JOINTA LTD v. REGISTRAR OF COMPANIES

HCMP 426/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 426 OF 2013

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D E C I S I O N

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Background

1.  There are disputes and various ongoing sets of proceedings between Mr Lin Ming (“Lin”) (and his associates) on the one part, and Mr Li Guangde (“Li”) and his associates, Kun Peng I Limited (“KPI”) and Kun Peng II Limited (“KPII”, KPI and KPII together referred to as “KP”) on the other part, as to the shareholding in and directorship of a company known as Jointa Limited (“Company”). 

2.  HCMP 1631/2011 was commenced by Lin against the Company on 24 August 2011, in which he seeks a declaration from the court that he had not resigned as a director and was at all material times the sole director of the Company, and further, that Form D2A submitted on behalf of the Company to the Companies Registry (“Registry”) and registered on 6 January 2010, to the effect that Lin had ceased to be a director and that Mr Chen Shu Quan (“Chen”) had been appointed as a director with effect from 17 July 2009 (“Jointa Form D2A”), is null and void and should be vacated, withdrawn or removed from the Registry.  These proceedings were subsequently ordered to continue as if commenced by Writ.  There are apparently other related proceedings, HCMP 1900/2011 and HCMP 475/2012, between the same and other related parties concerning the matter of the directorship of the Company, the purported resignation of Lin, the appointment of Chen in Lin’s place, and the subsequent appointment of Li and his associate Zhang Shan Yue (“Zhang”) as directors of the Company.  Some of these proceedings have apparently been stayed, some are ongoing, but not all of them have been concluded or resolved.

3.  The dispute over the shareholding in the Company centres on a Subscription and Investment Agreement (“Agreement”) made between Lin and the companies controlled by him (Fame Glory Holding Limited (“Fame Glory”) and Win Power Investment Limited (“Win Power”))on the one part, and KP on the other part; and a Share Charge dated 16 March 2007 whereby the only issued share of the Company was charged by Fame Glory in favor of KP, to secure the obligations of Win Power under the Agreement.  It is alleged that as a result of Win Power’s default of its obligations under the Agreement, KPI enforced the Share Charge and transferred the one share of the Company from Fame Glory to KPI or about 8 June 2010.  Thereafter, KPI transferred that share to Fabulous Turbo International Limited (“Fabulous Turbo”), a company designated by Li; Zhang replaced KPI as the sole director of the Company; and Li was appointed as an additional director.

4.  The validity of the transfer of share under and by way of enforcement of the Share Charge is disputed by Lin.

5.  In this action, the Company acting through Li seeks an order against the Registrar of Companies that various documents submitted to the Registry, by and on behalf of Lin in the name of the Company, be refused registration and be withdrawn or removed from the Registry.  The Company acting through Li further seeks an order against the Registrar that various documents presented by and on behalf of Li in the name of the Company be accepted by the Registrar for registration.  These documents reflect that the entirety of the shareholding of the Company had been transferred from KPI to Fabulous Turbo in January 2011, and that the directors of the Company are Li and Zhang.

The documents

6.  The following documents (“Lin Documents”) are the subject matter of the Company’s application for removal from the Registry and for an order that the Registrar should refuse their registration:

(1) Form D2A submitted to the Registry on 10 August 2011, to the effect that Zhang and Li had ceased to be directors on 30 July 2011, and that Lin was appointed as a director on 17 July 2009;

(2) Form R1 submitted to the Registry and signed by Lin on 12 August 2011, to the effect that the registered office of the Company was situated at World Commerce Centre;

(3) a special resolution dated 28 July 2011 signed by Lin, declaring the transfer of one share in the Company from Fame Glory Limited to KPI to be void and approving the transfer of one share in the Company from Fame Glory Limited to Lin;

(4) Form AR1 dated 3 January 2002, to the effect that Lin is the sole shareholder of one share in the Company; and

(5) Form D2A submitted to the Registry on 18 April 2012, to the effect that Zhang and Lin ceased to be directors on 10 January 2001, and that Lin was appointed a director of the Company on 17 July 2009. 

7.  At the same time, the Company seeks an order that the following documents (“Jointa Documents”) be accepted by the Registrar for registration:

(1) Form D2B being Notification of Change of Particulars of Secretary and Director dated 1 September 2011, recording Success Corporate Services Limited as the corporate secretary of the Company and to the effect that there were no changes in the particulars of directors;

(2) Form AR1, being the Annual Return of the Company dated 3 January 2012, recording the transfer of one share in the Company from KPI to Fabulous Turbo, and Li and Zhang as directors of the Company;

(3) Form AR1 dated 3 January 2013, recording Fabulous Turbo as the holder of one share in the Company and Li and Zhang as directors of the Company.

The application

8.  The Company’s application is made under s 348 of the Companies Ordinance (“Ordinance”).  Section 348 (1) provides as follows:

“The Registrar may refuse to register or accept for registration any document delivered to him under this Ordinance if it appears to him that –

(a) the document is manifestly unlawful or ineffective;

(b) the document is incomplete or altered; or

(c) any signature on the document, password included with the document, or digital signature accompanying the document, is incomplete or altered.”

9.  Section 348 (3) of the Ordinance further provides:

“Any person aggrieved by a decision of the Registrar under subsection (1) or (2) may, within 42 days of the decision, appeal to the court against the decision and the court may, subject to subsection (4), make such order as it may deem just, including an order as to costs.”

10.  Section 348 (2) and (4) are irrelevant to the application.

11.  In HCMP 1631/2011 (Lin Ming v Chen Shu Quan [2013] 2 HKLRD 288) Au J clearly decided that there is no free-standing inherent jurisdiction of the court to order the registration of documents with the Registry.  In that decision, Au J was dealing with Lin’s application for an order that the Statement of Claim in HCMP 1631/2011 be registered with the Registry.  The court held that it has no jurisdiction to grant the application, as the inherent jurisdiction of the court is part of procedural law and cannot be invoked to confer substantive rights, and further, to invoke the inherent jurisdiction of the court to order the registration of documents would be inconsistent with s 348 of the Ordinance, which section provides an express statutory framework for an appeal to the court by an aggrieved person in respect of the Registrar’s refusal to register any documents submitted by that person.

12.  At page 291 of the judgment of Au J in Lin Ming v Chen Shu Quan, the learned judge observed that:

“… in order to engage and invoke section 348 by way of an appeal, there must first be a decision made by the Companies Registrar under section 348 to refuse to register documents delivered to her under the (Ordinance).”

13.  In Tongda Group Holdings Limited v Registrar of Companies HCMP 1356/2004, unreported, 30 September 2004, Kwan J (as she then was) had considered various English cases including Re Calmex Limited [1989] 1 All ER 485, and concluded that the inherent jurisdiction of the court cannot be invoked to confer substantive rights such as a right to rectify the register maintained by the Registrar.  She further held that s 348 of the Ordinance is couched in wide terms, enabling the court to grant “such relief as it may deem just”, provided that the court is satisfied that the decision of the Registrar is in error.

14.  In Tongda, the court was dealing with an application by the company concerned for an order against the Registrar, that various documents filed with the Registry be withdrawn and/or removed from the register, and other documents be accepted by the Registrar for registration, in circumstances when the Registrar had earlier refused the company’s request to withdraw its document which had been filed with the Registry.

15.  Bearing in mind that there is no inherent jurisdiction of the court, and that s 348 of the Ordinance provides the framework for redress to a party aggrieved, by way of appeal to the court in respect of any decision of the Registrar, it is for the Company, as applicant in this case, to establish that the application comes within the ambit of s 348 (3) of the Ordinance.

16.  For s 348 (3) to apply, the Company has to establish that there is a decision of the Registrar under s 348 (1) or (2), that it is a person aggrieved, and that the appeal against the decision is made within 42 days of the decision appealed against.

The decision of the Registrar

17.  Counsel for the Registrar sought to argue that no decision of refusal to register has yet been made by the Registrar under s 348 of the Ordinance.  It is claimed that the disputed documents were kept pending registration by the Registrar, in view of the disputes between the Lin camp and the Li camp and the ongoing legal proceedings involving the Company.

18.  Complaint was first made by Lin to the Registrar on 9 August 2011, regarding the Jointa Form D2A dated 6 January 2010 and signed by Chen, to the effect that Lin had resigned as a director of the Company on 17 July 2009.  It was claimed by Lin that he had never resigned, that the Form D2A of 6 January 2010 was manifestly unlawful, and that the Registrar should withdraw the registration of the document.  Lin then presented the Lin Documents to the Registry for registration, and this prompted the Company, Li and Zhang to write to the Registrar on 15 August 2011, asking that the Lin Documents be withheld from registration.  The Company, Li and Zhang claim in the letter that the Company’s chops and documents had been stolen and that the Lin Documents had been prepared fraudulently. 

19.  The Registrar sought representations to be made by the Company, Chen, Li and Zhang in respect of the complaint and claims made regarding the 2 sets of documents.  On 22 September 2011, the Registrar wrote to the solicitors acting for Lin, notifying them that in the interim of the Registry’s investigations and seeking representations in respect of the complaint made concerning the disputed documents presented, the Lin Documents “will not be registered until further notice”.

20.  On 6 October 2011, the solicitors acting for the Company, Zhang and Li wrote to the Registrar, explaining the circumstances under which the share in the Company was transferred from Fame Glory to KPI as a result of KP’s enforcement of the security under the Share Charge, and the appointment of Chen and Lin as directors of the Company.  They informed the Registrar of HCMP 866/2011 and HCMP 1631/2011 having been commenced by Lin, the relief sought by Lin in those proceedings, and the fact that the filing of the Jointa Form D2A is the subject matter of legal proceedings.  The solicitors asked the Registrar to defer making any decision regarding the filing of the Jointa Form D2A pending the outcome of the legal proceedings.

21.  On 28 October 2011, the Registrar wrote to the solicitors for Lin and to the solicitors for the Company, Li and Zhang.  In the letters, the Registrar referred to HCMP 1631/2011, the alleged cessation of Lin as of the Company a director, the appointment of Chen as director, the Jointa Form D2A, and the disputes between the parties in relation to the shareholding and directorship of the Company.  The Registrar informed the solicitors for the Company, Li and Zhang that the Registrar would await the outcome of the legal proceedings before making a decision regarding the complaint concerning the Jointa Form D2A and the other disputed documents.

22.  The Company, Zhang and Li through their solicitors urged the Registrar, by letter dated 23 November 2011, to reject the registration of the Lin Documents instead of keeping them “pending”.  They claim that as a result of these documents being kept pending, the Company was not able to obtain the necessary certificates required for the Company’s business activities in the Mainland, and that the Company suffered huge financial loss as a result.

23.  On 26 April 2012, the Registrar advised the solicitors for Lin that in view of the parties’ disputes over the shareholding and directorship of the Company and the ongoing legal proceedings, the Registrar considered it “appropriate and prudent” not to make a decision as to Lin’s complaint and the filing of any documents concerning the matters in question, until after the outcome of the legal proceedings.

24.  After considering further submissions made on behalf of the Company, Li and Zhang on the validity of the transfer of share under the Share Charge, the Registrar by letter dated 22 November 2012 informed the Company’s solicitors that as there were disputes between Lin and the Company, Li and Zhang concerning the shareholding and the identity of the directors of the Company, and there were ongoing legal proceedings to resolve such disputes, in which the validity of the Share Charge was disputed by Lin, the Registrar considered it to be premature and inappropriate to register any document of the Company concerning the matters in dispute, until there is a decision or order of the court concerning such disputed matters.  The Registrar indicated that the documents which were kept pending registration might be returned to the presenters.

Had the Registrar erred in any way?

25.  On behalf of the Company as the Applicant in these proceedings, it is claimed that the Registrar has a statutory duty to maintain the integrity of the register and the records maintained by the Registrar, and a duty to decide whether to accept or reject registration of documents presented.  Counsel argued that the Registrar had misconstrued the scope of her power under section 348 (1) of the Ordinance, in deciding that she is not in a position to adjudicate any internal dispute between shareholders or directors of a company. It was further argued that the Registrar had abused her power under the Ordinance by fettering her discretion and surrendering her independent judgment under section 348 (1) of the Ordinance.  It is claimed that the Registrar had restricted the exercise of her power to accept or refuse registration of a document to cases when she is ordered by the court so to do, and had adopted an inflexibly applied policy of refusing to exercise her power when there are ongoing civil proceedings.  Further, it is claimed that the Registrar had unreasonably delayed the making of a formal decision to accept or refuse registration of documents submitted for registration.  In so doing, it was argued that the decisions of the Registrar were erroneous.

26.  The authorities cited by Counsel for the Company are only to the effect that (1) the Registrar is not bound to accept registration of every document presented, and (2) the Registrar has the discretion and power under the Ordinance to reject a document for registration.  These are not disputed.  The cases referred to by counsel also show that the court has jurisdiction under public law principles to review decisions made by the Registrar when carrying out her statutory duties.  Again, these principles cannot be disputed.

27.  This, however, is not an application for judicial review of the Registrar’s decision, for which prior leave is required from the court.  This is an application made under the appeal mechanism stipulated in section 348 (3) of the Ordinance, and as held in Tongda Group Holdings Limited v Registrar of Companies, the court is entitled to grant such relief as it may deem just under section 348 (3), provided that the court is satisfied that the decision of the Registrar made under section 348 (1) is in error.  The decision which the Registrar is empowered under section 348 (1) to make is one of refusal to register, or acceptance for registration, of “any document delivered to him under (the Ordinance) if it appears to him that–

(a) the document is manifestly unlawful or ineffective;

(b) the document is incomplete or altered; or

(c) any signature on the document … is incomplete or altered.”

28.  It was argued on behalf of the Registrar that no decision has in fact been made to refuse to register, or accept for registration, either the Lin Documents or the Jointa Documents.  These documents were kept pending registration by the Registrar.  As such, there is no appeal available to the Company until a refusal or acceptance is decided upon.

29.  In this context, the Company claims that the Registrar had unreasonably delayed her decision, or has wrongly failed to exercise her power. 

30.  I do not agree that the Registrar has failed to exercise her power under s 348 of the Ordinance.  She already notified the parties on 22 September 2011 that the Lin Documents will not be registered until further notice.  In my view, the Registrar effectively decided, by 22 November 2012 at the latest, not to register any of the documents presented until the resolution of the dispute between the parties as to the validity of the Share Charge and the transfer thereunder, pursuant to which the appointments of KPI, Zhang and Li as directors were made.  Alternatively, the decision made by the Registrar on 22 November 2012 was to keep the status of the disputed documents as “pending registration”.  Was any of such decisions erroneous, an abuse or surrender of the Registrar’s power, or unreasonable in terms of content or delay? I consider not.

31.  I fail to see how the Lin Documents can be said to be “manifestly unlawful or ineffective”.  Whether Zhang and Li had ceased to be directors of the Company on 30 July 2011, whether Lin had been appointed on 17 July 2009, and whether Lin (as he claims) or Fabulous Turbo (as Li claims) is the shareholder of the Company, depend on the validity of the transfer of share by KP, by way of enforcement of its rights under the Share Charge upon the occurrence of an event of default under the Agreement (as KPI claims).  It is not a case of the Registrar being able to detect, on the face of the documents presented for registration, that there is an error on the face of such documents, or that the documents give effect to or record what appears to be an unlawful transaction.  Whether the Lin Documents should be refused registration as being “manifestly unlawful or ineffective” turns on facts which are disputed, and questions of law applicable to the facts to be ascertained. These are not matters which the Registrar can resolve by reviewing the correspondence exchanged with the parties’ solicitors, and the pleadings or even evidence filed in the legal proceedings relating to the dispute between the parties.

32.  I do not agree that the Registrar was in error, or that she had surrendered her independent judgment, as the Company claims, simply because she decided that she was not able to determine the dispute between the shareholders and directors in this case.  It all depends on the nature of the dispute: whether it relates to errors on the face of documents which can be easily determined by the Registrar, or whether the dispute extends, as it does on the facts of this case, to the existence of facts entitling the exercise of rights and powers under the disputed Share Charge.

33.  There is no evidence that the Registrar had adopted “an inflexibly applied policy”, or any “policy” at all, of refusing to exercise her power whenever there are ongoing civil proceedings.

34.  Counsel for the Company, Zhang and Li also argued that the Jointa Documents should be accepted by the Registrar for registration in any event and irrespective of the dispute in the legal proceedings, since they are consistent with the Company’s records already filed at the Registry.  The effect of the Jointa Documents is that Fabulous Turbo is the holder of one share in the Company, and Li and Zhang are directors of the Company as at the dates of the Annual Return made up to 3 January 2012 and 3 January 2013.  Counsel highlighted the fact that the Forms D2A, dated 6 January 2010 and 8 June 2010 and accepted for registration by the Registrar before the presentation of the Lin Documents, already reflect Lin’s resignation as a director and KPI’s appointment of Chan as a director.

35.  I cannot agree that the Registrar is bound or entitled to accept registration of the Jointa Documents on the basis simply that they are consistent with documents already filed at the Registry.  The nature and contents of the documents presented for registration must be considered.  The whole purpose of Form D2 is to notify the Registrar and the public of changes in the directors and secretary of a company.  The purpose of an Annual Return is likewise to reflect the status of, including any changes in, the shareholding, directors and situation of the registered office of a company.  The argument made by Counsel would mean that the Registrar may or must refuse registration of a document purporting to give notice of changes of directors, secretaries and the registered office address of a company on the basis that they are inconsistent with the information contained in documents already registered, which will defeat the entire object and purpose of the form for Notification of Change of Secretary and Director (Form D2A), and the form for Notification of Change of Address of Registered Office (Form R1), ie to reflect changes.

36.  Unless and until the Registrar is satisfied that the Lin Documents are manifestly unlawful or ineffective to be refused registration, the Registrar is unable to decide that the Jointa Documents should be accepted for registration.

37.  Having considered the correspondence between the parties, the documents presented to the Registrar, and the factual and legal disputes between Lin, KP and Li, I do not consider that the Registrar had unreasonably delayed her decision, or that she had made an error in deciding that the registration of the disputed documents should be kept pending in the interim of the unresolved legal proceedings, or until there is a decision or order of the court on the disputed matters.  Even if public law principles are applicable to this application, I would not consider the Registrar’s decision to be unreasonable in the Wednesbury sense.

38.  In any event, the Registrar had made a decision by 22 November 2012 at the latest, when she decided that it was premature and inappropriate to register the disputed documents pending a decision or order of the court regarding the disputed matters.  The Company failed to make the present application under s 348 until 4 March 2013, which is outside the timeframe of 42 days of the Registrar’s decision.

39.  For all the above reasons, I dismiss the application, with costs to the Registrar.