LUI YUEN SZE v. CHANG CHING YUEN AND ANOTHER

HCMP 4823/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4823 OF 2001

____________

____________

______________

D E C I S I O N

______________

1. This is an application by the petitioner by a summons dated 4 June 2002. The petitioner seeks an order that unless within 7 days from the date of the order to be made herein, the 1st respondent is to return "all company documents, chops and seal in her possession, custody and control" to the Company Secretary for retention at the registered office of Fareast Realty Development Limited ("the Company"), the opposition filed by the 1st respondent to the petition under section 168A of the Companies Ordinance, Cap. 32 by way of an affirmation filed on 5 March 2002 is to be struck out and directions are to be given for the preparation of a valuation report in relation to the relief sought in the petition that the petitioner may buy out the 1st respondent's shares in the Company and for the future conduct of these proceedings.

2. I shall not repeat the background to the petition presented on 4 September 2001, which was given in the decision of Yuen J (as she then was) on 26 April 2002, paragraphs 1 to 8. What gave rise to this application for an unless order may be summarized as follows.

3. It is common ground that the Company is a holding company with no business of its own in Hong Kong. The Company has been trading through two wholly owned subsidiaries in China that are involved in the business of property development in the Fujian Province. One is known as Xiamen Wangjiang Realty Development Co. Ltd ("WRD") and the other is Fareast (Xiamen) Realty Development Co. Ltd ("FRD").

4. I start with the relevant allegations in the petition. It was alleged that in 1996 that the offices of WRD and FRD were situated in an address in Xiamen and that the company kit of the Company containing all the official documents and the company seal of the Company were also kept at that address. It was further alleged that in late May 1996, the 1st respondent had removed from that address "all the information, financial records and company seals relating to the Company, FRD and WRD" to her own residential premises in Xiamen without the prior knowledge and consent of the petitioner. Hence, from June 1996 onwards, the petitioner has been denied access to the information, in particular the financial information, of the Company, WRD and FRD.

5. On 15 January 1992, the petitioner issued a summons seeking, inter alia, an order that the 1st respondent shall return "all the corporate documents, company chops and common seal of the Company in her possession" to the Company within 7 days of the order and that the same were to be kept by the Company Secretary at the registered office. I should mention that the Company Secretary is a firm of certified public accountants and the registered office of the Company is the address of the Company Secretary.

6. After hearing submissions from the petitioner and the 1st respondent on 26 April 2002, Yuen J gave her decision and granted the relief sought by the petitioner at the conclusion of the hearing. The order was made upon the undertaking of the petitioner "to return any company documents, chops and seal in his possession, custody and control" within 7 days thereof to the Company Secretary. The actual terms of the order dated 26 April 2002 were as follows:

"The 1st respondent do return all company documents, chops and seal of the Company to the Company Secretary for retention at the registered office of the Company within 7 days from the date hereof."

7. There is dispute between the parties what are the documents and objects covered by the order and whether the 1st respondent has complied with it.

8. I turn to the 1st respondent's evidence as to what documents and objects she has admittedly removed from the office in Xiamen. In the 1st respondent's first affirmation filed on 5 March 2002, she stated that she had found in the Xiamen office "half of [the Company's] company seal and some documents in relation to FRD" and decided to take them into her possession. She also stated that in order to protect the interest of FRD and to prevent the petitioner from taking them away, she decided to keep the part of the Company's company seal and document so found by her. She did not specify what were the documents in relation to FRD or the documents of the Company so found by her. But I think these documents must have included the books and accounts of FRD because she had turned over these documents to firstly, the staff of a Taiwan company, and later a registered accountant in China, to carry out an audit of the financial affairs of the Company for her and the audit reports were exhibited to her first affirmation. The 1st respondent has, however, denied in her affirmation that she had taken possession of the company kit. She alleged that the petitioner has in his possession "the company kit, the other half of the company seal, and a lot of the documents of FRD". Again, she has not specified what those documents are that the petitioner is alleged to be in possession of.

9. The conflict in the 1st respondent's evidence as to what she has in her possession and the petitioner's allegation was not resolved in the decision of Yuen J. However, I have no doubt that in ordering the 1st respondent to return "all company documents, chops and seal of the Company to the Company Secretary", Yuen J was ordering the 1st respondent to return such items in her "possession, custody and control", in the same way as she had accepted an undertaking from the petitioner to return similar documents and objects in the "possession, custody and control" of the petitioner.

10. What happened after the order was made by Yuen J was as follows.

11. On 29 April 2002, pursuant to the undertaking given to the court, the petitioner's solicitors sent to the Company Secretary two rubber chops of the Company, three printed memorandum and articles of association, seven business registration certificates, the certificate of incorporation, certified copy of two sets of bought and sold notes, and copy of various resolution, form AR1 and corporation documents.

12. On 3 May 2002, the 1st respondent's solicitors sent to the Company Secretary a company chop and 12 memorandum and articles of association of the Company. Those were the only documents and object delivered by the 1st respondent through her solicitors to the Company Secretary.

13. On 6 May 2002, the petitioner's solicitors inspected the documents delivered by the 1st respondent to the Company Secretary and on 10 May 2002, they wrote to the 1st respondent's solicitors pointing out that the 1st respondent had not returned the common seal, the company kit, the books and accounts of the Company and its subsidiaries. It was stated that if the order of Yuen J was not complied with, the petitioner would seek an unless order. The petitioner's solicitors followed this up with a reminder dated 14 May 2002 when nothing was heard from the 1st respondent's solicitors.

14. On 15 May 2002, the 1st respondent's solicitors replied and they referred to paragraphs 27 to 29 of the 1st respondent's first affirmation, which I have summarized above. The 1st respondent's solicitors went on to say that other than the half of the company seal, by delivering the documents and the company chop the 1st respondent has fully complied with the order of Yuen J. As for the common seal, it was stated that the 1st respondent was still looking for it and her solicitors would revert with the result soon. It was further asserted in the letter that the order "did not include or cover books and accounts and/or its subsidiaries and/or company kit". Mr Kenneth Wong, who appeared for the 1st respondent today, has told me that he does not maintain the position set out in the letter of his instructing solicitors that the order does not include the books and accounts of the Company or the company kit of the Company. All that Mr Wong seeks to argue before me is that the order does not include the books and accounts of the subsidiaries of the Company.

15. The petitioner's solicitors replied to the letter of the 1st respondent's solicitors on 16 May 2002 stating that Yuen J had verbally confirmed when granting the relief at the hearing that the books and accounts of the subsidiaries and the company kit are included in the order. This assertion was also made in the 6th affirmation of the petitioner in support of the present application. It was claimed that the petitioner's counsel, Mr Simon Chan, who also appeared for the petitioner today, had specifically sought clarification from Yuen J that "all company documents" in the order should include the books and accounts of the Company and its subsidiaries and that the judge had replied in the affirmative.

16. The 1st respondent's solicitors responded by letter dated 29 May 2002 stating that the 1st respondent was unable to find the half of the company seal despite a "diligent and thorough search". The letter again maintained that the 1st respondent has discharged her duty pursuant to the order. There was no denial of that part of the letter of the petitioner's solicitors regarding the verbal confirmation of the judge on the ambit of the order, although there was a denial of another paragraph in the letter of the petitioner's solicitors.

17. There is no note in the judge's own record of any verbal clarification she had given to the enquiry of counsel when the order was made. Somewhat belatedly, and only this morning, I was handed up a draft affirmation made by the 1st respondent's solicitor, Mr Yuen Ching Pong, in which he stated that to the best of his recollection, neither he nor his colleague, one Ms Mary M W Chung, who were both present throughout the hearing, had been aware that Mr Simon Chan had ever clarified with Yuen J that "all company documents" referred to in the order should include the books and accounts of the Company and its subsidiaries or that the judge had agreed to the same. I regard this belated and ambiguous assertion as unsatisfactory. I am not told if Mr Yuen has also verified his recollection with his own counsel (not Mr Wong) who appeared at that hearing. There is no good reason why I should not accept the word of Mr Chan that the clarification was given by the judge to the effect that the scope of the order would cover the books and accounts of the Company and its subsidiaries.

18. In any event, when one looks at the decision of Yuen J given on 26 April 2002, it seems fairly clear that these items are meant to be covered by the order that she made at the end of the decision. In paragraph 13 of the decision, the judge referred to the company documents that ought to be kept at the registered office. In this context, she specifically mentioned the following provisions of Cap. 32: section 95 which relates to the register of members; section 119A which relates to minutes of proceedings of any general meeting of a company, any meeting of directors or any meeting of managers; and section 121 which relates to the keeping of "proper books of account". In paragraph 15 of the decision, the judge referred to the director's statutory obligation to ensure that the books of the Company are "properly kept" and the statutory obligation to cause and procure annual returns to be filed, which would require access to the company documents. She went on to say that to suggest that every time the petitioner wants to access the company documents, he should have to ask the 1st respondent is unrealistic as the parties are clearly in deadlock and it is clear that any request for access to the company documents "would not be a matter of mere formality".

19. In the light of the above, it seems fairly obvious that "all company documents" in the order of Yuen J must have included the "proper books of accounts" of the Company as well as the company kit. The "proper books of account" in this particular situation would have covered the books of accounts of the two subsidiaries, through which the Company conducted its business. I say this for the following reason.

20. I refer to section 121(2). This section provides that for the purpose of section 121(1), proper books of account shall not be deemed to be kept if "there are not kept such books as are necessary to give a true and fair view of the state of the company's affairs and to explain its transactions". Without the books of account of the subsidiaries, it does not seems to me that the books of account of the Company alone would be sufficient to "give a true and fair view of the state of the company's affairs and to explain its transactions". The proviso to section 121(3) is also relevant. Thus, where the books of account of FRD and WRD are kept in a place outside Hong Kong, it is stipulated in the proviso that there shall be sent to Hong Kong "such accounts and returns with respect to the business dealt with in the books of account so kept as will disclose with reasonable accuracy the financial position of that business at intervals not exceeding 6 months and will enable to be prepared in accordance with this Ordinance the company's balance sheet, its profit and loss account or income and expenditure account, and any document annexed to any of those documents giving information which is required by this Ordinance and is thereby allowed to be so given".

21. Insofar as the 1st respondent has not delivered to the Company Secretary "proper books of account" of the Company which would have included the books of account of FRD and WRD, she has not complied with the order of Yuen J.

22. As for her alleged failure to locate the half of the common seal despite the search she had made, I think it is unsatisfactory that this is dealt with merely by a letter from her solicitors. I would require an affirmation from the 1st respondent stating the date when she removed the half of the company seal to her possession; where did she remove the object to; how was the object kept in her possession, custody and control; whether any one else had access to it; when and where was the object last seen by her; how and when did she search for the object.

23. Similarly, I would require the 1st respondent to make an affirmation dealing with other company documents apart from the books of account, if it is claimed by her that the documents were never in her possession or that she has lost them if they were once in her possession. These documents are the register of members, the minute book referred to in paragraph 13 of the decision of Yuen J, and the documents she admitted she has taken into her possession in paragraph 28 of her first affirmation.

24. As the 1st respondent has denied on oath that she had taken possession of the company kit, I would not require an affirmation from her to deal with this again.

25. The petitioner has asked for an unless order to be made. In view of the fact that it is not clearly spelt out in the order that "all company documents" would have included the books of account of the two subsidiaries, I am prepared to give the 1st respondent another chance to comply with the order in the manner that I have indicated without making an unless order.

26. Mr Wong has asked for 28 days for the 1st respondent to deliver up to the Company Secretary the books of account of the Company and the two subsidiaries because the accounts went back to some years and the 1st respondent would need time to locate all the relevant documents. I would allow the 1st respondent the time as requested by her counsel. But I must make it very clear that no further extension of time will be entertained by the court, in view of the fact that an order had been made by the court as long ago as 26 April 2002.

27. The orders I make are as follows:-

(1) The 1st respondent is to return to the Company Secretary the books of account of the Company, FRD and WRD and any other documents kept by her as stated in paragraph 28 of her first affirmation that are in her possession, custody and control within 28 days hereof, for the retention by the Company Secretary at the registered office.

(2) The 1st respondent is to file and serve an affirmation within 14 days hereof deposing to the following matters in relation to the common seal of the Company, the register of members, the minute book and any other documents she had taken into her possession as stated in paragraph 28 of her first affirmation, namely, the date when she removed the documents and objects to her possession, where did she remove them to, how were they kept in her possession, custody and control, whether any one else had access to them, when and where were they last seen by her, how and when did she search for the objects and documents.

28. As for the question of costs, clearly the petitioner must have the costs of this application which is necessitated by the failure of the 1st respondent to comply with the order. I decline, however, to order that the costs should be paid to the petitioner forthwith as there is an ambiguity in the court order. The order I make is that the costs of the application be to the petitioner in any event.