NG YIU CHI ELEANOR v. REGISTRAR OF COMPANIES AND ANOTHER

HCMP 1248/2023

[2024] HKCFI 654

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1248 OF 2023

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J U D G M E N T

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1.  This is the application of the 2^nd Defendant (“HEL”)  to strike out the Originating Summons (“OS”)  of the Plaintiff (“Eleanor”)  filed on 4 August 2023 by which she seeks an Order to remove the Form 1B dated 5 May 1997 (“Form 1B”)  lodged with the Companies Registry by HEL reporting the allotment of 100 ordinary shares to CAGL[1] (99 shares)  and Well Arts[2] (1 share)  (“Allotment”).

2.  By its Summons filed on 11 September 2023 HEL seeks an Order that the OS be struck out and/or dismissed pursuant to O 18, r 19(1)(a)  to (d)  and/or the inherent jurisdiction of the Court.

3.  The Registrar of Companies (1^st Defendant)  has filed a written statement (“Statement”)  in response to the OS.  Her attendance at the hearing was excused by the Court. 

4.  HEL relies on 4 grounds in its strike out application :

(1)  Eleanor lacks legitimate interest to pursue the OS;

(2)  The threshold for invoking the Court’s power under s.42 of the Companies Ordinance (“Ordinance”)  has not been met;

(3)  Eleanor’s challenge against the Allotment is doomed to fail because:

(a)  she lacks the locus to challenge the Allotment;

(b)  the purported challenge is time-barred;

(4)  The OS and the challenge against the Allotment is an abuse of the Court’s process.

Background

5.  This is yet another unfortunate case where siblings (and their Mother)  are in loggerheads over the assets left to them by the late Father, which had resulted in a number of fully contested legal actions.  Of particular relevance are HCA 51/2007, HCA 1040/2009 and HCA 1041/2009 which were tried together before M Chan J resulted in a Judgment dated 6 January 2016 (“Judgment”).  The Judgment forms the basis of the strike out based on abuse of process. 

6.  In this case, the 8 siblings and the Mother are fractured into 2 groups.  I shall refer to them as the “Philip Group”, made up of the eldest son, Philip Ng, and 3 other siblings, Olympia, Tony and Stephanie.  The second group is referred to as the “Mother Group” comprising of the Mother and 4 other siblings, Eleanor, Angela, Jeremy and Andrew. 

7.  The essential background facts can be gleaned from the Judgement and are indisputable. 

8.  The Father passed away in March 2002.  Between 1965 and 1984, the Father set up various Hong Kong companies (“Family Companies”), including HEL, HCL[3] and HCIL[4].  The Family Companies hold various landed properties in Hong Kong for the benefit of the Ng Family.  Amongst the Family Companies, HEL holds the majority of the properties.

9.  Prior to the “Restructuring” (as defined in the Judgment, [9]), the shares of HEL, HCL and HCIL were held in the names of NSMAL[5] (another Family Company)  and various members of the Ng Family.

10.  The Father was very much in control of the Family Companies as well as the family assets.  He arranged for the documents relating to the Family Companies to be signed by members of his family.  Those members trusted him in managing the Family Companies and were accustomed to signing such documents in accordance with the Father’s instructions without question.

11.  In 1997, with the aim of saving estate duty, the Father devised and implemented a Restructuring, as a result of which the Family Companies (except NSMAL)  became wholly owned subsidiaries of CAGL.

12.  The Restructuring involved the following stages :

(1)  1^st stage: allotment of 100 ordinary shares in each of the Family Companies (including HEL, HCL and HCIL but except NSMAL)  to CAGL and Well Arts;

(2)  2^nd stage: conversion of the ordinary shares originally held by NSMAL and various members of the Ng Family into 5% deferred shares; and

(3)  3^rd stage: transfer of the said 5% deferred shares held by NSMAL and various members of the Ng Family to CAGL.

13.  In return for the transfer of shares to CAGL, members of the Ng Family were allotted shares in CAGL, which in turn held shares in the Family Companies (except NSMAL).

14.  Lastly, the Father transferred his own 20 shares in CAGL to various children.  

15.  The Restructuring, insofar as HEL, HCL and HCIL were concerned, was challenged by the Mother Group.  It was the subject matter of HCA 51/2017, HCA 1040/2009 and HCA 1041/2009[6].  The actions were tried before M Chan J over 26 days in 2015 and the Judgment was delivered on 6 January 2016.

16.  The Judgment recorded the grounds advanced by the Mother Group in challenging the Restructuring (concerning HEL, HCL and HCIL)[7] :

(1)  The signatures of members of the Mother Group appearing on the Restructuring Documents (Judgment, [10])  were forged;

(2)  The resolutions passed by the Family Companies were invalid; 

(3)  Meetings held by the Family Companies were invalid for want of notice;

(4)  In respect of HCL and HCIL, the Mother Group challenged the validity of the allotment of their shares to CAGL and Well Arts;

(5)  Members of the Ng Family did not receive consideration from CAGL for the transfer of their 5% deferred shares (abandoned at trial); and

(6)  The conversion of ordinary shares held by NSMAL and the family members into 5% deferred shares amounted to variation of class right (abandoned at trial).

17.  It is quite clear that by the various issues raised at the trial the Mother Group was challenging the validity of the Restructuring, which was dismissed by the Judgment.  The Court held that[8] :

(1)  The signatures of the Mother Group were genuine;

(2)  Members of the Mother Group were bound by the Restructuring Documents they had signed; and

(3)  All shareholders of the Family Companies, including the Mother Group, indicated their consent to the matters recorded in the Restructuring Documents. 

18.  It was noted in the Judgment, [15], that the Mother had challenged the allotment of shares in HEL, HCL and HCIL to CAGL by way of HCA 523/2008, which was rejected by the Court.

19.  Although the Order made following the Judgment has not been made available to the Court, it is reasonable clear that by the Judgment, [22] and [75], it was declared that CAGL and Well Arts are the only shareholders of HEL[9].  The dispute over the Restructuring, and hence shareholding in HEL, must be regarded as settled.  For completeness, the Judgment was upheld on appeal and the Mother Group’s application for leave to appeal to the CFA was dismissed in October 2021. 

Abuse of process

20.  It is convenient to deal firstly with this ground following the references to the Judgment.  With respect, it is striking that, more than 7 ½ years after the Judgment Eleanor saw fit to challenge the Allotment which took place on 5 May 1997. 

21.  It is all the more remarkable that the basis of the OS is the allegation that CAGL and Well Arts did not pay for the shares allotted to them by HEL and the Allotment was invalid under the Articles of the latter[10].  In his submissions, Mr Kwan, who appeared for Eleanor, said that the relief sought in the OS would impact upon the chain of transactions under the Restructuring.  Clearly, Eleanor’s motive is to challenge the Restructuring again.  This is fortified by the fact that she is not a shareholder of HEL and, if her application is granted, CACL in which she holds shares will end up having fewer shares in HEL. 

22.  Both sides had referred the Court to the well-established principles adumbrated in Henderson v Henderson: it is an abuse of process for a party to raise in subsequent proceedings matters which that party could and should have raised in earlier proceedings. 

23.  Mr Kwan submitted that in HCA 51/2007 the Court did not address the validity of the Form 1B or whether the Allotment was paid for.  The submission may be technically correct but I am unable to accept that it is a realistic way of reading the Judgment.  As indicated about, the dispute before the Court very much centred on the Restructuring.  The allotment of shares to CAGL and Well Arts by the Family Companies (including HEL)  was the essential 1^st stage of the exercise.

24.  In the Judgment, [10], it was stated that: “The documents which give effect to the Restructuring (‘Restructuring Documents’)  were signed by the relevant family members.  Essentially, they include … return of allotments to the Companies Registry in respect of the allotment …”. 

25.  Further, the Form 1B was adduced as evidence by the Mother Group, and it formed part of the core bundles before M Chan J.

26.  In the circumstances, it is plain that if the Allotment was not paid for, Eleanor should have raised it at the trial.  In her evidence, Eleanor explained that during the trial Tony and Philip gave evidence that they did not receive any payment from CAGL for the transfer of their deferred shares in HEL to CAGL as part of the Restructuring.  This gave rise to her suspicion that (a)  GAGL did not have any bank account or means to pay HEL for the Allotment; and (b)  did not pay for the Allotment. 

27.  Eleanor’s suspicion led her to investigate into the matter and she subsequently discovered (a)  from Andrew and Mother, who were directors of HEL, that (to the best of their knowledge)  CAGL and Well Arts never paid for the Allotment; and (b)  CAGL only opened its bank account on 18 July 1998 (after the Allotment).  Eleanor went on to say that the non-payment only came to light after the trial and she could not have raised it at the trial. 

28.  I do not believe that, even with the general rule that disputed evidence should be assumed in favour of the party against whom a strike out application is made, Eleanor’s evidence can be accepted at face value for the following reasons :

(1)  On her own evidence, she knew that at the time of Allotment CAGL was a shelf company and had no assets or operation;

(2)  As pointed out by Mr Lai, who appeared for HEL, the assertion that no consideration was given by CAGL for the 5% deferred shares was pleaded by the Mother Group and Eleanor.  In response, the Philip Group pleaded that the family members received shares in CAGL in return.  The Mother Group subsequently abandoned this point at the trial.  Therefore, it was no surprise for Eleanor to hear at the trial that Tony and Philip did not receive any payment for their deferred shares.  Why that piece of evidence had given rise to suspicion over lack of payment for the Allotment is not explained;

(3)  It was also pointed out by Mr Lai that the opening of CAGL’s bank account in July 1998 was well within the knowledge of Eleanor (and all the other litigants)  because the relevant account opening documents, some of which were signed by Mother and Andrew, were in the trial bundles.

29.  Not only is Eleanor’s attempt to explain that she could not have taken the point at trial questionable for the above reasons, more importantly, she provided no timing for her investigation, her enquiries with Andrew and Mother, her alleged discovery of the opening of CAGL’s bank account and when after the trial she came to know that no payment was made for the Allotment. 

30.  Mr Kwan accepted that under the Henderson principle Eleanor was required to exercise reasonable diligence in putting forward issues which properly belong to the subject of the earlier litigation. 

31.  Had she acted with reasonable diligence, Eleanor would have (on her evidence)  enquired with her mother and youngest brother whether the Allotment was paid for.  Bearing in mind that they were parties to the 26 day trial, it cannot be accepted in the absence of proper explanation (there is none)  that the alleged non-payment would not have been revealed in the course of the trial, and if not, soon thereafter. 

32.  In any case, the account opening materials were already in the bundles.  Indeed, Eleanor already knew that GAGL had no means to pay for the Allotment (see para 28(1)  above). 

33.  In the premises, the unspecific allegation that Eleanor only discovered the non-payment after trial is not acceptable.  I have little doubt that her evidence is put up to cover the fact that, if there was any merit in the contention, she could and should have raised it at the trial. Even if she genuinely only discovered the non-payment after trial, she could and should have raised it on appeal. 

34.  In the circumstances, I have little doubt that the OS is plainly and obviously an abuse of process and must be struck out on this ground alone.

Other grounds

35.  Out of deference to counsel, I shall deal with the remainder of the grounds succinctly, as well as collectively since they are related.  They are based on 4 propositions (a)  Eleanor has no legitimate interest in pursuing the OS; (b)  the threshold for invoking the Court’s power under s.42 of the Ordinance is not met; (c)  Eleanor has no locus to challenge the Allotment; and (d)  any cause of action arising out of the non-payment of the Allotment (which belongs to HEL)  is time-barred.

36.  In respect of (a), it is common ground that Eleanor has to demonstrate that she is a proper person to make the application under the OS, ie, she has a legitimate interest in the relief sought: Chen Pao Tzu v Chen Sheng Kuei [2021] 1 HKLRD 1071, per Linda Chan J at [33]-[35], referring to Deloitte & Touche AG v Johnson [1999] 1 WLR 1605 at  1611B-D.

37.  In this case, I fail to see what legitimate interest there is for Eleanor to see that the Form 1B is removed from the Companies Register.  Her motive in having a collateral attack of the Judgment or to challenge the Restructuring again cannot be legitimate.  I am unable to accept Mr Kwan’s submission that Eleanor has an “indirect interest in HEL through CAGL”.  It is not a proposition based on law.  A shareholder does not own the assets of the company which shares she owns.  Such illusory “interest” gives rise to no legitimate interest that I can discern. 

38.  In respect of (b), Mr Lai relies on s.42(4)  of the Ordinance and the dicta of G Lam J (as he then was)  in Re China Nice Education Research Publishing Investment and Management Co Ltd [2016] 3 HKLRD 525, [17]-[18] :

(1)  S.42(4)  restricts the court’s power to order removal and to make rectification the ordinary remedy if the situation referred to in s.42(1)  arises;

(2)  Removal is ordered only if both limbs of s.42(4)(a)  and (b)  are met[11];

(3)  The fact that the information is incorrect, or relates to an invalid or ineffective transaction, or has been filed without authority is not in itself a sufficient reason for removal as opposed to rectification;

(4)  Even documents which are null or forged are not necessarily removed unless the two limbs are satisfied;

(5)  Removal cannot be ordered unless, inter alia, the continuing presence of the incorrect information will cause material damage to the company despite any rectification.

39.  Whilst the threshold for s.42(4)  is said to be “fairly low”, it is a requirement to show that the continued presence of the incorrect information will damage or impede the normal operation of the subject company and caused confusion to intended counterparties: Forever Up Holdings Ltd. v. Tong Yan Wa [2019] 5 HKC 478, per DHCJ W Wong SC at [15]-[16]; Re China People (HK)  Ltd [2020] HKCFI 2873, per Linda Chan J at [54].

40.  In this case, no rectification is sought in the OS.  I fail to see what damage will be caused to HEL by the continuous existence of the Form 1B.  HEL makes no complaint and indeed is seeking to have the OS struck out.  It has long been recognised (aside from the Judgment), as evidenced by HEL’s financial statements and annual returns over the years, that CAGL and Well Arts are its only shareholders since the Restructuring.  The same can be said of the members of the Ng Family, who were found by Court to have signed the Restructuring Documents and are bound by them. 

41.  To support his contention that confusion has been caused to counterparties as to the identify of HEL’s shareholders, Mr Kwan submitted that trustee is involved in the disposal of certain family properties and the trustee has indicated that the proceeds will not be released to HEL until its company returns are in order.  For similar reason, the bank account of HEL has been frozen.  Mr Kwan relied on Philip’s evidence in this regard. Properly read, the problem discussed by Philip arose from Mother Group’s dispute over the Restructuring.  That dispute must be accepted as settled after the Judgment.  I do not see how these matters assist Eleanor in satisfying the requirements of s.42(4).

42.  In respect of (c), there is no real answer to Mr Lai’s submission that Eleanor lacks locus to challenge the Allotment as she is neither a party to the contract of Allotment or the statutory contract (the Articles of Association of HEL)  between HEL and its members.  The point goes, in my view, to the absence of legitimate interest on the part of Eleanor in pursuing the relief under the OS. 

43.  As regards (d), plainly if there is a cause of action by HEL over the payment for the Allotment (HK$10,000), it has long been time-barred.  I reject Mr Kwan’s submission that HEL may avail itself of the postponement provisions under the Limitation Ordinance, Cap 347, as speculative and without evidential support. 

44.  Neither can I see any merits in Mr Kwan’s submission that there is no limitation period prescribed for s.42 of the Ordinance.  It may technically be correct, but without any valid cause of action over the alleged non-payment it is baffling as to the purpose or legitimacy of the OS, eg, what damage there is to HEL caused by the existence of the Form 1B? 

45.  In the premises, the other grounds provide further and valid bases on which to strike out the OS.

Disposition

46.  For these reasons, the OS is struck out and dismissed.  Bearing in mind (a)  Eleanor’s failure to withdraw the OS despite HEL’s “pre-action” letter dated 21 August 2023 in which she was alerted to various arguments intended to be made in a strike out application and (b)  the OS is struck out on, first and foremost, abuse of process ground, it is appropriate to award costs against Eleanor on indemnity basis as sought in HEL’s Summons.

47.  I make an order nisi that the costs of and occasioned by this application be paid by Eleanor to be assessed summarily on indemnity basis.  Eleanor is to respond to the Statement of Costs of HEL within 5 days from today, limited to 3 pages printed in A4 paper with font size 13, 1.5 line spacing and margins not less than 1 inch.  HEL is to reply within 3 days thereafter limited to 2 pages with the same format.

48.  Lastly, I am grateful to counsel for their assistance.