Chan Chun Ming Bill v. Billion Vins Collection Ltd and Others

HCCW 444/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 444 OF 2008

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BETWEEN

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Before: Hon Barma J in Court

Dates of Hearing: 12-16, 19-23 July and 27 August 2010

Date of Judgment: 30 March 2012

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J U D G M E N T

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1.By these proceedings, the Petitioner, Mr Bill Chan Chun Ming, seeks the winding up of the 1^st Respondent, Billion Vins Collection Limited (“BVC”), on the just and equitable ground pursuant to section 177(1)(f) of the Companies Ordinance. As an alternative, he seeks an order pursuant to section 168A of the Companies Ordinance that his shares in BVC should be purchased by the 2^nd and/or 3^rd Respondents, Mr Chan Ying Kwai and Mr Lee Man Tong. In their affirmations and at trial, the Petitioner, 2^nd and 3^rd Respondents were referred to by their English first names, and I shall likewise refer to them as Bill, Charlie and Thomas respectively.

2.BVC was incorporated in Hong Kong on 10 August 2006.  On incorporation, it had an authorised and issued share capital of HK$600,000.00, divided into 600,000 shares of HK$1.00, with Bill, Charlie and Thomas each holding 200,000 shares.  At this point, each of Bill, Charlie and Thomas was also a director of BVC.  It is common ground between the parties that BVC was set up following discussions between them concerning the setting up of a business dealing in the import and sale of French red wines in Hong Kong and China.

3.The background to the formation of BVC, which is not the subject of dispute, can be summarised as follows:-

(1)  Bill had, since leaving his last employment in about 2004, engaged in various business ventures, one of which involved the import and sale of French red wines in Hong Kong and China.  By about early to mid-2006, he had been involved in this business for over a year.

(2)  In the course of developing this business, he had gained some experience in the importation and sale of wines into China.  He had interests in a number of companies that were involved with this business.  He was a shareholder in a company called Billion Far East Limited (“BFE”), which had an interest in a company in Zhuhai called Zhuhai Doumen Billion Trading Limited (“Zhuhai Billion”).  BFE also had a subsidiary in Zhuhai called Zhuhai City Billion New Style Material Technology Company Limited (“ZHB Materials”).  ZHB itself had a subsidiary in Zhuhai known as Yick Lang Tat Trading Company Limited (“YLT”). BFE, ZHB and YLT were all involved in the sale of wine in the Zhuhai area.

(3)  Apart from these companies, Bill was also (together with his wife) the beneficial owner of a Hong Kong company called Billion Group (Far East) Holdings Limited (“Billion Group”).

(4)  Bill had also developed business relationships with a company in Zhuhai called Zhuhai Zhan Yong Development Company Limited (“Zhan Yong”), which was licensed to import wines into China, and with a Hong Kong company called Wain Link Enterprise Limited (“Wain Link”) a wine supplier which had contacts with a number of French wine producers, and which acted as a dealer or middleman between such producers and importers based in Hong Kong and China.

(5)  In about mid 2006, Bill, Charlie and Thomas discussed the possibility of setting up a business venture involving the development of a market for the direct sale to the public, in both Hong Kong and China, of French red wines. The venture would involve the opening of stores at which wines brought in by the business would be displayed, made available for consumption, and sold. Bill and Charlie had been friends for over 20 years, while Bill and Thomas had been ex-colleagues, and had known each other for about 7 or 8 years.

(6)  BVC was the company that they incorporated with a view to carrying on their venture.  At this stage, neither Charlie nor Thomas had had any experience in the wine business, although Bill had, from his dealings in wine over the past year or two.

(7)  It was agreed between them that each would contribute an equal amount by way of capital for BVC, and that each would have equal rights to participate in BVC’s management.  There was also to be a division of labour between them, with Bill being responsible for sourcing and importation of wine, Charlie being responsible for the operation of the wholesale and retail business on the Mainland, and Thomas (who was, unlike Bill and Charlie, in full time employment) being responsible for dealing with systems and information technology.

4.Having regard to the personal relationship between the three shareholders, and the understanding that all should be involved in the management of BVC, the parties agreed that BVC was in the nature of a quasi-partnership, and that they reposed mutual trust and confidence in each other in relation to the running of the company.  In fact, the affairs of the company were thereafter run in a relatively informal way, with few, if any, formal board meetings – instead, the shareholders would meet from time to time to discuss the development of BVC’s business.

5.I deal in the next section with the factual background to the disputes which have arisen.  In doing so, I shall identify the main areas of dispute between the parties, and these will be dealt with later in this judgment so far as necessary.

6.After its incorporation, BVC acquired a subsidiary in China which has been referred to as BVC Shenzhen.  BVC Shenzhen took a lease on shop premises at Xi Xiang, in the Bao An district of Shenzhen, which was to be the outlet for direct sales of red wine.  Consistently with the intention that Charlie should be responsible for operations relating to wholesale and retail business on the Mainland, Charlie was appointed as the legal representative of BVC Shenzhen.

7.In order to operate its business in Shenzhen, it would be necessary for BVC and/or BVC Shenzhen to obtain a number of government approvals and licences, which would take some time to obtain.  The precise amount of time required to do so was uncertain.  According to Charlie, BVC Shenzhen received approval for its name on about 15 March 2007.  It also obtained a Certificate of Approval, valid for 30 years, on 5 July 2007, an approval permit for liquor wholesalers on 13 August 2007, and its tax registration certificate on about 3 November 2007.

8.In the meantime, however, Bill, Charlie and Thomas decided that notwithstanding that the requisite approvals and licences had not yet been obtained, BVC and BVC Shenzhen should make a start on its operations.  It was this decision that gave rise to the problems which arose between them, and which led ultimately to these proceedings being brought.

9.According to Bill, it was agreed between himself, Charlie and Thomas, in or about August 2006 when BVC was incorporated, that BVC would commence its business in China without waiting for the necessary licences and approvals to be issued, and that it would do so by making use of Bill’s connections in the wine trade in Hong Kong and China.  The manner in which this business would be operated would involve BVC placing orders for wine with Wain Link through Billion Group, and for the wines to be shipped to China, where Zhan Yong would act as the importer and Zhuhai Billion as the wholesaler or sole agent.  The involvement of the latter two companies was necessary because Zhan Yong had the necessary import licence, and Zhuhai Billion had the required wholesale liquor licence and hygiene approval permit issued by the Chinese authorities, which BVC would not yet have obtained.  Although none of Billion Group, Zhan Yong or Zhuhai Billion would charge BVC for their services so as to make a profit, BVC would be required to reimburse these companies for any expenses incurred by them, so as to ensure that they would not be left out of pocket as a result of lending their assistance to BVC.

10.Although Charlie and Thomas do not dispute that it was agreed that BVC should make a start on its business in advance of obtaining all the necessary licences, registrations and approvals, the arrangements described by Bill are disputed by them.  They say that the understanding between them was that while Bill was responsible for selecting the wines to be ordered from Wain Link, the orders for the wines so selected were to be placed by BVC itself (and not Billion Group), with BVC itself paying any deposits that might be required under such orders.  Although Zhan Yong would act as importer to arrange for the wines to be imported into China, the wines would thereafter be transferred to BVC directly (i.e., without the involvement of Zhuhai Billion as wholesaler). Charlie and Thomas say that as far as making a start on BVC’s business prior to completion of all necessary formalities in terms of licences, registrations and approvals are concerned, there was a practice among businessmen in the PRC that upon obtaining approval for the name of the company, the business could be “test run” (or, in effect, operated on a provisional basis) pending the outcome of the applications for such licences, registrations and approvals as might be required.

11.This difference lies at the heart of the dispute in these proceedings.

12.In furtherance of their plans to make a head start on BVC’s business in China, BVC entered into a cooperation agreement with Wain Link on 17 October 2006, under which BVC would place orders for wine with Wain Link.  This agreement was in almost identical terms to an agreement which Billion Group had earlier entered into with Wain Link.

13.On 10 November 2006, a purchase order was placed with Wain Link for a variety of red wines to be imported from France (“the First Purchase Order”). The purchase order was on a form that was headed with the name of Billion Group.  However, it was signed by both Bill and Charlie, above whose signatures appeared the names of both Billion Group and BVC.  The order number was stated as “PO-WLK-BVC-9001”.  The value of the order was HK$386,164.80, and a cheque for HK$193,082.40 was provided by BVC to Wain Link on 13 November 2006 in respect of the 50% deposit that was payable on the placing of the order.  Although the First Purchase Order provided that shipping documents in respect of the shipment of wine were to be made out to order, the notify party was stated to be Zhuhai Billion.

14.During the course of November 2006, back labels were designed for the wines forming part of the First Order.  These were to be affixed to the bottles prior to shipment.  The back labels stated that the importer of the wine was Zhan Yong, and that the wholesaler was Zhuhai Billion.  The way in which the back labels were designed was the subject of controversy, in particular as to the role that Charlie played in the process, and whether or not he was aware of the information concerning the identity of the importer and wholesaler contained in the back labels.

15.In mid-December 2006, a second cheque, also for HK$193,082.40, was issued by BVC in respect of the First Order.  The cheque was dated 18 December 2006, and was signed by both Bill and Charlie.  Unlike the first cheque, which was made payable to Wain Link, the second cheque was made payable to Billion Group.  The circumstances in which the second cheque came to be signed is also the subject of dispute, and the fact that it was payable to Billion Group (which paid the cheque into its account shortly afterwards) forms the basis of the principal complaint by Charlie and Thomas – that Bill has been guilty of misappropriating BVC’s funds for his own purposes.

16.A little earlier, on 5 December 2006, a second purchase order for wines was placed with Wain Link (“the Second Purchase Order).  The order number was stated as “PO-WLK-BVC-9002”.  The value of the wines ordered was HK$219,000.00.  Like the First Purchase Order, this purchase order was on a form that was headed with the name of Billion Group.  Unlike the First Purchase Order, however, the Second Purchase Order was signed only by Bill, and the only company whose name appeared above his signature was Billion Group.  A sum of HK$109,500.00, representing the 50% deposit payable in respect of the Second Purchase Order, was paid by Billion Group (using its own funds) to Wain Link on 8 December 2006.  Again, the shipping documents were to be made out to order, but this time, the notify party was to be Zhan Yong instead of Zhuhai Billion.

17.Although at one point it appeared that Charlie and Thomas were suggesting that they were unaware of the Second Purchase Order, in the course of Charlie’s evidence at trial it was made clear that they had in fact agreed to the placing of the order, but were (they say) unaware that the order was in fact placed by Billion Group and not BVC itself.

18.Having caused Billion Group to pay HK$109,500.00 to Wain Link in respect of the Second Purchase Order which he said had been placed on behalf of BVC, Bill paid a further HK$90,500.00 to BVC on 16 December 2006.  According to Bill, these two payments represented his payment of capital for his 200,000 shares in BVC.  By this time, Charlie and Thomas had also fully paid their capital contributions of HK$200,000.00 each to BVC for their shareholdings.

19.It is relevant at this point also to mention a document that was sent by Bill to Thomas and Charlie on about 14 December 2006.  On that date, Bill e-mailed to Thomas a document describing BVC and its proposed business model, asking him to convert the information into a powerpoint presentation for possible future use.  The e-mail was also copied to Charlie.  Charlie and Thomas say that they did not actually look at the document at the time.  The document has been referred to as the “internal operation plan” or “company profile”.  It purported to describe the way in which the intended business was being, and would be, carried out.  It suggested that BVC would be part of a wider group of companies carrying on the business of importing and dealing in red wines in China and Hong Kong.  It also described the first two orders that had been placed by BVC, and stated that Zhan Yong would act as the importer, and Zhuhai Billion as the wholesaler.

20.Thereafter in January 2007, before the wines under the First Purchase Order reached China, Billion Group entered into a Sale and Purchase Agreement, and a Supplemental Agreement, with Zhan Yong in respect of the same wines.  The Supplemental Agreement provided that the amount of the purchase price under the Sale and Purchase Agreement would in fact first be paid by Billion Group to Zhan Yong, which would then remit the amount back to Billion Group.  According to Bill, this was to enable Zhan Yong to arrange for the import of the wines into China.

21.Also in January 2007, BVC Shenzhen set up its shop in Xi Xiang, and BVC entered into a lease agreement with ZHB Materials in respect of warehouse premises in Zhu Hai’s Doumen district.  Charlie says that this was to be the warehouse facility for wines to be imported by BVC, whereas Bill says that the lease was entered into for the purposes of facilitating BVC and BVC Shenzhen’s obtaining of the necessary registrations, approvals and licenses to enable them to commence full operations, and was not intended in fact to be used.  Having done this, Shenzhen BVC appears to have commenced operations in a small way, acquiring some wines from Zhuhai Billion, which it resold to a customer at a profit.

22.On 13 January 2007, BVC entered into a Cooperation Agreement with a Madam Wang Jing, under which a company to be called Wuhan BVC (which was then in the process of being incorporated) was to become a franchised distributor of red wines to be imported by BVC.  The agreement was signed by Charlie on behalf of BVC.

23.Next, in early February 2007, BVC wrote to Mr Yau of Wain Link, inviting him to consider becoming a shareholder in BVC.  Enclosed with the letter was a document which described BVC and its proposed business, its current status, and the way in which it was to operate.  This document indicated that at that stage, assistance was being obtained from Zhuhai Billion in connection with the importation of red wine into China.  It also asked Mr Yau to give serious consideration to whether or not it might be possible to reduce the prices at which Wain Link was supplying wines to BVC, as the prices were thought to be high, and at a level at which it would be difficult for BVC to operate profitably.  The letter also provided a summary of BVC’s financial position, which suggested that its expenses to date had exceeded its capital, although it was said that the wines it had ordered would be worth enough that BVC would be able to realise them at a profit, and thereby balance its books.

24.On 8 February 2007, Thomas transferred his shares in BVC to Charlie, and resigned as a director of BVC.  However, at the same time, Charlie executed a declaration of trust in favour of Thomas in respect of the shares that had been transferred.  The result of this transfer was that Bill and Charlie became the only remaining directors and shareholders of BVC, with Bill holding one-third of its issued shares, while Charlie held two-thirds.  It appears, however, that Thomas continued to take part in discussions concerning BVC, particularly when the disputes between the parties arose in about June 2007.

25.In about April 2007, the wines that were the subject of the First Purchase Order arrived in China.  According to Bill, Zhan Yong, as the importer, arranged for the wines to be cleared through customs, paying the relevant import duties.  The wines were then sent to a warehouse used by Zhuhai Billion (which was in fact owned by YLT) for storage.  From the warehouse, part of the wine was distributed to various parties – BVC Shenzhen, Zhan Yong, Billion Group and Zhuhai Billion, after which the remaining wine was retained in the YLT warehouse.  The wines distributed to BVC Shenzhen were delivered to Charlie, who was able to obtain them by signing an acknowledgment of receipt addressed to Zhuhai Billion.

26.At about the same time, the Second Purchase Order was cancelled.  The reasons for this are also the subject of dispute between the parties.  Bill says that the cancellation was due to Wain Link’s refusal to accommodate a request for a downward price adjustment in respect of the wines under this order.  Charlie and Thomas, however, suggest that the cancellation was prompted by Wain Link, when Mr Yau of Wain Link became concerned that BVC might not have sufficient funds to pay for the balance of the price due in respect of the First Purchase Order.  In the event, the Second Purchase Order was cancelled, and the deposit of HK$109,500.00 paid under it was credited to the balance due under the First Purchase Order of HK$193,082.40.  Thereafter, the remaining balance of HK$83,582.40 payable in respect of the First Purchase Order was paid to Wain Link by Billion Group.

27.The result of this was that Billion Group, having received the whole of the amount necessary to pay for the balance of the First Purchase Order from BVC in mid-December 2006, had only in fact had to pay out a smaller amount, thereby retaining in its own possession HK$109,500.00 out of the HK$193,082.40 which it had received earlier, for which it would have to account to BVC.  That Billion Group (or Bill) is obliged to account to BVC for this amount is not (and does not appear ever to have been) disputed by Bill, although he contends that when doing so, credit should also be given for certain payments made by Billion Group on behalf of BVC, primarily in relation to import duties and other charges paid on behalf of BVC by Zhan Yong and Zhuhai Billion, which Billion Group had reimbursed to those companies on behalf of BVC.

28.Also in around mid-April 2007, Bill caused Billion Group to make a temporary loan of HK$2,000,000.00 to BVC.  This loan was made on 17 April 2007, but was repaid by BVC just a few days later, on 23 April 2007.  Bill says that the purpose of the loan was to enable BVC to show that it had substantial funds available to it, as this would assist BVC in its applications for a licence to sell liquor on the Mainland, and obtain the other permits necessary for its operation.

29.According to Bill, during May 2007, he had discussions with Charlie and Thomas as to the price at which BVC should be selling its wine, but disagreements arose as to this.

30.Between April and June 2007, Bill passed on various items of information to Charlie and Thomas.  This information had to do with how the wines brought into China under the First Purchase Order were dealt with, and also with the state of accounts between Bill and BVC.  These documents were not always entirely clear:-

(1)  On 20 April 2007, Bill sent by e-mail to Charlie and Thomas a table showing where the wines imported under the First Purchase Order had been sent.  This indicated that of the 2,167 cases (of six bottles each, amounting to 13,002 bottles of wine) imported, some 120 cases were transferred to BVC in Hong Kong, while the rest were imported into China, clearing customs, after which they were transported to three different locations – Shenzhen, Xiang Zhou and Cheng On (where the YLT warehouse was located).

(2)  Later, on about 31 May 2007, Bill sent by e-mail to Charlie and Thomas further material in the form of an excel spreadsheet consisting of several pages.  The first page recorded (at the top) similar information relating to the wines imported under the First Purchase Order.  However, while the quantity of wine said to have been transferred to BVC in Hong Kong was the same as in the earlier document, the quantities said to have been sent to the three locations in China differed from those shown in the 20 April 2007 document. Immediately below this information was a further table, indicating what the position was in respect of the wines that had been sent to the YLT warehouse in Cheng On for storage.  Below these two tables were further tables and information – the third table on the page set out a breakdown in respect of what was described as expenditure (totalling RMB 3,300.00) on making changes to labels on the wine bottles and transportation fees.  Below this was a reference to customs tax and another customs charge totalling RMB 112,967.68, and a table containing information as to the amount payable per bottle in respect of these fees and the re-labelling and transportation fees.

(3)  On about 6 June 2007, Bill forwarded an updated excel file to Charlie and Thomas.  This contained a number of pages which appear to set out information as to payments and receipts made in respect of BVC.  Although the information is again not entirely easy to follow, it would appear from what is mentioned in the section headed “Summary of Hong Kong Account”, that Bill was accepting that he in effect owed BVC some HK$172,788.00.

(4)  This amount was arrived at as follows:-

(a)  Bill owed BVC HK$109,500.00 as a result of the cancellation of the Second Purchase Order and the crediting of the deposit for that order towards the balance of the price payable to Wain Link under the First Purchase Order.  As Billion Group had received the whole of the balance due to Wain Link under the First Purchase Order (HK$193,082.40) in mid-December 2006, but had only had to pay out HK$83,582.40 because Wain Link agreed to apply the deposit for the Second Purchase Order towards that balance, it retained in its hands HK$109,500.00 which should be repaid to BVC.

(b)  Bill also owed BVC HK$40,000.00 in respect of a loan made by BVC to him in March 2007.

(c)  Bill also owed BVC HK$29,988.00 for the wines from the First Purchase Order which had been sent to Hong Kong.

(d)  However, BVC in turn owed Bill HK$6,700.00 in respect of company formation fees which Bill had paid when BVC was being set up.

(e)  The HK$172,788.00 represented the balance due after adding the amounts under sub-paragraphs (a) to (c) and deducting the amount mentioned in sub-paragraph (d).

(5)  Below the “Summary of Hong Kong account” was a section headed “Summary of Zhuhai account”.  This suggested that BVC owed “Zhuhai” various sums of money – RMB 55,040.00 in respect of wines purchased from Zhuhai Billion, RMB 121,267.68 in respect of customs taxes, customs declaration fees, labour and transportation fees and an import fee, whereas “Zhuhai” owed BVC some RMB 48,017.22 in respect of wine delivered to Zhuhai Billion out of the First Purchase Order.  This gave a net balance owing from BVC of RMB 128,290.46 (which was said to be subject to possible further adjustment).  It is apparent from the breakdown that the figures for the first three elements of the RMB 121,267.68 are the same as the items mentioned in the 20 April 2007 table which I have referred to in sub-paragraph (2) above.  These are the amounts which Bill says were paid by Billion Group on behalf of BVC, for which credit should be given against the amount he or Billion Group owed to BVC.

(6)  Later, on 15 June 2007, Bill sent to Charlie and Thomas, again by e-mail, a copy of a document prepared by Mr Yau of Wain Link, setting out Mr Yau’s calculation of the rebate payable to BVC in respect of the First Purchase Order.  The document indicates that the First Purchase Order was paid for in full, by means of the initial deposit, and a combination of two payments (of HK$109,500.00 and HK$83,582.40) to settle the balance.

31.Shortly after Bill sent the e-mail of 6 June 2007 with revised and updated information, on 10 June 2007, Charlie sent Bill an e-mail attaching an account demanding that Bill repay the HK$172,788 that Bill had acknowledged owing BVC.

32.On 25 June 2007, Bill sent a further set of calculations to Charlie and Thomas by e-mail.  These contained much the same information as was described in paragraphs 30(3)-(5) above.

33.On 29 June 2007, Bill, Charlie and Thomas met in Shenzhen.  Bill says that he had gone to the meeting with copies of accounting information which he had prepared to show the state of accounts between himself and Billion Group on the one side, and BVC on the other.  He says that while he accepted that he owed BVC the amounts set out in the documents sent to Charlie and Thomas on 6 and 25 June 2007, he had made payments to Zhan Yong and Zhuhai Billion on behalf of BVC, in respect of the customs taxes, customs declaration fees, labour and transportation fees and the import fee mentioned in those documents.  However, according to Bill, at the meeting, Charlie was very angry, and demanded to know why BVC’s cheque issued in December 2006 in respect of the balance of the First Purchase Order had been made payable to Billion Group, and not to Wain Link directly.  Bill says that, in an attempt to calm things down, he said that Charlie and Thomas could treat him as the wrongdoer, and as having used the money for Billion Group’s immediate purposes, but tried, unsuccessfully, to explain what the position was.  Charlie and Thomas dispute this, and say that Bill simply admitted that he had wrongfully caused the cheque to be made out to Billion Group and paid into its account.

34.Bill says that following this meeting, he lost confidence in Charlie, and felt that he could no longer work with Charlie and Thomas in operating BVC.  From this point onwards, he says that he sought from time to time to sort out the state of accounts between BVC and himself, but had no success in doing so.

35.It is fairly clear from the correspondence exchanged between the parties between about July 2007 and the issue of the petition in September 2008, and the other steps taken in relation to BVC, that the positions being taken by them respectively had become entrenched, with Charlie repeatedly accusing Bill of having misappropriated the HK$193,082.40 that was to be used to settle the balance due under the First Purchase Order, and insisting that BVC had no relationship with Billion Group that could have justified the cheque being made out in favour of Billion Group.

36.Thus, in a letter from his solicitors to Bill of 15 August 2007, it was asserted that Charlie was procured to sign the cheque for this amount in December 2006 without the name of the payee having been filled in, as a result of an alleged misrepresentation by Bill that the cheque would be made payable to Wain Link, that Wain Link had not been paid, and that BVC had suffered loss as a result.

37.Later, on 13 October 2007, Charlie e-mailed Bill to deny that Billion Group and BVC had any relationship that would have justified making the cheque out in favour of Billion Group.  And on 15 October 2007, Charlie wrote to Bill accusing him of misappropriating the cheque, and to demand that Bill hand over all of BVC’s company books and seal, its accounting records which were in his possession, and return the remaining stock of wine from the First Purchase Order that was still in Zhuhai Billion’s warehouse.  Charlie also informed Bill that he (Charlie) had, as the majority shareholder of BVC, relieved Bill of his directorship and other responsibilities in relation to BVC, this having been done at a meeting held on 4 September 2007 (at which Bill was not present).

38.Through his solicitors, by a letter dated 27 November 2007, Bill denied the allegations, and stated that he had no objection to Charlie obtaining the red wine that was still stored at Zhuhai Billion’s warehouse, as long as Charlie signed the necessary documents to acknowledge receipt for them.

39.Thereafter, there was continued correspondence between Bill and Charlie, and their respective solicitors in which they reiterated their positions in relation to the relationship (or lack of one) between Billion Group and BVC, and as to whether or not Bill had been guilty of misrepresentation and misappropriation of BVC’s funds in connection with the payment of the balance of the price for the First Purchase Order to Billion Group in December 2006.

40.A further complication which arose as between Bill and Charlie related to the stock of wine that was still stored in Zhuhai Billion’s warehouse. Charlie initially adhered to his position that the involvement of Zhuhai Billion was something that Bill had arranged without the agreement of Charlie and Thomas, and demanded that Bill procure the return of these stocks of wine to BVC at his own expense.  For his part, Bill insisted that Charlie should arrange to take delivery of them from Zhuhai Billion’s warehouse.  Eventually, Charlie agreed to do so.  But when Charlie and Thomas went to the Zhuhai Billion warehouse on around 22 January 2008 to take delivery of the wines, Bill insisted that instead of signing a simple acknowledgment of receipt (like the one which had been attached to his solicitors’ letter of 27 November 2007), BVC should sign a document that was in the form of a sale and purchase agreement in respect of the wines, by which Zhuhai Billion purportedly sold the wines to BVC.  Charlie and Thomas refused to do so, on the basis that the wines were BVC’s property, and the sale and purchase agreement purported to call for payment of the price ascribed to the wines within 30 days.

41.In subsequent correspondence, Bill said that whereas in the past, it had been possible to deal with the delivery of wine from Zhuhai Billion to BVC on a somewhat informal basis, given the deterioration in the relationship, and Charlie’s insistence that Zhuhai Billion should not have been involved in the importation process as the wholesaler, it would now be necessary to ensure that Zhuhai Billion was not disadvantaged by having assisted in the importation of the wines, and to protect its interests, the transfer should take place on the basis of a sale, with the question of payment for customs taxes and other expenses being dealt with through a process of reconciliation of accounts.  In addition to stating this in an undated memo sent by himself to Charlie sometime after 31 January 2008, a similar explanation was put forward by Bill’s solicitors in a letter dated 4 February 2008.  Charlie was not prepared to accept this, and matters remained at an impasse, with the wines remaining in Zhuhai Billion’s warehouse, where they are still stored.

42.One other aspect of the relationship between Bill on the one hand, and Charlie and Thomas on the other, that should also be noted relates to attempts made by Charlie to remove Bill as a director of BVC.  As noted in paragraph 37 above, Charlie had on 4 September 2007 purported to relieve Bill of his duties as a director, on the grounds of Bill’s alleged misappropriation of the funds for the balance due in respect of the First Purchase Order.  This attempt was ineffective, as no proper notice would appear to have been given of any meeting at which such a resolution was to be proposed, and nor would there appear to have been any quorum for such a meeting in Bill’s absence.

43.Thereafter, on 25 December 2007, Charlie purported to give notice of a shareholder’s meeting of BVC to be held on 2 January 2008 to deal with a proposed increase in capital, by which the shareholders would be asked to inject a further HK$150,000.00 into BVC so that BVC could demonstrate to the Mainland authorities the sufficiency of its capital.  By his solicitors’ letter of 28 December 2007, Bill made it clear that he would not attend the meeting. Nonetheless, Charlie and Thomas went ahead with the meeting, with Thomas apparently attending as a beneficial shareholder (in respect of the shares held on trust for him by Charlie).  According to minutes of the meeting produced by Charlie, Bill’s alleged misappropriation of HK$193,082.40 was recorded, and it was resolved that Bill should be removed as a director of BVC with immediate effect.  It was also resolved, among other things, that each shareholder should contribute HK$50,000.00 towards BVC’s capital, failing which their shareholding would be diluted.  Neither of these resolutions (or any others purportedly passed at the meeting) were in fact effective, as the meeting was inquorate, Charlie being the only registered shareholder present, and it being necessary for two shareholders to be present to form a quorum.  Further, the resolution for Bill’s removal as a director would have been ineffective in any event, as no notice of it had been given prior to the meeting, whereas special notice of such a resolution was required pursuant to section 157B(1A) of the Companies Ordinance.

44.On 3 June 2008, Bill resigned as a director of BVC.  He says that he did so in order to avoid the risk of any liability accruing to him in respect of the way in which BVC might carry on its business in China, over which he had no control.

45.Notwithstanding this, by a notice dated 24 June 2008, Charlie sought to convene a further meeting of BVC’s shareholders to be held on 15 July 2008, at which it was to be proposed that Bill should be relieved of his duties as a director, and at which BVC’s audited accounts would be distributed, which Bill would be asked to reconcile.  The meeting was again held in Bill’s absence (and would therefore again appear to have been inquorate).  The minutes indicate that it was decided to withhold provision of the audited accounts to Bill unless he explained his absence from the meeting. It also appears to have been decided to make use of a debt collection agency to pursue Bill for the HK$193,082.40 allegedly misappropriated by him.  The minutes also record BVC’s (or Charlie’s) position in relation to the wine still stored in Zhuhai – namely, that Bill had unreasonably refused to allow the wine to be delivered to BVC unless BVC entered into a sale and purchase agreement in respect of it.

46.On 21 August 2008, Bill’s solicitors wrote to point out that copies of the audited accounts should have been circulated to shareholders prior to the holding of the meeting, and demanded that a copy be provided to Bill. Eventually, after some delay, the accounts were supplied to Bill by BVC’s auditors in October 2008, a few weeks after the presentation of the petition.

47.During the course of 2008, prior to the presentation of the petition, there were from time to time offers by Bill and Charlie to resolve the disputes between them, none of which bore fruit.  In the event, Bill presented the petition in these proceedings on 22 September 2008.

48.By the petition, Bill seeks an order for the winding up of BVC under section 177(1)(f) of the Companies Ordinance on the basis that BVC is a quasi partnership company, formed on the basis of a relationship of trust and confidence between its shareholders, which has broken down completely, such that BVC was now in a state of deadlock (as Bill and Charlie were the only two directors and shareholders, and could not agree on anything).  At the trial, Ms Sheena Chan, appearing for Bill, submitted that it was clear beyond argument that this was the case.  For Charlie and Thomas, Mr Alvin Tsang did not dispute that BVC was a quasi partnership, or that the trust and confidence between the shareholders had broken down and that a deadlock existed.  However, he submitted that notwithstanding that this would ordinarily provide a basis for winding up the company, a winding up order should be refused in this case because the breakdown in the relationship had been caused by Bill’s misconduct, and that Bill had not come to court with clean hands.

49.As an alternative to winding up, Bill asks for an order that Charlie and Thomas buy out his shares in BVC at a fair value, pursuant to section 168A of the Companies Ordinance.  Bill says that BVC’s affairs have been conducted in a manner unfairly prejudicial to him, in that:-

(1)  Charlie and Thomas have made false accusations against him in relation to the allegations of misappropriation of the proceeds of the cheque issued in December 2006;

(2)  They have denied the arrangements which had been agreed in relation to enabling BVC to make a head start on its business prior to the completion of all the necessary formalities, causing a deadlock in relation to the disposal of the wines still in storage in Zhuhai Billion’s warehouse;

(3)  They have denied Bill access to BVC’s books and accounts;

(4)  They have excluded Bill from participation in the affairs of BVC and had attempted repeatedly to remove him as a director.

50.In answer to the buy-out claim, Charlie and Thomas deny that there has been any unfairly prejudicial conduct on their part.  They say that the agreement as to jump-starting BVC’s business was not as described by Bill, in that it did not involve the assistance of either Billion Group or Zhuhai Billion, and that as a result of Bill’s misconduct in misappropriating BVC’s funds in December 2006, it was justified for them to seek to exclude him from further involvement in BVC’s business after they learnt of it.

51.The evidence in these proceedings consisted principally of a number of affirmations made by Bill, Charlie and Thomas respectively, on which each were cross-examined at the trial.  Evidence was also given on Charlie and Thomas’ behalf by Mr Yau of Wain Link, by affirmation on which he was cross-examined at the trial.  There had also been a direction for expert evidence as to PRC law to be admitted on the question of the relevant laws and procedures relating to the importation and sale of wine on the Mainland.  However, expert evidence in relation to this (from a Ms Liu Xiaojing) was only tendered by Bill, and Mr Tsang indicated that it would not be necessary for the expert witness to attend for cross‑examination.  This evidence was therefore admitted without challenge.

52.The parties were able to agree on a list of issues arising in these proceedings on the basis of the evidence that had been filed.  The list was extensive, extending to 21 issues in relation to the factual disputes between the parties, and a further 6 issues in relation to PRC law and regulations.

53.However, Ms Chan and Mr Tsang were agreed that there was in fact one central issue that divided the parties, this being as to whether the understanding or agreement as to the method of operation during the period before BVC had obtained all the necessary registrations, approvals and licences was as described by Bill – in particular, whether it included the participation of Billion Group and Zhuhai Billion.  Many of the individual factual issues identified went to matters which would throw light on this central issue.  A further issue of importance is whether or not Bill was, as Charlie and Thomas say, guilty of having misappropriated BVC’s funds by having the cheque for payment of the balance of the First Purchase Order made out to Billion Group, and paying it into Billion Group’s bank account where it remained for some time before part of that amount was used to settle the balance due to Wain Link under the First Purchase Order.  I shall therefore focus first on these critical issues, and thereafter address the other issues briefly.

54.As the expert evidence on PRC laws and regulations put forward by Bill was admitted without challenge (subject to an alternative view of matters that was put forward by Charlie when being cross‑examined by Ms Chan, which I will discuss when considering that evidence in the context of the main factual issue identified above), the issues as to PRC law can be briefly dealt with, in accordance with that evidence.  It may be summarised as follows:-

(1)    Any company operating in China in the wine trade must comply with the applicable tax regulations.  In broad terms three types of taxes are levied on imported wine – a customs tax, a value added tax and a consumer tax.

(2)    All companies operating a business in China are required to obtain a tax registration certificate, as a condition of their lawful operation.

(3)    It is necessary for a value added tax invoice to be issued on any sale of goods, at the time of the sale.

(4)    Dealers in wine are required to keep records of the flow (or movement) of the imported products, and it would generally be prudent and desirable for sale and purchase contracts or similar documentation to be produced and retained in case the Chinese tax authorities seek to verify the transactions undertaken and tax reported.

55.Turning then to the main issue in controversy, the difference between the parties focuses on whether or not it was necessary or appropriate to involve Zhuhai Billion and Billion Group in the process of acquiring and importing wines into China for eventual sale by BVC.

56.The starting point in considering this issue is that when BVC was set up, of the three shareholders, only Bill had had any previous experience of the wine trade in China.  He had such experience from his involvement and interests in Billion Group and Zhuhai Billion, and his dealings with Zhan Yong.  Bill says that he had made this known to Charlie and Thomas, and although Charlie and Thomas said in their evidence that they were not very aware of Bill’s other business interests, having regard to the fact that Bill was to be responsible for the selection and importation of the wines to be sold in China, I am satisfied that in order to persuade them to participate in the venture that was to become BVC, Bill would have told them about his previous experience and what he had done previously.  I therefore accept Bill’s evidence on this point.

57.By contrast, Charlie and Thomas had no such experience at that time. This was acknowledged by both of them.

58.The parties were all aware that there were a number of administrative, tax and registration requirements that would have to be dealt with before their business could be properly and lawfully operated.  In addition to the matters mentioned under paragraph 54 above, it was also necessary for appropriate licences to be obtained, such as an import licence in the case of an importer, and a wholesale licence in the case of a wholesaler.  When the first steps were taken to set up BVC’s business on the mainland, it had none of the necessary registrations, approvals or licences.  It was common ground that it was not known exactly how long it would take to obtain these, but that it could take some time for all the requisite formalities to be complied with.  In fact, as we have seen, although initial steps were taken from about November 2006 onwards, Shenzhen BVC only had its name approved or registered in March 2007, and it was not until later in the year that other licences and approvals were obtained – the last being its tax registration in early November 2007.

59.This was, no doubt, why Bill was given the responsibility for making arrangements for the purchase and importation into China of the wines that BVC was to deal with.  As the shareholders wished to waste no time, and to jump start the business, it was left to Bill to make the necessary arrangements to enable them to do so without infringing Chinese laws and regulations.  It seems to me overwhelmingly likely that Bill would, as he says he did, have explained to Charlie and Thomas that he would do so by making use of his connections from his own prior ventures.  Although Bill was not able to produce some particular document or other record evidencing this, this is not surprising, having regard to the informal way in which the parties dealt with each other in relation to BVC.

60.In particular, it would be natural for Bill to have gone about dealing with BVC’s business in much the same way, using the same structures as he had previously done, as this would have been the process with which he was familiar.  While I think it likely that this would have been made clear by him to Charlie and Thomas, even if it was not, it seems to me that Charlie and Thomas clearly agreed to leave this side of things to Bill, an arrangement with would authorise him (expressly or by implication) to make such arrangements as he thought best in relation to ordering and importing wine for BVC’s nascent business.

61.It is not at all surprising that Bill should have arranged for the importation of wines for BVC to be dealt with in the same way as he had previously operated – by using Zhan Yong as the importer, and Zhuhai Billion as the wholesaler, as each of those companies had the relevant licence, and he had an existing relationship with them.  In any event, this was, after all, a temporary arrangement, to be used only until BVC’s own position was put on a proper legal footing in the Mainland.

62.Significantly, the use of Zhan Yong as importer, and Zhuhai Billion as wholesaler was not something that Bill sought to keep from either Charlie or Thomas.  There were several occasions on which there were references to these companies acting in those respective capacities.

63.At the outset, the back labels to be affixed to the wines, which were prepared in November 2006, stated that Zhan Yong was the importer of such wines, and Zhuhai Billion the wholesaler.  Although the text for the back labels was prepared by Bill, and the labels were designed by Mr Yau, soft copies of the back labels were e-mailed to Charlie with a request that he improve them by making them larger.  There are some differences in the evidence of Bill and Charlie in relation to this aspect of the matter – Charlie says that he could not make out the wording on the images sent to him, whereas Bill says that Charlie should have been able to manipulate the images so as to be able to read the labels, from which he would have seen what was said as to the identity of the importer and wholesaler in respect of the wines to be brought in under the First Purchase Order.  Also, Bill says that the back labels were discussed at a meeting bet ween himself, Charlie and Mr Yau in mid-November 2006, whereas Charlie says that no such meeting took place.  Mr Yau, when asked about this, did not recollect the meeting, although he did not go so far as to say that there had been none.  However, it seems to me that, even if Charlie was, as he says, in fact unaware of the actual contents of the back labels, the fact remains that Bill had sent him material which revealed the identity of the importer and wholesaler.  This indicates, to my mind, that Bill saw nothing wrong with the mode of operation which he had in mind, something which is consistent with the agreement for which he contends.

64.Similarly, Bill’s e-mail to Thomas (which was copied to Charlie) enclosing the “internal operation plan” which he wanted Thomas to convert into an attractive powerpoint presentation is also illustrative of the fact that Bill was open about the identity of the importer and wholesaler in respect of the first batch of wines to be shipped to China.  Ms Chan submitted that this document evidenced the agreement which had been reached.  Mr Tsang contended that the document, on its terms did not in fact sit well with the agreement put forward by Bill (or indeed by either side) as it was couched in terms not of a temporary arrangement, which was what both sides contended for, but a more permanent or long-term business model.  I think that, in this respect, Mr Tsang is right, and that the document itself cannot be regarded as a record of the agreement.  However, as I have noted, the contents of the document do include reference to the roles to be played by both Zhan Yong and Zhuhai Billion in respect of the first shipment of wines, and notwithstanding that both Thomas and Charlie say that they did not actually look at the document, it is, like the back labels, supportive of Bill’s case in that it demonstrates that he did not consider that there was any impediment to his making use of his connections with these companies in connection with the first shipment.

65.A similar point can be made in respect of the document sent to Mr Yau in February 2007 soliciting his interest in investing in BVC.  That document described the position of BVC as at that point, and clearly stated that in respect of the first shipment of wines, Zhan Yong would act as importer and Zhuhai Billion as wholesaler.  This document was seen by Charlie before it was sent, apparently without his voicing any objection to its contents.  Again, whether or not Charlie actually focused on this aspect of the matter, the document is similarly supportive of Bill’s case.

66.More fundamentally, given the evidence as to the many formalities which required to be dealt with before BVC could itself operate its business on the Mainland, it is difficult to see how it could have jump started its business as it intended to do, without enlisting the aid of some party or parties on the Mainland to act as importer, and as wholesaler.  Mr Tsang submitted that even if that were so, there must have been other companies that could have fulfilled the role of wholesaler, rather than Zhuhai Billion.  But this submission does not assist the Respondents, as no other candidate for this role was suggested by them.  Given Bill’s prior relationship with Zhan Yong and Zhuhai Billion, it is not surprising that he should have looked to these companies for assistance in this respect.  The only cause for complaint would have been if either of the companies assisting in the process of importation and wholesale had been profiting from their role – in which case, the question of a conflict of interest on Bill’s part would have arisen.  However, Bill’s position throughout has been that the companies in question were prepared to lend their assistance to the scheme to jump start BVC’s business, without seeking any remuneration for doing so, because of their relationship with him, and there is no evidence to suggest that they ever sought to profit from the services that they rendered to BVC.

67.In his oral evidence, Charlie suggested for the first time that it was not in fact necessary for BVC Shenzhen to have obtained its tax registration (which did not happen until November 2007, well after the breakdown in the relationship) before it could start doing business.  He claimed that it was possible, after the company’s name had been approved (in March 2007), for it to start to test run its business in accordance with the practice of businessmen on the Mainland.  He said that the fact that the company had no tax registration was not a problem, because it was possible to issue tax invoices without such a registration by purchasing the necessary invoices from the tax authorities.  I reject this evidence, for which there is no support by way of expert evidence.  Not only was there no expert evidence adduced by the Respondents to speak to this supposed practice, which contradicted the unchallenged evidence of the Plaintiff’s expert, the matter was never mentioned by Charlie in any of the affirmations that he had filed in the proceedings. Further, when pressed on the matter, Charlie admitted that he had only become aware of this alleged practice about a year or so later, as the result of his experience acquired after BVC began operations.  It therefore is of no assistance in seeking to ascertain what agreement was reached at the time when BVC was about to start its jump-started operations, when Charlie had, on his own case, no knowledge of the relevant PRC laws and regulations.

68.The other element of the arrangements which is disputed is in relation to the role, if any, to be played by Billion Group.  Bill’s case is that the use of Billion Group to place orders on behalf of BVC was accepted by Charlie and Thomas, and was apparent from the First Purchase Order, which was a BVC order, placed by Billion Group on its behalf.  Billion Group’s involvement was evident from the fact that the First Purchase Order itself was on Billion Group’s headed form of order, which Charlie was shown before he signed it together with Bill.  Charlie claims not to have noticed the heading on the order form, or that Billion Group’s name also appeared at the foot, together with the name of BVC, above the signatures of Charlie and Bill.  However, these matters were apparent on the face of the document, and in my view, by signing the document without demur, Charlie must be taken to have had no objection to the order being placed through the auspices of Billion Group.  This does not appear to have caused any problems in terms of Wain Link’s understanding of which company had placed the order – the order number shown on the First Purchase Order was referenced with the letters BVC (and not BG), Mr Yau, when giving evidence as to the settlement of the balance payment on this order, made it clear that he regarded both the First and Second Purchase Orders as having been placed by or on behalf of BVC, and Wain Link eventually rebated part of its profits under the transaction to BVC pursuant to the terms of the Cooperation Agreement that it had entered into with BVC.

69.In these circumstances, while it is not clear whether or not it had expressly been agreed in advance that Billion Group should act as BVC’s agent for the purpose of dealing with Wain Link, given that there appears to have been no disadvantage to BVC in Billion Group’s involvement, I see nothing objectionable in Bill having dealt with things in this way, particularly as I am satisfied that Charlie and Thomas had agreed to leave all the arrangements in relation to the selection and import of the wines to him.

70.For the foregoing reasons, I am satisfied that the importation of wine into China was left by Charlie and Thomas to Bill to deal with, and that there was nothing improper in Bill having involved Billion Group, Zhan Yong and Zhuhai Billion in the process, when this did not result in any costs or other disadvantage to BVC arising.

71.Turning to the other main factual issue – the allegation of misappropriation levelled against Bill by Charlie and Thomas – the complaint is that Bill misappropriated HK$193,082.50 of BVC’s funds by causing them to be paid into Billion Group’s account in December 2006.  It is also alleged that neither Charlie nor Thomas were aware of this, as the cheque which Charlie signed was left blank as to the payee, and Bill had represented that the cheque was for settling the balance due under the First Purchase Order.  Thomas had no relevant evidence to give in relation to this matter (as with many other aspects of the relationship and dealings between the three shareholders), as he throughout took a limited part in BVC’s affairs, and left most matters to Bill and Charlie to handle.

72.Bill’s evidence is that he explained that because there was a risk that Wain Link might have to pay its suppliers in full for the wines under the First Purchase Order before shipment, it would be necessary to set aside the funds for the balance due under that order, and then prepared the cheque for his and Charlie’s signature, filling out both the payee and the amount before the cheque was signed.

73.So far as the explanation for the need for funds to be set aside is concerned, Bill produced various e-mail exchanges between himself and Mr Yau, which do indicate that the French suppliers from whom the wine was to be acquired were asking for full payment in advance of shipment.  However, the correspondence also shows that he and Mr Yau were not willing to go along with this, and were pressing for a maximum of 80% of the cost of the order to be paid in advance (as the price at which Wain Link was ordering the wines from the suppliers was substantially lower than that at which it was supplying them to BVC, the 50% deposit that BVC had already paid would be sufficient to enable Wain Link to pay its suppliers up to an 80% deposit).  Mr Yau also gave evidence that he had on about 8 December 2006 sent a signed contract to the French suppliers on the basis of an 80% deposit, and intended this to be his final offer, and that he would simply have cancelled the order if this could not be agreed.  Mr Yau says that he heard back from the French suppliers that this was acceptable, and e-mailed Bill to inform him of this.  Although the e-mail was sent shortly before Bill met Charlie and Thomas, Bill says, and I accept, that he had not seen the e-mail by the time of the meeting.  Thus, there would appear to have been reason for Bill to have wanted to keep the funds ready, in case they should really be needed.

74.Further, I accept Bill’s evidence that he made out the cheque before asking Charlie to sign it, filling in both the name of the payee and the amount.  This strikes me as being the normal way of going about things, and had the cheque been blank as to the payee, as Charlie claimed, I find it difficult to accept that Charlie would have simply agreed to sign it on Bill’s say so. There would clearly have been risks involved in doing this, and notwithstanding that the relationship between the shareholders was at time still a good one, I do not think it likely that Charlie would have been prepared to do so.

75.Moreover, no evidence was adduced to suggest that Bill, or Billion Group was actually in financially straitened circumstances at the time, such that it would have needed the funds represented by the cheque.  Had it been thought necessary, no doubt material throwing light on this could have been sought and obtained prior to the trial.

76.Further, having received the funds for the purpose of paying the balance due under the First Purchase Order, Billion Group would have been obliged to make the payment when it became necessary to do so.  This it did – although in the event not the whole of the amount paid to it had to be used, as a result of the cancellation of the Second Purchase Order.  In those circumstances, it would become necessary for Billion Group to account to BVC for the balance. But this is exactly what Bill sought to do in late May and early June 2007, when he prepared the documents attached to his e-mails of 31 May and 6 June 2007, setting out the state of accounts between himself and Billion Group on the one hand, and BVC on the other, and also as to the expenses associated with the import of the wines that had been paid by Zhan Yong and Zhuhai Billion, for which reimbursement was necessary.

77.I do not overlook, in this context, the apparent confession by Bill, at the meeting on 29 June 2007, to having used the funds of BVC for his own purposes.  But it seems to me that the terms of the so-called confession are more consistent with Bill’s case as to what happened on that occasion.  Bill suggested that he should be treated as a bad boy, and as having taken the money for his own needs at the time.  However, the suggestion that he should be treated as a bad boy does, to my mind, indicate that he was putting this forward as an assumption, with a view to moving matters forward to a resolution, rather than accepting that he was in fact guilty of any wrongdoing.  I therefore do not think that this episode is of such weight as to justify a different conclusion.

78.It is, I think, significant that Bill readily accepted that as a result of the way in which the First and Second Purchase Orders were dealt with, the position was that he owed BVC the amount retained by Billion Group out of the sum which it had received in December 2006.  This demonstrates that Bill did not consider that there was anything wrong with the way in which he had dealt with matters up to this point.

79.I am therefore satisfied that in causing the proceeds of the cheque to be paid into the account of Billion Group, Bill was not in fact guilty of any misappropriation of BVC’s funds.  The cheque was, in my view, known by Charlie to be payable to Billion Group, and signed by him on that basis.  Thereafter, when only part of the sums received were required to settle the balance of the First Purchase Order, Bill has throughout accepted the need to account for the unused portion of the funds to BVC.  In these circumstances, I do not consider that wrongdoing on his part has been established, much less wrongdoing of a nature that would disentitle him from seeking a winding up of BVC in circumstances where the relationship between himself and the other shareholders has clearly broken down beyond repair, and that the company is in consequence deadlocked.

80.It was also suggested that Bill was guilty of improper behaviour in relation to causing the wines under the First Purchase Order to be stored at warehouse premises of Zhuhai Billion (i.e. the YLT warehouse) and in failing to ensure that the wine was returned to BVC promptly after the disputes between the parties arose.

81.However, as to this, having regard to the findings which I have made in respect of the understanding or arrangements as to the importation of wine prior to BVC or BVC Shenzhen being in a position to do so, and my acceptance that it was expressly agreed (or, at the lowest, left to Bill to sort out matters relating to importation of the wine as he thought best), I do not think that there can be any real criticism as to the storage of the wine by Zhuhai Billion.

82.As to the impasse as to the handing over of the wine, while I would accept that it might be appropriate for Zhuhai Billion to document the transfer of the wine by way of a sale and purchase agreement, it would also seem reasonable for Charlie to be concerned to ensure that there was no risk that the provision of such a document would result in BVC having to pay for the wine which was clearly its property.  This could probably have been resolved had the relationship between the parties been better.  Unfortunately, it was not. However, I do not think that this matter would justify refusing the winding up relief that Bill seeks, as it was an impasse to which both sides contributed, which arose at a time well after the breakdown in the relationship between them, and was not itself causative of the breakdown.

83.I do not think that there is anything in the other factual issues identified between the parties that would call for a winding up order to be refused.  For completeness, I deal briefly with the various issues identified as follows:-

(1)    The first issue, whether the common understanding as to the means of importation of wine into China prior to BVC obtaining the necessary approvals and licences was as alleged by Bill, has already been resolved above.

(2)    The question of whether or not such an arrangement, and the involvement of Billion Group and Zhuhai Billion was necessary, has also been dealt with above.  Some such arrangement was clearly necessary, as was the involvement of Zhuhai Billion as wholesaler.  While Billion Group’s involvement might have been less critical, I am satisfied that Charlie and Thomas had accepted it.

(3)    As to whether or not Charlie and Thomas had knowledge of the “internal operation plan” and consented to it, as I have explained, while it is not clear whether they actually read the document, and there are aspects of it that are not consistent with the temporary nature of the arrangements to jump start BVC’s business, it does refer to the roles of Zhan Yong and Zhuhai Billion in respect of the First Purchase Order, and as such, I regard its significance as being something that shows that Bill was quite open about the use of those companies, and that their use was consistent with there being an express agreement to the mode of operation, or at least an agreement that this should be left to Bill to arrange as he thought best.

(4)    Whether the back labels on the wine that was the subject of the First Purchase Order support the existence of the arrangement has already been dealt with.  For the reasons that I have given, I consider that the position in relation to this is similar to that in respect of the previous issue.

(5)    As to whether or not the Chinese sales and purchase agreement and supplemental agreement between Billion Group and Zhan Yong was something that Charlie and Thomas agreed to does not seem to me to be a critical issue.  I would accept that it was entered into by Bill as part of the arrangements he considered to be necessary for arranging for the wine to be imported into China, and as such, something that fell within the scope of his authority to arrange, whether or not it was known to or approved by the other shareholders.

(6)    As to whether or not Charlie and Thomas knew of and agreed to the First Purchase Order being placed by Billion Group, in addition to BVC, it seems to me that this issue would be better framed by asking whether or not they were aware of and agreed to Billion Group placing and handling the order on behalf of BVC.  For the reasons discussed in paragraphs 68 to 70 above, I consider that this too, was a matter that was within the scope of Bill’s authority to decide upon.

(7)    As to whether Charlie and Thomas knew that the cheque for the balance of the First Purchase Order was to be payable to Billion Group, as I have found that the identity of the payee was in fact stated on the cheque when it was signed, this question is to be answered in the affirmative.

(8)    As to whether or not, by making that cheque out to Billion Group and paying it into that company’s account, Bill was guilty of a misappropriation of BVC’s funds, it will be apparent from what I have said about this issue above that I am satisfied that he was not.

(9)    As to whether BVC had consented to Billion Group placing the Second Purchase Order on its behalf, and the reasons for its eventual cancellation, I do not think that this is a critical issue, since it does no more than form the background to why Billion Group at the end of the day still had in its possession funds of BVC for which it had undoubtedly to account for to BVC.  Nonetheless, it seems to me that the use of Billion Group to place the order on behalf of BVC was within the scope of what Bill was authorised to do, and it was clear from the reference used for the Second Purchase Order that it was an order placed on behalf of BVC (the reference number containing the initials of BVC, but no reference to Billion Group).  Further, Mr Yau’s evidence was that he regarded the purchase order as having been placed on behalf of BVC, as this was the reason why he suggested using the deposit in respect of it to partially settle the balance due on the First Purchase Order, which he also regarded as having been placed on behalf of BVC.  As to the reasons for the cancellation of the Second Purchase Order, it is to be noted that the invitation extended to Mr Yau to invest in BVC in February 2007 referred to BVC’s somewhat tight financial position, and sought a reduction in price in relation to the Second Purchase Order.  I am therefore inclined to think that Bill did seek a price reduction in relation to this order, while Mr Yau was concerned about BVC’s ability to pay for both orders, and that it was a combination of these factors that led to the agreement to cancel the Second Purchase Order and apply the deposit paid towards the balance due on the First Purchase Order.  Nonetheless, as I have said, this does not, I think, impact on the key question that requires determination – whether or not Bill was guilty of such conduct as to disentitle him from relief – since I am satisfied that Bill was concerned to straighten out the accounting position between himself and BVC, and was not guilty of any misappropriation or other wrongdoing.

(10)  As to whether or not Bill took some of the wine under the First Purchase Order without authorisation – it seems to me that this is a minor issue, which can and should be resolved through the settling of the mutual accounts between him and BVC.  It is quite clear from the account provided by Bill with his e-mails of 31 May and 6 June 2007 that he acknowledged his liability to pay for such wine.  That being so, I do not think that this is a matter that can disentitle him from obtaining relief.

(11)  As to whether Charlie and Thomas knew of and agreed to the storage of the wine at Zhuhai Billion’s warehouse facility owned by YLT, it seems to me that this was something that was within Bill’s authority to arrange.  There was a minor dispute about whether or not Bill had taken Charlie to see the warehouse in question, but I do not think this affects matters, as the arrangements for storage were for Bill to deal with.

(12)  As to whether the YLT warehouse was suitable for storage, Bill acknowledges that it was not the ideal storage place, but says that it was adequate, considering that the wines with which BVC was dealing were of relatively modest quality.  It seems to me that if Bill’s choice of storage location was such as to result in damage to the wine for which he ought to be held responsible, this is a matter that can be pursued in the course of BVC’s liquidation, and is not a matter that should prevent a winding up being ordered at Bill’s application.

(13)  Whether or not Bill was justified in insisting on a sale and purchase agreement being signed as a condition of delivery of the wines still stored at the YLT warehouse has already been dealt with in paragraphs 80 to 82 above.

(14)  As to whether or not Bill had failed to pay his full capital contribution to BVC, I am satisfied that he did so, by a combination of his causing Billion Group to pay the first instalment of the Second Purchase Order and the payment in of HK$90,500.00 in cash to BVC’s account. The fact that thereafter, Bill or Billion Group became indebted to BVC in the amount of HK$109,500.00 because Billion Group retained that amount of BVC’s funds in its hands as a result of the eventual payment arrangements in respect of the First Purchase Order does not justify a conclusion that Bill did not pay his full capital contribution in the first place.

(15)  As to the allegation that Bill had set up another company with a view to taking over the remaining wine at the warehouse, this is not a matter that was, in my view, established on the evidence.

(16)  As to what the true state of accounts between Bill and BVC was, this is a matter that can be resolved in the course of BVC’s liquidation.  It will be for Bill to establish, by producing sufficient evidence to the satisfaction of the liquidators, that the amounts of tax and other expenses said to have been incurred by Zhan Yong and/or Zhuhai Billion were incurred and were settled by him or Billion Group.

84.The other issues went to the allegations of unfairly prejudicial conduct, and what remedy should be granted.

85.As to these, I do not think that the various allegations of unfairly prejudicial conduct were sufficient to justify the grant of relief under section 168A.  The matters complained of are set out at paragraph 49 above.

86.The first two complaints do not really relate to the way in which the affairs of BVC were managed by Charlie or Thomas.  Rather, they underlie the complaints that were made by them against Bill, and are matters that led to the breakdown in the relationship between the parties, rather than an aspect of mismanagement of the company, with which section 168A petitions are concerned to remedy.

87.As to the allegation of attempts to exclude Bill from management of BVC, I do not think that these would justify a buy-out order being made.  None of these attempts came to anything, as no valid meetings were held or resolutions passed.  Indeed, it was, at the end of the day, Bill who resigned as a director of the company of his own volition (although this was no doubt prompted by the by then total breakdown in the relationship between him and the Respondents).

88.This leaves the complaint about not being given access to the company’s accounting records.  But as to this, the position was that some such information was retained by Bill, whereas other information (principally relating to the Shenzhen operations of the shop) were with Charlie.  Charlie said that he wished to get all the information together and get the company’s accounts prepared as a whole.  Although there was some delay in providing Bill with the audited accounts, and material relating to the Shenzhen operations does not seem to have been provided separately, when viewed against the overall deterioration of the relationship between the parties, this was, I think, a relatively minor matter, and I do not think that on its own, this matter would justify granting relief under section 168A.

89.On the other hand, given that the relationship between the shareholders has broken down completely, and that the trust and confidence on which their participation in BVC was based has been destroyed, this is a case in which a winding up order ought to be made.  The making of a winding up order and the placing of BVC’s affairs in the hands of liquidators will, I think, be likely to enable the various outstanding issues in relation to BVC to be dealt with, and the parties to recover what they can from their investment in the company. Thus, liquidators should be able to arrange for the remaining stocks of wine to be retrieved if that is thought to be worthwhile.  Similarly, if BVC Shenzhen is still operational, it may be possible to realise some value for it.  It will also be possible for liquidators to deal with and resolve the various claims arising out of the state of accounts between Bill and his companies and associates on the one side, and BVC on the other.

90.As I am satisfied that Bill has not been guilty of such misconduct as would disentitle him from seeking such an order, I shall make an order winding up BVC pursuant to section 177(1)(f) of the Companies Ordinance.

91.So far as costs are concerned, the position is that Bill has succeeded in obtaining the principal relief sought, and has, moreover, been successful in relation to almost all of the issues dividing the parties.  I shall therefore make an order nisi that the 2^nd and 3^rd Respondents are to pay the Petitioner his costs of these proceedings, including any previously reserved costs, to be taxed on the party and party basis if not agreed.

Miss Sheena Chan, instructed by Bennett Chan & Co, for the Petitioner

Mr Alvin Tsang, instructed by Keith Lam Lau & Chan, for the 1^stto 3^rd Respondents

Attendance excused for Official Receiver