CHAN CHEUNG SUK CHUN v. POON SHU PANG AND OTHERS

bjbj HCCW 628/2000 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES WINDING-UP PROCEEDINGS NO. 628 OF 2000 ____________ IN THE MATTER of Section 168A of the Companies Ordinance, Cap. 32 and IN THE MATTER OF GEEWING COMPANY LIMITED ____________ BETWEEN MARBLESUM LIMITED Plaintiff and POON SHU PANG 1st Respondent YUNG SAI CHOI 2nd Respondent DUMPLING SHOP DEVELOPMENT 3rd Respondent COMPANY LIMITED GEEWING COMPANY LIMITED 4th Respondent KAREX LIMITED 5th Respondent AND HCA 968/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 968 OF 2001 ____________ BETWEEN MARBLESUM LIMITED Plaintiff (suing on behalf of itself and the 5th Defendant) and POON SHU PANG 1st Defendant YUNG SAI CHOI 2nd Defendant YUNG YIN LAN 3rd Defendant DUMPLING SHOP DEVELOPMENT 4th Defendant COMPANY LIMITED GEEWING COMPANY LIMITED 5th Defendant AND HCCW 619/2000 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES WINDING-UP PROCEEDINGS NO. 619 OF 2000 ____________ BETWEEN CHAN CHEUNG SUK CHUN Plaintiff and POON SHU PANG 1st Respondent YUNG SAI CHOI 2nd Respondent YUNG YIN LAN 3rd Respondent YIP KING KWONG 4th Respondent CHAN HON KEUNG 5th Respondent NG KWONG WO 6th Respondent V & T INVESTMENTS LIMITED 7th Respondent DUMPLING SHOP (MONGKOK) LIMITED 8th Respondent AND HCA 3874/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 3874 OF 2001 ____________ BETWEEN CHAN CHEUNG SUK CHUN Plaintiff (suing on behalf of herself and the 4th Defendant) and POON SHU PANG 1st Defendant YUNG YIN LAN 2nd Defendant DUMPLING SHOP (MONGKOK) LIMITED 3rd Defendant V & T INVESTMENTS LIMITED 4th Defendant _______________ Before: Hon Barma J in Court Dates of Hearing: 5-9, 12-14, 16 January 2003 and 12 March 2004 Date of Judgment: 10 June 2005 ______________ J U D G M E N T ______________ Introduction This was the trial of two actions and two petitions, all of which arise out of the conduct of the affairs of two companies, Geewing Limited ( Geewing ) and V & T Investments Limited ( ), which, until about the middle of 2000, operated successful restaurants (both called The Dumpling Shop ) in Wanchai and Mongkok respectively. In about April or May 2000, The Dumpling Shop in Wanchai ( the Wanchai restaurant ) ceased to be operated by Geewing. A new restaurant ( the new Wanchai restaurant ) opened for business at the same premises as had been occupied by the Wanchai restaurant. It was also called The Dumpling Shop . The new Wanchai restaurant was operated by a company called Dumpling Shop Development Company Limited ( ). In about June or July 2000, The Dumpling Shop in Mongkok ( the Mongkok restaurant ) ceased to be operated by V&T. Just as in Wanchai, a new restaurant ( the new Mongkok restaurant ) opened for business at the same premises as had been occupied by the Mongkok restaurant. It, too, was called the Dumpling Shop . The new Mongkok restaurant was operated by a company called Dumpling Shop (Mongkok) Limited ( ). In each case, it appears that the plant and other operating assets of the restaurants were transferred from the operators of the old restaurants (Geewing and V&T) to the operators of the new restaurants (DSD and DSM) for (at best) a relatively modest sum (there was in fact no clear evidence of the receipt of any such payments). The new restaurants also continued to employ substantially the same staff as had been employed by the old restaurants. In essence, it is the case of the plaintiffs and petitioners in the actions and petitions which were tried before me that there were, in effect, transfers of the entire businesses of Geewing and V&T at substantial undervalue to DSD and DSM respectively, and that these transfers:- (1) constituted breaches of duty by certain of the directors of Geewing and V&T for which those companies should be compensated (this being the subject of the two actions that were before me); and (2) constituted grounds (among others) on which Geewing and V&T should be wound up on the just and equitable ground pursuant to section 177(1)(f) of the Companies Ordinance ( the Ordinance ), or other relief granted pursuant to section 168A of the Ordinance (this being the subject of the two petitions that were before me). The Petitions and Actions I turn now to describe briefly the various actions and petitions under consideration at the trial. HCCW 628 of 2000 - The Geewing Petition I deal first with HCCW 628 of 2000 ( the Geewing Petition ). The parties to the Geewing Petition are:- (1) the Petitioner, a company called Marblesum Limited ( Marblesum ). Marblesum is a shareholder in and director of Geewing, holding one-sixth of Geewing s issued share capital. Marblesum itself is owned by various members of the Chan family, which consisted of the late Mr Chan Chi Cheong, his wife, Madam Chan Cheung Suk Chun ( Madam Chan ) and their six children - three sons and three daughters. For present purposes, the members of the family most immediately involved are Madam Chan and two of her daughters Yvonne Chan Yuk Ying ( Yvonne ) and Vicky Chan Yee Ying ( Vicky ); (2) the 1st Respondent, Mr Poon Shu Pang ( Mr Poon ), who was at all material times also a shareholder in and director of Geewing, holding, like Marblesum, one-sixth of Geewing s issued share capital; (3) the 2nd Respondent, Mr Yung Sai Choi ( Mr Yung ), who was at all material times married to Yvonne, although they separated in February 1998 and Yvonne petitioned for divorce in September 1998. It was common ground that Mr Yung was the person most heavily involved with the management and operation of the Wanchai and Mongkok restaurants, and was largely responsible for their success; (4) the 3rd Respondent, DSD, which operated the new Wanchai shop. DSD was incorporated on 5 January 2000, and has three shareholders, namely a company called Yin Man Company Limited ( Yin Man ), which held five-sixths of its shares (1,520 out of 1,900 issued shares), Mr Poon, who held just under one-sixth of its shares (379 out of 1,900 issued shares) and a Ms Yung Yin Lan ( Ms Yung ), who held 1 share in DSD. Yin Man was also incorporated on 5 January 2000 and has two shareholders - Ms Yung and a Mr Yung Kam Man, who each held one share in Yin Man, and were its only directors. Ms Yung is the sister of Mr Yung, and Mr Yung Kam Man is their brother; (5) the 4th Respondent, Geewing itself. Geewing was incorporated on 25 January 1994, and was acquired for the purpose of operating the Wanchai restaurant in about March 1995; and (6) the 5th Respondent, a company called Karex Limited ( Karex ), which was also at all material times a shareholder in and director of Geewing. Karex held the remaining two-thirds of Geewing s issued share capital. Karex was a company owned in equal shares by Yvonne and Mr Choi, who were its only directors. Karex was incorporated on 15 December 1994 and was acquired by Yvonne and Mr Choi in around the first part of 1995. By the Geewing Petition, Marblesum seeks various forms of relief, including the winding up of Geewing on the just and equitable ground, or alternatively an order that Mr Poon or Geewing purchase Marblesum s shareholding in Geewing at a price to be determined by a valuer on the basis that Geewing continued to operate the Wanchai restaurant. Production of the documents and records of Geewing is also sought. Finally, various forms of relief which affect the position of DSD were sought by the Geewing Petition, but as DSD was also a defendant in the Geewing Action (to which I next refer), these reliefs did not really arise for consideration in the context of the Petition at the trial. The main allegations in the Geewing Petition are as follows:- (1) Geewing was formed on the basis of mutual trust and confidence between its shareholders, with a view to carrying on the business of the Wanchai restaurant, and Mr Yung was allowed to manage the affairs of Geewing (including the operation of the Wanchai restaurant) as a result of the trust and confidence reposed by Marblesum in Mr Yung, and on the understanding that Marblesum should have access to all Geewing s documents, including its books and accounts. (2) Following the institution of divorce proceedings between Yvonne and Mr Yung, in which Yvonne had difficulty obtaining disclosure of financial information concerning Mr Yung s affairs (including the financial position of Geewing), Marblesum has been denied access to Geewing s accounting records, tax assessments and board minutes. Particulars are given of a series of attempts between late 1999 and mid 2000 to obtain such information, which met with no result. (3) The business of the Wanchai restaurant was in effect transferred to DSD (in which Marblesum had no interest) not for any valid business reason, but with a view to concealing Mr Yung s assets from Yvonne, and without consultation with Marblesum. (4) These matters meant that the affairs of Geewing were being conducted in a manner that was unfairly prejudicial to the interests of Marblesum, so as to justify the relief claimed. HCA 968 of 2001 - The Geewing Action Next, there is HCA 968 of 2001 ( the Geewing Action ). The parties to the Geewing Action consist of Marblesum as Plaintiff, and Mr Poon, Mr Yung, Ms Yung, DSD and Geewing as 1st to 5th Defendants respectively. The action is a derivative action, brought on behalf of Geewing by Marblesum. In it, Marblesum alleges that:- (1) Mr Yung was a de facto or shadow director of Geewing, who controlled or directed its affairs. (2) Mr Yung and Mr Poon caused DSD to be incorporated with the object of transferring the business of the Wanchai restaurant to DSD, so as to deprive Geewing of that business and the profits flowing from it, and that they in fact subsequently effected that transfer. (3) These acts constituted breaches of the fiduciary duties owed by Mr Yung and Mr Poon to Geewing, for which they are liable to account to Geewing. (4) These acts were done pursuant to a conspiracy between Mr Yung, Mr Poon, Ms Yung and DSD with the object of injuring Geewing, so that Geewing is entitled to damages. (5) Mr Poon and Ms Yung, and through them DSD, knowingly received the property of Geewing (the business of the Wanchai restaurant) or assisted in its transfer, thereby assisting Mr Yung and Mr Poon in their breaches of duty to Geewing, so as to render them liable to account to Geewing for the value thereof as constructive trustees. (6) It is also alleged that Ms Yung s share in DSD is in fact beneficially owned by Mr Yung. At the trial, this allegation was made also in relation to the shareholding of Yin Man in DSD. Although this allegation was denied, no objection was made to its being advanced. By the Geewing Action, Marblesum claims (on behalf of Geewing) accounts in respect of the losses suffered by Geewing as a result of the breaches of fiduciary duty alleged, or alternatively, of the profits made therefrom, damages for conspiracy, and an account of the benefits received by the defendants (other than Geewing) on the basis that they are constructive trustees. HCCW 619 of 2000 - The V&T Petition Then there is HCCW 619 of 2000 ( the V&T Petition ), in which the parties are:- (1) Madam Chan, who is the Petitioner, and a shareholder in V&T holding 310 out of its 2,500 issued shares; (2) Mr Poon, the 1st Respondent, who was also a shareholder in V&T holding 310 shares. Mr Poon was also, throughout the material period, a director of V&T; (3) Mr Yung, the 2nd Respondent, who was initially a shareholder and director of V&T. Mr Yung held 1,240 shares in V&T until 28 August 1998, when he transferred them to his sister Ms Yung. On the same date, Ms Yung replaced him as a director of V&T. This transfer was subsequently set aside by consent in the course of the divorce proceedings between Yvonne and Mr Yung. However, Ms Yung remained a director, and Mr Yung did not resume his directorship, perhaps because by that stage the V&T Petition and the V&T Action (to which I refer below) had already commenced; (4) Ms Yung, the 3rd Respondent, who was a shareholder of V&T initially holding 160 shares, and later holding 1,400 shares between the time when Mr Yung transferred his shares to her and the setting aside of that transfer. It appears that she was, prior to becoming a shareholder of V&T, an employee at the Wanchai restaurant. As I have noted, she became a director of V&T on 28 August 1998, and remained a director at all material times thereafter; (5) Mr Yip King Kwong ( Mr Yip ), the 4th Respondent, Mr Chan Hon Keung ( Mr H.K. Chan ) (no relation to the Chan family), the 5th Respondent and Mr Ng Kwong Wo ( Mr Ng ), the 6th Respondent, were also shareholders of V&T, each holding 160 shares. Like Ms Yung, they were previously employees at the Wanchai restaurant; (6) V&T itself, the 7th Respondent; and (7) DSM, which was added as the 8th Respondent by amendment on 25 November 2000. DSM was incorporated on 19 June 2000, and its shareholders were Yin Man (to which I have referred previously), holding 1,239 of 2,028 issued shares, Mr Poon, holding 309 shares, and Ms Yung, Mr H.K. Chan and Mr Yip, each holding 160 shares. Its directors were Mr Yung Kam Man (Mr Yung s brother, to whom I have referred) and a Mr Poon Shu Wah, who is the brother of Mr Poon. By the V&T Petition, Madam Chan seeks various forms of relief, broadly similar to that sought by Marblesum in the Geewing Petition. Thus, the relief sought includes the winding up of V&T on the just and equitable ground, or alternatively an order that Mr Yung, Ms Yung or V&T purchase her shareholding in V&T at a price to be determined by a valuer on the basis that V&T continued to operate the Mongkok restaurant. Production of the documents and records of V&T is also sought, as is an account of profits as against Mr Poon and DSM. As in the case of the Geewing Petition, this last form of relief did not really arise for consideration in the context of the V&T Petition, having regard to the fact that DSM was also a defendant to the V&T Action. The allegations in the V&T Petition are similar to those in the Geewing Petition. Thus, it is alleged that:- (1) V&T was formed on the basis of mutual trust and confidence between its shareholders, with a view to carrying on the business of the Mongkok restaurant, and Mr Yung was allowed to manage the affairs of V&T (including the operation of the Mongkok restaurant) as a result of the trust and confidence reposed by Madam Chan in Mr Yung, and on the understanding that she should have access to all V&T s documents, including its books and accounts. (2) Since about September 1999, after the institution of the divorce proceedings between Yvonne and Mr Yung, in which Yvonne had difficulty obtaining disclosure of financial information concerning Mr Yung s affairs (including the financial position of V&T), Madam Chan has been denied access to V&T s accounting records, tax assessments and board minutes. Particulars are given of a number of attempts between late 1999 and mid 2000 to obtain such information, which met with no result. It is also said that Madam Chan has been unable to convene general meetings of V&T since the divorce proceedings were instituted. (3) Mr Yung has sought to oust Madam Chan from V&T, first (in about December 1999) by seeking himself to induce her to sign bank documentation which would have removed her as a signatory of V&T s accounts, and then (on 26 May 1999) seeking unsuccessfully (through Mr Poon and Ms Yung) to persuade her to sell her shares in V&T for HK$500,000. (4) Mr Poon, Ms Yung, Mr Yip, Mr H.K. Chan and Mr Ng (acting through an agent) passed a resolution for the voluntary winding up of V&T on 23 June 2000, despite the objections of Madam Chan (expressed through Vicky, who represented her at the meeting at which the resolution was passed), despite the fact that (as far as Madam Chan then knew) V&T was continuing to operate the Mongkok restaurant profitably. (5) The matters mentioned in sub-paragraphs (2) to (4) above were engineered by Mr Yung in an attempt to prevent Yvonne from obtaining information about his assets, and were not done in the best interests of V&T. (6) The business of the Mongkok restaurant was in effect transferred to DSM (in which Madam Chan had no interest), not for any valid business reason, but with a view to concealing Mr Yung s assets from Yvonne, and without consultation with Madam Chan. (7) These matters meant that the affairs of V&T were being conducted in a manner that was unfairly prejudicial to the interests of Madam Chan, so as to justify the relief claimed. (8) Although they were, as shareholders, quite properly made parties to the V&T Petition, no allegations were made against Mr Yip, Mr H.K. Chan or Mr Ng. HCA 3874 of 2001 - The V&T Action Finally, there is HCA 3874 of 2001 ( the V&T Action ). The parties to the V&T Action consist of Madam Chan as Plaintiff, and Mr Poon, Ms Yung, DSM and V&T as 1st to 4th Defendants respectively. The action is a derivative action, brought on behalf of V&T by Madam Chan. In it, Madam Chan alleges that:- (1) V&T was established, using retained earnings of Geewing, to operate the Mongkok restaurant on similar lines to the Wanchai restaurant, with similar shareholdings and with Mr Yung and Mr Poon in charge of operations. (2) She told Mr Yung and Mr Poon that her investment was made on behalf of her family, and believed that Marblesum would hold the shares in respect of which she was eventually registered as shareholder. On discovering that she was registered as a shareholder in her own name, she requested that Marblesum be registered as shareholder in her place, but this was never done, despite promises by Mr Yung that he would do so. (3) After referring to the transfer of Mr Yung s shares to Ms Yung and the appointment of Ms Yung as a director of V&T, Mr Yung was a de facto or shadow director of Geewing, it is said that Ms Yung and Mr Poon participated in a dishonest scheme to cause DSM to be incorporated with the object of transferring the business of the Mongkok restaurant to DSM, so as to deprive V&T of that business and the profits flowing from it, and that they in fact subsequently effected that transfer. (3) These acts constituted breaches of the fiduciary duties owed by Ms Yung and Mr Poon to V&T, for which they are liable to account to V&T. (4) These acts were done pursuant to a conspiracy between Ms Yung, Mr Poon, DSM and others (not made parties to the V&T Action) with the object of injuring V&T, so that V&T is entitled to damages. (5) Mr Poon and Ms Yung and DSM, received the property of V&T (i.e. the business of the Mongkok restaurant) knowing (in the case of DSM , through Mr Poon and Ms Yung, whose knowledge is to be attributed to it) it to be the result of of a breach of fiduciary duty by Mr Poon and Ms Yung, so as to render them liable to account to V&T for the value thereof as constructive trustees. (6) Although not pleaded, it was alleged at the trial that Yin Man s shareholding in DSM was in fact beneficially owned by Mr Yung. Although this allegation was denied, no objection was made to its being advanced. By the V&T Action, Marblesum claims (on behalf of V&T) accounts in respect of the losses suffered by V&T as a result of the breaches of fiduciary duty alleged, or alternatively, of the profits made therefrom, damages for conspiracy, and an account of the benefits received by the defendants (other than V&T) on the basis that they are constructive trustees. Parties and Witnesses at the Trial Not all of the parties took part at the trial. The only parties who were legally represented at the trial were Marblesum and Madam Chan, for whom Ms Tsui appeared, and Mr Yung, represented by Mr Lau. Mr Poon attended in person throughout the trial, but took little part in the proceedings until the end of the factual evidence, when, having been told that his affirmations and witness statements would not be received in evidence if he did not offer himself for cross-examination, he elected to be cross-examined, and subsequently made brief submissions as to his own position. Mr Yip and Mr Ng appeared on the first day of the trial, but asked to be excused. As no allegations were made against them, and the only proceeding which concerned them was the V&T Petition, in respect of which they indicated that they were essentially neutral and had no submissions to make, they took no further part in the proceedings after the conclusion of Ms Tsui s opening. Although Ms Yung had made affirmations and witness statements for the various proceedings in which she was a party, she did not appear and was not represented at the trial. DSD and DSM also did not appear and were not represented, and Geewing and V&T, as one might expect, did not appear and were not represented either. At the outset of the trial, it emerged that it was common ground between Ms Tsui and Mr Lau that Geewing and V&T no longer carried on business. In these circumstances, Mr Lau indicated that Mr Yung did not oppose the making of winding up orders in respect of either company. However, he maintained, for the purposes of resisting any costs order against him, that the allegations in the petitions were not well founded, and that there had been no unfairly prejudicial conduct in respect of either company. Ms Tsui, for her part, acknowledged that in the light of the fact that Geewing and V&T were no longer active and had no business to carry on, that the buy out relief prayed for in the petitions was no longer appropriate, and that the right order to make would be for the companies to be wound up. She submitted that at the end of the trial, it would be apparent that winding up orders should be made in respect of both companies on the just and equitable ground, by reason of the conduct of Mr Yung, Mr Poon and (in the case of V&T) Ms Yung. The factual evidence in these proceedings consisted of affirmations and witness statements filed by Madam Cheung, Yvonne and Vicky for the Petitioner/Plaintiffs, and affirmations and witness statements filed by Mr Yung, Mr Poon, Ms Yung and Mr Poon Shu Wah for various of the Respondents. Apart from giving evidence on his own behalf in the Geewing Petition and Action and the V&T Petition, Mr Yung also gave the same evidence on behalf of Mr Poon, Ms Yung and DSM in the V&T Action. Ms Yung s affirmations and statements were given on behalf of herself in the proceedings in which she was a party, and also on behalf of DSD and DSM in the proceedings to which they were parties. Mr Poon Shu Wah s affirmation and statement were made on behalf of DSM in the proceedings to which it was a party. At the trial, Madam Cheung, Yvonne and Vicky attended and gave oral evidence for the Plaintiffs and Petitioners. For the Defendants and Respondents, only Mr Yung and Mr Poon gave oral evidence. As Ms Yung and Mr Poon Shu Wah did not attend for cross-examination, I have not attached any weight to their statements and affidavits. No point was taken by Mr Lau in relation to the Plaintiffs and Petitioners failure to serve notices requiring the deponents and makers of the statements to attend for cross-examination, as a direction to this effect had been given in one of the Petitions, and in substance the same evidence was relied upon by the witnesses in respect of all of the proceedings. There was also one expert witness at the trial, Mr Raymond Lo of Messrs. Sonia Yau & Co., who were retained by the Plaintiffs and Petitioners to give evidence as to the value of Geewing and V&T as business enterprises at mid-2000. Messrs Sonia Yau & Co. provided a total of three reports, all of which were signed by Mr Andrew Hung. However, Mr Lo was one of the authors of the reports, and Mr Lau accepted that he was in a position to speak to such reports, and cross-examined him on that basis. Although an expert s report by Messrs Yeung Chi Hung & Co. on the question of valuation of the companies had been filed by the Defendants, the author of that report was not tendered for cross-examination, and no reference was made to it at the trial. Before I express the views that I have reached as to the quality of the evidence given by the witnesses, I should say that the evidence given by Madam Chan, Yvonne, Vicky and Mr Yung traversed a variety of issues, many of which proved at the end of the day to be of marginal relevance. Mr Lau submitted in his closing submissions, and I agree, that many of the factual disputes that were raised by their evidence were not in relation to the issues of central importance, and were of significance mainly as a means of assessing the credibility of the witnesses. In saying this, I do not intend any criticism of the way in which the witnesses were examined and cross-examined, as until Mr Poon gave his evidence, there was relatively little direct evidence (apart from that of Mr Yung) on what I regard as the central issue in these proceedings - the closing down of the businesses of the restaurants operated by Geewing and V&T respectively, and their substitution by the new restaurants operated by DSD and DSM respectively. That said, in general terms, my assessment of the witnesses was as follows:- (1) I found Madam Chan to be an honest witness. Although she was of advanced years, being aged about 76 years at the time of trial, and her memory of the events in question was occasionally uncertain, I found that she gave her evidence in a generally straightforward manner. (2) I also found Yvonne and Vicky to be generally honest witnesses. Although there were some respects in which their evidence differed from that of their mother, I did not consider such differences to be of particular significance, relating, as they did, largely to matters of peripheral relevance. (3) I am afraid that having heard Mr Yung s evidence, and considered it against the evidence in particular of Mr Poon on the central issue, I was unable to accept his evidence as to this, for the reasons which I explain later in this judgment. Inevitably, this has coloured my view of his evidence on other less critical issues as well, and in general, where his evidence differed from that of other witnesses, I prefer that of the other witnesses. (4) As for Mr Poon, although he was sometimes evasive, and sought to minimise his role in the affairs of Geewing and V&T, I considered his evidence on the central issue to be generally truthful. So far as Mr Lo was concerned, he gave his evidence in a careful and professional manner, and, again in general terms, I accepted his evidence as an honest reflection of his views as to the valuation of Geewing and V&T and the businesses operated by them. The events leading up to the transfer of Geewing and V&T s businesses Before coming to the central issue in these proceedings, it will be helpful to set out a summary of the events leading up to the effective transfer of the businesses of Geewing and V&T to DSD and DSM respectively. In doing so, I will touch on some of the areas in which there was a conflict of evidence, comment on their significance, and where necessary, indicate my findings in relation to those matters. The setting up of Geewing and the Wanchai restaurant I start with the initial thoughts and ideas which led to the establishment of Geewing and the Wanchai restaurant. As to this, Mr Yung s evidence was that the idea of starting a restaurant selling Shanghainese style dumplings and buns and other Shanghainese food was his idea, which he came up with at a time when his previous business was declining, and which he substantially carried into execution on his own. He said that the name, The Dumpling Shop (or more accurately, its Chinese version) was his own idea as well. He regarded the business as largely his own, and did not consider that Yvonne had any interest in it, notwithstanding that the major shareholder in Geewing was Karex, of which Yvonne and he were equal shareholders. For their part, both Yvonne and Vicky said that the idea of starting such a restaurant was one which was developed by both Yvonne and Mr Yung jointly. Madam Chan s evidence was largely confirmatory of this, since she said that she had always regarded the restaurants as being Mr Yung and Yvonne s businesses, which tends to suggest that she too regarded them as a joint concept of her daughter and son-in-law. Madam Chan and her two daughters gave largely consistent evidence of family discussions at which the idea was discussed and at the end of which the late Mr Chan, having initially made a loan of some HK$1.5 million to Yvonne and Mr Yung to enable them to get started with the business, decided that the family should support the business by taking a small share in it when Mr Yung was unable to find sufficient support from his friends, apart from Mr Poon. I do not think that this is by any means a matter of great significance, as it is very much a matter of background. However, for what it is worth, I prefer the Chans version of these events. Geewing, which was a shelf company, was acquired in March 1995. Initially, its shareholders were Mr Yung, Mr Poon and Madam Chan. Mr Yung says that this was what was intended by the three of them. Yvonne, however, differs. She says that when she accompanied Mr Yung to the company secretarial service from which Geewing was acquired to attend to the formalities of its acquistion, she was surprised to see that the shareholders included Mr Yung and Madam Chan rather than Karex and Marblesum respectively. She says that it had always been the intention that Karex and Marblesum should be shareholders, and that when she mentioned this, she was told that there had been a misunderstanding on the part of the secretarial company, which would be put right later. Madam Chan was unable to throw much light on this matter. It appeared to me from her evidence that, while she was doing her best to assist, she did not fully appreciate the significance of whether the interest in the companies was held in her personal name or by Marblesum. Again, for what it is worth, I prefer Yvonne s version of events in this respect. Although Mr Yung suggested that Karex had been acquired with a view to holding properties jointly owned by Yvonne and himself, he accepted that it never did so, and that none of the properties which they already owned were ever transferred into Karex. Yvonne said that Karex was in fact acquired with a view to holding the interest in the proposed new business, a position which is, I think, supported by the fact that Karex was acquired by Mr Yung and Yvonne in early 1995, shortly before the acquisition of Geewing and the commencement of business of the Wanchai restaurant. So far as Marblesum is concerned, this was a company which held various property investments of the Chan family, and having regard to the fact that the funding for the one-sixth share in Geewing appears to have come from the late Mr Chan (at any rate, there was no evidence that it had its source in the personal funds of Madam Chan), it seems likely that the intention all along was that the shareholding should be held by Marblesum rather than Madam Chan personally, notwithstanding the way in which distributions were later made, to which I refer below. In the event, I do not think that this issue is of particular significance either, since there is no dispute but that shortly afterwards, on 2 May 1995, Geewing s share capital was substantially increased, from HK$10,000 to HK$3 million, with an additional 2,270,100 new shares being issued to Karex, Marblesum and Mr Poon, in the proportions of two-thirds, one-sixth and one-sixth respectively, and that this was followed on 10 May 1995 by Mr Yung and Madam Chan transferring their existing shareholdings to Karex and Marblesum respectively. Although Mr Yung has complained in his evidence that he was misled by Yvonne into transferring his shares to Karex, and agreeing to have the additional shares issued in Karex s name, this is not a matter that he took up at any time prior to these proceedings, and I have little doubt that he was aware of what he was doing. The operation of the Wanchai restaurant In the meantime, Geewing had entered into a tenancy agreement in respect of the premises for the Wanchai restaurant on 28 April 1995, and the Wanchai restaurant opened for business on 30 May 1995. It is clear that from the outset, Mr Yung was very much involved in its operations, and there was no real dispute but that he directed the business of the restaurant, although at first a manageress was also employed. Yvonne said that she was fairly involved in its setting up and initial period of operation, having taken time off from her full-time job to assist with the opening and first week or so of operations. Mr Yung sought to play down her involvement, but I have no reason to doubt that she did play some part at this early stage of the restaurant s operations, although she ceased to do so within a matter of at most two or three months. It is also clear that neither Mr Poon nor Madam Chan played any very significant role in the operations of the Wanchai restaurant. Mr Poon says that he involved himself in a limited way in the fitting out and decoration process, but that thereafter, he took very much a back seat role. For their part, Yvonne and Vicky both accepted that they and the other members of their family were content to leave Marblesum s interests to Madam Chan to look after, and for her part, Madam Chan readily agreed that she was content to leave the running of the restaurant, and thus of Geewing s business, to Mr Yung, whom she trusted implicitly. Further, it is apparent from all the witnesses evidence that the affairs of Geewing and the Wanchai restaurant were operated in a very casual manner, with few if any meetings of shareholders or directors, and a very informal manner of making distributions of profits, by which monthly payments of HK$5,000 were made to each of Madam Chan and Mr Poon, and HK$20,000 to Mr Yung. So far as the payments to Madam Chan were concerned, it seems that while strictly, perhaps, the payments should have been made to Marblesum, all of her family were content for her to receive the payments personally. These payments, together with other (more substantial) payments made at the end of each year, were recorded in Geewing s accounts as loans to Madam Chan, Mr Poon and Mr Yung respectively. However, these loans had no fixed repayment terms and carried no interest, and it would seem that the payments were regarded by all concerned as being more in the nature of dividends. Certainly, none of Mr Poon, Mr Yung or Madam Chan seems to have thought that such loans, if loans they truly were, would ever have to be repaid to Geewing. V&T and the Mongkok restaurant In about mid-1996, as the Wanchai restaurant and Geewing were prospering, Mr Yung appears to have raised the possibility of starting a second restaurant, this time in Kowloon. This eventually led to the incorporation of V&T on 27 June 1997. It seems that Mr Yung had initially proposed taking on additional investors, but that this was not something that either Madam Chan or the Chan family was very keen on. In the event, the majority of the shares in V&T were held by Madam Chan, Mr Poon and Mr Yung in the same proportions inter se as Marblesum, Mr Poon and Karex held shares in Geewing, although four additional shareholders (Ms Yung, Mr Yip, Mr H.K. Chan and Mr Ng) all apparently staff of the Wanchai restaurant were also admitted, each holding approximately half the shareholding of Mr Poon and Madam Chan, apparently in appreciation of their efforts at the Wanchai restaurant. Unlike the position in Geewing, Mr Yung rather than Karex, and Madam Chan rather than Marblesum, were registered as shareholders in V&T. This was notwithstanding that it appears to be accepted by both Mr Poon and Madam Chan that they did not in fact have to contribute any additional funds of their own when V&T was incorporated and the Mongkok restaurant set up and put into operation. They agreed that their contributions came out of profits accumulated in Geewing, and Mr Poon certainly did not seem to think that there was any requirement to repay Geewing the funds so obtained, notwithstanding that (as with the regular distributions) these appeared to have been recorded as loans in its records. Although Mr Yung sought to suggest that the shareholdings in V&T were acquired by the various shareholders and funded out of their own funds, I do not accept that this was the case in relation to his shareholding, and find that, as in the case of the shareholdings of Madam Chan and Mr Poon, this was funded by Geewing by way of a distribution that was described in its books as a loan. There was some debate in the evidence as to whether the registration of Madam Chan and Mr Yung as shareholders in their personal capacity was was appropriate. In relation to Madam Chan s shareholding, Vicky gave evidence of having asked Mr Yung to amend V&T s records so as to show Marblesum as a shareholder rather than Madam Chan. Again, I would tend to accept that these requests were made, and that they were, as Vicky testified, agreed to by Mr Yung, although in the end he did nothing about them. Given that the shareholding in Geewing attributable to the Chan family was held by Marblesum, I can see no reason why the same structure should not have been intended in relation to V&T. Although Mr Yung asserted that Madam Chan had told him that she should be the shareholder in V&T rather than Marblesum, Madam Chan gave no support for this suggestion, and Mr Yung eventually accepted that one of the reasons why he had done this was to try to keep the rest of the Chan family out of the Mongkok restaurant s business. At the end of the day, however, apart from questions of credibility, it does not seem to me that anything turns on this factual dispute. The Mongkok restaurant commenced operations at the end of 1997 or early 1998. Like the Wanchai restaurant, it proved to be successful. Also like the Wanchai restaurant, monthly distributions were made to its shareholders, although these too were recorded as loans in its books. Mr Yung and Yvonne s separation In February 1998, Yvonne and Mr Yung separated. Notwithstanding their marital problems, relations between Mr Yung and the rest of the Chan family appeared to have remained cordial, at least until about the end of 1999. On 28 August 1998, shortly before Yvonne filed her petition for divorce in September 1998, Mr Yung transferred his shareholding in V&T to Ms Yung. As I have noted, this transfer was subsequently set aside by consent in the course of the divorce proceedings. Despite the transfer, it seems that Mr Yung continued to run the business of the Mongkok restaurant, as well as that of the Wanchai restaurant, in which Karex remained a shareholder. Other dealings between Mr Yung and the Chans In about April 1999, Vicky says that she asked Mr Yung to deal with herself or other members of her family instead of with Madam Chan, as Madam Chan was getting older and (at least in her children s opinion) less able to deal with business and financial matters. In May that year, Vicky says that she met Mr Yung on a visit to Madam Chan, at which Mr Yung had provided to Madam Chan, as he had been doing from the beginning of the operations of the Wanchai restaurant, management accounts in respect of the restaurants. What happened at this meeting, and the nature of the information provided in such management accounts was also the source of some controversy at the trial. However, it seems to me that nothing of relevance for present purposes turns on this dispute, and I do not therefore propose to deal with it. In about July 1999, Vicky says that she met Mr Yung and reminded him again of his promise to effect the transfer of Madam Chan s shareholding in V&T to Marblesum. According to Vicky, at this time, Mr Yung suggested opening a third restaurant, but did not pursue the idea when Vicky indicated that her family would not be keen on taking in additional investors. Vicky also says that there was a further occasion when she met Mr Yung in August with one of her brothers and there was a discussion about renewing the lease of the Wanchai restaurant, which was due to expire in May 2000. Attempts to obtain information According to the Plaintiffs and Petitioners, from about September 1999, Mr Yung stopped providing management accounts in respect of the Mongkok restaurant. In November 1999, a request was made by Madam Cheung for books and records of V&T, which met with no response. On 30 November 1999, Marblesum sought copies of books and records of Geewing, but this too, met with no response. In the meantime, on 19 November 1999, Yvonne petitioned for the winding up of Karex on the just and equitable ground (these proceedings were eventually stayed pending the resolution of the divorce proceedings between herself and Mr Yung). Between about December 1999 and about May 2000, various further attempts were made by Marblesum and Madam Chan to obtain financial information and records in relation to Geewing and V&T respectively, or to convene meetings to discuss various aspects of their affairs. As appears below, these produced limited results:- (1) On 3 December 1999, Marblesum gave notice convening an EGM of Geewing on 19 December 1999, with a view to discussing the petition which Yvonne had presented for the winding up of Karex, one of Geewing s shareholders. Madam Chan attended at Geewing s premises (the Wanchai restaurant) on 19 December 1999, but neither of the other shareholders attended, and nothing transpired. (2) On 8 December 1999, Marblesum gave notice convening another EGM of Geewing to be held on 25 December 1999, to discuss the possible renewal of the lease of the Wanchai restaurant, and staff salaries and bonuses. This meeting did take place, and was attended by Yvonne on behalf of Marblesum, Mr Yung purporting to represent Karex, and Mr Poon. According to minutes of this meeting prepared by Yvonne (which were, it seems, sent to Mr Poon and Mr Yung subsequently, but not responded to or commented on), Mr Yung said that as Yvonne had petitioned to wind up Karex, he would not take steps to renew the lease of the Wanchai restaurant on Geewing s behalf. Mr Poon, for his part, indicated that he trusted Mr Yung, and would leave all decisions in relation to Geewing to him. (3) On 10 January 2000, Marblesum s accountants sought from Geewing s accountants copies of Geewing s audited accounts and tax computations from Geewing s incorporation until 31 March 1996, but only received copies of the audited accounts after having to exert considerable pressure, including a threat to report Geewing s accountants to the Hong Kong Society of Accountants. (4) On 28 February 2000, Marblesum notified Geewing that it wished to inspect Geewing s books and accounts and board minutes on 6 March 2000. However, when Yvonne attended at Geewing s premises on 6 March 2000, there was no one present to admit her, and she was unable to carry out the inspection sought. (5) On 29 February 2000, Marblesum sought to convene another EGM of Geewing on 16 March 2000 to discuss renewal of the lease of the Wanchai restaurant, staff salaries and bonuses. However, when Yvonne attended at Geewing s premises on 16 March 2000, no one else appeared. (6) On 3 and 20 March 2000, Madam Chan wrote to Ms Yung seeking copies of management accounts and board minutes of V&T, but received no response. On the same dates, she also wrote (with a copy to Mr Poon) asking for her shareholding to be transferred to Marblesum, a request which also met with no response. (7) On 5 April 2000, Madam Chan sought to convene an EGM of V&T on 6 May 2000 with a view to resolving that V&T should oppose an application by Mr Yung for the registration as trademarks of the Chinese names of the restaurants, of which she had recently learnt. At the meeting, rather than resolving to oppose Mr Yung s application, it appears that it was resolved by the majority that Mr Yung s application should be approved. (8) On 26 April 2000, Marblesum made a further request for financial information and accounts of Geewing, which met with no response, and on 7 May 2000, Marblesum convened an EGM of Geewing to consider its financial position, to be held on 23 May 2000. When Yvonne attended for this meeting, she found no one else present. (9) On 11 May 2000, Madam Chan notified V&T of her intention to attend at its offices on 17 May 2000, through Yvonne, to inspect its minute book, but when Yvonne attended, there was no one to admit her. At the trial, Mr Yung did not deny that these notices or letters had been received. He said that many of them were in English, which he did not understand, and he regarded them as harassment by the Chan family, which he ignored. The argument between Vicky and Mr Yung Meanwhile, at the end of November 1999, it seems that Mr Yung paid a visit to Madam Chan, asking her to sign a bank mandate amendment to add Ms Yung as a signatory on various bank accounts. It seems that she was subsequently told that the document would have to be signed again, and arrangements were made for her to do so when she was at the Wanchai restaurant for a family dinner. At that dinner, according to Vicky, a dispute arose between herself and Mr Yung. Madam Chan confirmed that there was a dispute, as a result of which Vicky was upset, although she seemed to recollect it as having been rather shorter than Vicky s recollection. The trigger for the argument seems to have been relatively minor - a request for Mr Yung to respect the Chan family s wish that Madam Chan should no longer be troubled with having to deal with the affairs of Geewing and V&T, and a further reminder as to the request for the change of shareholder s name in V&T from Madam Chan to Marblesum. According to Vicky, Mr Yung reacted badly and suggested that Vicky should simply take over running the restaurants, causing Vicky to become upset. Mr Yung suggested, I think, that any disagreement was a relatively minor one, and that Vicky had overreacted. Whatever may be the position, it would seem that the argument did have some effect on Mr Yung, as he subsequently visited Madam Chan at her home, and persuaded her to cancel her recent appointment of Vicky as her representative in relation to the affairs of Geewing and V&T. The key event - transfer of businesses of Geewing and V&T Having set out the background to what are, in my view, the key events, I now deal with the circumstances leading up to the cessation of operation of the restaurants by Geewing and V&T, and the commencement of operations of the new restaurants by DSD and DSM. I deal first with the Wanchai restaurant. As I have noted, DSD and Yin Man were incorporated on 5 January 2000. In fact, Mr Poon and Ms Yung had subscribed for shares in DSD as early as 24 December 1999. DSD s registered address was the premises of the Wanchai restaurant. Yin Man s registered address was the premises of the Mongkok restaurant. According to its business registration certificate, DSD commenced business on 8 April 2000. In early May 2000, Yvonne noticed that the Wanchai restaurant was apparently closed for renovations. On 19 May 2000, The Dumpling Shop resumed operation at the Wanchai premises. However, the business registration certificate displayed at the premises indicated that the business was operated not by Geewing, but by DSD. It would appear that a new lease for these premises was obtained by DSD, Geewing having failed to renew its lease. The reasons for Geewing s failure to renew its lease were explored with Mr Yung and Mr Poon in the course of their evidence. In his witness statement, Mr Yung gave the impression that the reason why Geewing had not renewed its lease was because the landlord of the Wanchai restaurant s premises had refused to grant a lease because of the dispute between Mr Yung and Yvonne. However, in his oral evidence, he said that he had been too demoralised by the divorce proceedings and the difficulties that had arisen between himself and the Chan family towards the end of 1999, and no longer wished to continue with the business of the restaurants, and so had not approached the landlord to discuss any renewal of the lease. Mr Poon s evidence was similarly discrepant. In his witness statement, he too, gave the impression that the landlord had refused to renew the lease because he had become aware of the divorce proceedings between Yvonne and Mr Yung. However, in his oral evidence, he said clearly that the reason why the lease was not renewed was because no one approached the landlord for a renewal. He said that he was in no position to do anything about it, as he was only a minor shareholder. However, when the minutes of the meeting of 25 December 1999 were put to him, he accepted that he sided with Mr Yung throughout, even when he knew that Mr Yung had said that he would not cause Geewing to renew its lease of the Wanchai restaurant premises. He also said in his oral evidence that the landlord eventually negotiated with some other party, but was not very forthcoming about who that other party was. As for the Mongkok restaurant, the position appears to be as follows. On 9 May 2000, Mr Poon and Ms Yung approached Madam Chan and sought to persuade her to sell her shares in V&T for HK$500,000, presenting her with a cheque in this amount, and a set of blank transfer forms for her to sign. Madam Chan refused to sign anything before discussing the matter with her children, and refused to accept the cheque. However, she kept the blank transfer forms to show her children. Mr Yung said in oral evidence that owing to the deterioration in his relationship with the Chans, he, Mr Poon and Ms Yung decided to offer Madam Chan the alternative of selling her interest in V&T for $500,000 or buying out the interests of the other shareholders for HK$3.5 million. However, while he had mentioned the offer to buy out Madam Chan in his witness statement, he had not there made any mention of the alternative that she should buy out the other shareholders. Neither was this alternative put to Madam Chan or either of her daughters when they were giving evidence. Although Mr Poon at first said that both alternatives were offered, he was unable to explain why his statement too contained no reference to the latter alternative. In my view, the suggestion that Madam Chan should buy out the shareholders was never in fact made. Had it been, I would have expected it to have been mentioned by Mr Poon and Mr Yung in their witness statements. There was no explanation offered for the failure to mention it earlier. I would equally have expected it to have been put to Madam Chan had it formed part of Mr Yung s instructions to his legal advisers, but this did not happen either. I consider that this was a fabrication by Mr Yung, perhaps in an attempt to bolster his evidence that he did not care about the business of the restaurants any longer. The attempt to buy out Madam Chan was clearly inconsistent with this suggestion, and it seems to me that the late suggestion that the buy out suggestion went both ways was put forward in an attempt to downplay that inconsistency. Following Madam Chan s refusal of the offer to purchase her shares, an EGM of V&T was convened for 30 June 2000 to resolve on a voluntary winding up. No explanation was given as to why it was thought that a winding up was called for, particularly when the Mongkok restaurant was operating profitably. At the meeting, the resolution to wind up V&T was passed notwithstanding Madam Chan s objections. However, as noted above, DSM was incorporated on 19 June 2000. Following the passing of the resolution to wind up V&T, it appears that DSM took over the operation of the Mongkok restaurant, by operating the new Mongkok restaurant. DSM s registered address was stated to be the premises of the Mongkok restaurant. Its shareholders were largely the same as those of V&T, except that Mr Yung was not recorded as a shareholder (being replaced by Yin Man) and Mr Ng was no longer a shareholder. The parties respective cases - who is to be believed? The case of the Plaintiffs and Petitioners is that Mr Yung was behind the transfer of the business of Geewing and V&T to DSD and DSM respectively, and that Mr Yung was the true beneficial owner of Yin Man, which he used to disguise his interest in the latter companies. This was denied by Mr Yung. He said that he had nothing to do with Yin Man, and had no interest in either DSD or DSM. According to Mr Yung, he was so completely demoralised by the events of late 1999 and early 2000, that he had lost all interest in the business of the two restaurants, and that the decision to set up these companies was taken by Ms Yung, Mr Poon and other staff of the restaurants. He said that he had no intention of involving himself in the business of the restaurants any further, but that after DSD and DSM had taken over the premises and commenced operating the new restaurants, he was approached to assist in the running of the restaurants as a consultant, at a monthly salary of about the same amount as he had previously drawn by way of distribution of profit from the restaurants. Unfortunately for Mr Yung, Mr Poon s evidence as to the setting up of DSD and DSM was rather different. Although Mr Poon was somewhat evasive at first, and was initially somewhat reluctant to implicate Mr Yung in the setting up of DSD and DSM, saying that he had been asked to participate in DSD by Ms Yung, he was unable to explain how he had funded his investment in DSD, saying that he did not have to pay for such investment from his own funds. He claimed that he obtained a loan from Geewing for this purpose, but was unable to explain why Geewing should have made such a loan to him. He was also unable to say where Yin Man got its funds for investment in DSD. When pressed, he indicated that Mr Yung was responsible for the financial arrangements. When it was suggested to him that Mr Yung had engineered the setting up of DSD and its acquisition of Geewing s business, Mr Poon s response was that you could say so . In the course of cross-examination by Ms Tsui, he agreed that Mr Yung probably participated in the discussions about the setting up of DSD. In answers given to both Ms Tsui and Mr Lau, Mr Poon made it abundantly clear that Mr Yung had agreed, prior to the setting up of DSD and DSM, and prior to the commencement of the operations of the new restaurants, to be involved in the running of the restaurants. Mr Poon said that had Mr Yung not agreed to do this, he would not have agreed to invest in the new companies. When asked whether Mr Yung was behind all of these activities, Mr Poon s answer, that Mr Yung was the only one who knew how to run the business was, I think, telling against Mr Yung s position. When it was suggested to him that what had been done was unfair to Madam Chan and Marblesum, Mr Poon declined to comment, saying only that he was concerned principally to look after his own position. In the light of Mr Poon s evidence, I am quite unable to accept Mr Yung s assertion that he only became involved with the affairs of DSD and DSM after they had commenced operation of the new Wanchai and Mongkok restaurants respectively. I am satisfied, and find as a fact, that Mr Yung had agreed to participate in their business from the outset, and wished to retain an interest in such businesses. Quite apart from Mr Poon s evidence, it seems to me that there are a number of other indicators that point to the same conclusion, and require the rejection of Mr Yung s case that he had lost interest in the business of the restaurants. These are as follows:- (1) The timing of the incorporation of DSD and Yin Man, shortly after the Geewing meeting of 25 December 1999, at which Mr Yung was recorded as saying that he would not obtain a renewal of the lease of the Wanchai restaurant in Geewing s name tends to suggest that he was aware of and party to the incorporation of these companies. It is noteworthy that the incorporation of DSD was put into motion just before that meeting, on 24 December 1999. (2) The attempt to buy out Madam Chan also indicates, to my mind, that Mr Yung and those associated with him were keen to carry on the business of the restaurants. (3) The application by Mr Yung to register the Chinese name of the restaurants as a trade mark also indicates his continued interest in the business of the restaurants. (4) The timing of the incorporation of DSM, shortly after the convening of the meeting at which it was to be proposed that V&T should be wound up, is a further indicator of such interest. Further, in the light of this evidence, and also of the fact that the shareholding of Yin Man in DSD and DSM was virtually identical to the shareholding previously held by Karex in Geewing (which Mr Yung considered to be his) and by Mr Yung himself in V&T, I am satisfied that Mr Yung was in fact the beneficial owner of Yin Man. To suppose that the proportionate shareholdings of Yin Man, as compared to the other shareholders in DSD and DSM bore precisely the same proportion as had previously been borne by Mr Yung s interests in Geewing and V&T to those of the other shareholders, was simply a matter of coincidence is simply not credible. In these circumstances, I am satisfied that Mr Yung was fully involved in the decisions to set up DSD and DSM and to effectively transfer the businesses of Geewing and V&T to those companies. In the light of the evidence set out above, I am also satisfied that Mr Poon and Ms Yung were knowing parties to those decisions and activities. The value of the businesses The effect of these activities was that Geewing and V&T were deprived of their only business and source of income. Although Mr Yung claimed that Geewing and V&T received some two hundred thousand dollars or thereabouts each in respect of the plant and equipment of the restaurants, there was no evidence showing exactly what amount was received, and when and how it was received by Geewing and V&T respectively. Even if there had been such evidence, it seems to me that in the light of Mr Lo s evidence as to the valuation of the companies, that even if payments of this order had been received, there would nonetheless have been a disposal of the businesses of Geewing and V&T at a gross undervalue. Mr Lo explained the basis on which he valued the businesses of Geewing and V&T as follows:- (1) He did not consider that the net asset value of the companies was a reliable indicator of their value, particularly having regard to the nature of the businesses, which could best be described as asset light , i.e. not requiring a substantial amount of fixed assets for their operation. Moreover, it appeared (as has been discussed above) that a substantial portion of the assets of the companies consisted of receivables in the form of loans to shareholders (or in the case of Geewing, persons related to shareholders) which appeared to be more in the nature of dividends or a distribution, the recoverability of which might be uncertain. (2) Having regard to the nature of the business, it was considered that a more realistic basis of valuation would be to attempt to ascertain what a willing buyer would be prepared to pay for the underlying business operations of the companies, namely the restaurants. This is a function of the profitability of the business, and of the buyer s expectations as to the return which he would expect to achieve on his investment. Having regard to the sort of returns historically produced by Geewing and V&T and returns from other restaurant operating companies, Mr Lo considered that a willing buyer would be looking for a return of between 20% to 30% on his investment. The lower rate of return would indicate that the buyer regarded the investment as a relatively lower risk investment, whereas the higher rate would suggest that the investment was regarded as higher risk. In order to ascertain the value of the businesses on this basis, Mr Lo took the average annualised profits of the businesses, as disclosed in the audited accounts, subject to adjustments for certain non-cash items, and divided these by the expected rate of return. (3) On this basis, Mr Lo calculated that the yearly average income of Geewing over the periods ending 31 March 1997 through to 31 March 2000 was some HK$1,085,000, and that of V&T for the two years that it had been in operation (periods ending 31 March 1999 and 31 March 2000) was some HK$2,209,000. On the basis of rates of return of 20%, 25% and 30% respectively, these produced values of HK$5.425 million, HK$4.340 million and HK$3.617 million in respect of Geewing and of HK$11.045 million, HK$8.836 million and HK$7.363 million in respect of V&T. (4) In addition to these amounts, Mr Lo was of the view that it might be appropriate to add a further element of value in respect of goodwill arising out of the brand value of the name The Dumpling Shop , as he had been provided with a brochure which suggested the possibility of franchising of additional restaurants by Geewing or V&T. Mr Lau suggested that the appropriate value to be adopted was simply to consider the value of the plant which was sold. This was rejected by Mr Lo, on the basis that the sale value (and book value of the plant) was relatively low, as the business of operating restaurants was relatively asset light. Mr Lo pointed out that this would produce very low values, which could be recouped in a matter of months rather than years from the profits of the businesses. In my view, Mr Lo was right to reject this suggestion. Mr Lau also suggested to Mr Lo that it was inappropriate to take account of goodwill, as there was no real evidence of any franchising operations in relation to the restaurants. Mr Lo expressed the view that whether there was such evidence was a matter that was beyond his expertise. In my view, there was no such evidence - the only matters relied upon by Mr Lo was the value of the name of the restaurants (which were not trademarks owned by either Geewing or V&T), and the brochure which suggested that there was a possibility that subsequent restaurants might be set up on the basis that royalties would be paid to Geewing or V&T. However, there does not appear, in 2000 at the time when the transfers took place to have been any real prospects of this happening. I therefore regard this element of Mr Lo s valuation as not having the necessary evidential underpinning to make it good, notwithstanding that it appears that in 2001 (a year later), two further restaurants under the same name were opened in other locations, apparently without achieving any great success. That said, I would accept Mr Lo s evidence, which was otherwise substantially unshaken, as to the range of possible values which I have indicated above. That leaves the question of what value within that range should be placed on the restaurant businesses of Geewing & V&T. In my view, making some allowance for the trend of declining profitability that appeared to be disclosed by the profit figures used by Mr Lo, it would be appropriate to take a conservative valuation of the businesses, and I have therefore concluded that the appropriate figures to adopt would be those at the lower end of Mr Lo s range - namely HK$3,617,000 in respect of Geewing, and HK$7,363,000 in respect of V&T. Mr Lau also submitted that there was a difference between the value of the business and the value of the company itself, and that Mr Lo s valuations were directed at the latter. However, it seems to me that having regard to the methodology adopted by Mr Lo, he was ascribing to the company essentially the value which its business would fetch if sold by a willing seller to a willing buyer, so that there is nothing in this suggested distinction. On this basis, it is apparent that whatever may have been received for the plant of the two restaurants, this amount (if received) was nonetheless a very significant undervalue. Application of findings to the claims in Petitions and Actions I turn therefore to consider the impact of my findings on the various claims advanced in the Actions and Petitions. The Geewing Petition Dealing first with the Geewing Petition, it seems to me that a clear case for winding up on the just and equitable ground has been made out. I have found that Mr Yung and Mr Poon caused the business of Geewing to be transferred at a substantial undervalue to DSD. This conduct had the effect of stripping Geewing of its only source of income, and removing the underlying purpose for which the shareholders of Geewing had come together, namely the operation and exploitation of the Wanchai restaurant. It seems to me impossible to suggest that this conduct was anything other than unfair to Marblesum, since its effect was to exclude Marblesum from further participation in the Wanchai restaurant s business, without in any way compensating Marblesum therefor. It was, to my mind, also prejudicial to Marblesum s interests as a shareholder of Geewing. Mr Lau submitted that it was necessary to show that Geewing was a quasi partnership before winding up on the just and equitable ground could be ordered, and that the evidence showed that the venture was simply an investment on the part of Marblesum, which was content to leave management of Geewing in the hands of Mr Yung. In my view, the evidence as to the origins of the cooperation between the shareholders, and the was in which they dealt with each other thereafter, shows clearly that the relationship between them was firmly based on mutual trust, such that once that trust has been broken by the acts of Mr Yung and Mr Poon, it would be appropriate for the court to wind up the company, it having no further business capable of pursuit. Finally, Mr Lau submitted that Marblesum was not entitled to relief because it did not come with clean hands. I accept that where a shareholder seeking winding up on the just and equitable ground is himself responsible for the breakdown in the relationship, the court may well be justified in refusing relief under section 177(1)(f) of the Ordinance. However, the lack of clean hands relied upon in this case was an allegation by Mr Yung that Yvonne and Vicky had, on numerous occasions, caused trouble at the restaurants and disrupted their business by coming there and occupying excessive table space for unreasonably long periods, harassing the staff, generally creating a scene, and thereby driving away other genuine customers. This allegation was firmly denied by both Yvonne and Vicky. Given my assessment of their credibility as compared to that of Mr Yung, I am disposed to accept their evidence, and reject that or Mr Yung. However, even if I had come to a contrary conclusion on this point, I do not consider that it would have availed the Respondents to the Geewing Petition. I say this for two reasons:- (1) I do not see how the behaviour of Yvonne or Vicky can properly be attributed to Marblesum, the shareholder in Geewing that has been the victim of the unfairly prejudicial conduct which I have found; and (2) Even if there had been some basis for treating their behaviour as somehow attributable to Marblesum, it seems to me that such behaviour could not suffice to amount to behaviour causing a breakdown in the relationship, or to justifying in any way the highly prejudicial acts committed by Mr Yung and Mr Poon. I therefore consider that it would be right for me to order the winding up of Geewing, on the basis that it is just and equitable so to order, having regard to the conduct of Mr Yung and Mr Poon. The Geewing Action So far as the Geewing Action is concerned, it seems to me that Mr Yung was clearly a de facto director of Geewing, having regard to his extensive involvement in its business, and as such, owed Geewing the fiduciary duties owed to it by its de jure directors. It seems to me that both Mr Poon and Mr Yung were in breach of their duties as director/de facto director in disposing of the business of Geewing at a substantial undervalue to a company in which they were interested, and as such are jointly and severally liable to account to Geewing for the value of the asset which has been misappropriated. Having regard to the views that I have expressed in paragraph 66 above, I would value such asset at the sum of HK$3,617,000. As for Ms Yung and DSD, I have held that Ms Yung was a knowing party to the breaches of duty committed by Mr Yung and Mr Poon. So far as DSD is concerned, it obtained the business of Geewing at a substantial undervalue, and must be taken to have known that this was the case, as the knowledge of Ms Yung and Mr Poon, its directors, is to be attributed to it. I therefore consider that Ms Yung and DSD are also liable, jointly and severally with Mr Poon and Mr Yung, to account to Geewing for the value of the asset so misappropriated. Having regard to the fact that I have found all the Defendants to the Geewing Action liable on these bases, it is not necessary to make any findings in relation to the claim for damages for conspiracy. Had it been necessary to do so, I would have been of the view that this claim was made out, and that the damages in respect of it should be assessed in the same amount as that for which the Defendants are required to account to Geewing. Although Ms Tsui submitted in her closing submissions that an order should be made for payment to the Plaintiff, it seems to me having regard to the fact that the action was brought as a derivative action on behalf of Geewing, that all payments should be made to Geewing itself, rather than to the Plaintiff, Marblesum. The V&T Petition As for the V&T Petition, it seems to me that the position is, mutatis mutandis, the same as that in relation to the Geewing Petition, and I therefore order that V&T be wound up on the just and equitable ground, having regard to the conduct of Mr Yung, Mr Poon and Ms Yung. The V&T Action So far as the V&T Action is concerned, it seems to me that having regard to the findings of fact which I have made, that Mr Poon and Ms Yung were clearly in breach of their duties as directors of V&T in causing it to effectively transfer its only income producing asset to DSM, and that they are therefore jointly and severally liable to account to V&T for the value thereof, which I have found to be HK$7,363,000. DSM is liable to account to V&T for the same amount as a knowing recipient of the property of V&T misapplied by Mr Poon and Ms Yung, by virtue of Ms Yung s knowledge of the breach of duty, which is attributable to it as she was one of its directors. Had it been necessary, I would have held the claim in conspiracy to be made out, with damages in the same amount as that for which Mr Poon, Ms Yung and DSM are required to account to V&T. Similarly to the position in the Geewing Action, all payments in respect of this amount are to be made to V&T, rather than the Plaintiff, Madam Chan. Costs So far as costs are concerned, I propose to make the following orders nisi:- (1) In respect of the Geewing Petition, the costs, including any reserved costs, are to be paid by Mr Poon and Mr Yung to Marblesum, such costs to be taxed on the party and party basis if not agreed. (2) In respect of the Geewing Action, the costs, including any reserved costs, are to be paid by Mr Poon, Mr Yung, Ms Yung and DSD to Marblesum, such costs to be taxed on the party and party basis if not agreed. Having regard to the fact that the action was brought successfully for the benefit of Geewing, I shall order also that Geewing should indemnify Marblesum in respect of such costs. (3) In respect of the V&T Petition, the costs, including any reserved costs, are to be paid by Mr Poon, Mr Yung and Ms Yung to Madam Chan, such costs to be taxed on the party and party basis if not agreed. (4) In respect of the V&T Action, the costs, including any reserved costs, are to be paid by Mr Poon, Ms Yung and DSM to Madam Chan, such costs to be taxed on the party and party basis if not agreed. Having regard to the fact that the action was brought successfully for the benefit of V&T, I shall order also that V&T should indemnify Madam Chan in respect of such costs. (Aarif Barma) Judge of the Court of First Instance High Court Ms Jennifer Tsui instructed by Ms Chaine, Chow & Barbara Hung, for the Petitioners in HCCW 619 and 628 of 2000 and HCA 968 and 3874 of 2001 Mr Raymond Lau instructed by Messrs Ng & Co., for the 2nd Respondent in HCCW 619 and 628 of 2000 and the 2nd Defendant in HCA 968 of 2001 Mr Poon Shu Pang, 1st Respondent in HCCW 619 and 628 of 2000 and 1st Defendant in HCA 968 and 3874 of 2001, in person Mr Yip King Kwong, 4th Respondent in HCCW 619 of 2000, in person (first day only) Mr Ng Kwong Wo, 6th Respondent in HCCW 619 of 2000, in person (first day only) Dumpling Shop Development Company Limited, 3rd Respondent in HCCW 628 of 2000 and 4th Defendant in HCA 968 of 2001, absent Geewing Company Limited, 4th Respondent in HCCW 628 of 2000 and 5th Defendant in HCA 968 of 2001, absent Karex Limited, 5th Respondent in HCCW 628 of 2000, absent Yung Yin Lan, 3rd Respondent in HCCW 619 of 2000, 3rd Defendant in HCA 968 of 2001 and 2nd Defendant in HCA 3874 of 2001, absent Chan Hon Keung, 5th Respondent in HCCW 619 of 2000, absent V&T Investments Limited, 7th Respondent in HCCW 619 of 2000 and 4th Defendant in HCA 3874 of 2001, absent Dumpling Shop (Mongkok) Limited, 8th Respondent in HCCW 619 of 2000 and 3rd Defendant in HCA 3874 of 2001, absent PAGE - 1udk 1udk G H I J K L M N O P Q R S T U V A B C D E F G H I J K L M N O P Q R S T U V i$&lH:: setup hccw (for Susan Kwan only).dot setup Microsoft Word 9.0 Judiciary Hong Kong Title Microsoft Word Document MSWordDoc Word.Document.8