GOLDMEN ELECTRONIC CO. LTD. v. SHUM WAI MAN

HCMP4755/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.4755 OF 2001

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J U D G M E N T

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Introduction

1. By an originating summons dated 31 August 2001, the plaintiff applied pursuant to Order 113, Rules of the High Court, for an order for possession of Penthouse Apartment B3 and Car Parking Spaces Nos.7 & 8 and an Adjoining Private Garden of Pine Lodge, No.10 Shouson Hill Road West, Hong Kong ("the Property"). The application came before the master on 26 October 2001. After hearing the parties, the master indicated that she would direct that the matter to continue as if begun by writ. That was not accepted by the plaintiff's counsel; whereupon, she dismissed the application with costs. Represented by another counsel, Mr Reyes, SC, the plaintiff now appeals.

2. The primary facts leading to these proceedings are not in dispute. To resist the application, the defendant raised a number of allegations, which Mr Reyes, for present purposes, did not seek to challenge. I will therefore proceed on the basis that all the material facts now before me are not in dispute. They may be summarized as follows.

Material facts

3. The defendant and Mr Poon Yin Cheung, the majority shareholder and director of the plaintiff, are husband and wife. They were married in October 1970. Divorce proceedings have been commenced recently and, I am given to understand, are continuing in the family court. The plaintiff acquired the Property in July 1990 at $5.4 million. Shortly thereafter, Mr Poon and the defendant moved in and had stayed there as their matrimonial home. It is the plaintiff's case that Mr Poon and the defendant were bare licensees. By a letter dated 13 August 2001, the plaintiff's solicitors purported to terminate the license and asked them to vacate the Property on or before 27 August 2001. As at 13 August 2001, Mr Poon had already left the Property. But despite the letter, the defendant refused to vacate, claiming that she had a proprietary interest in the Property. In fact, by an earlier letter dated 9 August 2001, the defendant's solicitors had already indicated to Mr Poon that she would seek an order for the transfer of the Property to her as one of the relief to be sought in the then intended divorce proceedings.

4. In her affidavit, the defendant went back as far as the early 1970s. In essence, it is her case that throughout the years and up to the time of the incorporation of the plaintiff on 18 January 1985, it was she who financed the purchase of matrimonial homes, provided Mr Poon with funds raised by mortgages or sales of the matrimonial homes to enable him to carry on business including purchase of shares in the corporate vehicles and injecting funds in those companies. She went on to give details of the circumstances relating to the setting up of the plaintiff and her involvement and contribution as thus.

5. Sometimes in 1984, Mr Poon told her that he would start a business with Mr Chung Kwok Wa, who later became the husband of the defendant's cousin. Mr Poon asked her to mortgage their then matrimonial home in Kwun Tong ("the Kwun Tong Property") in order to raise money for the business. She was initially reluctant but eventually agreed to do so when Mr Poon assured her that she and Mr Chung would own the company to be formed. The plaintiff was subsequently incorporated on 18 January 1985, with one share in the name of the defendant and Mr Chung each. In February 1985, she mortgaged the Kwun Tong Property and Mr Chung mortgaged his property for $1.22 million for the benefit of the plaintiff. In May 1986, the properties were further charged. In 1988, the mortgages were all transferred to Overseas Trust Bank. In 1991, the defendant sold the Kwun Tong Property for $938,000. Mr Poon told her to invest the sale proceeds in the plaintiff. Thereafter, the defendant provided cash to the plaintiff at Mr Poon's request from time to time.

6. From around 1992 to 1998 or 1999 the defendant would, at the Mr Poon's request, check the plaintiff's purchase orders for raw materials. In 1993, the defendant signed forms given to her by Mr Poon in respect of a "share transfer". Mr Poon explained to her that there were certain problems in respect of passing resolutions in the plaintiff and that he was giving her a share in the plaintiff for that purpose. In late 1994 or early 1995 Mr Chung told the defendant that he had disagreement with Mr Poon and sold his shares in the Company to Mr Poon, who then became the majority shareholder.

7. On 30 December 1994, Mr Poon sold 110,000 of his shares in the plaintiff to Societe Wallisienne D'Investment SA and Grande Arche Asie Pecitique at $20 million. Grande Arche Asie later transferred its shares to its associate, Fortune Victory. The current shareholders are Mr Poon (351,499 shares (70.29%)), Fortune Victory (71,500 shares (14.3%)), Societe Wallisienne D'Investment SA (77,000 shares (15.4%)) and the defendant (1 share). Apart from the defendant, the other minority shareholders are referred to below collectively as the Minority.

8. In 1996, the defendant suspected Mr Poon of having an affair with Ms Lam Yin Kwan ("Lam"), who worked for the plaintiff in China. The defendant confronted Mr Poon who denied the accusation. In 2000, Mr Poon tried to persuade the defendant to move out of the Property. But the defendant does not believe him when he said the plaintiff had cashflow problems.

9. At some time in June or July 2001 but before 13 July 2001, the defendant obtained share transfer form dated 4 April 1985 by which the subscriber share in the plaintiff was transferred to Mr Poon. She denied the signature on the form was hers. She also queried the authenticity of her apparent signatures on a consent form to be appointed as director and a notice of retirement as director. She further denied the authenticity of her apparent signature on annual returns of 2000 and 2001.

10. On 26 June 2001, Ms Lam was appointed as a director. The defendant and Mr Poon's son was said to have ceased as a director. The defendant queried whether it was correct and concluded that Mr Poon was "very likely running the [plaintiff] as he wishes" and "is trying to remove [her] from the [Property] and very likely he [was] to reside [there] with Lam".

11. By a letter dated 4 July 2001 from Messrs Patrick Wong & Co., the defendant requested for inspection of the plaintiff's accounts on 12 July 2001. By a letter dated 10 July 2001, the plaintiff's solicitors prepared to postpone the inspection of accounts to 19 July 2001. On 11 July 2001, the plaintiff gave notice to the defendant of its directors' meeting on 13 July 2001. At that meeting, the defendant saw a form transferring her share in the plaintiff to Mr Poon. On the same day, the plaintiff wrote to the defendant's solicitors stating that it would provide alternative accommodation for Mr Poon and the defendant. At the EGM on 19 July 2001, the defendant ceased to be a director of the plaintiff.

The plaintiff's contention

12. The plaintiff's contention is straight forward. It is the registered owner of the Property, which is not in dispute. The defendant was not a tenant or a tenant holding over after termination of a tenancy, which again is not in dispute. She was a bare licensee whose license was terminated on 27 August 2001 but she refused without any ground to vacate. It is therefore a clear case for summary relief under Order 113 : Vipac Engineers & Scientists Ltd v. Karpovich [1989] 2 HKC 538, per Godfrey J (as he then was) at 359I - 360A.

The defendant's contentions

13. Mr Leong, SC, for the defendant first submitted that what decided this appeal is whether the defendant's claim to an equitable interest in the Property ought to be tried. Her equitable interest arose as a result of her financial contributions made to the plaintiff over the years upon the request of Mr Poon. With respect, I disagree. She might well have made financial contributions to the plaintiff throughout the years upon the request of Mr Poon. But that did not confer upon her an equitable interest in any of the plaintiff's assets, including the Property. Mr Leong did not cite any authority in support of this argument and I could not find any either.

14. Mr Leong further submitted that the plaintiff's corporate veil may be lifted in the circumstances so that the Property, which was at all material times the matrimonial home, could be ordered to be transferred to the defendant as part of the distribution in the divorce proceedings. In this connection, counsel argued that when Mr Poon sold his shares to the Minority, the latter ought to have known that she had an equitable interest in the Property which was the couple's matrimonial home. As I have already ruled that she did not have any equitable interest in the Property, this argument insofar as it is based on the alleged equitable interest must fail. Consequently, I do not propose to address further Mr Leong's elaborate submissions on the constructive notice point.

15. But the matter does not end there. As I understand the law of distribution of assets in divorce proceedings, it is not a prerequisite for distribution that the wife must have an equitable interest in the assets. Where the assets sought to be distributed, including matrimonial home, are held by a company, the court may in appropriate cases lift the corporate veil to effect distribution. The court will however only lift the corporate veil and make orders directly and indirectly regarding the company's assets where the spouse was the owner and controller of the company and there was no adverse third party interests, including that of a minority in the company : Nicholas v. Nicholas [1984] FLR 285, cf., Crittenden v. Crittenden [1990] 2 FLR 361, Mubarak v. Mubarak [2001] 1 FLR 673.

16. Mr Reyes argued that there is nothing to suggest that sale of Mr Poon's shares to the Minority was a sham. The defendant in her capacity as a director of the plaintiff had signed on the annual return dated 18 January 1999 recording the transferor of shares to the Minority, and certified that the same was true to the best of her knowledge. She must have accepted that the sale was bona fide. Further, there was nothing to suggest that the Minority was not a genuine business associate of Mr Poon. Mr Leong submitted that neither Mr Poon nor the Minority had made any affirmation for the purpose of this application to confirm that the Minority's interest was genuine and could not be ignored. Further, there is evidence which had not been refuted thus far, showing that Mr Poon was controlling the plaintiff and was, for example, able to secure the removal of the defendant from the board of director at the EGM on 19 July 2001.

17. In my view, the point whether the plaintiff's corporate veil should be lifted in the circumstances to enable distribution to be made in respect of the Property is a substantial one and cannot be resolved on affidavit. (I note that in the English cases cited above, the issue was determined after trial.) In the absence of any evidence from the plaintiff or the Minority, the defendant has sufficiently demonstrated, albeit by a narrow margin, a substantial issue that warranted a proper trial : see Star Ferry Co. Ltd v. Chuen Wah Trading Co. [1992] 1 HKC 415. That being the case, I do not consider it desirable to examine the evidence in detail or counsel's submissions on other matters, including the alleged forgery of the defendant's signature on some of the documents and the effect thereof. They will be fully canvassed at trial. However, I wish to point out that in coming to the conclusion that I did, I have already carefully considered all the materials before me.

Conclusion

18. For the foregoing reasons, I will allow this appeal, set aside the master's order, and order that this matter to continue as if begun by writ. The parties are at liberty to apply for directions regarding the future conduct in the absence of any agreement. In light of what happened before the master, I will not disturb her costs order. The costs of this appeal will be in the cause.