SUN FOCUS INVESTMENT LTD v. TANG SHING BOR AND ANOTHER

HCA 538/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 538 OF 2007

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J U D G M E N T

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1.  This is the trial of a preliminary issue, namely, whether the plaintiff (“SF”) had proper authority to sue in this action (see defendants’ (“Ds”) Summons dated 10 April 2013).

2.  This court has given a number of decisions in this case.  The background to this dispute and a glimpse of its long litigation history can be seen in a Judgment dated 22 January 2013.  The basis of this preliminary challenge by Ds can be seen in the Reasons for Decision dated 20 August 2013 (“Decision”). 

3.  In a nutshell, Ds are contending that this action has not been authorized by validly appointed directors of SF.  The lynchpin of Ds’ case is the allegation that a sale in respect of 50% of the issued shares of SF (“Sale”) which took place in October 2003 is a fraudulent one and, consequently, much of what took place thereafter in respect of SF is invalid. 

4.  Quite fairly (and rightly), Mr Cheuk, who appears for Ds, has accepted from the outset that there is documentary evidence before the court in the form of, inter alia, company records (annual returns) of SF and a set of transfer documents in respect of the Sale which are on their face regular and therefore prima facie suggest that there is no irregularity in SF’s authority to sue.  The evidential burden is on Ds, so accepted by Mr Cheuk, to establish the alleged fraud.  Accordingly, with the agreement of their counsel, this trial was opened by Ds.

5.  There is no argument that fraud must be proved by cogent evidence.

6.  Let me say at the outset that there is no merit whatsoever in Ds’ challenge.  This trial is a lamentable waste of scarce resources.  In the Decision, this court had expressed concern over the long delay to bring this action to trial and the endless procedural skirmishes which had taken place.  Para 3 of the Decision stated as follows:

“The time must have come for the court to keep a firm control over this action. From now on, any unnecessary or unmeritorious interlocutory argument will be heavily penalised on costs, and the parties are to focus their energy on bringing this action to trial.”

7.  On the day the Decision was handed down, there was another judgment from the Court of Appeal in respect of an interlocutory appeal by Ds.  Para 11 of that judgment stated as follows:

“Lastly, now that the issues relating to the pleadings have been settled, the parties should take prompt action to finalize the preparation of the case for trial. In our view, the trial of this action has been put off for too long. The parties and those advising them should be mindful of their duties under Order 1A Rule 3. They should not lose sight that one of the underlying objectives of the Rules is, as stated in Order 1A Rule 1(b), to ensure that a case is dealt with as expeditiously as is reasonably practicable.”

8.  I turn to the documentary and the undisputed evidence.  SF was incorporated in Hong Kong on 16 March 1993.  Investment of the company’s assets is one of the objects for which that company was established.

9.  As at the date of the Annual Return dated 25 March 1994, the shareholding of SF was as follows :

10.  On 25 April 2002, Tang transferred his shares in SF to his son, Mr Tang Kwan Ching (“KC Tang”).  As at the date of the Annual Return dated 16 March 2003, the shareholding of Sun Focus was:

11.  In respect of the Sale which, on the face of the documents, took place on 15 October 2003, it is evidenced by the following:

a. The stamped Instrument of Transfer and Bought and Sold Notes regarding the sale of 2,500 shares of SF by Cheung to Ms Tang Kwan Yee (“Ms Tang”) dated 15 October 2003.  There is no dispute that Ms Tang is the daughter of Tang.

b. The stamped Instrument of Transfer and Bought and Sold Notes regarding the sale of 2,500 shares of SF by Yau to Ms Tang dated 15 October 2003.

c. A letter dated 15 October 2003 from Cheung and Yau to the Commissioner of Inland Revenue stating that there was no agreement for sale and purchase regarding the transfer of the 5,000 shares.

12.  Further, there is a set of minutes dated 15 October 2003 which evidence a meeting of SF’s board of directors (“Board”), consisting of Tang, Cheung and Yau.  During that meeting, it was resolved, inter alia, that :

a. The share transfers from Cheung and Yau to Ms Tang be approved subject to stamping, and the original share certificates be cancelled.

b. The affixing of SF’ common seal to the new share certificates in the name of Ms Tang be approved.

13.  By two letters dated 20 April 2004 from respectively Cheung and Yau to the Board, they tendered their resignation as directors with immediately effect.  It appears that those letters were sent on their behalf by their solicitors.  It is right to point out that the resignation by Cheung and Yau not long after the disposal of their shares go some way to support the genuineness of the Sale.

14.  I turn to the other company records.  As reflected in SF’s Annual Return dated 16 March 2005, the shareholding of SF was:

15.  It can be seen from the Annual Returns filed for the subsequent years:

16 March 2006

	a. KC Tang, director and secretary:	5,000 shares
	b. Ms Tang, director:	5,000 shares

16 March 2007

	c. KC Tang, director and secretary:	5,000 shares
	d. Ms Tang, director:	5,000 shares

2008

e. Certificate of No Change as of 16 March 2007

2009

f. Certificate of No Change as of 16 March 2007

16.  This action was commenced in March 2007.  There is no need to refer to the later company records.

17.  On 11 September 2007, pursuant to certain enquiry (the details of which are not important), a set of the documents in respect of the Sale (see paras 11 and 12 above) was produced by Messrs Louis Lai and Luk (“LLL”) which was at all material times SF’s accountants and, until 2004, its company secretary (the secretariat service was provided by a company associated with LLL).  This piece of evidence demonstrates that the relevant documents for the Sale or copies thereof, which were probably prepared by LLL, were kept by the professionals.  This goes some way to militate against the proposition that the Sale was a fraud. 

18.  Regrettably, Ds are not satisfied and one of the partners of LLL, Mr Luk, was subpoenaed to give evidence in this trial by them.  Mr Luk duly confirmed that all Sale documents and others mentioned above were routine documentation which LLL or its secretariat arm provided to their corporate clients as part of their service. 

19.  Despite Mr Cheuk’s valiant attempts to make various forensic points, eg, whether meetings as stated in minutes were in fact held, I am unable to see any merit in the exercise.  Mr Luk’s evidence plainly supports the veracity of the documentary evidence. 

20.  Mr Luk is the only witness in this case.  The only evidence in support of the allegation of fraud is consisted of two affirmations from respectively Cheung and Yau (“Affirmations”).  The affirmation of Yau merely confirmed that of Cheung.  Yau had since passed away and Cheung was not called to give evidence.  Therefore, the evidence is at best entirely hearsay. 

21.  For the present purpose, I shall put aside the question whether Ds are entitled to rely upon the Affirmations in light of the failure to comply with this court’s direction that all the deponents are to attend this trial for cross-examination: see Hong Kong Civil Procedure 2014, vol 1, rubric 38/2/5. 

22.  With respect, I am unable to see how it can be argued that the clear and, on its face, cogent documentary evidence in respect of the Sale and the corporate information of SF can be displaced by hearsay evidence.  There is nothing compelling or convincing in the Affirmations such that weight should to be given to them without having the makers called for the evidence to be tested.

23.  For completeness, I should mention that it is accepted by Mr Cheuk that in the absence of a valid challenge to the Sale the Board is in a position to ratify this action even if there were irregularity in the existing approval of the same.

24.  Unsurprisingly, Mr Ma, who appears for SF, made a submission that there is no case to answer.  I agreed and I dismiss this challenge by Ds. 

25.  I shall hear the parties on costs.

[Submissions as to costs of the trial of preliminary issue]

26.  There is no argument that SF should be entitled to the costs of this trial.  However, Mr Ma has asked for the costs of SF to be assessed on full indemnity basis.  This court is certainly unhappy with the failure of Ds to take any effective step to verify the allegations of Cheung and Yau, and their failure to withdraw their challenge once it was ascertained that Cheung would not be giving evidence in this trial. 

27.  On the other hand, Mr Cheuk has made a valid point that SF had not, by itself or through Ms Tang, responded to the allegations concerning the Sale until the filing of its evidence in August 2013 and it can be said that SF has, to some extent, brought suspicion upon itself.  Further, I accept that those instructing Mr Cheuk had been trying to secure the attendance of Cheung and that the hope for securing his attendance was only extinguished shortly before trial.  This court may be unduly lenient to Ds but on a fine balance this application of SF is declined. 

28.  Costs of this trial is awarded to SF to be assessed on party and party basis.  Such costs are summarily assessed at HK$200,000.