KING WONG DEVELOPMENT LTD v. YAT FAT LTD AND OTHERS

HCMP 658/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 658 OF 2013

_________________________

_________________________

_________________________

_______________

J U D G M E N T

_______________

I. INTRODUCTION

1. The 1^st respondent (“Yat Fat”) was incorporated in Hong Kong on 10 January 1995 with a share capital of HK$10,000 divided into 10,000 shares of HK$1 each. According to Yat Fat’s various annual returns, their shareholders from March 2007 to April 2013 were as follows:

Name	Period	No of shares	Shareholding
TKEEN Property Development Company Limited (“TKEEN”)	since 8 March 2007	5,000	50%
2nd respondent (“Pu”)	since 2005	3,000	30%
3rd respondent (“Leung”)	since 1997	2,000	20%

Since 1997, Pu (who is the wife of Li Kin Keung (“Li”)) was/is Yat Fat’s company secretary.  Li claimed (and Leung believed) he indirectly owned 50% shareholding of Yat Fat through TKEEN (a BVI company controlled and/or beneficially owned by Li as one of his investment vehicles).  Leung claimed to be the only outsider holding 2,000 shares of Yat Fat (“Shares”) with TKEEN holding 50% and Pu holding 30% of the shareholding.

2. Li and Leung had been close personal friends for over 35 years.  Li was involved in real estate business which included acquiring land (mainly in Lamma Island) for resale to potential property developers and for property development through different corporate vehicles either by the plaintiff (“King Wong”) or by entering into joint ventures with other investors/developers.

3. The project company for the Linkan Cooperation Project

4. In a nutshell, the arrangement under the Project was for Wealthy Honest to purchase land from King Wong, Yat Fat and Lamma Island Holdings Limited (“LIHL”) for development, and such purchase would be funded by a loan to be made by Agile Property/Linkan Enterprises.

II.  BACKGROUND

5. Li claimed that in/about mid-February 2007, he on behalf of King Wong, Yat Fat, Leung and other investors negotiated with Agile Property to explore possible property development of certain land within DD7 and DD9, Lamma Island (“Development Area”) which eventually became the Project.

6. By a Share and Debt Transfer Agreement dated 29 March 2007 (股權及債權轉讓合同, “Transfer Agreement”), Leung and King Wong agreed inter alia as follows:

“(1) 事緣

1.1 在此合同，除非特別聲明，否則以下用詞之定義為:
“先決條件”	在附表所述的事宜得以落實、執行及/或成就;
“合資經營合同”	一份由[King Wong]、[Leung]及另外兩方就成為項目總公司股東的合同
“出讓股份”	由[Leung]現在擁有在[Yat Fat]的2,000股普通股(即20%股份)
……
“股東債權”	按第1.3條所述，由[Leung]以免利息，借予 [Yat Fat]的貸款 [“Leung Loan”];
“發展區”	南丫島第7及第9約;
“項目總公司”	[Eagle Faith] ……;
“項目公司”	[Wealthy Honest] ……;
“借款公司”	[Join Billion Development Limited (“Join Billion”)] ……;
“同系公司”	即專案公司，BVI公司，專案公司及借款公司或任何其中一或多間公司;
“億發土地”	現由[Yat Fat]持有之土地;
“麗嘉合作計劃”	一個按合資經營合同的附表之備忘錄[2]所述之合作計劃，合作雙方分別為[Linkan Enterprises]及項目總公司[Eagle Faith];

1.2 [Yat Fat]所發行股本(10,000元)分為10,000股普通股每股HK$1.00; 而[Leung]佔其中2,000股，即20%[Shares]。

1.3 另外，[Leung]以股東貸款方式，合共借予[Yat Fat]伍佰萬元正(HK$5,000,000)(“股東債權”[Leung Loan])。

1.4 經[King Wong]努力及爭取，[Linkan Enterprises]將會與[Eagle Faith]及同系公司達成協議，按麗嘉合作計劃[Project]處理發展區[Development Area]內土地。

1.5 按麗嘉合作計劃[Project]，[Wealthy Honest]將會向[Yat Fat]洽購億發[Yat Fat]土地，現在合約雙方同意按以下條件處理轉讓出售股權[Shares]及股東債權[Leung Loan]。

(2) 出售

2.1 若麗嘉合作計劃[Project]得以執行，並經由[Linkan Enterprises]支付貸款予[Join Billion]，[Leung]同 意，將出售股權[Shares]連同股東債權[Leung Loan]出售予[King Wong]。

2.2 出售的代價以現金及入股[Eagle Faith]作為代價。

2.3 出售代價現金部份，為港幣伍佰萬元正(HK$5,000,000)，[King Wong]並須於[Linkan Enterprises]將第一期款項2.2億[Tranche A Loan[3]]到位的三個工作天內支付[Leung]。

2.4 另外， [King Wong]促使[Leung]可以按合資經營合同內的條件，成為[Eagle Faith]3%股份的股東。

(3) 項目及公司狀況

……

3.2    [Leung]明白，若[Yat Fat]因出售億發[Yat Fat]土地予[Wealthy Honest]所產生的利潤繼而分紅，在[Leung]出售其股權予[King Wong]後，一蓋與[Leung]無關。

……

(5) 先決條件

5.1    本合同所訂的交易，須取決該先決條件在六個月內得以落實及成就。

5.2    若在指定時間內，先決條件仍未落實及成就，本合同自動取消。

……

附表

先決條件

(1) 合約各方明白，在簽署本合同當日，麗嘉合作計劃[Project]仍未落實。合約各方同意，直至[Linkan Enterprises]與[Join Billion]及其他同系公司簽妥一干文件後，[LIHL], [King Wong]及[Yat Fat]，才會安排將發展區[Development Area] 土地轉易予[Wealthy Honest]。

(2) 另外，[Wealthy Honest]購買發展區[Development Area]最初(按麗嘉合作計劃[Project])的58萬平方呎土地的資金(580,000 x 7,000 ÷ 13) = 312,307,692.00。除了其中差不多1 億乃來自[King Wong]提供外，其餘2.2億須由[Linkan Enterprises]提供。故此，[Linkan Enterprises]真正將第一期貸款2.2億[Tranche A Loan[4]]，支付予[Join Billion]，亦是本合同先決條件。”

7. The purpose of the Transfer Agreement was to restructure Yat Fat for the Project under a joint venture agreement between Linkan Enterprises and Eagle Faith and its group of companies (clauses 1.1 and 1.4) whereby Wealthy Honest would acquire certain land held by Yat Fat (clause 1.5), and if the Project would go ahead and Linkan Enterprises would grant a loan to the borrower company Join Billion (億群發展有限公司), Leung would sell his 2,000 Shares (clause 1.2) and his HK$5,000,000 Leung Loan (clause 1.3) in Yat Fat to King Wong in exchange for (a) cash payment of HK$5,000,000 to be paid by King Wong within three working days of the advance of HK$220,000,000 (“Tranche A Loan”) in respect of the first instalment loan by Linkan Enterprises to Join Billion (“Tranche A Facility”) and (b) 3% shareholding in Eagle Faith (clauses 2.2-2.4). In short, upon completion under the Transfer Agreement, Leung would become a 3% shareholder of Eagle Faith and the Leung Loan of HK$5,000,000 would be repaid by King Wong, on the other hand King Wong would become holder of the Shares in Yat Fat.

8. Before the above restructuring was to take effect, the following conditions precedent had to be satisfied within six months of the Transfer Agreement, failing which the Transfer Agreement shall automatically lapse (clauses 5.1-5.2):

(a) LIHL, King Wong and Yat Fat would arrange for transfer of the land in the Development Area to Wealthy Honest upon execution of certain documents by Linkan Enterprises, Join Billion and other companies within the group (paragraph (1) of the schedule);

(b) Linkan Enterprises would pay the Tranche A Loan in the sum of HK$220,000,000 in respect of the Tranche A Facility to Join Billion, which loan would form part of the funds for the purchase of the first 580,000 sq ft of land in the Development Area by Wealthy Honest under the Project (paragraph (2) of the schedule).

9. Clause 4.1 of the Transfer Agreement provided that Leung shall attend the offices of Messrs Terry Yeung & Lai (楊寶林，黎雅明律師行, “TYL”), solicitors designated by both parties, to sign the following documents within seven days of notice to be given by King Wong:

(a) instrument of transfer of shares (股權轉讓書);

(b) instrument of transfer of debt (債權轉讓書);

(c) director resignation declaration (董事退任聲明) that would declare he had no claim for remuneration or cash payment against Yat Fat;

(d) all resolutions (決議) by him as director and shareholder of Yat Fat supporting the transfer of the Shares by him to King Wong.

10. On 29 March 2007, 9,999 ordinary shares of Eagle Faith at HK$1 each were allotted, so the cumulative total paid-up share capital of Eagle Faith was HK$10,000.  Of the 9,999 new ordinary shares of Eagle Faith, 7,987 and 300 shares were allotted to King Wong and Leung respectively, and the remaining shares were allotted to others.[5]  It was provided in the Transfer Agreement that the allotment of 300 Eagle Faith shares to Leung was part of the consideration for the sale of the Shares in Yat Fat by Leung to King Wong.[6]

11. On the same day, various investors (ie King Wong, Fast Wealth International Limited (“Fast Wealth”), Leung and Yeung To Lai Omar (“Yeung”)) executed a Joint Venture Company Agreement (合資經營公司合同, “Eagle Faith Agreement”) that set out their respective rights and liabilities under the Project through being shareholders of Eagle Faith.

12. Clause 1.1 of the Eagle Faith Agreement defined the Project

13. The memorandum at schedule (3) of the Eagle Faith Agreement (“Memorandum”) provided as follows:

“附表(3)

備忘錄

1. 合作雙方

[Join Billion](一間由[King Wong]拥用不少於80%的附屬公司香港注冊有限公司) ……及[Linkan Enterprises](BVI注冊) ……

2. 項目

香港南丫島郊區東澳、榕樹下及模達DD7及9的部份土地

(「項目用地」)。[Join Billion]及[Linkan Enterprises]雙方有意合作把項目用地發展為一個綜合大型項目，當中包括:住宅、酒店及游艇會等設施。

3. 項目用地情況

根據現有資料及[King Wong]聲稱:

3.1 [Join Billion]之母公司[King Wong]、[LIHL]及[Yat Fat]三間公司已收購合共項目用地中約[62萬]平方呎的土地;

3.2 該三間公司己簽署臨時/正式買賣合約之土地約為[293,303]平方呎的土地;

3.3 尚未簽署臨時/正式買賣合約之土地約為[223,824]平方呎

(普通地) + [28,749]平方呎(祖堂地)的土地。

4. 合作模式

4.1  本項交易的基本架構如下: [see schedule to this Judgment]

5. 貨款協議

5.1 [Join Billion]安排把項目用地由[King Wong]、[LIHL]及[Yat Fat]三間公司轉讓予項目公司[Wealthy Honest]。轉讓的費用由[Join Billion]負責、轉讓價錢由[Join Billion]自定。抵押時的價值以每平方呎港幣538.46元為標準計算。

5.2 [Join Billion]、[Linkan Enterprises]簽署一份貸款合約，當中[Linkan Enterprises]承諾向[Join Billion]提供一筆不超過港幣4.2億元的貸款，年利息率9%。該筆貸款由項目公司[Wealthy Honest]提供上述第3段所載土地中的約80萬平方呎土地作抵押。抵押之土地按[Join Billion]在項目範圍已收購並有完整拥用權的契約土地作抵押。貸款分5期提供，首期港幣2.2億元[Tranche A Loan]在辦妥58萬平方呎土地抵押手續後支付 ……

股權期權契約

6.1 同時，[Join Billion and Linkan Enterprises]雙方簽署一份股權期權契約(Share Option Deed)，當中[Join Billion]賦予[Linkan Enterprises]一個期權，在約定時間(即:2010年9月30日)內收購[Straight Up Limited (“Straight Up”)]60%的股權。(注: 相關之項目用地必須注入項目公司(Wealthy Honest)。按[Join Billion and Linkan Enterprises]共同承擔風險的原則，若[Straight Up]股權最終未能完成轉讓，[Linkan Enterprises]衹取回抵押品即完結整項交易。

6.2 [Join Billion]在完成下述前題條件後，可以向[Linkan Enterprises]發出通知書，[Linkan Enterprises]需於60天回覆是否行使收購[Straight Up]60%股權的期權。若[Linkan Enterprises]未有於60天內回覆[Join Billion]或拒絕行使期權，[Join Billion]可以以免息方式還款予[Linkan Enterprises]，並取回抵押品，屆時[Linkan Enterprises]亦須賠償[Join Billion]項目用地轉讓予[Wealthy Honest]之轉讓費(包括律師費及印花稅)。

[Join Billion]發出通知書的前題條件:

(a) 獲城規會批准變更土地用途為綜合發展區;

(b) 注入[Wealthy Honest]的土地不少於108萬平方呎。

……”

14. As seen from above, the Memorandum and the corporate chart in paragraph 4.1 thereof set out the parties having interests in the Project and the shareholding structure of those companies:

(a) The Project was a cooperation between Join Billion and Linkan Enterprises which jointly held the ultimate interest in Wealthy Honest via Straight Up (ie Wealthy Honest would be a wholly owned subsidiary of Straight Up).

(b) Linkan Enterprises would become 60% shareholder whereas Join Billion would become 40% shareholder of Straight Up.[7]

(c) Various investors, including King Wong (representing the interests of Li and his business partner Mr Lam Yuk Tak), Leung, Yeung and Fast Wealth (described as “羅生公司” [8]), would participate in the Project through their shareholding in the ultimate holding company Eagle Faith.

15. The Eagle Faith Agreement further provided as follows:

“第三條 [Eagle Faith]經營範圍

3.1 [Eagle Faith]在成立的目的，乃作為借款公司[Join Billion]的100%股權之股東，並按[the Project]，最終將BVI公司[Straight Up]其中60%股權，轉易予[Linkan Enterprises]或其指定人仕，以便經項目公司[Wealthy Honest]，共同合作發展南丫島。

3.2 項目公司[Wealthy Honest]之短期目標，乃盡快及盡量收購發展區[Development Area]內一干私人土地;並垵[the Project]，於2010年9月30日或之前，購得不少於108萬平方呎位於發展區[Development Area]之用地。

3.3 項目公司[Wealthy Honest]最終目標，乃按《城市規劃條例》第12A條，向城市規劃委員會，申請將發展區[Development Area]內土地，連同附近政府土地之規劃用途，變更為CDA; 繼而在發展區[Development Area]申請發展一個龐大項目，包括有遊艇會連舶位，五星級酒店，購物及優閒商場，住宅及康樂設施。

第四條 注冊資本、投資比例及總額

4.1 注冊資本為HK$10,000.00。分為10,000.00股每股面值HK$1.00之股票。發行股本為HK$10,000.00，按面值每股HK$1.00分為10,000股普通股。

4.2 各方所佔的股份如下:-

人名	股份數目
[King Wong]	7,988
[Fast Wealth]	1,518
[Leung]	300
[Yeung]	194

4.3 各方明白，初步營運資金安排如下:-

(1) 由借款公司[Join Billion]作為實踐[the Project]第一部，向[Linkan Enterprises]貸款，最多不超過HK$4.2億[Tranche A Facility]。

(2) 所得貸款用作支付項目公司[Wealthy Honest]之營運資金，以使執行項目公司[Wealthy Honest]之短期目標，購買發展區[Development Area]內土地。

4.4 項目公司[Wealthy Honest]之資金安排，各方同意按[the Project]執行。

……

4.8 [Leung]有權在本合同起計119個月，以書面通知着令[King Wong]，以港幣(1,500萬元正減除在期間[Leung]已收的分紅)的價錢，悉數洽購[Leung]在[Eagle Faith]的股權及股東債權，屆時，[King Wong]須在收到通知1個月內執行交易，轉易費用由雙方共同負擔。若[King Wong]未有按時支付款項，則[King Wong]自動放棄權利，而[Leung]的股權，則不再受制於[King Wong]的優先購買權。在[King Wong]放棄購買[Leung]股權後，[Leung]須在一個月內，將[King Wong]代[Leung]按第4.6條及第4.10條墊支的費用(如有的話，補回予[King Wong])。

第五條  各方責任及分工

5.1   合約各方確認，部份項目公司[Wealthy Honest]擬收購之發展區[Development Area]土地，分別屬於以下公司:-

(1) [King Wong];

(2) [LIHL];

(3) [Yat Fat]

……

[King Wong]土地

5.3   [King Wong]同意，促使[King Wong]將其名下在發展區[Development Area]的土地，悉數以每平方呎港幣7,000÷13，按附表(1)的出售條件，轉易予項目公司[Wealthy Honest]。

[Yat Fat]土地

5.4   [Leung]同意，促使[Yat Fat]將其名下在發展區[Development Area]的土地，悉數以每平方呎港幣7,000÷13，按附表(1)的出售條件，轉易予項目公司[Wealthy Honest]。

 

5.5  至於其他在發展區[Development Area]未收購之土地，雙方同

意，帳面價皆以每平方呎港幣7,000 ÷ 13經由[King Wong]安排業主直接(或間接經由[King Wong])，轉售予項目公司[Wealthy Honest]。[King Wong]一干賺價及收益，與合資公司或合約各方無關。但[King Wong]須保証促使項目公司[Wealthy Honest]在2010年9月30日前，購買在發展區[Development Area]內土地面積不少於108萬平方呎。

……

第六條  先決條件

6.1   合約各方明白，在簽署本合同當日，[the Project]仍未落實。合約各方同意，直至[Linkan Enterprises]與借款公司[Join Billion]及其他同糸公司簽妥一干文件後，[LIHL]，[King Wong]及[Yat Fat]，才會安排將發展區[Development Area]土地轉易予項目公司[Wealthy Honest]。

6.2   另外，項目公司[Wealthy Honest]購買發展區[Development Area]最初(按[the Project])的58萬平方呎土地的資金(580,000 x 7,000 ÷ 13) = 312,307,692.00。除了其中差不多1億乃來自[King Wong]按第4.4條的約定提供外，其餘2.2億須由[Linkan Enterprises]提供。故此，[Linkan Enterprises]真正將第一期貸款2.2億[Tranche A Loan]，支付予借款公司[Join Billion]，亦是本合同先決條件。

6.3   若第6.1及6.2條的先決條件未有落實及或成就，本合同取消，而合約各方亦無須履行第五條的義務。

……

第十條  利潤分配

 

10.1 在上年度的累計虧損未被彌補及未有完全清還股東債權

前，[Eagle Faith]不得進行利潤分配。

10.2  除了作為[Straight Up]股東外，[Eagle Faith]不會從事其他商業活動或投資。故此，在[Straight Up]分配予[Eagle Faith](作為股東)的分紅時，[Eagle Faith]除了每年從依法繳納稅金後的利潤中保留不超過港幣20萬元儲備基金外，其餘利潤全數按股權比例，分配予給[King Wong]、[Fast Wealth]、[Leung]及 [Yeung]。

10.3  上述第10.2條的分紅，須在[Eagle Faith]收到[Straight Up]分紅後七個工作天內進行。

……”

16. According to the Eagle Faith Agreement, the share capital of Eagle Faith were divided into 7,988 shares (79.88%) for King Wong, 1,518 shares (15.18%) for Fast Wealth, 300 shares (3%) for Leung, and 194 shares (ie 1.94%) for Yeung.[9]  Further, it was agreed that various plots of land within the Development Area held by King Wong, LIHL and Yat Fat (which companies were controlled by the shareholders of Eagle Faith, and each of which agreed to procure their respective companies to complete the sale) were to be purchased and transferred to Wealthy Honest at an agreed price of HK$538.46 per sq ft (ie HK$7,000 ÷ 13).[10]  The Eagle Faith shareholders would be entitled to share in the profits of the subsidiaries via declaration of dividends (clause 10).

17. By three separate sale and purchase agreements made by King Wong, Yat Fat and LIHL respectively with Wealthy Honest all dated 3 May 2007 (“SPAs”), these three companies respectively agreed to sell and Wealthy Honest agreed to purchase certain land in the Development Area (collectively, “SPA Land”), and completion was to take place on 6 June 2007:

(a) an agreement between King Wong and Wealthy Honest dated 3 May 2007 for the sale and purchase of various plots of land in the Development Area for HK$89,716,846.15 (“King Wong SPA”);

(b) an agreement between Yat Fat and Wealthy Honest dated 3 May 2007 for the sale and purchase of various plots of land in the Development Area at HK$52,188,230.77 (“Yat Fat SPA”); and

(c) an agreement between LIHL and Wealthy Honest dated 3 May 2007 for the sale and purchase of various plots of land in the Development Area at HK$205,938,276.92 (“LIHL SPA”).

18. In/about May 2007, pursuant to clause 4.1 of the Transfer Agreement, the following resolutions of Yat Fat (“Resolutions”) were executed in support of the transfer of the Shares by Leung to King Wong under the Transfer Agreement:

(a) a written resolution by Yat Fat’s board of directors consisting of Pu, Leung, Keung Po Hung (姜寶紅, “Keung”) and Li resolving that the matter of approval of the transfer of the Shares by Leung to King Wong be dealt with by general meeting (“Directors’ Resolution”);

(b) a written resolution by all shareholders of Yat Fat, ie Pu, Leung and TKEEN, resolving that “若[King Wong]與[Leung]的[Transfer Agreement](見副本)的先決條件得以落實及成就，而[Leung]將[the Shares]轉讓予[King Wong]，本公司其他股東一致同意[King Wong]成為本公司股東” (“Shareholders’ Resolution”).[11]

The stamp duty for such transfer of the Shares from Leung to King Wong had been paid.[12]

19. Pursuant to the “Tranche A Notice of Drawing” dated 31 May 2007 and issued by Join Billion to Linkan Enterprises (and confirmed/acknowledged by Straight Up and Wealthy Honest), the deal would be as follows:

(a) Join Billion would make a lump sum Tranche A Drawing under the Tranche A Facility in the sum of HK$220,000,000 (ie the Tranche A Loan) on Linkan Enterprises on 6 June 2007 to be applied towards financing the acquisition cost of the SPA Land;

(b) the Tranche A Loan in the sum of HK$220,000,000 (together with the loan in the sum of HK$127,880,000 advanced by Eagle Faith to Join Billion (“Eagle Faith Loan”)) be paid to Straight Up to apply for issuance of additional shares in Straight Up such that on 6 June 2007 the total issued share capital of Straight Up would be increased from US$10 (10 ordinary shares of US$1 each) to US$44,600,000 (44,600,000 ordinary shares of US$1 each);

(c) Straight Up would then lend the Tranche A and Eagle Faith Loans in the total sum of HK$347,880,000 to Wealthy Honest by way of shareholders’ loan;

(d) Wealthy Honest would pay the Tranche A and Eagle Faith Loans to the property vendors (ie King Wong, Yat Fat and LIHL) under the SPAs as purchase monies for completing the acquisition of the SPA Land;

(e) the property vendors would direct payment of the purchase monies to TYL to pay for stamp duty and to satisfy the balance of the purchase price.

20. On 13 June 2007, the Tranche A Loan of HK$220,000,000 (which was intended to be part of the funds for Wealthy Honest’s purchase of the SPA Land) was drawn by Linkan Enterprises in favour of various parties as directed by Join Billion.[13]  Pursuant to a notice by Straight Up to Join Billion dated 13 June 2007, Straight Up confirmed acceptance of Join Billion’s application for allotment of 44,599,990 shares of US$1 each (which together with Join Billion’s existing 10 shares made up a total of 44,600,000 shares of US1 each), and directed payment of the consideration of HK$347,880,000 to the order of Wealthy Honest in such manner as shall be informed.

21. Pursuant to the Transfer Agreement, Wealthy Honest entered into three deeds with King Wong, Yat Fat and LIHL respectively (“King Wong, Yat Fat and LIHL Deeds” or collectively, “Deeds”) that contained directions by King Wong, Yat Fat and LIHL as to payment of the purchase price under the King Wong SPA, Yat Fat SPA and LIHL SPA respectively.

22. By a notice dated 13 June 2007 to Join Billion, Wealthy Honest directed that the sum of HK$347,879,999 (being payment for 44,600,000 shares of US$1 each in the capital of Straight Up) be paid to various parties pursuant to the Deeds. For the items of payment specified in such notice, items (1)-(5) in the total sum of HK$89,716,846.15, items (6)-(10) in the total sum of HK$52,188,230.77, and items (11)-(29) in the total sum of HK$205,938,276.92 were respectively the purchase price under the King Wong SPA, Yat Fat SPA and LIHL SPA.  It was also directed under such notice that the Eagle Faith Loan in the sum of HK$127,843,353.84 would be paid to King Wong and the remaining balance of HK$36,645.16 be paid to Wealthy Honest.

23. Each of King Wong, Yat Fat and LIHL executed an assignment dated 13 June 2007 for sale of various plots of land in the Development Area under the King Wong SPA, Yat Fat SPA and LIHL SPA respectively (“King Wong, Yat Fat and LIHL Assignments” or collectively, “Assignments”), and each such assignment acknowledged receipt of the consideration paid by Wealthy Honest as purchaser in the respective sums of HK$89,716,846.15, HK$52,188,230.77 and HK$205,938,276.92 (clause 1).

24. Hence, the following conditions precedent under the Transfer Agreement had been fulfilled:

(a) the SPAs by King Wong, Yat Fat and LIHL were entered into on 3 May 2007;

(b) the drawdown of the Tranche A Loan of HK$220,000,000 took place on 13 June 2007;

(c) the sale and purchase of land by King Wong, Yat Fat and LIHL was completed by the Assignments on 13 June 2007.

25. Pursuant to clause 4.1 of the Transfer Agreement, the following documents were executed in June 2007 at TYL’s offices:

(a) a deed of assignment of debt (債權轉讓契) dated 13 June 2007 (“Debt Assignment”) whereby Leung as beneficial owner assigned his Leung Loan in the sum of HK$5,000,000 with interest (if any) and benefits to King Wong, and authorised King Wong to give notice of such assignment to Yat Fat;

(b) an instrument of transfer and bought and sold notes in respect of the transfer of the Shares in Yat Fat by Leung to King Wong (“Transfer and B/S Notes”);

(c) a declaration signed by Leung dated 13 June 2007 tendering his resignation as director to Yat Fat with immediate effect, and abandoning any claim against Yat Fat (ie, “[Leung]放棄一切向[Yat Fat]追討作為[Yat Fat]的董事或任何職員的酬金、薪水、長期服務金及遣散費”).

26. The recitals of the Debt Assignment provided that:

(a) Under the Transfer Agreement, upon Leung having received HK$5,000,000 from King Wong and King Wong having caused Leung to become a 3% shareholder of Eagle Faith, and upon the implementation of the Project, King Wong was entitled to require Leung to execute the Debt Assignment.

(b) Leung confirmed he had become a shareholder of Eagle Faith and had received the sum of HK$5,000,000.

27. Pursuant to the Debt Assignment, Leung also executed a notice of assignment of debt (債權通知書) dated 26 June 2007 addressed to Yat Fat by which he notified Yat Fat that his Leung Loan of HK$5,000,000 had been assigned to King Wong, and thereafter he no longer had any right or interest in such Leung Loan (“Assignment Notice”). On the same day, Yat Fat acknowledged receipt of such notice of assignment of debt.

28. According to Form D4 filed by Yat Fat on 16 October 2007, Leung resigned as director of Yat Fat which took effect on the same day. Since then, the directors of Yat Fat were Pu, Keung ad Li.

29. King Wong claimed they and Leung had performed their obligations under the Transfer Agreement for the completion of the transfer of the Shares that took place on 13 June 2007, and the Project did go ahead, so the conditions precedent under the Transfer Agreement had been fulfilled:

(a) 300 Eagle Faith shares were allotted to Leung;[14]

(b) Leung executed the transfer documents in respect of his Shares;[15]

(c) the transfer of the Shares from Leung to King Wong had been approved by the Resolutions.[16]

30. As seen below, Li claimed that King Wong sent the original transfer documents[17] to Yat Fat/Pu in July 2007, receipt of which was acknowledged by Yat Fat (as countersigned by Pu’s personal assistant Ms Cheung Hoi Yee Kanny (“Cheung”)) (“Receipt”),[18] and such transfer documents had all along been kept by Yat Fat/Pu.

31. In 2008, Leung (together with other shareholders of Eagle Faith, ie King Wong, Fast Wealth and Yeung) executed two further agreements to amend the Eagle Faith Agreement:

(a) the Project Amendment Agreement (麗嘉計劃修訂同意書) dated 24 July 2008 executed by King Wong, Fast Wealth, Leung and Yeung;

(b) the 2^nd Project Amendment Agreement (第二麗嘉計劃修訂同意書) dated 2 September 2008 executed by the same parties.

32. Under the Eagle Faith Agreement, Leung was given the option, exercisable within 119 months, to sell all his shares in Eagle Faith to King Wong at the total price of HK$15,000,000 (minus any bonus received) (clause 4.8, “Option”).[19] This was a special provision for Leung and not other shareholders of Eagle Faith.

33. Upon Leung’s request in mid-2008, King Wong did purchase 100 shares in Eagle Faith from Leung at the pro rata price of HK$5,000,000.  On 2 September 2008, all shareholders (including Leung) executed the 2^nd Project Amendment Agreement to amend clauses 4.2 and 4.8 for the Eagle Faith Agreement to reflect the transfer of 100 shares from Leung to King Wong.

34. The 2^nd Project Amended Agreement provided as follows:

“本公司及本人等，分別為[Eagle Faith Agreement]及[the Project Amendment Agreement]各方，特此確認同意，由即時開始，[Eagle Faith Agreement]所述之第4.8條作出修訂，並按附表(A)以紅色字顯示修訂部份。

另外，各方同意，[King Wong]向[Leung]洽購[Leung]現在持有在合資合同之3%其中之1%(即100股)，而在交易完成後，[Eagle Faith Agreement]的第4.2條，亦相應變更，並在附表(B)以紅色字顯示變更之部份。

附表(A)

4.8 [Leung]有權在本合同起計第119個月，以書面通知著令[King Wong]，以港幣(1,000萬元正減除在期間[Leung]已收的分紅)的價錢，悉數洽購[Leung]在合資公司的股權及股東債權。屆時，[King Wong]須在收到通知1個月內執行交易，轉易費用由雙方共同負擔，若[King Wong]未有按時支付款項，則[King Wong]自動放棄權利，而[Leung]的股權，則不再受制於[King Wong]的優先購買權。在[King Wong]放棄購買[Leung]股權後，[Leung]須在一個月內，將[King Wong]代[Leung]按第4.6條及第4.10條墊支的費用(如有的話，補回予[King Wong])。

附表(B)

4.2 各方所佔的股份如下:-

人名	股份數目
[King Wong]	8,088
[Fast Wealth]	1,518
[Leung]	200
[Yeung]	194”

35. This was a partial exercise of the Option, which was governed by a Share and Debt Transfer Agreement (股權及債權轉讓合同) between King Wong and Leung dated 8 September 2008 (“2008 Eagle Faith Transfer Agreement”) whereby Leung agreed to sell 100 shares in Eagle Faith to King Wong at the consideration of HK$5,000,000. Clause 1.1 of the 2008 Eagle Faith Transfer Agreement defined “出讓股權” as “由[Leung]現在擁有在[Eagle Faith]的(其中)100股普通股(即1%股份)”. Clause 2 provided as follows:

“2.1 [Leung]同意，按第2.3條的出售代價，將出讓股權出售予[King Wong]。

2.2 出售的代價以現金支付。

2.3  出售代價， 為港幣伍佰萬元正(HK$5,000,000.00)，[Leung]特此確認在簽署本合同之前，已收妥出售代價。”

By clause 2.3 of the 2008 Eagle Faith Transfer Agreement, Leung acknowledged that prior to the execution of such agreement he had already received the consideration of HK$5,000,000 from King Wong.[20]  The sale and purchase were completed on 11 September 2008.[21]  Although the consideration stated on the instrument of transfer and bought and sold notes was HK$100.00, the transfer documents were stamped on the basis that the consideration was HK$5,000,000.[22]  Save for the transfer of 100 shares to King Wong, Leung was/is still the holder of 200 shares in Eagle Faith.[23]

36. By a letter dated 6 December 2012, King Wong’s solicitors Tong Kan & Co (“TKC”) wrote to Pu enclosing inter alia the Resolutions and requesting her in her capacity as company secretary of Yat Fat to update Yat Fat’s register of members to reflect the transfer of the Shares from Leung to King Wong.

37. On 12 December 2012, Pu’s solicitors Cheung, Chan & Chung (“CC&C”) replied declining such request on the ground that Pu as company secretary did not have authority to make entries in the register of members and asking King Wong to make proper application to Yat Fat’s directors.

38. On 14 December 2012, TKC wrote to CC&C referring to the Resolutions that recorded Yat Fat’s sanction of such transfer of the Shares and again requesting Pu to update Yat Fat’s register of members.  In CC&C’s reply dated 18 December 2012, they refused King Wong’s request by challenging the effect of the Resolutions on the following grounds:

(a) the Resolutions were undated and Pu was not notified as to exactly when they were executed;

(b) the directors’ resolution did not contain any resolution approving the transfer of the Shares and was not a mandate to Pu to make entries in the register of members; and

(c) the shareholders’ resolution specified that transfer of the Shares from Leung to King Wong was subject to satisfactory fulfillment and performance of the conditions precedent in the Transfer Agreement and Leung’s consent to such transfer of the Shares, so it was “not a straightforward mandate” of Yat Fat.

39. TKC by their reply dated 7 January 2013 again requested Pu to update Yat Fat’s register of members “[since Yat Fat] has through the unanimous resolution of all the shareholders of [Yat Fat] approved the [transfer of the Shares]”, and they responded to CC&C’s allegations as follows:

(a) the dates of execution of the Resolutions (which Pu should in any event know as she was party to both Resolutions) were not relevant;

(b) approval by Yat Fat’s board of directors was not required since approval was granted by the members of Yat Fat;

(c) Pu was in fact well aware that the conditions precedent under the Transfer Agreement had been fully fulfilled.

There was no further reply from CC&C and/or Pu.

40. At the Hearing, Mr Kam, counsel for Leung, did not take issue over the terms of the aforesaid documents/agreements duly executed by various parties including Leung.

III. PROCEEDINGS

41. On 3 April 2013, King Wong commenced the present proceedings against Yat Fat and Pu pursuant to section 100 of the Companies Ordinance Cap 32 (“Ordinance”) for the following reliefs:

(a) the register of members of Yat Fat be rectified by striking out the name of Leung therefrom as the holder of the Shares and inserting King Wong’s name in place of Leung as the holder thereof;

(b) King Wong be authorised to effect the necessary alterations in such register for carrying the order into effect;

(c) notice of such rectification be given to the Registrar of Companies;

(d) costs of the application be paid to King Wong by Pu or alternatively by Yat Fat.

42. On 24 May 2013, Master Ho directed that Leung be added as the 3^rd respondent in the present proceedings, and on 27 May 2013 the originating summons was amended accordingly.  Yat Fat’s attendance at the hearing of the amended originating summons was excused.  On 16 September 2013, Master Ho granted leave for King Wong to discontinue the present proceedings against Pu. In light of such procedural developments, the remaining protagonists in the present proceedings are King Wong (applicant) and Leung (3^rd respondent).

43. In a nutshell, King Wong sought summary disposal of their claim against Leung in the present proceedings commenced by originating summons. Leung contended there were substantial and bona fide disputes of facts such that the present proceedings could not fairly be determined without a trial, and it was inappropriate for summary judgment to be granted. Leung further said the present proceedings should be continued as if they had begun by writ per Order 28 rule 8 of the Rules of the High Court (“RHC”), or they should be determined following the taking of oral evidence per Order 28 rule 4(3) of the RHC.

44. On 3 April and 25 September 2013, King Wong filed the 1^st and 2^nd affirmations of their director and shareholder Li in support of their claim (“Li 1^st and 2^nd Affs”).  On 27 August 2013, Leung filed his own affirmation in opposition (“Leung Aff”).

IV. LEGAL PRINCIPLES: SECTION 100 OF THE ORDIANNCE

45. Section 100 of the Ordinance provided as follows:

“(1) If

(a) the name of any person is, without sufficient cause, entered in or omitted from the register of members of a company; or ……

the person aggrieved, or any member of the company, or the company, may apply to the court for rectification of the register.

(2) Where an application is made under this section, the court may either refuse the application or may, …… order rectification of the register ……

(3)…… on an application under this section the court may decide any question relating to the title of any person who is a party to the application to have his name entered in …… the register, whether the question arises between members or alleged members, …… and generally may decide any question necessary or expedient to be decided for rectification of the register. ……”

46. The “person aggrieved” under section 100 of the Ordinance includes a person whose name ought to be entered in the register under section 100(1)(a) of the Ordinance.[24]  Millett J in Re Piccadilly Radio plc held that “[that] remedy is discretionary.  It is not automatic.  The court must consider the circumstances in which and the purpose for which the relief is sought”. [25]

47. The procedure under such provision is summary in nature, but in Re Sussex Brick Company,[26] Vaughan Williams LJ said:

“I do not mean for a moment to suggest that any one is entitled to such an order ex debito justitiæ; it is a matter in the discretion of the judge, and there might be cases in which the judge, although he considered such an order essential to completely establishing the rights of the applicant, might refuse to do so because he thought it would work injustice to other members of the company. If I thought here that such an order would work injustice to other persons, especially to persons who are not in any way bound by the mistake of the company, I should feel considerable hesitation in making the order; but in the present case there is no evidence before us that any injustice will be caused at all.”[27]

48. Re Sussex Brick Co was cited in In re Leon Needham, Ltd [28] in which serious issues of fact arose between the parties and it was not even clear that the transfers of the shares were executed. Buckley J said that “[where] a claim to relief arose out of a dispute between members, and not merely between members and the company, the court would not entertain it, on motion, if it was one of complication and difficulty which ought properly to be tried by writ and with pleading, discovery, etc, and with the advantage of oral evidence.  It was true that discovery could now be given under RSC Ord 24, r 3, but the court ought not readily to agree to trial by summary proceedings on motion unless the case was really simple”.

49. In Re Hoicrest Ltd,[29] Mummery LJ said that jurisdiction to rectify is conferred by the English equivalent to section 100(1) of the Ordinance, but subsection (3) confers a general discretionary power such that the court may “decide any question relating to the title of a person who is a party to the application to have his name entered in or omitted from the register … and generally may decide any question necessary or expedient to be decided for rectification of the register.”  He said it is not an appropriate procedure for resolving factual disputes as to the ownership of the shares in which “[oral] evidence and cross-examination are necessary to resolve the dispute”.[30]  But in that case, it was considered appropriate, given the advent of the Civil Procedure Rules, to grant directions for trial of a preliminary issue, including “an order for the service of a statement of case and other pleadings on the preliminary issue, with directions for disclosure and inspection of documents”.[31]

50. In Re ISIS Factors plc,[32] the claimant applied to rectify the register of members of the 1^st defendant company by removing the name of the 2^nd defendant in respect of 10,000 shares and inserting the name of the claimant as the holder of them instead.  The claimant argued it had been agreed that in return for a cheque for £10,000 received by the 1^st defendant in December 1991 he would be allotted 10,000 fully paid ordinary shares and negotiations continued for him to purchase another 40,000 shares at par.  The defendants argued that discussions with the claimant involved the investment of £50,000 for 50,000 shares such that the payment of £10,000 was payment of 20p per share on 50,000 shares and a call was made in 1992 for a further 25p per share which the claimant did not pay. In 1998, the 1^st defendant was sold to the 2^nd defendant, and after seven years’ inactivity the claimant sought a proportion of the price in 2001.  The claim was dismissed on the basis that the evidence did not support it.

51. Blackburne J observed obiter that even if there was an enforceable claim for allotment of 10,000 shares the court would not have granted relief since the discretion in question was not different from that of whether to order specific performance of an agreement to allot shares (in fact no shares had been allotted, no share certificates had been issued, and the claimant’s name was not entered on the 1^st defendant’s register of members).  The defendant did nothing to assert his alleged ownership of the 10,000 shares for seven years, ignored letters making a call on him, and gave inconsistent explanations for his inactivity such that the delay would have led to refusal of relief. Further, rectification of the register would be manifestly unjust to the 2^nd defendant who acquired the 1^st defendant company in ignorance of the claimant’s claims on the basis that it was acquiring the whole issued share capital.

52. In World International Development (BVI) Limited v China Renji Medical Group Limited & anor,[33] Harris J did not hear argument (as the matter was resolved by the parties), but held on the issue of costs that the plaintiff’s application for rectification would have been unsuccessful in any event because it was not the legal owner at the time of the sale of the shares and there was a dispute about the beneficial ownership of such shares, “which obviously cannot be resolved in a summary application under section 100: see in this regard Re Hoicrest Ltd ……” The learned judge went on to say as follows:

“15. …… I accept that there may be cases, albeit rare, in which a person other than one who can readily demonstrate that he had, immediately prior to the transfer or consequential on it, a legal or beneficial interest in shares can show that he is a “person aggrieved”.  A bare trustee who does not have legal title vested in him in circumstances in which the more obvious applicants are unable or unwilling to make the necessary application, would be a possible example.  It is arguable, I put it no higher than this, that there might be cases in which a person who contends, as does the Plaintiff, that he has a disputed interest, can persuade a court that he is a person aggrieved in the sense that on the assumption that he had an interest he is adversely affected by the failure to register a transfer.  However, particularly in the latter type of case, into which the present one falls, it would need strong facts before the court would exercise its discretion to make an order.  Given the fact that the present case was so readily resolvable, it does not fall into that category.”

V.  LEGAL PRINCIPLES: ORDER 28 OF THE RHC

53. The court has power under Order 28 rule 4(1) of the RHC to dispose of the matter summarily if it is satisfied that no triable issues of fact are raised:

“(1) The Court by whom an originating summons is heard may, if the liability of the defendant to the plaintiff in respect of any claim made by the plaintiff is established, make such order in favour of the plaintiff as the nature of the case may require, ……”

54. But if there are genuine and/or substantial factual disputes that cannot be resolved on affidavit evidence, the court has the power under Order 28 of the RHC to (a) give directions for evidence to be taken orally, including cross-examination of the deponent under Order 28 rule 4(3) of the RHC, or (b) order that the proceedings continue as if the cause or matter had been begun by writ under Order 28 rule 8 of the RHC.[34]

55. In Shum Wah Ming v The Estate of Chen King Ngo, deceased & anor,[35] Cheung J reminded that the originating summons procedure was not and was never intended to be a short-cut to resolve disputes that could only be properly dealt with in a writ action.[36]  Mayo JA accepted there was no hard and fast principle concerning what cases could properly come within the ambit of Order 28 of the RHC, but it would be inappropriate to resort to the originating summons procedure where there were significant factual issues requiring determination.[37]  In Wing Hang Bank Limited v Crystal Jet International Limited & ors,[38] the court could not decide the matter in the manner envisaged by the originating summons process where there were 19 affidavits and voluminous exhibits.  The onus is on the applicant to show it will be just and convenient to make the order.[39]

56. But where the defendant’s liability to the plaintiff is established and there are no triable issues of fact, summary disposal is permissible under Order 28 rule 4(1) of the RHC.  The Court of Appeal in Bank of China (Hong Kong) Limited v Keen Lloyd Resources Limited held that with the wide discretion given to the court, “[if] the case can be dealt with summarily and the nature of the case requires, there is no reason not to grant summary judgment in favour of the plaintiff.  This is the approach we adopt.  The defendant agrees with the basic facts, which supports the plaintiff’s claim. The only defence raised by the defendant was found to be unbelievable.  What then are the issues that need to be resolved by way of a trial?”[40]  In Wing Hang Credit Limited v Chan Kit Ha & anor, Mr Recorder A Ho SC adopted the above approach with approval.[41]

57. In Bank of China (Hong Kong) Ltd v Twin Profit Ltd,[42] Fok J (as he then was) affirmed that if the plaintiff considers the defendant’s evidence discloses no triable issue, he may seek summary judgment under Order 28 rule 4(1) of the RHC.  Fok J (as he then was) went on to say:[43]

“8. Such an application by the plaintiff is akin to an application for summary judgment under O.14, but with the difference that the burden is not cast upon the defendant, as in O.14. Unlike O.14 applications, the plaintiff must first justify its entitlement to summary judgment, but once this is demonstrated prima facie on the evidence, the burden falls on the defendant to show that he has a defence to the claim. In practice, therefore, there may be little difference between an application for summary judgment in originating summonses and an application for summary judgment under O.14: see Wing Hang Bank Ltd v Liu Kam Ying [2002] 2 HKC 57 per Ma J (as he then was) at paras.7 and 10.”

58. I note that in both Keen Lloyd Resources Limited and Chan Kit Ha, the defendant admittedly executed the mortgage, but raised various other defences which were rejected without hearing oral evidence.  In Chan Kit Ha, the learned judge said “[it] is therefore, incumbent upon the Defendants to demonstrate a bona fide defence. In this sense, the approach can be said to be akin to an application for summary judgment under Order 14”.[44]  In that case, there was no bona fide defence to the claim, so the plaintiff was entitled to judgment.

59. On the question of factual disputes, the first question is whether there are conflicting affirmations from the parties that raise substantial factual disputes requiring oral evidence or trial.  The observations of Deputy Judge A To (as he then was) in Ip Kam Wah & anor v Fair City Group Ltd [45] are pertinent to such question:

“8. I accept that, unlike the plaintiff in an O.14 application, the plaintiff in an originating summons procedure bears the burden of proof. When faced with conflicting affidavits from both parties, the court will be failing in its duty if it should take the assertions in the affidavits on their face value in isolation and jump to the conclusion that there is a triable issue without first considering whether the assertions in the affidavits are believable. I bear in mind the test laid down by Bokhary JA (as he then was) in Re Safe Rich Industries Ltd (unrep., Civ App No 81 of 1994, [1994] HKLY 183) that whether the assertions are believable is a question to be answered not by taking the assertions in isolation but by taking them in the context of so much of the background as was either undisputed or beyond reasonable dispute. In an originating summons procedure, it is only when the court is satisfied after having undertaken that exercise that factual disputes could not be resolved on affidavit evidence that oral evidence or trial should be considered.” (my emphasis)

60. In Billion Wealth Group Limited v Strategic Media International Limited,[46] Fok J (as he then was) followed the approach adopted by Ma J (as he then was) in Liu Kam Ying for summary judgment under the originating summons procedure, and said as follows:

“4. And it is trite that on a summary judgment application, the court simply has to determine two questions : firstly, whether what the defendant says is believable as opposed to whether its version of events is to be believed; and secondly, if it is, whether what the defendant says amounts to an arguable defence in law.

5. Whether a party’s assertions are believable is a question to be answered not by taking the assertions in isolation but by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute : per Deputy Judge To (as he then was) in Ip Kam Wah v Fair City Group Ltd [2005] 4 HKLRD 168 at §8.”

61. If there are factual disputes that cannot be resolved on affidavit evidence, the court’s power to order originating summons proceedings to continue as if the cause or matter had been begun by writ is not the only way forward. Order 28 rule 4 of the RHC provides as follows:

“(2) In any case where the Court does not dispose of any originating summons altogether at a hearing …… or makes an order under rule 8, the Court shall give such directions as to the further conduct of the proceedings as it thinks best adapted to secure the just, expeditious and economical disposal thereof.

(3) Without prejudice to the generality of paragraph (2), the Court shall, at as early a stage of the proceedings on the summons as appears to it to be practicable, consider whether there is or may be a dispute as to fact and whether the just, expeditious and economical disposal of the proceedings can accordingly best be secured by hearing the summons on oral evidence or mainly on oral evidence and, if it thinks fit, may order that no further evidence shall be filed and that the summons shall be heard on oral evidence or partly on oral evidence and partly on affidavit evidence, with or without cross-examination of any of the deponents, as it may direct.

(4) Without prejudice to the generality of paragraph (2), and subject to paragraph (3), the Court may give directions as to the filing of evidence and as to the attendance of deponents for cross-examination and any directions which it could give under Order 25 if the cause or matter had been begun by writ and the summons were a case management summons under that Order.

(5) The Court may at any stage of the proceedings order that any affidavit, or any particulars of any claim, defence or other matters stated in any affidavit, shall stand as pleadings or that points of claim, defence or reply be delivered and stand as pleadings.”

62. Order 28 rule 4(4) of the RHC enables the court to give directions for the attendance of deponents of affidavits/affirmations for cross-examination.  But even though it is permissible to receive oral evidence to resolve factual disputes in originating summons proceedings, what the court has to consider is “whether the just, expeditious and economical disposal of the proceedings can …… best be secured by hearing the summons on oral evidence or mainly on oral evidence”.  In Ye Hong-ying v Chan Lup-ying,[47] the procedure under Order 28 rule 4(3) of the RHC was adopted since it was not desirable in the context of that case to significantly delay the resolution of the dispute by ordering that the proceedings should continue as if they had been begun by writ under Order 28 rule 8 of the RHC.

63. With the above legal principles in mind, I turn to the circumstances of the present application.

VI.  ANALYSIS

(a) King Wong’s prima facie case

64. Given that (a) Leung executed the Transfer Agreement, Eagle Faith Agreement, Resolutions, Transfer and B/S Notes, Debt Assignment and Assignment Notice, (b) the conditions precedent in the Transfer Agreement and Eagle Faith Agreement had been satisfied, and (c) the originals of the transfer documents had been submitted to Yat Fat/Pu as evidenced by the Receipt, King Wong had demonstrated prima facie on the evidence they were the transferee of the Shares pursuant to the terms of the Transfer Agreement, and Leung’s interest and participation in the Project would be reflected by his shareholding in Eagle Faith. King Wong argued that, as evident from the terms of the Transfer Agreement, Leung would be entitled to share in the profits of the Project through declaration of dividends by Eagle Faith,[48] but he was not to have any share in the profits made by the vendors (including Yat Fat) in the sale of their land to Wealthy Honest as he acknowledged and agreed under clause 3.2 of the Transfer Agreement[49] and clause 5.5 of the Eagle Faith Agreement.[50]  It was also said that Leung continued to retain an interest in the Project up to now through his continued shareholding in Eagle Faith.

65. In my view, King Wong was prima facie entitled to ask for an order that Yat Fat’s register of members be rectified in terms of the amended originating summons, and the next question is whether Leung’s affirmation evidence (when considered against the context/background that is undisputed or beyond reasonable dispute) was believable, and if it was, whether he had an arguable defence to the application.

(b)  Volume of materials

66. Mr Kam submitted that the volume of materials alone made the present application unsuitable for summary disposal.  Mr Kam acknowledged that the affirmations were few in number but reminded that the documents ran to over 550 pages and numerous authorities were cited by Mr Lam, counsel for King Wong, which suggested that a quick disposal of simple points was unlikely. I do not agree that the volume of materials of itself prevented summary disposal in the present proceedings.  It is evident from Part II above that Leung did not take any issue over the execution of the abovementioned agreements and documents, in particular the transfer documents that he executed in respect of the Shares, and from Parts IV ad V above that there was little disagreement on the relevant legal principles.

(c)  Leung Aff

67. Leung claimed he carried on various businesses in Macau since 1970.  Sometime around the end of 1999, Li invited him to participate in a joint venture to acquire various lots of land in Lamma Island (“Lamma Island Project”) of which Li would have 80% stake whilst Leung would have 20%. Li suggested (and Leung agreed) that when they purchased a sufficiently big plot of land for the Lamma Island Project they might apply to the government for conversion of agricultural land into building land and earn substantial profit therefrom, and they should use a limited company for such project. Li suggested using Yat Fat which was controlled by him, and Leung acquired 20% of Yat Fat’s shares (ie the Shares).  Leung trusted Li (who appeared to be honest/sincere and who always talked of his success in real estate projects) and let him be in sole charge of the Lamma Island Project.

68. Between 1996 and 1999 Leung contributed total payment of HK$4,873,093.44 to Yat Fat by shareholder’s loan for the Lamma Island Project, and Yat Fat acquired 461,022.40 sq ft of agricultural land for HK$24,549,279.39 (ie approximately HK$53 per sq ft). After 1999, Yat Fat ceased to buy land in Lamma Island, but Leung knew Li continued to acquire land for the Lamma Island Project under the name of King Wong of which he was 70% major shareholder and person having control of the management.  Leung claimed he was also invited to participate in King Wong’s acquisition in 2000-2001 of 135,963.828 sq ft of land, and he was presently suing Li and King Wong in HCA884/2013 for inter alia breach of trust and an account of his interest in respect of King Wong’s interests in such land.

69. Leung claimed that around mid-February 2007 Li told him he was in the process of negotiating on behalf of all of them (including himself, King Wong, Yat Fat and Leung) the sale of land in Lamma Island acquired by Yat Fat and King Wong to Agile Property for property development at a price of about HK$500 per sq ft, which eventually became the Project that involved Wealthy Honest acquiring plots of land held by King Wong, Yat Fat and LIHL.

70. Leung claimed that in/about the end of February 2007 Li telephoned to request him to transfer the Shares to King Wong, which company would cooperate with a potential investor that would 100% finance the purchase of all land acquired over the years by Yat Fat and King Wong for the Lamma Island Project, and most of the acquired land would be injected into a joint venture company (“Joint Venture Company”) at a substantially higher price which would earn them a high profit.  They would also hold 40% of the shares of the Joint Venture Company (which would participate in development of such land) and thereby earn more profit. Li also told Leung the conditions precedent of the deal were (a) the potential investor would only negotiate with one representative (ie Li himself) and (b) all land to be sold to the Joint Venture Company should be held in the name of King Wong or in the names of companies of which King Wong or Li should be the sole owner, which was why Leung had to transfer the Shares to King Wong to enable Li to hold out himself as the sole owner of Yat Fat.

71. Shortly thereafter, Leung signed the Transfer Agreement dated 29 March 2007 and the relevant transfer documents (ie the undated Transfer and B/S Notes) based on his trust in and the following assurances by Li:

(a) Li would calculate and account for Leung’s interest in the Lamma Island Project and the Joint Venture Company;

(b) Li would not require Leung to make any further capital injection in the Lamma Island Project or the Joint Venture Company;

(c) Yat Fat would not be “a party having any interest in the Lamma Island Project nor a shareholder in the joint venture company”;

(d) Li would transfer to Leung corresponding shares in King Wong that reflected Leung’s interest in the Lamma Island Project immediately upon commencement of the joint venture.

72. The Leung Aff stated that at around May 2007 Yat Fat sold 96,921 sq ft of land to Wealthy Honest being the project company for the joint venture for HK$52,188,230.77 (ie approximately HK$538 per sq ft).  In June 2007, Li told Leung that as a result of such sale Yat Fat would be able to repay all shareholders’ loan made by them to Yat Fat, and he asked Leung to sign the Debt Assignment to acknowledge receipt of repayment of Leung’s part of the shareholders’ loan.  Li told Leung he “was required to sign the documents as a formality to compete the accounting procedures”, and assured Leung “there would be no change in the shareholding of [Yat Fat] until Leung was allotted the shares in King Wong by [Li] as agreed”. Leung signed “the said document” based Li’s representation.

73. After the joint venture was implemented (ie when Wealthy Honest started to purchase lands in Lamma Island from Yat Fat and King Wong), Leung continuously demanded Li to account for his profit share in the Lamma Island Project, especially the profit made from sale of the land acquired by Yat Fat and King Wong to Wealthy Honest, and he asked Li when Li would transfer the shares in King Wong to him as agreed.  But Li repeatedly told Leung the calculation was not yet available as the joint venture was still ongoing with the acquisition of more land, and the ultimate shareholding of King Wong in the joint venture could only be ascertained when the joint venture acquired not less than 1,000,000 sq ft of land.

74. Sometime in mid-2008, Leung again pressed Li for allotment of shares in King Wong to him and to account for the profits due to him as promised. Leung stated he would no longer accept Li’s repeated excuse to delay final determination of his entitlement in the Lamma Island Project. He also demanded Li to transfer to him the shares in King Wong representing his interest in the Lamma Island Project forthwith. During one of their meetings, Li told Leung he would agree to cancel the Transfer Agreement and immediately destroy all undated Transfer and B/S Notes Leung signed to allay Leung’s concern pending transfer of the shares in King Wong to Leung as agreed.

75. Leung claimed that sometime after mid-2012, Li telephoned and asked him to attend Yat Fat’s extraordinary general meeting (“EGM”) to help him appoint new directors nominated by him to take care of his interests as 50% shareholder to Yat Fat’s board of directors as his then relationship with Pu was not good.  Li also told Leung he was worried Pu would act contrary to his directions/interests and dispose of Yat Fat’s assets without his consent because all Yat Fat’s directors were on Pu’s side and he was on his own. Li said he would ask his solicitors TKC to send Leung the relevant notices, and Leung could appoint him as the proxy to attend the meeting on his behalf to save him the trouble.

76. In/about September 2012, Leung received a letter dated 20 September 2012 from TKC acting for TKEEN addressed to him as a member of Yat Fat [51] enclosing a notice of EGM of Yat Fat, which showed that even up to that moment Li still acknowledged Leung’s status as 20% shareholder in Yat Fat.  Leung claimed that since Li and King Wong were unable to produce the original Transfer and B/S Notes and only submitted copies for stamping in December 2012, the originals of the transfer documents must have been destroyed pursuant to the agreement to cancel the Transfer Agreement.  The Certificate of Payment of Stamp Duty dated 5 December 2012 was a self-serving document with no probative value since it only recorded the payment of HK$10,004 stamp duty and HK$7,650 penalty based on Li’s representation to the Inland Revenue Department without the original transfer documents.

77. I note that Leung did not suggest that the cancellation of the Transfer Agreement was based on misrepresentation, but he argued that King Wong’s application to rectify Yat Fat’s register of members was misconceived as Li and/or King Wong had concealed (or not disclosed) materials facts relating to the Transfer Agreement and its cancellation which led to the destruction of the original Transfer and B/S Notes.  It was on such basis that Leung claimed there was arguably no transfer of the Shares under the Transfer Agreement, and Mr Kam submitted there were triable disputes as to (a) the beneficial ownership of the Shares and (b) the cancellation of the Transfer Agreement.

(d)  Discussion

78. On the other hand, Li denied (a) he ever promised or discussed with Leung that he would account to Leung the profits of the sale of land by Yat Fat to Wealthy Honest, or (b) he ever said he would allot to Leung shares in King Wong “to reflect his interest in the Lamma Island Project”, or (c) he had agreed to cancel the Transfer Agreement, or (d) he ever suggested he had destroyed the original transfer documents or had agreed with Leung to do so.  Mr Lam submitted that Leung’s allegations did not raise any arguable defence in that the factual matters raised were not believable and in any event did not amount to any defence in law.

79. In my view, the viability of Leung’s contentions (and King Wong’s denial) must be viewed against the contemporaneous documents, especially when Leung himself was a party to and executed various agreements. It is not enough to say summary disposal of the application is inappropriate because his assertions go to the issue of beneficial ownership of the Shares.

80. There is no dispute that Leung was a passive investor in Yat Fat who left all decisions as to the sale and purchase of the land and property development to Li.  But it is not correct for Leung to say in the Leung Aff that it was sometime around the end of 1999 that Li invited him to join in the acquisition of various lots of land for the Lamma Island Project.  In fact, Leung became a director/shareholder of Yat Fat in January 1997, and even on his own case he contributed HK$4,873,093.44 to Yat Fat for the Lamma Island Project “[in] between 1996 to 1999” and during such period Yat Fat purchased 461,022.40 sq ft of land for HK$24,549,279.39.

81. But despite the precision down to the last dollar and cent given by Leung as to the total amount of his shareholder’s loan to Yat Fat in the alleged sum of HK$4,873,093.44, Leung did not provide any particulars/breakdown of and/or any documentation for such total sum.  But Li produced Yat Fat’s management accounts for the years ended on 31 March 2006 to 31 March 2011 which recorded that Leung only contributed a total sum of HK$3,811,093.44 as shareholder’s loan to Yat Fat.  There is no dispute that King Wong received a total sum of HK$1,010,000 from Leung in 2000-2001 as contribution for King Wong’s acquisition of land in Lamma Island.  But even taking these two sums of HK$3,811,093.44 and HK$1,010,000 together, they were still HK$52,000 short of the sum of K$4,873,093.44 that Leung claimed (without any breakdown clarification and/or supporting documents) to have contributed to Yat Fat between 1996 and 1999.

82. So (subject to above observations in paragraph 81 above) Leung’s own case was broadly consistent with Li’s affirmation evidence that it was originally intended for Leung to have 20% interest in Yat Fat because Leung provided roughly 20% of the funds for the acquisition of lots of land in Lamma Island until he ceased making further contribution.  However, there is a difference in their affirmation evidence in that Leung claimed Yat Fat ceased to buy land in Lamma Island after 1999 but Li claimed Yat Fat acquired more land (of about 300,000 sq ft) since 2002.  However, this would not have any material effect because Li acknowledged he never held Leung to a lesser extent than his 20% shareholding in Yat Fat.

83. In respect of Leung’s alleged agreements/assurances in paragraphs 69-71 above, they do not sit well with the contemporaneous documents at all, particularly the Transfer Agreement.  The essence of Leung’s case was that Li suggested they would earn high profit through (a) the sale of land in Lamma Island held by Yat Fat to the project company at a high price and (b) sharing of profits from the Project via their 40% shareholding in the Joint Venture Company, and that Li assured he would calculate/account for and transfer shares in King Wing to reflect Leung’s interest in the Lamma Island Project and the Joint Venture Company.  It was said that Leung signed the Transfer Agreement and other ancillary agreements and documents on such basis.

84. But such allegations were contradicted by clause 3.2 of the Transfer Agreement (which agreement was executed by Leung) by which Leung acknowledged he would have no share in the profits of the sale of land by Yat Fat.[52]

85. It is interesting to note that even though Mr Kam in his written submissions stated that under the Transfer Agreement Leung would sell his 2,000 Shares in Yat Fat in return for 300 shares in Eagle Faith and repayment of the Leung Loan of HK$5,000,000 that had been made over the years to Yat Fat subject to various conditions precedent in relation to the implementation of the Project, there was no mention of the transfer of the Eagle Faith shares to Leung in the Leung Aff at all.

86. In my view, despite Leung’s reticence, there can be no shying away from the fact that his allegations were inconsistent with the agreed arrangement under the Transfer Agreement that his interest in the Project would be reflected by his shareholding in Eagle Faith (ie the ultimate holding company of Wealthy Honest as the project company).  It is plain from the Transfer Agreement that in exchange for his sale of the 2,000 Shares in Yat Fat to King Wong, Leung would be recompensed for his capital contribution for acquisition of land in Lamma Island (to be purchased by Wealthy Honest for the Project) and he would participate in the Project through his shareholding in Eagle Faith (see also paragraph 84 above).

87. The rights and obligations of King Wong and Leung in relation to the Project had been set out in the Transfer Agreement and the Eagle Faith Agreement, which nowhere mentioned any of the matters raised in paragraph 83 above.  No or no satisfactory explanation is forthcoming from Leung as to why that was so and why he would have signed such agreements, especially in light of the entire agreement provision in clause 17.2 of the Eagle Faith Agreement that excluded oral agreements and assurances.[53] Mr Kam reminded there was no entire agreement clause in the Transfer Agreement or no contractual provision that prevented variation of its terms. But it must be remembered that the Eagle Faith Agreement was the governing agreement that comprehensively set out the rights and obligations of the participating parties in the Project and it was executed by inter alia King Wong and Leung on the same day as the Transfer Agreement.  In any event, Leung’s alleged assurances contradicted clause 3.2 of the Transfer Agreement.

88. I note that the parties’ shareholdings in Eagle Faith had been fixed from the start under clause 4.2 of the Eagle Faith Agreement, and Leung was entitled to share the profits of such Project through such shareholding under clause 10.2 of the Eagle Faith Agreement.  Further, by the Option Leung’s shareholding in Eagle Faith was guaranteed to be worth at least HK$15,000,000, which was more valuable than his interest in Yat Fat.  I agree with Mr Lam it made no sense for Leung and Li to agree (as Leung alleged) that in addition to Leung’s interest held through his 3% direct shareholding in Eagle Faith he would also hold certain interest in the Project through King Wong.

89. Rather, the contemporaneous documents were consistent with Li’s 2^nd Aff which explained that when Li told Leung about the proposed Project in/about the end of February 2007, Leung was not keen and told Li that he was thinking of retirement as he over 60 years old.  He urged Li to acquire all his interests in Lamma Island, and at least pay back the funds he invested in Yat Fat and King Wong, which was why Leung and King Wong entered into the Transfer Agreement and the Eagle Faith Agreement with the Option to address Leung’s concerns as to the uncertainty of the Project.

90. Whilst Li agreed that Agile Property only negotiated with him as representative of all the investors in Yat Fat, King Wong and LIHL, he explained that Leung’s suggestion that Agile Property requested “all lands be sold to the joint venture company should be held in the names of King Wong or in the name of companies of which King Wong or Li should be the sole owner” so that he would have to sell the Shares in Yat Fat to King Wong was wrong and belied by the following matters:

(a)       Such allegations were contrary to the terms of the Transfer Agreement which provided that the transfer of land from King Wong, Yat Fat and LIHL to Wealthy Honest was to be a condition precedent for the completion of the sale of the Shares by Leung,[54] and the formalities of the transfer under the Transfer Agreement was only completed upon completion of the sale and purchase of land in June 2007.

(b)       Further, at the time of implementing the transfer of the lands to Wealthy Honest in/about May/June 2007 the registered shareholders and ultimate owners of King Wong, Yat Fat and LIHL were as follows:

Registered shareholder	Ultimate owner	Shareholding (%)
King Wong
Li	N/A	70%
Lam Yuk Tak*	N/A	30%
Yat Fat
Pu	N/A	30%
Leung	N/A	20%
TKEEN	Liang Guangyi**	50%
LIHL***
Fast Wealth	Lo Lucas	50%
King Wong	N/A	50%

* Lam Yuk Tak’s 30% shareholding was transferred to Affluent Castle Limited (BVI company) on 6 June 2008

** Li only acquired Liang Guangyi’s interest in TKEEN in 2008

*** Apart from the ordinary shares described above, there were 638 preference shares in the name of Yeung

(c) Hence, at the time of the transfer of land to Wealthy Honest various other investors were still the direct or indirect shareholders of King Wong, Yat Fat and LIHL. None of King Wong, Yat Fat or LIHL were wholly owned by Li.

91. For the assignment of the Leung Loan, clause 4.1 of the Transfer Agreement provided for the execution of the Debt Assignment, which Leung only executed in June 2007 when the condition precedent of transfer of the land to Wealthy Honest for the performance of the Transfer Agreement was satisfied.  The terms of the Transfer Agreement and Eagle Faith Agreement did not even hint that Leung would be allotted shares in King Wong.

92. As regards Leung’s claim that in 2007-2008 he made repeated requests and demands which led to the agreement to cancel the Transfer Agreement, I bear in mind that Leung was all along a party to and executed various documents for the Project which clearly set out the shareholding and respective rights of various investors in Eagle Faith and the total sale price of land by Yat Fat to Wealthy Honest, eg:

(a) Leung signed as a director of Yat Fat on the Yat Fat SPA and Yat Fat Assignment for sale of land under Yat Fat’s name to Wealthy Honest, and on the Yat Fat Deed for directing payment of the sale proceeds, all of which showed the amount of the purchase price received by Yat Fat.

(b) The price of the land fixed under clause 5.3 of the Eagle Faith Agreement (to which Leung was a party) was to be calculated by reference to HK$538.46 per sq ft.

Leung was fully aware of his interest in the Project and the profits made by Yat Fat, so his suggestion that he continuously chased Li to account to him was far from convincing.

93. Insofar as it was suggested that it was the failure to account for Leung’s interests in the Lamma Island Project and the Joint Venture Company and to transfer King Wong’s shares to Leung to reflect his interest in such project that led to the cancellation of the Transfer Agreement, I find such allegations inconsistent with Leung’s continued participation in the Project and his continued retention of the benefit of the Transfer Agreement through his 3% shareholding in Eagle Faith.

94. Significantly, Leung executed two amendments to the Eagle Faith Agreement, and he partially exercised the Option in mid-2008 to sell 100 Eagle Faith shares back to King Wong for HK$5,000,000,[55] and steadfastly retained and still retains the remaining 200 Eagle Faith shares being part of the consideration for the sale of his 2,000 Shares in Yat Fat.  This is contradictory to his allegation that there was an agreement to cancel the Transfer Agreement in mid-2008.  The partial exercise of the Option must have proceeded on the basis of Leung’s acknowledgment of the validity of the Transfer Agreement and the Eagle Faith Agreement which entitled him to become the holder of 300 shares in Eagle Faith.

95. Indeed, Mr Kam’s written submissions acknowledged that the condition precedents in the Transfer Agreement had been satisfied and the 300 shares in Eagle Faith were transferred to Leung.  But there was no mention of this in the Leung Aff even though upon cancellation of the Transfer Agreement one would have expected that Leung would have to disgorge what he had gained via the Transfer Agreement, ie the 3% shareholding in Eagle Faith and cash payment of HK$5,000,000.  Yet he was completely silent in this respect.  Without actual repayment or at least an offer for repayment of the consideration he received under the Transfer Agreement, Leung’s suggestion of a binding agreement to cancel the transfer of the Shares to King Wong is especially incredible when it would have equated to him having the 300 Eagle Faith shares and the subsequent partial exercise of the Option for free.  There was also no suggestion that the consideration of HK$5,000,000 for the assignment of the Leung Loan already received by Leung would be repaid.

96. That being the case, Mr Lam submitted that the alleged agreement to cancel the transfer of the Shares was not supported by valuable consideration and was therefore wholly ineffective.  He argued that since the Transfer Agreement was a binding agreement that had been performed by both parties, the transfer was complete subject only to the registration of the transfer by Yat Fat, and that King Wong therefore obtained equitable title to the Shares such that Leung held them as trustee pending registration.[56]  Pending such registration, any agreement to discharge or reverse the binding Transfer Agreement or any new agreement to cancel the Transfer Agreement must be supported by consideration.[57]  None has been identified since there is no suggestion that the consideration received by Leung for his 2,000 Shares had been or would be returned.

97. Mr Kam in his written submissions submitted there was consideration because “Leung would be allowed to keep his [Shares] in Yat Fat in return for forfeiting his right to shares in King Wong” and “his right to have an account of the profits made from the sale of land acquired by Yat Fat and King Wong to Wealthy Honest”.  Mr Kam submitted that this was borne out by the following:

(a) Leung repeatedly chased Li for transfer of King Wong’s shares and an account of profits between March 2007 and mid-2008, but ceased doing so after mid-2008.

(b) Leung was entitled to an interest in King Wong by having made contributions in the total sum of HK$1,010,000 to acquire land in Lamma Island.

(c) There is no entire agreement clause in the Transfer Agreement or any contractual provision that prevents a variation of its terms (but see discussion in paragraph 87 above).

(d) Leung’s continued participation in Eagle Faith after mid-2008 was irrelevant “insofar as the agreement to cancel the [Transfer Agreement] was not concerned with Leung’s shares therein and/or did not require the return of the same”.

98. In respect of paragraph 97(d) above, such submissions still avoided dealing with Leung’s 3% shareholding in Eagle Faith which he received as part of the consideration for completion of the transaction under the Transfer Agreement. Leung’s shareholding in Eagle Faith could not be lightly brushed aside as being irrelevant.

99. Leung’s allegation in paragraph 97(a) above that he repeatedly chased Li for transfer of King Wong’s shares and an account of profits between March 2007 and mid-2008 but ceased doing so after mid-2008 is a self-serving allegation which is contradicted by Leung’s own Amended Statement of Claim in HCA884/2013 (“ASoC”) which was verified by his own statement of truth.

100. Leung commenced HCA 884/2013 against King Wong and Li on 22 May 2013 for various reliefs to reflect his alleged investments in King Wong, ie his contributions towards King Wong’s purchase of land for the Lamma Island Project. In the ASoC, he averred as follows:

(a) For the Lamma Island Project, Leung on five occasions between 17 January 2000 and 20 March 2001 at Li’s request invested a total sum of HK$1,010,000 for the purchase of various lots in Lamma Island in the name of King Wong, and such investment was personally acknowledged in writing by Li who confirmed Leung’s 20% interest in each acquisition of land on behalf of King Wong. Hence Li and/or King Wong became trustees of Leung’s interest/investment in the acquired land.

(b) On 18 March 2003, without Leung’s knowledge or consent, King Wong sold/transferred various properties held in its name including part of the land acquired as aforesaid to South Pacific Limited (later changed to LIHL) for a consideration of HK$20,800,000. At that time, Li held 50% shareholding in King Wong and was the director of King Wong who executed the sale and purchase agreement and assignment on behalf of King Wong and LIHL. These related companies had or ought to have knowledge of Leung’s investment and beneficial interest.

(c) On 3 May 2007, King Wong sold and transferred 382,456 sq ft of land at HK$538.46 per sq ft to Wealthy Honest which was 70% beneficially owned by Agile Property for HK$205,938,276.92. Li executed the assignment on behalf of King Wong and as a director of Wealthy Honest.

(d) Neither Li and/or King Wong accounted to Leung his due share of the proceeds of sale of the two transfers.

(e) King Wong was still the registered owner of those parts of the acquired properties which had not been conveyed under the two transfers.

(f) Li and/or King Wong had failed and/or refused to account to Leung for his interest in the acquired properties, the remaining properties and/or his investment despite repeated requests and demands.

101. Plainly, the ASoC still claimed against King Wong and Li for declarations and accounts of Leung’s interests in the acquired properties, remaining properties and/or proceeds from his investment in King Wong, which contradicted Mr Kam’s suggestion that Leung would forfeit his right to shares in King Wong and his right to any account of the profits.  If Leung’s allegation in HCA884/2013 were right, not only would he obtain 3% shareholding in Eagle Faith and the right to dividends pursuant to such shareholding, retain the consideration of HK$5,000,000 received under the Transfer Agreement, the right under the Option as well as his entitlements to interests in King Wong (as claimed under HCA 884/2013) upon cancellation of the Transfer Agreement. That cannot be right.

102. On the other hand, Li explained that Leung’s contribution in the sum of HK$1,010,000.00 to King Wong in 2000-2001 and his interest in King Wong’s purchases of land in Lamma Island had already been fully accounted for by the transaction under the Transfer Agreement and the Eagle Faith Agreement. Li further explained that at the time of the Transfer Agreement, King Wong agreed to repay Leung’s total contribution for the acquisition of land in Lamma Island (comprising the sum of HK$1,010,000.00 and Leung’s shareholder’s loan recorded in Yat Fat’s financial statements in the sum of HK$3,811,093.44, which together were treated as the Leung Loan to be assigned to King Wong under the Transfer Agreement) by making a total payment of HK$5,000,000 to him.  King Wong accepted that clause 1.3 of the Transfer Agreement described the Leung Loan of HK$5,000,000 as Leung’s shareholder loan to Yat Fat, but Li explained it was fixed at HK$5,000,000 (even though all along Leung was recorded to have only contributed HK$3,811,093.44 in Yat Fat’s management accounts) in order to repay Leung for his total contributions to Yat Fat and King Wong for acquisition of land in Lamma Island. Li believed Leung was mistaken in saying his shareholder’s loan to Yat Fat was HK$4,873,093.44. Mr Kam suggested that the unexplained difference of HK$52,000 between HK$4,873,093.44 and the combination of HK$3,811,093.44 and HK$1,010,000 undermines such explanation.  But it must not be forgotten that although Li gave a detailed explanation Leung did not even give any breakdown, explanation or documentary support for his suggestion that his shareholder’s loan to Yat Fat was HK$4,873,093.44, which amount was different from the Leung Loan of HK$5,000,000 recorded in clause 1.3 in the Transfer Agreement and substantially more than the shareholder’s loan of HK$3,811,093.44 recorded in Yat Fat’s management accounts.

103. Mr Kam submitted that Leung’s allegations were supported in three ways.

104. First, Mr Kam argued that the letter dated 20 September 2012 by TKC as solicitors for TKEEN to Leung inviting him to attend the EGM of Yat Fat and stating they were “given to understand that [Leung was] also a member of [Yat Fat]” was a clear acknowledgment of Leung’s status as a beneficial shareholder of Yat Fat.  It was suggested that must be so since there was no mention that Leung was only a trustee of the Shares and there were no instructions given to Leung to vote as directed by the beneficial owner.

105. Li explained that all along he entrusted Yat Fat’s management to Pu until his relationship with her broke down.  Li claimed that in/about 2011 Pu with the help of Keung (who sided with her) seized control of Yat Fat’s board of directors and purported to appoint Pu’s personal assistant Cheung as additional director at a board meeting held on 8 December 2011 in order to outvote Li on the board.  Li claimed he had not been given notice of such board meeting, and Cheung’s appointment was invalid since it was made without notice to him and/or without a proper board resolution.  Although Li  was worried that Pu would act contrary to his direction and interests and dispose of the assets of Yat Fat without his consent because the other directors of Yat Fat were all standing on her side, he did not telephone Leung to discuss those matters with him.  It was against such background that Li sought to appoint additional directors to the board by causing TKEEN to requisition for an EGM, but the EGM could not proceed due to want of quorum since both Leung ad Pu refused to attend the meeting.  At that time, Pu did not want Li to gain a majority shareholding and sufficient quorum to control Yat Fat, but she was in fact privy to the matters set out Part II above as she was involved in the implementation of the Project in her capacity as a director of Yat Fat and also signed many of the documents forming part of the deal on behalf of Yat Fat, including the Yat Fat SPA dated 3 May 2007, the undated Yat Fat Deed, and the Yat Fat Assignment dated 13 June 2007.  Li claimed Pu was aware that the conditions precedent for the transfer of the Shares from Leung to King Wong had long been fulfilled.

106. In my view, there is no merit to Leung’s contention in paragraph 104 above.  Leung did not disagree that the relationship between Li and Pu broke down in mid-2012. I agree with Mr Lam it is trite that as a matter of company law only registered members can attend shareholders’ meetings and vote and that the beneficial ownership of the shares is irrelevant.[58]  For the purpose of giving formal notice to attend an EGM (which notice in the present case was attached to TKC’s letter), beneficial ownership was irrelevant.  The reason why a notice of EGM was served on Leung was because he was still the registered shareholder of the Shares in Yat Fat as Yat Fat did not register the transfer.  An identical letter was also sent to Pu.

107. In any event, King Wong clearly did not regard the Transfer Agreement as having been cancelled.  After the failure of the first EGM due to lack of quorum, Li intended to convene another EGM.  By a letter from TKC to Leung’s solicitors dated 31 October 2012 on the basis that King Wong was the beneficial owner of the Shares under the Transfer Agreement, King Wong demanded Leung to give a proxy to King Wong or its nominee to enable King Wong to exercise its voting rights. 

108. Secondly, Mr Kam argued that since King Wong was unable to produce the duly stamped original Transfer and B/S Notes, this pointed to their destruction in line with the cancellation of the Transfer Agreement.  Such originals should have been easily available for stamping between mid-2008 and mid-2012 before the breakdown of Li’s relationship with Pu, and King Wong’s inaction over such period was unconvincing when considered in light of the speed by which Li and King Wong were able to put the Transfer Agreement into effect by asking Leung to sign the Debt Assignment, Assignment Notice, Transfer and B/S Notes and declaration of resignation as director of Yat Fat within three months, and filing Form D4 with the Companies Registry on 16 October 2007.

109. As explained above, Li claimed that prior to the breakdown of his relationship with Pu he all along entrusted Yat Fat’s administrative matters, including safekeeping various corporate documents, to Pu who acted as Yat Fat’s company secretary since 1997.  After the transfer documents were executed by Leung and others, King Wong caused inter alia the original Transfer and B/S Notes to be sent to Yat Fat/Pu for safekeeping in July 2007.[59]  At that time Pu and Li were still on good terms, and they together owned and had complete control over Yat Fat, so it did not occur to Li to chase Pu to complete the formalities of the transfer.  Thus, the original Transfer and B/S Notes were all along kept by Yat Fat/Pu, and it was only in mid-2012 (ie after the breakdown of Li’s relationship with Pu) that Li began to chase for return of such documents.  By that time, Yat Fat’s board was already under Pu’s control with Cheung purportedly appointed as a director. Li was unable to have access to the corporate documents of various companies controlled by him, including Yat Fat, and he had to commence HCMP 738/2012 on 17 April 2012 against Yat Fat, Pu, Keung and Cheung to get back some of the documents.  On 11 June 2012, by consent Harris J ordered that Yat Fat do forthwith make available their books of account and open the same for inspection by Li and/or his representatives at their registered office, and provide copies thereof if so requested upon payment of copying charges.

110. By a letter dated 28 June 2012, King Wong demanded Yat Fat to return the original transfer documents, including the Transfer and B/S Notes signed in June 2007, but there was no reply.  On 24 August 2012, TYL on behalf of King Wong also wrote to Pu and Cheung to chase for the return of the original Transfer and B/S Notes, but again no reply was given.  Li claimed that it was Yat Fat/Pu who failed/refused to return the original Transfer and B/S Notes to King Wing; it was not the case that they had been destroyed.  Since the above requests to Pu and Yat Fat proved futile, Li submitted certified true copies of the Transfer and B/S Notes prepared by TYL (who actually witnessed the execution of the originals of those documents) for stamping, which was finally completed in December 2012.

111. Mr Kam questioned why, despite the discontinuance of the present proceedings against Pu, she had not come forth to confirm that the original Transfer and B/S Notes were with her or Yat Fat.  He argued that Leung should be given the opportunity to cross-examine Li on his explanation.  But it cannot be ignored that King Wong and Li were able to produce documentary support for their explanation by way of the Receipt which confirmed Yat Fat’s receipt of the original Transfer and B/S Notes in 2007 and King Wong’s demands to Yat Fat and Pu in mid-2012, which all came into existence before the present dispute with Leung.

112. Thirdly, Mr Kam submitted that Li and King Wong did not make any attempt to change the register of members between mid-2008 and mid-2012 when there was no dispute between Pu and Li, and such inaction was reflective of the Transfer Agreement having been cancelled, especially in light of King Wong’s and Li’s ability to swiftly put the Transfer Agreement into effect as explained in paragraph 108 above.  Mr Kam argued that such delay (which indicated there was no urgency in the matter) would have justified refusal of the relief sought as explained in Re ISIS Factors plc.

113. In my view, it is not correct to say that King Wong did not give any explanation. Li’s explanation is found in paragraphs 105 and 109 above. In my view, Re ISIS Factors plc is distinguishable on the facts. The obiter observations by Blackburne J were case-specific, and that case was concerned with an alleged agreement for the allotment of shares to the claimant which had not been carried into effect for over seven years.  Even if there were an enforceable claim, it was in substance a claim for specific performance and any exercise of discretion in such context would be influenced by laches.  The present situation is wholly different in that there was no dispute that both King Wong as transferee and Leung as transferor had executed the Transfer Agreement, and King Wong had fully satisfied their obligations under such agreement, so it was not a case of specific performance.  King Wong’s case was that it was a full beneficial owner who would be entitled to call for the legal title, and in such circumstances no injustice would be caused by any delay.  No third party interests were involved, and there was no suggestion that Leung (who never took part in Yat Fat and was never re-appointed as a director) suffered any prejudice as a result of any delay.  I agree that any delay would not be a bar if King Wong can establish they were the beneficial owner of the Shares.[60]

114. In my view, Leung was quite unable to raise an arguable defence against the validity of the Transfer Agreement or any triable issue as to the alleged agreement to cancel the Transfer Agreement and the alleged destruction of the transfer documents, so there cannot be any successful challenge to King Wong’s claim they were the beneficial owners of the Shares under the Transfer Agreement.

115. The fact that Leung attempted to raise an issue over the title of the Shares and to allege that the original Transfer and B/S Notes had been destroyed is not enough. After all, the court has power to determine dispute on title of the shares in an application under section 100(3) of the Ordinance, and if the issue is clear, the court can decide the dispute summarily.

116. In Re The Diamond Rock Boring Co Ltd ex parte Shaw,[61] S employed A to buy 40 shares in a company and paid A the purchase monies.  The vendor P executed the transfer and forwarded it to the company with the scrip.  The company returned the transfer after noting that certificates were lodged with them.  S signed the transfer and returned it to A to arrange the transfer, but A did not pay the purchase monies to P and falsely told him S would not complete.  P demanded back the transfer.  A cut off P’s signature from the transfer and returned it.  In S’ application to rectify the register, P and S disputed over the title of the shares, but rectification was ordered because S had legal title having paid P’s agent A for the shares and executed the transfer (which was later mutilated). Brett LJ said as follows:

“…… It cannot be right to say, that the Courts have jurisdiction to decide title, yet that they ought always to abstain from exercising the jurisdiction whenever a question of title or any matter of law arises. No doubt, as a matter of discretion, when there is a real dispute, and the amount depending is large, or if the facts are complicated, or any general principle is involved, the Court, instead of proceeding in this summary manner at once, should direct an issue or some other proceeding. …… But it would be perfectly monstrous, if, after the purchase has been duly completed, and the money paid, and the transfer executed, the right of [S] to be registered as the shareholder could be affected by the fact that [P] or his agent having destroyed the transfer.”

117. In the circumstances, I should exercise my discretion to give effect of the Transfer Agreement and order rectification of Yat Fat’s register of members to reflect the transfer of the Shares by Leung to King Wong as the “person aggrieved” under section 100 of the Ordinance.  I note neither Yat Fat nor the directors (as evident from the Resolutions and despite Pu’s earlier objection which had been resolved) raise objection to the application.

VII.  CONCLUSION

118. I therefore grant an order in terms of paragraph 41(a)-(c) above. There is no reason why costs should not follow event. I grant a costs order nisi that Leung do pay the costs of the application as between King Wong and Leung (including all costs reserved if any) to be taxed if not agreed.

Schedule