CHEUNG HING v. SIDEPEC INTERNATIONAL LTD AND ANOTHER

HCMP 3460/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 3460 OF 2013

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REASONS FOR DECISION

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1.  The Plaintiff commenced this action by Originating Summons under section 100 of the Companies Ordinance, Cap 32 (“CO”), seeking rectification of the Register of Members of the 2^nd Defendant (“Wah Fung”), by striking out the name of the 1^st Defendant (“Sidepec”) and restoring the name of the Plaintiff as the holder of 456 shares of Wah Fung.

2.  At the hearing I refused Sidepec’s application for a stay of this action pending final determination of another action (HCA 829/2010) between the Plaintiff and the Sidepec and entered judgment in favour of the Plaintiff.  This is my written reasons.

3.  I would only briefly outline the background of this matter.

4.  The Plaintiff and Mr Wong Chor Cheung were good friends.  In 1992, they used Wah Fung as corporate vehicle to purchase and hold a landed property (“the Property”) located at the Peak.  Ever since, they were the only shareholders of Wah Fung until the recent discovery by the Plaintiff of a purported transfer of 456 shares by the Plaintiff to Sidepec as shown in Wah Fung’s latest annual return dated 15 November 2013.  The annual return recorded that the 456 shares as previously owned and held by the Plaintiff (out of 6,000 shares) was purportedly transferred and registered to be held by Sidepec.  The transfer was purportedly taken place on 18 June 2012.

5.  It is the Plaintiff’s case that he never consented to such transfer and has never signed any documents including instrument of transfer, bought and sold notes, deed of assignment or otherwise effecting the purported transfer.  As a registered director of Wah Fung, he was not given any notice of any board meeting or aware of any board resolution passed approving such transfer.  No evidence was filed by the Defendants to counter the Plaintiff’s case.

6.  There is a pending dispute between the Plaintiff and Sidepec in respect of the Property where Sidepec sued under HCA 829/2010 for specific performance of an agreement for an intended sale of all the Plaintiff’s shares (6,000 shares) in Wah Fung to Sidepec at a consideration of $5 million.  The Plaintiff averred that the agreement was rescinded on grounds of Wong’s misrepresentation and Sidepec’s repudiatory breach for non-payment of the purchase price within reasonable time.  The Plaintiff also counterclaimed for the forfeiture of the deposit paid by Sidepec under the agreement.

7.  The trial of HCA 829/2010 was set down before DHCJ Leung which was held on 1 August 2013 with 8 days reserved.  One week before the trial, Sidepec applied to adjourn the trial but was refused by the learned Judge.  On 31 July 2013, the former solicitors for Sidepec ceased to act for Sidepec and one Wong Ka Fai, who became the sole director of Sidepec just 2 days before, applied on the same day to represent Sidepec.  At the trial, no leave has yet been given for Wong Ka Fai to represent Sidepec and Wong did not appear to give evidence.  According to Wong Ka Fai, Wong has met with a traffic accident in the Mainland that prevented him from attending the trial.  The learned Judge rejected this explanation as valid reason to adjourn the trial and proceeded with the trial in Sidepec’s absence.  As Wong was the only named witness for Sidepec in the action, there was no evidence adduced by any witnesses at trial for Sidepec.  The learned Judge reserved his judgment at the end of the trial.

8.  Before the learned Judge handed down his judgment on HCA 829/2010 which would thereby determine the parties’ entitlement to the shares of Wah Fung, as mentioned under paragraph 4 hereinabove, the Plaintiff noticed the purported transfer of 456 of his shares to Sidepec.  The Plaintiff took action immediately, and through his solicitors, sent letters to Sidepec, Wah Fung and Wong (whom the Plaintiff believed to be the person behind steering Sidepec and Wah Fung) demanding them to rectify the matter and provide all relevant documents evidencing the transfer.  As no reply was given by any party, the Plaintiff took out the present action.

9.  On 3 January 2014, the Plaintiff successfully obtained before DHCJ Leung an interim injunction basically to stop and prohibit Sidepec, Wah Fung and their agents from dealing with the subject 456 shares. 

10.  It was not until 4 July 2014, less than 3 weeks before the hearing dates fixed for argument of the present action, that Sidepec issued a summons applying for a stay of the proceedings pending determination of HCA 829/2010.  The summons was scheduled before me on 14 July 2014 and it so happened that notice has been given by DHCJ Leung that his judgment will be handed down on the same day.  In view of this, at the hearing on 14 July 2014, I ordered that Sidepec’s summons be adjourned and heard together with the substantive argument of this action.

11.  I have perused DHCJ Leung’s judgment.  In the judgment, the learned Judge accepted all the evidence of the Plaintiff and found that the Plaintiff had accepted Sidepec’s repudiatory breach of the agreement and entitled to forfeit the deposits.  

12.  This is a straight forward case.  As the Plaintiff denied having signed or otherwise executed any documents to effect transfer of his shares, he is in other words saying that the company caused to register a transfer of shares without an instrument of transfer or someone has caused a forged instrument of transfer to be made to effect the transfer.  Mr Fan, counsel for Sidepec, agreed that in order to register a change of the name of the owner of shares, there must be an instrument of transfer produced to the company evidencing the transfer. 

13.  Wong, on behalf of Wah Fung, filed an affirmation saying that he was verbally requested by one Mr Chan Sai King of Sidepec to transfer 456 shares of Wah Fung to Sidepec.  Wong said that as Chan showed him a copy of the sale agreement of the Plaintiff’s shares to Sidepec (the same one as the subject matter under HCA 829/2010), he has without doubt Sidepec’s entitlement to the shares and hence informed Mr Chen Shu Long, a director of Wah Fung, to prepare the necessary Board Resolution for the purpose of the transfer.  Wong then brought along the Board Resolution, together with a letter of authorization from Wah Fung, to attend the Company Registry to cause the 456 shares to be registered in Sidepec’s name.

14.  There is no mention of any instrument of transfer whatsoever in Wong’s affirmation.

15.  Mr Fan submitted that this court should not summarily deal with this action as there are many factual disputes.  With respect, there is only one version of facts in respect of the transfer of the shares put forward by the Plaintiff which is not challenged in any way by the Defendants. 

16.  Section 66 of CO provides that:

“Notwithstanding anything in the articles of a company, it shall not be lawful for the company to register a transfer of shares in or debentures of the company unless a proper instrument of transfer has been delivered to the company…”

17.  There is no evidence suggesting the existence of any “proper instrument of transfer” before me.  On this fact, there is no room to raise any dispute.

18.  Mr Fan submitted that I should exercise my discretion whether to rectify the transfer in light of the final outcome of HCA 829/2010.  He said, although DHCJ Leung decided in favour of the Plaintiff, Sidepec has already filed a notice of appeal against the learned Judge’s decision and this court should wait until seeing the final result before deciding on this matter.

19.  I asked Mr Fan what are Sidepec’s grounds of appeal.  In reply, Mr Fan read from the Notice of Appeal some generalized grounds basically saying that the learned Judge’s decision was wrong.  I asked further whether Mr Fan can provide any particulars of the grounds of appeal but Mr Fan indicated he has no instructions on the same.  With respect, as I mentioned before, there was simply no evidence put forward by Sidepec in HCA 829/2010 and DHCJ Leung has accepted the Plaintiff’s evidence in full.  From the materials before me I can see no valid grounds of appeal.  There is no reason why I should not rely on DHCJ Leung’s findings in that action should I find any findings in that action relevant to the present action.

20.  In any event, the main issue in this action is whether there was an effective transfer.  On this point, I do not see any findings in HCA 829/2010 that can be of relevance.

21.  In my judgment, I can see nothing justifies a stay of this action pending determination of Sidepec’s appeal to the HCA 829/2010 decision.  Hence, Sidepec’s summons is dismissed.

22.  The Plaintiff has clearly made out his case for the rectification of the transfer as the transfer was unlawful.

23.  Ms Ho, counsel for Wah Fung, submitted that Wah Fung has taken a neutral stance in the proceedings and should not be liable for the Plaintiff’s costs.  She further submitted that there was no dishonesty on her client’s part and apparently Wong was not acted upon sufficient legal advice.

24.  I have much reservation on Ms Ho’s submissions. Wong was all along the essential figure of the dispute between the Plaintiff and Sidepec.  The Plaintiff has also taken out a derivative action in respect of Wah Fung which is hotly contested by Wong.  It would be fanciful for Wong to suggest that he would innocently cause the Plaintiff’s shares to be transferred to Sidepec as a result of a mere request from Chan, without being given any hint of the Plaintiff’s consent to the transfer.   

25.  In my judgment, the whole scheme of the purported transfer was one perpetuated by Wong together with others in control of Sidepec and Wah Fung, with a view to prejudicing the Plaintiff’s interest in Wah Fung or the Property.

26.  In the circumstances, judgment be entered in favour of the Plaintiff against Sidepec and Wah Fung as per the reliefs sought in the Originating Summons. 

27.  Costs of Plaintiff in these proceedings, including all costs in the interlocutory injunction application, are to be borne by Sidepec and Wah Fung on indemnity basis, to be taxed if not agreed.