YUEN MINGHWA FRANCOIS v. KINGSFIELD INVESTMENT LTD AND OTHERS

HCMP 414/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 414 OF 2009

----------------------

----------------------

----------------------

-------------------------

J U D G M E N T

------------------------

1.  This is an application by originating summons made under sections 69(1B) and 100 of the Companies Ordinance, Cap. 32 for rectification of the share register in eight respondent companies to have the applicant registered as a member as the successor in title to the share or shares of Yuen Kiu Kwan, deceased in the respondents.  The letters of administration of the estate of the deceased were granted to the applicant on 27 October 2008.

2.  Under section 69(1A), it is provided that where a company refuses to register any person as a member in respect of shares which have been transmitted to him by operation of law, that person is entitled to call on the company to furnish a statement of the reasons for refusal, and, if the company fails to furnish such statement within 28 days after the request is made, the company shall, on the expiration of that period, register the transfer forthwith.

3.  Under section 69(1B), where a company refuses to register a transfer of any shares, the transferee may apply to the court to have the transfer registered by the company; and the court may, if it is satisfied that the application is well founded, disallow the refusal and order that the transfer be registered forthwith by the company.

4.  By section 100(1), if the name of any person is, without sufficient cause, omitted from the register of members, the person aggrieved may apply to court for rectification of the register.

5.  The originating summons is opposed by each of eight respondents.  They filed an acknowledgment of service on 18 March 2009 stating that they contest the proceedings.  They appeared by Mr Leo Remedios in the hearing today.  Mr Remedios stated that the respondents are taking a “neutral” stance.  I cannot see how that could be the case.  The respondents have filed affirmations by their solicitors seeking an order that the originating summons be adjourned sine die pending the outcome of High Court Action No. 2682 of 2008 (“the High Court Action”).  That is also the thrust of Mr Remedios’ submission.  He contended it would be inappropriate for the court to exercise its summary jurisdiction to register the applicant as a member in each of the respondents and submitted that the court should strike out the originating summons or stay the applicationpending the determination of the High Court Action.

6.  The High Court Action was brought by the applicant against Lo Mei Kin Stella on 19 December 2008 seeking various reliefs relating to assets that formed part of the deceased’s estate.  Ms Lo made a counterclaimin the High Court Action against the applicant and his two siblings on 5 March 2009 for a declaration that she is the sole beneficiary to the deceased’s estate and other consequential reliefs. The applicant and the other defendants to the counterclaimhave not yet filed a defence to the counterclaim.

7.  I also have before me a summons issued by Ms Lo on 2 April 2009 under Order 15 rule 6 of the Rules of the High Court or the inherent jurisdiction of the court for an order that she be joined as a party to the originating summons and be named the 9^th respondent, and that the originating summons be stayed or otherwise disposed of until the outcome of the High Court Action is known.

8.  I will first set out the relevant background matters to the two applications.

9.  The respondents are private companies set up by the deceased for investment holding purposes.  He held 9,000 shares in the 4^th respondent, Cerock Company Limited, and one share each in the other seven respondents.  He was also a director of each.  Ms Lo was and is a director of each of the respondents.  The deceased and Ms Lo had cohabited for 16 years until he passed away in January 2008.  They were not married. The deceased did not leave a will.

10.  The applicant and his two siblings were the deceased’s children born of a marriage that was dissolved in the 1990s.

11.  After the letters of administration were granted to the applicant in October 2008, on 7 November 2008, the applicant’s solicitors requested the then solicitors of the respondents that the applicant be registered as a member as successor in title to the deceased’s shares in the respondents within seven days.

12.  On 17 November 2008, the applicant’s solicitors received a response from the respondents’ solicitors asking to be provided with the original letters of administration and the original share certificates for processing of the request.

13.  On 25 November 2008, formal notice was given to each of the respondents that the applicant elected himself to be the holder of the deceased’s shares.

14.  On the same day, the respondents’ solicitors informed the applicant’s solicitors that the registration of the applicant as a member of each of the companies “is now in progress and [the respondents] anticipated that the formality would be completed in the next few days”.

15.  On 1 December 2008, the respondents’ solicitors requested stamped instruments of transfer regarding the shares of the deceased in the respondents to the applicant and the relevant share certificates in the deceased’s name for processing.

16.  These documents were delivered by the applicant to the respondents on 17 December 2008.

17.  Thereafter, nothing was heard from the respondents despite chasing letters from the applicant’s solicitors.

18.  On 30 December 2008, the applicant’s solicitors wrote to each of the respondents asking if they had refused to register the applicant as a member, and, if so, they should provide a statement of the reasons for refusal within 28 days under section 69(1A) of Cap. 32 and the articles of association, failing which the applicant would apply to court immediately.

19.  No statement of reasons was received by the expiry of the 28-day period on 27 January 2009.  By virtue of section 69(1A), on the expiration of that period, the respondents are obliged to register the transfers forthwith.

20.  The originating summons was issued on 5 March 2009.

21.  Earlier on the same day, Ms Lo filed a defence and counterclaim in the High Court Action in which she made a claim that she is the sole beneficiary of the deceased’s estate by reason of promissory estoppel, equitable estoppel, proprietary estoppel, a constructive trust, and that certain assets in the estate are the subject of donatio mortis causa.  She alleged that when she cohabited with the deceased, the deceased had made verbal assurances, representations or promises to her that he would provide for her forever and would leave her all his assets on his death.  She claimed that she had relied on the alleged promises and had acted to her detriment.

22.  On 18 March 2009, the respondents retained their present solicitors to advise them.

23.  On 1 April 2009, Ms Lo wrote a letter to each of the respondents setting out her objections to the applicant’s request to be registered as a member, claiming that she is the sole beneficial owner of the shares and is seeking an order in the High Court Action for a declaration she is the sole beneficial owner of the estate of the deceased including the shares.  She stated that pending the determination of her counterclaim regarding the beneficial ownership of the shares of the deceased, it would be inappropriate to register the applicant as a member and it would cause great detriment to her interest and to the respondents.

24.  On 2 April 2009, the 2^nd, 3^rd, 4^th, 5^th, 6^th and 8^th respondents convened board meetings to consider the applicant’s request for registration.

25.  The boards of directors of these companies, one of the directors being Ms Lo, passed identical resolutions that it would be inappropriate to deal with the applicant’s request to be registered as a member until after the dispute raised by Ms Lo regarding the beneficial ownership of the deceased’s shares has been decided by the court in the High Court Action.

26.  The 1^st and 7^th respondents did not hold board meetings for this purpose initially.  This is because by their articles of association, an interested director is not allowed to vote in board meetings that the director has an interest in or be counted in the quorum of the meeting.  As the 1^st and 7^th respondents only had two directors at the time and one of them being Ms Lo, they were unable to convene a board meeting.  Nevertheless, they have been advised by their present solicitors to wait for the final determination in the High Court Action on the dispute raised by Ms Lo over the beneficial ownership of the deceased’s shares and to abide by the direction of the court in the High Court Action regarding the applicant’s request to be registered as a member.  To bolster the position of these respondents, an additional director was appointed on 14 April 2009 for the 1^st and 7^th respondents and they also held board meetings on 16 April 2009 in which resolutions were passed identical to those of the other six companies.

27.  Ms Lo’s claim as the sole beneficiary to the deceased’s estate raised in her counterclaim in the High Court Action has no bearing on the entitlement of the applicant to be registered as the administrator and successor in title to the deceased’s shares in the respondents.

28.  The law on this is well settled.  For these established authorities, I refer to Lord Sudeley v Attorney-General [1897] AC 11; Commissioner of Stamp Duties (Queensland) v. Livingston [1965] AC 694 at 707 to 708 and 711; Marshall v. Kerr [1995] 1 AC 148 at 165E to 166E; and In re Hayes’ Will Trusts [1971] 1 WLR 758 at 764G to H.

29.  It would suffice to quote the relevant passage of Ungoed Thomas J in the last cited case:

“It is well established that the estate being administered by a personal representative is the personal representative’s property.  Of course he has fiduciary duties with regard to it and their performance will be secured by the court; and he may be liable for breaches of his fiduciary duties.  But no legatee, devisee or next-of-kin has any beneficial interests in the assets being administered.”

30.  During the period of administration of the estate, Ms Lo has no legal or equitable interest in the assets comprised in the estate.  Her only right, as a putative legatee, is to have the estate duly administered by the administrator in accordance with law. Whatever property that comes to the applicant by virtue of his office as the administrator comes to him in full ownership, without distinction between legal and equitable interest, and the whole property is his.  He is to hold the property for the purpose of carrying out his duties and functions as the administrator, subject to the direction of the court.

31.  The principles of proprietary estoppel and constructive trust relied on by Mr Remedios and Mr Tommy Lo, who appeared for Ms Lo, to found Ms Lo’s claim for her alleged interest in the estate, do not alter the above position.

32.  There are provisions in the articles of association of each of the respondents to the effect that:

(1)  in case of the death of a member, the legal personal representative shall be the only person recognised by the company as having any title to the deceased member’s interest in the shares;

(2)  any person becoming entitled to a share in consequence of the death of a member may, upon such evidence being produced as may from time to time properly be required by the directors and subject as thereinafter provided, elect to be registered himself as holder of the share or to have some person nominated by him registered as the transferee, but the directors shall, in either case, have the right to decline or suspend registration as they would have had in the case of a transfer of the share by that member before his death; and

(3)  any person to whom the right to any shares in the company has been transmitted by operation of law shall, if the directors refuse to register the transfer, be entitled to call on the directors to furnish within 28 days a statement of the reasons for the refusal.

33.  Mr Remedios has referred the court to a provision in the articles of association of each of the respondents providing that the directors may, in their absolute discretion, decline to register any transfer of shares without assigning any reason.  I do not think this provision is of relevance.

34.  Firstly, there is the provision in section 69(1A) of Cap. 32, the effect of which, as mentioned earlier, is that as no statement of reasons for refusal to register the transfer of the deceased’s shares to the applicant was received by the expiry of the 28-day period on 27 January 2009, on the expiration of that period, each of the respondents is obliged to register the transfer forthwith.

35.  Secondly, the directors of all of the respondents have since disclosed their reasons for refusing to register the applicant in the minutes of the board meetings held on 2 and 16 April 2009.  The court is entitled to take those reasons into account (Tett v. Phoenix Property Company Limited [1984] BCLC 599 at 621).

36.  There is no valid legal basis for disputing the applicant’s entitlement to be registered as a member as the administrator of the estate of the deceased.  He is the only person having title to the deceased’s shares in the respondents during the administration of the estate, as established by the well settled principles of law, regardless of whether Ms Lo is or is not the sole beneficiary of the deceased’s estate.  Pending the due administration of the deceased’s estate, the full ownership of the deceased’s shares comes to the applicant by virtue of his office as administrator. There is no question of conflicting claims of beneficial interests over the shares of the deceased vis-a-vis the applicant as the administrator.

37.  As for Ms Lo’s concerns that the applicant would wrestle control of the respondents from her once he is registered as a member, or that he might upset the status quo of the business of the respondents, the applicant’s conduct as the administrator is subject to the directions of the court.  Likewise, the fact that the applicant had removed a computer laptop which belonged to one of the respondents, certain documents of the deceased, cash and jewellery of the deceased without Ms Lo’s knowledge or consent is irrelevant for the purpose of the present application.  If there is misconduct of an administrator in the administration of an estate, there is avenue to address such complaints by an interested party.  I reject also Mr Lo’s contention it is not necessary for the applicant to be registered as a member of the respondents to administer the estate.

38.  I have come to the view that the decision reached by the board of directors in each of the respondents not to register the applicant as a member was not reached bona fide and they did not have good grounds for their decision.  The applicant has discharged the burden of proving that the directors have not exercised their powers bona fide in the interests of the company.  The case for rectification of the share register of each of the respondents is clear.

39.  This is an appropriate case to exercise my discretion in the applicant’s favour.  I make an order in terms of paragraphs 1 to 8 of the originating summons.

40.  Ms Lo’s application for joinder as a respondent in the originating summons is dismissed.  Her basis of seeking relief, based on her claim as the sole beneficiary of the deceased’s estate, is misconceived.

41.  Costs of both applications should follow the event.  I am not persuaded by Mr Dennis Kwok that the circumstances here are so special to justify an order for indemnity costs, so an order for costs would be made on a party-and-party basis.

42.  I order the costs of the originating summons to be paid by the respondents to the applicant, and that Ms Lo is to pay the costs of the applicant in her summons for joinder.