Tam Po Kei v. Tam Bo Kin and Others

FAMV No. 20 of 2012

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 20 OF 2012 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL FROM

CACV NO. 267 OF 2010)

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Between:

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DETERMINATION

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Mr Justice Ribeiro PJ:

1.We dismissed this application for leave to appeal with reasons to be provided later.  We now give our reasons. 

2.This case involves a dispute between the children of the late Mr Tam Lai Tung (“the Father”) in relation to the captioned company founded by him (“the Company”).   The youngest son by his second wife (“Po Kei”) sought relief under section 168A of the Companies Ordinance, naming as the first five respondents (referred to here simply as “the respondents”[1]) sons and daughters by the Father’s first wife.  Those respondents in turned caused a petition to wind up the Company under section 177(1)(a) to be issued. 

3.Harris J granted Po Kei certain heads of relief under section 168A and dismissed the winding-up petition.[2] However, the Court of Appeal allowed the respondents’ appeal and made a winding-up order.[3]  Po Kei applies for leave to appeal from the Court of Appeal’s judgment.

4.The Company, founded by the Father in 1964, invested in properties which yielded rental income.  It was throughout a solvent company and it was not in dispute that at least until 1972, when the first respondent (“Bo Kin”) began to assist in the Company’s management, the Company had been run under the Father’s absolute control with the acquiescence of his children and without regard for their status as directors and shareholders.  This was reflected in the Company’s articles and in the fact that no board meetings and no general meetings were held until after the Father died on 24 August 1989.

5.Such absolute control by the Father is the central feature of this highly unusual case.  The legal premise accepted on both sides is that such acquiescence amounted to the lawful acceptance by all directors and shareholders that the best interests of the Company were whatever the Father determined such interests to be.  The central question was whether the alleged misapplications of the Company’s funds said to have occurred after Bo Kin had taken over the day to day management (as the Father’s eyesight and health declined) had in fact been dispositions known to and authorised by the Father.  If so, it was accepted that none of the other shareholders would have objected and that the irregularities associated with those transactions could be overcome applying the Duomatic principle.[4] 

6.The case therefore turned on the facts relating to that fundamental question.  Harris J found that Bo Kin had (i) improperly declared and distributed dividends; (ii) unlawfully withdrawn funds belonging to the Company held in a joint bank account; and (iii) caused an unexplained loan, shown as the balance of a “current account with a director” to be made.

7.The Court of Appeal concluded that this was “one of the rare instances that an appeal on findings of fact succeeds”.[5] 

(a)  In relation to the dividends, it held that the Judge’s reasoning “which rested mainly on his finding that Bo Kin did not give truthful evidence” was seriously flawed.  The Court of Appeal considered those findings inconsistent with the inherent probabilities; findings arrived at overlooking documents signed by the Father signifying his approval of the declaration and payment of dividends; and findings at odds with the Judge’s findings concerning the Father’s approval of certain other payments.[6] 

(b)  It held that the Judge’s findings regarding the joint account involved double counting and were obviously wrong.[7] 

(c)  And as to the loan considered unexplained, the Court of Appeal held that the evidence compelled the inference that it had been made with the Father’s approval.[8]

8.Mr Benjamin Yu SC submitted on the applicant’s behalf that the true issue was whether the contested funds had actually been received by the Father and accordingly, that in regarding the central question to be whether the impugned transactions were carried out with the knowledge and approval of the Father, the Court of Appeal had “in effect constructed and found a case that is not the 1^st respondent’s own case and evidence”.  We do not consider that a reasonably arguable ground of appeal. The Court of Appeal properly identified and dealt with the true dispute between the parties.

9.Mr Yu SC also sought to argue that the Court of Appeal had demonstrably gone wrong in that there could be no “double counting” once it had rejected the second of the two claims on the ground that the transaction had been duly approved by the Father.  The applicant’s point has no merit.  The Judge had mistakenly double-counted the same purported liability because it was reflected in two different accounts.  Since the Court of Appeal concluded that the purported liability did not arise at all, it should not have been counted even once, let alone twice.

10.The applicant puts forward three questions said to justify reference of the case to the Court.  The first seeks to challenge the Court of Appeal’s grant of the winding-up petition notwithstanding the Judge’s criticisms of the respondents for having caused the Company to issue that petition (under section 177(1)(a)).  There are two aspects to the criticism.  First, the Judge thought that the Company should not be drawn into a shareholders’ dispute.  Secondly, the issue of the petition was considered a possible abuse insofar as it was an attempt to stifle the present petitioner’s investigations into wrongdoing by the other shareholders. 

11.However, the Judge recorded[9] that the parties, including the Company, accepted that the outcome of the section 168A petition determined how the Company’s petition should be dealt with.  Since he decided to grant relief under that petition, he dismissed the Company’s winding-up petition.  The Court of Appeal quite reasonably took counsel then appearing for the petitioner to have conceded that the outcomes of each petition were thus linked.  In any event, it appears to us to have been a sound approach.  When relief under section 168A was refused by the Court of Appeal, there was no question of any abusive attempt to stymie investigation for section 168A purposes and no reason to deny the majority the right to liquidate the company under section 177(1)(a). 

12.Secondly, the applicant poses the question whether majority shareholders who procure a special resolution to wind up a company under section 177(1)(a) must come to court with “clean hands” when seeking the winding-up order.  However, the Court of Appeal having overturned the relevant findings by the Judge, no facts to found an allegation of “unclean hands” exist.

13.The third question, although framed as one of law, is in truth an attempt to mount a factual challenge to the Court of Appeal’s substitution of its own findings for those of the Judge.  As indicated above, the Court of Appeal was fully alive to the high threshold for upsetting findings of primary fact and provided a reasoned justification for its decision. There are no exceptional grounds for interference by this Court.

14.We therefore dismissed the application with costs.

Mr Benjamin Yu SC and Ms Zabrina Lau, instructed by Wilkinson & Grist, for the Applicant

Mr Alan Leong SC, Mr King Wong and Mr Ken Lee, instructed by Lo, Chan & Leung for the 1st to 5th Respondents

6th Respondent, Wing Kai Investment Co Ltd, absent