Tam Po Kei v. Tam Bo Kin and Others
Read the full judgment text of CACV 267/2010 on BabelCite. This Court of Appeal judgment was delivered on 7 May 2012.
1. I agree with the judgment of Kwan JA.
Cited by 6 cases · Cites 4 cases
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CACV 267/2010 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 267 OF 2010 (ON APPEAL FROM HCCW 379/2007 AND HCMP 1590/2006) ________________________
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________________________ JUDGMENT ________________________ Hon Tang VP: 1.I agree with the judgment of Kwan JA. Hon Cheung JA: 2.I agree with the judgment of Kwan JA. Hon Kwan JA: 3.This is an appeal against the judgment of Harris J in a petition presented by Tam Po Kei (“Po Kei”) under section 168A of the Companies Ordinance, Cap 32 after a nine-day trial in January 2010. The judgment, given on 11 November 2010, is reported in [2011] 1 HKLRD 537. The subsequent decision on interests and costs, given on 1 February 2011, is reported in [2011] 2 HKLRD 272. The appeal is brought by the 1st to 5th respondents, who are the half brother and sisters of Po Kei. The background 4.The relevant background matters, taken largely from the judgment below, may be stated as follows. 5.The subject company, Wing Kai Investment Company Limited (“the Company”) was established by the father of the parties (“the Father”) in 1964. The Father was a traditional patriarch, with little formal education and did not understand English. On incorporation, the Father and his three sons – the eldest Tam Bo Kin who is the 1st respondent (“Bo Kin”), Tam Po Yuen (“Po Yuen”) and Po Kei – were each allotted 20 shares. The remaining 20 shares were allotted to the four daughters, who are the 2nd to 5th respondents, with five shares each. Po Kei is the Father’s child by his second wife. The other siblings were born out of the first marriage. 6.The Company was used by the Father to invest in properties in Hong Kong until he died intestate on 24 August 1989, but it was not the sole vehicle by which he invested in properties. He provided all the capital for the business. From 1965, the Company owned various properties, transferred to it by the Father and they were leased to tenants. After the Father’s death, and between 1992 and 1993, the Company sold all its properties. As found by the judge, the Company was established by the Father as a convenient and tax effective way of managing his property investments. 7.During the 1960s, and at least until 1971, the Father had absolute control over the Company’s affairs. This is reflected in the Articles of Association of the Company. Article 9(1) provides that the Father shall be the “Permanent Managing Director” until he resigns or dies and that he shall have authority to exercise all the powers, authorities and discretions by the Articles expressed to be “vested in the Directors generally, and all the other Directors if any, for the time being of the Company, shall be under his control, and shall be bound to conform to his directions in regard to the Company’s business”. Article 9(2) authorises the Father as the Permanent Managing Director to appoint other directors, determine their powers and duties and fix their remuneration. Bo Kin, Po Kei and two of the daughters were appointed permanent directors. Po Yuen and the other two daughters were appointed directors. 8.During the period when the Father was in control of the affairs of the Company, he dealt with its assets as he saw fit, managing the Company from his home in an unsophisticated way, without proper regard to the obligation of directors under the Articles of Association or the Companies Ordinance. No general meeting of the Company was ever held until after his death. The Company did not keep adequate records, nor did it open a bank account in its name. Instead, the Father and Bo Kin opened a savings account in their joint names in the 1960s and this account was used by the Company from at least 1972 until it was closed by Bo Kin on 5 September 1989, after the Father had passed away. It was only in February 1990 that Bo Kin opened a savings and current account in a bank in the name of the Company. 9.In 1970, the Father had a retina rupture and suffered from optical nerve degeneration. His loss of eyesight was 80% according to Po Kei and 60 to 65% according to Bo Kin. Since about 1972, when the Father was 76 years old, Bo Kin then aged 44 became involved in the day-to-day management of the Company and received payment for doing so. None of the other siblings had any involvement in the management of the Company until after the Father’s death. Po Yuen had been suffering from schizophrenia since 1960 and committed suicide in 1996. Po Kei was only four years old when the Company was incorporated in 1964. Of the four daughters, two have been residing in the USA. All the daughters have consistently sided with Bo Kin. 10.It is not in dispute that since 1972, Bo Kin was relied on by the Father to manage the Company’s day-to-day affairs as the latter’s health declined. Bo Kin collected rent, paid expenses and took over the book keeping of the Company. The judge found that from 1972 onwards the Father relied heavily on Bo Kin. However, the judge did not think much turns on this, as what matters is whether or not the Father ceased to direct the affairs of the Company or withdraw the Company’s money. He found no evidence that the Father ceased to direct any of the Company’s affairs. There is no direct evidence that the Father was unaware of the withdrawals in the joint savings account since 1972. The judge was not satisfied on the evidence that the Father was incapable of checking documents if he so wished. He found that the Father was able, if he so wished, to determine how the affairs of the Company were to be conducted and none of the shareholders would have objected if he told them he intended to withdraw money from the Company for his own use. It is accepted by all parties that the Father in general made all decisions concerning the family and was treated with great respect by his children, who were financially beholden to him and were unlikely to wish to upset him. It was tacitly accepted by the children that the best interests of the Company were what the Father decided. 11.Following the Father’s death, differences between Po Kei and his half siblings quickly emerged. Po Kei attempted to get information about the affairs of the Company and was rebuffed by the 1st to 5th respondents. His wife, as the substitute permanent director for him, brought proceedings against the Company in February1991 for inspection of the books and records. At the hearing of the summons in May 1991, the parties reached an agreement and the Company gave various undertakings to produce the books and records it had submitted to its auditors for five years from 1985 to 1989 and documents relating to various bank accounts including the joint savings account of the Father and Bo Kin. Mr Alan Tang, a certified public accountant then of KPMG, carried out the inspection and produced a report in May 1993. As a result, Po Kei identified a number of matters which he alleged constituted misfeasance by Bo Kin. 12.There followed a period of 13 years in which Po Kei pressed Bo Kin to address his complaints but to no avail. Eventually, Po Kei presented the petition under section 168A on 7 August 2006 (HCMP 1590/2006), seeking various orders, principally, that Bo Kin account to the Company for monies he has wrongly received from it and that either the Company or Bo Kin is to purchase Po Kei’s shares. 13.On 9 August 2006, the Company passed a special resolution that it should be wound up and, on that basis, presented a winding-up petition under section 177(1)(a) on 21 August 2007 (HCCW 379/2007). The petitions were ordered to be heard together. The parties, including the Company, accepted that the outcome of the section 168A petition would determine how the judge should deal with the Company’s winding-up petition. The issues at the trial 14.The parties agreed 12 issues to be determined at trial. The first four relate to matters setting the scene, the material findings of which have been set out in the relevant background matters above. The remaining eight issues concern the complaints of misfeasance against the respondents and are as follows:
The judgment below 15.The judge found in favour of Po Kei in six out of the eight issues relating to his complaints of misfeasance. They are issues (e), (f), (g), (j), (k) and (l). His general approach is encapsulated in para 68 of the judgment:
16.For issue (e), the judge found that the dividends stated in the Company’s audited financial statements were not properly declared, and hence withdrawals described in the Company’s books as payments of dividends were incorrect and prima facie improper. Bo Kin, who from 1972 was the director primarily dealing with the Company’s money and book keeping, must establish that he was acting on the Father’s instructions. Having considered Bo Kin’s evidence, the judge rejected it as inherently unlikely and unreliable. So he held Bo Kin liable to account for the dividends that he wrongfully allowed to be distributed from 1 January 1972 up to the year ended 31 December 1987, in the total sum of $11,550,000. 17.For issue (f), the judge found that all the money that went into the joint savings account came originally from the Company and the reason why there is a difference between the total deposits in the account and the income of the Company recorded in the financial statements is that the large majority of the money was transferred to time deposits and then re-deposited into the joint savings account when the time deposits matured. Bo Kin failed to establish that withdrawals of money from the account that were not re-deposited were transfers to the Father at the Father’s direction. Having failed to adequately explain the shortfall in the balance of the joint savings account of $503,223.32 when the account was closed by him on 5 September 1989, Bo Kin is liable to account to the Company for this sum. 18.As to the loans of $8,996,303.88 in issue (g), the judge accepted that there was a confirmation signed by the Father for the year ended 31 December 1987 recording that the Father owed the Company $6,313,104.38. The judge declined to draw the inference that the said sum of $6,313,104.38 was used by Bo Kin rather than the Father. He held that the resolution passed by a majority at the annual general meeting of 29 January 1991 resolving that $8,996,303.88 was a loan to the Father is invalid, as appropriation of a company’s money to the directors themselves is not a matter which can be ratified by the shareholders. As Bo Kin has failed to establish that the balance of $2,683,199.50 was paid to the Father, he is liable to account to the Company for this sum. The 1st to 5th respondents have paid $2,683,199.50 to the Company on 30 December 2005 under protest to avoid argument and to expedite the winding up of the Company. 19.For the directors’ emoluments totalling $5,945,580 paid to Bo Kin in issue (h), the judge found it probable that the Father did know Bo Kin was receiving such payments and had no reason to object as during the material period Bo Kin worked for the Company. He also found that if the shareholders had been asked during the Father’s lifetime, they would have approved such payments. He held that the directors’ emoluments received by Bo Kin are not recoverable from him. 20.Issue (i), which relates to the validity of an instrument of transfer executed by Po Yuen in 1989 to transfer all his shares in the Company to Bo Kin, was found against Po Kei, as the judge was not satisfied on the evidence that Po Yuen lacked the necessary mental capacity to execute the instrument of transfer. 21.For issue (j), the judge found that the 1st to 5th respondents had delayed and avoided providing the documents that Po Kei requested for as long as possible and Po Kei was forced to commence the inspection proceedings by his wife to obtain them. The judge was also not satisfied that the respondents made a proper attempt to ensure that all documents were produced. There was no satisfactory explanation for the absence of documents which should have been provided, or for the fact that in the present proceedings the respondents have only produced the in-out books for 1965, 1970, 1971, 1989 and 1990 to 2005, or why some pages were missing from records that Bo Kin said were bound together. The judge held that Po Kei had been denied access to the books and records of the Company and that a complete set of the records that were probably available for the period of 1 January 1985 to 5 September 1989 were not provided to Po Kei’s agents for inspection in June 1991. 22.As the judge decided to grant relief to Po Kei on his petition under section 168A, he dismissed the Company’s winding-up petition and it was not necessary to say anything more about issues (k) and (l). 23.On the findings made above, the judge was satisfied that the affairs of the Company have been conducted in a manner unfairly prejudicial to Po Kei. He found that the failure of the respondents to address properly and fairly the concerns of Po Kei about the way in way Bo Kin managed the financial affairs and how the Company’s money had been dealt with has caused a complete breakdown of whatever trust that might have existed at one time between them. He held it appropriate that the 1st to 5th respondents should purchase Po Kei’s shares at a value reflecting the Company’s present net asset value, which is cash in bank, and the value should take into account the sums for which Bo Kin is liable to account to the Company, being the amounts of dividends in relation to issue (e), the closing balance in the joint savings account in issue (f), and for issue (g) the accrued interest on $2,683,199.50 from 5 September 1989 to 30 December 2005 as payment of the said sum has been made by the respondents. 24.In a separate judgment, the judge addressed the question of interest and costs. He ordered Bo Kin to pay compound interest with monthly rests at 1% above the HSBC prime rate on the sums he is liable to reimburse the Company. Interest is to be paid on the dividends one month after the declaration of dividend in each instance, on the closing balance of the joint savings account from 5 September 1989, on $2,683,199.50 from 5 September 1989 to 30 December 2005 and on the accrued interest of this sum from 31 December 2005 until the date of the order. He ordered the 1st to 5th respondents to pay to Po Kei and the Company their respective costs of the petition. This appeal 25.The main thrust of the argument advanced in this appeal by Mr Alan Leong, SC, who appeared for the 1st to 5th respondents here and below, is that in holding Bo Kin liable to account to the Company for the three sums in issues (e), (f) and (g), the judge had overlooked the unique features in the mode of operation of the Company he had found earlier as summarised above in the background matters (of which there is no appeal) and had thus arrived at inconsistent findings and made quantum leaps in his subsequent holdings. 26.Mr Leong submitted that had the judge followed through the findings he had made regarding the mode of operation of the Company, he should have found that Po Kei has failed to establish the complaints in issues (e), (f) and (g), as Po Kei has failed to make out a case that Bo Kin was in complete control of the Company from 1972 to the Father’s death, even if he should have reservations about Bo Kin’s credibility. The judge had found that there is no evidence that the Father had ceased to direct any of the Company’s affairs from 1972 to his death; there is no direct evidence that the Father was unaware of the withdrawals since 1972; that the Father was not incapable of checking documents if he so wished; that the Father probably did know Bo Kin was receiving director’s emoluments and would not have objected; and that the Father was in general the decision maker for all family matters, he was able if so wished to determine how the affairs of the Company were to be conducted, and none of his children would have objected if he told them he intended to withdraw money from the Company for his own use. On all these material matters as found by the judge, Bo Kin’s lack of credibility would have no impact. 27.With this in mind, I turn to examine the arguments advanced by Mr Leong to challenge the judge’s findings against the respondents in issues (e), (f), (g) and (j). Issue (e): the declaration and payment of dividends 28.Mr Leong has not seriously challenged the judge’s holding that dividends were not properly declared in that the statutory requirement for the approval of shareholders in general meeting was not complied with. The judge’s holding must be right. He went on to hold that as dividends were not properly declared, the withdrawals described in the Company’s books as payments of dividends were prima facie improper, and as Bo Kin was entrusted with the day-to-day management of its financial affairs, and had handled all the deposits into and withdrawals from the joint savings account, Bo Kin has to justify the propriety of the transactions described as payments of dividends. Bo Kin must therefore establish he was acting on the Father’s instructions as he has alleged. Mr Leong took issue with this and submitted that the judge had wrongly cast the legal burden on the respondents to account for the dividends. He also contended that Po Kei has not established a prima facie case against the respondents for failing to account for the dividends. 29.I do not agree with these submissions. There are sub-issues within an issue in dispute. Whether Bo Kin was acting on the Father’s instructions in the declaration and payment of dividends is one such sub-issue. As Bo Kin substantially asserts the affirmative of this sub-issue, the burden of proof lies on him. When all the evidence is adduced by all parties, if the party who has the burden of proof of this sub-issue has not discharged it, the sub-issue will be decided against him. And if a prima facie case is made out, an adverse inference may be drawn against a party if there is evidence available to him that could displace the prima facie case and he has chosen not to adduce evidence. I do not understand Mr Leong to have disputed this proposition, he only contended that a prima facie case has not been made out for an adverse inference to be drawn against the respondents. 30.The crucial question here is whether Bo Kin was acting on the Father’s instructions in the declaration and payment of dividends. The judge noted Bo Kin’s claim that he did so was not corroborated by independent evidence. In determining whether he is to be believed, the judge stated he would take into account “the inherent likelihood of what [Bo Kin] is saying being true, his general credibility as a witness and the forensic points made by [Miss Linda Chan, SC, Po Kei’s leading counsel here and below] arising from such financial and accounting information as is available”. 31.Although the judge accepted the possibility of the Father using the Company’s money as his own when it suited his needs and that “the creation of fictitious dividends was an expedient created to regularise the Company’s accounting records”, the judge held he should balance this possibility against his general reservation about the reliability of Bo Kin’s evidence. 32.The judge did not find Bo Kin a helpful witness. He recognised that Bo Kin’s recollection of events was understandably poor because of age and the passing of time, but there were occasions he found Bo Kin evasive or untruthful. Bo Kin testified about the practice of declaring dividends, that he made the entries in Chinese in the in-out book for the Father to read, and after reviewing the entries the Father applied the name chops of all the shareholders on the relevant entries in the in-out book to signify his approval. However, the in-out books for the crucial years of 1972 to 1988 were not adduced in evidence and the respondents failed to give satisfactory explanation as to why. Furthermore, when Alan Tang reviewed the in-out books from 1985 to 1989 in the early 1990s, he could find no chops stamped in the books for those five years. When confronted with this, Bo Kin asserted that the auditors had changed the practice and did not allow him to chop the in-out books but gave him forms for each shareholder to sign or apply their chops to acknowledge receipt of the dividends. No such documents have been produced. The judge found that Bo Kin was making up evidence to support his case and was not giving honest evidence in this regard. 33.Bo Kin claimed that all dividends were paid to the Father out of the joint savings account and he normally kept records of such withdrawals but has not produced any such record. He alleged that the Father decided how much dividends should be declared and paid and that the Father did not need to refer to any records or consult him but could remember clearly how much money had been withdrawn from the joint savings account. The judge found this assertion inherently unlikely. 34.Between 1985 and 1989, a total of $4,850,000 was declared as dividends but only about $1.4 million was paid to the Father according to the analysis of the withdrawal advice of the joint savings account for this period in the KPMG report. The judge did not find Bo Kin’s answer satisfactory when he was cross-examined about this discrepancy and noted that it leaves open the possibility that some of the dividends were paid to Bo Kin. 35.The judge also took into account a number of property purchases and remittance of funds made by the Father, and other substantial properties at the Father’s disposal, which demonstrated that he had considerable assets and had no need to withdraw funds from the Company to fund either his general expenditure or investments. 36.For the above reasons, the judge declined to accept the evidence of Bo Kin that he was acting on the Father’s instructions in the declaration and payment of dividends and held him liable to account for the dividends he wrongfully allowed to be distributed from 1 January 1972. 37.Miss Chan submitted for Po Kei that the above are findings of fact made by the judge and should not be disturbed on appeal unless the appeal court is satisfied that the conclusion reached by the trial judge on the facts was plainly wrong. Otherwise, the appeal court should defer to the trial judge’s conclusion even if in doubt as to its correctness. She referred us to Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at paras 35, 36, 41 to 42. We were reminded of the need for caution in reversing the trial judge’s evaluation of facts as this court does not enjoy the advantages of the trial judge who received the evidence at first-hand. And of course it is for the trial judge, not this court, to weigh the evidence. It is only in rare cases that an appeal court could be satisfied that the trial judge’s finding of primary fact, particularly where the finding could be founded on the lack of credibility of a witness, should be disturbed. 38.The respondents’ answer to this is that the judge had failed to direct his mind to the findings he had made earlier regarding the unique mode of operation of this company, in particular, that the Father had not ceased to direct the Company’s affairs ever since Bo Kin was entrusted with the day-to-day management of its finance. As the judge had failed to appreciate or had overlooked the effect of the earlier finding, which should have led him to a different conclusion, his finding that Bo Kin was not acting on the Father’s instructions in the declaration and payment of dividends – influenced to a large extent by the lack of credibility of Bo Kin’s evidence – is flawed. And this finding is plainly wrong when tested against the inherent likelihood whether the Father could have been unaware of the declaration and payment of dividends all through the years, which rested on matters not in dispute and on contemporary documentary evidence, unaffected by the judge’s general reservation about the reliability of Bo Kin’s evidence. 39.Mr Leong drew our attention to these matters. The Father signed all the audited financial statements until his death. The audited financial statements recorded the dividends proposed to be paid when a declaration of dividend was made in a particular financial year. On the documents adduced in evidence, the Father also signed the documents entitled minutes of meetings of the board of directors in 1978, 1979, 1985 and 1986, which were all chopped with the name chops of the children. These minutes recorded the total dividend declared for a particular financial year, and the minutes of 1978 and 1979 were written in Chinese. There were also produced documents headed directors’ report for 1981 to 1988 in which was recorded the net profit for the year, the unappropriated profits, the declaration and payment of dividend for the year. Again, each of the directors’ reports was signed by the Father as the chairman and chopped with the name chops of the children. 40.Although the in-out books for the crucial years between 1972 to 1988 were not adduced in evidence and Bo Kin could not give a satisfactory explanation why he was unable to produce the original or copies of the books for the crucial years, Alan Tang had examined copies of the in-out books from 1985 to 1989 when he prepared his report in 1993 and confirmed in his report that all the receipts and payments for the five years as recorded in the in-out books he examined appeared to have been properly reflected in the Company’s audited accounts for the respective years. 41.As for the absence of the name chops of the children in the copies of the in-out books for the five years examined by Alan Tang, this is not of significance as the judge had found, as the name chops of the children were applied to other documents prepared by the auditors for each year during this period, being the minutes of meetings of the board of directors and directors’ report, which recorded clearly the declaration and payment of dividend for a particular financial year. It is also pertinent to note that on Bo Kin’s evidence, the name chops of the children were kept by the Father in his safe in his bedroom, and these personal chops were in the safe when it was opened after the Father’s death in the presence of all the beneficiaries. 42.There is no significant controversy on the evidence given about the Father’s physical and mental condition in the 1970s and 1980s. 43.The Father’s nephew, Tam Bo Cheong, who had known him for 40 years, gave evidence that he had visited the Father at home once a month for 20 years until the Father passed away in August 1989. According to the nephew, the eye disease and deterioration of eyesight did not bother the Father much and he was still able to live as usual and play card games. He said the Father always had an alert and sound mind during his life time, and had very good memory even to the last month before his death. 44.According to the evidence of the eldest daughter, Tam You Houp Paula, who is the 2nd respondent and had practised for years as a medical doctor in government hospitals until she retired in 1986, although the Father’s eyesight was not good since 1972, his mind was very alert and he was the sole person who made all the decisions relating to his family affairs, company business and all his other investments. As late as 1985, there was an occasion when the Father rushed to a bank alone to cash a cheque before the bank closed for business and he moved so quickly that no one from the family could keep pace after him. 45.As for Po Kei, he did not live with his parents between 1977 and 1984 when he was studying abroad except during his school holidays and he moved out of the family home when he got married in 1988. He said that the Father’s physical health deteriorated significantly since the end of 1988 and had to spend most of the time in bed. He affirmed that the Father’s mind was “at all times normal” and was “certainly able to make his own decision provided he had been provided with the relevant explanations and/or documents”. 46.This is a solvent company in which the judge found that the directors and shareholders accepted that one director and shareholder could treat it as his creature and use its assets as his own. Applying the principle in Re Duomatic Ltd [1969] 2 Ch 365, the judge stated in paragraph 67 of the judgment:
47.Mr Leong submitted that having regard to the contemporary records signed by the Father and stamped with the name chops of the children kept by the Father, and given the uncontroversial evidence that the Father was in normal mental condition all along, they should point ineluctably to the conclusion that the dividends were declared and paid with the Father’s approval, particularly when tested against the inherent probabilities. Bearing in mind that the Father had wielded the power to make decisions for the Company throughout, was capable of checking the documents and all the children were financially beholden to him, it would seem inherently improbable that Bo Kin would have deceived the Father in his lifetime time and again or concealed the declaration and payment of dividends from the Father all through the years when there was every opportunity for discovery. 48.Mr Leong also complained that the judge was overly influenced by his view of Bo Kin’s credibility. A witness may have fabricated evidence for a variety of reasons, so lies in themselves are not necessarily determinative of a finding against that witness. The same applies to the withholding of documents in evidence in the absence of satisfactory explanation. In any event, the lack of credibility of Bo Kin and his unexplained failure to produce the in-out books for the material years do not affect the ineluctable conclusion the judge should have arrived at that the declaration and payment of dividends was on the Father’s instructions. 49.I am inclined to agree with Mr Leong’s submissions. It is inherently unlikely that dividends would be declared and paid continuously without the Father’s assent, as the Father, who was in good mental condition, had remained in overall control of the Company. There is no reason to think that the Father would not want to know about the affairs of the Company. Miss Chan’s submission that the Father did not understand English and had to rely on Bo Kin for translation of all the English documents relating to the Company is not to the point. There is no basis to infer that Bo Kin would have deceived the Father about the documents he signed. There is clear and cogent evidence that the Father had approved the declaration and payment of dividends. And although the judge had referred to the minutes of board meetings and directors reports signed by the Father in the outset as one of the matters not in dispute, these documents did not feature in his subsequent analysis. 50.Miss Chan pointed to the fact that of the $4,850,000 declared as dividends between 1985 and 1989, only $1.4 million was paid to the Father out of the joint savings account according to the analysis in the KPMG report. The statements of the joint savings account from 1985 to 1989 showed that Bo Kin was the recipient of about $21.6 million, Bo Kin’s son received $380,000 and only $1.4 million was paid to the Father. Whether all the declared dividends were actually paid to the Father, as Bo Kin has alleged, is not to the point. On the evidence, the Father dealt with the assets of the Company, including the dividends, as he pleased and directed. The shareholders were not paid the dividends in accordance with their shareholdings. What matters is whether the Father knew and approved of the payment of dividends. As the judge had observed, there is no direct evidence that the Father was not aware of the withdrawals in the joint savings account since 1972. 51.The circumstances in this case are exceptional. Notwithstanding the analysis and reasoning of the trial judge, this is one of the rare instances that an appeal on findings of fact succeeds. This is not a case of the appeal court weighing up and comparing the evidence in a different way, or taking a different view of the probabilities of the case. But rather, looking at the whole substance of the judgment, I am satisfied that the judge’s reasoning, which rested mainly on his finding that Bo Kin did not give truthful evidence, is seriously flawed. He had apparently overlooked the documents signed by the Father signifying his approval of the declaration and payment of dividends. This finding is at odds with the other instances in which the judge found that the Father had approved the payments: in issue (g), which was based on a loan confirmation signed by the Father; and in issue (h), which was based on the amount of directors’ emoluments recorded in the audited accounts. Issue (f): the closing balance in the joint savings account 52.The joint savings account, although used as the Company’s operating account, did not feature in the audited accounts of the Company as cash in hand or cash in bank. There was instead an entry for “Current Account with a Director” under current assets in the balance sheet. According to the balance sheet as at 31 December 1987 and the notes to the accounts, the Current Account with a Director had a balance outstanding of $6,313,104.38, and the director who had borrowed from the Company was the Father. The judge had held in para 94 of the judgment that in the 1974 to 1989 financial statements, the surplus cash held in the joint savings account was described as “Current Account with a Director”. It is clear that there is an element of duplication in the outstanding balance in the Current Account with a Director and the balance in the joint savings account, as the joint savings account was where the cash of the Company went. There is therefore double recovery in holding that Bo Kin has to account for the closing balance of the joint savings account of $503,223.32 in issue (f) and the balance of the Current Account with a Director of $2,683,199.50 in issue (g). 53.The question of double recovery was in fact canvassed during the cross-examination of Alan Tang by Mr Leong:
54.It is clear from the judge’s intervention above that to allow recovery from the director’s current account and from the joint savings account is tantamount to double recovery and is obviously wrong. The finding that Bo Kin is liable to account twice over cannot be upheld. Issue (g): $2,683,199.50 in the current account with a director 55.The judge found in favour of Bo Kin that he is not liable to account for the outstanding balance in the director’s current account as at 31 December 1987 in the amount of $6,313,104.38, as there is a confirmation of loans to officers signed by the Father acknowledging that he owed the said sum to the Company. The judge found that Bo Kin is liable to account for $2,683,199.50, being the difference between the outstanding balance in the director’s current account as at 31 December 1987 and the balance as at 31 December 1988 of $8,996,303.88. The apparent significant difference in evidence is that the Father did not sign any confirmation of loans to officers confirming the outstanding balance for the year ended December 1988 as he had passed away when the confirmation was issued at the time the audited accounts were prepared in October 1989. 56.The Father had signed the audited accounts for each financial year from the incorporation of the Company until the financial year ended 1987. The entry for “Current Account with a Director” featured in the audited financial statements from 1974 to 1989. There were also produced the confirmations of loans to officers signed by the Father for the financial years of 1984 to 1987, the amount of loans acknowledged by the Father for those years was the outstanding balance in the “Current Account with a Director”. The advances recorded for the year ended 1988 were in the Father’s lifetime. Mr Leong submitted that notwithstanding the confirmation of loans for the financial year ended 1988 was issued too late for the Father to sign, there was no change in the mode of operation of the Company. Hence, the judge was in error in holding that Bo Kin has failed to establish that the amount recorded under “Current Account with a Director” for 1988, in so far as it had exceeded the sum acknowledged by the Father as his borrowing in 1987, should be treated as borrowing by the Father. 57.I think there is substance in this submission. There is no sufficient reason why the balance recorded under “Current Account with a Director” for 1988 should be treated differently from the balance recorded under this entry for 1987. If the judge had taken into account the earlier findings he made regarding the mode of operation of this company, he should have found and inferred on the totality of the evidence that the amount recorded as borrowings in the financial year of 1988 were likewise made with the Father’s approval. 58.Miss Chan pointed to an audit confirmation dated 23 October 1989 signed by Bo Kin in which he confirmed that the balance on his account under “Current Account with a tDirector” as at 31 December 1988 was $8,996,303.88. As the judge has noted, Bo Kin’s explanation (which was supported by the evidence of Yu Yu Kin, a partner of the accounting firm that was appointed the Company’s auditor since its incorporation) that he did so as an accounting expedient rather than as acceptance that he owed the Company $8,996,303.88 is borne out by the common ground that this sum includes $6,313,104.38, in respect of which the Father had signed confirmations in earlier years. The judge did not appear to have attached significance to this audit confirmation signed by Bo Kin and I think he is right about that. Issue (j): denial of access to books and records 59.The judge found that Po Kei had been denied access to the books and records of the Company and a complete set of the records that were probably available for the period of 1 January 1985 to 5 September 1989 were not provided to KPMG. I see no basis to interfere with the judge’s finding. Whether Po Kei had asked for further discovery of books and records after the documents were provided to KPMG for inspection is beside the point. Delay in bringing proceedings 60.Mr Leong complained that although KPMG had made a report to Po Kei in 1993 of their investigation of the affairs of the Company, Po Kei did not bring his petition for relief under section 168A until 2006. It was asserted that owing to the undue delay of Po Kei in bringing these proceedings, Bo Kin was put in a disadvantageous position in this litigation in that the memories of his witnesses have faded and it was more difficult for him to trace documents to produce in evidence. Mr Leong contended it was “unconscionable” for Po Kei to assert his rights after so many years. 61.If, as I understand his submission, Mr Leong was arguing that the court should exercise its discretion not to grant relief (assuming that a case of unfair prejudice was made out) because of the delay in bringing proceedings, this is not a ground of appeal in the Notice of Appeal. Nor is this issue (whether relief should be refused on account of undue delay) one of the issues agreed to be determined at trial. As Miss Chan has pointed out, no submission was made by Mr Leong on delay until the parties appeared before the judge to argue on interests and costs after judgment was given. 62.I do not think it is open to Mr Leong to raise this point on appeal. A respondent who wishes to rely on the contention that relief should be refused on account of undue delay or lack of clean hands should raise the issue fairly and squarely in the proceedings below, so that the petitioner would have the opportunity of meeting this contention by adducing such evidence as may be necessary. Miss Chan has a valid complaint that as this issue was not raised in the court below, Po Kei could not have adduced evidence on what had transpired during the 13 years to explain fully why he had not brought proceedings earlier. All that we have is a finding in para 10 of the judgment that Po Kei had pressed Bo Kin to address his complaints, which Bo Kin ignored. Appropriate relief 63.The judge held that a case of unfair prejudice was made out on the basis of the complaints he found in favour of Po Kei in issues (e), (f), (g) and (j). And on the basis of those complaints, he was of the view that the appropriate relief is to order the 1st to 5th respondents to buy out the shares of Po Kei at a value that would take into account those sums for which Bo Kin was held liable to account have been reimbursed to the Company. 64.For the reasons given above, I have come to the view that only the complaint in issue (j) was established. Although issue (j) was framed as an independent complaint, as noted by the judge in para 115 of the judgment, its significance lay in its connection with the complaints about the way in which Bo Kin dealt with the financial affairs of the Company. As none of the complaints about the way Bo Kin had dealt with the financial affairs of the Company are found to be established, the denial of access to books and records has lost much of its significance. Even if the affairs of the Company had been conducted in a manner unfairly prejudicial to Po Kei by this single complaint, it would not be an appropriate exercise of the discretion of the court to order the 1st to 5th respondents to buy out the shares of Po Kei. 65.The appropriate relief to be granted in this situation is to make a winding-up order on the petition of the Company in HCCW 379/2007. The appeal on interests and costs 66.In view of the conclusion reached on the appeal against the main judgment, it is unnecessary to deal with Mr Leong’s fallback arguments relating to the judge’s subsequent decision on awarding compound interest and costs. Conclusion and orders 67.For the above reasons, I would allow the appeal of the 1st to 5th respondents and set aside the judgment of the judge on 11 November 2010 and his order on 1 February 2011. I would order Po Kei to pay the costs below of the 1st to 5th respondents and of the Company, with a certificate for two counsel for the 1st to 5th respondents. The Company’s costs below are limited to its appearance at the first hearing of the petition and to giving discovery, and will not cover its subsequent costs including its costs in attending the trial. 68.I would make a winding-up order on the Company’s petition in HCCW 379/2007 and order Po Kei, as the unsuccessful opposing contributory, to pay the costs incurred by the Company in that petition. The Company’s costs below will not cover any of its costs in attending the trial. 69.For the costs of this appeal, I would make an order nisi that Po Kei is to pay the costs of the 1st to 5th respondents, with a certificate for two counsel. I decline to make any costs order in respect of the Company in its appearance in this appeal.
Ms Linda Chan, SC and Ms Zabrina Lau, instructed by Messrs Wilkinson & Grist, for the petitioner (respondent) Mr Alan Leong, SC, Mr King Wong and Mr Ken Lee, instructed by Messrs Lo, Chan & Leung, for the 1st to 5th respondents (appellants) Mr Maurice Chan, instructed by Messrs Amelia Cheung & Co., for the 6th respondent Please refer to FAMV20/2012 for the relevant appeal(s) to the Court of Final Appeal. |
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