WAN HOW WAN v. THE LUK HOI TONG CO LTD

HCA 1648/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1648 OF 2007

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J U D G M E N T

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Introduction

1.  My judgment on these Order 14A cross-summonses will be dispositive of the action.  Before I go to so much of the terms of the questions that have been posed by the respective summonses in order to decide the matter, I propose to set out as briefly as I can the background to the action and how it is that it has come about.

2.  The Plaintiff, Madam Wan is 86 years old.  The Defendant, which is a traditional Chinese property company, was incorporated in Hong Kong in 1926.  The Plaintiff’s late father (who I will refer to as the deceased) held 34 shares in the Defendant upon its incorporation which he later increased to 239 shares by virtue of further allotments of new shares to him.

3.  In 1943, the Plaintiff and her husband lent the deceased $2,000 pending repayment of which he pledged his shares in the Defendant to them as security.

4.  In 1946, the Plaintiff and her husband agreed with the deceased that they would not seek repayment of the $2,000 loan to him on terms that he agreed to transfer his interest in his shares in the Defendant to them.  In September 1946, the deceased died at Toishan in China before registering the transfer of his shares in the Defendant into the name of the Plaintiff and her husband.

5.  Notwithstanding this, by virtue of having the deceased’s share registration in her possession, between 1946 and 2000 the Plaintiff claimed and received the dividends due on those shares upon her indemnifying the Defendant against any claim made against it by any third party in respect of it having paid the dividends to her.

6.  In 2000, a Mr Wen Sheng Huai, a nephew of the Plaintiff, in his capacity as a grandson of the deceased and thus one of the beneficiaries of his estate asserted a claim against the Plaintiff in respect of her 239 shares in the Defendant.  In view of this claim, the Defendant has, since 2000, stopped paying the plaintiff any dividends.

7.  In October 2001, Mr Wen started an action against the Plaintiff claiming an entitlement to the shares.  In May 2003, Master Kwang struck out the claim on the basis that is disclosed no reasonable action from which there has been no appeal.

The Present Action

8.  From that chronology, I can conveniently turn to the immediate background to this action.  Having regard to her success in striking out her nephew’s claim against the shares and with a view to putting the question of their ownership beyond doubt, the Plaintiff decided to start an action for a declaration of her ownership of the shares.  On 11 November 2005, her solicitors wrote to the Defendant telling it that this was what she intended to do and that they intended joining the Defendant as a Defendant in that action in order to give effect to the declaration that was being applied for.  The letter also offered to withhold joining the Defendant as a party provided it agreed to abide by the judgment.  This letter is at pages 57 and 58 of the bundle.  The Defendant’s solicitors replied on 24 November 2005 agreeing to abide by the court’s judgment in the intended action [see page 60].  Because a point has arisen as to what was being agreed to, I should set out the material terms of that letter.

“	… our clients will abide by the decision of the court insofar as the court rules that your client is the sole beneficial owner of the shares of the deceased and that the said shares be transferred to your client.” [My emphasis]

9.  On 16 March 2006, the Plaintiff brought an action [HCA 578/2006] to secure her lawful entitlement to these shares.  In the action, the Defendant was not joined as a Defendant.  The Statement of Claim is at pages 97 to 118 of the bundle.  The Defendant in that action, who was joined pursuant to an Order of Master de Souza under O.15 r.6A of the RHC, is a brother of the Plaintiff and named as the personal representative of the Estate of the deceased.

10.  The relief asked for was in the following terms which I should set out in full:

“	AND the Plaintiff claims;
	(a)	A Declaration that since the said settlement agreement:-
		(i)	the said Deceased; and
		(ii)	his estate since the death of the said Deceased
		have been holding all share interest of the said Deceased in the said Luk Hoi Tong Co. Ltd. as a trustee for and on behalf of the Plaintiff.
	(b)	Specific Performance of the said settlement agreement, in particular, an order that the Defendant doth cause and procure the transfer of the title of the said Deceased (and/or of his estate) as the registered shareholder in respect of all shares registered in his name in the said Luk Hoi Tong Co. Ltd. to the Plaintiff or at her direction;
	(c)	Further or other relief as is just.
	…;”

11.  This trial was a short one.  The court initially adjourned the matter to give the Plaintiff’s nephew, Mr Wen, an opportunity to appear and state his case if he wished to.  On the adjourned hearing before Andrew Cheung J, he did not appear and being unopposed by the personal representative of the deceased, the Plaintiff obtained the following order which I will also set out here [see pages 62-63]:

“	IT IS THIS DAY ADJUDGED AND DECLARED THAT:-
	Since 1946, Wan Tak Yee, deceased (hereinafter called ‘the said deceased’), and his estate since his death, has been holding:-
	(a)	his interest of and in the shares in Luk Hoi Tong Co. Ltd. registered in the name of the said deceased as the shareholder; and
	(b)	his interest of and in the account between him and the said Luk Hoi Tong Co. Ltd. in the name of the said deceased as the account holder,
	as a bare trustee for and on behalf of the Plaintiff as the beneficiary.”

He also made no order for costs.

12.  It is said by Mr Chong, who appears for the Plaintiff, as he did before Andrew Cheung J in that action, that it was not necessary for the judge to give a mandatory injunction to compel the deceased’s Estate to transfer the shares to the Plaintiff because such an order would “only make sense” if the Defendant in the present action had been made a party to that action before the judge, which had been rendered unnecessary given its willingness to abide by any decision of the court, and, in any event, a mandatory injunction would only operate in personum which it could not in the absence of this Defendant as a party to that action.  More of the significance of this order and its ramifications for the Defendant presently.

13.  Having obtained her declaration that the deceased’s Estate held his shares for the Plaintiff since the agreement in 1946 and since his subsequent death, as bare trustee for the Plaintiff as beneficiary, her solicitors wrote to the Defendant on 5 June this year giving notice of Andrew Cheung J’s judgment and “demanding” that it cause or procure the transfer of the shares registered with it in the name of the deceased into the name of the Plaintiff and to account to her for all dividends since it stopped paying those dividends in 2000 [see page 139].

14.  It replied on 25 June 2007 [page 141] as follows:

“	In the absence of a clear direction in the Judgment in HCA 578/2006 that the shares formerly registered in the name of the captioned member be transferred to your client, we take the view that Wan Hoi Wei as the personal representative of Wan Tak Yee, deceased, should execute an Instrument of Transfer in favour of Wan How Wan also known as Wan Sheung Chu.  The Instrument of Transfer should be presented to the Stamp Office for adjudication before it is sent to us for further action.
	Kindly also let us have the followings in due course:
	1.	Share certificate/s;
	2.	Dividend book;
	3.	A cheque in our favour in the sum of HK$625.00 ($500.00 being our fee for share transfer and $125.00 being our charges for supplying the enclosed forms); and
	4.	The enclosed specimen signature cards duly completed in duplicate by your client.”

15.  I suppose nothing could have been simpler.  The Plaintiff’s solicitors had a co-operative Defendant in that action who had not opposed them, he being the Plaintiff’s brother, and he would have done what was necessary to achieve what the Defendant in this action was requiring.  It was a simple $625 solution.  Nevertheless, the Plaintiff has been advised to stand on her rights and to insist that all of this is unnecessary.  On 1 August this year, she brought this action requiring the Defendant to transfer the deceased’s shares to the Plaintiff and to give an account of the dividends due to her and to pay out against that account.  Mr Chong submits that this is only right.  His case is unanswerable — the Defendant has agreed to abide by Andrew Cheung J’s Order and it must do so.  And so I have been treated to “a lawyerly” exposition from Mr Chong as to why his case is correct as a matter of law and why I should answer the questions in his Order 14A summons in his favour.  Mr Yee, for the Defendant, has responded in equal measure.  His client’s case is that it is perfectly willing to abide by Andrew Cheung J’s Order but it can only do so if the proper, simple, albeit technical procedures are complied with — all for $625.  Its directors are also quite prepared to pay the Plaintiff all of the dividends since 2000 once the deceased’s shares are registered in her name.

16.  Whatever the legal niceties and irrespective of which party is correct, I greatly regret that the Plaintiff has been advised in the way that she has.  Even if her advisers considered the Defendant’s view of the Order wrong and misguided, they were being offered a simple, quick and cheap resolution to the Defendant’s perceived problem with the Order.  It strikes me that any sensible legal adviser (be it solicitor or counsel) would have urged, let alone advised their client to adopt the course that was being required by the Defendant to bring Andrew Cheung J’s Order to fruition.  Instead they have launched this 86-year old widow into expensive and uncertain litigation just to prove a point — the point being that they are right and that the other side is wrong, and I am told by Mr Chong that even if he succeeds he has instructions not to ask for costs.  It is difficult to imagine a more profligate and impractical course to adopt.

The Argument

17.  As the courts are not here to advise litigants in such circumstances, I now need to resolve the issues presented to me by these summonses.

18.  Mr Kent Yee has gone first because his summons is first in time.  That summons at pages 29-31 requires me to say whether the two letters, to which I have already referred, have the effect contended for in paragraphs 12 and 13 of the Statement of Claim [pages 4 and 5] which would require the Defendant to transfer the deceased’s shares to the Plaintiff without more, having regard to Andrew Cheung J’s Order and pay her all the dividends due on those shares since 2000.  Unsurprisingly, the Plaintiff’s summons [pages 33-35] poses questions to the same effect.

19.  Mr Yee now accepts that what the two letters amount to is the Defendant’s acceptance that it will abide by the learned judge’s Order.  He submits that this remains his client’s position, nevertheless whilst that may be so the proper procedure for complying with the judge’s Order needs to be complied with and this is all that his client requires.  Whilst it had perhaps been thought that there was significance in the fact that the judge’s Order failed to order a transfer of the shares into the name of the Plaintiff, as contemplated in the Defendant’s solicitors’ letter of agreement dated 24 November 2006 [page 60], Mr Yee very frankly accepts that even if that had been the Order his client would still have adopted their present stance requiring proper procedure and formality to be adhered to.

20.  It seems to me that Mr Yee is perfectly correct in his analysis of the situation.  The argument starts at paragraph 14 of Mr Yee’s skeleton submission.  He starts from the position of the Defendant’s Articles of Association (“AA”).  By Arts. 20 and 40, the Defendant is entitled to treat the registered holder of any shares as the absolute owner and it is not bound to recognise or be affected with notice of any trust in respect of a share or any equitable or other claim to such share [pages 71, 73].  Section 101 Companies Ordinance provides that no notice of a trust shall be entered on the register or be receivable by the Registrar.  Whilst by Art. 39(b) the Defendant’s directors may refuse to register any transfer of shares to a person of whom they do not approve, Mr Yee tells me that the Defendant will accept the Plaintiff as a member of the company and register her shares (subject to proper procedures being observed) by virtue of its having agreed to abide by the judge’s Order.

21.  Mr Yee accepts, and indeed submits, that on the deceased’s death his personal representative became entitled to his 239 shares by operation of law.  (See for example Lee Chia Cheong & Anr v The Prudential Enterprises Ltd [1992] 1 HKLR 389 per Fuad VP at 394 line 7.)

22.  Crucially, Art. 44 [page 74] entitles the personal representative of the deceased to be registered as the holder of the deceased’s shares or to transfer the shares subject to the regulations as to transfer contained in the AA.

23.  Art. 37 [page 73] provide that instruments of transfer of any shares shall be signed by both transferor and transferee (which is what, inter alia the Defendant’s letter of 25 June 2007 supra requires).

24.  Art. 38 [page 73] requires the instrument of transfer to be in writing and in the prescribed form and by Art. 41 [page 73] it should be left at the Defendant’s registered office.  So much for the Defendant’s internal procedures as required by its AA.

25.  Section 66 of the Companies Ordinance is relevant.  It says this:

“	66.	Transfer not to be registered except on production of instrument of transfer
	Notwithstanding anything in the articles of a company, it shall not be lawful for the company to register a transfer of shares in or debentures of the company unless a proper instrument of transfer has been delivered to the company.
	Provided that nothing in this section shall prejudice any power of the company to register as shareholder or debenture holder any person to whom the right to any shares in or debentures of the company has been transmitted by operation of law.”

It is convenient to observe at this stage that Mr Chong places reliance on this section because he says that his client comes within the proviso, the judge’s Order having the effect of a transmission of the shares by operation of law.  In this regard, Mr Yee submits that these circumstances do not give rise to “an operation of law”.  He relies on Greene, Greene v Greene [1949] Ch.333, in which Harman J (as he then was) held that the then section 63, Companies Act (the equivalent to our section 66 supra) could not be circumvented by any agreement (in that case sanctioned by what he held to be an invalid Article of Association of the company) for shares in the company to pass on death without the proper formality of an instrument of transfer.

26.  Further, Mr Yee in submitting that Andrew Cheung J’s judgment does not have the effect of transmitting the shares by operation of law, relies on the Court of Appeal’s decision in Hotung & Anr v Ho Yuen Ki [2002] 4 HKC 233, where at p.238 Cheung JA analysed the position of a bare trustee, which is what the Defendant in the present action has been constituted as by virtue of Andrew Cheung J’s Order.  A bare trustee if required by the beneficiary, must convey the legal title of the subject matter of the trust (in this case that 239 shares) if called upon to do so.  In the present circumstances, the Plaintiff will need to call upon the Defendant, in the action before Andrew Cheung J, to transfer the beneficial title to the shares to her and to register those shares with the Defendant in her name.  In doing so, he will need to present a valid instrument of transfer to the Defendant which must, and is willing to, in accordance with the agreement between the parties evidenced by the two letters to which I already referred, enter her in the register as the owner of the shares.

27.  Mr Chong does not see any necessity for such a course.  His case is perfectly straightforward.  The Defendant has signed up to abiding by Andrew Cheung J’s Order.  It is therefore, on the face of the Order, required to give effect to it by registering the Plaintiff as owner of the shares.  The Order, he submits, operates outside the terms of the Defendant’s AA which do not affect the Plaintiff as she is not a member of the company.  They only bind her once she is registered as the owner of the shares.  In my judgment such a submission cannot survive the analysis placed before me by Mr Yee.  It seems to me that Mr Chong has confused substance with procedure, which will give effect to the substance of the Order.  The Defendant accepts that it must abide with the judge’s Order and will do so in accordance with the appropriate procedures.  The means by which the Order is to be carried into effect is that appearing in the Defendant’s letter of 25 June 2007 supra.  Nothing else will validly carry out the effect of the judge’s Order.

28.  As to an account, this is premature because of the Plaintiff has yet to be constituted a member of the company.  She therefore lacks locus to call for an account.  Once she is registered as a shareholder the directors have already indicated that they will pay her the outstanding dividends from 2000 and no doubt, explain the amount that they propose paying her and in that way give her an account of dividends owing to her since they stopped paying her in 2000.

Conclusion

29.  I now need to answer the questions posed in the summonses consequent upon my reasoning in this judgment.

30.  I will take the Defendant’s summons first which is at page 29.  As to Question 1(a)(i)(ii) ‘Yes’ as to para.12 of the Statement of Claim; ‘Yes’as to para.13(a) but ‘No’ as to para.13(b) of the Statement of Claim.  As to Question 1(b) ‘Yes’ but only after the formalities referred to in the Defendant’s solicitors’ letter of 25 June 2007 have been complied with.  As to Question 2, having regard to the answer to Question 1(b) above, the action must fall to be dismissed for want of the formality referred to in the letter of 25 June to which I have already made reference.

31.  As to the Plaintiff’s summons at page 33 and the Schedule thereto; ‘Yes’ to Question 1of the Schedule.  As to Question 2(a) of the Schedule ‘No’; as to Question 2(b) ‘No’.  As to Question 2(c) ‘No’.

32.  Therefore, having regard to the terms of my judgment and the answers to the two summonses that result from it, the Plaintiff’s action as it has been constituted and presented in the Statement of Claim must stand dismissed with an order nisi that the costs of the summonses and of the action itself will be to the Defendant.  The Plaintiff is now left with the simple task of complying with the requirements contained in the Defendant’s solicitors’ letter of 25 June 2007 which will present her and her solicitors with no difficulty in achieving all that she requires.