Cheung Sai Lun v. Lau Tai Chin Francis and Another

HCCW 677/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 677 OF 2004

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BETWEEN

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Before:  Hon Barma J in Court

Dates of Hearing:  15-19, 29 May, 28-31 August, 1 September and 21 November 2006

Date of Judgment:  18 May 2007

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J U D G M E N T

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Introduction and issues

1.This was the trial of a petition presented by Mr Cheung Sai Lun (“Mr Cheung”) seeking the winding up of UPI Technology Limited (“the Company”) on the just and equitable ground pursuant to section 177(1)(f) of the Companies Ordinance (Cap. 32).  Mr Cheung owns 50% of the shares in the Company.  The other 50% is owned by the 1^st Respondent, Mr Lau Tai Chin Francis (“Mr Lau”).  Mr Cheung claims that, for any one or more of the following reasons, it is just and equitable that the Company should be wound up:-

(1)     The Company has ceased to operated since 1 March 2004, so that there has been a loss of its substratum; and/or

(2)     The Company was formed on the basis of a relationship of mutual trust and confidence between himself and Mr Lau, which has now completely broken down; and/or

(3)     The affairs of the Company are being carried on in a manner that is unfairly prejudicial to Mr Cheung, in that:-

(a)    Mr Lau has mismanaged the Company, and his failed to handle its affairs properly, so as to cause it to suffer financial losses.  As to this, a number of discrete allegations of mismanagement are made; and

(b)   Mr Lau has excluded Mr Cheung from the management of the Company.  Again, a number of specific allegations are made as to the way in which such exclusion has been effected.

2.The petition also seeks, as an alternative form of relief, an order pursuant to section 168A of the Ordinance requiring Mr Lau to buy out Mr Cheung’s shares in the Company at a fair value.  At the trial, Mr Pun (who appeared with Ms Leung for Mr Cheung) made it clear that this was very much a fall-back position, and that the main relief sought was the winding up of the Company.

3.Mr Lau (who was represented at the trial by Mr Ng and (from 28 August 2006) Mr Ko) resists the making of either of these orders.  He contends that:-

(1)     Mr Cheung had in fact agreed to sell his shareholding in the Company to him (Mr Lau) for a nominal consideration on 17 January 2004, and that he should be held to that agreement (in which case there would be no need to make either of the orders sought);

(2)     The petition should be dismissed as it was brought, not in good faith, but for a collateral purpose – that purpose being to unfairly put pressure on Mr Lau to buy him out for a higher price than had been agreed; and

(3)     Any breakdown in the mutual trust and confidence which had previously existed between Mr Cheung and himself was due to misconduct on the part of Mr Cheung, and not to anything that he, Mr Lau, had done.  In support of this allegation, Mr Lau relied upon a number of instances of alleged wrongdoing on the part of Mr Cheung, in respect of some of which he suggested (in affirmations that he filed in opposition to the petition) that the Company should be authorised to bring proceedings against Mr Cheung.

4.Mr Lau also denies that he has in fact been guilty of any of the items of mismanagement alleged against him by Mr Cheung, or that he excluded Mr Cheung from management of the Company.  On the contrary, he says that it was Mr Cheung who abandoned his responsibilities to the Company in early December 2003, making it extremely difficult for Mr Lau to carry on the Company’s business.

5.By the end of the trial, it had become clear that, although some of the background was still the subject of disagreement between the parties, a number of potential issues were not and could not be seriously in dispute.  Thus, it had become clear that:-

(1)     The Company had, until at least the latter part of 2003, been operated by Mr Cheung and Mr Lau as a quasi-partnership, on the basis of mutual trust and confidence between them.

(2)     Since about the beginning of November 2003, there had been disagreements and confrontations between Mr Cheung and Mr Lau.

(3)     There had, at least by the time the petition was brought, been a loss of that mutual trust and confidence between them.

(4)     The Company had ceased operations by 1 March 2004, its stock, raw materials and inventory, factory premises and customers having been taken over in late January or February 2004 by a new company set up by Mr Lau called Meta Ink Limited (“Meta Ink”).

6.Having regard to these matters, it could not seriously be disputed that there had been a loss of the Company’s substratum (as it was no longer carrying on any business at all, all of its undertaking having been taken over by Meta Ink), and that there had been a breakdown in the mutual trust and confidence between the parties.  That being so, there would, prima facie, be a basis for ordering the winding up of the Company on the just and equitable ground, unless there were some reason why this remedy should be refused.  Thus, the live issues which call for determination are those raised by Mr Lau in opposition to the making of a winding up order, which I have summarised in paragraph 4 above.  In addition to these, the allegations of unfairly prejudicial conduct raised by Mr Cheung (which are mentioned in paragraph 1(3) above) remain in issue between the parties, although their significance is, in my view, much reduced.  This is because the reasons advanced by Mr Lau for saying that a winding up order ought not to be made (with the possible exception of the last of those reasons) would apply just as much to this ground for winding up as to the loss of substratum and breakdown of confidence grounds.  Such reasons would also, in my view, militate against the making of a buy-out order, if one should otherwise be made.

The background to the setting up of the Company

7.Although there were several areas in respect of which the evidence of the principal protagonists, Mr Cheung and Mr Lau, differed in relation to the background to how they came to be shareholders in the Company, most of these differences did not, in my view, impact on the matters which call for decision, and a tolerably clear picture of the background emerges.

8.In about 1989, Mr Cheung established a sole proprietorship known as Kung Shing & Co. (“Kung Shing”), through which he carried on a trading business in Hong Kong and on the Mainland.  In about 1992, two of Mr Cheung’s uncles, Cheung Kwok Fan and Cheung Kwok Hing, became partners of Mr Cheung’s.  Kung Shing thereupon became a partnership, with the three of them appearing on its business registration documentation as partners.  According to Mr Cheung, Kung Shing carried on a number of different lines of business, one of which was the manufacturing and selling of inks for use in printing.

9.In about 1992 or 1993, Mr Lau joined Kung Shing.  Mr Lau was a university graduate with a degree in chemistry, and worked as a technical consultant in the ink manufacturing business carried on by Kung Shing.  He was paid a monthly salary, initially of about HK$30,000 per month, but it was also agreed between the Cheungs and Mr Lau that he should be entitled to 25% of any profits earned by the printing division of Kung Shing, which the parties referred to as the “New Printing Department”.  It is common ground, however, that Mr Lau was not required to contribute to any losses which that division might suffer, and was not required to make any contribution to its capital.  It is also common ground that from shortly after he began working in the New Printing Department, he was provided with trial balances relating to it every month, from which he could see whether or not it had been profitable, and what his interest in it (in terms of accumulated profits) was.

10.In about 1996, Mr Cheung’s uncles left the partnership.  Whether or not they did so under entirely happy circumstances was one area of difference between the parties, but nothing turns on this.  However, on their departure from the partnership, they received a distribution of the amount due to them in respect of their interest in it.  Part of this distribution took the form of a transfer to each of them of certain office premises in the Mainland which were owned by Kung Shing, with each uncle receiving one property.  As Mr Cheung and Mr Lau were also considered to have an interest in these properties, a calculation was carried out to ascertain the amount owing to Mr Cheung and Mr Lau respectively by Kung Shing in respect of their interest in the office properties which they had given up to enable Mr Cheung’s uncles to be given those properties by way of settlement of their entitlement on retiring from Kung Shing.  It was not disputed that this calculation resulted in Mr Lau’s interest in the offices being valued at HK$232,647.50, while Mr Cheung’s interest was valued at HK$139,588.50 (it seems that while Mr Lau was regarded as having a 25% interest in the office properties, Mr Cheung was regarded as having only 20% of the remaining interest, or 15% of the whole).

11.Also following the retirement of Mr Cheung’s uncles from Kung Shing, it was agreed between Mr Cheung and Mr Lau that they should have equal interests in the New Printing Department.  Mr Cheung says that as part of this change, Mr Lau injected his interest in the office premises into the New Printing Department.  Mr Lau denies this, and says that he was not required to provide any capital injection in exchange for an increased interest in the New Printing Department.  This issue has some relevance to the background to the alleged agreement for the sale by Mr Cheung to Mr Lau of his interest in the Company for a nominal consideration, and I shall return to it later.

12.Another matter in respect of which the parties did not agree related to the question of whether or not Mr Lau had ever received any distributions of profit in relation to the New Printing Department.  Mr Lau said that he had never received any such distributions.  Mr Cheung, however, said that Mr Lau had received some distributions of profit from the New Printing Department.  In his 3^rd Affirmation made in the course of these proceedings, Mr Cheung said that Mr Lau received regular payments from the New Printing Department, exhibiting a list of payments which he said had been made to Mr Lau from the New Printing Department between March 1997 and October 2003, totalling some HK$4,214,498.47.  Mr Lau accepted that he had received in excess of HK$4,000,000, but said that was since he had joined Kung Shing in about 1993, and that this consisted of the salary to which he was entitled (initially HK$30,000 per month, later increasing to HK$35,000 and then to HK$40,000 per month).  He added that Mr Cheung also drew a salary, which was initially less than his, but which was later the same as the salary which he drew.  In support of his allegation, Mr Cheung exhibited a table setting out the payments which he said were made to Mr Lau.  This document was, however, not a contemporaneous document, but one apparently prepared for the purposes of these proceedings.  In any event, it tends to support Mr Lau’s case, as the vast majority of the payments made appear to have been the regular monthly payments in respect of the agreed salary, although there were a few other payments as well.

13.Mr Lau says that from the outset, his role in the New Printing Department was more in relation to the technical side of the production process, and also in relation to sales, and that the accounting and financial aspects of its business were left to Mr Cheung to deal with.  He acknowledged that he was, all along, provided with monthly statements, in the form of trial balances in respect of the New Printing Department, and that he did from time to time ask Mr Cheung about these if he had a question about them.  However, he maintained that he was not particularly conversant with financial statements, and did not generally pay too much attention to them, trusting Mr Cheung to keep an accurate record of their respective interests in the New Printing Department.

14.In about 1997, some little while after Mr Cheung’s uncles quit the Kung Shing partnership, it was decided to relocate the factory in which the ink products were manufactured from the Mainland to Hong Kong, with a new factory being established in Yuen Long.  This was, it seems, financed by way of a bank loan.  After the new factory went into operation, Mr Lau, who had previously spent most of his time on the Mainland given his role on the technical side of things, began to spend most of his time in Hong Kong, although he continued to travel to the Mainland from time to time.

15.Mr Lau says that although he regarded himself as a partner in the New Printing Department from the outset, he was not particularly concerned to have his position formally recognised by being included as a partner in Kung Shing’s business registration documentation while Mr Cheung’s uncles were still involved in the business.  He says, however, that after they left, and particularly after operations were relocated to Hong Kong, he would from time to time ask Mr Cheung to formalise the relationship by adding his name as a partner of Kung Shing.  According to Mr Lau, Mr Cheung kept putting this off, saying that the time was not yet right to do this.  For his part, Mr Cheung says that he did not think that it was appropriate to have Mr Lau recorded as a partner of Kung Shing having regard to the fact that the New Printing Department, in the profits of which he acknowledged that Mr Lau was entitled to share, was not the only business conducted by Kung Shing, and that Mr Lau had no interest in the other parts of Kung Shing’s business.

16.Whatever the reason for it may have been, the fact is that Mr Lau was never made a partner in Kung Shing.  Notwithstanding this, it was accepted by Mr Cheung that Mr Lau was entitled to a 50% interest in the profits and assets (including the accumulated profits) of the New Printing Department.

17.In the face of Mr Cheung’s reluctance to make him a partner in Kung Shing, Mr Lau says that he proposed instead that Mr Cheung and he should set up a company to operate the business which had hitherto been operated by the New Printing Department.  Mr Lau says that Mr Cheung eventually agreed to this proposal, and that this was what led to the incorporation of the Company in 2000, with each of them holding 50% of its issued shares.  Mr Lau says that the original intention was that the whole of the business of the New Printing Department should be transferred to the Company, but that after the Company was incorporated and staff formerly employed by the New Printing Department had their employment transferred to the Company, Mr Cheung said that he thought it would be more convenient to allow the New Printing Department to continue to deal with its existing customers.  As a result, both the Company and the New Printing Department operated in parallel, each conducting sales of ink, although the manufacturing operation was taken over by the Company, which supplied ink products which it manufactured to the New Printing Department.

18.There matters rested until about the latter part of 2003.  From the time that the Company commenced operations, Mr Cheung was in charge of finance, accounting and the like, just as he had been earlier.  Each month, in addition to a statement or trial balance in relation to the New Printing Department, Mr Cheung also produced a similar document in respect of the Company which he provided to Mr Lau.  Mr Lau, for his part, acknowledges that such documents were prepared and were supplied to him every month, until October 2003.

The problems begin

19.In about October 2003 or thereabouts, however, the relationship between Mr Cheung and Mr Lau, which had until then been running smoothly, took a turn for the worse.

20.Again, there is some controversy as to how this happened.  Mr Cheung says that by about September or October 2003, he felt that the Company had, following a slightly slow start, achieved a fairly stable financial position, and was generating profits.  He felt that it would be a good idea to reward its staff, many of whom had worked for Kung Shing for some years before their employment was transferred to the Company, by either setting up a new company in which the staff would be given a shareholding, or by transferring part of his and Mr Lau’s shareholding to the staff.  In particular, Mr Cheung says that wished to recognise the efforts of his nephew, Mr Edward Cheung, who had by then been working for Kung Shing and the Company for nearly 10 years, and of Mr Patrick Leung, another long-serving employee.  Mr Cheung says that Mr Lau did not agree to this idea, and proposed instead that he should buy out Mr Cheung’s interest in the Company.  Mr Cheung professes to having been startled by this turn of events, but says that he gave the proposal some thought, and then discussed it with Mr Lau.

21.Mr Lau, however, says it was not Mr Cheung who suggested giving a partial shareholding in the Company (or a new company) to the staff.  According to Mr Lau, what Mr Cheung suggested was that a new company should be set up, to be held by Edward Cheung and Patrick Leung, and that the Company should sell its product to the new company at a fixed mark up of about 20%.  Mr Lau says that this did not seem reasonable to him, since he had not so far received any distributions from the Company or the New Printing Department, and that such an arrangement would have substantially reduced the Company’s profitability and would not have provided enough of a margin for the Company, and that he did not agree to this suggestion.  He says that it was he who suggested as an alternative that a shareholding in the Company should be given to the staff, but that Mr Cheung continued to press for a new company to be set up as he had suggested.  Mr Lau says that this made him suspicious about Mr Cheung’s motives in making this suggestion.  His suspicions grew when, according to him, Mr Cheung brought his suggestion up again at the beginning of November 2003.  Mr Lau says that he then suggested that he should buy out Mr Cheung’s interest in the Company instead.

22.I do not think it much matters which of these versions is the correct one, as the upshot was that Mr Cheung and Mr Lau began to discuss the possibility of Mr Cheung transferring his shareholding in the Company to Mr Lau.  Both agree that they first discussed the terms on which this might happen on about 11 November 2003.  It also seems to be common ground that when they discussed this, Mr Lau’s wife, Ms Chair Mei Ling (“Mrs Lau”) was present.  Moreover, it seems also to be agreed that at this meeting, they had a copy of the latest trial balance of the New Printing Department, dated as of 30 September 2003, which appeared to show that Mr Lau’s interest in the New Printing Department was worth some HK$1,846,213.80, and that his interest in the Company was some HK$937,219.17.  As Mr Lau and Mr Cheung had equal interests in the New Printing Department and the Company, Mr Cheung’s interests in them would have been the same.

23.Following a discussion, Mr Cheung and Mr Lau appear to have agreed in principle that Mr Cheung would sell his shareholding in the Company to Mr Lau for HK$1 million.  Mrs Lau made a note of the terms which had been agreed in principle, referring to this amount, and also including some other terms whereby Mr Lau indicated that he would continue to sell the ink products to Mr Cheung at a reasonable price, that Mr Cheung would continue to make use of the “UPI” trademark, and that Mr Cheung should have a right of first refusal should Mr Lau later wish to dispose of the Company.  Mr Lau says that the note was written by Mrs Lau on Mr Cheung’s dictation.  Mr Cheung says that this did not happen, and that he was in fact unaware of the note until it was produced as an exhibit to Mr Lau’s first affirmation.  It also appears that at the meeting, Mr Cheung signed the New Printing Department trial balance dated 30 September 2003, apparently by way of confirmation of its accuracy.

24.Mr Lau says that his interest in the New Printing Department was not recorded by Mrs Lau in her note.  Although he did not seek to give a reason for this in his first affirmation, when giving evidence at the trial, he said that it was in fact Mr Cheung who said that there was no need to do so, as he had already signed the trial balance.  Mr Cheung denied this.

25.About a week later, on 18 November 2003, Mr Lau presented Mr Cheung with a written document described as a “preliminary agreement”.  This referred to the fact that each of them owned 50% of the Company, and that Mr Cheung was the sole proprietor of Kung Shing, which included the New Printing Department in which Mr Lau had a 50% interest.  It stated (apparently inaccurately) that both of them maintained a set of books and records for each of the Company and the New Printing Department.  It then recorded the terms of the basic agreement that was said to have been reached, stating the consideration to be HK$1 million, and recording the terms as to the ownership and use of the UPI trademark, and the sale by the Company to Mr Cheung of products at a reasonable price.  It indicated that a final version of the agreement was to be drafted in due course by the parties’ solicitors.  It went on to state that Mr Lau would cease to have any business with the New Printing Department, and to record that Mr Cheung owed Mr Lau HK$1,793,129.45 in respect of Mr Lau’s interest in the New Printing Department (this figure was less than that shown in the 30 September 2003 trial balance – Mr Lau said that this was because he had by then received a trial balance as at 31 October 2003 with this slightly lower figure), and that the consideration did not include an interest free loan to the Company advanced by Mr Lau in the sum of HK$700,000, a small amount of $5,000 also paid by him for setting up costs, and the Company’s profits or losses up to 31 December 2003.

26.Mr Cheung says that he was taken aback by the contents of this document, as it appeared to have the effect that he would be transferring his shares in the Company to Mr Lau for nothing, as the consideration of HK$1 million, plus the further amounts in respect of advances made by him were in total about the same as the amount said to be owing by him to Mr Lau.  Mr Cheung says that he was not prepared to transfer his shares to Mr Lau for nothing, and that he regarded their interests in the New Printing Department as a quite separate matter, that should be dealt with separately, although it was not clear whether he had in mind that he should continue to operate it with Mr Lau retaining a 50% interest, or whether it should simply be closed down in due course, with the parties each receiving 50% of its assets at the end of the day.  Mr Cheung also says that the amount shown in the trial balance might not represent the true value of the New Printing Department, since it did not take account of, among other things, the possibility that that entity’s receivables, which were recorded at face value, might not all be recoverable.

27.Although this document was presented in the form of an agreement, albeit a preliminary one, Mr Lau eventually said at trial that there was not at that stage a firm agreement on the question of setting off the purchase price for Mr Cheung’s shares against his (Mr Lau’s) interest in the New Printing Department.  However, he said that he had in mind that this should be done, and that the amount of HK$232,000 odd owing to him in respect of the disposal of the New Printing Department’s properties in China to Mr Cheung’s uncles from some years ago should also be taken into account as well.  He said that at some point between about 18 November 2003 and the end of that month, he and Mr Cheung agreed that these things should be done, although he could not be sure as to when exactly during that period this was agreed.

28.Also at about this time, Mr Lau asked to look at the books and accounts of the Company since its incorporation, and requested that the Company’s bank mandate be changed, so that instead of its accounts being operated by Mr Cheung alone, they should in future be operated by Mr Cheung and Mr Lau jointly.  Mr Lau says that Mr Cheung did not appear to be very happy about this, but eventually agreed to change the bank mandate.  However, the accounting records were not provided to him.

29.Mr Cheung says that because the 18 November 2003 document did not accord with his recollection of the in principle agreement, he prepared a draft agreement of his own, which he provided to Mr Lau on about 30 November 2003.  This agreement provided for Mr Cheung to transfer his shares in the Company to Mr Lau for HK$1 million, and made no reference to Mr Lau’s interest in the New Printing Department, or to the HK$232,000 odd allegedly still owing to Mr Lau in respect of the properties in China.  Mr Lau says that this version of the agreement did not properly reflect what was agreed, by reason of these omissions.  He says that he suggested to Mr Cheung, and Mr Cheung agreed, that solicitors should be instructed to draft a more formal version of an agreement for them to enter into.

The relationship deteriorates further

30.At the beginning of December 2003, Mr Lau presented Mr Cheung with a draft agreement drafted by solicitors.  It ran to some 36 pages.  Mr Cheung says he complained that it was much too long and detailed for him to understand, and asked for a simpler version to be produced.  This version of the agreement also, for the first time, provided (by Clause 3) that the transfer of Mr Cheung’s shareholding should be for a nominal consideration, with Mr Lau foregoing his claim to the HK$1,793,129.45 owed to him by Mr Cheung in respect of his interest in the New Printing Department and Mr Cheung transferring his shareholder’s loan to the Company to Mr Lau and foregoing any claim to profits made by the Company for the current financial year, up to the date of completion.  In effect therefore, the agreement reflected the set off which Mr Lau was pressing for in relation to his interest in the New Printing Department.  It is to be noted, however, that no mention was made in this draft agreement to the alleged set off in relation to Mr Lau’s interest in the properties in China.

31.At the same time as these various versions of an agreement for the transfer of Mr Cheung’s shares in the Company to Mr Lau were being generated, the relationship between Mr Cheung and Mr Lau was coming under further strain.  Apart from the difficulties that had arisen in respect of Mr Lau’s desire to inspect the books and records of the Company and the question of the bank mandate, the parties are agreed that they were finding it increasingly difficult to get along, and were often having arguments with one another, even in the presence of the Company’s staff.

32.On about 1 December 2003, Mr Lau went to the offices of the Company’s auditor, and asked to be given the Company’s accounting records for the previous financial year, which were then with the auditor for the purposes of carrying out the audit.  He was eventually given the documents, which he took back to the Company’s office.  Mr Cheung says that this is an instance of mismanagement by Mr Lau, in that this action resulted in the completion of the audit being seriously delayed.

33.Thereafter, there was an incident at the Company’s premises on 4 December 2003, when Mr Lau and Mr Cheung had a major argument.  Mr Lau says that this was triggered by his asking Mr Cheung about his interest in the New Printing Department.  He says that during the course of the argument, Mr Cheung claimed that he did not in fact owe Mr Lau any money, claimed that Mr Lau had already been given his money, and that it was “all a game”.

Mr Cheung removes books and records from the Company’s office

34.This seems to have been the last straw for Mr Cheung, because on the following day, 5 December 2003, he removed a substantial amount of the Company’s financial records from the Company’s offices, along with the Company’s chequebooks, a computer, printer and typewriter, which he took back to his home.  Mr Cheung said that this was done so that he could carry on working at home, because the situation in the office had become intolerable, particularly after the row of the day before.  Mr Cheung initially claimed that he did this with Mr Lau’s agreement, although he subsequently modified this by saying that he had told Mr Lau of his intention to take some documents home to work on them, and that Mr Lau had not indicated that he had any objection to this.  Mr Cheung says that he did this at around midday, in full view of Mr and Mrs Lau and the company’s employees.  Mr Lau says that, in fact, Mr Cheung came in especially early that morning, and removed the documents and other items before the others came to work, and that he learnt of what had happened from the cleaning lady.  I shall return to this incident later in this judgment, as it is one of the factors relied upon by Mr Lau’s in support of his allegation that Mr Cheung was to blame for the breakdown in the mutual trust and confidence which they had previously enjoyed.

Other incidents and problems

35.Thereafter, there were a number of further problems between Mr Cheung and Mr Lau.

36.The first of these occurred on 9 December 2003, when Mr Lau says he and Mrs Lau returned to the office to find that one of the computers in the office had had its data deleted.  Mr Lau says that Mrs Lau told him that Edward Cheung (who had by this stage already tendered his resignation to the Company) had admitted deleting the data.  According to Mr Lau, the deletion was deliberate.  Mr Cheung says, however, that he has been told by Edward Cheung that it was accidental.  On discovering what had happened, Mr Lau says that his wife drafted a “confession” which Edward Cheung signed.  This acknowledged that Edward Cheung had “deleted the data (saved) in the company’s computer”.  It did not, however, acknowledge that such deletion was deliberate (an omission for which Mr Lau blamed his wife).  The document also indicated that the Company reserved the right to pursue Edward Cheung for his liabilities in relation to the matter, but that the matter would not be pursued after Edward Cheung’s resignation.  Mr Lau also said that Edward Cheung agreed to reinstall the data, which he had saved on diskettes, but that although some data was restored, it was not complete, with some important information such as stock reports being missing.

37.Mr Lau reported this incident to the police, and Edward Cheung was arrested for suspected criminal damage.  In a statement to the police, Mr Lau put the cost of repairing the damage at HK$70,000, an amount which would appear to be very much on the high side.  He sought to justify this figure by saying that he had been told by the police to estimate the cost of replacing what was missing, and on this basis, estimated that it would take some 7 months to input all the data from scratch, and that it would cost about HK$10,000 per month to employ someone to do so, that being Edward Cheung’s then salary.  Subsequently, Mr Cheung wrote to the police seeking to exonerate Edward Cheung, urging that no charges should be pressed.

38.Thereafter, on 12 December 2003, Mr Lau wrote to Mr Cheung, complaining about his removal of the books and records and other items on 5 December 2003 (although the letter referred to computers and other equipment in the plural, it was acknowledged by Mr Lau that only one of each item of equipment was removed).  Mr Cheung does not appear to have responded to this letter.

39.On about 15 December 2003, Mr Lau caused the access code which was required to operate the Company’s bank account by telephone (so as to enable the caller to check the balance of the Company’s account, and carry out various banking operations such as transfers of funds) to be changed.  He says that he did this because he had become very suspicious of Mr Cheung, particularly since his removal of most of the current accounting records.  He says also that he had earlier agreed with Mr Cheung that the telephone lines used by the Company, which had hitherto been the subject of a rental agreement between the telephone company and Kung Shing, should be transferred to the Company, so that the Company became the registered customer instead.  There were several lines, and the arrangement was that Mr Cheung would retain one of the telephone numbers, which was used by Kung Shing, while the others would be transferred to the Company.  Mr Lau said that he was concerned that not much progress appeared to be being made about this, and asked Mrs Lau to contact the telephone company to follow up.  He says that she was told that the telephone lines would be moved from the office to a new location towards the end of December.  This further inflamed his suspicions, and he decided to pre-empt the possibility that Mr Cheung might change the telephone access code by doing so himself.

40.In the course of cross-examination, Mr Lau eventually agreed that the matter concerning the telephone lines was a misunderstanding.  It appears that Mr Cheung in fact put in an application for change of registered user in respect of the lines that were to be transferred to the Company on around 5 December 2003, and that he thereafter made arrangements for the remaining line (which was to be retained by Kung Shing) to be relocated.  Mr Cheung said that he had advised Mr Lau of this by sending him a copy of the application for change of registered user.  Mr Lau denies having received this, saying that he only received a copy of this form from Patrick Leung at the beginning of January 2004.  Having regard to the date of the application, the reference to relocation of lines in the conversation between Mrs Lau and a representative of the telephone company might simply have been to the relocation of the single line that was to be retained by Kung Shing.

41.The access code having been changed, Mr Cheung discovered that he was unable to check the balance of the Company’s bank account.  He called Mr Lau, who professed to be surprised about this.  In cross-examination, Mr Lau excused this as a “white lie”.  Mr Cheung contacted Mr Lau again, but was told that Mr Lau did not know about it.  Mr Cheung then sought to obtain a new access code from the bank, but Mr Lau did not cooperate, and declined to sign the necessary application form.  He said that when he received the form, he saw that it had been filled in by Edward Cheung, and thought that this was inappropriate.  He also said that he had been told by the bank that Mr Cheung had tried to instruct the bank not to tell him what the new code was, after it had been issued.  Mr Cheung denies having given such an instruction, and complains that this action by Mr Lau caused him considerable inconvenience, as it meant he had to travel to the bank to check the Company’s account balance from time to time.

42.Also during this period, from about December 2003 onwards, each party accused the other of not cooperating in signing cheques to make payments that were due to suppliers or other creditors.  Each sought to justify his behaviour by saying that they were not provided with adequate supporting documents, but that they eventually cooperated in most cases after being satisfied that the payments were proper.

Lawyers become involved

43.On 23 December 2003, solicitors acting for Mr Lau wrote to Mr Cheung, demanding the return of the books and records, chequebooks and other equipment which he had removed from the Company’s premises on 5 December 2003, threatening legal action if this were not done promptly.  Reference was also made to the fact that Mr Lau was examining the books and records of the Company which were in his possession, and had discovered transactions between the Company and Kung Shing which were said to be detrimental to the Company’s interests, and calling on Mr Cheung to clarify these matters (details of which were not provided), failing which legal action would again be taken.

44.The next day, Mr Cheung returned the Company’s cheque book through his solicitors.  A few days later, on 31 December 2003, Mr Lau’s then solicitors wrote to the solicitors acting for Mr Cheung, again demanding the return of the books and records and other equipment, complaining that Mr Cheung’s failure to cooperate in relation to paying creditors of the Company was putting the Company in a difficult position, and demanding that he comply with his obligations to properly conduct the Company’s business.  A demand for an explanation of the Company’s books and records and the allegedly unusual transactions involving Kung Shing (still not specified) was again made.

45.Also on 31 December, Mr Cheung sent Mr Lau a letter, in which he stated that he would continue to work away from the Company’s office, in order to avoid further confrontations.  He said that he would do his best to cooperate in running the Company’s business nonetheless.  He denied having removed any telephone lines other than the one which was retained by Kung Shing, and responded to the complaint about not paying creditors by saying that he did not have the documentation supporting the creditor’s claim and therefore could not agree to payment being made, but that if there were sufficient funds, Mr Lau could arrange for payment.

46.On 6 January 2004, Mr Cheung’s solicitors wrote to Mr Lau’s solicitors, responding to the letters of 23 and 31 December 2003, saying that Mr Cheung was working elsewhere to avoid confrontations with Mr Lau, and that he had taken away the documents and other items for this purpose.  They went on to say that the items of office equipment were, in any case, the property of Kung Shing, but that copies of the documents would be returned shortly.  They complained about the change of banking telephone access code.  They also denied that there had been any improper transactions involving the Company and Kung Shing, and invited Mr Lau to provide details of any transactions which he suggested were improper.  They responded to the demand for payment from a creditor by saying that if Mr Lau were to confirm that the payment was in order, and that there were sufficient funds available, Mr Cheung would agree to sign the relevant cheque.  Complaint was also made about the long draft agreement that had been provided at the beginning of December 2003, in particular that Mr Cheung considered the terms to be extremely onerous and unreasonable.  The letter concluded by saying that in the light of the disagreements that had arisen between their clients, Mr Cheung proposed that the Company should simply be wound up voluntarily, failing which he would apply for it to be wound up by the court on the just and equitable ground.

47.On 10 January 2004, Mr Cheung’s solicitors sent to Mr Lau’s solicitors a large number of documents (extending to nearly 2,000 pages) which Mr Cheung had removed from the Company on 5 December 2003.

48.On 12 January 2004, Mr Lau’s solicitors replied that there were still a substantial number of missing documents, including cheque stubs, ledgers and accounts since 2000, bank books and cash books since incorporation and bank statements after April 2003.  They also responded to the complaint about the bank access code, suggesting that there should be no difficulty for Mr Cheung to obtain information as to the Company’s accounts.  They said that the draft agreement had been drafted by them on the Company’s instructions, and sought payment of their fees for doing so.  They reiterated Mr Lau’s contention that there were unusual transactions, but were still unable to give particulars, and reserved Mr Lau’s rights against Mr Cheung.

Meetings on 17 and 19 January 2004: the respective cases as to the alleged agreement

49.On 13 January 2004, Mr Lau sent Mr Cheung a notice convening a board meeting of the Company on 17 January 2004 to discuss the “latest decisions of the Company”.

50.On 17 January 2004, Mr Cheung returned to the Company’s office for the meeting.  Mr Lau said that the atmosphere was good, and that the parties were cordial.  Apart from Mr Cheung and Mr Lau, a number of other employees were present.  After the meeting, Mr Lau prepared minutes, which he later sent to Mr Cheung.  The minutes effectively recorded an agreement that the Company should cease business, stating that all staff with the exception of Patrick Leung should have their employment terminated on 29 February 2004, that the Company’s plant and machinery should be sold to Mr Lau for HK$200,000 and that its stocks and raw materials should be sold to him at cost, and that Mr Lau should handle all matters relating to the Company’s cessation of business.

51.Although this was not recorded, Mr Lau said that at the meeting, he and Mr Cheung also agreed that Mr Cheung would transfer his shares in the Company to Mr Lau at a nominal consideration.  Mr Lau said when giving evidence at the trial that he was somewhat surprised at this change of heart on the part of Mr Cheung, who had hitherto been adamantly opposed to a transfer on such terms, but assumed that he had thought things over in the last few weeks and had come to see the reasonableness of such a course, having regard to what Mr Lau was owed in respect of his interest in the New Printing Department and the China properties.  Mr Lau went on to say that he and Mr Cheung agreed to meet again the following Monday, 19 January 2004, at the offices of the Company’s auditors, Mak, Cheung and Co, to sort out the necessary documentation.  Mr Cheung, however, while acknowledging that it was decided to close down the Company’s business, insisted that no such share transfer agreement had been made.

52.Also on 17 January 2004, the parties signed a directors’ resolution in relation to the Company, recording that it was agreed that Mr Lau should set up a new company with himself as the major shareholder to take over the existing customers and business of the Company.

53.On 19 January 2004, the parties met again at the offices of the Company’s auditors.  This meeting took place in the afternoon, and was attended by Mr Cheung, Mr Lau, Mrs Lau, Patrick Leung and the Company’s auditor, Mr Mak Leung Hay of Mak, Cheung & Co.  According to Mr Lau, the meeting started at about 3:00 pm, when Mr Cheung (who was the last to arrive) arrived, and went on until about 7:30 or 8:00 pm.

54.Mr Lau said that at the beginning of the meeting, Mr Mak produced documents which he had prepared for the parties to sign, these consisting of instruments of transfer and bought and sold notes in respect of the 50 shares in the Company owned by Mr Cheung, whereby the shares were to be transferred to Mrs Lau at a consideration of HK$50.  There were also minutes of a board meeting recording Mr Cheung’s resignation as a director and approving the transfer of his shares to Mrs Lau, documents for filing with the Companies Registry in connection with the resignation of Mr Cheung as a director, and the appointment of Mrs Lau as a director in his place, and a memorandum recording Mr Cheung and Mr Lau’s acknowledgement of liability for the debts of the Company up to the date of the memorandum.

55.Mr Lau said that some way into the meeting, Mr Cheung and Mr Mak absented themselves from the meeting, and after a private discussion in another room, returned to the meeting at around 6:00 or 6:30.  When they returned, Mr Mak said that Mr Cheung wanted to add some further conditions for his protection, and dictated some additional terms to Mrs Lau, who wrote them down on two sheets of paper.  These additional documents were in the following terms (the following is the certified translation from the Chinese language original):-

(1)     The first document stated:-

“In respect of the documents for transfer of shareholding and trasfer or directorship of [the Company], only upon signing item nos. 2 and 3 in the Annexure, [they] will be effective.  Before becoming effective, either party shall not take [them] away from Mak, Cheung & Co., CPA.  Either party may notify Mak, Chung & Co., CPA in writing for complete cancellation.  It only required to notify the other director, and does not require the consent of the other director.”

(2)     The second document, which was the Annexure referred to in the first document, stated:-

“Both shareholder agree the following three points:

1.      Mr Cheung Sai Lun agrees to transfer all the shareholdings in [the Company] to [Mrs Lau].

2.      After the transfer of shareholdings, no claims for liabilities will be made by both shareholders in relation to matters between the Company and the two shareholders, and between the two shareholders.

3.      All the accounting records of [the Company], from its date of incorporation to 30 November 2003, will be forwarded to Mak, Cheung & Co., CPA for safe custody, until the date of cancellation.  Unless requested by both shareholders in writing, otherwise they cannot be taken away without authorisation.”

56.The first of these documents was to be signed by Mr Cheung and Mr Lau.  The second was to be signed by them, and witnessed by Patrick Leung and Mr Mak.

57.According to Mr Lau, both these documents were signed by Mr Cheung and himself, and the Annexure was also witnessed by the witnesses, both of whom signed it.  Mr Lau stated that he saw Patrick Leung sign it, and he was sure that Mr Mak had signed it as well (although he did not have such a clear recollection of seeing him do so).  He added, however, that he was not sure whether the document that was signed was the original Annexure handwritten by his wife, or a photocopy of that document.  Mr Lau said that the other documents, which had been prepared in advance by Mr Mak, were also signed that day.  He said that Mr Cheung appeared quite willing to sign the documents.

58.Mr Lau also said that he asked Mr Mak for copies of the documents, and was provided with copies.  However, he said that only after he had left the meeting did he realise that he had been given copies of the unsigned versions of the documents, rather than signed versions.

59.Thus, on Mr Lau’s case, there was an executed and fully signed agreement as at 19 January 2004.

60.Mr Cheung’s position was, of course, quite different.  He disagreed that the meeting had been arranged for the purpose of completing the share transfer documentation.  He said that he had thought that the purpose of the meeting was to discuss matters relating to the cessation of business by the Company, and was surprised to see the documents which Mr Mak had prepared.  He said that he was not willing to sign them, but that Mr Lau threatened that he would “do something” if Mr Cheung did not sign the documents.  Mr Cheung said that he thought that this might be a reference to reinstating or pursuing the complaint to the police about Edward Cheung’s deletion of files from the computer in December 2003.  He said that he asked for something to be drafted to protect his interests, and that this was what led to the drafting of the additional documents to which I have referred in paragraph 55 above.  He said that after the additional documents were drafted, he reluctantly signed all of the documents prepared by Mr Mak, and the first of the additional documents.  He was adamant, however, that the Annexure was neither signed nor witnessed.  Accordingly, he said, there was no agreement between Mr Lau and himself for the transfer of his shares in the Company to Mrs Lau for a nominal consideration.

61.This is obviously the key difference between the parties.  If Mr Lau is correct as to what happened, there would be a binding agreement under which Mr Cheung would be obliged to transfer his shareholding in the Company for a nominal consideration, and having agreed to dispose of his shareholding at an agreed (albeit nominal) price, it would not be open to him to seek to wind the Company up on the just and equitable ground, or to seek relief under section 168A of the Ordinance.  However, before I consider the further evidence about this meeting, and make my findings in relation to it, I shall briefly relate the remaining part of the background to these proceedings.

Events thereafter

62.Following the meeting on 19 January 2004, two further drafts of agreements for the transfer of Mr Cheung’s shareholding in the Company were prepared.  These were apparently drafted by a Mr Andrew Ngo (“Mr Ngo”).  Mr Ngo had previously attempted to act as a mediator of sorts at Mr Cheung’s request, but without any success, as Mr Lau refused to discuss the matter with him.  The first of these drafts, which were sent on behalf of Mr Cheung, provided for the shares to be transferred for a nominal consideration.  The second, sent some time later, provided for consideration of HK$300,000 to be paid.

63.Mr Cheung said in his evidence that the consideration stated in the first of these draft agreements was wrong, and that Mr Ngo may have been working off a document that had been drafted by those then acting for Mr Lau, and must have misunderstood Mr Cheung’s instructions, which were to adapt the earlier draft, but not to adopt the nominal consideration.  As to the second version, Mr Cheung said that having thought about the matter, he was prepared to compromise by accepting a lower amount than the HK$1 million which he had all along wanted, in order to resolve the matter and avoid the possibility of litigation.

64.Neither of these draft agreements was ever signed, and so they came to nothing.

65.Thereafter, in about February 2004, Mr Lau set up Meta Ink, and took over the Company’s business and operations, which he carried on through Meta Ink.  The Company has, therefore, been (for all practical purposes) defunct since about the end of February 2004.

66.With that background, I turn to deal with the various factual and legal issues that call for determination.  However, before doing so, it is necessary to say a few words about the witnesses who gave evidence at the trial, as well as about certain potential witnesses who did not give evidence in these proceedings.

The witnesses

67.Both Mr Cheung and Mr Lau made a number of affirmations, and attended to give evidence at the trial.  Both were cross-examined extensively.  I have to say that neither of them were particularly good witnesses, and there were some parts of their evidence that I had difficulty in accepting.  However, although I did not find Mr Cheung to be a wholly reliable witness in every respect, I have had little hesitation in accepting his evidence as to the critical events of 17 to 19 January 2004, for the reasons which I explain below, when considering this aspect of the matter.  Conversely, so far as Mr Lau is concerned, I am afraid that I have to say that I have felt compelled to reject his account of those meetings as being untruthful.

68.Apart from the principal protagonists, Mr Lau called a number of other witnesses, each of whom had made an affirmation in these proceedings.  These were:-

(1)     Mr Wong Wing Sang, the sales manager of Worldwide Resin and Chemicals (HK) Limited (“Worldwide”).  He gave evidence concerning his efforts to obtain payment from the Company of amounts owing by it to Worldwide.  He described how Mr Lau had told him that he was having difficulty getting Mr Cheung to sign the necessary cheques in November and December 2003, and went on to say that in mid-January 2004, Mr Cheung had come to his office and given him cheques in settlement of the debt.  He also said that he subsequently received a further cheque (apparently for the same indebtedness) from Mr Lau in March 1994, which he presented for payment earlier than agreed with Mr Lau, due to an oversight on his part.  His evidence was not challenged.  However, I found his evidence to be of only peripheral importance.

(2)     Mr Tang Yuk Hung Wong gave evidence to the effect that he had previously worked for Mr Cheung, and that he had left his position feeling unhappy at the way that he had been treated, and considered that he had been cheated of his rightful entitlements.  He said that he had had a 25% interest in the inks business operated by Mr Cheung and his uncles, but had left without getting anything.  However, he accepted in cross-examination that he had only worked with Kung Shing for about a year, and that in that period, Kung Shing had in fact suffered a loss.  He accepted that he had no knowledge of the facts of the present proceedings.  His evidence seemed to be aimed at discrediting Mr Cheung, and portraying him as an unreasonable character.  I found his evidence to be of no real assistance for the purposes of these proceedings.

(3)     Mr Wong Hung Yee, a manager of the Bank of China gave evidence as to the uplifting by Mr Cheung of a fixed deposit maintained by Kung Shing in about November 2003.  He eventually accepted that this was not based on his personal knowledge, and that he was unaware that Mr Cheung had said that Kung Shing did not maintain any fixed deposits in November 2003.  In any case, this did not seem to me to be a matter of any real relevance to these proceedings.  He also stated that he had been told by a fellow employee (whom he could only identify as Miss Chan) that Mr Cheung had, in mid-December 2003, obtained an application form for the issue of a new telephone banking access code, and requested that when issued, the new code should not be divulged to Mr Lau.  He agreed, however, in cross-examination that the bank would not have agreed to do so, and that it would have simply sent the new access code to the Company’s correspondence address.  It was also clear that he had no personal knowledge of either matter to which he deposed, and I therefore place little weight on his evidence.

(4)     Mr Lai Kwok Keung, an employee of a company called IEFI (HK) Limited (“IEFI”), a supplier to the Company, gave evidence of difficulties in obtaining payment of a small debt owed by the Company to IEFI, and also said that he had been told by Edward Cheung that there might be difficulties in obtaining payment in future because of disputes between Mr Cheung and Mr Lau.  His evidence was not seriously challenged, but it was in my view of limited relevance.

(5)     Mr Cheung Yu Yee, an employee of another supplier called Wellway Universal Limited (“Wellway”) also gave evidence of difficulties in obtaining payment, and that Edward Cheung had also told him about the problems within the Company and that there might be difficulties in obtaining payment in future.  Like Mr Lai’s evidence, his evidence was of limited relevance, particularly since he accepted that Mr Cheung had eventually come to his offices to sign cheques that Wellway had been given by Mr Lau, after being shown supporting documentation in respect of the transactions for which payment was required.

69.There were also a number of potential witnesses who were not called.  These were:-

(1)     Mrs Lau, who was, as I have noted, responsible for writing out the record of what was said to have been discussed at the first meeting between Mr Cheung and Mr Lau on 11 November 2003, and was also present at the meeting at the offices of Mak, Cheung & Co., where she wrote out the additional document and the Annexure, which Mr Cheung regarded as being for the protection of his interests.  She also wrote out the “confession” signed by Edward Cheung.  Although she seemed to be an obvious witness for Mr Lau, who might be able to give evidence as to some of the matters most in controversy between the parties, and who might have been able to speak to the documents which she wrote (in respect of which Mr Lau complained that they did not accurately record what should have been recorded), she neither made any affirmations for these proceedings, nor was she called as a witness, notwithstanding that she was clearly available to do so, being present in court throughout the proceedings.

(2)     Edward Cheung was subpoenaed by Mr Lau to give evidence at the trial.  When he failed to appear at the resumed hearing of the trial on 28 August 2006, Mr Lau’s counsel, Mr Lawrence Ng, applied for and obtained a warrant for his arrest.  Edward Cheung appeared the next day, and apologised for his failure to attend.  Although he undertook to attend to give evidence when required, Mr Ng in the end did not call him.  In his closing submissions, Mr Ng rather surprisingly criticised Mr Cheung for not having called Edward Cheung as a witness.  I see no justification for that criticism, given that it was known from before the trial began that Mr Lau had issued a subpoena to compel Edward Cheung’s attendance.  That having been done, Mr Cheung and his counsel would, in my view, be entitled to take the view that as Mr Lau was apparently intending to call Edward Cheung, there was no need for them to do so, since they could simply cross-examine him when he was called by Mr Lau.

(3)     Patrick Leung, who had not initially made any affirmations in respect of these proceedings, made an affirmation during the adjournment of the trial.  His affirmation was generally supportive of Mr Lau’s version of events.  However, at the resumed hearing, Mr Ng indicated that Mr Leung would not be called after all, and his affirmation was not admitted in evidence in the proceedings, as he was not called and tendered for cross-examination.  Patrick Leung was, like Mrs Lau, present at the meeting at Mak, Cheung & Co.  He was named as a witness to the Annexure, and would, one might think, have been a helpful witness for Mr Lau to have called in support of his case.

70.Finally, there was Mr Mak.  Mr Mak was in fact (like Edward Cheung) subpoenaed by Mr Lau to appear at the proceedings.  The subpoena addressed to him required him not just to attend to give oral evidence, but also to bring with him the documents which were left with him on 19 January 2004 for safekeeping.  He was clearly someone who could give disinterested evidence as to what transpired during the course of the meeting in his office.  However, despite having been subpoenaed, and having indicated his willingness to come and give evidence in answer to the subpoena, after all the other witnesses had given evidence, Mr Ng indicated that Mr Lau would not be calling Mr Mak after all, saying that it was felt that the evidence already adduced was sufficient for Mr Lau’s purposes.  This was, I am bound to say, surprising, for if it were thought that Mr Mak would give evidence that was supportive of Mr Lau’s case, one would have expected him to be called.  Moreover, given that he was apparently in possession of the original documents signed at the meeting on 19 January 2004, production of those documents would clearly have been of great interest in relation to the question of whether or not they had actually been signed, as Mr Lau insisted they had.

71.In the event, Mr Pun decided, after a short adjournment, to call Mr Mak himself.  Given the potential importance of Mr Mak’s evidence on what had become perhaps the central issue in the proceedings, I had little doubt that the right course would be to permit him to do so, and I accordingly permitted him to re-open Mr Cheung’s case and to call Mr Mak.

72.Mr Mak’s evidence in relation to the 19 January 2004 meeting was that he had received a telephone call on 17 January 2004, when he was asked to prepare documentation for a share transfer and change of directors in relation to the Company.  He said that he could not now recollect whether it was Mr Lau or Mr Cheung who had telephoned him.  He said that he prepared the documentation in accordance with the information provided to him by the caller, and that while he was not absolutely certain, he might have had the documentation ready prior to the meeting.  He confirmed that the meeting was attended by Mr Lau, Mrs Lau, Patrick Leung and Mr Cheung, who was the last to arrive, some time after the others.  He said that he would have explained the documentation to the parties.  He thought that he did this at a fairly early stage in the meeting.  He said, however, that none of the documents were signed straightaway.  Instead, what happened was that from about that point until 7:00 pm or so, the parties continued to discuss the matter, giving him the impression that things were not entirely settled between them.  He said that because the discussion went on for so long, he left the room from time to time to attend to other work.  He went on to say that eventually, at around 7:00 pm, he came back to say that it was getting late and that he needed to close up his office.  At that point, he said, the further documents were written out by Mrs Lau.  He said that before she wrote them out, both Mr Lau and Mr Cheung expressed their own views as to what should be added.  Mr Mak then tried to assist by coming up with some form of wording that was acceptable to both sides, and what he said was then written down by Mrs Lau.  Mr Mak confirmed that Mr Cheung, Mr Lau and Mrs Lau between them signed all the documents which he had prepared, and that Mr Lau and Mr Cheung signed the first of the documents handwritten by Mrs Lau.  His impression was that Mr Cheung signed them willingly enough.  He was, however, very clear in his evidence that the Annexure was not signed by either Mr Lau or Mr Cheung, and that neither he nor Patrick Leung signed it as a witness.  He said that he retained all of the documents as was indicated in the first of the handwritten documents, and had kept them carefully ever since 19 January 2004.

73.Mr Lau also produced the documents in question.  These consisted of the documents which he had prepared, all of which were originals, and all of which had been signed by the appropriate persons, and also of what appeared to be the original handwritten versions of the two additional documents.  The first of these was, as Mr Mak had testified, signed by Mr Cheung and Mr Lau and was dated 19 January 2004.  However, the second, the Annexure, was not signed by anyone.  Nor was it dated.  For completeness, I should also say that with the exception of the board minutes of the Company prepared by Mr Mak, none of the other documents which he prepared was dated either.

74.Mr Mak was cross-examined by Mr Ng, but remained unshaken.  He was also questioned about how it came about that he provided Mr Lau with unsigned copies even of the documents which he had prepared, and which had been signed, but was unable to explain this, accepting that he would ordinarily make copies of the signed documents and give them to the parties.

75.Finally, Mr Mak said that he had never presented any of the documentation relating to changes in directorship to the Companies Registry for filing, and that he had never submitted the share transfer documentation for stamping.  He said that he did neither of these things because the Annexure never having been signed, he did not consider the other documents ever to have become effective.

76.I was favourably impressed by Mr Mak, who was clearly a disinterested witness.  There was nothing to suggest that he had any reason to favour one party rather than the other.  Mr Ng mounted a sustained attack on his credibility, commenting on his inability to remember several aspects of the matter, including who had contacted him and given instructions as to the contents of the share transfer and other documentation which he had prepared.  However, it seemed to me that Mr Mak was a careful witness, who was prepared to admit to matters which he could not recall.  I can see no reason to doubt his veracity, and his evidence is entirely consistent with the documents that he produced.  There is no reason at all to suppose that the documents have been tampered with in any way, or that they have not been kept in Mr Mak’s safe custody since they were left with him on 19 January 2004.  That being so, there is nothing to cast doubt on what they show, and crucially for present purposes, they show that the Annexure was never signed or witnesses, as Mr Lau said it was.

First issue: whether there was a binding and unconditional agreement for sale of Mr Cheung’s shares at a nominal consideration

77.In the light of Mr Mak’s evidence, and the documents which he produced, I am entirely satisfied that the Annexure was not signed.  That being so, there was, in my view, no binding and unconditional agreement for the transfer of Mr Cheung’s interest in the Company to Mr Lau or Mrs Lau made on 19 January 2004.  I would accept that an agreement was reached on that occasion that could, if the Annexure had later been executed, have become unconditional and binding.  However, until that happened (and I am satisfied it never did), the agreement to transfer for a nominal consideration was merely a conditional agreement, which was, as indicated by the first handwritten document, capable of being cancelled by either party.  Although it was never formally cancelled, neither did it ever become unconditional and binding.

78.Quite apart from the documents themselves and Mr Mak’s evidence that the annexure was not signed, it seems to me that there is ample other evidence that points towards the same conclusion.  This includes the following matters:-

(1)     The fact that the documents retained by Mr Mak were (with only one exception) undated.  This suggests that the agreement apparently embodied in them was never actually effective.

(2)     The fact that no steps were ever taken to register the documentation relating to changes in directorships or to stamp the share transfer documentation is equally a pointer against the agreement ever having become effective.

(3)     The fact that Mr Lau never asked Mr Mak to provide him with signed copies of the documents (including the Annexure) is in itself cause for suspicion.  Although Mr Lau said he was surprised that he had been given unsigned copies, as was apparently the case, he could not, in my view, have failed to appreciate the importance and desirability of obtaining copies of signed documents where litigation was clearly a possibility, it having been threatened by both sides in correspondence predating the meeting on 19 January 2004.

(4)     Equally, Mr Lau’s curious qualification of his evidence, to the effect that he was not sure whether the original handwritten document written by Mrs Lau had been signed, or whether what was signed was a photocopy of the handwritten Annexure suggests that he may well have been trying to lay the foundation for a claim that if, as turned out to be the case, the original of the Annexure was not signed, this was not conclusive, as the parties and witnesses could have signed on another copy of the document.

(5)     The fact that Mr Cheung caused further drafts of agreements for the transfer of his shares to be generated and sent to Mr Lau even after 19 January 2004 is also inconsistent with there having been a binding and unconditional agreement made on that day.

79.Further, the failure of Mr Lau to call Mrs Lau or Patrick Leung (and his refusal to call Mr Mak despite having subpoenaed him) provides further support for the conclusion which I have reached, since both of them were, I think, natural and obvious witnesses for him to have called if they were truly in a position to give evidence supportive of his case on this point.

80.Moreover, the history of the discussions between Mr Cheung and Mr Lau is inconsistent with Mr Cheung having been willing to part with his interest in the Company for a nominal consideration.  As Mr Lau himself accepted, it was surprising that Mr Cheung should have been willing to do so in mid-January 2004, when he had throughout the last two months of 2003, been steadfast in his refusal to accept such terms.  On all previous occasions, every suggestion in whatever form that there should be a transfer for nominal consideration was rejected out of hand by Mr Cheung.  Although Mr Ng sought to portray this as an unjustified and unreasonable stance to take, this is not necessarily so.  Although Mr Cheung’s evidence was not altogether consistent on this point (there being some indications in the documentation that Kung Shing was to carry on business even after the transfer of his shareholding in the Company to Mr Lau), if he was considering retiring from the business, it would make some sense for him to seek to obtain a premium for his share of the Company, and to leave the affairs of Kung Shing to be wound up and its assets divided between himself and Mr Lau later.  But even if this were not the position (and the discussions about the terms on which goods would be supplied to Kung Shing might point to a contrary conclusion), all that this would mean is that Mr Cheung, in insisting on having the two matters dealt with separately and independently of one another, was simply being unreasonable.  There was, of course, nothing to stop him being unreasonable if he chose to be, and it could not be said that the unreasonableness (if so it be) of his position is such as to render it improbable.  On the contrary, the impression that I was left with of Mr Cheung was that he was probably not always an easy person to deal with.

81.I would also add that I do not accept Mr Lau’s evidence as to either of the alleged set off agreements (whether in respect of his interest in the New Printing Department, or in respect of the China properties) having been agreed in the second half of November 2003 or thereafter.  Any such agreement is quite inconsistent with the stance consistently taken by Mr Cheung throughout November and December 2003 that the question of Mr Lau’s interest in the New Printing Department was a matter that should be dealt with separately.  So far as the set off in relation to the China properties is concerned, there is no mention of it in any of the documentation that was prepared by anyone on Mr Lau’s side.  It does not appear in the “preliminary agreement” of 18 November 2003, or in the long agreement prepared by his lawyers in early December 2003.  On the contrary, the inclusion in both those agreements of the valuation of his interest in the New Printing Department suggests that no similar agreement was reached in relation to the China properties (even assuming, which is not in my view a safe assumption, that the amount in respect of them was still owing to Mr Lau), otherwise that figure too, would have been expressly mentioned and referred to.  This is, I think, particularly so in relation to the document drafted by Mr Lau’s then solicitors, since it is to be expected that it would have been drafted in accordance with his instructions, and it would be surprising, if there had been an agreement or even intention on Mr Lau’s part to set off the amount in respect of the China properties, for him not to have mentioned this to his solicitors.  Had he mentioned it to them, it would be even more surprising for them to have failed to included it in their draft.  I therefore think that Mr Lau’s evidence on this point was a mere afterthought, which does not accord with the reality.

82.In the light of these findings of fact, the first issue raised by Mr Lau in opposition to the petition must be determined against him.

Second issue: whether petition brought for a collateral purpose

83.In my view, the conclusions to which I have come in relation to the first issue are equally dispositive of the second issue – this being the suggestion that the petition should be dismissed as having been brought for the collateral and improper purpose of pressuring Mr Lau into agreeing to buy out Mr Cheung’s interest in the Company for more than was actually agreed.

84.Given that I have concluded that there was in fact no binding and unconditional agreement for the sale by Mr Cheung of his shareholding in the Company to Mr Lau, there can, I think, be no basis for concluding that the petition was brought not in good faith, but in order to improve on a (non-existent) already concluded agreement.

85.Further, it seems to me that in the circumstances, where the Company has clearly ceased operations and is to all intents and purposes defunct, Mr Cheung was perfectly entitled, as any other shareholder would have been, to present a petition for its winding up on the just and equitable ground.

Third issue: alleged misconduct on the part of Mr Cheung

86.The final issue raised by Mr Lau is the alleged misconduct on the part of Mr Cheung.  I did not comment on all of the specific allegations made when setting out the background to these proceedings, as it seemed to me that most of these allegations, although relating to matters which happened before the proceedings were issued (and for the most part relating to matters that predated the breakdown in the relationship), they could not properly be regarded as having been in any way causative of the breakdown, since they do not appear (for the most part) to have come to light, even in the vague and unspecified form in which they are referred to in the letters from Mr Lau’s solicitors to Mr Cheung and his solicitors dated 23 and 31 December 2003, until after the relationship had already broken down.

87.Before considering whether there is any substance in the complaints that were made, I think it necessary to consider whether even if they are made out, and demonstrate misconduct on Mr Cheung’s part, whether this would disentitle Mr Cheung from obtaining a winding up order on the just and equitable ground.

88.In considering this, I think it is necessary to consider the basis on which a winding up order is sought by Mr Cheung.  As I have noted at the beginning of this judgment, Mr Cheung’s case is that it would be just and equitable to wind up the Company on any one of three bases, these being loss of substratum, breakdown of trust and confidence, and mismanagement and unfair conduct on the part of Mr Lau.

Whether misconduct relevant to claim based on loss of substratum

89.I would accept, on the basis of the observations of Rogers V-P in the Court of Appeal, and of Ribeiro PJ in the Court of Final Appeal, in the case of Ng Yat Chi v Max Share Ltd [2001] 1 HKLRD 561 at 572E-I (per Rogers V-P in the Court of Appeal) and [2001] 3 HKLRD 299 at 302H (per Ribeiro PJ in the Court of Final Appeal), that misconduct on the part of a petitioner, even if not causative of the breakdown in trust and confidence relied upon, may constitute grounds for the refusal of a winding up order that is sought on the basis of a breakdown in trust and confidence.  As Rogers V-P put it:-

“... I do not consider that a petitioner can consistently and persistently abuse his position to defraud the company and then rely upon some prior arrangement based on mutual confidence, to which he had not adhered to, to found his claim.”

And, in Ribeiro PJ’s words:-

“We also agree with the Court of Appeal that it lies ill in the mouth of a petitioner who has defrauded the company and his fellow investors to complain that he has not been accorded equitable treatment by those other investors, characterised as members of an alleged quasi-partnership.  It is a well know principle that he who seeks equity must do equity.”

90.The question that was being addressed in this part of the appellate judgments in Ng Yat Chi’s case was whether it was necessary for misconduct on the part of a petitioner to have been causative of the breakdown in the relationship before it could be relied upon to refuse winding up relief.  Both the Court of Appeal and the Court of Final Appeal came to the view that it was not.  One can well understand this approach, since it is repugnant and contrary to the usual notions of equity that someone who has himself ignored the existence of a relationship of trust and confidence by acting in ways wholly inconsistent with it, to be permitted to invoke the relationship for his own benefit when it suits him to do so.

91.That said, however, it seems to me that it may not be the position that in every case in which the petitioner may have been guilty of some misconduct, that might be viewed as being contrary to his obligations to respect the mutual trust and confidence that he says exists in the relationship, a winding up order should be refused.  The misconduct on his part may be relatively minor (which was not the case in Ng Yat Chi’s case).  More importantly, where the company concerned is still in operation (as was the case in Ng Yat Chi’s case), there will perhaps be a greater reluctance to wind it up at the instance of an undeserving petitioner.

92.However, while I accept that misconduct on the part of a petitioner which displays a repudiation on his part of the relationship of trust and confidence may, in an appropriate case, justify a refusal of a winding up order being made on the basis of a loss of trust and confidence, I am of the view that, in general, such misconduct is not a relevant factor in the context of an application to wind up on the basis of a loss of substratum, such as is relied on here.

93.I have come to this view for a number of reasons.  First, it seems to me that while it may be just and equitable to wind up a company where the substratum has failed, this is not because of any relationship of trust and confidence that may (or may not) have existed between the shareholders in the company.  It seems to me that even absent such a relationship, a loss of substratum provides an independent reason for the court to wind up the company on the just and equitable ground.  The basis for winding a company up where its substratum has failed is that where the company is defunct, and is incapable of carrying out the objects for which it is incorporated, it is, in general, unjust to require the shareholders to remain locked into it, as this would mean that their capital would remain locked up and idle, or (if still being employed) used for a purpose other than that for which they had subscribed it.  Thus, as it is not necessary to establish a relationship of trust and confidence to obtain a winding up order on this basis, the question of whether or not there has been a repudiation by the petitioner of such a relationship by his own misconduct does not seem to me to be a relevant factor in deciding whether or not the substratum of the company has so completely gone as to render it just and equitable that it should be wound up.

94.Further, although I would accept, by parity of reasoning with the Ng Yat Chi case, that it may be open to the court, in the exercise of its discretion, to refuse a winding up order even where a company’s substratum has been lost where the petitioner has been responsible for that state of affairs having come about (and this might sometimes be the case), it does not seem to me that it can be said here that it was Mr Cheung who was responsible for the loss of the Company’s substratum.  The Company is defunct because Mr Lau has taken over its operations and business, which he is now carrying on for his own account through his new company, Meta Ink.  Although it may be that Mr Cheung was at one time agreeable to this being done, I do not think that this prevents him from seeking the winding up of the Company where there is good reason for him to do so.  Here, if the Company is not wound up, there will be no means of realising such assets as it still has (it should be borne in mind that the Company may well have had some bank balances, and should, if the arrangements for the transfer of its operations had been observed, have additional funds representing the consideration to be paid by Mr Lau for its plant and equipment and for its stock and raw materials).

95.Finally, it seems to me that there may be cases where the possibility that there has been misconduct which calls for investigation will justify the making of a winding up order, notwithstanding that the petitioner may have been responsible for the loss of substratum himself.

96.For all of these reasons, I have concluded that any misconduct on the part of Mr Cheung does not disentitle him from seeking a winding up of the Company on the basis that its substratum has gone, and having regard to the fact that the Company is now defunct, I am satisfied that it would be appropriate to make a winding up order in respect of it, as prayed for by Mr Cheung.

97.Having come to this conclusion, it is not strictly necessary for me to consider whether a winding up order should be made on the alternative bases relied upon by Mr Cheung.  However, I shall endeavour to state my conclusions as to these alternative bases as briefly as possible.

Winding up on basis of breakdown in trust and confidence

98.As I have already observed, it was common ground that there had been a breakdown in the relationship of trust and confidence which had previously existed between Mr Cheung and Mr Lau, and on which their relationship in the Company was based.

99.To my mind, the breakdown occurred shortly after 4 December 2003, when Mr Cheung and Mr Lau had their heated argument at the Company’s premises, and Mr Cheung subsequently removed substantial quantities of the Company’s accounting books and records.

100.Mr Lau’s own evidence was that he had lost his trust in Mr Cheung by this stage, or even earlier, as his suspicions were aroused by Mr Cheung’s pressing for the formation of a new company to be owned by the staff of the Company.  The deterioration in their relationship was, I think, evidenced not just by the argument on 4 December 2003, but by the arguments which both parties appear to accept had happened in the few weeks leading up to that incident.  It was fuelled also by the differences as to the terms on which they should part company.

101.The alleged misconduct or behaviour on Mr Cheung’s part relied upon by Mr Lau as leading to the breakdown of the relationship consisted of the following:-

(1)     Mr Cheung’s refusal to provide any books and records to Mr Lau for his review, coupled with Mr Cheung’s denial of Mr Lau’s interest in the New Printing Department during their argument on 4 December 2003, and the removal by Mr Lau of a substantial quantity of books and records, and cheque books and office equipment the following day;

(2)     The deletion by Edward Cheung of the contents of one of the computers in the Company’s premises, shortly after the removal of books and records by Mr Cheung;

(3)     Mr Cheung’s alleged instruction to the telephone company to remove the telephone lines from the office of the Company to another address (which was Edward Cheung’s home address);

(4)     Alleged misappropriation by Mr Cheung of a sum of HK$7,152.49 from the Company, by representing that this was a sum properly payable for insurance policies acquired by the Company;

(5)     Alleged misuse by Mr Cheung of Mr Lau’s American Express Bank overdraft account;

(6)     Alleged double charging of the Company in respect of transportation costs for the import of raw materials known as RK-18 from the United States;

(7)     Failure by the New Printing Department to pay for inks and other materials which it purchased from the Company;

(8)     Alleged profiting by Mr Cheung from delivery charges paid by the Company.

Events of early December 2003

102.As to the events of early December 2003, it seems to me that Mr Cheung is largely to blame for these.  Mr Lau’s request to inspect the books and records of the Company was a perfectly legitimate one, which Mr Cheung had no real basis to refuse.  His uncooperativeness over this, even if it might in part be due to some resentment in respect of the possibility that Mr Lau was not prepared to trust him as he had previously done, was not in my view justified.  Moreover, while his statements during the course of the argument on 4 December 2003 may have been made in the heat of the moment, they were clearly ill-advised, and were inevitably likely to stoke Mr Lau’s suspicions yet further, thus fuelling the breakdown of the relationship between them.  Finally, I do not accept Mr Cheung’s case as to the circumstances in which he removed the documents which he did from the Company’s premises on 5 December 2005.  It seems to me inherently improbable that Mr Cheung would have removed the documents in the presence of Mr Lau and the other staff of the Company.  This is particularly so, having regard to the heated argument which they had had the previous day, and in the light of Mr Lau’s desire to inspect the Company’s books and records.  I do not accept that Mr Cheung told Mr Lau of his intention to take away some books and records so that he could work away from the office.  Given Mr Lau’s attitude at that stage, it is not credible to suppose that he would have agreed, or even that he would have made no comment had he been informed of this.  Further, the sheer quantity of the documentation that was removed makes this scenario highly unlikely.

103.In my view, this was a significant factor in the breakdown of the relationship, and it is one for which Mr Cheung was largely responsible.

Deletion of computer data by Edward Cheung

104.So far as the alleged deletion of computer data by Edward Cheung is concerned, I am not satisfied on the evidence available that it was deliberate, or that it was as serious as Mr Lau made it out to be.  As I have already noted, the “confession” signed by Edward Cheung does not indicate that the deletion was deliberate, acknowledging only that the deletion had happened, and that Edward Cheung was responsible for it.  The “confession” was drafted by Mrs Lau, who was not called to give evidence in relation to it.  It is accepted, I think, that a certain amount of data was subsequently reinstalled.  While Mr Lau’s suspicions are perhaps understandable, having regard to the severely strained relationship that existed by this time, I do not think that the evidence is sufficiently strong to justify a conclusion that the deletion was deliberate, or more pertinently, that it was carried out by Edward Cheung on the instructions of Mr Cheung, as it would have to be if it were to form the basis of misconduct on the part of Mr Cheung.

Alleged removal of telephone lines

105.I have already dealt with this matter in paragraphs 39 and 40 above when considering the background to these proceedings.  It suffices to say that I do not accept that this was an act of misconduct on Mr Cheung’s part, but would appear to have been a misunderstanding on the part of Mr and Mrs Lau.

Alleged misappropriation of HK$7,152.49

106.This complaint was based on accounting vouchers prepared by Mr Cheung, which appeared to show that a sum of HK$24,752.49 was paid to the Company’s insurance brokers in respect of three insurance policies obtained by the Company.  Although the voucher suggested that there were two cheques paid to the brokers, one of the cheques, for the sum of HK$7,152.49 was in fact drawn in favour of Mr Cheung personally.  Mr Cheung’s evidence was that this sum was in fact commission payable to the broker who had placed the insurance, but that as the broker had left the employ of the insurers, he had paid it into his (Mr Cheung’s) own account temporarily, intending to pay it to the broker when he found out how to do so, but that he had subsequently forgotten about it.  However, Mr Cheung also accepted in cross-examination that the money was never collected by the broker, that notwithstanding this, he did not return it to the Company, and that in the previous year, the insurance had been paid for by a single cheque.  Moreover, the receipt issued by the insurers was for only the sum actually paid to them, and there was no suggestion that any further sum was due.  In the light of these matters, I have had some difficulty accepting Mr Cheung’s explanation at face value, and while there may well be an innocent explanation for the matter, Mr Cheung has only himself to blame for the way in which he handled the matter, he having been the person who prepared the accounting records and cheques concerned.  That said, however, the amount involved is small, and I do not think that of itself, it would justify a finding that Mr Cheung had repudiated the relationship of trust and confidence.

Alleged diversion of HK$30,000 to Kung Shing

107.The complaint here relates to an entry in the Company’s ledgers which suggest that some HK$30,000 was paid to Mr Lau, by way of repayment of his American Express Bank overdraft account, which was from time to time used to make payments on behalf of the Company.  Again, it is said that there was a mismatch between the relevant accounting voucher (which suggested that the payment was to Mr Lau, or at least to his American Express Bank account) and the cheque, which was made payable not to Mr Lau, but to Kung Shing.  Mr Cheung said that this was because Kung Shing had previously provided funding to the Company on behalf of Mr Lau, so that on this occasion, the repayment to Mr Lau was redirected to Kung Shing.  Again, while this is a possible explanation, it seems to me that this is a matter which calls for further investigation.

Alleged double charging of transportation expenses

108.It appears that Mr Cheung accepted that there had been an element of double charging of transportation expenses for imports of raw materials from the United States, in that the Company was caused to make payment to Kung Shing or Mr Cheung (on behalf of an associated company called UPI USA) for the full invoice value of raw materials purchased by UPI USA for the Company, which included the cost of freight, whereas UPI USA never in fact paid for the freight charges, which were paid on delivery by the Company.  In this way, it was said, funds (in the amount of the transportation charges) were diverted from the Company to Kung Shing or Mr Cheung.  However, there was also evidence to suggest that Mr Lau was aware of this practice and did not object to it, presumably because there was no net impact on his financial position, since what was a reduction of the Company’s assets was counterbalanced by an increase in the assets of the New Printing Department.  In these circumstances, while there may be some substance in what is alleged so far as the Company is concerned, Mr Lau’s apparent acceptance of the practice would militate against it being a basis for finding that Mr Cheung had repudiated the relationship of trust and confidence because of this.

Alleged non-payment by New Printing Department for goods supplied by the Company

109.It seems to me that this complaint stands in much the same position as the previous one, although it involved apparently much larger amounts, and in the circumstances, while there may again be some substance in relation to the matter as far as the Company is concerned, and this may call for some investigation, it does not necessarily amount to a repudiation by Mr Cheung of the relationship of trust and confidence.

Alleged profiting from delivery charges paid by the Company

110.This complaint relates to what seems to be an isolated incident involving slightly in excess of HK$20,000.  I found Mr Cheung’s evidence as to this difficult to follow.  However, having regard to the amount involved, I do not think that this would (even if it were established) justify the conclusion that Mr Cheung had repudiated the relationship of trust and confidence.

Whether Mr Cheung responsible for breakdown in relationship of trust and confidence

111.Overall, although Mr Cheung’s keeping of the books and records of the Company may be open to criticism, I am not satisfied that the complaints levelled against him lead to the conclusion that he should be treated as having so repudiated the relationship of trust and confidence that he should be disentitled to a winding up on the basis that the relationship had broken down.

112.The only matter complained of that I regard as being problematic relates to the events of early December 2003, in relation to which I consider that Mr Cheung bears real responsibility for the further deterioration of the relationship.  However, on balance, it seems to me that the relationship was by this time already suffering from considerable stress, having regard to the arguments that had already taken place, and I do not think that I would, at the end of the day, have refused winding up relief on this basis.

113.Further, it seems to me that in relation to the alleged misfeasances committed by Mr Cheung, these are matters that could in any event be investigated in the course of the Company’s liquidation.

Winding up on basis of mismanagement and unfairly prejudicial conduct by Mr Lau

114.Mr Cheung complains of the change of the telephone banking access code, a change in the locks of the office, the change of the telephone and fax numbers at the end of December 2003 and the removal of his personal belongings from the Company’s premises in February 2003.  I do not think any of these matters, annoying though they may have been, can be regarded as being so serious as to justify being labelled as unfairly prejudical conduct in the running of the Company by Mr Lau.  It seems to me that the only cause for justifiable complaint relates to the change of telephone banking access codes.  However, this was in my view at best a matter of inconvenience to Mr Cheung.  It did not prevent him from having access to information as to the Company’s bank accounts, but merely made it more inconvenient for him to obtain such information.  The complaint about the change of locks does not appear to me to be particularly well founded, as Mr Cheung accepted that a new key was available to him, but that he did not go to collect it.

115.So far as the allegations of mismanagement are concerned, these relate to difficulties and delays in effecting payments to suppliers.  This was a situation that was, I think, brought about by the breakdown of the relationship, and compounded by Mr Cheung’s refusal to return to the Company’s premises.  In the circumstances, it is scarcely surprising that there were problems in effecting payment.  By the same token, Mr Lau makes the same complaint against Mr Cheung.  I do not think that this can on any view be said to be mismanagement of the sort that calls for relief, whether in the form of a winding up order or some other relief under section 168A.

116.I would therefore have declined to make any order on the basis of these allegations.  That said, however, it must be recognised that these matters were far from the forefront of Mr Pun’s submissions.

Conclusion and costs

117.Thus, for the reasons I have given, I shall make an order for the winding up of the Company.  As Mr Cheung has succeeded in obtaining the primary relief sought by him, and as the one basis which was unsuccessfully advanced did not occupy a great deal of time at the trial, I see no reason why costs should not simply follow the event, and I therefore make an order nisi that Mr Lau should pay Mr Cheung his costs of these proceedings, to be taxed on the party and party basis if not agreed.

Mr Hectar Pun & Ms Jocelyn Leung, instructed by Ms Fairbairn Catley Low & Kong, for the Petitioner

Mr Lawrence Ng & (from 28 August 2006) Mr Tony Ko, instructed by Messrs Peter Wong & Partners, for the 1^st Respondent

Attendance excused for Officer Receiver