NATIONAL ENERGY INVESTMENT GROUP LTD v. CHIA TAI ENERGY MATERIALS LTD

HCMP 762/2021

[2022] HKCFI 1993

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANCEOUS PROCEEDINGS NO 762 OF 2021

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REASONS FOR DECISION

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APPLICATION

1.  This is the substantive hearing of the Re-Amended Originating Summons issued under section 740 of the Companies Ordinance, Cap.622 (the “Ordinance”)  for the production and inspection of documents and records and the Plaintiff’s Summons issued on 24 December 2021 for, inter alia, a mandatory injunction for the production and inspection of documents and records (the “Injunction Summons”)  which came before this Court on 31 December 2021.

2.  At the hearing on 31 December 2021, this Court ruled that there was no urgency in relation to the application. The threat by the ultimate shareholder of the Plaintiff to commence proceedings against the Plaintiff unless the relevant documents were obtained before a particular date is a self-engineered urgency. Further, the Plaintiff’s former solicitors requested Chia Tai Energy Materials Limited (the “Company”)  to provide the requested documents by letters dated 19 February 2021 and 2 March 2021. There is no reason why these proceedings could not have been commenced earlier. Procedural justice requires that the Company be given an opportunity to put in evidence so that the Court could properly evaluate the parties’ respective cases. This is particularly so given that the issue of authority of the Plaintiff to take out the present proceedings is raised.

3.  Accordingly, this Court gave a set of directions and for this matter to be substantively determined on 24 February 2022. In the meantime, this Court had suggested the parties to sort out the issue of authority and the scope of the documents to be provided if possible by consent.

AUTHORITY

4.  There is no dispute that the Plaintiff is a 49% registered shareholder of the Company. As a 49% registered shareholder of the Company, the Plaintiff is, in my view, as of right, entitled to have a copy of the Company’s audited financial statements. The Company has a positive duty to provide its shareholders with a copy of its annual audited financial statements in its annual general meetings in any event.

5.  As far as the issue of authority is concerned, I am satisfied that Mr Shi Kexin is the sole director of the Plaintiff. This is reflected in the certificate of incumbency dated 11 January 2022. I note that when the Company raised the issue of authority for the first time on 27 October 2021 when it filed its affirmation in opposition, it was complained  was that the Plaintiff only provided “a copy of its Certificate of Incumbency without providing details of the shareholding  structure or ultimate beneficial ownership”.

6.  I accept Ms Liao’s submission that the provision of the Plaintiff’s ultimate beneficial ownership is not necessary. In any event, the Plaintiff did produce details of the Plaintiff’s shareholding and ultimate beneficial ownership in the 2^nd Affirmation of Shi Kexin and a certificate of incumbency dated 16 April 2021 was also produced on 30 December 2021.

7.  At the hearing on 31 December 2021, in order to put the matter at rest, the Plaintiff, at the invitation of this Court, agreed to provide an updated certificate of incumbency. There was no suggestion at that hearing that any evidence above and beyond that ought to be produced.

8.  On 28 January 2022, the Company filed a BVI legal opinion and suggested that the Register of Directors rather than the Certificate of Incumbency should be produced.

9.  In response to that, the Plaintiff duly produced the Register of Directors which again shows that Mr Shi Kexin is the sole director of the Plaintiff.

10.  I am of the view that, on the documentary evidence before this Court, it is beyond doubt that Mr Shi Kexin is the sole director of the Plaintiff. The Certificate of Incumbency is verified and confirmed on oath by the Plaintiff’s registered agent. The Company has not suggested that there are any defects as to its form or content, or requested to cross-examine the deponent to test the truth of the statement therein.

11.  The Company persisted on its challenge on the authority of Mr Shi on the basis that it had all along dealt with one Mr Cheung. However, the key is the current documents show clearly that since 2017, Mr Shi is the sole director of the Plaintiff and it is undisputed that Mr Cheung was effectively incommunicado since early 2016. Ms Liao also raised the point that there is no suggestion of any objection originating from Mr Cheung regarding the Plaintiff’s current request for documents, which was made almost a year ago. I do not consider the basis of this challenge is a good one in view of the corporate documents as produced by the Plaintiff.

12.  Mr Maurellet SC, next, pointed to a board resolution by all the directors of the Plaintiff. It was submitted that the word “directors”, in plural form, was used and there were three signing spaces at the bottom of the page signifying that the Plaintiff might have more than one director as it now alleges. I am of the view that there is no need for the Court to do a Sherlock Holmes exercise here. There must be a basket of reasons as to why this particular form was used to which this Court makes no speculation. However, both the Certificate of Incumbency and the Register of Directors make clear that Mr Shi is the sole director of the Plaintiff. This is not a case where the situation is unclear and therefore the issue of authority has to be resolved first in a trial (See Kammy Town Ltd v Super Glory Corporation Ltd, HCA 3524/2003, unrep., 14 January 2005, per A Cheung J (as he then was)).

13.  For the above reasons, I am of the view that the Plaintiff has proper authority to commence the present proceedings.

GOOD FAITH AND PROPER PURPOSE

14.  This can be dealt with rather succinctly. As I mentioned earlier, the Plaintiff as a 49% registered shareholder of the Company is, as of right, entitled to the audited financial statements of the Company. I do not see any reason why it is not entitled to. Further, the Plaintiff has, on oath, stated that the documents are required for the purpose of preparing its own audited financial statements. I agree that it is a proper purpose.

15.  Mr Maurellet SC submitted that it is unclear in the present case as to who is the ultimate beneficial owner of the Plaintiff, and thus, the owner of the shares of the Company. There is no way to ascertain whether Mr Shi is bringing the present proceedings for the benefit of the beneficial owner. However, I am of the view that that is not a relevant consideration.

SCOPE OF THE DOCUMENTS SOUGHT

16.  The issue in relation to the scope of the documents to be disclosed is very simple. I am of the view that the Plaintiff is entitled to the audited financial statement of the Company for the year from 2016 to 2019. As and when the audited financial statements for the year 2021 and 2022 are ready, the same should also be disclosed to the Plaintiff.

17.  For the other categories of documents, the Company’s position is that it does not have possession of the same. For example, it does not have any valuation reports as requested and it does not keep any documents belonging to its Dalian subsidiary. In the circumstances, I make an order that the Company do within 14 days from the date of the order file and serve an affirmation to state that it is not in possession of the remaining requested documents.

18.  I do not make an order in terms of the management accounts of the Dalian subsidiary as I do not find it necessary for the purpose of preparing the Plaintiff’s own audited financial statements.

19.  According I made an order in terms of the orders as submitted by the parties dated 24 February 2022.

20.  On 19 April 2022, the Company took out a summons to amend the above orders to rectify some mistakes. As the Plaintiff has no objection to the same and the amended orders do reflect the actual orders made by the Court on 24 February 2022, I made an order in terms of the Company’s summons dated 19 April 2022.

COSTS

21.  Ms Liao for the Plaintiff asks for the costs of the Injunction Summons and the Re-Amended Originating Summons. Mr Maurellet SC submitted that there should be no order as to costs.

22.  I am of the view that costs should follow the event and the Plaintiff should have costs of the Injunction Summons and the Re-Amended Originating Summons as there is no reason why the audited financial statements were not provided to the Plaintiff in the first place.

23.  However, I am of the view that Mr Maurellet SC is right that the Company should be entitled to the costs of the urgent hearing on 31 December 2021. There is no basis for the Plaintiff to proceed on the basis of an urgent need for an injunction order as at 31 December 2021.

24.  Parties have submitted their respective schedules of costs for both of the hearings on 31 December 2021 and 24 February 2022.

25.  Having considered the said schedules of costs and Mr Maurellet SC’s submission that rather than have complicated orders setting off, no order as to costs is more consistent with the CJR, I am of the view that no order as to costs is appropriate in the circumstances.

26.  For the avoidance of doubt, I have already taken into consideration the statements of objection and the fact that this Court would only grant certificate for one counsel to the Company.

DISPOSITION

27.  For the reasons stated above, I made an order in terms of the amended order dated 19 April 2022.

28.  I also make no order as to costs in both the Re-Amended Originating Summons and the Injunction Summons.

29.  Finally, this Court thanks counsel for the Plaintiff and the Company for their helpful assistance.