Cao Zhushen v. Registrar of Companies and Others
Read the full judgment text of HCMP 2675/2017 on BabelCite. This High Court CFI judgment was delivered on 5 January 2018.
1. There is before the court an Originating Summons filed under section 42 of the Companies Ordinance seeking an order that:
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HCMP 2675/2017 [2018] HKCFI 59 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 2675 OF 2017 ______________
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___________________________ REASONS FOR JUDGMENT ___________________________ 1.There is before the court an Originating Summons filed under section 42 of the Companies Ordinance seeking an order that:
2.The Respondents to the Originating Summons are the Registrar of Companies, Winasia Industries Limited and Mr Lau Kwong-kwan. Mr Lau is a director of and shareholder of Winasia Industries Limited (“the Company”). 3.It has been agreed as between the applicant, Mr Cao Zhushen, and the two other directors of the company that a further notice be filed at the Companies Registry attesting to the fact that the applicant has been reappointed as a director of the company. 4.Put shortly, the factual background to the Originating Summons is this. Mr Cao owns 50% of the shares in the Company and was at all material times a director thereof. The two other directors owned 25% each of the shares of the Company. Mr Cao spends most of his time in the PRC where the company carries on its main business through a subsidiary. To his surprise, Mr Cao learned, without any prior notice, that the Form ND2Ahad been filed stating that he had been removed as a director and secretary of the company. When Mr Cao challenged this notice, Mr Lau, implicitly on behalf of himself and the other director, through a letter from his (Mr Lau’s) solicitors alleged that the applicant had set up a business which was competing with the business of the Company and his removal was justified by reason of his serious breaches of the fiduciary duties he owed to the Company. 5.There have been negotiations between the applicant and the two other directors which have led to the agreement that he should continue to be regarded as a duly appointed director and that a further form confirming his re-appointment as a director should be filed with the Registry. 6.The original ND2A document giving notice of Mr Cao’s removal as a director was signed by the 3rd respondent alone, although the form states the position held by Mr Lau as a director of the Company. 7.Mr Cao seeks his costs of the Originating Summons against Mr Lau. It is argued on his behalf that the court should infer that Mr Lau was not acting for and on behalf of the company or for and on behalf of the board of the company when filing the objected form, but was acting in his private capacity as a shareholder. 8.A letter before action was sent on behalf of Mr Cao to the Mr Lau on 11 August 2017. This was responded to by Mr Lau’s solicitor in a letter dated 8 September 2017 which gave the purported reason for the Mr Cao’s removal as a director, and namely, that he had set up a competing business. However, the board minute recording the decision of the board to remove the applicant as a director was not provided by that letter. 9.There was further correspondence from the Mr Lau’s solicitors on 20 October 2017 and still no board minute recording the board’s decisionto dismiss Mr Cao as a director was provided. A document, purporting to bethe board minute, recording the decision of the board to dismiss the applicant was finally provided under a letter dated 22 December 2017. This was only after a draft summons had been sent by Mr Cao which included a claim that Mr Lau should pay the costs of the section 42 application. 10.No evidence has been filed by Mr Lau in support of his opposition to Mr Cao’s application for costs. His counsel has made it very clear that Mr Lau makes no concessions at all as to any legal entitlement to have the register rectified or as to the contention that there never was any proper justification for his removal as a director. 11.It was submitted on behalf of Mr Lau that the court should proceed on the basis that Mr Cao’s removal was an act of the company acting by its board and in those circumstances no order for costs should be made against Mr Lau. There is no evidence that Mr Cao was given any notice of any concerns felt by the two other directors that he was involved in the establishment of a competing enterprise. There is also no evidence that any notice was attempted to be served on Mr Cao of a board meeting at which a resolution would be moved for his removal. 12.In my judgment, on the state of the evidence before the court, it is a reasonable inference that Mr Cao’s removal was not procured by the board acting as a board, which would have involved notice of the meeting and notice of the allegations of breach of fiduciary duty being given to the applicant so that he would have a chance at the board meeting to answer the charges against him. In my judgment, in these circumstances the court is entitled to conclude, and does conclude, that it was the individual acts of the other two directors as shareholders that led to the filing at the Companies Registry of the Form ND2A. 13.I have been taken to a number of authorities. The first was Wellable Investments Ltd v Li Wai Chiu Joseph, unreported, HCMP 510/2016, 11 April 2016, a decision of Au Yeung J. In that case there was an Originating Summons that sought an order that notices of change of company secretary and director and change of the registered office that had been filed with the Companies Registry should be declared null and void, and that there be rectification of the information in the Registry by removing the defendant as a director of the company and restoring the address of the registered office. The defendant admitted at the hearing of the Originating Summons that he had “done wrong” and had signed the purported documents without the approval of the majority shareholder who was behind the application for rectification. It was therefore not surprising that the learned judge made an award of costs against that individual. 14.Counsel for Mr Lau referred me to the decision of Godfrey Lam J in Re China Nice Education Research Publishing Investment and Management Co Ltd [2016] 3 HKLRD 525. There, the only respondent to the summons was the Registrar of Companies. Godfrey Lam J observed that in the ordinary way he would expect the company, as well as the Registrar, to be named as a respondent because any order made on the summons would be an order affecting and binding the company. He also observed that he would expect outsiders, whose interests are directly affected by the application, to be named so that they could be heard and made the subject of a binding order of the court. Godfrey Lam J concluded that there could be no question of an order for costs against the Registrar of Companies since the Registrar was a neutral party. 15.I was next referred to a decision of Recorder Anderson Chow SC (as he then was) in Leung Chung Pun v Masterwise International Ltd [2014] 1 HKLRD 1129. This was an application for inspection of a company’s records. The learned judge said that it would only be in a rare case in which there was strong evidence of particular directors dictating the decisions of the board that there would be justification for making them parties to an application under section 152FA of the Companies Ordinance with a view to obtaining a costs order against them. The decision not to entertain the request for inspection had appeared to have been made by the directors collectively acting as the board. In substance, the dispute was between the company acting through its board of directors on the one side and a shareholder of the company on the other. The principle that the company’s money should not be expended on what was in effect a dispute between the shareholders in relation to unfair prejudice petitions or windingup petitions on just and equitable grounds could not be extrapolated generally to other types of litigation between a company and its shareholders. 16.Finally, I was referred to a judgment of Harris J in Re Opes Asia Development Ltd, unreported, HCMP 447/2012, 17 May 2012, in the matter of an application under sections 121 and 152FA of the Companies Ordinance. This involved an Originating Summons under those sections of the Companies Ordinance allowing for the inspection of documents. Harris J observed that, on the evidence before him, he could not realistically undertake the sort of examination that would be required to determine whether an order of costs ought to be made in that case. 17.I conclude from this review of the authorities that where the court can properly find that the entry in the Companies Register sought to be removed has been entered on the Register through the acts of an individual acting, not as a member and on behalf of the board of directors, but actingin some other capacity, for instance in the capacity of a shareholder, it can be appropriate to make an order for costs against that individual. I have already given my reasons for concluding that the filing of the Form ND2A was not the act of the board, but was the act of Mr Lau and the other minority shareholder. 18.It does not follow, in my judgment, that a full order for costs ought to be made against Mr Lau. I am very conscious of the fact that there lies behind this Originating Summons a dispute between Mr Cao on the one side and the other two shareholders and directors on the other, as to certain commercial activities on Mr Cao’s part of the applicant and as to the manner in which the business affairs of the Company have been conducted by, in particular, Mr Lau. 19.The rights and wrongs of that dispute cannot be investigated at this hearing. What is clear is that there has been a settlement, at least pro tem, of the disputes between those parties that has led to the agreement that the register should be rectified by showing a new form evidencing the reappointment of the applicant. 20.In these circumstances, I conclude that the just order that should be made in this case is that Mr Cao should have half of his costs against Mr Lau who will be in a position to seek a contribution in respect of those from the other director and shareholder. I make no judicial determination that such a request for a contribution would be well-founded in law. Nonetheless, it would clearly be open to Mr Lau to seek a contribution from his co-minority shareholder since it seems highly likely that those twoshareholders were acting jointly with respect to the filing of the Form ND2A. 21.The outcome would be that, in effect, the costs of the Originating Summons are shared as between the all three of the disputant parties; the applicant on the one side and the other two shareholders on the other. Accordingly, for the reasons that I have given, I will make an order that Mr Lau must pay half of Mr Cao’s costs of the Originating Summons, to be taxed if not agreed. 22.This was a case where both sides were justified in seeking representation through counsel. It involved some issues of law and analysis of the facts that justify a certificate for counsel.
Mr Henry Fung, instructed by Augustine C Y Tong & Co, for the applicant Mr Jason Yu, instructed by Raymond Luk & Co, for the 2nd and 3rd respondents Attendance of the Registrar of Companies was excused |
Cases cited in this judgment