Kazuo Okada v. The Registrar of Companies

HCAL 881/2018

[2018] HKCFI 2778

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 881 OF 2018

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JUDGMENT

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INTRODUCTION

1.The principal issue which arises for determination in this application for judicial review is whether the Registrar of Companies is lawfully entitled to withhold the registration of a Form ND2A dated 11 August 2017 (“the 11 August Form”) relating to:

(1)   the Applicant’s appointment as a director of Okada Holdings Limited (“the Company”); and

(2)   the removal of two directors of the Company, namely, Mr Atsunobu Ishida and Mr Makoto Takada,

pending the resolution of the underlying disputes regarding the validity of the appointment and removal of the directors as stated in that document.

2.In what follows, unless the context indicates otherwise: (i) references to the “Ordinance” shall be to the Companies Ordinance, Cap 622, and (ii) references to “Sections” shall be to the sections of the Ordinance.

BASIC FACTS

(i)   The Company’s shareholders and directors prior to 12 May 2017

3.The Company was incorporated in Hong Kong on 13 September 2010.  It holds 67.90% of Universal Entertainment Corporation, a company founded by the Applicant and listed on the Tokyo Stock Exchange.

4.Since its incorporation and up to 14 August 2017, the Company’s shareholders had been:

(1)   the Applicant, holding 4,342,147,372 shares (46.38%);

(2)   the Applicant’s son, Tomohiro Okada (“Tomohiro”), holding 4,071,306,841 shares (43.48%);

(3)   the Applicant’s daughter, Hiromi Okada (“Hiromi”), holding 916,127,910 shares (9.78%, “the Shares”); and

(4)   the Applicant’s wife, Takako Okada, holding 33,386,126 shares (0.36%).

5.Since its incorporation and until 12 May 2017, the Applicant had been the Company’s sole director (save for the period between 28 March 2013 and 25 March 2014).

(ii)   The disputes on the shareholding and directorship of the Company

6.According to Tomohiro:

(1)   By two written notices dated 12 May 2017, Tomohiro and Hiromi appointed Mr Ishida and Mr Takada as new directors of the Company pursuant to Article 77(A) of the Company’s Articles of Association.

(2)   By a written notice also dated 12 May 2017, Mr Ishida and Mr Takada removed the Applicant as a director of the Company pursuant to Article 81(vii) of the Company’s Articles of Association.

(3)   The above changes of directors of the Company were reported to the Registrar by a Form ND2A dated 12 May 2017 (“the 12 May Form”), which was accepted and registered in the Companies Registry.

(4)   By a Share Management and Disposal Trust Agreement dated 23 May 2017 (“the Trust Agreement”), Hiromi entrusted the Shares with Tomohiro for him to manage them as her trustee in accordance with the terms of the Trust Agreement.

(5)   By an instrument of transfer dated 14 August 2017 (“the Instrument of Transfer”), Hiromi formally transferred the Shares in the Company to Tomohiro.

(6)   On 18 August 2017, the Company filed, inter alia, an amended Form ND2A (“the 18 August Form”) to amend the 12 May Form by revising the “English Surname” and “Other Name” of Mr Takada.

(7)   On 30 August 2017, the Company filed another Form ND2A (“the 30 August Form”) with the Companies Registry reporting (i) the appointment of Mr Ishida and Mr Takada as directors of the Company, and (ii) the cessation of the Applicant as a director of the Company, both with effect from 28 August 2017.  As stated in a letter dated 5 January 2018 from Gall (Tomohiro’s solicitors) to the Companies Registry, the 30 August Form was delivered to the Companies Registry “only as a safeguard to restore the Company to the original position in case the 11 August Document was registered”.

7.According to the Applicant:

(1)   By a Power of Attorney dated 9 August 2017 (“the Power of Attorney”), Hiromi appointed the Applicant as her attorney to exercise all her rights as shareholder of the Company, including the appointment, removal and replacement of any persons as directors of the Company.

(2)   On 11 August 2017, the Applicant, exercising his power under the Power of Attorney as well as his own right as 46.38% shareholder of the Company, issued 2 notices pursuant to Article 77(A) of the Company’s Articles of Association to (i) appoint himself as a director of the Company, and (ii) remove Mr Ishida and Mr Takada as directors of the Company (“the 11 August Changes of Directorship”).  In other words, the appointment and removal of directors of the Company as reported in the 12 May Form were reversed.

(3)   The 11 August Form reflecting the above changes of directors of the Company was delivered to the Registrar for registration on the same day.

8.The 11, 18 and 30 August Forms will hereinafter collectively be referred to as the “Unregistered Documents”.

9.Since June 2017, the Applicant, Hiromi and Tomohiro (amongst others) have been engaged in a series of legal actions in both Hong Kong and Tokyo in respect of the ownership of the Shares, as well as the directorship of the Company.

10.First, on 7 June 2017, the Applicant presented an unfair prejudice petition in the High Court of Hong Kong (HCMP 1324/2017) against Mr Ishida and Mr Takada complaining about his removal as a director of the Company.  The Applicant’s application for, inter alia, a mandatory order to (i) remove Mr Ishida and Mr Takada as directors of the Company, and (ii) reinstate him as a director of the Company, was dismissed by Harris J on 28 June 2018.

11.Second, in an action commenced by Tomohiro against Hiromi on 27 September 2017 in the Tokyo District Court, Tomohiro sought a declaration that the Trust Agreement was valid and effective.  There have been no fewer than 6 hearings in the in Tokyo District Court.  As at the date of the hearing on 21 September 2018, the proceedings in that action were still on-going.

12.Third, in October 2017, Hiromi commenced an action in the High Court of Hong Kong (HCMP 2446/2017) against Tomohiro seeking a declaration that the Trust Agreement and the Instrument of Transfer were void, or voidable, on the ground of undue influence and/or equitable mistake, and a declaration that Hiromi owned the beneficial interest, without encumbrances or restriction of rights, in the Shares.  Two applications were heard by Ng J in April 2018, one an application by Hiromi for interim relief, including (i) restraining any disposition of or dealing with the Shares, and (ii) reconstituting the board of directors of the Company, and the other by Tomohiro for a stay of proceedings in favour of the Tokyo District Court.  As at the date of the hearing on 21 September 2018, the court’s decision on the two applications were pending.

13.Fourth, on 9 January 2018, the Applicant commenced an action in the High Court of Hong Kong (HCA 67/2018) against Mr Ishida and Mr Takada for a declaration that they were wrongfully appointed as directors of the Company.

14.It was in the midst of these disputes and legal actions that the Registrar made the decision to withhold the registration of the 11 August Form, which forms the subject matter of the current application for judicial review.

(iii)   The Registrar’s decision

15.Between 24 August 2017 and 13 April 2018, the Registrar received multiple rounds of representations from the Applicant, Tomohiro and the Company raising conflicting allegations about the validity of the appointment and removal of directors of the Company as reflected in the Unregistered Documents, as well as the validity of those documents.  On the one hand, the Applicant alleged that he should remain as a director, and Mr Ishida and Mr Takada should not be directors, of the Company, and requested the Registrar to accept the registration of the 11 August Form.  On the other hand, the Company and Tomohiro alleged that the Applicant had ceased to be a director, and Mr Ishida and Mr Takada should be directors, of the Company, and requested the Registrar to reject the registration of the 11 August Form.  For the purpose of this judgment, it is not necessary to set out in detail the parties’ respective representations to the Registrar, or the Registrar’s responses to those representations, save to mention the following.

16.By an email dated 24 August 2017 from the Applicant to the Registrar, the Applicant requested the Registrar to withhold the registration of the 18 August Form, stating that there was a dispute regarding the appointment and removal of directors of the Company, including the appointment and removal of the directors referred to in the 12 May Form, and that the person who signed the 18 August Form (Mr Takada) was not properly authorized to sign that document.

17.On the other hand, by a letter dated 24 August 2017 from Mr Takada (on behalf of the Company) to the Companies Registrar, Mr Takada requested the Registrar to hold off and withdraw the filing of the 11 August Form on the basis that “there has been no change of directors of [the Company] after 12 May 2017”.

18.On 1 September 2017, the Registrar issued two letters to the Company and the Applicant respectively, noting the conflicting allegations regarding the directorship of the Company.  The Registrar asked the Company and the Applicant to provide information relating to (inter alia) the appointment and removal of directors and stated that she would withhold the registration of the Unregistered Documents pending clarification of the matters.

19.By a letter dated 6 October 2017 (“the 6 October 2017 Letter”) to Wellington Legal (the Applicant’s previous legal representatives), the Registrar informed the Applicant that the Unregistered Documents would not be accepted or rejected for registration pending the resolution of the underlying disputes between the parties regarding the validity of the appointment and removal of directors (“the 6 October 2017 Decision”).  The relevant parts of the letter setting out her reasons for the 6 October 2017 Decision state as follows:

“Changes of directors in August 2017

(6) We received forms containing conflicting information on this regard. On one hand, we received forms reporting that Kazuo Okada was appointed as a director while Atsunobu Ishida and Makoto Takada were removed as directors. On the other hand, we received forms reporting changes of directorship which are completely opposite i.e. Kazuo Okada was removed as a director while Atsunobu Ishida and Makoto Takada were appointed as directors. The details of the forms are set out in our letter dated 1 Sep 2017 to your client.

(7) As you will appreciate, the directors of a company are appointed or removed by the shareholders of a company. On this matter, we also received conflicting allegations and evidence. On one hand, it is claimed that Tomohiro Okada currently owns around 53.27% of the issued shares in the Company, which constitutes the majority of the issued shares in the Company. This includes around 9.78% of the issued shares transferred from Hiromi Okada to Tomohiro Okada on 14 Aug 2017. This is evidenced by the records in the register of members and an instrument of transfer dated 14 Aug 2017. The instrument of transfer was signed by Tomohiro Okada and Hiromi Okada.

(8) On the other hand, it is claimed that Tomohiro Okada currently only owns around 43.48% of the issued shares in the Company. Hiromi Okada confirmed to us that she did not transfer the 9.78% shares to Tomohiro Okada. Kazuo Okada and Hiromi Okada together owns around 56.16% issued shares in the Company and this constitutes the majority of the issued shares in the Company.

(9) According to the information provided to us, there are disputes on the shareholding of the Company. These disputes affect the appointment / removal of director of the Company directly. As explained in our letter to your client dated 1 Sep 2017, the Companies Registry has no power and is also not in a position to make a determination on these disputes. Consequently, we will not further follow up on this matter.

(10) To alert the public about the disputes, we will add important note on the Companies Register that according to the information provided to us, there are disputes as to the shareholding and directorship of the Company. While Atsunobu Ishida and Makoto Takada claim that they are the directors, Kazuo Okada also claims that he is the sole director. Readers of information on these regards will be reminded to exercise caution.

(11) Although your client claims that Hiromi Okada still owns 9.78% shares in the Company, your client does not provide to us the supporting documents requested in our letter dated 15 Sep 2017. Your client takes the view that it is highly inappropriate for us to rely on the register of members of the Company. We do not agree. The register of members is a statutory record required by the law. If your client considers that the name of any person is, without sufficient cause, entered in or omitted from the register of members, your clients could apply to the Court for rectification of the register.

(12) It is mentioned in your letter that ‘no requisition have been made in Your Letter regarding the August Appointment and the August Removal on 11 August 2017’. Please note that we express no view on the August Appointment and the August Removal on 11 August 2017. We have summarized the parties’ allegations in our letter to your client dated 1 Sep 2017 (5^th paragraph) and this letter (paragraph (6)) above. As explained in our letter to your client dated 1 Sep 2017, the Companies Registry has no power and is also not in a position to make a determination on these disputes.

Documents registration arrangements

(13) In view of the various disputes and the conflicting allegations / information, we will not accept the filing of forms / notice / returns and other documents of the Company unless we are provided with the consent of the relevant parties or a court order in support of the filing.

(14) For the same reasons as explained in paragraph (13), the Unregistered Documents will not be accepted or rejected in the meantime, pending for the resolution of the disputes between the parties.

(15)   Please write to us once the disputes are resolved and we will review the above arrangements. If your client considers that any information contained in the Companies Register in incorrect, your client may consider applying to the Court under s.42 of the Companies Ordinance to rectify or remove the incorrect information.”

20.As mentioned in paragraph (10) of the 6 October 2017 Letter, the Registrar has added an “Important Note” on the Companies Register giving notice of the following to the public:

“According to the information provided to the Companies Registry, there are disputes as to the shareholding and directorship of the Company, while Atsunobu Ishida and Makoto Takada claim that they are the directors, Kazuo Okada also claims that he is the sole director. Readers of information on these regards should exercise caution.”

21.By a letter dated 20 March 2018, the Applicant’s solicitors (SSW & Associates) requested the Registrar to clarify the “precise statutory basis upon which the [Registrar] relies for its decision not to register the 11 August 2017 Document”.

22.The Registrar replied on 26 March 2018 (“the 26 March 2018 Letter”), reiterating and maintaining her previous decision.  In so far as the legal basis of her decision was concerned, the Registrar stated, at paragraph (5) of the letter, as follows:

“As explained in paragraphs (14) and (15) of our letter to Messrs. Wellington Legal dated 6 Oct 2017, the 11 August 2017 Document will not be accepted or rejected in the meantime, pending for the resolution of the disputes between the parties. This is also explained in paragraph (6) of our letter to you dated 26 Jan 2018. For the legal basis, please see s.36 of the Companies Ordinance.”

23.On 16 April 2018, the Registrar wrote to the Applicant, Tomohiro and the Company summarizing the parties’ position and repeating that the Registrar had no power and was not in a position to make any determination on the legal and factual disputes between the parties.  By that letter, the Registrar also informed the parties that she would maintain her decision as stated in the 6 October 2017 Letter.

24.In specific response to the Applicant’s queries about the Registrar’s exercise of powers under Sections 35 and 36, the Registrar stated, in a letter to SSW & Associates dated 20 April 2018 (“the 20 April 2018 Letter”), as follows:

(1)   In respect of the suggestion that the Registrar had “no power to hold its decision in abeyance” –

“… our view is that CR does not hold its decision in abeyance. Under s.36, CR may withhold the registration of documents”.

(2)   In respect of the suggestion that the document, information or evidence sought by the Registry could not constitute a request under Section 36(b)(i) –

“… our view is that the relevant provision is s.31(1)(h)(ii). The CR received conflicting allegations / legal arguments from the parties. Consequently, it is necessary for CR to request (under s.36(b)(i)) further document / information / evidence to determine whether the Unregistered Documents … should be accepted or rejected.”

(iv)   The application for judicial review

25.On 21 May 2018, the Applicant made the present application for leave to apply for judicial review, naming the Registrar as the Putative Respondent.  In his Form 86, the Applicant identifies the decision under challenge as follows:

“The decision of the Registrar of Companies as embodied in her letters dated 26 March 2018 and 20 April 2018 to withhold the registration of a Form ND2A dated 11 August 2017 pending for the resolution of the disputes between the parties”.

26.On 21 May 2018, the court directed a rolled-up hearing of (i) the application for an extension of time to apply for leave to apply for judicial review (if required), (ii) the application for leave to apply for judicial review, and (iii) the substantive application for judicial review.

27.On 26 June 2018, Tomohiro applied to be joined as a Putative Interested Party to this application.  On 10 July 2018, the court directed that Tomohiro’s joinder application should be heard at the rolled-up hearing, which took place on 21 September 2018.

DISCUSSION

28.As stated in paragraph 2 of the Form 86, the sole ground of judicial review raised by the Applicant is that the Registrar erred in relying on Section 36 to withhold the registration of the 11 August Form.  In paragraph 5 of his Skeleton Argument for the Applicant dated 12 September 2018, Mr Jin Pao, SC contends that the Registrar ought to accept, or in the alternative refuse, the registration of the 11 August Form, rather than to withhold making a final decision on the ground that there were on-going shareholders’ disputes in the Company.

(i)   The statutory framework governing registration of documents at the Companies Registry

29.In order to determine the merits of this application, it is first necessary to examine the statutory framework governing the registration of documents at the Companies Registry, and the powers of the Registrar to accept, reject or withhold documents submitted to her for registration.  The following provisions in Part 2 (Registrar of Companies and Companies Register) of the Ordinance are relevant for the present purpose.

30.Under Section 22, the Registrar’s functions are those conferred on the Registrar by or under the Ordinance or any other Ordinance.  By Section 23(1), the Registrar may specify the form of any document required for the purposes of the Ordinance.  Form ND2A is one such form specified by the Registrar for giving “Notice of Change of Company Secretary and Director (Appointment/Cessation)”.

31.Under Section 27(1), the Registrar must keep records of, inter alia, the information contained in every document that is delivered to the Registrar for registration and that the Registrar decides to register under this Part.

32.Specific provisions relating to the “Registration of Documents” are contained in Division 4 of Part 2 of the Ordinance, in particular:

“31 Unsatisfactory document

(1) For the purpose of this Division, a document delivered to the Registrar for registration is unsatisfactory if -

(h) the information contained in the document –

(i) is internally inconsistent; or

(ii) is inconsistent with other information on the Companies Register or other information contained in another document delivered to the Registrar;

(i) the information contained in the document derives from anything that –

(i) is invalid or ineffective; or

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

35 Registrar may refuse to accept or register document

(1) If the Registrar is of the opinion that a document delivered to him or her for registration under an Ordinance is unsatisfactory, the Registrar -

(a) may refuse to accept the document; or

(b) may, after having accepted the document, exercise the powers specified in subsection (3) or (4).

(3) The Registrar may refuse to register the document and return the document to the person who delivered it for registration.

(4) The Registrar may also advise that –

(a) the document be appropriately amended or completed, and be redelivered for registration with or without a supplementary document; or

(b) a fresh document be delivered for registration in its place.

36 Registrar may withhold registration of document pending further particulars etc.

For the purpose of determining whether the powers specified in section 35(3) and (4) are exercisable in relation to a document, the Registrar may –

(a) withhold the registration of the document pending compliance with the request under paragraph (b); and

(b) request the person who is required or authorized to deliver the document to the Registrar for registration under the Ordinance to do any or all of the following within a period specified by the Registrar –

(i) to produce any other document, information or evidence that, in the Registrar’s opinion, is necessary for the Registrar to determine the question as to whether the document is unsatisfactory;

(ii) to appropriately amend or complete the document, and redeliver it for registration with or without a supplementary document;

(iii) to apply to the court for any order or direction that the Registrar thinks necessary and to conduct the application diligently;

(iv) to comply with other directions of the Registrar.

37 Appeal against Registrar’s decision to refuse registration

(1)   If a person is aggrieved by a decision of the Registrar to refuse to register a document under section 35(3), the person may, within 42 days after the decision, appeal to the Court against the decision.”

33.The ground for treating a document as being “unsatisfactory” under Section 31(h) shall hereinafter be referred to the “Inconsistency Ground”, and that under Section 31(i) the “Invalidity Ground”.

34.In my view, the effect of the above statutory scheme can be summarized as follows:

(1)   Upon receipt of a document delivered to the Registrar for registration, the Registrar has to decide whether to accept, refuse or withhold the registration of that document.

(2)   Where the document appears to the Registrar to be satisfactory, she may accept and register the document.

(3)   Where the Registrar considers it to be clear, such that she can immediately form an “opinion”, that the document is “unsatisfactory” on any one or more of the statutory grounds stipulated in Section 31, she may refuse to accept the document or, having accepted the document, refuse to register the document and return it to the person who delivered it for registration, or require the document to be amended/completed/replaced before accepting it for registration.

(4)   Where it is not clear or apparent to the Registrar whether the document is “unsatisfactory”, she is not bound to decide immediately whether to accept or refuse the registration of the document.  The Registrar may withhold the registration of the document pending compliance by the person who is required or authorized to deliver the document for registration with her request to (inter alia) produce such document, information or evidence as, in her opinion, is necessary for her to determine whether the document is unsatisfactory, or other directions of the Registrar.

(5)   After all relevant requests have been complied with, the Registrar would then be required to determine whether to accept or refuse the registration of the document.

35.A discretionary exercise on the part of the Registrar is involved at various stages mentioned above, in particular:

(1)   in deciding whether a document is satisfactory or unsatisfactory, or whether a relevant request should be made before determining whether the registration of the document should be accepted or refused;

(2)   where the document delivered to her for registration appears to be, or may be, unsatisfactory, in deciding whether to refuse to accept the document, or withhold the registration of the document pending the compliance of a relevant request;

(3)   in deciding what request(s) should be made under Section 36(b); and

(4)   in deciding whether to accept or refuse the registration of the document after all relevant requests have been complied with.

36.While such exercise of discretion may, in principle, be challenged in an application for judicial review, the court should be astute to ensure that its supervisory jurisdiction is not being abused, or improperly used, by any party for the purpose of resolving internal disputes amongst the shareholders over the control of a company, or gaining a head start or advantage in such disputes.

(ii)   The Registrar is lawfully entitled to withhold the registration of the 11 August Form

37.It can be seen, from the 16 October 2017 Letter, that the Registrar took the view that:

(1)   she had before her conflicting allegations appearing from documents and information received by her as to who were the proper shareholders and directors of the Company;

(2)   she had no power, and was not in a position, to determine the disputes between the parties on whether the various changes of directorship of the Company as reported in the Unregistered Documents were lawful or valid;

(3)   she would not accept or reject the Unregistered Documents (including the 11 August Form) for registration, pending the production by the Applicant of the consent of the parties or a court order resolving their disputes;

(4)   in other words, the registration of the Unregistered Documents would be withheld pending the resolution of the disputes.

38.As further explained in the 26 March 2018 and 20 April 2018 Letters, the Registrar considered that she had the power to withhold the registration of the 11 August Form under Section 36 pending compliance by the Applicant with her request to produce the consent of the parties or a court order resolving the parties’ disputes which she consider was necessary for her to determine (ie to form an opinion on) whether the 11 August Form was “unsatisfactory” under the Inconsistency Ground.

39.Subject to the issue of whether, for the purpose of the Inconsistency Ground, the information revealing the inconsistency with the 11 August Form must be contained in a document that was delivered to the Registrar for the purpose of registration (which I shall deal with below), I consider that the Registrar was entitled to come to the view that the information contained in the 11 August Form might be inconsistent with the other information received by her, and thus the 11 August Form might be “unsatisfactory” within the meaning of Section 31(h).

40.Further, having regard to the on-going litigations between the parties which, upon their conclusion, should resolve the question of the lawfulness or validity of the 11 August Changes of Directorship, I consider that it was open to the Registrar to take the view that she should withhold the registration of the 11 August Form pending the resolution of the underlying disputes (either by the court or the agreement of the parties).

(iii)   The Applicant’s arguments

41.I shall now deal with various points raised by Mr Jin Pao, SC on behalf of the Applicant in support of the contention that the Registrar erred in law in withholding the registration of the 11 August Form.

42.First, it is argued that the 6 October 2017 Letter did not stipulate a time period for the Applicant to comply with her request for information whereas, on a proper statutory construction, a Section 36(b) request must stipulate a time period for compliance (see paragraph 23 of Mr Pao’s Skeleton Argument).  Although Section 36(b) provides that the Registrar “may … request the person who is required or authorized to deliver the document to the Registrar for registration under the Ordinance to do any or all of the following within a period specified by the Registrar …” [underlining added], the word “may” is “prima facie facultative and directory rather than mandatory” (see Li Yiu Kee v The Chinese University of Hong Kong, CACV 93/2009, unreported, 23 July 2010, at paragraph 124, footnotes 83 and 84).  Further, the purpose of Section 36(b) is to assist the Registrar to decide whether to register, or refuse to register, a document delivered to her for registration.  There is no good reason why it should be construed as imposing a mandatory requirement for the Registrar to impose a definite time limit for compliance with her request for the production of document, information and evidence, or other directions, by the person seeking registration of the document in all cases.  On the other hand, it is obvious that in some cases envisaged by Section 36(b), eg sub-paragraph (iii) which requires the person “to apply to the court for any order or direction that the Registrar thinks necessary and to conduct the application diligently”, there would necessarily be an element of uncertainty as to the time required to obtain the appropriate court order or direction and thus to resolve the question of whether a document is unsatisfactory.  While the Registrar can require a person to make an application within a specified period of time, it would generally be outside the control of that person as to when an appropriate court order or direction could be obtained.  Overall, I consider that while Section 36(b) empowers the Registrar to impose a specified time period for the person seeking to register a document to comply with a relevant request in a suitable case, it does not require the Director to fix a specified period for compliance in all cases.  In the present case, the time required for the disputes of the parties to be resolved is necessarily uncertain.  It is, in my view, reasonable for the Registrar not to impose a strict time limit for the Applicant to produce the consent of the parties or a court order resolving those disputes.

43.Second, it is argued that for the purpose of the Inconsistency Ground under Section 31(h)(ii), it is not open to the Registrar, “as a matter of law, to rely on matters or information contained in a document not submitted to the Registrar for the purposes of registration to say that a document is or may be ‘unsatisfactory’” (see paragraph 24(1) of Mr Pao’s Skeleton Argument).  Section 31(1)(h)(ii) states as follows:

“… a document delivered to the Registrar for registration is unsatisfactory if –

(h) the information contained in the document –

(ii) is inconsistent with other information on the Companies Register or other information contained in another document delivered to the Registrar”.

44.It is significant that within Section 31(1)(h)(ii) itself, 2 different expressions, namely, “a document delivered to the Registrar for registration” and “a document delivered to the Registrar”, are used.  This is a pointer that the document referred to in sub-paragraph (h)(ii) does not necessarily have to be one delivered to the Registrar for registration.  Further, it seems clear that the legislative purpose of this subsection is to maintain and safeguard the integrity of the information appearing on the Companies Register, and ensure the accuracy and timeliness of information on the public register (see the Consultation Paper for the Draft Companies Bill First Phase Consultation (December 2009), at paragraph 3.5, and paragraph 1 of Part 2 of the Explanatory Notes on the Draft Parts).  A liberal construction of Section 31(1)(h)(ii) which permits the Registrar to look beyond documents delivered to her for the purpose of registration would assist in preventing confusing, obscuring or misleading entries and records from being entered on the Companies Register.  On the other hand, the narrow construction of Section 31(1)(h)(ii) favoured by the Applicant would tend to inhibit the attainment of the aforesaid statutory purpose.  If it is objectionable for a document to be registered where the document contains information which is inconsistent with the information contained in another document delivered to the Registrar for registration, it is difficult to see why it would be less objectionable to register the document where the consistency is revealed from some other document delivered to the Registrar other than for the purpose of registration.  In my view, the Registrar may lawfully come to the conclusion that a document is “unsatisfactory” in either case.

45.Third, it is argued that the information contained in the 11 August Form was confirmed by the 30 August Form, which, as earlier noted, stated that the Applicant was removed as a director, and Mr Ishida and Mr Takada were appointed as directors, of the Company with effect from 28 August 2017 (see paragraph 24(2) of Mr Pao’s Skeleton Argument). However, as mentioned in paragraph 6(7) above, the Company delivered the 30 August Form to the Companies Registry “only as a safeguard to restore the Company to the original position in case the 11 August Form was registered”.  In any event, it was obvious to the Registrar that there were substantial on-going disputes and legal proceedings between the Applicant and the Company/Tomohiro regarding the validity of the changes of directorship of the Company as reported in the 11 August Form.  It would be unrealistic to suggest that the inconsistent information contained in that form was cleared or resolved by the 30 August Form.

46.Fourth, it is argued that the Registrar’s request to the Applicant for confirmation of resolution of the disputes is not necessary and would not enable her to determine whether the 11 August Form is unsatisfactory within the meaning of Section 31(1)(h)(ii), and thus the information which the Registrar requested from the Applicant did not fall within Section 36(b)(i).  It is further argued that there was no information in the Companies Register or in any other document delivered to the Registrar for registration that contradicted the information in the 11 August Form, and therefore the Registrar was bound to register the document, leaving any party (the Company and Tomohiro) who might be dissatisfied with the registration of the 11 August Form to apply to the court for rectification of the information in the Companies Register pursuant to Section 42 (see paragraphs 26 and 27 of Mr Pao’s Skeleton Argument).  Leaving aside the issue of whether, for the purpose of the Inconsistency Ground, the inconsistency in the information contained in the 11 August Form must arise from other document(s) delivered to the Registrar for registration (an issue already dealt with in paragraphs 43 to 44 above), Mr Pao’s reasoning in support of this argument, as I understand it, is that:

(1)   The Registrar should pay no regard to any alleged trust in respect of the Shares by reason of (a) Section 634(b), and/or (b) Article 7 of the Company’s Articles of Association.

(2)   The Registrar was bound to accept the information in the Companies Register that, as at 11 August 2017, Hiromi was a 9.78% shareholder in the Company.

(3)   Hiromi’s execution of the Power of Attorney in favour of the Applicant on 9 August 2017 would, at the highest, give rise to a claim in personam by Tomohiro against her for acting in breach of the Trust Agreement.

(4)   Further, Hiromi only transferred the Shares to Tomohiro on 14 August 2017, which was after Hiromi had executed the Power of Attorney and the Applicant had exercised his collective simple majority voting right to effect the 11 August Changes of Directorship.

(5)   The resolution of the disputes between the parties would have no bearing on whether the 11 August Changes of Directorship were lawful or valid, and therefore the request for the Applicant’s confirmation of resolution of the disputes would not be necessary, and would not enable her to determine whether the 11 August Form was unsatisfactory.

(6)   Accordingly, the Registrar was to bound to register the 11 August Form.

47.In my view, the position is not as simple as suggested by Mr Pao.  There were, as was known to the Registrar, on-going disputes and litigations between the parties regarding the validity of, inter alia, (a) the two Article 77(A) notices dated 11 August 2017 (“the Notices”) signed by the Applicant to effect the 11 August Changes of Directorship, and (b) the Power of Attorney.  In particular, the Registrar had received representations from the Company and/or Tomohiro to the effect that:

(1)   The Notices were delivered to the Company’s outdated registered office on 14 August 2017 and were therefore invalid under Article 77(A), and by the time the Company became aware of the Notices on 24 August 2017 Hiromi had already transferred the Shares to Tomohiro on 14 August 2017 (see the Company’s letter to the Companies Registry dated 25 August 2017).

(2)   The Notices were also invalid because Hiromi had already transferred the Shares to Tomohiro pursuant to the Trust Agreement (see paragraph 8 of Gall’s letter to the Companies Registry dated 5 January 2018).

(3)   The status of the Shares was an issue being contested in legal proceedings in the Tokyo District Court, as well as in legal proceedings in Hong Kong in HCMP 2446/2017.  The legality or validity the acts of the Applicant in relation to the 11 August Form was also hotly contested in HCMP 2446/2017 (see paragraph 2 of Gall’s letter to the Companies Registry dated 5 January 2018).

(4)   Hiromi had completed the transfer of the Shares to Tomohiro, and vested the voting right attached to the Shares in Tomohiro, on 23 May 2017 under the Trust Agreement which was governed by Japanese laws, and she had no power to execute the Power of Attorney on 9 August 2017 or further grant the voting right in favour of the Applicant.  Those issues had been seized by the courts in Hong Kong and Tokyo (see paragraph 6 of Gall’s letter to the Companies Registry dated 5 January 2018, and paragraphs 6 and 7 of Gall’s letter to the Companies Registry dated 9 April 2018).

(5)   The authenticity of the Power of Attorney, as well as Hiromi’s intention to sign it, were being challenged by Tomohiro (see paragraph 7 of Gall’s letter to the Companies Registry dated 5 January 2018).

(6)   The issue of the validity of the 11 August Changes of Directorship had been seized by the court in Hong Kong (see paragraph 9 of Gall’s letter to the Companies Registry dated 5 January 2018).

48.The above contentions were contested by the Applicant.  However, the Registrar had no power or duty, and was in no position, to determine the disputes between the parties.  In the circumstances, I consider it reasonable for the Registrar to take the view that the Applicant’s confirmation of the resolution of those disputes was necessary, and would enable her to determine the question as to whether the 11 August Form was “unsatisfactory” under the Inconsistency Ground.  It follows, in my view, that the confirmation sought by the Registrar falls within the scope of Section 36(b)(i), and in any event Section 36(b)(iv).

49.Fifth, Mr Pao argues, alternatively, that even if the Registrar was unable to determine whether the Applicant’s explanations regarding the information in the 11 August Form should be accepted, she could and should refuse its registration so as to trigger the Applicant’s right of appeal to the court under Section 37 (see paragraph 28 of Mr Pao’s Skeleton Argument).  I do not accept that the only courses open to the Registrar was either to accept or refuse the registration of the 11 August Form, and she could not withhold the same pending compliance by the Applicant with her request under Section 36(b).  As submitted by Mr Wong Yan Lung, SC (for Tomohiro), the Registrar does not simply act as an “automation”.  While she is not legally responsible for verifying the truth of the information contained in a document delivered to her by reason of Section 62(a), and it is not her role to adjudicate on the underlying disputes in respect of such information, she has a high responsibility and public duty to see that the legislative purpose of ensuring a reliable repository of company information in the public interest is neither destroyed nor prejudiced so that the public can obtain accurate and up-to-date particulars on companies.  In order to discharge this duty, the Registrar is, in my view, entitled to make reasonable request(s) which she may consider to be necessary in order to determine whether a documents delivered to her for registration should be accepted or refused, and she may withhold the registration of the document pending compliance with the request(s) under Section 36.

50.In all, I am of the view that the Registrar’s decision to withhold the registration of the 11 August Form pending the resolution of the underlying disputes between the parties regarding the validity of the appointment and removal of directors to be a lawful exercise of her powers.

51.Having reached this conclusion, it becomes unnecessary for me to consider the Registrar’s alternative cases of:

(1)   “inevitability”, the argument being that should the Registrar be directed to re-consider the matter afresh because the court takes the view that it was not open to her to rely on the Inconsistency Ground in exercising her power to withhold registration under Section 36, she would inevitably come to the same conclusion in reliance upon the Invalidity Ground; and

(2)   “alternative remedy”, the argument being that it is open to the Applicant to make an application for rectification of information on the Companies Register under Section 42.

DELAY

52.I should, however, briefly deal with the issue of delay, because that would have a bearing on the nature of the order to be made, and the question of whether the Applicant requires leave to appeal against the judgment herein.

53.Generally, an application for leave to apply for judicial review of a decision of a public authority must be made promptly and in any event within three months from the date when grounds for the application first arose (Order 53 rule 4(1) of the Rules of the High Court, Cap 4A). In this regard, it is important to appreciate that the time starts to run from the date when grounds for the application first arose, not from the date of the decision sought to be challenged.

54.In Lo Siu Lan v Hong Kong Housing Authority, CACV 378/2004 (17 December 2004), the notice of application in that case was dated 8 December 2004.  The decision under challenge was the decision of the Housing Authority to enter into an agreement for sale with The Link Properties Ltd on 19 November 2004.  That however was not the first in the train of decisions.  The decision of 19 November 2004 was the one identified by the notice of application, but that decision was the last or almost the last in a series of decisions commenced on 24 July 2003 with a publicly announced decision by the Housing Authority to divest itself of certain retail and parking facilities.  On the issue of delay, Stock VP stated the following:

“39 … It seems to me that if earlier decisions were challengeable (as to which there is much debate in this case) it is not then open, in the context of a factual matrix such as this, for applicants who could have challenged those earlier decisions, to sit upon their rights with no risk of leave being refused. Whilst in such a situation the latest decision may itself be amenable to challenge, that is not a fact that is to be looked at in isolation when the court comes to consider the issue of leave and, if leave be given, of relief. It must be looked at in the round, with due regard of course, as in Burkett, to the nature of the earlier decisions and to the framework as a whole.

40   … However, as a general point, and in so far as the issue was raised about the state of the appellant’s knowledge at a given date, it needs to be recalled that time starts to run, in the judicial review context, not from the date when an applicant knows of the ground, but from the time when the ground for challenge arises.”

55.This principle was applied by Deputy High Court Judge Keith in E T Investment Limited v Director of Health, HCAL 13/2015 (3 February 2016), who stated the following:

“17 As practitioners in the field know only too well, applications for leave to apply for judicial review have to ‘be made promptly and in any event within three months from the date when grounds for the application first arose unless the court considers that there is good reason for extending the period within which the application shall be made’: Order 53, rule 4(1) of the Rules of the High Court. The notice of application for leave to apply for judicial review in the present case was filed over 18 months after the warning letter, and almost 10 months after the decision on the ‘review’ of the warning letter. At first blush, therefore, the question is whether there are grounds for extending the period during which the application should have been filed.

18   Mr Wong argued otherwise.  He pointed to the fact that the application was filed within three months of the decision of the Secretary for Food and Health not to reverse his previous decision that the issue of the warning letter had been justified.  I cannot go along with that at all. It amounts to a contention that the grounds for challenging the warning letter and the decision on the ‘review’ first arose when the Secretary for Food and Health said that the warning letter had to stand unless any new facts came to light.  That is unarguable.  It ignores the fact that the ‘appeal’ to the Secretary for Food and Health was dismissed on 26 September 2014, more than three months before the notice of application was filed.  As Saunders J said in Martin Tao Ming Lee v Secretary for the Civil Service (HCAL 82/2010), the court ‘will not permit an applicant to ‘resurrect’ an old decision, simply by asking the decision maker to reconsider the application, and thereby artificially bring himself within time, by relying upon the reconsideration decision’.  All the more so in a case such as this where the Secretary for Food and Health was simply asked to give detailed reasons for his decision.  In any event, leaving aside the fact that the decisions of the Secretary for Food and Health are no longer challenged, the grounds for challenging the decisions of the Director of Health first arose when those decisions were made.  It may be that you will want to exhaust all your other remedies before you make an application for judicial review, but that goes only to whether your time for doing so should be extended, not to whether you made your application in time in the first place.” [emphasis added]

56.In the present case, grounds for the application first arose on 6 October 2017 when the Registrar decided to withhold the registration of the 11 August Form pending compliance by the Applicant with the Registrar’s request for confirmation of resolution of the disputes contained in the 6 October 2017 Letter.  The 26 March 2018 and 20 April 2018 Letters merely confirmed the decision made in October 2017 and explained the legal basis for that decision.  By the time that the present application for leave to apply for judicial review was made on 21 May 2018, the 3-month time limit for making the application had already expired such that the Applicant required an extension of time to make the application.

57.The principles for determining an application for an extension of time to apply for leave to apply for judicial review are well settled, and were authoritatively set out in the decision of the Court of Appeal in AW v Director of Immigration [2016] 2 HKC 393, at paragraphs 23 to 28, which it is not necessary to recite here.

58.In the present case:

(1)   Length of the delay - the delay was some 4.5 months, which is substantial, but not excessively lengthy.

(2)   Explanation for the delay - it would appear form the correspondence that I have seen that the Registrar considered that new information and materials were provided by the parties, and continued in active discussion with the parties on the question of whether the registration of the Unregistered Documents (including the 11 August Form) ought to be accepted, refused or withheld after 6 October 2017.  This could legitimately lead the Applicant to consider that he should exhaust the discussion with the Registrar before embarking on formal legal proceedings to challenge the Registrar’s decision.

(3)   Merits of the substantive application - although I have ultimately come to the conclusion that the application should fail on the merits, I consider that it is reasonably arguable.

(4)   Prejudice - I do not consider that the issue of prejudice to be of significance, or should be given much weight, in the circumstances of this case.

(5)   Questions of general public importance - the present application raises, I consider, an important question of principle as regards the power of the Registrar to withhold the registration of a document under the statutory scheme contained in Division 4 of Part 2 of the Companies Ordinance, and various questions of construction of Sections 31, 35 and 36.

59.Overall, I am prepared to grant an extension of time for the Applicant to apply for leave to apply for judicial review in the present case.

JOINDER OF TOMOHIRO

60.In the Form 86, the Registrar is named as the proposed Respondent and the Company is named as an Interested Party.  On 26 June 2018, Tomohiro applied by summons to be joined as the 2^nd Putative Interested party/2^nd Interested Party to this application.  As can be seen from Mr Martin Ho’s Skeleton Submissions for Tomohiro dated 5 July 2018 filed in support of the application, Tomohiro seeks to be joined as an “interested party” as that expression is defined in Order 53, rule 1A of the Rules of the High Court, Cap 4A, alternatively as a person “proper to be heard at the hearing of the application for judicial review” under Order 53, rule 5B(3).

61.In order to qualify as an “interested party” under Order 53, rule 1A, the applicant must be “directly affected by the application”.  Both the Applicant and Tomohiro refer to and rely upon the following commentary in De Smith’s Judicial Review (8^th ed), at paragraph 2-072:

“Persons other than the claimant and the defendant may participate in a claim for judicial review. One important category is ‘interested parties’, upon whom the claimant is obliged to serve the claim form, and who should receive a letter before the claim is started. An interested party ‘means any person (other than the claimant and defendant) who is directly affected by the claim’. Being inevitably or necessarily affected by the outcome of the claim for judicial review is insufficient to make a person directly affected; he must (also) be ‘affected without the intervention of any intermediate agency’. Interested parties are parties to the claim and may therefore appeal against the judgment of the court.” [emphasis added]

62.In the present case, the Company is undoubtedly directly affected by the application and has properly been named as an Interested Party in the Form 86.  Tomohiro is not, in my view, directly affected by the application, although he has an interest in the application.  In this regard, it is important to bear in mind that the subject matter of the application is the Registrar’s decision to withhold the registration of the 11 August Form, which relates to the appointment of the Applicant as a director, and removal of Mr Ishida and Mr Takada as directors, of the Company.  The 11 August Form does not relate to any appointment or removal of Tomohiro as a director of the Company.  Furthermore, a decision by the Registrar to register the 11 August Form would not mean that the 11 August Changes of Directorship are lawful or valid.  Conversely, a decision by the Registrar to refuse or withhold the registration of the 11 August Form would not mean that the 11 August Changes of Directorship are unlawful or invalid.  It seems to me that Tomohiro, as a substantial shareholder of the Company and the person who initiated the original appointment of Mr Ishida and Mr Takada as directors of the Company in May 2017, is indirectly affected by the application through an “intermediate agency”, namely, the Company.  Accordingly, I do not consider Tomohiro qualifies as an “interested party” under Order 53, rule 1A.

63.This is not the end of the matter, because under Order 53, rule 5B(1), any person may apply for leave to (a) file evidence, or (b) make representations at the hearing of the application for judicial review.  Under rule 5B(3), the court shall not grant leave under paragraph (1) unless the applicant appears to the court to be a proper person to be heard at the hearing of the application for judicial review.  Tomohiro has a proper interest in the matter and is, in my view, a proper person to be heard, having regard to the following matters:

(1)   Tomohiro indisputably holds a 43.48% shareholding in the Company, and claims to have been transferred a further 9.78% shareholding in the Company by Hiromi and be entitled to exercise the voting right attached to the shares transferred to him, thereby making him the majority shareholder of the Company.

(2)   As earlier noted, Tomohiro was the person who initiated the original appointment of Mr Ishida and Mr Takada as directors of the Company in May 2017, which was allegedly reversed by the actions of the Applicant on 11 August 2017 as reported in the 11 August Form.

(3)   Tomohiro is currently involved in highly contentious legal proceedings against the Applicant both in Hong Kong and Tokyo relating to the lawfulness or validity of the 11 August Changes of Directorship.

(4)   As can be seen from the voluminous documents that have been filed in this application, it is, I consider, clear that the chief protagonists in the current shareholders’ disputes are the Applicant and Tomohiro.

64.I therefore grant leave to Tomohiro to file his Affirmation dated 3 August 2018 and make representations at the hearing on 21 September 2018 pursuant to Order 53, rule 5B(3).

DISPOSITION

65.For the foregoing reasons, the court:

(1)   grants an extension of time to enable the Applicant to apply for leave to apply for judicial review;

(2)   grants leave to apply for judicial review on the ground that the application is reasonably arguable; but

(3)   dismisses the substantive application on the merits.

66.The court also makes an order that the Applicant shall pay the costs of the Registrar, including all costs reserved, to be taxed if not agreed with certificate for 2 counsel.

67.In so far as the costs of Tomohiro are concerned, the general rule is that an unsuccessful applicant will normally not be required to pay more than one set of costs where there are two or more respondents appearing (see Hong Kong Civil Procedure 2019, Vol 1, at paragraph 53/14/63).  I see no reason why the same general rule should not apply where the court exercises the power to hear a party under Order 53, rule 5B.  This having been said, the general rule may be departed from where there are good reasons to do so on the facts of any given case.  The court’s exercise of discretion in matters relating to costs should remain flexible.

68.In the present case, the court has benefitted considerably from the assistance rendered by Senior Counsel representing Tomohiro (Mr Wong Yan Lung, SC).  However, the points raised on behalf of Tomohiro are, I believe, adequately covered by the submissions made by Senior Counsel representing the Registrar (Mr Horace Wong, SC).  The Registrar is the decision-maker and the party ultimately responsible for defending the legality of her decision.  While I can understand Tomohiro’s wish to be heard, I do not consider that to be a sufficient justification to order the Applicant to bear two sets of costs.  Overall, I consider that the fair order to make would be no order as to costs as between the Applicant and Tomohiro, including the reserved costs of the short hearing on 10 July 2018, and I so order.

69.Lastly, it remains for me to thank counsel for their assistance rendered to the court.

Mr Jin Pao, SC and Mr Jonathan Chang and Ms Sharon Chan, instructed by SSW & Associates, for the Applicant

Mr Horace Wong, SC and Mr Julian Lam, instructed by Department of Justice, for the Putative Respondent

Mr Wong Yan-Lung, SC and Mr Abraham Chan, SC and Mr Martin Ho, instructed by Gall, for the Proposed Interested Party