing Agreement and the alleged agreement regarding the bank mandate for Account No. 2 were entered into and other relevant evidence that may throw light on these crucial issues.

30.Mr. Whitehead, SC, who appeared with Mr. Dawes on behalf of Mr. Ng, submitted that the inference to be drawn from the evidence is “overwhelming” that the Profit Sharing Agreement was not entered into.  He pointed to the fact that no mention of the Profit Sharing Agreement was made in the correspondence exchanged between the petitioners, the solicitors acting for Mr. Ng and the Company, and Better Wealth during March to May 2002.  Instead, in the contemporaneous correspondence, the petitioners had referred to the consultant services agreement under discussion and contended that Mr. Ng had in principle accepted the terms as stated in the petitioner’s letter to the Company dated 4 March 2002.  Moreover, even when the petition was presented on 13 February 2003, it was one of the petitioners’ allegations that the consultant services agreement was entered into; the Profit Sharing Agreement, which has become the primary contention of the petitioners, did not feature in the petition at all.

31.The first mention of an oral agreement to share profits for Project 8840 was only in the first affirmation of Mr. Yip filed on 18 February 2003 verifying the petition.  Even then, no mention was made of the alleged ratio of profit sharing, or of the alleged participation of Mr. Kung in the profit sharing.  It was only when Mr. Yip filed his 2^nd affirmation on 23 June 2003 that he deposed that the Profit Sharing Agreement was his “primary contention” and gave details of the sharing ratio and mentioned the participation of Mr. Kung.  These allegations were made in the amended petition filed on 15 July 2003.  Mr. Kung was added as a petitioner when the petition was re-amended on 10 November 2003.

32.Mr. Whitehead submitted that the petitioners’ recent claim of the Profit Sharing Agreement is both clever and cynical.  It is clever as the petitioners must have realised they could not succeed on the alleged consultant services agreement as there was only an agreement in principle subject to contract, so they changed strategy and asserted that the profits of Project 8840 should belong to the Company and there was the Profit Sharing Agreement.  It is cynical for the petitioners to enhance their claim to a 40% share in the profits of Project 8840, instead of merely a share in accordance with their 19% shareholding in the Company.

33.I have considered the failure to mention the Profit Sharing Agreement in assessing the credibility of the petitioners.  I decline to attach significant weight to this.  I do not find it hard to understand that in the contemporaneous correspondence the petitioners should rely exclusively on the allegation there was an agreement to pay them HK$1.9 million for consultant services.  After all, the consultant services agreement was the focus of negotiation between the parties at that time, they had reached an agreement in principle, Mr. Ng had gone so far as to deposit bank drafts with Better Wealth as stakeholder and all that remained to be done was for legal documents to be finalised and signed.  I would not expect the petitioners as lay people, even though they are comparatively well educated, to put forward their entire case in correspondence.  As for the failure to mention this in the petition, and the cursory mention of an oral agreement to share profits in the verifying affirmation, I cannot rule out the possibility that this was due to the failure of the petitioners’ former counsel to plead their case properly or adequately.

34.I would need to consider the evidence as a whole to measure up the credibility of the witnesses on both sides.  The fact that no proper assertion of the Profit Sharing Agreement was made until fairly late in this litigation is not a cogent indication that this must be a false claim.

Other profit-sharing arrangements

35.The Profit Sharing Agreement did not include Mr. Kam, who was still a shareholder of the Company at the time.  Further, the ratio of sharing in the profits of Project 8840 was not in accordance with the percentages of the shares in the Company held by the petitioners and Mr. Ng.  This may seem somewhat unusual but it is not in dispute that there were other instances when the profits of contracts undertaken by the Partnership or by the Company were agreed to be shared at a different ratio and where not all of the partners or shareholders were entitled to partake in the profits of particular contracts.  The profit-sharing arrangements in the other instances were not contained in writing.  The parties seemed content to conduct their business affairs in an informal way.

36.According to the 3^rd affirmation of Mr. Ng, in the case of the Partnership, where business was obtained by Mr. Kam, profits would be shared in the ratio of 60% to himself and 40% to Mr. Kam.  Where business was obtained by Mr. Ng, and the contract was sub-contracted in its entirety to NLCN or Falcon, he would not be required to share profits with any of the partners (the example given was the development project at Sham Tseng).  Where business was obtained by Mr. Leung, the other director of Falcon, and the contract was sub-contracted in its entirety to Falcon, the Partnership would receive 2% of the contract sum as management fee, the net profit would go to Falcon and be divided in the ratio of 60% to Mr. Ng and 40% to Mr. Leung (the example given was the site formation and foundation works at Nos. 4 to 6 St. Stephen’s Lane).  In the case of the Company, where business was obtained by Mr. Ng and the contract was sub-contracted in its entirety to NLCN, he would not be required to share profits with any shareholder of the Company (the examples given were the sub-contract for the foundation works of schools at Po Kong Village Road, and the sub-contract for pre-bored H-piles for the Nam Cheong Station of the KCRC West Rail).

37.It does not appear from the evidence given by the petitioners and Mr. Kam that they have disputed substantially the above evidence of Mr. Ng.  Mr. Kam acknowledged that where business was obtained by him for the Partnership and he had supervised such contract obtained by him, he was to receive 40% of the profits, 60% would go to Mr. Ng, and Mr. Yip would have no share.  The only difference raised by Mr. Kam was that in the beginning, and this would appear to be after the Partnership was re-organised in 1998, the profit-sharing ratio of the Partnership was 51% to Mr. Ng and 49% to the other partners, following the same percentages of the shareholdings in the Company, regardless of who had brought in the business or supervised the contract.  This was changed to the ratio of 60/40 and subject to the conditions I have mentioned earlier, as a result of Mr. Ng’s proposal, which was agreed to by Mr. Kam and Mr. Yip, on two occasions in March or April 2001 and in May 2001.

38.I do not find Mr. Kam’s evidence on the change of the ratio and basis of profit sharing for the Partnership on the two occasions in 2001 implausible.  I think it has a ring of truth about it.  Mr. Ng has denied this, as according to Mr. Kam, on the latter occasion in May 2001, in the presence of Mr. Yip, Mr. Ng had also said that for Project 8840, he would share the profits with Mr. Yip in the ratio of 60/40, to the exclusion of Mr. Kam, who would have no involvement in this project.  Whether Mr. Ng had also said this, and whether the petitioners have proved the existence of the Profit Sharing Agreement, would have to be considered with other evidence that may shed light on the credibility of the witnesses.

39.It is not in dispute that Mr. Kam received a monthly salary of HK$70,000.00.  According to his evidence, he was paid initially by the Company and later by the Partnership.  He claimed that his salary was paid out of the profits in respect of those contracts managed by him and which he was entitled to share with Mr. Ng to the exclusion of the petitioners.  In the police statement of Mr. Ng, he stated that Mr. Kam was paid his monthly salary by NLCN.  I am inclined to accept Mr. Kam’s evidence in this respect.

40.Mr. Ng admitted in cross-examination that he did not tell or discuss with the others at any time that for Project 8840, it would be sub-contracted entirely to NLCN and the profit would not go to the Company.  He asserted there was no need to talk about this.  Mr. Whitehead submitted on his behalf that for this project, the modus of division of profits in other instances was followed.  Thus, the petitioners were not entitled to share in the profits at all as they did not bring in the business, it was due to Mr. Ng’s contacts with the employer that an invitation to submit a tender was received.  The situation was akin to the other instances where Mr. Ng had brought in the business for the Partnership or the Company and the contract was sub-contracted in its entirety to NLCN or Falcon and Mr. Ng was not required to share profits with any partner or shareholder.

41.I do not find this a helpful way of approaching the evidence.  Unlike the other instances, the business obtained for Project 8840 was a main contract, with a much greater potential for profit, and it was the first main contract obtained by the Company.  If Mr. Ng were to be believed, it is odd, to say the least, that no one had even raised or discussed with him the question of profit sharing for this project.  Further, it was a design and build contract, and as accepted by Mr. Ng, in submitting a tender for this contract it was vital that the design and the bill of quantities should be well prepared.  A good design would enable the contractor to bid at a competitive price and with reasonable confidence that the ultimate cost of building would leave him a respectable profit margin.  As pointed out by Mr. Kung, where there was wholesale sub-contracting, and the main contractor was merely lending its licence to the sub-contractor, it would be the sub-contractor that would prepare the design and the bill of quantities for bidding.  Here, Mr. Kung only began to receive a salary from NLCN after the Company’s bid was successful.  Unlike Mr. Yip, when Mr. Kung was asked to prepare a design for the purpose of tender, he was not a consultant or employee of NLCN.  There was no suggestion that Mr. Kung would be paid anything for preparing the design if the bid were unsuccessful.  There would appear to be good reasons why Mr. Ng should reach a different understanding with the petitioners when it came to sharing the profits of a potentially lucrative contract that would require their joint efforts to bid successfully.

42.I am mindful of Mr. Ng’s oral evidence that whether the bid was successful or not, he had agreed to engage Mr. Kung as the consultant engineer of NLCN and provide him with an office in the new office with a salary of HK$35,000.00 per month from May 2001.  I do not think this is necessarily in conflict with the petitioners’ evidence that the remuneration package of the petitioners as employees of NLCN was treated separately from what they had agreed with Mr. Ng when he enlisted their assistance to put in a tender for the main contract of Project 8840.  It is not in dispute that during May 2001 to December 2001, when both petitioners had been receiving a monthly salary from NLCN, they were required to attend to other projects of NLCN.  In the case of Mr. Yip, he had been paid HK$50,000.00 a month by NLCN for more than a year before the main contract of this project was awarded to the Company.

43.Mr. Whitehead reasoned that if the parties had indeed made the Profit Sharing Agreement, and if Mr. Ng had breached that agreement by refusing to share any profits with the petitioners, one would have expected them to react very strongly at the time.  Did the petitioners display such strong reaction here? It is pertinent to examine the circumstances which led to their falling out in December 2001 and January 2002.  I do not agree with Mr. Whitehead’s submission that much of the evidence relating to the opening of Account No. 2 and the receipt and payment out of the moneys for Project 8840 is a distraction of the primary issue whether the Profit Sharing Agreement was made.  I am inclined to agree with Mr. Yau, who appeared for the petitioners, that the circumstances in which Account No. 2 was opened and operated at the material time are cogent evidence that would assist in resolving the dispute if there was the Profit Sharing Agreement.

The circumstances in which Account No. 2 was opened

44.There are three matters of importance about the opening of Account No. 2: the purpose for which this account was opened; the approximate date when the bank mandate was signed; and the circumstances in which the instructions in the bank mandate were provided to the bank.

45.The evidence of Mr. Yip and Mr. Kam is that Account No. 2 was opened for the purpose of separating the monies derived from Project 8840, it was to be operated jointly by Mr. Ng and Mr. Yip, and Mr. Kam was not made a signatory as he had no share or involvement in this project.  Mr. Ng denied that that was the purpose of opening Account No. 2.  He said Account No. 2 was opened for the purpose of enabling other authorised signatories to withdraw money for the Company in an emergency when he was not around to sign cheques.  He had established a factory in the Mainland in April 2001 and had to make frequent business trips to the Mainland.  Mr. Kam was not made a signatory to this new account because he had a restaurant in Guangzhou and needed to make business trips outside Hong Kong.  Mr. Yip was the only director who would be in Hong Kong, so he was nominated as an authorised signatory, along with Ng junior, and their authority to withdraw jointly was limited to HK$200,000.00.

46.I do not think Mr. Ng’s evidence here is worthy of credence.  Leaving aside the question why Account No. 2 was only opened on 30 July 2001 when according to him he had to travel outside Hong Kong frequently as from April 2001, it is pertinent to note that the bank balance for this account from the time it was opened to December 2001 (when the parties fell out) was nearly always nil.  The cheques received from the employer of Project 8840 were not paid into this account on every occasion, but up to December 2001, all of the deposits made into this account were cheques received from the employer in this project and whatever amount paid into Account No. 2 was invariably withdrawn shortly thereafter and transferred to NLCN.  There was simply no money left in this account at any time for the purpose of making any emergency payment when Mr. Ng was not around.  When this was put to him in cross-examination, Mr. Ng had to qualify his earlier evidence on “emergency use”, what he meant was that if he was not in Hong Kong and if there was money in Account No. 2, then Mr. Yip and Ng junior could withdraw jointly up to HK$200,000.00 for an emergency, but if there was no money in that account, then nothing could be done but to wait for his return to Hong Kong.

47.The date or approximate date on which the bank mandate dated 30 July 2001 was signed is important, as according to Mr. Yip, when he signed this document, the name of Ng junior did not appear as one of the authorised signatories and the latter was added as an authorised signatory without his knowledge.  According to the evidence of Mr. Ng, Ng junior and Miss Law, after Miss Law had typed in the names of the three signatories on the bank mandate, the document was given by her to the three to sign when they were all present at a meeting.  The undisputed evidence is that Ng junior was attending university in California in the first five months of 2001, Mr. Ng attended his son’s graduation ceremony on 17 June 2001, Mr. Ng returned to Hong Kong first and Ng junior returned at the end of June 2001.  A few days before the commencement of the trial, the petitioners’ solicitors gave notice to Mr. Ng’s solicitors that they wished to see the travelling documents of Ng junior as they had reason to think that Ng junior was not in Hong Kong at the time when the alleged meeting for signing the bank mandate took place.

48.I have not overlooked the fact that Mr. Yip seemed not too certain when he had signed the bank mandate.  In his 1^st affirmation, he said that it was “in or about May 2001” that he and Mr. Ng agreed to open Account No. 2.  He did not say when the bank mandate was signed.  In his 3^rd affirmation, he stated that having studied the records of payment by the employer of Project 8840, and noted that the first cheque of this employer was received on 25 July 2001 and paid into the existing account of the Company at the Dah Sing Bank Limited (“Account No. 1”), he believed that the agreement with Mr. Ng as regards the opening of Account No. 2 had not yet come into existence at that time.  He had no knowledge when Account No. 2 was opened but was under the impression it had been opened by the time the 2^nd cheque was received on 23 August 2001 as he had already signed the bank mandate.  It would appear from this affirmation that he had signed the bank mandate between 25 July 2001 and 23 August 2001.  Mr. Kam did not seem to be aware when exactly the bank mandate was signed, he gave evidence that in a meeting with Mr. Ng and Mr. Yip in about May 2001, he had raised the concern there might be mixing of the monies belonging to the Partnership with the monies to be derived from Project 8840 and advised the others to open a new bank account for the deposit of monies to be received for that project.

49.It might not have been a serious matter for witnesses to make a mistake about the date of an incident that had happened a few years ago.  What I find peculiar about the evidence given by Mr. Ng, Ng junior and Miss Law in this respect is the unexplained coincidence of making the same mistake and the denial they had ever discussed their evidence.

50.These three all made the same mistake about the approximate date when the bank mandate was signed.  In Mr. Ng’s 3^rd affirmation made on 11 August 2003, he said that a meeting was held in the Company’s office in around May 2001 for the opening of Account No. 2 and the bank mandate was signed by him, Mr. Yip and Ng junior at that meeting.  Miss Law’s affirmation, which was made on the same date, was to the same effect.  Both Mr. Ng and Miss Law had referred to the bank mandate exhibited earlier which was dated 30 July 2001, so they were aware of the date of the document when they deposed that the document was signed in May 2001.  In her oral evidence, Miss Law said she could roughly remember the meeting was in May 2001, simply from her own memory.  She denied she recalled the time of the meeting as a result of discussing this with anyone.  Ng junior’s affirmation was made a year after the affirmations of the other two.  He said that he was informed by Mr. Ng in May 2004 (in his oral evidence, he clarified this was a typing error and it should have been May 2001) to attend a meeting with Mr. Yip for the purpose of opening Account No. 2 and he signed the bank mandate at that meeting.  I do not accept his oral evidence that he had told his solicitors when his affirmation was prepared that the meeting was around May or June.

51.When Mr. Ng came to give evidence, he changed the date of the meeting to end of June 2001.  When he was asked how he had discovered the month of the meeting was June and not May 2001, he did not give as a reason he was alerted to this because of the request of the petitioners’ solicitors for the travelling documents of Ng junior.  Instead, he said he had read his statement again before coming to court and found out the error.  I do not think Mr. Ng was telling the whole truth about this.  Ng junior likewise changed the date of the meeting to June 2001 when he testified, he could not give a satisfactory explanation why he had made a mistake about the month of the meeting in his affirmation, notwithstanding that he could recall very well the month of his graduation, which was an important event in his life.

52.The evidence of Mr. Ng and Ng junior as to the circumstances in which the instructions in the bank mandate were provided to Mandy Poon, the account manager of the bank, is just as unsatisfactory and has the hallmarks of witnesses putting their heads together to concoct evidence.  In the police statement provided by Mr. Ng in June 2002, he said that it was after the bank had notified him of the receipt of the bank mandate that he asked the bank staff to add the signing instructions on the form, namely, that he could sign singly and Mr. Yip and Ng junior must sign jointly limited to HK$200,000.00.  He also mentioned that he had told Mr. Yip orally about the conditions for withdrawing money from Account No. 2. Mr. Ng made similar statements in his 3^rd affirmation, his instructions to the bank were given “some time after the meeting” in which the bank mandate was signed and that the signing instructions were verbally agreed at the meeting.

53.When Mr. Ng testified on this matter, he said he made a telephone call to Miss Poon at the meeting within half an hour after the bank mandate was signed and relayed to her the signing instructions.  He explained he made the telephone call shortly afterwards because he did not want to forget things. Mr. Yip and Ng junior overheard his instructions when he spoke on the telephone and they did not object to this.  He did not think the bank mandate would reach the bank until the following day at the earliest and Miss Law thought it would take a few days for the bank mandate to reach the bank.

54.When the discrepancy of his testimony with his police statement was put to him, Mr. Ng said he might have remembered the time wrongly in his police statement when he gave the signing instructions to the bank.  Later, he came up with another explanation and said the telephone call he mentioned in his police statement was a “confirm call” from the bank.  If that was indeed a confirm call, I find it odd that the more important earlier call to the bank, which was allegedly overheard by Mr. Yip and Ng junior, was not mentioned either in the police statement or the 3^rd affirmation of Mr. Ng.  Ng junior, who gave evidence on this similar to Mr. Ng’s testimony in court, did not explain satisfactorily why this account was not mentioned in his affirmation.

55.All the above matters leave me with a serious doubt as to the veracity of the evidence given by Mr. Ng, Ng junior and Miss Law, this is compounded when I examine the evidence of Mr. Ng and Miss Law on the operation of Account No. 2.  I accept the evidence of Mr. Yip and Mr. Kam on the purpose for which Account No. 2 was opened, and the evidence of Mr. Yip that the signing instructions of the bank mandate with Ng junior added as an authorised signature were given to the bank without his knowledge and consent.  I find that the alleged meeting in which the three signatories all signed on the bank mandate did not take place.

The circumstances in which Account No. 2 was operated

56.It would be convenient to set out first in a table the details ascertained from the documents as to the signing of the receipt voucher, the payment voucher and the cheque for payment out to NLCN in respect of each of the six payments received from Better Wealth before the parties fell out.  The instances in which Mr. Ng had signed singly are italicised for ease of reference.

57.The 7^th payment was received in January 2002.  The 17^th payment, which would appear to be the last payment, was made in April 2003.  From the 7^th payment onwards, all the employer’s cheques were paid into Account No. 2, all the receipt vouchers, payment vouchers and cheques for payment out were signed by Mr. Ng alone.  From the 9^th payment onwards, all the amounts received from the employer were paid by cheque to Falcon instead of to NLCN.  What happened after the 6^th payment is not strictly relevant.

58.Mr. Yip’s evidence is that he had agreed with Mr. Ng all the cheques received from the employer of Project 8840 would be paid into Account No. 2 and all the cheques drawn on this account would require their joint signatures, so each would be able to keep track of the receipts and payments in this project for the protection of their respective interest.  Mr. Yip’s evidence was that when the 1^st payment was received, he became aware that Account No. 2 had not been opened and when the 2^nd payment was received, he had thought the employer’s cheque was to be paid into Account No. 2 and did not realise that was not the case.  Further, he was presented a cheque to sign for the 3^rd payment out, but the cheque he signed was not used and a cheque signed only by Mr. Ng was presented for payment.  Mr. Yip did not know about this at the time.

59.When it came to the cheque for the 6^th payment out to NLCN, Mr. Yip knew the project had reached a stage when there would be surplus after paying for labour, materials and sub-contractors and asked Mr. Ng to distribute some profits.  Mr. Ng refused and Mr. Yip held up the signing of the cheque for payment out for a number of days, hoping to put pressure on Mr. Ng to distribute profits, not knowing that Mr. Ng could withdraw money from Account No. 2 on his own.  Mr. Yip did eventually sign the cheque for payment to NLCN, but later found out the cheque was not used and money was withdrawn by a cheque signed singly by Mr. Ng.  He said he had signed on the 6 cheques for payment out to NLCN and the corresponding payment vouchers for each of the cheques.  When he came to inspect the documents after the commencement of these proceedings, he did not find in the records of the Company the cheques he co-signed for the 3^rd and 6^th payments to NLCN and the payment vouchers for the 3^rd, 4^th and 6^th payments only had Mr. Ng’s signature.

60.The evidence given by Mr. Ng and Miss Law on the operation of Account No. 2 was conflicting and full of holes.

61.According to Mr. Ng, he did not pay particular attention why the 3^rd cheque to NLCN was presented for him to sign singly; he did not know the payment voucher for this cheque was to be signed by him alone; he did not know whether the 3^rd cheque to NLCN was drawn on Account No. 1 or Account No. 2; he did not know why the 4^th cheque received from Better Wealth was paid into Account No. 1 instead of Account No. 2; he did not know why the 5^th cheque to NLCN, which was drawn from Account No. 2, was signed jointly by him and Mr. Yip, unlike the 3^rd cheque to NLCN; he did not know why he signed alone for some of the receipt vouchers.  He said he would not have paid attention to matters like these, as the turnover of the four companies (the Company, the Partnership, NLCN and Falcon) was over HK$10 million a month and piles of cheques and vouchers were signed by him.  He would just sign the documents in his tray without further ado.  He had not told Miss Law he could sign singly for Account No. 2 until the 6^th cheque for payment out which Mr. Yip had tried to withhold, nor did Miss Law ask him what were the signing arrangements for the newly opened Account No. 2 until she encountered problem with the 6^th cheque.

62.Miss Law gave evidence initially that she would usually ask Mr. Ng how many signatures would be required for the receipt and payment vouchers prepared by her and her colleague.  She also said it was Mr. Ng who decided into which account a cheque was to be deposited.  When she was taken to the details of the receipts and payments of the first six payments received for Project 8840, she could not give a coherent explanation for her behaviour, which appeared erratic and inexplicable for a secretary of her experience.

63.Contrary to Mr. Ng’s evidence, she said he had instructed her to deposit the 3^rd cheque from Better Wealth into Account No. 2. She did not however inquire how many signatures were required to operate this new account, she thought it did not matter.  She did not pay attention to the fact that only Mr. Ng had signed the 3^rd cheque for payment out to NLCN.  She admitted that before she prepared the receipt voucher, the payment voucher and the cheque for payment out to NLCN, she would need Mr. Ng’s instructions.  However, she had prepared the 3^rd receipt voucher, the payment voucher and the corresponding cheque for payment out to NLCN on the basis that Mr. Ng was to sign alone, notwithstanding he had not given instructions to her to that effect, it just so happened that she thought only one signature would suffice.

64.As for the 4^th cheque from Better Wealth, contrary to her earlier evidence, she did not receive instructions from Mr. Ng into which account this should be deposited.  She simply thought this cheque should be paid into Account No. 2, like the 3^rd cheque.  However, she arranged for the 4^th cheque to be paid into Account No. 1 instead and claimed it was due to a mistake on her part.  When she was asked why only Mr. Ng had signed the receipt and payment vouchers for this cheque, she explained these vouchers were prepared on the template of the vouchers for the 3^rd cheque, which were for Mr. Ng to sign alone.  When it came to the vouchers for the 5^th cheque, she said the template of the vouchers 4^th cheque was used and discovered the error that the blank for Mr. Yip’s signature was omitted, so she altered the payment voucher for the 5^th cheque and the payment voucher was to be approved by Mr. Yip as well.  Notwithstanding the discovery of this error, the receipt voucher for the 5^th cheque, which was prepared at the same time as the payment voucher and the cheque to NLCN, was not similarly altered.  She could not remember how she came to discover the error that two signatures were required for the payment vouchers for Account No. 2, nor could she explain how this was an error, as the voucher for the 3^rd cheque only had Mr. Ng’s signature.

65.In stark contrast with the above evidence given by Mr. Ng and Miss Law on the signing of receipt and payment vouchers and the cheques for payment out to NLCN, according to the vouchers and cheques disclosed in respect of other projects of the Company, these other documents were invariably signed by two, see the project at Po Kong Village Road (the documents disclosed were from April 2001 to July 2001), and the project at Nam Cheong Station (the documents disclosed were from September 2000 to October 2001).  The further documents produced by Miss Law at the trial being the payment vouchers of NLCN and Falcon with the single signature of Mr. Ng do not assist his case.  Firstly, Miss Law was specifically requested by Mr. Ng’s legal advisers to look for such payment vouchers only in the records of these entities, she was not asked to search for such documents in the records of the Company or the Partnership.  Secondly, in the case of Falcon, only relatively recent payment vouchers were produced, from August 2003 to July 2004.  NLCN and Falcon are entities owned by Mr. Ng and members of his family.  There has been a change in the shareholding of Falcon in that Mr. Ng now holds 99% of the shares.

66.I do not accept the evidence of Mr. Ng that he had paid no particular attention to the vouchers and cheques that he signed.  It is instructive to note that when Mr. Ng was asked why a limit was imposed on the signing authority of Ng junior and Mr. Yip for Account No. 2 when one of the signatories is his son, Mr. Ng answered that he had been doing business a long time and he would trust no one.  I think Mr. Ng had kept a very careful control over money matters, after all he was the only one who had put up the funds for the operation of the various businesses.  As stated in his first affirmation, as he was the only shareholder who had made and continued to make financial contributions to the Company, the financial matters and daily management of the Company had been under his control since incorporation.

67.I find that it was Mr. Ng who decided into which account the first six cheques for Project 8840 were to be deposited, and it was he who had given instructions to Miss Law as to how the vouchers and the cheques for payment out to NLCN should be signed.  It is not necessary to ascertain the reason as to why he had caused cheques to be deposited in which account or why he had caused vouchers and cheques for payment out to be signed singly in some instances and jointly in other instances.  What is tolerably clear is that Mr. Ng had acted in the way he did because he had something to hide from Mr. Yip.  I accept Mr. Yip’s evidence that at the material time when Account No. 2 was operated, he was led to believe that all the cheques for payment out to NLCN would require both his signature and that of Mr. Ng.  I agree with Mr. Yau’s submission that it is reasonable to infer that the reason why Mr. Yip was so concerned with the signing arrangement of Account No. 2 was because the petitioners had been promised a share in the profits of Project 8840.

How the petitioners reacted when the parties fell out

68.On 9 January 2002, Mr. Kung wrote to Mr. Ng as a director of the Company complaining that the 1^st six payments of Project 8840 were all transferred to NLCN and alleged that this might constitute embezzlement.  Mr. Ng was asked to refund the money to the Company, otherwise a report might be made to the police or legal action might be taken against him.  On 11 January 2002, Mr. Kung wrote to Miss Law in the same capacity alleging that she was acting in collusion with Mr. Ng to hide the fact of missing money from other directors as she had refused to provide a full account of the Company for his inspection. He threatened to report her to the police.  Miss Law responded to this with a letter of the same date prepared for her by Mr. Ng’s solicitors, stating that she was not an employee of the Company and Mr. Kung’s disagreement with Mr. Ng had nothing to do with her.  No written response of Mr. Ng to the letter accusing him of embezzlement has been disclosed.  The only letter from Mr. Ng’s solicitors, which was dated 10 January 2002 (and before instructions were given on behalf of Better Wealth to amend the footing plans), seemed surprisingly and disproportionately mild.  It was chiefly concerned with an offer allegedly made by the other directors to buy out Mr. Ng’s shares in the Company and Mr. Ng rejected the alleged proposal by that letter. 

69.Mr. Yip’s suspicions were further aroused when he was not asked to sign the cheque for payment out after the 7^th payment was received from Better Wealth in January 2002.  He called for the bank statement of Account No. 2 and discovered that Mr. Ng was able to withdraw money without his joint signature.  The disputed bank mandate came to light.  On 1 March 2002, the petitioners wrote to the bank stating that their recent check of the bank mandate for Account No. 2 revealed that the signing instructions were different from what was originally resolved and requesting an explanation.  Mr. Kung wrote again to the bank on 4 March 2002 after a verbal explanation was received, setting out the petitioners’ version as to how the account was opened and alleging that the bank mandate was altered by Mr. Ng by adding the name of Ng junior and the signing instructions.  On 12 March 2002, they made a report to the police alleging fraud against Mr. Ng.

70.I am satisfied that the strong reaction of the petitioners was due to a deep sense of grievance on their part that Mr. Ng had reneged on the understanding reached with Mr. Yip on the sharing of profits for Project 8840 and how Account No. 2 was to be operated.  I accept the petitioners’ evidence that they had reached a verbal agreement or understanding with Mr. Ng that they would have a share in the profits of Project 8840 at a discussion in March 2001 and that the profit sharing ratio of 40% to the petitioners and 60% to Mr. Ng was agreed on another occasion in May 2001.  These understandings constituted the Profit Sharing Agreement.  Mr. Ng was not concerned with how the petitioners’ share of the profit was to be divided between Mr. Yip and Mr. Kung.  I accept Mr. Yip’s evidence that his understanding with Mr. Kung was that they would share equally.

71.I am also inclined to agree with Mr. Yau that Mr. Ng’s offer in early 2002 to buy the petitioners’ services and interests in the Company at HK$1.9 million (which would represent 22 months of the aggregate monthly salaries of Mr. Yip and Mr. Kung) could not be explained by Mr. Ng on the basis that he was prepared to pay out such a large sum at that time because he would otherwise be liable to Better Wealth for substantial liquidated damages for delay if he had to engage someone else to amend the footing plan.  Mr. Ng’s evidence in his 4^th affirmation that his estimated liability for liquidated damages came up to HK$1.96 million (made up of HK$35,000.00 x 56 days), which was why he had offered to settle with the petitioners at HK$1.9 million, is incredible.  According to his 1^st affirmation, the articles of agreement for Project 8840 imposed liquidated damages of HK$30,000.00 for each day of delay (this was also the evidence of Mr. Yip), so the estimated liability would only have been in region of HK$1.68 million.  Besides, it was very unlikely that the architect would have refused to grant any extension of time at all on account of delay caused by re-designing the footing plan, as the amendment arose out of the revision of the loading plan because of the addition of two storeys.  The Company did in fact obtain an extension of time from the architect, although not to the full extent as sought.

72.On the totality of the evidence, I find that the petitioners’ complaints against Mr. Ng that he had acted in breach of the Profit Sharing Agreement and of the agreement on the operation of Account No. 2 are established, and that Mr. Ng had wrongfully diverted the profits of the Company for Project 8840 to NLCN.  I reject Mr. Ng’s evidence that there was a wholesale sub-contracting of this project to NLCN and that the Company was merely to be the main contractor in name.  The petitioners have made out a sufficient case to wind up the Company on the just and equitable ground, alternatively for relief on the basis that the affairs of the Company were conducted in a manner unfairly prejudicial to them.

Reluctance to disclose books and accounts

73.That being the conclusion I have reached, it is strictly unnecessary to deal with the remaining complaint that there was reluctance to disclose the books and accounts of the Company to the petitioner.  The allegation in the re-amended petition was that the audited accounts for the years ended 31 March 2001 and 31 March 2002 were not supplied to the petitioners until November 2002.  Any breach in this respect has been remedied.  There is no allegation of any continuing breach.  It would not have been appropriate to grant relief if this were the only complaint.

The establishment of Wai Tat

74.It was alleged on behalf of Mr. Ng that the petitioners formed Wai Tat in February 2002 and approached Better Wealth in March 2002 in an attempt to divert the benefit of Project 8840 to Wai Tat, and thus should be refused relief as they have not come to court with clean hands.  This can be disposed of shortly.  I am not satisfied on the evidence that the alleged attempt to divert the benefit of the project to Wai Tat is made out.  I decline to infer that in giving out their name cards to Better Wealth with the name and logo of Wai Tat, the petitioners must have been trying to persuade Better Wealth to take the benefit of the project away from the Company and give it to Wai Tat which was just set up.  Besides, the name cards were handed out at a time when it was apparent to the petitioners and Mr. Ng that they would not be doing business together in the name of the Company or the Partnership.

The relief granted

75.Mr. Yau has informed the court that the petitioners do not wish to seek a winding-up order and they would merely be asking for an order that their shares in the Company be purchased by Mr. Ng at a price to be fixed, on the basis that their shares are to be valued by taking into account their entitlement under the Profit Sharing Agreement to share in the net profits of Project 8840 in the ratio of 40% to them and 60% to Mr. Ng.  I will grant relief on the above basis, the purchase price is to be adjusted to take into account the fact that the petitioners have not paid for their shares, which were allotted to them for cash at par.  I direct that the valuation of the petitioners’ shares is to be undertaken by a certified public accountant, to be appointed jointly by the parties as agreed within 14 days hereof, and failing their agreement, by the president of the Hong Kong Institute of Certified Public Accountants on the application of either party.

76.I give liberty to apply on the appropriate directions that should be given to the independent expert for the purpose of valuation and generally.  Draft directions for this purpose are to be submitted for the approval of the court within 28 days hereof.

77.I make an order nisi that the costs of the petitioners in these proceedings, including all costs reserved, are to be borne by Mr. Ng on the standard basis.

Mr. Albert Yau, instructed by Messrs Hastings & Co., for the Petitioners

Mr. Robert Whitehead, SC and Mr. Victor Dawes, instructed by Messrs Peter Lau & Co., for the 2nd Respondent

The Official Receiver, attendance excused