CHINA INVESTMENT DEVELOPMENT LTD v. WONG CHEE KUEN AND ANOTHER

HCMP 885/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 885 OF 2014

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J U D G M E N T

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1.  These interpleader proceedings are issued by the applicant for resolution of a dispute between the 1st and 2nd claimants.

2.  The applicant is a company incorporated in Bermuda and listed in the Hong Kong Stock Exchange.  The 2nd claimant, a company incorporated in the Cayman Islands used to be the registered shareholder of the applicant in respect of 600 million shares.  On 6 April 2011, the 2nd claimant placed 129,416,160 shares of the applicant to six placees. 

3.  The 1st claimant was one of the placees and was placed with 18 million shares of the applicant.  The 2nd claimant duly delivered to the 1st claimant the original share certificates for these shares, an instrument of transfer and a bought and sold note, all stamped on 12 April 2011. 

4.  The 1st claimant, however, did not seek to register himself as a shareholder of the applicant in respect of these shares until 10 December 2013.  The 1st claimant said on affirmation that he had thought of selling these shares then because of the rise in share value as well as the daily turnover in the stock exchange.  However, the 2nd claimant, as represented by its then director, a Mr Deng Li, served on the applicant’s share registrar Union Registrar Limited (“Union”) on 16 September 2013, a Report of Lost Shares/Warrant Certificates and Request for Replacements.

5.  The 2nd claimant claimed in the report the loss of the 18 million shares of the applicant and sought replacement for the same. Union then notified the Hong Kong Stock Exchange of the 2nd claimant’s alleged loss of shares on 18 September.  It had also advised the 2nd applicant the procedure for obtaining replacement shares.  The 2nd claimant duly provided a statutory declaration of loss and a letter of indemnity to the applicant, both dated 11 October 2013.

6.  One point I would mention is that before the 2nd claimant made the claim of loss and sought replacement of the share certificates, it had been struck off from the register of companies by the Registrar of Companies of Cayman Islands, in which territory the 2nd claimant was incorporated.  But the 2nd claimant has since been reinstated by the Grand Court of Cayman Islands.

7.  After the provision by the 2nd claimant of the statutory declaration and letter of indemnity, there was further correspondence between the parties.  The replacement shares were still not issued on 10 December 2013, when the 1st claimant submitted the original share certificates for the 18 million shares, the instrument of transfer and bought and sold note and asked the applicant to issue a share certificate for the 18 million shares to him.

8.  Union then advised the 1st applicant that Union could not issue the new share certificate to the 1st claimant because the 2nd claimant had reported loss of the original share certificate of the 18 million shares and was seeking replacement of the same. 

9.  Both the applicant and Union took a neutral stance to the dispute between the two claimants.  Union then instituted interpleader proceedings against the 1st and 2nd claimants in respect of their dispute on who should be entitled to the issue of the replacement share certificate for the 18 million shares.  These proceedings were scheduled to be heard on 2 April 2014.  The 2nd claimant did not attend the hearing but Union withdrew the proceedings and no order was made by the master. 

10.  The 1st claimant later learned from Union that the replacement share certificate for the 18 million shares would be issued to him in due course.  However, that was not done.  The applicant then issued these proceedings for determination as to which of the two claimants was entitled to be issued the replacement share certificate for the 18 million shares.

11.  The 2nd claimant’s case has been set forth in a Chinese letter dated 7 April 2014 to the applicant.  The letter was signed by Mr Deng Li who alleged that the original shareholder of the 2nd claimant had been wanted by the authorities in the mainland.  Since the 2nd claimant’s original shareholder owed money to Mr Deng, he gave the 2nd claimant to Mr Deng as compensation.  However, prior to transferring the shares of the 2nd claimant to Mr Deng, the original shareholder had disposed of and transferred out the bulk of the assets of the 2nd claimant.  Mr Deng suspected that the 1st claimant was a nominee of the original shareholder of the 2nd claimant.

12.  At the hearing this morning, Mr Kwong, counsel for the 2nd claimant submitted that these proceedings were wrongly instituted. He referred to Order 17, Rule 1 of the Rules of the High Court, which defines the entitlement to interpleader relief.  The rule stipulates:

“(1) Where:

(a) a person is under a liability in respect of a debt or in respect of any money, goods or chattels and he is, or expects to be, sued for or in respect of that debt or money or those goods or chattels by two or more persons making adverse claims thereto,

the person under liability as mentioned in subparagraph (a), or (subject to rule 2) the bailiff, may apply to the Court for relief by way of interpleader.”

13.  Mr Kwong submitted that the applicant’s obligation to issue replacement shares is not a liability to either the 1st or 2nd claimant in respect of any chattel or is, or expects to be sued by them in respect of that chattel.  He referred to Roe Investment Limited and Anor v Prince Good Limited and Anor (2003) HKCFAR 38.  Mr Chan, counsel for the 1st claimant agrees with Mr Kwong on this issue.

14.  I also say that the applicant’s obligation to issue the replacement shares is not a liability in respect of a debt or money or goods and it is not, and does not, expect to be sued by either of the claimants in respect of that debt, money or goods. 

15.  Mr Kwong further submitted that the issue between the 1st and 2nd claimants should be resolved in the Court of Bermuda under section 60(3) of the Bermuda Companies Act 1981, which provides:

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

16.  Mr Wong, counsel for the applicant however submitted that the Hong Kong Court can also deal with this dispute under section 633 of the Companies Ordinance Cap 622, which provides in subsections 1 to 3 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

(b) default is made or unnecessary delay takes place in entering in the register the fact of any person having ceased to be a member, a person aggrieved, or any member of the company, or the company, may apply to the Court for rectification of the register.

(2) If an application is made under subsection (1), the Court may —

(a) refuse the application; or,

(b) subject to section 167, order rectification of the register and payment by the company of any damages sustained by any party aggrieved.

(3) Subject to section 167, on an application under subsection (1), the Court —

(a) may decide any question relating to the title of any person who is a party to the application to have the person’s name entered in or omitted from the register, whether the question arises —

(i) between members or alleged members; or,

(ii) between members or alleged members on the one hand and the company on the other hand; and

(b) generally may decide any question necessary or expedient to be decided for rectification of the register.”

17.  The first point I note is that proceedings under section 633 of the Companies Ordinance are not interpleader proceedings. Even if the applicant can make use of section 633, these proceedings instituted under Order 17, Rule 1 of the RHC are still misconceived. 

18.  Furthermore, the “company” referred to in section 633 is defined in section 2 of the ordinance to mean:

“(a) a company formed and registered under this Ordinance; or

(b) an existing company.”

19.  An “existing company” is defined in section 2 to mean:

“a company formed and registered under a former Companies Ordinance;”

20.  Since the applicant is a company incorporated in Bermuda and not within the definition of “company” in section 2 of the Companies Ordinance, section 633 of the ordinance cannot be invoked to decide this dispute between the 1st and 2nd claimants. 

21.  In the premises, I dismiss these proceedings.  I further make a costs order nisi that the applicant do pay the claimants’ costs of these proceedings. 

(Louis Chan) Judge of the Court of First Instance High Court