WANG TING AND ANOTHER v. CHENG STEPHEN SOHIM AND OTHERS

HCMP 1556/2016

[2023] HKCFI 1662

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1556 OF 2016

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(by original action)

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(by counterclaim)

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J U D G M E N T

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1.  This is the trial of the counterclaim made by Ms Wang Ting, the 1^st plaintiff by counterclaim (“P1”), and Mr Wong Yiu Pong, the 2^nd plaintiff by counterclaim (“P2”) for the following relief:

(1)  A declaration that P1 has since 12 June 2012 been the sole owner of all the issued shares (“Shares”) in Airsan Co. Limited (雅生有限公司), the 6^th defendant by counterclaim (“Airsan”);

(2)  A declaration that (a) P1 has since 7 June 2011 been a director of Airsan, and (b) P2 has since 2 January 2016 been a director of Airsan;

(3)  The “Impugned Documents” (as defined in §2 below) be removed from the Companies Registry (“CR”) or alternatively, the information therein be rectified; and

(4)  An order that Airsan do enter the name of P1 as holder of the Shares in the register of members, and deliver a share certificate to her.

2.  The documents which P1-P2 seek to remove from the CR (collectively “Impugned Documents”) are:

(1)  Form ND2A (Notice of Change of Company Secretary and Director (Appointment/Cessation)) No. 23500991464 dated 1 September 2014 and filed at the CR on 19 September 2014 (“1^st ND2A”);

(2)  Form NAR1 (Annual Return) No. 23500991465 dated 16 September 2014 and filed at the CR on 19 September 2014 (“NAR”);

(3)  Form ND2A (Notice of Change of Company Secretary and Director (Appointment/Cessation)) No. 23101024357 dated 29 September 2014 and filed at the CR on 3 October 2014 (“2^nd ND2A”); and

(4)  Amended Form NAR1 (Annual Return) No. 23401264369 dated 16 September 2014 and filed at the CR on 17 December 2015 (“Amended NAR”).

3.  Although the proceedings were commenced on 20 June 2016 by Chau Sai Hung, Ng King Fan Dominic and Ip Chi Man as the 1^st, 2^nd and 3^rd plaintiffs respectively in the original action, the 2^nd and 3^rd plaintiffs’ claim was discontinued on 12 August 2022 following a settlement reached between them and P1-P2, while the 1^st plaintiffs’ claim was dismissed under Order 25 rule 1C on 14 March 2023.

4.  The plaintiffs in the original action are named as the 1^st, 2^nd and 3^rd defendants in the counterclaim (“D1”, “D2” and “D3” respectively) and the claim against D2-D3 was also discontinued on 12 August 2022 as part of the settlement reached between them and P1-P2.

5.  As for the claim against Choi Ka Fu (蔡嘉富), the 5^th defendant in the counterclaim (“D5”), it was also discontinued on 10 August 2022 following a settlement reached between P1-P2 and D5.

6.  The only remaining claim is the counterclaim brought by P1-P2 against Cheng Stephen Sohim, the 4^th defendant in the counterclaim (“D4”). However, D4 has not taken any step in defending the counterclaim.

7.  The trial was set down with one day reserved for P1-P2 to prove their case. At trial, D4 does not appear. P1, P2 and Huang Chang (“Huang”) adopt their witness statements as evidence in chief. This Court asks P1 questions about when and what documents she signed for the purpose of acquiring the Shares and being appointed as director. As will be seen further below, other than signing the documents described in §§10 and 16 below, P1 did not have any personal knowledge of or involvement in dealing with any matters relating to Airsan or the Licence.

Background

8.  Airsan is a company incorporated in Hong Kong. It has issued 10,000 ordinary shares of HK$1 each (i.e. the Shares). Airsan has been holding a cross-boundary vehicular licence (中港牌) “粵Z.Z322港” (“Licence”) which has been granted permission to travel between Hong Kong and the Mainland.

9.  In May 2011, P1 enlisted the assistance of her friend, Huang, to purchase a cross-border vehicular licence. Through the arrangements made by Huang, P1 was told that she could purchase the Licence by acquiring the Shares.

10.  For the purpose of acquiring the Shares, P1 signed the following documents:

(1)  The Instrument of Transfer executed on 12 June 2012 (“IT”) whereby D5 transferred the Shares to P1. The IT was signed by both P1 and D5 and was stamped on 12 July 2012.

(2)  The Bought and Sold Note executed on 12 June 2012 (“BS”) by D5 as transferor and P1 as transferee. The BS was signed by D5 and P1 and stamped on 12 July 2012.

(3)  The Form D2A filed at the CR on 15 June 2011 stating that P1 was appointed as a director on 7 June 2011 and that she consented to act as such director.

(4)  The “Minutes of the Meeting of Directors” of Airsan held on 1 December 2011 (“Minutes”) and attended by D5, P1 and one Yip Mei Yung Flora (“Yip”) at which it was resolved that (a) P1 and Yip be appointed as directors with effect from 1 December 2011; and (b) the transfer of the Shares from D5 to P1 be approved, and new share certificate be issued by Airsan to P1. The Minutes were also signed by D5 as Chairman.

11.  P1 never met D5 or Yip. Nor did P1 have any involvement in dealing with any matters relating to Airsan or the Licence other than signing documents given to her by Huang or P2.

12.  According to Huang, he dealt with the arrangements for acquiring the Shares and the Licence up to 2013 in that:

(1)  In 2011, he entrusted D4 to acquire the Shares.

(2)  In each of 2011 and 2012, Huang paid HK$9,000 for the service rendered by D4.

(3)  In 2013, Huang lost contact with D4 and he asked D4’s assistant, “Ar Ho”, to deal with the company secretarial affairs of Airsan.

(4)  Since 2013, neither D4 nor Huang has any involvement in dealing with any matters concerning Airsan or the Licence.

13.  The matters were then left to P2 but his role was also an indirect one in that:

(1)  In 2013, he met with Ar Ho and paid HK$12,000 for his service in handling the documentation relating to the renewal of the Licence.

(2)  In 2014, he was introduced by Ar Ho to Peter Leung, a company service provider, to handle the documentation concerning Airsan.

14.  In September 2015, P2 was unable to renew the Licence, and was required to produce an Annual Return (NAR1) of Airsan to confirm P1’s status as shareholder. He was told by Peter Leung that as P1’s name did not appear on the documents filed at the CR as shareholder or director of Airsan, no valid Annual Return could be produced to confirm her status as shareholder.

15.  At around the same time, P2 discovered that some persons unknown to P1-P2 had filed the Impugned Documents at the CR, all of which were signed by D4 as director of Airsan:

(1)  In the 1^st ND2A, it was stated that D5 resigned as director and D4 was appointed as director with effect from 18 August 2014;

(2)  In the NAR, it was stated that D4 was the only shareholder (following the transfer of the Shares from D5 to him on 18 August 2014) and director of Airsan;

(3)  In the Amended NAR filed on 17 December 2015, it was stated that P1 was the only shareholder holding the Shares, and D4 remained the sole director of Airsan; and

(4)  In the 2^nd ND2A, it was stated that D2 was appointed as director with effect from 29 September 2014.

16.  However, instead of making an application to remove the Impugned Documents (or the other documents purporting to state that other persons had been appointed as directors, company secretary of Airsan), Peter Leung told P2 that P1 had to sign a few documents to confirm that she was a director of Airsan. In late 2015, P1 signed the following documents qua director of Airsan:

(1)  Form NR1 (Notice of change of address of registered office) stating that the registered office of Airsan had been changed with effect from 2 January 2016 to Chung Ying Building, Sheung Wan.

(2)  Form ND2A (Notice of change of company secretary and director) stating that D1 and D2 had resigned as directors of Airsan, and P2 had been appointed as director and signed a consent to act, all with effect from 2 January 2016.

(3)  The above Forms were filed at the CR on 19 January 2016.

17.  In addition:

(1)  There were other Form ND2A and Form NAR1 filed at the CR purporting to state that D1 had been appointed as company secretary, D2 and D4 had been appointed as directors and Good Profit Registration Limited, the 5^th defendant in the original action (“Good Profit”), was appointed as company secretary of Airsan;

(2)  Ms Chen Mei Hua (“Chen”) claimed to have advanced loan to D4 which was secured by the Shares; and

(3)  Chen in turn transferred the Shares to D1 (as agent of D3), D2 and D3 and for this purpose, D4 signed some instrument of transfer and bought and sold notes to transfer the Shares to D1, D2 and D3.

18.  Against the above background, on 20 June 2016, D1-D3 commenced these proceedings against D4, P1-P2, Airsan and Good Profit.

19.  For reasons not clear to this Court, the parties took more than 6 years to pursue their claims. It was only until August 2022 that the parties settled their dispute which culminated into the following orders:

(1)  By an order made on 10 August 2022 with the consent of P1-P2 and D5, the parties agreed that the specified documents filed at the CR, insofar as they purported to state that D5 remained a director and shareholder of Airsan on or after 28 October 2011, is factually inaccurate and should be removed from the CR.

(2)  By another order made on 12 August 2022 with the consent of P1-P2 and D2-D3, the parties agreed that (a) neither Chen nor D1-D3 have any legal or beneficial interest in Airsan, and they will sign a declaration to confirm this fact; and (b) the information contained in the specified documents filed at the CR, insofar as they concern D2 and D3, is factually inaccurate and should be removed from the CR.

Applicable principles

20.  P1-P2’s claim is made under s.42 of the Companies Ordinance (Cap. 622) (“CO”) which provides as follows:

“The Court may, on application by any person, by order direct the Registrar to rectify any information on the Companies Register or to remove any information from it if the Court is satisfied that -

(a) the information derives from anything that -

(i) is invalid or ineffective; or

(ii) has been done without the company’s authority; or

(b) the information -

(i) is factually inaccurate; or

(ii) derives from anything that is factually inaccurate or forged.”

21.  Section 42(4) provides:

“The Court must not order the removal of any information from the Companies Register under subsection (1) unless it is satisfied that -

(a) even if a document showing the rectification in question is registered, the continuing presence of the information on the Companies Register will cause material damage to the company; and

(b) the company’s interest in removing the information outweighs the interest of other persons in the information continuing to appear on the Companies Register.”

22.  The principles governing an application under s.42 of the CO have been stated by Godfrey Lam J (as he then was) in Re China Nice Education Research Publishing Investment and Management Co Ltd [2016] 3 HKLRD 525, §§15 - 20, and may be summarised as follows:

(1)  Section 42(4) prescribes and restricts how the court’s power to order removal of information may be exercised. Removal is to be ordered only if (a) the plaintiff has shown that registration of a document showing the rectification is not good enough; the continuing presence of the incorrect information will cause material damage to the company; and (b) the company’s interest in removing the information outweighs the interest of other persons in the information continuing to appear on the register (§§16 - 17).

(2)  The fact that the information is incorrect, or relates to an invalid or ineffective transaction, or has been filed without proper authority of the company in question or that a document is a nullity or is one that should never have been registered, is not in itself a sufficient reason for removing it as opposed to rectifying it (§18).

(3)  The order made by the court is to be registered, so that the basis of the rectification (or removal) ought to be apparent from an inspection of the record (§20).

23.  Mr Jason Tang, counsel for P1-P2, refers the court to Convoy Global Holdings Ltd v Kwok Hiu Kwan [2020] 4 HKLRD 222, §§52-55, where Coleman J stated the principles governing grant of declaratory relief as follows:

(1)  The court’s jurisdiction to grant declaratory relief is extremely wide, and may be exercised whether the applicant has any cause of action or whether any relief is sought.

(2)  To invoke the court’s jurisdiction to grant declaratory relief, the applicant must show that (a) he has a real interest in the subject matter of the declaration, which means a real interest of a material character to be enforced or protected as opposed to a merely academic or hypothetical question; (b) he has a real interest in obtaining a declaration against the adverse party; and (c) the adverse party is a proper contradictor.

(3)  The court should adopt a practical utility approach by asking whether the jurisdiction to grant declaratory relief is properly exercisable, instead of applying nice tests as if it were raising a strict jurisdictional issue.

Declaration on P1’s ownership of Shares

24.  In claiming to be the legal and beneficial owner of the Shares, P1 relies on the 3 documents she signed in mid-2011 (described in §10 above).

25.  In my judgment, P1 has discharged the burden of proving that she has since 12 June 2012 been the legal and beneficial owner of the Shares, having regard to the following evidence:

(1)  The IT and the BS show that on 12 June 2012, P1 purchased the Shares from D5. The IT and BS were stamped on 12 July 2012 and, therefore, are admissible as evidence in proving P1’s legal and beneficial ownership of the Shares.

(2)  The transfer of the Shares from D5 to P1 was approved by the board of directors of Airsan at the meeting held on 1 December 2011. Although the approval of the transfer pre-dated the date of execution of the IT and BS, it would not alter the fact that the parties intended to and did transfer the ownership of the Shares to P1 from the date they executed the IT and BS.

(3)  Thereafter for about 2 years from June 2012 to August 2014, P1 was able to use the Licence held by Airsan without any problem. This is consistent with the fact that P1 was the sole shareholder of Airsan.

(4)  Although other persons viz., Chen, D1-D5 had from September 2014 claimed to be the holder of or otherwise have interest in the Shares (or part thereof), their claims have since been dismissed or settled.

(5)  As part of the settlement reached with P1-P2, D2-D3 and Chen made a Deed of Declaration dated 18 August 2022 confirming that (a) none of D1 (as agent of D3), D2, D3 or Chen have ever had any legal or beneficial interest in Airsan; and (b) they agreed to the terms of the consent summons (which became the order made on 12 August 2022).

26.  It is appropriate for the court to grant the declaration sought to confirm P1’s ownership of the Shares, given that (1) she is the only person having a real interest in the Shares; and (2) the very confusing state of the documents filed at the CR which stated, incorrectly, that D1-D5 had at various times after 12 June 2012 become holders of the Shares or part thereof. The declaration to be made by this Court will henceforth give certainty on P1’s status as the legal and beneficial owner of the Shares.

Declaration on P1’s position as director

27.  As regards the appointment of P1 as director of Airsan, I consider that the following evidence are sufficient to prove that she was appointed as a director on 7 June 2011:

(1)   The evidence of P1 that she recall having signed some documents to acquire the Shares and to take control of Airsan in mid-2011 when she was pregnant;

(2)   The Form D2A filed at the CR on 15 June 2011 signed by P1 which stated that she had been appointed as director of Airsan on 7 June 2011. Although P1 is not able to produce any resolution to show that she was appointed as director of Airsan on that date, given the unsatisfactory manner in which the affairs of Airsan have been handled, I do not regard the lack of resolution to be fatal to her claim;

(3)  The Form D2A dated 27 October 2011 signed by D5 and filed at the CR on 28 October 2011 stated, incorrectly, that P1 had resigned as director of Airsan on 11 September 2011. This confirms that P1 was at the time this Form D2A was filed a director of Airsan. The statement regarding the purported resignation of P1 as director is plainly incorrect as P1 never tendered her resignation as director of Airsan; and

(4)  The Minutes show that P1 attended the board meeting held on 1 December 2011 as director of Airsan.

28.  It is appropriate for the court to grant the declaration sought regarding the appointment of P1 as director of Airsan on 7 June 2011 having regard to the following matters:

(1)  P1 is the only person having a real interest in Airsan;

(2)  the very confusing state of the documents filed at the CR which stated, incorrectly, that P1 had resigned as director on 11 September 2011 and other persons were appointed as directors on various dates; and

(3)  The declaration once granted will give certainty on P1’s status as director of Airsan with effect from 7 June 2011.

Declaration on P2’s position as director

29.  Mr Tang submits that the court should grant a declaration that P2 has since 2 January 2016 been appointed as director of Airsan for the following reasons:

(1)  Although no resolution has ever been passed by Airsan, whether at board meeting or general meeting, to appoint P2 as a director, there was a valid appointment “by virtue of the operation of the Duomatic principle, which extends to the consent or informed participation of a beneficial owner of shares in an appropriate case where the facts justify it” (Hassan Djalil Zadeh v Registrar of Companies & Anor [2019] HKCFI 2976, §111, per Coleman J).

(2)  By signing the Form D2A dated 2 January 2016 (even though it was later removed from the CR by consent), P1 signified her consent to appoint P2 as director.

(3)  Both P1 and P2 give evidence on how P1 signed the Form ND2A filed on 19 January 2016 which stated that P2 had been appointed as director with effect from 2 January 2016. There is therefore factual basis for the court to find “unanimous consent” on P1’s part to appoint P2 as director, which could have been carried out by way of a resolution passed at a general meeting.

30.  It seems to me that as P1 has since 12 June 2012 been the sole shareholder of Airsan, she has the right to appoint P2 as an additional director by passing a resolution at general meeting in accordance with articles 14 and 15 of the Articles of Association of Airsan. Although no such resolution was in fact passed at the time, the court can and should take into account the fact that by signing the Form ND2A filed on 19 January 2016, P1 was indicating her agreement qua sole shareholder of Airsan to appoint P2 as director with effect from 2 January 2016.

31.  It is appropriate to grant the declaratory relief sought to clarify and confirm the position of P2 as director of Airsan with effect from 2 January 2016.

Removal of Impugned Documents

32.  I consider that the Impugned Documents should be removed from the CR, having regard to the following matters:

(1)  The information contained in the Impugned Documents (as described in §15 above) is incorrect as (a) D4 was never appointed as director of Airsan; (b) D4 never acquired the Shares from P1 nor did D5 had any right to transfer the Shares to D4 after 12 June 2012; (c) D2 was never appointed as director of Airsan;

(2)  The Impugned Documents were filed by D4 without the authority of Airsan as neither P1 nor P2 had ever consented to the filing of such Documents;

(3)  If the Impugned Documents were allowed to remain at the CR, even with the incorrect information crossed out or rectified, there is a real risk that the third parties dealing with Airsan may question the identity of the shareholder and directors and insist that Airsan should provide further evidence to put the matter beyond doubt. This would only pose an unnecessary administrative burden on Airsan; and

(4)  P1 has not been able to renew the Licence due to the presence of the Impugned Documents.

33.  I do not think that the other consequential relief sought by P1-P2 is necessary. Once P1-P2 regain control over Airsan, they can take steps to enter their names in the register of member and the register of directors as they see fit.

34.  For the reasons set out above, the court grants the following relief:

(1)  A declaration that P1 has since 12 June 2012 been the legal and beneficial owner of the Shares;

(2)  A declaration that P1 has since 7 June 2011 been a director of Airsan;

(3)  A declaration that P2 has since 2 January 2016 been a director of Airsan; and

(4)  The Impugned Documents be removed from the CR.

35.  As for costs, P1-P2 through their solicitors’ letter dated 16 June 2023 stated that they would not seek costs against D4. There is no order as to costs.