TSANG WAI LUN v. WAN SIU FONG

HCMP 1359/2022

[2024] HKCFI 885

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1359 OF 2022

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BETWEEN

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REASONS FOR DECISION

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1.  This was the hearing of the application (“Joinder Application”) by the Defendant (“Wan”) by her Amended Summons refiled on 23 March 2023 seeking to join 9000 Limited (“the Company”) as the 2^nd Defendant in this set of proceedings commenced by the Plaintiff (“Tsang”) by his Originating Summons filed on 20 September 2022 (“the OS”).

2.  The application was opposed by Tsang who appeared by counsel Mr Chan. Mr Poon of counsel appeared for Wan.

3.  The Company adopted a neutral stance and did not object to being joined as a party, but it wished, after being joined, to present its case against the registration of the transfer of Share No 3 (defined below) to Tsang.

4.  At the conclusion of the hearing, I dismissed the Joinder Application, and having heard submissions on costs, ordered costs be paid by Wan to Tsang taxed only on party-and-party basis, and not on indemnity basis as asked by Tsang, to be summarily assessed on papers. The reasons for my ruling on the basis of taxation were given orally then.

5.  These are my reasons for dismissing the Joinder Application.

Background, the disputes, and the relief sought in the OS

6.  For the present purposes, it suffices to set them out broadly.

7.  Tsang and Wan are siblings. Wan is the elder sister and Tsang the younger brother.

8.  The Company was incorporated in April 2010. It holds properties acquired by the parties’ parents. Its entire shareholding consists of 2 shares, one registered in the name of Wan, and the other (“Share No 3”) originally registered in the name of Tsang.

9.  On 16 April 2013, Share No 3 was transferred by Tsang to Wan. According to Tsang, he transferred Share No 3 to Wan on a bare trust for him, as evidenced by a Declaration of Trust and a Nominee Shareholding Agreement. Since the transfer, Wan became the sole shareholder and director of the Company.

10.  Despite requests from Tsang since 2017, Wan refused to transfer Share No 3 back to Tsang. Numerous correspondences were exchanged between the parties’ solicitors on the matter.

11.  In the correspondence Wan accepted that she held Share No 3 on trust and said that she was willing to transfer Share No 3 to the “true beneficiary”, but her position has been that she was accountable to the “true beneficiary” of Share No 3, and she claimed that for one reason or another Tsang has failed to identify the true beneficiary.

12.  In September 2021, Tsang by email sent to the Company an Instrument of Transfer of Share No 3 to himself, which apparently was signed by Wan some time ago when Share No 3 was transferred by Tsang to her. The registration of the transfer was refused by the board of directors of the Company (“the Board”) for the reason that the Instrument of Transfer was a copy and not the original.

13.  A differently constituted Board (then consisting of Wan and two directors appointed presumably by Wan on 16 May 2022) further held a meeting on 26 May 2022 and resolved, among others, that the Board, pursuant to Article 7 of the Articles of the Company, would not recognize Share No 3 as being held on trust for Tsang, and that for the avoidance of doubt, even Tsang presented a proper instrument of transfer transferring Share No 3 to him, the Board would exercise its discretion to decline registration of the same.

14.  As said, on 20 September 2022, the OS was issued seeking relief pursuant to section 52 of the Trustee Ordinance Cap 29. As contentions were mounted by Wan touching on the nature and ambit of the relief, it is convenient here to set out the precise terms of the order sought:

“ (1) An order that the right to transfer or call for a transfer of the one Share numbered 3 (“Share”) in the capital of 9000 Limited, held on trust by the Defendant in favour of the Plaintiff, be vested in the Plaintiff;

(2) An order that the Defendant do take all necessary steps (including the execution of any necessary documentation, such as an instrument of transfer) to transfer the Share to the Plaintiff within 7 days of the date of the order to be made herein; ”

15.  On 30 June 2023, the other 2 directors of the Board resigned. On respectively 10 October 2023 and 15 February 2024, two new directors were respectively appointed.

Discussion

16.  This is a rather unusual joinder application in that it is the Defendant Wan who insists that the Plaintiff Tsang should also sue the Company as a co-defendant.

17.  Wan is applying under O15 r6(2)(b) asking the Company be joined as a person

(a) “who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon” (O15 r6(2)(b)(i)); and/or

(a) “between whom the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine between him and that party as well as between the parties to the cause or matter.” (O15 r6(2)(b)(ii)).

18.  The principles relating to joinder are trite. The parties have no dispute over them. I don’t think it necessary to set them out here, save to mention that one pertinent and basic tenet, not disputed by Wan, is that “Prima facie, the plaintiff is entitled to choose the person against whom to proceed, and to leave out any person against whom he does not desire to proceed” (§15/6/6 Hong Kong Civil Procedure 2024).

19.  Also not disputed, as Mr Poon confirmed at the hearing after some discussion, are that:

(a) The issues in the OS between Tsang and Wan are (i) whether Wan has been holding Share No 3 on trust for Tsang or on trust, as she alleged, for the “true beneficiary” to whom only she was accountable, and (ii) whether or not Tsang is entitled to direct Wan as trustee to perform certain act to effect the transfer of Share No 3 back to Tsang, and if so, whether Tsang is entitled to the relief sought;

(b) The issue now apparent in dispute between Tsang and the Company is whether, even if Tsang prevailed against Wan on the main issues above mentioned, the Board was and is entitled to refuse the registration of the transfer of Share No 3 from Wan to Tsang, based on Article 7 or otherwise;

(c) The said issues in the OS between Tsang and Wan and the said issue between Tsang and the Company as to whether the Company can refuse registration are 2 distinct sets of issues; and

(d) Tsang may by a 2-stage process achieve the ultimate registration of Share No 3 into his name by (i) first pursuing this OS as against Wan, and (ii) then, if necessary, commencing another proceedings as against the Company, say, under section 152 of the Companies Ordinance Cap 622, to seek an order of the Court for registration of the transfer.

20.  Against such background, the main contention advanced by Mr Poon for the joinder, so far as this Court understood it, ran thus. Paragraph 2 of the relief now sought by Tsang in this OS (“Order 2”) is “an order actively procuring the Defendant to transfer the Share to him”[1], and “the Company was the only party who could register the Plaintiff as a shareholder of the Company and the Company is entitled to refuse registration”[2], and therefore the Company should be joined as a proper and necessary party. In the course of submission, Mr Poon also seemed to suggest that Wan was also a director of the Company, and as Order 2 orders her to “procure the transfer”, Wan would therefore be thereby ordered, qua director, to “procure” the registration of the transfer, when the Company should be the entity against whom such order be sought.

21.  With respect, such contention was misconceived. Though the correspondence might show that Tsang ultimately would seek the registration of himself as holder of Share No 3, the affirmation evidence filed in this OS and the terms of Order 2 clearly showed beyond peradventure that the subject matter of the dispute in the OS was the beneficial ownership of Share No 3, and Tsang is here suing Wan as the trustee of the bare trust of Share No 3 for the transfer back to him of the bundles of rights embodied in Share No 3. Thus, I reject this contention.

22.  Mr Poon then submitted that Tsang might seek an order that Wan should so “procure” as a director of the Company under paragraph 3 of the OS in which Tsang sought “further orders or directions as the Court think fit”. It was clearly a mere fanciful conjecture as nowhere was there notice to Wan by Tsang or mention by Tsang that he would be seeking such an order. Upon the Court’s enquiry, Mr Poon further confirmed that the Notice of Appointment to Hear Originating Summons filed by Tsang did not specify any such further order to be sought. This is thus a non-issue.

23.  In the course of submission, Mr Poon suggested that in order to decide the main issues of this OS as mentioned in paragraph 19(a) above, the Court need to come to a determination as to whether the Board has properly refused the registration of the Instrument of Transfer submitted by Tsang by email, and thus the Company need to be joined. After some discussion, he withdrew the suggestion, and in my view, rightly.

24.  Mr Poon further submitted that the joinder would avoid multiplicity of proceedings in that the 2-stage approach now preferred by Tsang could have been achieved by Tsang suing Wan and the Company together in this OS. I do not think that consideration has much, if any, force or validity here. In this OS, Tsang pursues against Wan concerning the alleged trust. In a later proceeding, if any at all, Tsang would be pursuing against the Company over the dispute on registration. As already noted, the respective causes and issues are distinct, and indeed, so are the respective opposing parties.

25.  I also accept Mr Chan submission that similar, if not identical, vesting orders of shares have been routinely granted by the Court without joining the company in question (eg. 廣西華錫集團股份有限公司 v Cheung Cho Tik HCMP 329/2011, unrep., 5 September 2011; 中國遠洋運輸集團總公司 對 顧馥山 HCMP 1861/2012, unrep., 6 February 2013; Yick Fung Shipping and Enterprises Co Ltd v Huang Bing HCMP 851/2014, unrep., 8 December 2014).

26.  In my view, it is patently clear that “the cause or matter” (within the meaning of 15 r6(2)(b)) the subject matter of this OS and the relief sought do not concern the Company, and that the dispute raised by the Company over its intended refusal to register the transfer is a different “cause or matter”.

27.  As Wan could not bring her Joinder Application within O15 r6(2)(b), I concluded that it was Tsang’s entitlement to choose how to ventilate his rights within the available procedures, including by a “2-stage process”, and there was no reason or basis for the Court to order a joinder which would effectively be forcing Tsang, against his wish and own reasons, to litigate with the Company over a distinct and different cause at this point.

28.  For these reasons, I dismissed Wan’s Joinder Application.