STERLING PAYMENT SERVICES LTD v. THE REGISTRAR OF COMPANIES AND ANOTHER

HCMP 18/2021

[2021] HKCFI 2047

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 18 OF 2021

________________________

________________________

________________________

________________________

REASONS FOR JUDGMENT

________________________

1.  This is an application by Sterling Payment Services Limited (the Company)  for an order to remove a Notice of Change of Company Secretary and Director, a form ND2A, which was filed with the Companies Registry on 27 July 2020 by the second Respondent Krasauzkaz Konstantin.

2.  The application was heard on 7 July 2021 and I made an order granting the application on the same day, with reasons to follow.  These are my reasons.

3.  The Company says that the ND2A was filed fraudulently because R2 has no relationship with Company at all. 

4.  The Company operates a money service business, and has licences from the relevant authorities within Hong Kong to do so. Under the Anti Money Laundering and Counter Terrorism Financing Ordinance (Cap 615)  any change in the directorship of a licence holder needs to be approved by the Commissioner of the Customs and Excise Department of the Government of the Hong Kong SAR. 

5.  The Company is concerned that R2 may seek to use the information contained within the ND2A he filed in an attempt to pass himself off as having permissions to trade in Hong Kong as a money service business.

6.  The Company was incorporated on 2 November 2016 by a Mr Charyev Viacheslav, who was the sole shareholder and the former sole director.  Its purpose was to operate a money service business.  It obtained a licence to do so on 14 February 2017.  In March 2018 Mr Viacheslav transferred 5100 ordinary shares in the Company to Europay, a company then solely owned by Mr Viacheslav in the Czech Republic, albeit subsequently sold, essentially for the purpose of using Europay’s SWIFT Code.  In November 2019 the Company obtained its own SWIFT code, and the shares were transferred back to Mr Viacheslav.

7.  By a board resolution dated 1 August 2020, Mr Viacheslav resigned as the Company Director and Mr Danny Huizink was appointed as a director, both with effect from 6 August 2020.  Mr Huizink’s directorship was approved by the Commissioner for Customs and Excise.

8.  On 3 August 2020 a form ND2A was presented, by the newly appointed company secretary, Bastion Corporate Services, to the Companies Registry to reflect those changes.  However, the Company Registry had previously received a form ND2A replacing Mr Viacheslav with R2, and hence it was concerned that the new ND2As were based on incorrect information as to the existing directors of the Company.

9.  Various negotiations and investigations have been undertaken, and various confirmatory documents have been provided to the Companies Registry by the Company, by the Company Secretary and by the Money Services Supervision Bureau of the Customs and Excise Department, in an attempt to overcome the problems that have been identified by the false ND2A.  However, it has proved necessary for the Company to make this application in an attempt to resolve matters adequately.

10.  The Originating Summons was served on R2 on 26 April 2021 by way of substituted service pursuant to the order permitting substituted service granted by Mr Recorder S Wong SC dated 13 April 2021.  On 10 May 2021, R2 was served, also in the manner directed as being substituted service, with a Notice of Hearing identifying that the hearing of the Originating Summons would take place on 7 July 2021 at 10.00 am.

11.  R2 has not made any attempt to acknowledge service, or to respond in any manner to the documents that have been served on him.  He has not given any indication of any defence, or identified his position on the application to rectify the Company Register.  I am satisfied that all the papers have been properly served and that it is appropriate to proceed with the hearing of the Originating Summons.

12.  Having regard to the evidence that has been put before me I am satisfied that R2 has no relationship with the company and did not have any entitlement to file the ND2A that was filed.  I am unable to make any assessment of the reasons why it was filed, but I accept that there is at least the possibility that it was done in an attempt to pass off as being a director of a company that had the relevant licences in Hong Kong to conduct a money services business.  Consequently, I am satisfied that the ND2A that was served, was served without the Company’s authority, and is factually inaccurate.

13.  Under s42(1)  of the Companies Ordinance (Cap 622):

“The Court may, on an application by any person, by order direct the Registrar to rectify any information on the Companies Register or to remove any information from it if the Court is satisfied that:

(a)  the information derives from anything that-

(i)  is invalid or ineffective; or

(ii)  has been done without the company’s authority; or

(b)  the information-

(i)  is factually inaccurate; or

(ii)  derives from anything which is factually inaccurate or forged.”

14.  The question then arises as to whether the information ought to be rectified or removed.

15.  The principles have been summarised by Linda Chan J in Wang Zhihua v Regsitrar of Companies [2020] HKCFI 2873 at [22]:

“(1)  Section 42 (4)  prescribes and restricts how the court’s power to order removal of information may be exercised. Removal is to be ordered only if (i)  the plaintiff has shown that registration of a document showing the rectification is not good enough; the continuing presence of the incorrect information will cause material damage to the company; and (ii)  the company’s interest in removing the information outweighs the interest of other persons in the information continuing to appear on the register.

(2)  The fact that the information is incorrect, or relates to an invalid or ineffective transaction, or has been filed without proper authority of the company in question or that a document is a nullity or is one that should never have been registered, is not in itself a sufficient reason for removing it as opposed to rectifying it.

(3)  The order made by the court is to be registered, so that the basis of rectification)  or removal)  ought to be apparent from an inspection of the record.”

16.  The threshold for removal rather than rectification is not high.  If there is a prospect of damage being caused to the company by the information on the register that in itself would justify removal: Forever Up Holdings v Tong Yan Wa [2019] 5 HKC 478 per DHCJ William Wong SC at [16].  The continued presence of documents purporting to exclude the lawful persons from the management of the Company has been said to “obviously cause material damage to the Company”: Wong Wai Ping Jadie v Registrar of Companies [2018] HKCFI 2501 per DHCJ Dawes SC at [13].  That is particularly so if the company has on going operations. Linda Chan J described the problem in Chan Pui Sze v Perfect Star Credit Ltd [2021] HKCFI 674 at [42] as follows:

“(2)  All the salient information contained in the impugned document is incorrect. If the impugned documents were allowed to remain in the CR, even with the incorrect information crossed out or rectified, there is a real risk that the persons dealing with the Companies may question the identity of the shareholders and directors and insist that the Companies should provide further evidence to put the matter beyond doubt. This will only add to the time and expenses of the companies in dealing with their affairs.

(3)  The continuing presence of the incorrect information in the impugned documents will create uncertainty and confusion over the identity of the shareholders, directors and secretary of the companies as well as the location of the registered office.  It will cause material damage to the companies if they are left in such a confusing and uncertain state.”

17.  The only incorrect information in the impugned documents in this case is the identity of the director.  However, that is an important matter in the context of a company carrying on a money servicing business because the company needs to be licensed and the director needs to be approved by the Commissioner.  In my view to allow impugned document to remain on the register in those circumstances is likely to cause damage to the company, and furthermore runs the risk of confusion as to whether R2 is indeed, or was ever, approved by the Commissioner to be a director of a money servicing business.

18.  In all the circumstances I am of the view that the Form ND2A which was filed by R2 should be removed from the companies register.  I make an order in terms of paragraph 1 of the Originating Summons, save that the words dealing with rectification do not need to be included as I have ordered removal of the impugned document.

19.  I turn to address costs.  The Applicant has asked for costs to be paid by R2.  In its skeleton argument it asked for costs to be paid on an indemnity basis.

20.  This was an undefended application listed for 2 hours and which, in reality, took little more than 10 minutes to deal with as the court had read all of the papers.  There were no difficult points of law, and indeed nothing contentious about it at all other than that the court had to make an assessment on the evidence of whether the form ND2A was indeed filed by a person with no connection to the Company, and once satisfied about that, the court had to decide how best to exercise its discretion, in particular whether there should be rectification or removal of the impugned document.

21.  Practice Direction PD14.3 makes it clear that upon disposal of any application, cause or matter, the Court may make one of the following orders in respect of costs:

(1)  Summary assessment of costs;

(2)  Provisional summary assessment of costs;

(3)  Taxation of costs.

22.  Generally speaking, a summary assessment of costs will be conducted on the same day as the disposal of the substantive matter by the court, and by the judge who resolves the substantive issue.  The purpose of a summary assessment is to reduce the time and expense of proceedings, including the public resources that are required to proceed through to taxation.

23.  But for a summary assessment to be conducted on the same day that the Judge hears the substantive argument, it is necessary that the parties come to court armed with the relevant information.  The Practice Direction makes it clear how that is to be achieved. 

24.  In a short, uncontested, application, albeit by originating summons, I believe that it is incumbent on the applicant to act consistently with the underlying objectives set out in RHC Order 1A Rule 1.  In particular, to:

(1)  Increase the cost effectiveness of any … procedure;

(2)  To ensure that a case is dealt with as expeditiously as is reasonably practicable; and

(3)  To ensure that the resources of the court are distributed fairly.

25.  To that end, in such a case, I can see no justification for coming to court and simply asking for costs to be taxed.  A taxation will involve considerable court resources which will thereby be denied to others whilst they are engaged on the taxation in these proceedings.

26.  Equally, asking for a summary assessment to be conducted on paper, after the hearing involves further unjustified use of court resources.  The Court staff need to receive the submissions and pass them to the Judge, the files need to be reconsidered, and the Judge, who may well have moved on to other things by the time the papers on summary assessment have arrived, will then be required to re-familiarize themselves with the matter, and make an assessment on costs.  All of those things could and should easily have been done at the time of the original hearing, and that would not involve any additional use of court resources.

27.  In this case, none of the preparation work has been done.  No statement of costs had been prepared and the applicant had done nothing to assist the court to make a summary assessment.  When asked about costs, the applicant asked for its costs to be taxed.  When pressed about a summary assessment, the applicant requested that it be allowed to prepare one, and submit it to the court at a later stage.

28.  I was not prepared to allow that to happen in the circumstances of this case.  In my view there is no excuse for not having come to court prepared to address the question of costs in a way which would prevent further public resources from being engaged.  The Practice Direction ought to have been complied with, and the Applicant ought to have had regard to the underlying objective.  It should have been prepared, and asked for its costs to be summarily addressed.  In my view, in a case such as this it is not appropriate to engage further public resources on a taxation, or a summary assessment on paper after the event.  As a result, I made no order for costs.