HERO RICH INTERNATIONAL LTD v. BENEFUN INTERNATIONAL HOLDINGS LTD AND OTHERS

CACV 269/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 269 OF 2009

(ON APPEAL FROM HCA NO. 1433 OF 2009)

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BETWEEN

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REASONS FOR DECISION

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1.  This was a renewed application for a stay of a judgment dated 9 December 2009 of Deputy High Court Judge L Chan whereby the judge granted summary judgment to the plaintiff and ordered the first defendant, a company listed on the main board of the Stock Exchange of Hong Kong to transfer 234,375,000 shares in the first defendant registered in the plaintiff’s name (“the shares”) to HKSCC Nominees Ltd. At the conclusion of the hearing, the renewed stay application was refused. My reasons appear below.

Background

2.  The plaintiff is the registered holder of the shares. It wished to dispose of them. On or about 1 June 2009, a formal transfer was duly executed and stamped by the plaintiff for the purpose of transferring the shares to HKSCC to hold as custodian. HKSCC then lodged the requisite documents with the share registrar of the first defendant, Computershare Hong Kong Investor Services Ltd.

3.  Computershare replied to HKSCC by letter of 9 June 2009 to the effect that the first defendant’s Board of Directors wished “to withhold the transfer” to HKSCC,

“therefore, the request … could not be processed at this moment.”

4.  The plaintiff commenced this action on 18 June 2009 and applied for summary judgment.

5.  The first defendant raised four defences to the summary judgment application, none of which found favour with the judge. The first defendant then made an urgent application to the judge for a stay which was refused.

The stay application

6.  To succeed on this renewed application, the first defendant must show an arguable appeal. The submissions amounted to no more then a re-run of the four defences raised below. In substance, they raised two arguments: first, that under its articles, the first defendant is entitled to a period of time to consider whether or not to register a transfer so that the action was premature; and second, that there was a serious challenge to the plaintiff’s ownership of the shares by Blackpool which, if successful, would mean that the plaintiff would have no right to transfer the shares.

7.  The first defendant relied on articles 39, 40 and 41(A) of its articles of association which read:

“ Board may refuse to register a transfer App 3 r.1(2) Notice of refusal	39. The Board may, in its absolute discretion, and without assigning any reason, refuse to register a transfer of any share which is not fully paid up or on which the Company has a lien. 40. If the Board shall refuse to register a transfer of any share, it shall, within two months after the date on which the transfer was lodged with the Company, send to each of the transferor and the transferee notice of such refusal.
Requirements as to transfer	41. The Board may also decline to register any transfer of any shares unless: (a)   the instrument of transfer is lodged with the Company accompanied by the certificate for the shares to which it relates (which shall upon registration of the transfer be cancelled) and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer; and
	…”

8.  Properly read, the articles do not confer on the first defendant any discretion to refuse to register shares that are fully paid. Nothing in the articles enables the first defendant to “withhold” or “defer” the registration of a transfer of fully-paid shares.

9.  It is elementary that the shares of a publicly listed company (which the first defendant is) must be freely transferable. That is a requirement under the Listing Rules, paragraph 1 (2) of Appendix 3:

“(2)  … fully-paid shares shall be free from any restriction on the right of transfer (except when permitted by the Exchange) and shall also be free from all lien.”

The annotation in the margin of the articles makes that abundantly clear.  Given the terms of the Listing Rules, the two scenarios contemplated by article 39 (namely, partly paid shares and a lien) simply cannot arise.

10.  As to the dispute as to ownership between the plaintiff and Blackpool, that is a matter purely between the plaintiff and Blackpool and is not the first defendant’s concern. If Blackpool has a good claim, there is nothing to stop it from seeking injunctive relief to prevent the plaintiff from dealing with the shares. It has not seen fit to do so. It is therefore surprising that the first defendant should see fit to take up the cudgels Blackpool’s behalf. Further, I cannot see how the mere allegation by a third party that it has some claim in respect of the shares can enable the first defendant to refuse to register the transfer. Under its articles, unless ordered to do so by the court, the company does not recognize trusts in respect of shares.

11.  In my view, there is no arguable appeal to warrant a stay. The judge was plainly right to have granted summary judgment and his reasons are unassailable.