XCHRX TAY KIM IT and Another v. ONG KIM YIM, MARY

MP No. 317 of 1995

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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Background

1. Sheecon Trading Company Limited (Sheecon) is involved in legal proceedings against the defendant. The solicitors of record for Sheecon in that litigation are the plaintiffs' solicitors in this matter. During the course of that litigation, the defendant's solicitors alleged that the plaintiffs' solicitors had no proper instructions to act for Sheecon because, amongst other things, the purported allotment of certain shares to the first plaintiff was invalid. The plaintiffs' solicitors reaction to this was that the point raised was fundamental to the litigation involving Sheecon and should be resolved before the trial of that action.

The Summons

2. Accordingly, on 9 February 1995, the plaintiffs issued an originating summons in which they asked for declarations that the first plaintiff had been validly allotted 100 ordinary shares in Sheecon on 6 February 1985 and had been validly appointed a director of the company on the same date.

The Plaintiffs' Case

3. A solicitor acting on behalf of the plaintiffs filed an affidavit in support of the summons in which it was said that, on 6 February 1985, the second plaintiff and the defendant executed a written resolution authorising the allotment of 100 shares to the first plaintiff and appointing the first plaintiff as a director of the company. On the same day, it is said, the defendant signed a form giving notice to the Registrar of Companies that the shares were so allotted.

The Defendant's Case

4. The defendant has filed an affirmation in response. What she says is important because, for the purposes of this matter, it must be accepted as true, and the plaintiffs can succeed only if what the defendant says provides no answer to the claim. Accordingly, I set out in full the relevant parts of the defendant's affirmation.

"Sheecon was incorporated by me and 2nd Plaintiff in December, 1983. We were equal shareholders. The company was incorporated at the suggestion of one Chwee Meng Chong ("MC Chwee") the father of the 2nd Plaintiff and husband of the 1st Plaintiff. Sheecon had been used by me and MC Chwee to hold our respective properties. But Sheecon merely held such properties for us as nominee. I beneficially own my property which is in the name of Sheecon. The same applies to MC Chwee.

One of the properties held by Sheecon for MC Chwee was situated in 8C Hart Avenue in Tsimshatsui. It was sold by MC Chwee back in early 1986. MC Chwee provided all the purchase price for this property and the 1st Plaintiff pocketed all the proceeds of the sale for reasons given in the next paragraph. There is now produced and shown to me marked "OKYM-1" copies of the Land Search and Assignment of 8C Hart Avenue and Sheecon's Voucher and cheque to the 1st Plaintiff.

At about the time of the purchase of the Hart Avenue property or shortly thereafter, the 1st Plaintiff came to know about the deal. She was furious as MC Chwee did not let her know about this purchase or that Sheecon was incorporated to hold our respective properties and she was particularly furious that she had no involvement in Sheecon. For this reason the proceeds of sale of Hart Avenue were given to her. MC Chwee later suggested to me that in order to pacify the 1st Plaintiff, I and the 2nd Plaintiff should make a resolution purportedly giving the 1st Plaintiff 100 shares. But no share would need to be given to her. Since MC Chwee was a good friend of mine, I agreed to this suggestion so as to help him out and to pacify the 1st Plaintiff. As mentioned, there was a clear understanding between us at that time that no shares would in actual fact be allotted to the 1st Plaintiff.

Pursuant to my agreement to help out MC Chwee, I signed my name on the resolution and, what I now know to be, the Form 1B both dated 6th February, 1985 thereby purportedly allotting 100 shares to the 1st Plaintiff and appointing her as a director of Sheecon. At that time the Form 1B had not been completed so, although I signed it, I did not know its effect. Since it was not a genuine allotment of shares, no payment was requested for or received from the 1st Plaintiff with respect to payment of share capital and no share certificates were issued. I also suspect that her name was never entered into the Register of Members until 1988 when the 1st and 2nd Plaintiffs appointed Mr. Channing Shui as Sheecon's Secretary pursuant to a written resolution dated 5 September, 1988. There is now produced and shown to me marked "OKYM-2" and "OKYM-3" copies of the Register of Members together with Share Certificates book and Written Resolutions of Sheecon dated 5th September 1988 respectively. I signed all documents relating to the allotment on the strict understanding that it was not a genuine allotment and in the belief that the documents would be shown to the 1st Plaintiff to pacify her. Therefore, at all material times there was no agreement between Sheecon and the 1st Plaintiff to allot any shares to her.

If the allotment was intended to be a genuine allotment, I would not have agreed to it as it would give almost complete control to the 1st Plaintiff over the affairs of Sheecon and my interest would have been diluted to insignificance. The company back in February, 1985 was not in need of money. Certainly if the company required just HK$100.00 dollars, I would have lent the same to it or to have shares allotted to me and the 2nd Plaintiff in equal shares so as to raise this HK$100.00.

All the above facts are known to MC Chwee, the husband of the 1st Plaintiff. I do accept that on the face of the documents the 100 shares have been validly allotted to the 1st Plaintiff and it is therefore, difficult to dispute the allotment. However, the truth of the matter is that I was misled into signing the documents which effected the allotment by a misrepresented by MC Chwee that no shares would ever be allotted. On reflection I behaved naively, if not stupidly, in agreeing to MC Chwee's scheme. Indeed, it was as a direct consequence of this foolish action that the facts surrounding the main action arose and I behaved in the way I did. In the premises I do oppose this application of the 1st and 2nd Plaintiffs.

I have been advised by my solicitors that in this application the Plaintiffs solicitors have failed to address certain other crucial and material issues. These include the fact that the General Meeting on 18th October 1988 and Directors Meeting on the same day were void and invalid. This General Meeting purported to reconfirm the allotment of the 100 shares to the 1st Plaintiff. These issues were being discussed by the respective solicitors as evidenced by the Exhibit 1 of Miss Liang Pui Sau Kian's Affidavit filed on 9th February 1995. As a result of this, my solicitors will on my behalf take out another application in connection with the above matters ("New Application").

Having considered the matter, I would also like to make a request for this Originating Summons to be heard at the main trial. My solicitors will, attempt to have the New Application also heard with the main trial. The issues covered by both this Originating Summons and the New Application relate to the main action which should properly be considered by the trial judge as part of the whole case. It is inappropriate for the Plaintiffs' application to be considered separately from the main action. Therefore, I request that this Originating Summons be consolidated with the New Application and be heard by the judge in the main action."

5. The written resolution referred to reads as follows -

"SHEECON TRADING CO. LTD.

WRITTEN RESOLUTION OF THE DIRECTORS OF SHEECON TRADING CO. LTD., PASSED ON THE 6TH FEBRUARY 1985

RESOLVED

That Madam Tay Kim It of NRIC No. 0871106/8 be and is hereby appointed director and secretary of the Company.

That the allotment of 100 Ordinary Shares of $1.00 each be and is hereby approved to be alloted to Madam Tay Kim It.

 

Chwee Han Sin

Ong Kim Yim"

6. This resolution is signed by the second plaintiff and the defendant.

7. The Form 1B mentioned is signed by the defendant, dated 6 February 1985 and notifies the Registrar of Companies that 100 shares were allotted on that date to the first plaintiff. The form purports to have been filed on 18 April 1985

8. The defendant does not expressly challenge the first plaintiff's appointment as director and secretary of the company.

Was There an Allotment?

9. Mr Cheung, who appears for the defendant, sought to argue, in the first place, that, in spite of what appears from the resolution and the notice to the Registrar, the shares were not allotted to the first plaintiff. He says there was only an offer to allot the shares to her and there is no evidence that she accepted that offer. He prays in aid evidence that the first plaintiff's name was not entered in the Register of Members of Sheecon until much later, that, on 18 October 1988, there was an attempt to reconfirm the allotment of the shares and that no share certificates were issued.

10. I cannot accept that what happened was no more than an offer to allot the shares. The resolution authorises the allotment and, on the same day, the Registrar is notified that the allotment has been made. The allotment was complete. The fact that the first plaintiff's name was not entered into the Register of Members until later is neither here nor there. The first plaintiff may have had no rights as a member against the company until she was registered, but that did not effect the fact that she held 100 shares. Holding those shares entitled her to demand that her name be entered in the Register. And the fact that no share certificates were issued takes the matter no further. An allotment of shares does not depend, for its validity, on the allotment of specific shares and the holding of share certificates. Again, she could have obtained share certificates if she had wanted them.

11. It is totally unrealistic to suggest that the first plaintiff was offered the shares but did not accept them. The defendant says that the first plaintiff came to know of the purchase of the Hart Avenue property and "was particularly furious that she had no involvement in Sheecon". So, the defendant says, the first plaintiff wanted some involvement in Sheecon. She was given that involvement by her appointment as director and secretary and by allotting to her 100 shares. It cannot be said that, in these circumstances, the first plaintiff did not accept the 100 shares that would have given her the involvement that she wanted.

Undue Influence or Misrepresentation

12. Mr Cheung's other argument is that the defendant should not be held to her actions under which the first plaintiff received the shares allotted to her because what she did was as a result of the undue influence of MC Chwee or misrepresentations made to her by him. This is an extraordinarily bold submission. From her own mouth, the defendant stands condemned of taking part in a conspiracy to deceive the first plaintiff, and she now asks me to relieve her of the consequences of that deliberate deception.

13. The law does not allow a person to represent to another person that certain facts exist and later, when it suits the representor, to deny the truth of those facts. In this case, on the defendant's own version, the first plaintiff wanted some involvement in Sheecon. The defendant was a party to a statement to the first plaintiff that she now had the involvement she wanted by the allotment to her of 100 shares. Clearly, the defendant intended the first plaintiff to act upon this statement by resting content with the involvement the 100 shares gave her, and, equally clearly, the first plaintiff did rest content; the defendant says that, because of her involvement, she received the proceeds of the sale of the Hart Avenue property. It is an obvious and irresistible inference from the facts given by the defendant that, if the defendant had not represented to the first plaintiff that she held 100 shares in Sheecon, the first plaintiff would have continued to be "furious".

14. Assuming that MC Chwee was in a relationship with the defendant under which he exercised undue influence over her - an assumption that is not, in my view, justified on the facts - Mr Cheung was not able to suggest any basis on which the first plaintiff should be effected by this. And if MC Chwee misrepresented the situation to the defendant, there is no foundation for suggesting that the first plaintiff should be held responsible for any misrepresentation. According to the defendant, MC Chwee said to her, in effect: "Please help me to deceive my wife. Let us pretend to her that we have allotted 100 shares to her. We will not really do so, but, by lying to her, we will keep her quiet.". I can think of no way on earth in which it can be said that there is any possibility at all that the first plaintiff can be held responsible for this statement. The defendant says that the first plaintiff wanted involvement in Sheecon. How can it be suggested that she would be content with some subterfuge under which she would be shown some papers that indicated that

she had been appointed as a director and the secretary of the company and had been allotted 100 shares, but these had no effect at all.

15. Mr Cheung relies heavily on Barclays Bank Plc v. O'Brien [1994] 1 A.C. 180, but this case does not advance his cause one bit. Put at its highest, that case says only that where one person undertakes a debt at the behest of a person in whom the debtor reposes trust and confidence and there are circumstances in which the creditor is put on inquiry as to the possibility of undue influence, misrepresentation or some other legal wrong of which the debtor could take advantage as against the person in whom the debtor reposes that trust and confidence , the creditor is taken to have constructive notice of the debtor's rights unless reasonable steps are taken by the creditor to satisfy himself that the possibility does not exist. In the case before me, the defendant is the debtor and the first plaintiff is the creditor, but there are no circumstances whatsoever that form any basis for thinking that the first plaintiff should have been suspicious about what happened and should have satisfied herself that the defendant had not been in some way wrongfully induced into giving to the first plaintiff the rights in respect of Sheecon. On the basis of the defendant's own words, the first plaintiff demanded some involvement in Sheecon and she was given that involvement. Why should she think that there was some possibility that the defendant had been wrongfully induced, lied to or in some other way wrongfully persuaded to agree to the meeting of her demand? The answer to that question is that there was no reason at all why she should even consider this possibility. And this is especially so when, as a result of her involvement, she received the proceeds of the Hart Avenue property, and the defendant does not suggest that she made any protest about this.

16. On this aspect of the matter, it is of some interest to note, if nothing more, that the defendant's solicitors, in their letter of 14 January 1995, when addressing the question of the allotment of shares in 1985 say only that this was invalid because "there was no meeting of the directors to carry out the allotment". There is no mention here of the allegation that there was only an unaccepted offer to allot or that the defendant was unduly influenced or lied to in order to obtain her agreement to execute the documents.

The Result

17. I conclude that, accepting everything the defendant says, she has not raised any kind of case that would justify refusing at this stage the relief sought by the plaintiffs. Accordingly, I grant the declarations sought and order that the defendant pay the plaintiffs' costs.

The Hearing on 23 March 1995

18. There remains only the costs of the hearing on 23 March 1995, which were reserved to me. Mr Cheung argues that I should make no order as to these costs. He says that the plaintiffs should not have proceeded with the hearing, for which only half-an-hour had been reserved knowing that the defendant opposed the grant of the relief sought. In response, Mr Miu says that it was not until 17 March 1995, when the defendant's affirmation was filed, that the plaintiffs knew that the matter was to be opposed on grounds other than the one stated in the defendant's solicitors' letter of 14 January 1995. That may be so, but the plaintiffs knew the situation immediately after 17 March 1995 and should have realised that the matter could not be disposed of within half-an-hour. On the other hand, Mr Louis Chan, who appeared for the defendant at that hearing, said, according to the judge's notes - "We did not object to half an hour when we should have". In these circumstances, I agree that justice is best served by making no order as to the costs of the hearing on 23 March 1995.