Lo Kwong Hung and Others v. The Registrar of Companies

HCMP 1520/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1520 OF 2016

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J U D G M E N T

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1.I have before me an application to restore the company, Jensen Limited (“the Company”), to the Companies Register, pursuant to s 765(1) of the Companies Ordinance (Cap 622). The circumstances that have given rise to this application are perhaps unusual but can be shortly stated.

2.The Company had, in 1999, apparently through a mortgagee’s sale, acquired certain land including two pieces of land in Yuen Long, namely Lot No 3009 and Section B of Lot No 3010 in Demarcation District 104, Yuen Long (or, more accurately, the leasehold under the relevant Government lease) (“the Land”).  Subsequently, the Company found that Mr Lo Kwong Hung and members of his family were in occupation of the Land and duly made demands to them to deliver up vacant possession. 

3.In response, in June 2005, Mr Lo’s solicitors wrote to the Company asserting that Mr Lo and his family had been in occupation of the Land continuously since around 1967.  They claimed to have acquired possessory title to the Land by way of adverse possession. 

4.On 2 November 2006, Mr Lo and his brother Mr Lo Kwong Tai, who together are the two applicants in these proceedings, instituted a civil action in the District Court against the Company as the sole defendant, asserting that they had been in possession of the Land adverse to the registered owners since 1967 and that, by operation of ss 7 and 17 of the Limitation Ordinance (Cap 347), they had acquired all the right, title and interests of and in the Land.  They claimed a declaration to that effect and an order that all the estate, right, title and interests in the Land be vested in them, and costs.  The District Court writ was served on the Company at its registered office on 3 November 2006.  No acknowledgement of service or notice of intention to defend was entered by the Company. 

5.Before the Lo brothers could obtain judgment, however, on 14 September 2007 the Company was struck off the Companies Register and dissolved as from the publication of the gazette notice of that date.  Its name was struck off pursuant to s 291 of the predecessor Companies Ordinance (Cap 32), the Company having failed to file any proper returns after the annual return for 2003. 

6.The Lo brothers now wish to have the Company’s name restored to the Register in order to proceed with their action against it and obtain judgment.  Without a restoration order, by operation of law all the Company’s property and rights in the Land have become and will remain vested in the Government as bona vacantia: see s 292 of the predecessor Ordinance.  

7.The twist is that the Government is also the lessor of the Land, and Mr Chain, who appeared for the applicants, submitted that since a person cannot be both landlord and tenant of the same premises at the same time, the leasehold is merged in the reversion: Rye v Rye [1962] AC 496, 513.  Further, it has been held in Fairweather v St Marylebone Property Co Ltd [1963] AC 510 that while dispossession of a lessee by a squatter for the prescribed number of years may extinguish the lessee’s title, it does not set time running against the lessor, and that time only starts to run against the lessor when his estate falls into possession: Chung Ping Kwan v Lam Island Co Development Ltd [1997] AC 38, 46.  Thus a lessor can eject a squatter if the lessee surrenders the lease to the lessor even after the limitation period has expired as against the lessee. 

8.Mr Chain submitted that, by operation of the rule in Fairweather v St Marylebone Property Co Ltd (assuming it remains good law in Hong Kong), it is at least arguable that the applicants would not have acquired a possessory title good against the Government as lessor, against whom time only started to run in 2007 when its estate fell into possession.  In other words, the dissolution of the Company and the consequent vesting of the Land as bona vacantia in the Government, resulting in a merger of the leasehold into the reversion, operated with like effect as a surrender of the lease by the Company to the Government. Having heard no contrary argument, I am prepared to assume, for present purposes, that this is the result of the confluence of the bona vacantia provision and the rules in Rye and Rye and Fairweather v St Marylebone Property Co Ltd.  Hence the present application. 

9.The Originating Summons was served on the former members and directors of the Company but there was no response except for a letter from a registered shareholder who stated he was only a nominee and had no instruction to take any action.  The Registrar of Companies (who represents the Government’s interests in relation to bona vacantia: see Liu Yiu Keung Stephen v Registrar of Companies (unrep, HCMP 1098/2004, 11 June 2004)) has highlighted an issue in relation to the standing of the applicants, which I deal with below, but has otherwise taken a neutral stance. 

10.S 765 of the Companies Ordinance (Cap 622) provides as follows:

“(1) Where a company’s name or a company has been struck off the register under section 291 or 291A of the predecessor Ordinance, and the company is dissolved under that section, an application to the Court for the restoration of the company to the Companies Register may be made by a person who —

(a) was a director or member or creditor of the company; and

(b) feels aggrieved by the striking off.

(2) Where a company has been deregistered, and is dissolved, under section 291AA of the predecessor Ordinance, an application to the Court for the restoration of the company to the Companies Register may be made by a person who feels aggrieved by the deregistration.

(3) Subsection (4) applies if —

(a) a company’s name has been struck off the Companies Register under section 746, 747 or 748, and the company is dissolved under that section; or

(b) a company has been deregistered, and is dissolved, under section 751.

(4) An application to the Court for the restoration of the company to the Companies Register may be made—

(a) by a person who was a director or member or creditor of the company; or

(b) by any other person, including the Government, who appears to the Court to have an interest in the matter.”

11.Since the Company’s name had been struck off under s 291 of the predecessor Ordinance, the applicable provision for restoration is s 765(1).  The issue to which the Registrar has quite properly drawn attention is whether the applicants may be regarded as “creditors” of the Company within the meaning of s 765(1).

12.It will be noted that the equivalent wording in the new Companies Ordinance (Cap 622) has been changed.  Where a company is not in operation, its name may be struck off the Register under ss 744-746.  In such a case s 765(4) is applicable in relation to the restoration of the company to the Register.  Under this sub-section, the application may be made not only by a director, member or creditor of the company, but also by any other person “who appears to the Court to have an interest in the matter”.  As the Company was struck off under s 291 of the predecessor Ordinance, however, the applicants have to show themselves to be a person who was a director or member or creditor of the Company and feels aggrieved by the striking off.  Aggrieved they may well feel, but are they creditors of the Company?

13.S 765(1) is derived from part of s 291(7) of the predecessor Companies Ordinance (Cap 32) which likewise provided that “if a company or any member or creditor thereof feels aggrieved by the company having been struck off the register, the court on an application made by the company or member or creditor…” may order the name of the company to be restored to the register.  S 291(7), which was present in the first iteration of the Companies Ordinance when it was enacted in 1933, was in turn modelled on s 295 of the (UK) Companies Act 1929. 

14.Despite counsel’s thorough research, no relevant legislative materials have been found that shed any light on the meaning of the term “creditor” in that provision in either the (UK) Companies Acts or in the successive Companies Ordinances of Hong Kong. 

15.There are cases, however, in which the provision had come before the courts and the meaning of the word “creditor” received attention.  In In re Harvest Lane Motor Bodies Ltd [1969] 1 Ch 457, the question arose as to whether a person who had a personal injury claim for damages against a company was its “creditor” for the purposes of an application to restore the company under s 353 of the (UK) Companies Act 1948 (the equivalent of s 295 of the 1929 Act).  In holding that the applicant was a creditor, Megarry J stated as follows (at p 462C-G):

“Accordingly, I find myself in the position that although the authorities show something of a tendency to construe the word ‘creditor’ widely, there is no authority squarely in point on the issue that I have to decide here. It therefore seems to me that I must go back to the wording of section 353 (6) of the Act of 1948 to see if I can detect in it any tendency to require the somewhat protean word ‘creditor’ to be construed widely or narrowly. In my judgment the section contains a sufficient indication that ‘creditor’ ought to be construed widely. It begins with the words: ‘If a company or any member or creditor thereof feels aggrieved by the company having been struck off the register ...’ The subsection is thus concerned with a grievance on the part of some person, whether a company or a member or a creditor. Here we have the case of a petitioner who, at the time when the company was struck off, had an action in being against the company which was rendered ineffective by the disappearance of the company from the register. Where one is concerned with those who might feel a legitimate grievance because a company has been struck off, it seems to me that one should look somewhat generously at the word ‘creditor’ which precedes the phrase ‘feels aggrieved.’

…

In short, I think it would be wrong to construe the word ‘creditor’ narrowly; and in refusing to do so I feel comforted by the approach indicated by so great a master of equity as James VC in In re Telegraph Construction Co.  Accordingly, in my judgment the word ‘creditor’ is wide enough to embrace the petitioner in this case, and as it is plainly just to restore the company’s name to the register the petition therefore succeeds.”

16.In City of Westminster Assurance Co Ltd v Registrar of Companies [1997] BCC 960, a company had leased commercial premises from a landlord and the company’s holding company had guaranteed the rent and other liabilities.  The company assigned the lease to a third party in 1979 and it was subsequently assigned several times further.  The company then became dormant and was eventually struck off the register for failure to file accounts.  Subsequently, the then tenant of the premises defaulted in the payment of rent.  The landlord discovered that the company had been struck off when it sought payment of the arrears from the company.  Upon a demand being made on its guarantee, the holding company argued that the company had ceased to exist before any rent fell into arrears and therefore the guarantor’s liability had terminated.  The landlord accordingly applied under s 653 of the Companies Act 1985 (which was the equivalent of s 295 of the 1929 Act) to have the company restored.  In the course of his judgment upholding the restoration order made by Lindsay J, Millett LJ said:

“S 653 may be invoked only by the company or a member or creditor of the company who is aggrieved by the company having been struck off the register. It is plain that the legislative policy which limits the persons who may apply for the company to be restored to the register to the company itself or to members or creditors of the company is to confine the application to persons who can claim to be legally prejudiced in some way by the dissolution of the company. Persons who have a claim to the distribution of assets which on dissolution have vested in the crown as bona vacantia are prejudiced by the disappearance of the company; they need to have some means of having the company restored to the register so that they may obtain a distribution of the assets in question. Equally, those who wish to enforce a liability of the company need to have means to restore the company to the Register so that they can enforce its liability. That does not, in my judgment, depend upon whether the applicant for restoration of the company had an existing course of action when the company was struck off the register. It depends upon whether the company was then subject to a liability, whether contingent or perspective, which a creditor might need to enforce. That is the present case, since at the date of striking‑off the company was subject to a contingent liability to the respondent.”

17.On the guarantor’s argument that the application was made for an ulterior purpose, Millett LJ said:

“The Respondent’s object is to enforce a liability against a guarantor. In my judgment that is not outside the scope of the section. The section is intended to provide the remedy for a person who has a claim, whether against the company or a third party, which can be enforced only if the company is restored to the register. He is a person who, being a creditor of the company, has a legitimate grievance if the company is dissolved and he is no longer able to enforce the liability. It does not matter whether he seeks to enforce the claim against the company itself or whether he needs to establish the company’s liability in order to make a claim against a third party such as the company’s insurer or guarantor.”

18.Quite plainly the applicants here are persons who can claim to be legally prejudiced by the dissolution of the Company.  They had a claim – and there is nothing to suggest it is not a bona fide claim – for adverse possession and therefore extinction of title against the Company in relation to the Land.  Because of the dissolution of the Company, that claim is liable to be defeated, with the result that they are liable to be turned out at any time now by the Government, unless perhaps they can persuade the courts that Fairweather should no longer be recognised as part of Hong Kong law. 

19.Having regard to the purpose of the provision and to the authorities, I accept that the word “creditor” in s 765(1) should be read widely.  Still, the word does not mean just whatever one chooses it to mean.  The ultimate question, as it seems to me, is whether the word, however liberally construed, is capable of encompassing persons in the position of the applicants here, for the principle is that a court cannot attribute to a statutory provision a meaning which the language, understood in the light of its context and statutory purpose, is incapable of bearing: HKSAR v Lam Kwong Wai (2006) 9 HKCFAR 574 at §63; T v Commissioner of Police (2014) 17 HKCFAR 593, §195.

20.The word “creditor” itself is a fairly broad and general term.  As was said in Gibb v Lombank Scotland Limited 1962 SLT 288 at 290:

“The issue turns upon the meaning to be given to the word ‘creditors’. I think that this word is one which is capable of a certain flexibility of meaning according to the context in which it is used. It is not a word of rigid and fixed meaning defined by authority. No doubt the limits of meaning to be given to it when used in particular statutes have received judicial definition. This fact itself is an illustration that the word is one of varying content.”

This was echoed by Megarry J when he described the word “creditor” as a “somewhat protean” word in In re Harvest Lane Motor Bodies Ltd (see §15 above).

21.The conventional meaning of “creditor” in company law, however, is someone with a pecuniary claim against the company; see, for example, the commentary in Buckley on the Companies Acts (14^th ed), vol 1, page 469, on the provision dealing with schemes of arrangement with creditors.  Thus, in Re Lehman Brothers International (Europe) (in administration) (No 2) [2010] Bus LR 489, a case to which counsel had quite properly drawn my attention, the English Court of Appeal, refusing to sanction a scheme of arrangement, held that someone with a purely proprietary claim to assets held by or on behalf of a company is not its “creditor” within the meaning of Part 26 (in particular s 895) of the Companies Act 2006.  Thus Patten LJ stated (at §59):

“It is obvious that someone with a purely proprietary claim against the company is not its creditor in any conventional sense of that word. As a matter of ordinary language, a creditor is someone to whom money is owed. The use of this word with that meaning is a long-established and essential part of English company law.”

Similarly, Lord Neuberger MR said (at §75):

“I find it very hard to see how it could be said that a person (‘a beneficiary’) who has the beneficial interest in property (‘trust property’) held on trust by the company is thereby a ‘creditor’ of the company, even bearing the wide meaning that word is to be given in section 895.”

22.It seems to me this applies a fortiori to the applicants here.  They were persons in possession of property to which the Company held the legal title, and therefore prima facie subject to a claim by the Company for damages for trespass.  They contend that they had been in sufficiently long adverse possession of the Land, as a result of which any action by the Company would be time-barred and, in addition, the Company’s title was extinguished.  But this does not give them any claim for anything (let alone money) from the Company.  They might be entitled to declaratory relief (i) of a negative nature, that the Company could no longer bring any action against them for recovery of the Land, and (ii) of a positive nature, in respect of their right in the Land, but that would be a remedy in rem as against the world. 

23.It is to be noted that in the kind of case such as Lehman Brothers, the courts proceeded on the footing that the word “creditor” should be given as wide a meaning as possible: see Lehman Brothers §§74, 75; In re T & N Ltd [2006] 1 WLR 1728, §§40, 53; Re Alabama, New Orleans, Texas, and Pacific Junction Railway Co [1891] 1 Ch 213, 236-237.  In Re Midland Coal, Coke & Iron Company [1895] 1 Ch 267, 277, Lindley LJ said that he agreed that:

“… the word ‘creditor’ is used in the Act of 1870 in the widest sense, and that it includes all persons having any pecuniary claims against the company. Any other construction would render the Act practically useless.”

Even construing the word “in the widest sense”, however, the courts did not feel able to say that “creditor” encompasses anyone other than a person having some pecuniary claim against a company.

24.Furthermore, a word appearing in more than one place in the same statute should ordinarily be given the same meaning wherever it appears: see eg Bennion on Statutory Interpretation (6^th ed), p 1034.  S 291 was not only in the same Ordinance, but in the same part (namely, Part V), as the provisions on winding up in which the word “creditor” has acquired a well-established meaning.  I accept this principle is but a guide to achieve the overriding objective which is to ascertain the intention of the legislature: see London Borough of Hounslow v Thames Water Utilities Ltd [2004] QB 212, §70.  Even so, it seems to me as a matter of ordinary usage it cannot be said that a person in the position of the applicants here is a creditor of the Company.  The ordinary meaning of the word is a person to whom money, or at least something, is owed or due; it imports some obligation to pay or render something: see eg Shorter Oxford English Dictionary (6^th ed).

25.Mr Chain has referred to s 290 of the predecessor Ordinance which still remains in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32).  This provision enables the court to declare as void the dissolution of a company following its liquidation.  The application for such an order may be made by “the liquidator of the company or by any other person who appears to the court to be interested”.  The latter phrase is clearly of very wide import and might include a person who wishes to resuscitate the company in order to bring or continue a claim in adverse possession against it as registered owner: see Li Keung Tsang v Registrar of Companies (unrep, HCCW 1174/2002, 13 July 2010).

26.There is no discernible reason, Mr Chain submitted, why the applicants should have standing in that scenario but not here.  He further prayed in aid Megarry J’s dictum in Re Test Holdings (Clifton) Ltd [1970] Ch 285 at 289, comparing s 352 of the Companies Act 1948 (the equivalent of s 290 of Cap 32) with s 353 (the equivalent of s 291).  The learned judge said that while the two sections differed as to the persons who might make the application, “to some extent the difference is more linguistic than real”.  His Lordship also noted that the word “creditor” was a term that had been construed widely so as to include a mere contingent creditor (referring to his own decision in In re Harvest Lane Motor Bodies Ltd, supra) and “this does much to give to section 353(6) the width of section 352(1)”.  However, the judge also recognised that “it does not seem to go the whole way”, and mentioned an example of someone who was not a member or creditor within s 353(6) but who might well be a person appearing to the court to be interested within s 352(1).  The fact is that the legislature has used different language in the two provisions.

27.Mr Chain accepted that one does not ordinarily describe a squatter as a creditor.  On the contrary, it is, prima facie, the other way round: by reason of the squatter’s wrongful possession, the owner of the land has a claim against the squatter for damages for trespass.  In the present case, on the applicants’ case, their adverse possession commenced in 1967 so that, by the time the Company acquired the Land in 1999, the title of the previous registered owners had by then been extinguished.  This may entitle the applicants to the declarations sought in the action but it does not, in my view, make the Company owe them anything or any obligation, pecuniary or otherwise.  Adverse possession does not enable the squatter to claim the registered owner’s title, but only the extinguishment of that title which is adverse to his own: Wong King Lim v The Incorporated Owners of Peony House [2013] 4 HKC 295, §33.2 & §37.  Despite counsel’s most able arguments, I find it impossible, without ascribing to the word a meaning it is in truth incapable of bearing, to characterise the applicants as creditors of the Company. 

28.I should mention that there was no suggestion that a rectifying construction should be applied.

29.There is an additional difficulty.  Even if the Company is restored by an order in these proceedings, and even assuming that the leasehold interest in the Land thereupon revives and re-vests in the Company, and the applicants are thereby enabled to obtain judgment in their District Court action, in all likelihood the Company will be liable to be struck off soon again because (i) its shareholders and directors having abandoned it, it will not be in operation or carrying on business, (ii) it will be in breach of all the applicable administrative requirements as regards filing returns and so forth.  If the Company is struck off again, the applicants will find themselves in the same predicament.  As a matter of law, having obtained judgment against the Company by then does not improve their position in that situation.

30.In his supplemental written submissions, Mr Chain submitted:

(1)  A restoration order would give a “short-term benefit” to the applicants because they could obtain judgment in their District Court action and, for as long as the Company remained on the Register, they would have a possessory title good against the leaseholder who would alone be otherwise entitled to possession of the Land.

(2)  The applicants could take “practical steps” to ensure they could retain the “long-term” benefit of the restoration of the Company, by (i) objecting to any further striking off of the Company on the same grounds as here; (ii) undertaking to pay to the Registrar any future costs associated with keeping the Company on the Register; and (iii) (having obtained a judgment which, they hope, affirms their factual assertions) negotiating with the Director of Lands and the Registrar for the issue of a new Government lease to the applicants.

31.To my mind, the notion that a company should remain on the Register forever despite persistent non-compliance with every applicable requirement of the Ordinance, or that the applicants could in effect foster an orphaned company, is bizarre.  The Registrar has also stated in no uncertain terms that keeping a defunct company on the Register upon payment by a third party is unacceptable.  In the light of my conclusion on the question of standing, however, I need not deal with this difficulty further.

32.For the above reasons, the application must be dismissed.  The applicants are willing in any event to pay the costs of the Registrar and there will be an order accordingly.

Mr Christopher Chain and Mr Joseph Wong, instructed by Kenneth Lam, Solicitors, for the 1^st and 2^nd Applicants

The Respondent acted in person and was excused from attendance