EASEWIN PROPERTIES LTD AND ANOTHER v. THE REGISTRAR OF COMPANIES AND OTHERS

HCMP92/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.92 OF 2004

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REASONS  FOR  DECISION

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1. Easewin Properties Limited (“the Company”) was incorporated on 7 April 1992.  The Company had an issue capital of 10,000 shares.  The 2^nd applicant (“A2”) was the registered owner of 2,900 shares.  His wife was the registered owner of 3,100 shares.  The 2^nd respondent (“R2”) and 3^rd respondent (“R3”) were the registered owners of 2,000 shares each.  These respondents held those shares as nominees for Capital Century Company Limited (“Capital Century”).  Capital Century was in turn wholly owned by China EverBright Holdings Company Limited (“China EverBright Group”).

2. On 19 January 2001, the Company was dissolved under section 291(6) of the Companies Ordinance.

3. This is A2’s application pursuant to section 291(7) for an order that the Company be restored to the Registrar of Companies.  In order to succeed, A2 must show that he “feels aggrieved by the company having been struck off the register” and “that it is just that the company be restored”.  Mr Chan Chi Hung, who appeared for R2 and R3, submitted that even so, I have a residual discretion to refuse relief.  In my opinion, if A2 could be regarded as an aggrieved person and that it is just that the Company be restored, there is little room for the exercise of any such discretion.

4. It is A2’s case that the Company has substantial assets or claims in the Mainland.

5. Prior to R2 and R3 becoming shareholders in the Company, the Company was a family company wholly owned by A2 and his wife.  In respect of R2 and R3’s shares in the Company this is what R3 said in his 4^th Affirmation filed on 3 June 2004 :

“8.    Further, it was the understanding and agreement between the 2^nd Applicant, his wife, and Wu and myself, reached at around the same time (late 1993 early 1994), that (if the 1^st Applicant, 2^nd Applicant and his wife did not commit any wrong to injure the interest of Capital Century) all dividends and ultimate pecuniary return on such 4,000 shares (subject to the right of Capital Century to exercise its power through Wu and myself as the shareholder and director of the 1^st Applicant for the aforesaid purpose) would still belong to the 2^nd Applicant and his wife.”

6. The Company was involved in the development of a real estate project in Chengdu through a PRC company called Chengdu Sing Kong City Real Estate Company Limited (“joint venture company”).

7. According to A2, he made this application to safeguard the Company’s investment in the joint venture company.  It seems to be common ground that the joint venture company is a company with substantial assets.  Whether it would be just to restore the Company would depend to a large extent on whether it is arguable that the Company had any interest in the joint venture company which it was entitled to protect.  The respondents’ case is that any claim by the Company is at least shadowy so that I should refuse reinstatement.

8. There was an agreement for the reorganisation of the joint venture company dated 4 January 1994.  This was made between the joint venture company as party A and Capital Century as party B.  This purported to be an agreement between the joint venture company and Capital Century whereby Capital Century would inject capital into the joint venture company as a result of which it would be entitled to 35% of the shares in the joint venture company and that after the reorganisation, only the Company and one 中國成都市武侯區城鄉建設房屋開發公司 (“城鄉建設”) of the original shareholders would remain as shareholders holding 55% and 10% of the shares in the reorganised company respectively.

9. There was also a joint venture agreement dated July 1994 made between 城鄉建設, the Company and Capital Century.  Under chapter 3, clauses 11 to 13 of the joint venture agreement provided :

“第十一条        注册资本的出资方式：

合营各方均以人民币形式现汇支付注册资本。

第十二条       甲、乙、丙三方应按合同规定的期限缴清各自出资额，在领取营业执照之日起一个月内，三方缴各自注册资本出资额的15%，其余注册部分在领取营业执照之日起半年内，按董事会的要求，根据企业发展的实际需要调入公司帐戶内。

第十三条       甲、乙、丙三方缴付出资额后，经合作公司聘请的会计师验资，出具验资报告后，由合作公司据此发给出资证明书。出资证明书主要内容包括：合作公司名称、成立日期、合作者名称以及出资额、出资日期以及发给出资证明书之日期等。”

10. Having regard to the fact that the Company was one of the original shareholders of the joint venture company, it could not have been intended that its capital should be contributed by way of 現匯.  I mention this to show that literal compliance with the joint venture agreement might not have been required. 

11. It is the respondents’ case that the Company had not contributed any capital to the joint venture company.  As such it was said the Company had no right or interest in the joint venture company.

12. I believe it is at least arguable that insofar as the Company was a party to the joint venture agreement, it had acquired rights and obligations under the joint venture agreement.

13. There was a registered capital paid up report in Chinese prepared by a Chinese auditing firm dated 28 April 1994 which stated that the Company, namely party B, had already invested capital of RMB25,215,856 prior to 1994.  The respondents’ complaint is not that the capital was invested prior to the joint venture agreement but that there was and never had been any investment.

14. Mr Chan Chi Hung also made the point that since the joint venture agreement had to be approved by relevant Government authorities, the relevant Government authorities might have been misled.  Whether that was so or not, I am not in the position to say.  Certainly on the evidence before me, I am not prepared to conclude that literal compliance with the joint venture agreement was required.  Nor am I prepared to accept Mr Chan’s submission that under PRC law if the capital was paid not by the Company but by a third party on its behalf, that would render the contribution either unlawful or ineffective such that the Company could be regarded as having made no contribution at all.  It suffices for me to say that on the evidence before me, I do not regard that as having been sufficiently clearly established as to make the contrary unarguable.

15. Mr Chan has referred me to certain decisions concerning the joint venture or the joint venture company in the Mainland.  However he accepted that there has been no decision so far by any court or tribunal in the PRC to the effect that the Company had or never had any investment or interest in the joint venture company. 

16. Indeed, in one of the proceedings (1999) 經終字第438號, The Supreme People’s Court in its decision said :

“… 鉴于怡运公司非本案诉讼当事人，且合作合同签约各方在合同中约定了终局性仲裁条款，故股东的投资是否到位等有关合作合同产生的争议。不应在本案中处理。…”

That was a claim by the joint venture company against, amongst others, A2.  The Company was not a party to the proceedings.  According to the Supreme People’s Court the dispute relating to the Company’s investment in the joint venture agreement should not be determined in those proceedings and it referred to the joint venture agreement which provided for arbitration. 

17. In a legal opinion prepared by the Gangda Law Firm dated 29 October 2004 and produced on behalf of A2, this was said :

“三、    本案出資爭議

由於成都新港城置業有限公司(下稱‘合資企業’)的股東之間就出資及股東地位所產生爭議，須經中國內地的法院或仲裁機構判定，只有前述機構才有權判定企業股東的出資是否有效及能否構成有效出資及是否繼續擁有股東資格。鑒於《合作經營成都新港城置業有限公司合同》約定了因執行該合同所發生的或與該合同有關的一切爭議，應提交給北京中國國際經濟貿易仲裁委員會，根據該會的仲裁規則進行仲裁，本律師認為，合資企業股東應將該出資及股東地位等爭議交由中國國際經濟貿易仲裁委員會進行仲裁。”

So their opinion was that this matter should go to arbitration before the China International Economic and Trade Arbitration Commission (“CIETAC”).

18. It seems that this is what Capital Century has done.  The Registrar of Companies has produced a letter dated 19 October 2004 from CIETAC giving notice that Capital Century had applied for arbitration against the Company and that application would be heard on 24 November 2004.  In its reply, the Companies Registrar said that the Company had already been dissolved and that it was not in a position to deal with the letter dated 19 October addressed to the Company.

19. Mr Chan told me that by these arbitration proceedings, Capital Century was seeking a decision to the effect that the Company had no share and/or investment and/or interest in the joint venture company.  Even so, Mr Chan submitted that I should not make the order sought because the Company’s claim or defence is so shadowy that I should not permit it to be made.

20. But the fact that as late as in October 2004, that Capital Century felt it necessary to seek a decision to the effect that the Company had no share, investment or interest in the joint venture company indicates to me that this remains an open issue so far as PRC law is concerned.

21. Mr Chan has taken me through detailed submissions and references in the documents in order to show that either no capital contribution at all was made or that if any was made, it was made by some other entities other than the Company.  It would be recalled that I have referred to the reorganisation agreement.  The remaining shareholders were the Company and 城鄉建設.  Together they were to own 65% of the joint venture company.  I do not think it can seriously be suggested that as at that date the joint venture company had no assets at all.  If it had, the Company was entitled to the lion share of such assets.  But this is not something that I need to decide.  No doubt, this will be decided in proceedings in the Mainland.  All I need to decide, as I do, is that the Company has more than a shadowy claim to an interest or right in the joint venture company.

22. I should say that the parties agreed that the correct test for me to apply is whether or not the Company has more than a shadowy prospect of establishing anything of value, following the dictim of Hoffmann LJ (as he then was) in Re Forte’s (Manufacturing) Limited Stanhope Pension Trust Limited v. Registrar of Companies [1994] BCC 84.

23. Now I turn to consider whether A2 could be regarded as an aggrieved person under section 291(7).

24. A2’s case is that in 1996 he and his wife decided to emigrate to the USA, and that is why they did not attend to the affairs of the Company.  It is the respondents’ case that A2 and his wife absconded to the United States because A2 was facing criminal investigation in the Mainland regarding his conduct in the management of the joint venture company and/or the Company’s investment in the joint venture company.

25. Indeed, A2 was arrested on 7 October 2001 on entry into Shenzhen.  He was detained for three months and then released unconditionally.  He has produced a certificate issued by the 成都市公安局二處 dated 8 January 2003.  It is set out in full below :

“证明

中华人民共和国罗湖出入境边防检查站：

成都市公安局二处于1998年11月20日立案侦查原成都新港城置业有限公司法定代表人。董事长兼总经理王岳(王冀川) 涉嫌侵占 (挪用) 公司财物案，于2001年4月、7月两次办理边控手续。

王冀川(WANGJICHUAN)（曾用名王岳）于2001年10 月7 日由深圳罗湖出入境边防检查站入境，因涉嫌侵占公司财物案入境时被你站扣押，其所持中华人民共和国旅行证（0114287）未盖入境章。现经审查，认定王岳涉嫌侵占（挪用）单位资金证据不足，不符合起诉条件，未提请起诉，且因取保候审期限届满，现已解除对王岳的取保候审强制措施。请边检部明给予办理出境手续。

           特此证明。”

26. For what it is worth, this is evidence that according to the Public Securities Bureau in Qingdao there was insufficient evidence to prosecute A2.  I believe that it was accepted that A2 was arrested at the instigation of Capital Century.  According to A2, the person who procured his arrest was one Wang Shou Zhu (“Wang”) who was the procuratorate of the Municipality Procuracy.  And that shortly after his arrest Wang joined the joint venture company as its vice-president.  This is what R3 said in his 6^th Affirmation :

“19.  Paragraph 24:       Several months after Wang Shou Zhu retired he was employed as the vice supervisor of the administration department of Sing Kong City in about 2000.  One reason of employing him was because of his being familiar with the frauds of the 2^nd Applicant, so that he could assist to handle the correspondence with the Public Security in respect of the frauds of the 2^nd Applicant against Sing Kong City.  Any suggestion that there was any collusion when he was in the public service is groundless and is strenuously denied.”

27. Mr Chan submitted that A2 could not be regarded as an aggrieved party because it was A2 who had caused the Company to be deleted by absconding from Hong Kong in 1996 and not causing annual returns to be filed.  Mr Chan relies on the case of Conti v. UeberseeBank AG [2000] BCC 172, in particular what Lord Prosser said at page 183 :

“I did not understand Mr Williamson, on behalf of the petitioner, to be submitting that a person who deliberately had the company struck off could claim to be aggrieved, if at the time when he did so he appreciated that the effect of striking off would be as it turned out to be.  In such circumstances, he would be responsible not merely for the striking off, but also for its known or expected consequences. …”

28. Mr Chan argued that a person must be taken to intend the natural consequence of his act.  Mr So Chung Ping of the Registrar of Companies, in a very fair and helpful submission, submitted that the court should take a broad rather than a strict interpretation of the section.  The Registrar of Companies would be prepared to accept an applicant as an aggrieved party if the refusal of the application would result in some kind of loss to him.  His submission is supported by what Lord Prosser said in the Conti v. UeberseeBank AG [2000] BCC 172 at p.184 :

“I do not doubt that as a matter of ordinary language, one cannot naturally speak of being aggrieved by one’s own act.  But the submissions by the respondents upon this issue seem to me to rest eventually upon the same unsound basis as their general submission that one must look only at the time of striking off.  It may be that if one was concerned with the question of whether a person could say, at the time of effecting or engineering the striking off, that he was thereby aggrieved, the answer would be that it did not lie in his mouth to say so.  But if, after he had thus effected or engineered the striking off, by what in itself could in itself be described as an intentional or deliberate act, and if at a subsequent date it emerged in some way that there was a benefit which would otherwise have accrued to him, it does not appear to me to be contrary to the ordinary use of language to say that at that later date he is aggrieved – not by his original act of striking off the company, but by the fact that, at the date of the new event, the company ‘has been’ struck off and no longer exists.  The respondents’ argument appeared to me to ignore what one may call the present sense of the perfect tense.  It would always be a matter of circumstances, in my opinion, but if an unexpected benefit is discovered, which would have accrued to a member or creditor but for the company having been struck off, then I think it may be, and often will be, appropriate to hold that he has not only in broad terms a legitimate grievance, but that this grievance is so directly related to the fact that the company has been struck off, and in consequence no longer exists, that the member or creditor in question is indeed aggrieved ‘by’ the company having been struck off.”

29. He also submitted that these are administrative proceedings and that but for the intervention of R2 and R3, the Registrar of Companies would have consented to this application.

30. Mr So referred me to Re Blenheim Leisure (Restaurants) Limited (No.2) [2000] BCC 821 where Neuberger J said :

“So far as the third gateway, justness, is concerned, it seems to me that it can sensibly and, indeed, should sensibly be considered along with the general discretion.

I have found it very difficult, when considering the various points that Mr. Freedman has raised (particularly when taken together), to decide whether it is really the case that BLR only has a shadowy prospect – to use the words of Hoffmann LJ in Re Forte’s (Manufacturing) Ltd.  Stanhope Pension Trust Ltd v Registrar of Companies [1994] BCC 84 – of establishing anything of value or whether its prospect are rather better.

In this connection, it seems to me important to remember that this an application to restore a company, which is meant to be a comparatively quick exercise – see the observations of Tuckey LJ in the Court of Appeal.  The registrar of companies is a necessary party and it is undesirable that he is required to appear on long hearings.  It is not normally the appropriate occasion for considering in any detail or in any depth the prospects of the relevant company establishing anything of value, even where that is the only reason put forward for the restoration.  As with any general rule there may be exceptions and it seems to me appropriate to examine the prospects in a little detail, (a) where it contended, and it appears that there is real force in the contention, that the company has no real prospect of establishing anything of value for its members if it is restored, and/or (b) where there is a real and justified competing interest to that of the company or its members to be taken into account.  This is, I accept, one of those exceptional cases.  Even in such cases, however, it is normally wrong to consider the prospects of the company or its members establishing anything of value in great detail.”

31. I believe that A2 could be regarded as an aggrieved party.  I do not believe section 291 requires me to hold that A2 must be taken to have intended the striking off of the Company.  Nor do I think it is fair to say that he appreciated the effect of the striking off or intended that the Company should lose its investment in the joint venture company.  His conduct since 2003 is inconsistent with it.  Between October 2001 and January 2003 it might be said that the spectre of criminal prosecution was hanging over his head.  So there was no real delay.  Anyway, section 291(7) provides a generous time limit of 20 years for the application.  On the evidence before me, I am unable to infer that A2 ever intended that the Company should give up its claim in relation to the joint venture company.  Indeed, quite the contrary.  I do not believe the law or the facts in this case require me to hold otherwise.

32. Mr Chan also relied on the argument that A2 had defrauded the joint venture company.  I do not believe there has been sufficiently made out.  I refer once again to the fact that at the instigation of Capital Century, A2 had been detained for three months and he was released without prosecution.  I accept that he might have been detained on a narrower complaint.  What I cannot accept is that if the situation is as clear as the respondents tried to make it out to be, namely, that A2 was a fraudster and that he had to abscond from Hong Kong in 1996, there would have been no prosecution.  It is not denied that A2 is able to travel into and out of the Mainland without let or hindrance.  

33. Mr Chan also relied on what he said was a confession of forgery by A2 at page 464.  This is a document dated 6 September 1996.  I am afraid I find this document quite equivocal.  Even if this could be regarded as an admission of forgery, this does not mean that the Company could have no interest in the joint venture.

34. Mr Chan also relied on the fact that A2 had done something quite extraordinary and it is this : in January 2003, A2 caused a new company in the name of Easewin Properties Limited to be registered in Hong Kong (“New Easewin”), and in the name of New Easewin took control of the joint venture company.  Now this was the subject of a decision by the 四川省公安廳 dated 2 December 2003.  As a result of this decision, New Easewin had to relinquish control of the joint venture company.  But what is perhaps of some relevance to this application is this passage in the decision :

“三、     对于成都新港城置业有限公司内部股权纠纷等问题，公司股东应通过民事诉讼渠道依法解决。”

This indicated that as late as 2 December 2003, the Public Security Department thought that the dispute regarding the Company’s share and/or interest in the joint venture company should be resolved by civil proceedings.  This suggests to me that it was not regarded as either concluded or so clearly established as to make further determination unnecessary.

35. To conclude, I am of the view that A2 did feel aggrieved by the striking off of the Company and that it is just that the Company should be restored.  Insofar as I have a discretion in the matter I would exercise my discretion in favour of A2.  In exercising my discretion I take into account all the circumstances.  In particular, I take into account the fact that if the respondents are correct, namely, that as a matter of PRC law it can clearly and easily be established that the Company had no interest or right in the joint venture company then even if I was wrong in reinstating the Company, the prejudice to the respondents would be relatively minor.  The respondents should have no difficulty in causing any such claim to be dismissed.  On the other hand, the prejudice to the company would be substantial if they turn out to be right because if they were not reinstated they would not be in a position to protect their investment in the joint venture company.  In all the circumstances, I believe the Company ought to be restored to the register and at the conclusion of the hearing I made an order to that effect.  I also ordered R2 and R3 were to bear the costs of the application from the time of their joinder.  Costs prior to joinder were to be borne by A2.  Such costs include the costs of the Registrar of Companies.  I said I would give my reasons later.  These are my reasons.