Hassan Djalil Zadeh and Another v. Registrar of Companies
Read the full judgment text of HCMP 1867/2017 on BabelCite. This High Court CFI judgment was delivered on 12 December 2019.
1. These two actions relate to the Hong Kong company called Trade Treasure Limited (“Company”). The Company was incorporated on 18 May 2009 as a private company limited by shares. The Company was deregistered on 6 July 2012, following the Company’s own application for deregistration pursuant to section 291AA of the then Companies Ordinance Cap 32 (“predecessor Ordinance”).
Cited by 2 cases · Cites 8 cases
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HCMP 1867/2017 [2019] HKCFI 2976 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO. 1867 OF 2017 ________________________
________________________ BETWEEN
________________________ AND HCMP 76/2019 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO. 76 OF 2019 ________________________
________________________ BETWEEN
________________________ (Heard together)
________________________ J U D G M E N T ________________________ Introduction 1.These two actions relate to the Hong Kong company called Trade Treasure Limited (“Company”). The Company was incorporated on 18 May 2009 as a private company limited by shares. The Company was deregistered on 6 July 2012, following the Company’s own application for deregistration pursuant to section 291AA of the then Companies Ordinance Cap 32 (“predecessor Ordinance”). 2.By originating summons in HCMP 1867/2017 dated 1 September 2017, the Company as 1st applicant and another company Shallon Limited (“Shallon”) as 2nd applicant applied under section 765(2) of the Companies Ordinance Cap 622 (“Ordinance”) that the Company be restored to the Companies Register. Shallon is a company which was incorporated in the Isle of Man. The Registrar of Companies (“Registrar”) is the respondent to the originating summons. 3.The originating summons was amended on 22 October 2018 to substitute as the two applicants, in place of the Company and Shallon, Hassan Djalil Zadeh and Mohammad Medhi Rasekh respectively. The amendment was made in the circumstances described below. 4.By another originating summons in HCMP 76/2019 dated 17 January 2019, Mr Zadeh applied under section 42 of the Ordinance for rectification of the Companies Register that the Company was not deregistered pursuant to the application for deregistration of a different private company (Form DR1) filed on 30 January 2012 (“Deregistration Application”), or alternatively for removal of the Deregistration Application from the Companies Register. The Registrar was the then only respondent to the originating summons. 5.However, that originating summons was also amended on 9 May 2019, primarily to add Lam Pik Ling Carol (“Ms Lam”) as the 2nd respondent. Ms Lam is said to be the Hong Kong authorised representative of Islamic Republic of Iran Shipping Lines (“IRISL”), who handles various corporate or shipping matters in Hong Kong on its behalf. 6.Jaldhi Overseas Pte Limited (“Jaldhi”) has applied to intervene in both actions, and to oppose the relief sought in both actions. I previously heard and dismissed an application that Jaldhi should provide security for the costs of both the joinder application and the underlying originating summons in HCMP 76/2019: see [2019] HKCFI 2675. 7.On 10 April 2019, it was ordered that the substantive hearing should be fixed for the determination of the two originating summonses and the two joinder applications, in a “rolled up” hearing. 8.Having heard argument on 5 December 2019, this is my judgment. The argument was conducted by Mr Victor Lui on behalf of the applicants, and Mr Eugene Kwok on behalf of Jaldhi. Ms Lam was not represented and did not appear, and appears not to have even acknowledged service. The attendance of the Registrar was excused, though she did file a statement pursuant to section 43(2) of the Ordinance. Further Background 9.On 8 August 2011, the Company seems to have resolved at an EGM that it be deregistered from the Companies Registry in Hong Kong. The members said to have been present at the EGM were Ms Lam and Shallon, though it is not clear (as it is not stated on the minutes) by which natural person Shallon is said to have attended the EGM. As has subsequently become clear, however, Ms Lam was never a member or shareholder of the Company (or of Shallon), and Shallon had itself ceased to exist before the date of the EGM. 10.The minutes of the EGM state that the meeting was held at the registered office and commenced at 10.30am and ended 30 minutes later at 11am. Ms Lam is described as the Chairman and signed the minutes in that capacity (her signature being the only signature on the document). 11.The minutes of the EGM record several factual recitals which are: that “the Company has never commenced business since [in]corporation”; that “the Company is unlikely to start operation in the future and has ceased to have a registration office”; that “the Company has no outstanding assets or liabilities, has no creditors, and it is defunct”; that “the members of the Company have lost all interest in the Company and would attend a meeting for the purpose of winding up nor receive any notice or attend to any matters relating to the Company and have agreed to have the Company deregistered from the Companies Registry”; and that “there is no fund from which the costs of winding up could be paid”. As has subsequently become clear, at least the first three statements of fact recited were simply not true. 12.The minutes of the EGM record the resolution that an application be made to the Companies Registry for deregistration of the Company, and that authority be given to Ms Lam to sign at the meeting an application for the issue of the request for a Notice of No Objection to a company being deregistered from the Commissioner of Inland Revenue, as well as the Deregistration Application itself. 13.On a form with an illegible date in November 2011, but chopped as received by the Revenue on 23 November 2011, Ms Lam – purporting to sign as an authorised signatory of Shallon, in its capacity as a director of the Company – made the request under section 88B of the Inland Revenue Ordnance Cap 112 for a Notice of No Objection to a Company being Deregistered. Amongst the facts asserted against Ms Lam’s signature declaring that to the best of her knowledge and belief that the information was true, correct and complete were the facts that the company had never carried on business and was not going to start business after the date of the application. As already indicated, that was simply not true. 14.Nevertheless, and because it would not have known of the untruths in the declaration, the Revenue gave the appropriate Notice of No Objection dated 22 December 2011. 15.On 30 January 2012, Ms Lam signed the Deregistration Application, and it was filed with the Companies Registry on 21 February 2012. On it, the applicant is named as Shallon, for whom Ms Lam signed as an authorised person. The grounds for the application included the certified information that the Company had never commenced business or operation or that the Company has ceased to carry on business or ceased operation for more than three months immediately before the application. As has become clear, and as already indicated, that was simply not true. As an aside, it might be noted that the Deregistration Application form has a pre-printed warning to all applicants that it is an offence knowingly or recklessly to provide false or misleading information regarding the application. 16.As no objection was received in response to publication of the Deregistration Application, the Registrar was empowered to deregister the Company and dissolve it. The Registrar was not responsible for verifying the truth of the information contained in the Deregistration Application, and had no knowledge of the untruths in it. 17.On 6 July 2012, the Company was deregistered, by a notice to that effect being published in the Gazette, and was accordingly dissolved. 18.The Deregistration Application for, and the actual deregistration, occurred shortly after Jaldhi commenced London arbitration proceedings against the Company in December 2011. There is an issue on the materials as to whether or not the deregistration was triggered by the commencement of those proceedings. 19.In any event, neither Jaldhi nor the arbitral panel were aware of the Company’s dissolution, and the arbitration proceedings carried on. Notwithstanding the dissolution, the dissolved Company nevertheless continued to have London solicitors (“Taher”) acting for it in the arbitration. The arbitration was pursued to an award made on 12 December 2014 (“Award”). Jaldhi lost, and was ordered to pay US$293,734.26 and costs. It had previously provided security for the claim so as to release goods from a lien, and the award sum was paid over to Taher. Jaldhi was also negotiating the quantum of costs when it discovered the Company’s dissolution. 20.Jaldhi brought London legal proceedings against Taher to recover the award sum, alleging that Taher had no authority to act for a non-existent client. Jaldhi also asserts that the Award is a nullity. In those proceedings, a Consent Order has been made under which Taher undertook to repay to Jaldhi the claimed sum of US$293,734.26 by a long stop date currently extended to 24 January 2020, unless the Company is beforehand restored to the Companies Register. 21.In HCMP 1867/2017, Mr Zadeh filed affirmations on behalf of Shallon asserting it to be the sole shareholder and director of the Company prior to its dissolution, and that the restoration was necessary in order for the Company to pursue the costs order against Jaldhi. There is an issue as to whether or not Mr Zadeh knew at the time he made his affirmations that it was not true, but there can be no issue that the factual assertions were not true. That is because Shallon had itself been struck off from the Companies Registry in its place of incorporation, the Isle of Man, on 15 March 2011. 22.Therefore, not only had Shallon ceased to exist before the deregistration of the Company, it had ceased to exist before the EGM at which it was decided to deregister the Company. 23.As neither the Company nor Shallon were in existence so as to have started the proceedings in HCMP 1867/2017, they were substituted by Mr Zadeh and a Mr Rasekh as the 1st and 2nd applicants respectively. In these confused circumstances, Mr Zadeh also issued the originating summons in HCMP 76/2019. 24.As I pointed out in my decision relating to security for costs, the two originating summonses are based on inherently inconsistent and contradictory underlying assertions. The section 42 application asserts that the deregistration was in effect a nullity from the beginning, whereas the section 765 application for restoration of the company presupposes that the original deregistration was valid and effective. 25.Mr Lui submitted that he pursues the applications in the alternative. But there was at least a flavour to his submissions that he wanted relief under a combination of the possible exercise of powers under both section 42 and section 765. 26.Mr Lui submitted that the crux of the case is whether (a) Jaldhi ought to be able because the Company had been dissolved to avoid an adverse costs order in the Award, made in proceedings which Jaldhi commenced, pursued to the end and in which it was unsuccessful, or (b) despite its deregistration, the Company should be able to recover its costs of the arbitration (on behalf of its solicitors, Taher). 27.The points made by Jaldhi in its joinder applications include allegations that: (1) the Company intentionally concealed its deregistration so as to evade a potentially adverse arbitral award; (2) the arbitral award was a nullity; (3) Mr Zadeh intentionally concealed the dissolution of Shallon; (4) Mr Zadeh and Mr Rasekh were not the true beneficial owners of the Company as they allege; and (5) the substantive application should be dismissed because of existing US sanctions over IRISL, the true beneficial owner of the Company. Mr Kwok also took the point that the applicants in both actions have no locus standi to bring the relevant applications. 28.As the matter was dealt with at a “rolled up” hearing, I think nevertheless it is appropriate and convenient to deal with the question of joinder first. 29.Thereafter, Mr Lui suggested that, and addressed his argument on the basis that the application in HCMP 76/2019 should be dealt with first, but that even if the Court were to reject the rectification and/or removal of the Deregistration Application sought in those proceedings, the Applicants would still be entitled to a restoration of the Company on the application in HCMP 1867/2017. However, I agree with Mr Kwok that logically the application in HCMP 1867/2017 falls to be considered before the application in HCMP 76/2019. First, as the action numbers indicate and as is clear from the chronology above, it is the first application to have been issued relating to the Company. Secondly, Mr Lui accepted my suggestion that what the Company really wants is for its registration to be restored, with the effect that it is to be treated as having never been deregistered, as that is the most straightforward manner of curing any defect in the arbitration proceedings so as to enable it to pursue the costs provided for in the Award, which is the only basis for restoring the Company at all. That aim, if it is to be achieved, is most straightforwardly achieved through the provisions of sections 765 to 768 of the Ordinance. 30.The Registrar has indicated that she is generally neutral to the application in HCMP 76/2019, though she has filed a Statement pursuant to section 43(2) of the Ordinance. The content of that Statement sets out various background matters, those documents which are pending, the relevant provisions of section 42, and the Registrar’s views as to what the Court might do, depending upon the matters of which it can be satisfied by the applicant. Joinder 31.The Court has the discretionary power under RHC Order 15 rule 6(2)(b)(i) to add a new party where that party’s presence is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon. 32.I accept that it is appropriate that Jaldhi be permitted to intervene in both sets of proceedings. First, the outcome will directly affect its rights and obligations in relation to the sum of money currently held by Taher and the subject of the London action. 33.I also agree with Mr Kwok’s submission that it is in the public interest for there to be a ‘contradictor’. This is because the Registrar has adopted a neutral position, which is not surprising given her lack of direct knowledge of the relevant circumstances. Whereas, on the other hand, Jaldhi wishes to, and is in the position to, challenge the evidence filed by the applicants. It is also of assistance to have an adverse party to make submissions on the relevant principles and their potential application to any given set of circumstances. 34.In so saying, I accept that allowing third parties to be joined into restoration proceedings is probably the exception, not the rule. In so far as there is authority – such as In re Pablo Star Limited [2017] 1 WLR 299, at §§49-50, on which Mr Lui relies – to suggest that where the Registrar does not raise with the Court issues relating to breaches of undertakings or misleading witness statements, it is not for anyone else to raise that with the Court, I respectfully disagree. It seems to me to make little sense to leave such challenges to a potential subsequent challenge to the decision of the Registrar in judicial review proceedings, when those challenges might conveniently be dealt with in the actual decision of the Court as to whether restoration, rectification or removal should be ordered. After all, in this case, it is the Court’s jurisdiction which is invoked by the current application not the Registrar’s; it is the Court which decides whether or not to grant any relief. 35.I do not think it is an answer to make the submission, as Mr Lui does, that it should be left to the Registrar to decide how to investigate the merits of the actions, and how to deploy, if at all, materials which might be provided to her by Jaldhi. In this case, the Registrar has already expressed her neutrality, albeit with the filing of the Statement in the context of HCMP 76/2019, and the materials are readily available and the arguments properly presentable by Jaldhi. 36.I therefore order Jaldhi to be joined as a party to both actions. HCMP 1867/2017 The Approach 37.The application in HCMP 1867/2017 is made pursuant to section 765(2) of the Ordinance, which provides that:
38.Section 767(2) of the Ordinance provides that:
39.Section 768(1) of the Ordinance provides that:
40.Essentially, therefore, the only consideration as to whether or not to order restoration of a company is as to whether the court is satisfied that restoration is “just”. 41.I accept that this is a potentially broad question where many factors might come into play, and that when considering whether the company ought to be restored, the Court is entitled to take into account all the circumstances of the case: see, for example, Re Priceland Limited [1997] BCC 207, at 211C-D. Though that decision occurred in the context of consideration of an English statutory provision which also had other elements of which the court was to be satisfied, Laddie J looked at whether restoration might be “otherwise just”. He also held that the circumstances which the Court is entitled to take into account are not limited to considering what the position was at any particular date. I agree. 42.So as to provide context, I mention that section 291AA of the predecessor Ordinance was headed “Application to Registrar for deregistration of defunct private company”, and materially provided that:
43.Therefore, under that section, once application for deregistration was made by an appropriate person in the specified form, the Registrar was entitled to assume without enquiry that the information given was true, and was then required to publish a notice of the proposed deregistration in the Gazette. If no objection was received, the Registrar was empowered to deregister the company and dissolve it. The act of deregistration is the publishing of a notice in the Gazette declaring the company to be deregistered upon the date of publication of the notice. The company is then dissolved on deregistration. Standing – A Person Who Feels Aggrieved 44.However, before looking at whether it would be “just” to order the restoration of the Company to the Companies Register, it is first necessary to consider Mr Kwok’s preliminary point regarding whether or not Mr Zadeh and Mr Rasekh have the appropriate locus standi to make the application. 45.The starting point is, as Mr Lui points out, the class of persons who may make an application under section 765(2) appears to be wider than those who might make the application under section 765(1). Under the former, an application may be made “by a person who feels aggrieved by the deregistration”, whereas the latter such application can only 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”. In other words, the applicant under section 765(2) need not be a former director or member of or a creditor of the company, and can be any person who feels aggrieved by the deregistration. 46.But Mr Kwok says that Mr Zadeh and Mr Rasekh are not persons who would feel aggrieved. First, he points to the inconsistent evidence as to their relationship with the Company given in a series of affirmations, in all of which Mr Zadeh affirms to be “intimately acquainted with the affairs of” the Company. The original position taken was that Shallon was the sole shareholder and director of the Company prior to its deregistration, in support of which assertion was exhibited the Company’s last annual return dated 18 May 2012. Indeed, that was the basis for making Shallon one of the original applicants. 47.Mr Zadeh also stated he was authorised by Shallon to give evidence on its behalf, and exhibited an authorisation letter (signed by Mr Rasekh against Shallon’s chop) dated 29 August 2017. Of course, by that date, Shallon had long been struck off and dissolved, and could not have authorised anybody to do anything. Once this problem was pointed out, Mr Zadeh changed his evidence, and asserted that Shallon had transferred its share in the Company to Mr Zadeh on 11 March 2011, just two weeks prior to Shallon’s dissolution. 48.To support that assertion, Mr Zadeh exhibited an instrument of transfer and bought and sold notes, all dated 1 March 2011. But these documents were only stamped on 8 November 2017, more than six years after the date they bear. Worse still, the stamping date is even after these proceedings had already been commenced naming Shallon as one of the applicants, and after – albeit only about 2 months after – Mr Zadeh had himself affirmed from his claimed “intimate knowledge” that Shallon was (still) the sole shareholder of the Company. 49.Mr Zadeh’s attempted explanation that this arose because he and Mr Rasekh were unfamiliar with the procedure for transfer of shares in Hong Kong was utterly unconvincing, and I have no hesitation in rejecting them as false and recent inventions. 50.First, Mr Kwok makes the point, which I accept, that if Mr Zadeh was “intimately acquainted” with the affairs of the Company, he would know that Articles 13, 34 and 35 of its Articles of Association required there to be an instrument of transfer duly stamped in order for a share certificate to be issued, and that every duly stamped instrument of transfer, together with the share certificate relating to the share to be transferred, was required to be lodged at the Company’s registered office for registration. Article 35 expressly states that the Company shall retain all instruments of transfer, unless a fraud is suspected. Given that Mr Zadeh claims to be able to produce the instrument of transfer, it is inexplicable that it was not only not lodged at the time, but was never lodged with the Company for registration (unless it was rejected for being a suspected fraud). 51.Secondly, Mr Zadeh’s contention that administrative matters were handled by the company secretarial department (rather than by him) fails to account for how Ms Lam – as the person he says was authorised and nominated to handle the Company’s deregistration – would somehow have failed properly to stamp the share transfer documents or have them lodged with the Company for registration in the way required. 52.Thirdly, Mr Zadeh has not explained how he was able to locate the instrument of transfer and bought and sold notes when he at the same time says in his third affirmation that the “Company’s former secretary can no longer locate its internal file on the Company”. 53.Fourthly, Mr Zadeh’s position is not improved by his manufacturing of other evidence in the “amended” annual returns for 2011-2012, and new annual returns for 2013-2018 – none of which were in any event accepted for registration by the Registrar, and so cannot be used as prima facie evidence of the truth of their contents. Most striking is the attempt – years later – to amend the returns for 2011 and 2012 to show Shallon having transferred its share to Mr Zadeh on 1 March 2011. 54.Mr Zadeh’s assertion that he and Mr Rasekh were appointed directors of the Company on 9 November 2017 is also impossible to be true, as the Company and Shallon had both been dissolved long before that date. Indeed, no resolution appointing them as directors has been produced, even though it would not be worth the paper it might be written on. There is also the Form ND2A which suggests that Shallon resigned as a director, and that Mr Zadeh and Mr Rasekh were appointed as new directors, on 1 March 2011. That form is signed by them on behalf of Shallon and actually dated 1 March 2011, but I also reject the idea that it was in fact dated or signed then. In my view, it was plainly produced for filing on 9 November 2017, after having been created very shortly beforehand, and for the purposes of these proceedings. It is not surprising that that form also was not accepted for filing by the Registrar. 55.I agree with Mr Kwok’s submission that the applicants have simply attempted to re-write history, almost to the bizarre point of suggesting that the Company has carried on as if it had not been dissolved at all. That fiction may be what they seek to achieve as a deemed fact by this application, but it remains a fiction unless and until restoration is ordered. 56.In a further change of position, in his third affirmation, Mr Zadeh – again on the basis that he was “intimately acquainted with the affairs of the Company” – reverted to the idea that Shallon was the sole director and shareholder of the Company as at the date it was deregistered, but that he and Mr Rasekh were the sole shareholders of Shallon, although by virtue of a gratuitous conveyance deed dated 30 June 2009 they held the ownership beneficially for IRISL. Mr Zadeh also affirmed that Shallon transferred its share in the Company to him on the instructions of IRISL for him to hold on trust for IRISL, and that it would be the intention of IRISL for him to continue to hold the only issued share of the Company on trust for it. 57.This confused evidence, which merely paragraphs apart accepts the prior dissolution of Shallon then ignores it, is deeply unconvincing save as to one expect. That is that it is IRISL which has always been indirectly the true beneficial owner of the Company, and has given all instructions as to how the Company is to act. Mr Zadeh and Mr Rasekh are merely IRISL’s nominees. 58.So, says Mr Kwok, the only person who might really be aggrieved by the deregistration of the Company is IRISL, and Mr Zadeh and Mr Rasekh have no interest whatsoever, and no locus standi. 59.Mr Lui says that argument is flawed for a number of reasons. He first points to the width of the description of persons who might bring the application, effectively any person who feels aggrieved by the deregistration. Secondly, he relies on the transfer of the share from Shallon to Mr Zadeh. Thirdly, he identifies that the documentary evidence at least demonstrates that Shallon remains, on public record, the sole shareholder of the Company, and that where Mr Zadeh and Mr Rasekh are the only two shareholders of Shallon (holding their interest in trust for IRISL), they clearly have an interest, albeit indirectly, in the affairs of the Company. Fourthly, he says the usual position is that trustees bring proceedings, without joining those beneficially interested in the trust assets. Indeed, it is the trustees who ought to bring proceedings rather than the beneficiaries, and trustees are duty bound to protect the beneficiary’s (here, IRISL’s) interest. So Mr Zadeh and Mr Rasekh have a legitimate interest in the relief sought in these proceedings. 60.As to the first point, that really frames the question rather than providing the answer. As to the second point, I have already rejected that as a matter of fact. As to the third point, it is simply a fact that the public record cannot be correct because Shallon was in fact dissolved before the record was filed suggesting that it remained sole director and shareholder of the Company. 61.As to the fourth point, whilst I accept the general principle that trustees bring proceedings for the benefit of beneficiaries, I think that each case falls to be considered in its own particular circumstances. Applicants for the restoration of companies do not exist in a total vacuum, as Mr Zadeh’s own affirmations identify, when they suggest that he has been authorised to file evidence in support of the application. He first claimed to have been authorised by the Company and by Shallon, but that was impossible because both had been dissolved. He then claimed to have been authorised by Mr Rasekh, but Mr Rasekh was in no position to have authorised Mr Zadeh to act for anyone else (other than himself). Finally, he claimed to be duly authorised by IRISL – though that claim is in the same sentence which asserts that both he and Mr Rasekh “remained as the legal/registered owner of shares on record”, which is flatly not true if it is intended to be a reference to shares of the Company, and impossible if it is intended to be a reference to shares of the dissolved Shallon. 62.Nevertheless, where Mr Zadeh has described himself as a senior official of IRISL, and has said in his third affirmation that he has been acting on the instructions of IRISL throughout the action, so that all steps taken or to be taken are duly authorised by IRISL, I am prepared to accept that at least by the time of his third affirmation Mr Zadeh has identified a basis upon which he might make an affirmation and give evidence on behalf of a person who feels aggrieved by the deregistration, that person being IRISL. I do so notwithstanding the absence of any affirmed statement that IRISL actually feels aggrieved, and despite the almost staggering inconsistencies in the evidence. 63.As Mr Kwok asserts, the only person who may really be aggrieved by the Company’s deregistration is IRISL, and Mr Zadeh has finally on 28 August 2018 affirmed to being authorised by IRISL to make the application, and has produced a written authorisation from IRISL dated 17 August 2017. Whilst I think it likely against the previous assertions on affirmation that that authorisation letter was created much later and has been backdated to 17 August 2017, as the language of the letter suggests that may have been so as to give at least ex post facto authorisation to the steps already taken in the action. 64.I suppose, strictly, a further amendment ought to have been sought to identify IRISL as the true applicant, being actually the “person who feels aggrieved by the deregistration” of the Company. Though such an amendment would have come at a cost, both in legal fees and to Mr Zadeh’s credibility, such an amendment would likely have been granted, and I see no purpose now in shutting out the application. I am prepared to treated as an application really made by IRISL, for whom Mr Zadeh has acted as deponent. 65.In passing, and without wishing to create any circularity of argument, I would note that some of the above considerations may come into play when looking at whether restoration is “just” in all of the circumstances. Is Restoration “Just”? 66.Turning to that question, Mr Lui says restoration would indeed be “just” in all the circumstances, including that it is in the Company’s interest in being able to recover the costs from Jaldhi pursuant to the Award, because the Company was successful in the arbitration. Mr Lui says that Jaldhi has the “invented problem” of the Company evading the Award if unfavourable, but seeking restoration once it was favourable. He says that it is settled law that any dispute ought to be resolved in the appropriate forum, and not in the restoration application. Here, the substantive dispute between the Company and Jaldhi has already been resolved in the arbitration, and so even more strongly are the present proceedings not the appropriate forum for deciding the dispute between the Company and Jaldhi. 67.In support of this argument, Mr Lui refers to the line of authorities which establish the general point that disputes ought to be resolved in the appropriate forum, and that where there is a genuine claim against a deregistered company and the claimant wishes to bring an action against the company, it would be very unusual if the court refuses to reinstate the company: see Re Active System Trading Limited (unreported, HCMP 5173/2003, 17 May 2004, Tang J) at §§10-12; Re Cretec Electronics (HK) Limited (unreported, HCMP 653/2014, 12 September 2014, Ng J) at §12 and §16. The latter case was upheld on appeal, and later followed in Re Super International Limited [2019] HKCFI 984 at §13, where DHCJ Ismail SC held that the applicable test on an application to restore a company for the purposes of pursuing a claim is whether the company has more than a shadowy prospect of establishing anything of value. 68.Mr Lui says the hypothesis can be tested as follows. If Jaldhi had realised during the arbitration that the Company had been dissolved, it could easily have applied to the Hong Kong Court for restoration so that the arbitration might continue. Applying the usual principles, it would be near impossible for the Company to have raised any legitimate grounds to oppose such an application. Similarly, if Jaldhi had obtained a favourable arbitration award and wished to enforce it against the Company, it would equally face no difficulties in applying for restoration of the Company. So, says Mr Lui, both the Company and Jaldhi ought to respect and be held bound by the outcome of the arbitration (favourable or not). After all, both parties contracted into dispute resolution by arbitration, the arbitral proceedings were invoked by Jaldhi, the matter was fully argued by written submissions, and a reasoned Award was given (where the outcome of the arbitration was not impacted by any matter relating to the registration or deregistration of the Company). 69.But it seems to me that because the arbitration proceedings have already been pursued to the Award, the facts of this case are rather different from the cases in which restoration of the company is sought so that the company can pursue, or be pursued, to a determination in another forum. Here, the Company’s problem is entirely self-inflicted in circumstances where it must be taken to have had “eyes wide open” at the time its deregistration was pursued. I do not accept Mr Zadeh’s evidence that the deregistration was somehow caused by an “oversight”. There may be many cases in which it would be entirely just to restore a company for the purposes of pursuing the fruits of an arbitration award. But that there are such cases does not necessarily mean that this is one of them. 70.On his side of the argument, Mr Kwok submits that IRISL deliberately deregistered the Company “on the sly” (his words), in a bid to evade any potential arbitral award against it. He says that Taher was instructed to continue acting, even though the Company had ceased to exist, so as to maintain the facade. He also points to the absence of any explanation in evidence as to who instructed Taher, or who paid Taher’s fees over the four years following the Company’s dissolution on 6 July 2012 up to Jaldhi’s discovery of that fact in 2016, during the negotiation on the quantum of costs. As Mr Kwok rightly submits, the Company itself plainly could not have provided the instructions nor the fees. 71.I accept that the explanation for the allegedly “mere inadvertence” in the deregistration of the Company – namely that no one noticed or realised the Company was deregistered because the defence of the arbitration proceedings was handled by the legal department and the deregistration was handled by the company secretarial department, and that “both the board of directors and the person(s) instructed to arrange for the deregistration of the company were not aware of the arbitration proceedings” – beggars belief. First, as I have already pointed out, Mr Zadeh has himself three times affirmed that he is “intimately acquainted with the affairs of the Company”. Secondly, the suggestion that the directors were unaware of the arbitration proceedings makes no sense against the fact that the arbitration followed from the fact that it was the Company which first exercised a lien over Jaldhi’s cargo, and that is what triggered the arbitration. Thirdly, I think an inference properly lies against the chronology of the deregistration application and the lien and arbitration. 72.So, I am satisfied that the original deregistration was likely designed to avoid a potentially adverse arbitral award. 73.There is also force in Mr Kwok’s submission that the unsatisfactory nature of Mr Zadeh’s evidence shows that he, and presumably anyone on whose behalf he purports to be acting, has no hesitation in manufacturing evidence to suit his (or that other person’s) purpose. It may be that Mr Zadeh assumed that the Registrar would not be able to detect the inconsistencies and untruths. But, precisely because of the limited involvement of the Registrar, restoration proceedings are effectively ex parte applications, and so give rise to the highest required standards of full and frank disclosure: see, for example, In re Pablo Star Limited [2017] 1 WLR 299 at §91. 74.Mr Zadeh has clearly not come close to meeting those standards. By way of an analogy, if Mr Zadeh had obtained an ordinary ex parte order on the basis of his evidence (such as a Mareva injunction), it would stand to be dismissed as a result of the failure to give full and frank disclosure. The dismissal would likely be without any further consideration of the underlying merits, and almost certainly without any new order being put in place. 75.Further, whilst the stated purpose of the intended restoration is for the Company to pursue the costs order in the Award, no evidence has been adduced as to the circumstances in which and by whom costs were expended. The chronology identifies that the bulk of any legal fees incurred must have been after the dissolution of the Company, so the Company could not have paid those fees. Who actually paid the fees, for what reason, and on what basis, has simply not been disclosed. 76.Mr Kwok says that this “reeks of and maintenance and champerty”, and the mischief is worse than a “plain vanilla” case, as the intermeddling was designed to avoid liability for as long as possible, in having the Company quietly deregistered whilst Taher continued to act on its behalf. But I do not think I need to consider that point in any detail. First, whilst the current application is made under Hong Kong law, which law still generally prohibits maintenance and champerty, that is not the position in England, and in particular not in the context of London arbitration. Secondly, the complete absence of evidence as to who paid what, why, and when seems to me to make further inferences more difficult. But the absence of evidence in relation to the costs expenditure, the recovery of which is said to justify the restoration of the Company, is relevant in the overall consideration of what is just. 77.Lastly, Mr Kwok relies on the fact that the Government of Iran has for many years been the subject of sanctions in one form or another. There are apparently current US sanctions against IRISL specifically. Also, significant public criticism has been made of IRISL’s actions as part of a broader pattern of deception and fabrication used by Iran. In those circumstances, says Mr Kwok, a restoration order would force Jaldhi into the position of having knowingly to facilitate a potential breach of existing US sanctions, by providing the Company, and thus IRISL, with the nearly US$300,000 held by Taher. Mr Kwok acknowledges that an internationally active entity such as Jaldhi would certainly ordinarily not wish to evade the consequences of an arbitration award. Indeed, it can be seen that Jaldhi was not seeking to avoid its obligations under the Award. It took part in the arbitration, and promptly paid over the sums to Taher when required to, and was in good faith negotiating the quantum of costs when it discovered it had been deceived as to the status of the Company. Therefore, as I accept, it would not be fair to describe Jaldhi’s position as one simply seeking to evade the consequences of the Award. But now that it has belatedly been revealed that the Company was held (in a disguised and indirect manner) for IRISL, neither would Jaldhi wish to flout international sanctions. As Mr Kwok puts it, the circumstances have changed. This seems to me to be something that is properly taken into, and given at least some weight, in the discretionary mix. 78.Insofar as Mr Lui has invited me to take into account the interests of Taher, I do not think I have sufficient evidence properly to be able to do so. Mr Lui says that there is no good justification why Taher, “through no fault of its own”, should be put in technical breach of warranty of authority in the London action, which might give rise to potential implications in professional misconduct. However, no one on the applicants’ side has put forward any real evidence about the position of Taher. I simply do not know whether it is in the current position “through no fault of its own”. I do not know what steps the firm took in relation to obtaining and checking that it had proper authority to act, or from whom it accepted actual instructions, or by whom it was paid (assuming, but not knowing in the absence of evidence, that it was paid by someone and did not act on open-ended credit). This is evidence which Mr Zadeh might have provided, even if it was on information and belief. He has not done so. No one who might have given direct evidence has done so either. 79.On the particular facts of this case, it seems to me overall that this is a case where it would not be “just” for the Court to restore the Company onto the Companies Registry on this application. I therefore dismiss the amended originating summons in HCMP 1867/2017. HCMP 76/2019 The Approach 80.The application in HCMP 76/2019 for rectification or removal of information from the Companies Register is made under section 42 of the Ordinance. 81.Section 42(1) provides that:
82.Section 42(4) provides for additional requirements in relation to removal of information, as follows:
83.Hence, in the case of either rectification or removal of information, the court must be satisfied that the information derives from anything invalid, ineffective or that has been done without the company’s authority. But in the case of removal of information, the additional requirements must be satisfied that the continuing presence of the information will cause material damage to the company, and the company’s interest in its removal outweighs others’ interests in the information continuing to appear. 84.Hence, it is implicit that information may be rectified otherwise than by removal. The powers of rectification and removal are separate powers. The fact that a document is a nullity is not in itself a sufficient reason for removing it as opposed to rectifying it. Some documents may be adequately dealt with by an order for rectification, but there may be other documents the continued presence of which may possibly cause damage to the company despite the registration of a rectifying document: see Re China Nice Education Research Publishing Investment and Management Company Limited [2016] 3 HKLRD 525 at §§13, 15, 17-18, 21-23. 85.In respect of the limb requiring consideration of “material damage to the company”, the threshold is fairly low, and the Court is entitled to consider a wide range of factors in determining whether any damage would be caused, from misuse of forged documents to portrayal of a damaging impression to potential business partners: see Re Forever Up Holdings Limited [2018] HKCFI 2775 at §16. 86.Section 42(5) empowers the court, if it makes an order for rectification or removal under subsection (1) also to make any consequential order that appears to it to be just with respect to the legal effect (if any) to be accorded to the information by virtue of its having appeared on the Companies Register. Further, section 42(8) provides that if the Court makes an order under the section, the person who made the application must deliver an office copy of the order to the Registrar for registration. There is also a power given to the Registrar under section 44 to make a note in the register for the purpose of providing information in relation to a rectification, removal, or any other information. 87.Material to one of the arguments deployed by Mr Kwok are the provisions of section 42(3), which states:
Standing – Proper Person 88.Before dealing with the substantive points on this application, it is necessary to consider the preliminary point taken by Mr Kwok that Mr Zadeh does not have a legitimate interest in the relief sought. This point is put differently from the challenge to standing made in the other proceedings. 89.Whilst Mr Kwok acknowledges that section 42 provides that the Court may grant an order “on application by any person”, so that there is a general jurisdiction to exercise a statutory power, he says this is not enough. He refers to what Lord Millett said in Deloitte & Touche AG v Johnson [1999] 1 WLR 1605, at 1611B-D (emphasis in original):
90.Because IRISL is the true beneficial owner of the Company, and Mr Zadeh is merely acting on its instructions, Mr Kwok says it is IRISL who may have a legitimate interest in rectifying or removing information, but Mr Zadeh has not shown that he has a legitimate interest in the relief sought. If Mr Zadeh is not a proper person to make the application, Mr Kwok says I should exercise judicial restraint and not grant Mr Zadeh any of the relief he seeks. 91.However, as with the other set of proceedings, I am not persuaded that I should shut out the application simply on the question of standing. Now that Mr Zadeh has made clear that he is acting on the instructions of the ultimate beneficial owner of the Company before it was deregistered, I think that he can bring himself within the category of proper persons to make the application. Merits of Relief Sought 92.I might first mention that the amended originating summons seeks an order requiring both respondents to rectify, or the Registrar to remove, the Deregistration Application. It has not been identified how Ms Lam might herself achieve rectification under section 42, though as the person who filed the original Deregistration Application it might be thought that she would have been a better applicant for its rectification or removal. In any event, though it is not clear to me why she was made a respondent, she was made a respondent, so it is unfortunate that she has neither acknowledged service nor provided any evidence or other assistance to the Court in considering this application (nor, indeed, the one in HCMP 1867/2017). Where Ms Lam was identified as the person performing company secretarial duties for companies, apparently also on the instructions of IRISL, it is at least surprising that IRISL has not instructed her to give relevant evidence. In those circumstances, it is also tempting to infer that any evidence she might have given would have been adverse to the applicants. 93.Nevertheless, Mr Lui submits that the case is straightforward. He says that the only relevant documentary contemporaneous evidence before the Court is (a) the record from the Isle of Man Companies Registrar showing that Shallon was struck off on 15 March 2011; (b) the EGM minutes dated 8 August 2011 which were said to have recorded the resolution for deregistration and to have conferred authority on Ms Lam to deregister the Company; and (c) the Deregistration Application filed by Ms Lam on behalf of Shallon (as director of the Company). 94.So, says Mr Lui, since Shallon had been dissolved by the date of the Deregistration Application, it follows that it could not be capable in law of making the Deregistration Application. Further, no valid resolution could have been passed at the EGM; Ms Lam was never a shareholder, and Shallon had already been dissolved. Thus, the Deregistration Application was invalid, ineffective and/or made without authority of the Company. It was a nullity and should never have been registered in the first place. On that basis, the Company should never have ceased to be a legal entity, and the Companies Register should be rectified accordingly. It would follow as a legal consequence that the Award had not been a nullity. 95.As to removal of information, Mr Lui submits that if the Deregistration Application is only rectified but not removed, there is still a prospect of confusion as to whether the Company had not been deregistered at all material times, and that might give rise to unnecessary disputes and costs, for example in the London action. He says the first limb test as to material damage in the Forever Up Holdings case is satisfied. As to the second limb, Mr Lui submits that the Company’s interest in removing the information outweighs the interest of other persons, because it has a legitimate interest in being able to recover costs from Jaldhi, but Jaldhi should not be allowed to circumvent an unfavourable Award. 96.However, it seems to me that rectification would not be an appropriate remedy in relation to the Deregistration Application. It is difficult to see how that document would be rectified in a way to deal with the concern which arises from it. Mr Lui suggested that the document might say somewhere on it that it is not a valid document, but I do not think that is really the kind of rectification the statute has in mind. The practical reality is that the aim, or part of the aim, of the application can in effect really be achieved only by removal of the Deregistration Application. So, to my mind, the fact that the Deregistration Application might have been derived from some invalidity, or ineffectiveness, and hence without the Company’s authority is not enough. 97.Mr Kwok also makes the point, with which I agree, that merely rectifying the Deregistration Application on the Companies Register, or even its removal, bring the wrong focus to the intended relief, which he says is therefore misconceived. The Deregistration Application did not deregister the Company, though it was of course the start of the process. It was the Registrar who actually deregistered the Company, exercising the power given to her under section 291AA(9) after taking the mandatory steps required in the previous subsections. Thus, rectifying or removing the Deregistration Application of itself would not achieve the real practical aim behind the application made in these proceedings. 98.Mr Lui responds by saying that the Court can make any consequential orders as it thinks fit under section 42(4), and one such order might be to state that the Deregistration Application is to be treated as never having been valid (or the Registrar might herself make some note under section 44). But – putting to one side that no such relevant relief is specifically sought in the amended originating summons – this idea triggers another point, namely the consideration of the application of section 42(3). 99.As Mr Kwok points out, what Mr Zadeh really seeks is the resurrection of the Company in order for it to pursue the costs order in the Award. Clearly, a restoration under sections 765, 767 and 768 of the Ordinance would achieve that, as a restoration order deals not only with the Registrar’s Decision for the deregistration, but also the actions taken by or against the Company during the period of its dissolution. As he puts it, sections 765 to 773 of the Ordinance contain a comprehensive statutory framework for dealing with a deregistration, including in particular the effect of the restoration order which deems the company restored to be treated as having continued in existence as if it had never been dissolved in the first place. But there is no equivalent deeming provision in section 42 of the Ordinance. In the premises, says Mr Kwok, by virtue of section 42(3), section 42 itself does not apply in the present case. 100.I do not think I would go quite that far. Mr Kwok rightly has drawn my attention to a decision of G Lam J in Re HK Jingbo Development Group Limited [2019] HKCFI 568, in which he made a section 42 removal order instead of a restoration order. However, Mr Kwok seeks to distinguish that case, as it was one where there was an active, trading company which never had any intention for it to be deregistered. The deregistration in the case was the result of a third party fraudster lodging documents which stated that the real director had resigned and that the fraudster was appointed in his place, the fraudster then applying for deregistration. The case was not one of a director in respect of whose appointment a defect is subsequently discovered. Nevertheless, in circumstances where G Lam J said that it follows that the application for deregistration of the company filed by the fraudster was a nullity, he agreed with the view of the Registrar expressed in her Statement filed in that case, that it was more appropriate to seek a declaration that the deregistration and dissolution of the company was void, rather than an order under section 767 for restoration of the company to the Companies Register. 101.Although I would not go so far as to say that section 42(3) precludes the operation of section 42 where there is the statutory restoration regime in sections 765 to 773, I do think that the Court can look at which type of potential relief would be most appropriate in any given set of circumstances. I agree that the facts of this case are very different from those in the Re HK Jingbo case, not least in that there was here (as I have held) a deliberate and not merely inadvertent deregistration of the Company. 102.The real point seems to me to be as follows. Where I have held that it would not be “just” in all the circumstances to order restoration of the Company, with the automatic consequences that such an order might have had, I cannot see that it would be appropriate to exercise my discretion in favour of making orders under section 42, even assuming the discretion has been triggered by the requirements under subsections 42(1) and (4) having been satisfied. I would not grant relief through the back door, as it were, where I have decided it is not just to grant relief through the front door. That is particularly so, when any orders made under section 42 would seem to me to be a more tortuous route of achieving the desired aim of the applicant(s). 103.I would, however, also go on to deal with Mr Kwok’s other points, which may also assist in the determination one way or the other, the first of which points is that the deregistration was not null and void. For that, he relies on the scheme for deregistration under section 291AA of the predecessor Ordinance. He says that because the Registrar was entitled to assume without enquiry the truth of the contents of the notice of proposed deregistration, and mandated to publish the application, which would empower her to order deregistration of no objection is received, there was a proper deregistration. IRISL did in fact intend to deregister the Company, and the only error was to have failed to realise that Shallon was itself already dissolved at the time of the EGM. 104.So, says Mr Kwok, it is not now open to contend that the Deregistration Application is null and void, as IRISL assented to it, and would be caught by the Duomatic principle: see In re Duomatic Limited [1969] 2 Ch 365, at 373. That principle is not restricted to registered shareholders, and Mr Kwok says it would extend in this case to encompass the unanimous agreement of the beneficial owner of the Company, namely IRISL. He relies on the authority of Shahar v Tsitsekkos [2004] All ER (D) 283 at §67, where Mann J said:
105.Mr Lui’s response is that the Shahar decision was only in the context of a summary judgment application, namely the identification of a point which was arguable. He also points to the fact that the citation of the Shahar case in the Hong Kong case of Luen Tat Watch Band Manufacturer Limited v Lee Shu Hang (unreported, HCA 1952/2012, 9 December 2013, DHCJ Sakhrani) was also in the context of a summary judgment application, and the deputy judge held that whether the Duomatic principle applies to beneficial as opposed to registered shareholders is a matter which ought to be resolved only at trial. In Re Tulsesense Limited [2010] 2 BCLC 525, Newey J was also willing to assume, but without deciding, that the assent of the beneficial owners of a share will meet the Duomatic requirements. 106.But this is the trial of the current action. It seems to me that this is a point that I can and should decide. 107.Mr Lui also referred me to the recent decision of the English Court of Appeal in In Re BW Estates Limited (No 2) [2018] Ch 511. In that case, Sir Geoffrey Vos C, stated at §83:
108.Whilst that statement seems clear to exclude the application of the Duomatic principle from a situation in which the relevant shareholder is a dissolved, therefore non-existent, company, the subsequent paragraphs of the judgment are, with respect, less clear. This is in part because of the complicated factual scenario in the case, but partly because of what the Chancellor said at the end of §84 and in §85. At §84, he stated:
109.At §85, he stated:
110.As I read the totality of the decision, which turned in part on the requirement for a valid vote from a number of shareholders, the dis-application of the Duomatic principle to the situation where the shareholder is a dissolved company was limited to the particular facts in the case. That is why the Chancellor stated his reluctance to express any view on whether it would be sufficient in any event for Duomatic purposes to obtain the consent of the person ultimately entitled to the beneficial interest in a shareholding if there is nobody entitled informal terms to agree on behalf of the registered shareholder. In other words, I think the Chancellor left that question open for subsequent decision. 111.In my view in any event, in an appropriate case where the facts justify it, the Duomatic principle can and should operate in relation to the consent or informed participation of a beneficial owner of shares. In the present case, it seems to me that the facts do justify ‘looking through’ the registered shareholder of the Company to the beneficial owner, precisely because the registered shareholder of the Company has at the material time ceased to exist, as a dissolved company. There was only one shareholder, and if its view on any decision was technically unavailable because of the inability to consent or refuse consent through its own dissolution, there was nowhere else to look for whether consent had been given except to the underlying beneficial owner. Indeed, Mr Zadeh’s own evidence is that whatever he did vis-a-vis Shallon and the Company was on the instructions of IRISL. So Shallon’s consent is to be found in IRISL’s consent, through the consent of Shallon’s own (former) shareholders, who also held their shares beneficially for IRISL. 112.Mr Kwok’s remaining points, namely that the core requirements under section 42 are not satisfied, I think I have dealt with at least inferentially above. I decide to exercise any discretion so as to rectify, and I do not think the balancing exercise points to removal. 113.For these reasons, I dismiss the amended originating summons in HCMP 76/2019. Result and Costs 114.In the circumstances, I dismiss the applications in both sets of proceedings. 115.I see no reason why cost should not follow the event. I therefore order the applicants for the applicant (as the case may be) to pay the costs of the Registrar and Jaldhi in each action, to be taxed if not agreed. However, as Ms Lam did not participate, I make no order as to costs between her and the applicant in the proceedings to which she was married respondent. 116.As to the basis of taxation of costs, I think the matters I have outlined above fully justify taxation on the indemnity scale, and I so order.
Mr Victor Lui, instructed by Holman Fenwick Willan, for the 1st and 2nd applicants in HCMP 1867/2017 and the applicant in HCMP 76/2019 The 1st respondent excused from court attendance in both cases Mr Eugene Kwok, instructed by Lau, Horton & Wise LLP, for the intended intervener in both cases The 2nd respondent in HCMP 76/2019 was not represented and did not appear |
Cases cited in this judgment
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