WONG PUI YIN GEORGEANNA (as the administratrix of the estate of WONG CECILIA PUI LUEN, deceased) v. HIROSHI TECHNOLOGIES LTD

HCMP 800/2022, HCMP 801/2022 and HCMP 802/2022
(HEARD TOGETHER)

[2023] HKCFI 1663

HCMP 800/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 800 OF 2022

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 801 OF 2022

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 802 OF 2022

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(HEARD TOGETHER)

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J U D G M E N T

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1.  The Plaintiff has issued three originating summonses seeking orders in respect of three companies, Hiroshi Technology Limited (“Hiroshi”), Cheer Corporation Limited (“Cheer”) and Elite Giant Limited (“Elite”) to register the Plaintiff’s name, as the administratrix of her Sister Wong Cecilia Pui Luen (“Cecilia”), as the shareholder of shares registered in Cecilia’s name and for convening a general meeting at which the Plaintiff reconstitute the boards of the three companies of which, prior to her death, Cecilia was the sole director. Cecilia died intestate on 18 December 2020 and letters of administration were granted to her Sister, the Plaintiff, on 4 May 2021. There is nothing unusual in an application of this sort. They are common when a person dies owning a company of which they are either the sole shareholder or one of two shareholders in a company with a quorum of two for general meetings and are either the sole director or one of two and the board needs to be reconstituted in order for the company to function lawfully. Such applications are commonly uncontroversial, and orders of the type sought by the Plaintiff are routinely granted pursuant to sections 158, 159, 570 and 633 of the Companies Ordinance, Cap. 622. However, the present case is more complicated.

2.  There are also three summonses issued by Lee Chi Wang seeking to intervene in each of the applications in order that the applications can be stayed pending the determination of his claim in HCA 176/2022 to be the beneficial owner of the shares of each company registered in Cecilia’s name. The Plaintiff does not object to Mr Lee’s intervention but opposes the stay. The Plaintiff disputes Mr Lee’s claim and says that the Companies cannot be left without directors until the determination of the action, which is at an early stage as their statutory obligations need to be dealt with. Mr Lee is concerned apparently that Hiroshi conducts an active hi-fi business that he manages and that if control of it passed to the Plaintiff irreversible damage may be done to it. It seemed to me that clearly it would be best if the Parties could agree an arrangement between themselves to deal with the need for the Companies to have a board and ensure that the commercial value of the Companies was retained pending resolution of the High Court Action. I proposed this at the hearing to counsel and it was agreed that this was the best course, and the application was adjourned. Unfortunately, they have not been able to agree the matter between themselves and the applications need to be determined. The applications are best approached by considering Mr Lee’s evidence first.

3.  Cecilia was an asset manager at BNP. Mr Lee met her in about 1992/1993 and they started a romantic relationship. They never married, but the relationship continued until Cecilia’s death from cancer. There is no suggestion that Mr Lee (or for that matter Cecilia herself) was unaware that Cecilia had terminal cancer. There is no evidence from either Party about why Cecilia, knowing she was dying did not prepare a will.

4.  Mr Lee explains that Cecilia would advise him on management of his assets and investments. He trusted her. As a result, he gradually transferred ownership and control of the Companies to Cecilia. In about 2002 Cecilia acquired Cheer and Elite for the purposes of holding two properties in Hennessy Road on trust for him. Initially they both held one share in each Company and both were directors. In 2004, when the need for all companies to have two members was abolished, Mr Lee transferred his share in each of Cheer and Elite to Cecilia and resigned as a director. He says that he and Cecilia agreed that he held these assets as his nominee and that consistent with this Cecilia executed blank instruments of transfer and bought and sold notes in respect of the shares registered in her name in both Companies. Mr Lee still has some of these documents. Cheer and Elite were also used as holding companies for seven other companies established by Mr Lee.

5.  The position in respect of Hiroshi is different. Hiroshi was incorporated in 1984. It had 300 issued shares. 299 registered in Mr Lee’s name; one registered in the name of Honest Securities Nominees Limited as Mr Lee’s nominee. Hiroshi carried on business selling and distributing professional audio products. In 1999 Mr Lee was requested by Matsushita Kazuo to focus his attention on a joint venture the two had established in Hong Kong, Audio Technica (Greater China) Limited. Audio Technica is a fairly well known Japanese audio company. As a consequence, in 1999 Mr Lee transferred the one share of Honest Securities Nominees Limited in Hiroshi to Cecilia. In July 1999 Hiroshi issued 19,700 HK$100 shares to Cecilia. They were issued as fully paid, the consideration being the debit of HK$1,970,000 from Mr Lee’s director’s account. In March 2004 Cecilia was appointed as a director in place of Mr Lee. Until April 2004 Mr Lee retained 299 shares in Hiroshi in his own name. On 6 April 2004 he transferred 298 shares to Cecilia and one share to Cheer Creation for HK$1 in each case. Hiroshi was an active company, which Mr Lee says he continued to run. Cecilia was not involved in its management. I do not understand this to be in dispute, although the Plaintiff suggests it was with Cecilia’s oversight. Mr Lee’s principal concern is that if the Plaintiff becomes the sole director (or she and her Brother become a director) they will interfere in the running of a successful business.

6.  I do not have to assess for the purposes of determining the two substantive applications before me the relative strength of the Parties cases on ownership of the shares in the Companies. However, it does seem to me that the following facts and matters are relevant to the applications I have to determine.

(1)  Mr Lee does not explain why (on his own case) he allowed himself to be persuaded to transfer control of what would appear to be a large proportion of his valuable assets. The suggestion in one of his affirmations that there was a period when he was travelling a lot and it was convenient sounds at best naive.

(2)  Mr Lee does not explain why he did not ask Cecilia to execute a declaration of trust.

(3)  Mr Lee does not explain why there is nothing in writing other than some instruments of transfer and bought and sold notes, which is consistent with his version of events—no letters, no emails or any other document in which Cecilia expressly acknowledges she was his nominee.

(4)  Mr Lee does not explain why he did not ask Cecilia to put something in writing recording what he says was their arrangement once it became apparent that her illness was unfortunately likely to be fatal.

(5)  Mr Lee does not suggest in the evidence before me that the Plaintiff knew that Cecilia held the shares in the Company on behalf of Mr Lee.

7.  Even if Mr Lee is correct, he has dealt with control of his assets very unwisely and is the author of his own misfortune. A company must have a functioning board in order to operate lawfully. The suggestion that the Companies are left incapable of operating lawfully is unsatisfactory. I will dismiss Mr Lee’s application for a stay. The originating summonses were not listed before me for hearing on 26 April 2023, but having dismissed Mr Lee’s application it seems to me that the order sought by the Plaintiff should obviously be granted and it is unnecessary to have the originating summonses listed for a further hearing. I will accept the undertaking offered by the Plaintiff not to dispose of the assets of Cheer and Elite without the leave of the court and not to dispose of the assets of Hiroshi other than in the normal course of its business and make the orders sought by the Plaintiff. As I have said the stay application I will dismiss. I make an order nisi that the costs of the inter partes summons are paid by Mr Lee with a certificate for counsel and there be no order as to the costs of the originating summonses, which was necessary in any event.