KANFORD RICH LTD v. CALVIN CHAU AND OTHERS

HCMP 2345/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2345 OF 2015

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D E C I S I O N

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1.  This is an application by a shareholder for an order for inspection of the documents of the company, Tsun Ling Limited (“Tsun Ling”).

2.  The applicant, Kanford Rich Limited (“Kanford”), is the registered holder of 2,000 out of 10,000 issued shares in Tsun Ling. Kanford became a shareholder of Tsun Ling in November 2011, having been transferred the 2,000 shares from Golcar International Limited (“Golcar”).

3.  The shareholding in Tsun Ling is as follows:

Calvin Chau (the 1st respondent herein)	3,000 shares
Chau Cedric	3,000 shares
Chau Kar Hon Quinton (the 3rd respondent herein)	1,000 shares
Chau Wing Yee Vanessa	1,000 shares
Kanford	2,000 shares

4.  The present directors of Tsun Ling are Calvin Chau and Chau Kar Hon Quinton, the 1^st and 3^rd respondents.

5.  Tsun Ling does not run any business but holds two residential properties, namely, Suites 25V and 26W in the building at 1 Robinson Road, Hong Kong.

6.  Kanford itself is a British Virgin Islands (“BVI”) company.  Its only issued share used to be held by Chau Kar Ho Bernard, the 2^nd respondent (“Bernard Chau”).  Mr Li Cho Chuen, who has made the affirmations filed on behalf of Kanford in these proceedings, says that the one share in Kanford was sold by Bernard Chau to Earn Tech Limited (“Earn Tech”), a Hong Kong company, on 26 September 2013.

7.  Beginning in June 2015 Kanford has sought from Tsun Ling very wide categories of documents including management accounts, tax returns, bank statements, agreements and contracts, and all books and records, going back 7 years.  There is no dispute that the information and documents sought had not been provided to Kanford pursuant to these requests.  The originating summons herein was issued in September 2015 but discontinued as against Bernard Chau, the 2^nd respondent, in October 2015.  I shall henceforth refer to the 1^st and 3^rd respondents simply as the respondents.

8.  The respondents contend that 1 Robinson Road used to be the residence of their paternal grandfather, Sir Tsun Nin Chau, a prominent businessman and public figure in Hong Kong in his time who passed away in 1971.  In 1965 the property was transferred by Sir Tsun Nin to his four sons as tenants in common in equal shares.  After his death, the property was redeveloped into the multi-storey building that now bears that address.  Some of the units were sold and some given to various descendants. Two units, namely, Suites 25V and 26W, initially remained held by the four sons.

9.  Between 1975 and 2004 there were certain transfers within the Chau family of the undivided shares in the two units.  It is unnecessary to go into the details for present purposes, for the family later agreed to transfer the properties to a company.  Tsun Ling was incorporated in Hong Kong in March 2004.  On 31 December 2004 the two units were wholly transferred by the descendants of Sir Tsun Nin to Tsun Ling.

10.  The respondents aver that it was the common understanding of all concerned at the time that the sole purpose of setting up Tsun Ling was for holding Suites 25V and 26W for the benefit of the Chau family. Indeed Suite 25V had been occupied by Sir Tsun Nin’s sister rent-free from the 1970s until 2013 when she passed away.  From 2014 onwards Suite 25V has been used in part as an “ancestral hall” for the Chau family. 

11.  Initially the children of each of the surviving children (three sons and a daughter) of Sir Tsun Nin had interests in Tsun Ling.  In particular, it is said that Bernard Chau, himself a grandson of Sir Tsun Nin, used a BVI company held by him, Golcar, to hold 2,000 shares in Tsun Ling on behalf of himself and his three sisters.  The respondents contend that, when the 2,000 shares in Tsun Ling were transferred by Golcar to Kanford in 2011, Kanford continued to hold those shares on behalf of Bernard Chau and his three sisters.  This has also been stated in an affirmation in these proceedings made by Daisy Chau, one of the sisters of Bernard Chau, for herself and her two sisters.

12.  It transpired that Bernard Chau had, during 2012, forged Tsun Ling’s seal and fraudulently obtained money from banks by executing 5 mortgages over Suites 25V and 26W purportedly on behalf of Tsun Ling.  The other grandchildren of Sir Tsun Nin reported it to police in October 2012.  Bernard Chau was charged with 5 counts of fraud.  He was tried and convicted in October 2014, and sentenced to imprisonment for 40.5 months.

13.  Apparently, for reasons that are not yet clear, in September  2013, after the fraudulent mortgages were discovered, Bernard Chau transferred his one share in Kanford to Earn Tech.  The documents relating to the transfer have not been disclosed in these proceedings; nor has the consideration for the transfer been disclosed.

14.  The respondents and Bernard Chau’s sisters say that neither they nor anyone in the Chau family knew about this transfer of Kanford.  They aver that in February 2014, unaware of the transfer of Kanford, Bernard Chau’s three sisters went about obtaining written confirmation from him of their beneficial interest in the shares in Tsun Ling.  Accordingly, on or about 24 February 2014, Bernard Chau executed (i) a Declaration of Trust on behalf of Kanford, declaring that the 2,000 shares in Tsun Ling did not belong to Kanford but to the four of them and were held by Kanford on trust for them in equal shares; (ii) a Power of Attorney on behalf of Kanford appointing two of his sisters to be Kanford’s attorney in relation to the 2,000 shares; and (iii) a written resolution by himself purportedly as sole director of Kanford resolving that Kanford should execute the Declaration of Trust and Power of Attorney.  Those two documents were apparently prepared and attested by the solicitors firm of Messrs Kam and Fan.

15.  For his part, Mr Li, who has made the affirmations filed on behalf of Kanford in these proceedings, says that when it acquired Kanford from Bernard Chau, Earn Tech did not have any knowledge of any trust over the 2,000 shares as alleged or at all.  As far as Earn Tech was aware, Kanford was the sole beneficial owner of the 2,000 shares it held in Tsun Ling.  He has gone so far to assert that the Declaration of Trust, Power of Attorney and written resolution disclosed by the respondents are false documents.

16.  This application is made pursuant to s 740 of the Companies Ordinance (Cap 622).  That provision empowers the court to allow inspection of any record or document of a company upon the application of a requisite number of the company’s members.  S 740(2) states that the court may make an order permitting inspection “if it is satisfied that - (a) the application is made in good faith; and (b) the inspection is for a proper purpose.”

17.  Kanford is clearly a member of Tsun Ling, being the registered holder of 2,000 shares.  But on the evidence put forward, whether the application is being made in good faith and for a proper purpose depends on whether Kanford in fact beneficially owns the 2,000 shares registered in its name.  Mr Hu who appeared for Kanford accepts that since the application is said to be needed for the protection of Kanford’s beneficial interest in Tsun Ling, if Kanford is in fact a mere trustee then the application must fail, given that, of the beneficiaries, Daisy Chau and her sisters oppose it and there is no evidence Bernard Chau supports it.

18.  Plainly this court is not in a position in this application as currently constituted to determine the question of ownership. Mr Li in his reply affirmation and Mr Hu in his submissions made various adverse comments on the trust documents. But when the beneficiaries are not even parties to these proceedings, this court cannot be expected to determine that question, let alone determine it without cross-examination.  Recognising the difficulty, Mr Hu after taking instructions this morning asked me to adjourn the originating summons sine die pending resolution of the question of ownership in a separate action to be commenced against the alleged beneficiaries.

19.  As submitted by Mr Wong SC for the respondents, I do not think this would be an appropriate course to take.  The respondents’ affirmations were filed in January 2016 so the issue was not only raised this morning.  The problem they raised, from the point of view of Kanford, should have been obvious to it.  Essentially, it has come to court today to pursue its application but is unable to prove its case on the evidence.  Further, no separate action has been commenced on the question of the ownership of the 2,000 shares and this court has no information about its content and scope.  The present originating summons has failed to be issued against the company concerned, Tsun Ling, and has instead, for no particular reasons advanced, named the directors as respondents, contrary to the practice advised by Harris J in Re Opes Asia Development Ltd (unrep, HCMP 447/2012, 17 May 2012) at §42 and explained by Recorder Anderson Chow SC (as Chow J then was) in Leung Chung Pun v Masterwise International Ltd [2014] 1 HKLRD 1129 at §§63-68.  The scope of the documents sought is also so wide that substantial amendments would inevitably have to be made to cut the originating summons down.  In these circumstances I see no reason why these proceedings should be left hanging indefinitely, and probably for a very long time, over the heads of the respondents.

20.  The originating summons will therefore be dismissed.

(Submissions on costs)

21.  The applicant is to pay the costs of the respondents to be taxed on the party and party basis if not agreed, with certificate for one counsel.