LUI YUEN SZE v. CHANG CHING YUEH AND ANOTHER

HCMP 4823/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4823 OF 2001

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D E C I S I O N

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1. On 4 September 2001, the present petition was presented by the Petitioner for what is commonly known as a "buy-out" by the 1st Respondent of shares registered in the 2nd Respondent Company in the name of the Petitioner.

2. On 3 January 2002, the Petitioner issued the present application for an injunction against the 1st Respondent from buying the land owned by a subsidiary of the Company without the consent of the Petitioner until the final conclusion of the proceedings. Another remedy sought in the present application is for the 1st Respondent to deliver up company documents and the company seal, and the third relief sought is for the appointment of a valuer for the shares of the Company.

3. The matter arises in this way. In March 1994, the Company was incorporated. As far as the registered shareholding is concerned, the Petitioner and the 1st Respondent are equal shareholders. As far as the board of directors is concerned, they are the only two members. The Company had two subsidiaries: one called Xiamen Wangjiang Realty Development Co. Limited and another one called Far East (Xiamen) Realty Development Co. Ltd which I will refer to respectively as "WRD" and "FRD". FRD was the developer of certain land in Xiamen called the Golden City Project and WRD was established for the development of a project called the New Garden City Project.

4. In May 1996, the Petitioner went on a trip aboard and it is said that during that period, the 1st Respondent took the company documents and the company seal away from the office of the Company, and announced the expulsion of the Petitioner from the Company although he has remained a director.

5. In June 1996, it would appear that FRD owed its creditors some RMB93 million, and also around that time, the town planning authorities in Xiamen required a change of plans in the development of Golden City, with the result that the originally planned development had to be stopped. It is also alleged that round about this time, the 1st Respondent excluded the Petitioner from the management of the Company and its subsidiaries.

6. Matters developed and eventually in February 2000, the creditors of FRD obtained a judgment in the PRC against FRD and obtained an order freezing the development known as Golden City.

7. At about that time, a court in the PRC ordered the direct sale of that land and project to a company called Sino Ascent, which is controlled by the 1st Respondent, at a price of RMB49 million. As a result of that order for direct sale, the Petitioner took various judicial and extra-judicial steps in the PRC, and the latest development (as is agreed by both parties) is that in July 2001, a court in the PRC has ordered that in place of the direct sale, the Golden City Project should be sold to the highest bidder by way of public auction. That auction apparently has not yet taken place, but the Petitioner alleges that the 1st Respondent has continued to attempt to persuade the judicial authorities in the PRC to sell the land by way of direct sale, rather than by way of public auction .

8. Be that as it may, it is common ground between the parties that the existing state of affairs as far as the enforcement of that judgment against FRD is concerned is that the court has ordered a sale by public auction.

9. That being the case, I cannot see why this court should give relief in the form of the injunction sought by the Petitioner, even after the Petitioner has at the hearing amended the relief sought by adding the words "by way of direct sale" in paragraph 3 of the summons, so that as amended, the relief sought is that "the 1st Respondent (whether by herself or by any company under her control or direction, and/or in which she has an interest) be restrained by injunction from buying the land owned by FRD by way of direct sale without the consent of the Petitioner until the final conclusion of these proceedings." The sale of that land is the sale of land situate outside the jurisdiction of this court. It is a sale ordered by a court in the PRC. To suggest that the court here should make an order restraining direct sale when the present court order is for sale by public auction makes the present application even less meritorious, because the question is wholly academic. Therefore, I have no hesitation dismissing the application under paragraph 3 of the summons dated 15 January 2002 even as amended.

10. The second application is for the appointment of an expert valuer to prepare a common valuation report of the share price of the Company. As far as this is concerned, the clear original objection to this order is that it may well be a complete waste of costs, because the main point of the 1st Respondent is that the Petitioner has always held his shares in the Company as her trustee and he has no interest at all in the Company. If she is right, then there is no question of a "buy-out" and therefore there would be no need at all for any valuation.

11. That point has been dealt with today by Mr Chan, by suggesting that his client would first pay for the valuation and those expenses could then be made costs in the cause, such that if the Petitioner succeeds, then this valuation report could be referred to, but if the Petitioner fails, then there would be no waste of costs as far as the 1st Respondent or the Company is concerned. Mr Au for the 1st Respondent has not shown how there would be any prejudice to the 1st Respondent if the costs are provided for in this way. Therefore, I would be prepared to order that there should be a valuation of the shares in the Company to be performed by an accountant to be appointed by the President of the Hong Kong Society of Accountants, or any valuer agreed by both parties.

12. Thirdly, the Petitioner has sought an order that the 1st Respondent should return all company documents, company chops and the company seal of the Company in her possession to the Company for retention by the Company Secretary at the registered office of the Company. The Company Secretary is apparently a company run by certified public accountants who had been agreed upon by the Petitioner and the 1st Respondent in the past.

13. It would appear clear to me that in the usual course of things, the company documents and the company seal ought to be kept at the registered office of the Company. Under section 95 of the Companies Ordinance, the register of members ought to be kept at the registered office. Under section 119A, minutes of meetings ought to be kept at the registered office and under section 121, books of accounts of the Company ought to be kept at the registered office.

14. There is no further allegation by the 1st Respondent through his counsel today that this Company Secretary is in any way tainted by any association with the Petitioner, or would act in any way other than impartially. Mr Au's submission was simply that there was no evidence that the Petitioner would suffer any risk if the order were not made and that the order was akin to a mandatory injunction.

15. In my view, if evidence of risk is required it is clear that it is a director's statutory obligation to ensure that the books of the Company are property kept and it is a director's statutory obligation to cause and procure annual returns to be filed, which would require access to the company documents. To suggest that every time the Petitioner wants to access the company documents, he should have to ask the 1st Respondent is unrealistic, in a situation where the parties are clearly deadlocked and are in serious dispute with each other to the extent that it has been suggested that reports have been made to the authorities in the PRC resulting in the incarceration of one or the other of them; it is clear that any request for access to the company documents would not be a matter of mere formality.

16. Therefore in my view, upon the undertaking given by the Petitioner that he also should return any company documents or company chops to the registered office of the Company, I would order that the 1st Respondent do return all company documents, company chops and the company seal of the Company to the Company Secretary to be kept at the registered office of the Company, such delivery up to be made within 7 days from the date of this order.