CHAN SHING LAM AND OTHERS v. WINSCORE INTERNATIONAL LTD AND OTHERS

HCMP 1251/2020
HCMP 787/2020

[2021] HKCFI 3563

HCMP 1251/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1251 OF 2020

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AND

HCMP 787/2020

MISCELLANEOUS PROCEEDINGS 787 OF 2020

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(Heard Together)

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D E C I S I O N

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A.  INTRODUCTION

1.  Winscore International Limited (集盛國際有限公司)  (“Company”)  is a Hong Kong-incorporated company which holds 75% of the shares in two Mainland joint venture companies, namely永州盛湘電力開發有限公司(“Shengxiang”)  and 湖南瀟湘綜合開發有限公司 (“Xiaoxiang”)  (collectively, “Joint Ventures”). By way of context, the Joint Ventures are the respective owners of a power station in Hunan Province (“Power Station”)  and the land on which the Power Station lies.

2.  The present proceedings relate to an ongoing dispute over the ownership and control of the Company. There are now three applications before the Court:

(1)  On 18 August 2020, the Plaintiffs in HCMP 1251/2020 took out an Originating Summons for the removal of various Company documents filed at the Companies Registry pursuant to section 42 of the Companies Ordinance (Cap. 622)  (“1251 Proceedings”).

(2)  On 25 January 2021, the Applicant in HCMP 787/2020 and the 2^nd to 4^th Defendants in HCMP 1251/2020 took out separate applications for an order that both proceedings be heard together (“Heard Together Summonses”).

(3)  On 18 March 2021, the Applicant in HCMP 787/2020 took out a summons for an interim injunction against the 2^nd and 3^rd Respondents in HCMP 787/2020 from, amongst other things, exercising any rights attached to their registered shareholdings in the Company, and against the Company from disposing of or otherwise dealing with its interests in the Joint Ventures (“Interim Injunction Summons”).

B.  BACKGROUND

B1.  Registered Shareholdings of the Company

3.  As can be seen in the table of registered shareholders below, the majority of the Company’s shares are registered in the names of the Plaintiffs in HCMP 1251/2020 (whom I shall call the “Chan Camp” for convenience):

	Shareholders	Number of Shares
1st Plaintiff in HCMP 1251/2020; 2nd Respondent in HCMP 787/2020	Chan Shing Lam (陳成林)  (“SL Chan”)	1,700 (17%)
2nd Plaintiff in HCMP 1251/2020	High Tower Limited (“High Tower”)	1,300 (13%)
3rd Plaintiff in HCMP 1251/2020	Chen Cheng Cai (陳成才)  (“CC Chen”)	1,000 (10%)
4th Plaintiff in HCMP 1251/2020; 3rd Respondent in HCMP 787/2020	Smart Forever International Limited (永駿國際有限公司)  (“Smart Forever”)	1,300 (13%)
5th Plaintiff in HCMP 1251/2020	Strong Mind Holdings Limited (“Strong Mind”)	2,270 (22.7%)
	Fierce Holdings Limited (“Fierce Holdings”)	2,530 (25.3%)
2nd Defendant in HCMP 1251/2020	Chim Hong Ming (詹漢銘) (“HM Chim”)	200 (2%)
Total:		10,000 (100%)

4.  It is not disputed that Longrigg International Limited (“Longrigg”)  once held 3,000 shares in the Company (“Subject 30% Shareholding”). On 22 February 2016, Longrigg’s shareholdings were transferred to SL Chan (“2016 Transfer”). Later on 7 September 2017, SL Chan transferred 1,300 of the said 3,000 shares to Smart Forever (“2017 Transfer”).

B2.  HCA 1251/2020 (Section 42 Proceedings)

5.  Prior to November 2019, the Company’s directors were Wang Zhong Yue (王忠岳)  (“ZY Wang”), SL Chan, and Lau Ka Ping (劉家平)  (“KP Lau”). Between mid-November 2019 to late-March 2020, various documents were filed at the Companies Registry (“Disputed Documents”)  which, amongst other things, purport to record the appointment of the 2^nd to 4^th Defendants as directors of the Company in place of ZY Wang, SL Chan and KP Lau. I understand the Disputed Documents in the Companies Registry are:

(1)  A Notice of Change of Address of Registered Office (Form NR1)  dated and filed on 14 November 2019 (Document Ref: 24000918826);

(2)  A Notice of Change of Company Secretary and Director (Appointment/Cessation)  (Form ND2A)  dated 14 November 2019 and refiled on 4^th December 2019 (Document Ref: 24000918825);

(3)  An Amended Annual Return Form (Form NAR1)  up to 17 November 2019 dated 9 December 2019 and filed on 10 December 2019 (Document Ref: 24000932088);

(4)  A Notice of Change of Address of Registered Office (Form NR1)  dated and filed on 24 January 2020 (Document Ref: 22001011198);

(5)  A Notice of Change of Company Secretary and Director (Appointment/Cessation)  (Form ND2A)  dated and filed on 27 February 2020 (Document Ref: 70001685206);

(6)  A Notice of Change of Address of Registered Office (Form NR1)  dated and filed on 12 March 2020 (Document Ref: 70001696946); and

(7)  A Notice of Change of Company Secretary and Director (Appointment/Cessation)  (Form ND2A)  dated and filed on 25 March 2020 (Document Ref: 7001708024).

6.  On 18 August 2020, the Chan Camp took out the 1251 Proceedings for an order declaring the Disputed Documents null and void and that they be removed from the Companies Register. This is the substantive hearing of the 1251 Proceedings.

B3.  HCA 787/2020 (Beneficial Ownership Proceedings)

7.  Shortly before the Chan Camp began the 1251 Proceedings, 惠州市大亞灣A declaration of sole beneficial ownership over the Subject 30% Shareholding registered in the name of SL Chan and Smart Forever;

(1)  A declaration of sole beneficial ownership over the Subject 30% Shareholding registered in the name of SL Chan and Smart Forever;

(2)  A declaration that the 2016 and 2017 Transfers are null and void;

(3)  An order that SL Chan and Smart Forever do transfer all their shareholdings in the Company to Daya Bay; and

(4)  An injunction restraining SL Chan and Smart Forever from acting as shareholders of the Company.

8.  As set out in the skeleton of the 2^nd to 4^th Defendants in the 1251 Proceedings, Daya Bay’s case can be summarised as follows:

(1)  Daya Bay is a state-owned company incorporated in the Mainland. Hu Su Xian (胡淑賢)  (“SX Hu”), the 3^rd Defendant in the 1251 Proceedings, is the current authorised representative of Daya Bay. Fong Lai Chan (方麗珍)  (“LC Fong”), the 4^th Defendant in the 1251 Proceedings, is one of the directors of Fierce Holdings and is entitled to act on its behalf.

(2)  In around 1992, the then-authorised representative of Daya Bay, Chen Xun (“X Chen”), entered into an agreement with various interested parties to acquire a company in Hong Kong for the purpose of investing in Mainland power plant projects. The Company was acquired as a result.

(3)  In around late 1994, Longrigg became the registered owner of the Subject 30% Shareholding, which at all times was beneficially owned by Daya Bay. Daya Bay refers to an appeal judgment by the Higher People’s Court of Hunan Province (“Hunan Court”)  handed down on 11 March 2019, which determined that Daya Bay holds 21.6% of the investment rights and interest in the Joint Ventures based on Daya Bay’s 30% ownership of the Company. The Company, in turn, holds 72% of the investment rights and interests in the Joint Ventures (in other words, 72% x Daya Bay’s 30% shareholding = 21.6%).

(4)  The 2016 Transfer took place without Daya Bay’s knowledge. On 30 September 2016, a directors’ meeting of the Company was convened at the request of SL Chan. During the meeting, SL Chan failed to produce copies of the bought and sold note and the instrument of transfer for the 2016 Transfer. In or around 29 August 2017, a resolution was passed by the Chan Camp to ratify the 2016 Transfer in spite of express opposition from SX Hu and X Chen. In particular, the Hunan Court concluded that the transfer was conducted in bad faith on the part of SL Chan.

(5)  The 2017 Transfer took place without Daya Bay’s approval, and the documents associated with this transfer have not been disclosed to Daya Bay.

9.  In the light of its alleged beneficial interest in the Subject 30% Shareholding, Daya Bay and various associated persons including HM Chim, LC Fong, and SX Hu (“Daya Bay Camp”)  proceeded as follows:

(1)  Together with Fierce Holdings (acting under the direction of LC Fong), Daya Bay requested the Company’s board (by then comprised of members of and/or persons associated with the Chan Camp)  to convene a shareholders’ meeting to appoint HM Chim, LC Fong and SX Hu as directors of the Company in or around August 2019. These requests went unheeded even though Fierce Holdings alone held a 25.3% shareholding, which was well in excess of the 5% shareholding required to convene a shareholders’ meeting under section 566 of the Companies Ordinance (Cap. 622).

(2)  On 13 October 2019, Daya Bay issued a notice to convene a shareholders’ meeting, which was held on 28 October 2019 at around 11:00 am (“28 October 2019 Meeting”). At the said meeting, which was attended by the HM Chim, LC Fong (acting for Fierce Holdings), and SX Hu (acting for Daya Bay), resolutions were passed to appoint HM Chim, LC Fong, and SX Hu as directors of the Company as a replacement for SL Chan, KP Lau, and ZY Wang. The Daya Bay Camp subsequently passed other so-called “Self-Help Resolutions” and lodged the Disputed Documents with the Companies Registry.

(3)  In passing the Self-Help Resolutions, the Daya Bay Camp purports to hold a combined 57.3% shareholding in the Company, with Daya Bay holding 30%, Fierce Holdings holding 25.3%, and HM Chim holding 2%.

C.  THE APPLICATIONS

C1.  The Heard Together Summonses

10.  I will now proceed to deal with the three applications, starting with the Heard Together Summonses.

11.  Order 4, rule 9(1)  of the Rules of the High Court (Cap. 4A)  provides that:

“Where two or more causes or matters are pending, then, if it appears to the Court ‒‒

(a)  that some common question of law or fact arises in both or all of them, or

(b)  that the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or

(c)  that for some other reason it is desirable to make an order under this rule

the Court may order those causes or matters to be consolidated on such terms as it thinks just or may order them to be tried at the same time, or one immediately after another, or may order any of them to be stayed until after the determination of any other of them.”

12.  The principles under this rule are trite:

(1)  The Court has a wide and unfettered discretion under Order 4, rule 9. There is no hard and fast rule on how this discretion ought to be exercised, but the Court should take a practical and common sense approach to ensure justice is best served.

(2)  Even though the Court’s discretion should be exercised flexibly, it must be satisfied that it would be proper and expedient to make such an order, having regard to the all the circumstances. It should consider, amongst other things, that the objective of the rule is to save time and costs, and where there is a substantial overlapping of issues and parties, it is desirable to resolve the disputes in different actions on one occasion before the same judge.

(3)  Following the Civil Justice Reform, the emphasis is on ensuring the efficient and just resolution of disputes before the courts.

See Komal Patel and Ors v Chris Au and Ors, HCA 183/2014 and HCA 2063/2015 (14 January 2016)  at §§11-17; Yong Li Investments Ltd v Lee Sing Leung Robin [2018] HKCFI 1711 at §§16-17, 22, and 25-27.

13.  In addition, the Court is expressly empowered pursuant to Order 1B, rule 1(2)(e)  to order that the whole or part of any proceedings be stayed either generally or until a specified date or event. The correct approach in an application for a temporary stay of proceedings is to consider the balance of convenience and fairness between the parties: Chen Pao Tzu v Chen Sheng Kuei and Ors [2020] HKCFI 1518 at §§14-18, citing Re Chime Corporation Limited, HCMP 4146/2001 (8 March 2005).

14.  The crux of the argument for the Chan Camp is that the 1251 and 787 Proceedings are unrelated and no common issue exists between them. Mr Anthony P.W. Cheung (for the Chan Camp), advances the following points:

(1)  The resolutions passed at the 28 October 2019 Meeting are invalid regardless of whether Daya Bay is beneficially interested in the Subject 30% Shareholding. He relies on the general rule (enshrined in the Company’s Articles)  that the Company should not be bound by or compelled in any way to recognise the rights of its beneficial owners who are not registered shareholders unless required by law.

(2)  Daya Bay cannot be regarded as a member as it is not a registered member of the Company. Upon excluding the alleged 30% shareholding, it would be apparent that the 28 October 2019 Meeting was inquorate as the Company’s Articles of Association provides that quorum at a general meeting shall be two members personally present and holding either in his own right or by proxy at least 51% of the Company’s issued shares.

(3)  The notices in respect of the 28 October 2019 Meeting were seriously deficient and could not be validated by the irregularity principle.

(4)  Even on the assumption that LC Fong was authorised to represent Fierce Holdings at the 28 October 2019 Meeting (which the Chan Camp disputes), Fierce Holdings and HM Chim only have a 27.3% shareholding in the Company. The irregularity principle therefore cannot apply in aid of the Daya Bay Camp.

15.  It is further argued that consolidation would not assist the expeditious and fair disposal of the 1251 Proceedings as it would cause undue delay. It is also said that the 1251 and 787 Proceedings “arise out of entirely different transactions and the relief[s] sought are also entirely different.”

16.  Purely insofar as Mr Cheung’s submission relate to the Heard Together Summons (as opposed to the merits of the 1251 Proceedings), I am unable to agree with them. All things considered, the reality is that the 1251 and 787 Proceedings relate to the same fundamental dispute over the ownership of the Subject 30% Shareholding.

17.  First, it goes without saying that the Disputed Documents will almost certainly be removed if the Court later finds that Daya Bay has no interest in the Subject 30% Shareholding.

18.  Second, one of the reliefs sought in the 787 Proceedings is a declaration that the 2016 and 2017 Transfers are null and void. As Mr Douglas Lam SC submits on behalf of the Daya Bay Camp, a consequence of such relief is that Daya Bay would also be entitled to an ancillary order to rectify the Company’s register of members so that it would show the Subject 30% Shareholding has always vested in Longrigg[1]

19.  Putting things into context, it bears emphasis that the Disputed Documents are not the only documents lodged with the Companies Registry which are the subject of disagreement between the parties, irrespective of whether the 28 October 2019 Meeting was inquorate or not. If the Court proceeds to remove the Disputed Documents before the hearing of the 787 Proceedings, the Companies Register would simply be left with the documents filed by the Chan Camp containing information which is disputed by the Daya Bay Camp. There is no reason why these issues need to be determined in a piecemeal fashion rather than in one go.

20.  Once it is appreciated that the disputes and uncertainties [2] regarding the information in the Companies Register will not cease overnight, it will become apparent that the expeditious removal of the Disputed Documents is unlikely to bring about any tangible benefit on its own right unless the validity of the 2016 Transfer and/or the purported beneficial interest of Daya Bay is also resolved.

21.  In passing, I wish to note that Mr Cheung in his written submissions inexplicably refers to a number of points which are clearly intended to refute the allegations made by the Daya Bay Camp in the 787 Proceedings. These include contentions to the effect that:

(1)  The bought and sold notes as well as the instrument of transfer in relation to the 2016 Transfer were duly stamped and signed by the authorised representative of Longrigg and Chan S.L. and could not be challenged by SX Hu.

(2)  Even if Daya Bay had not approved of the 2016 Transfer, Longrigg was a separate legal entity independent of Daya Bay, and there was insufficient material to suggest that Longrigg was holding the shares at the direction of and for the benefit of Daya Bay.

22.  Whilst I have given no weight to these points, the lengthy submissions on matters which go to the root of the 787 Proceedings in the present hearing is, with respect, perplexing, given that it is also the Chan Camp’s case that the 787 and 1251 Proceedings are capable of being treated independently.

23.  Apart from the existence of common questions of law and fact in relation to the 1251 and 787 Proceedings and/or similar rights and relief claimed, there are various other reasons why I consider that it is both fair and logical for both proceedings to be heard together:

(1)  The legal representatives are the same in both proceedings and the parties are acting in the same capacity.

(2)  No added prejudice would be caused if both proceedings were tried together or the 1251 Proceedings were stayed pending the outcome of the 787 Proceedings. In this regard, HM Chim, LC Fong, and SX Hu have undertaken that they will not conduct any acts on behalf of the Company in the interim, pending final determination of both proceedings, including procuring or permitting the Company to sell or dispose of its interests in the Joint Ventures.

(3)  Conversely, the 1251 Proceedings, if granted in terms of the Originating Summons, will lead to substantial disruption of the status quo and may potentially create the impression that the parties’ disputes have already been fully resolved. In this regard, I disagree with Mr Cheung’s submissions that an undertaking on the part of the Chan Camp would effectively maintain the status quo. By simultaneously asking the Court to conclude that the 28 October 2019 Meeting was invalid, the Company’s board would inevitably have to be reconstituted and control will shift from the Daya Bay Camp to the Chan Camp (at least from the perspective of third parties).

(4)  The 787 Proceedings are no longer at an early stage, with both parties having already filed respective affirmations in support and in opposition.

24.  In light of the above, I will not deal with the merits of the 1251 Proceedings at this stage.

C2.  Interim Injunction Summons

25.  Both shareholder factions accept that the Daya Bay Camp has taken effective control of the Company and appointed themselves as officers of the Joint Ventures. Mr Lam has set out a number of reasons to justify their request for injunctive relief. In gist:

(1)  Irrespective of whether they have been validly passed, the Self-Help Resolutions have “undoubtedly provided practical interim protection to the Daya Bay Camp” pending the determination of the 787 Proceedings.

(2)  The Interim Injunction Summons is intended to “enhance” the Self-Help Resolutions or replace them in the event that the Self-Help Resolutions are deemed null and void.

(3)  Recently the Daya Bay Camp discovered that in November 2019, the Chan Camp had purportedly expressed on behalf of the Company that the government could take the Power Station in exchange for money.

26.  Mr Cheung submits that the Interim Injunction Summons is “otiose”, and there is no urgency at all because the Daya Bay Camp is wholly in control of the board of the Company and it is not possible for the Chan Camp to do any act against which the proposed injunction is designed to guard. I agree with Mr Cheung. Indeed, the necessity of the Interim Injunction Summons falls away in view of my decision to order both proceedings to be heard together. As Mr Lam admits, the necessity of the Interim Injunction Summons would “to some extent, depend on the outcome of [the 1251 proceedings] and the Heard Together Summons.” In short, there is no risk that the Self-Help Resolutions will be set aside before the hearing of the 787 Proceedings. Still less is it appropriate for interim receivers to be appointed.

27.  Given that the Interim Injunction Summons would only be relevant if I were to dispose of the 1251 Proceedings in favour of the Chan Camp at this hearing, I will dismiss the application for an interim application.

D.  DISPOSITION

28.  In the light of the analysis set out above, I make the following orders in relation to the Heard Together Summons:

(1)  HCMP 1251/2020 be adjourned to be heard together with HCMP 787/2020 on a date to be fixed in consultation with counsels’ diaries, with 1 day reserved.

(2)  Daya Bay do file and serve affirmations in reply in HCMP 787/2020 within 28 days from the date of this order.

(3)  Daya Bay do take out an application to join Longrigg and High Tower as the 4^th and 5^th Respondents in HCMP 787/2020 within 28 days from the date of this order.

29.  Mr Lam SC also proposed a number of directions in respect of filing pleadings in HCMP 787 if the Court is of the view that the proceedings ought to continue as if the cause or matter had been begun by writ in light of the factual dispute involved.  In view of potential complications and expense, I believe the issue ought to be revisited when Longrigg and High Tower are joined to HCMP 787.  The parties are also encouraged to consider whether any additional directions are required in good time before the hearing of the HCMP 1251/2020 and HCMP 787/2020 and apply in good time before the substantive hearing. 

30.  Looking at the applications before me in the round, I believe a fair order is that there be no order as to costs in respect of the Heard Together Summons and the Interim Injunction Summons.  I make such order on a nisi basis.  Any other costs incurred in respect of HCMP 1251/2020 be otherwise in the cause of the action.