Tan Jian Ming v. Tan Jiacheng, The Administrator of the Estate of Tan Jianchao also known as Tan Jian Chao, Deceased and Others

HCMP 354/2025

[2025] HKCFI 6368

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 354 OF 2025

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D E C I S I O N

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1.This is the hearing of the Re-Re-Amended Originating Summons dated 12 December 2025, by which the Plaintiff (“P”) seeks the following main reliefs:

(1)  The allotment by the 3^rd Defendant (“Company”) of 80,000 shares to the 1^st Defendant (“D1”) and 100,000 shares to the 2^nd Defendant (“D2”) (collectively, “Allotment”) pursuant to a board resolution dated 8 June 2022 (“Allotment Resolution”) be set aside, and relatedly the Return of Allotment (Form NSC1) filed with the Companies Registry on 8 June 2022 be declared null and void and of no effect and be removed from the Companies Register;

(2)  The board resolution of the Company dated 30 October 2024 (“Removal Resolution”) removing P as director and appointing D2 as director be declared null and void, and relatedly the Notice of Change of Company Secretary and Director (Form ND2A) filed with the Companies Registry on 30 October 2024 be declared null and void and of no effect and be removed from the Companies Register; and

(3)  A declaration that D2 was not validly appointed as director of the Company, and relatedly an injunction to restrain D2 from purporting to act, or holding himself out, as a director of the Company, and from relying on the two impugned documents filed with the Companies Registry set out above.

2.At the hearing:

(1)  P was represented by Mr Richard Khaw SC, leading Mr Sik Chee Ching and Mr William Wong; and

(2)  D1 and D2 were represented by Mr Johnny Mok SC, leading Mr Terrence Tai and Ms Kitty Fan.

3.P and D1 are brothers. D2 is D1’s son. D1 passed away in November 2024. D2 was appointed to represent D1’s estate as its administrator in these proceedings.

4.The Company was incorporated in Hong Kong in 2007. Its primary asset is a majority stake in a PRC company called Guangdong East Asia Electric Appliance Co Ltd (廣東東亞電器有限公司) (“East Asia”). East Asia is a Sino-foreign enterprise (中外合作經營企業), initially engaged in the business of manufacturing household electrical appliances and products, and later branched out into the business of supplying automobile parts to car manufacturers. The Company and East Asia jointly own two PRC subsidiaries based in Foshan (“Foshan Subsidiaries”).

5.At the time of incorporation, P was the sole director and shareholder of the Company, holding 10,000 shares. It is D1’s case that P held these 10,000 shares as his nominee. This is disputed by P.

6.In May 2011, the Company allotted 10,000 shares to D1, who was appointed as director of the Company.

7.In August 2011, D1 transferred his 10,000 shares in the Company to P, and P executed a declaration of trust (“DOT”) that he held 10,000 shares in the Company on trust for D1. It is D1’s case that since then, P has been and is still holding all the 20,000 shares in the Company registered in his name on trust for D1.

8.By the Allotment in June 2022, P’s shareholding in the Company was diluted to 10%. D1 became a 40% registered shareholder; D2 a 50% registered shareholder.

9.The Allotment was prima facie invalid. A share allotment requires the approval of shareholders in a general meeting under both section 57B of the Companies Ordinance (Cap 32) and the Company’s articles. There was none. The Allotment Resolution was a board resolution.

10.Despite that, D1 and D2 claim that the Allotment is valid under the Duomatic principle, when all the shareholders of the Company at the time (on P’s case, P alone; and on D1 and D2’s case, P and D1 whose shares are held on trust by P pursuant to the DOT) assented to the Allotment.

11.The essence of the Duomatic principle was summarized in EIC Services Ltd v Phipps [2003] EWHC 1507 (Ch) at [122] as follows:

“… where the articles of a company require a course to be approved by a group of shareholders at a general meeting, that requirement can be avoided if all members of the group, being aware of the relevant facts, either give their approval to that course, or so conduct themselves as to make it inequitable for them to deny that they have given their approval. Whether the approval is given in advance or after the event, whether it is characterised as agreement, ratification, waiver, or estoppel, and whether members of the group give their consent in different ways at different times, does not matter.”

12.Mr Khaw stressed that for the Duomatic principle to apply, there must be sufficient material from which an observer could discern that the shareholders had applied their minds to the decision in question: Hollington on Shareholders Rights (10^th ed.) para 5-13. In other words, there must be informed consent by all the shareholders: Highfit Development Co Ltd v Koo Siu Ying & Ors [2025] HKCFI 2775 at [181].

13.Mr Mok argued that P had signified his assent to the Allotment by his signature on the Allotment Resolution which he (and D1) signed as the two directors of the Company. He developed his argument as follows:

(1)  Whilst P claimed in his affirmation that he does not recall signing the Allotment Resolution, he did not dispute that it was his signature on the Allotment Resolution.

(2)  P explained that over the years, Ms Wang Yu who is the head of accounting section of the finance department of East Asia would bring documents for him to sign, including cheques, corporate documents, and tax documents. She usually collated these documents and attached them with colour tabs next to the signing blocks before she came to his office for signing the documents. P left school at the age of 14 and does not read or understand English. When Ms Wang brought him documents in English language, she would explain the nature of the document to him before he signed. P believed that he had signed the Allotment Resolution (and the DOT) in such circumstances.

(3)  The nature of the Allotment Resolution – as Ms Wang would have explained to P before he signed – is a resolution to allot shares in the Company. This also answered Mr Khaw’s argument that merely signing a document without knowing the contents and/or effect and/or without being aware or heard of the subject matter of a document is insufficient to invoke the Duomatic principle – a point left open in Ng Kwok Piu Philip & Ors v To Pui Kui & Ors [2021] HKCA 106 at [4.3] and [6.4].

(4)  The allottees’ names (D1 and D2) are set out twice in both English and Chinese on the Allotment Resolution, each accompanied by the number of shares to be allotted to each of them. There is no suggestion that P did not, and could not, understand the Chinese names of D1 and D2, and the numbers “80,000” and “100,000” inserted alongside each of their names in two places.

14.Mr Mok further contended that P’s true assent is reinforced by the fact that he, as director, signed off the Company’s audited financial statements (“AFS”) for 2022 and 2023, both of which recorded the increased share capital to $200,000, and the increased number of fully paid up shares to 200,000, resulting from the Allotment. In presenting the AFS, P was performing his statutory duty as a director as required by section 379 of the Companies Ordinance (Cap 622), which required him to ensure that the AFS gives a true and fair view of the Company’s financial position and performance. It is therefore not open to P to disown his knowledge and approval of the Allotment.

15.Mr Khaw submitted that in determining what a signed document represents, the Court should not take a “myopic and blinkered approach” by focusing merely on the signature in question and ignoring the factual context leading up to the execution. The party relying on the signature is required to prove that the document in question was executed in the circumstances as alleged by such party: Hu Lan v David Golden [2024] 1 HKLRD 1252 at [61]-[62].

16.Mr Khaw made the point that D1 and D2 have not deposed to the circumstances as to how, when, and where the Allotment Resolution was signed, except the bare assertion by D2 that on 8 June 2022, D1 “arranged for himself and [P] to sign the Allotment Resolution”.

17.Mr Khaw contended that D1 and D2 only proffered one reason as to why P would have agreed to the Allotment despite it substantially diluted his shareholding in the Company, which is that P held his 20,000 shares in the Company as D1’s nominee. According to D2’s affirmation:

(1)  D1 arranged for P to act as his nominee to hold shares in the Company when it was incorporated, which served as the foreign-investor shareholder of East Asia, given P obtained Canadian permanent residency status around that time.

(2)  D1 arranged for the allotment of 10,000 shares in the Company to himself in order to monitor the operation of the Company more effectively. He was later advised that his PRC citizenship and shareholding in East Asia’s PRC-investor shareholder may jeopardize the Company’s and East Asia’s status as Sino-foreign enterprise. The 10,000 shares were therefore transferred back to P to be held on trust for D1.

(3)  The DOT in respect of 10,000 shares in the Company evidenced the nominee arrangement.

18.Mr Khaw argued that the nominee arrangement put forward by D1 and D2 was inherently incredible. His main arguments may be summarized as follows:

(1)  There is not a single piece of documentary evidence of correspondence showing that P and D1 had ever discussed P’s status as nominee, or that P must act in accordance with the instructions of D1. To say the least, there must be at least some communication between P and D1 on why the Allotment was required and how it should be done. The nominee arrangement only first surfaced in January 2025 when D1 and D2 through their solicitors responded to P’s letter raising queries on the validity of the Allotment and Removal and seeking all relevant documents. There is also no evidence that P was accustomed to act in accordance with D1’s instructions regarding his shares in the Company over the years.

(2)  The DOT contradicts the nominee arrangement. Had there been any understanding that all 20,000 shares in the Company were to be held by P as nominee for D1, it is inconceivable that the parties would only execute the DOT in respect of 10,000 shares.

(3)  P’s beneficial ownership in the 20,000 shares is consistent with his extensive contribution to the Company and the East Asia group of companies. This is inconsistent with the conduct of a nominee or figurehead, and reflects P’s genuine beneficial ownership and vested interest in the Company:

(a)  P and his wife have provided joint guarantees to secure over RMB 1.6 billion in bank loan facilities for East Asia and the Foshan Subsidiaries between 2015 and 2023. To date, P remains one of the joint guarantors in securing over RMB 480 million banking facilities. They also mortgaged their own properties in 2012 to secure a RMB 20 million facility for East Asia.

(b)  In response, D2 claimed that everyone in the family had contributed to East Asia. But that rather proves P’s point, that he had an interest in East Asia through his shareholding in the Company.

(4)  The conduct of P and D1 is inconsistent with the nominee arrangement:

(a)  D2 said that the Allotment had the purpose of allowing him to succeed D1’s position as shareholder in the Company in time. Had that been the case, D1 could simply have asked P to transfer his shares in the Company to D1 or D2. There would have been no need for the Allotment.

(b)  In fact, the Allotment complicates matters for D1 and D2, with P remaining as a 10% registered shareholder. At the time of the Allotment, they could have cleared P’s registered shareholding if the intention was to allow D2 to succeed D1 as the sole shareholder in the Company.

(5)  D1 and D2 explained that the nominee arrangement was necessary to enable East Asia to maintain its status as a Sino-foreign enterprise under PRC law. Steps were taken to ensure that D1, a PRC citizen, was not the registered shareholder of the Company. Instead, P was chosen for that role because of his Canadian residency. That explanation is untenable:

(a)  P adduced PRC legal opinion to the effect that PRC law does not impose requirements on a foreign investor’s ultimate beneficial owners. So long as the Company remains the foreign investor and maintains over 25% of the capital contribution, East Asia would remain a Sino-foreign enterprise.

(b)  Based on P’s PRC legal opinion, PRC law does not recognize dual nationality. P’s Canadian permanent residency would not affect his citizenship as a PRC national. P’s position is therefore no different from D1’s.

(c)  If D1’s PRC citizenship would pose any difficulty to East Asia’s status as a Sino-foreign enterprise, he would not have procured the Company to allot 10,000 shares to himself, only to transfer them back to P.

19.Mr Khaw submitted that in view of the glaring lack of reasons for, and also lack of any communication on the Allotment, P’s signature on the Allotment Resolution could not represent or signify his informed consent to the Allotment.

20.The Removal stands and falls with the Allotment:

(1)  There is no dispute that P never attended any board meeting on 30 October 2024, and did not sign any board resolution to the effect of the Removal Resolution.

(2)  In any event, under the Company’s articles, directors can only be removed by shareholders’ ordinary resolution. There was none.

(3)  D1 and D2 claimed that as at 30 October 2024, they collectively constituted 90% registered shareholders of the Company. They could have passed a shareholder’s resolution to remove and appoint directors anyway, therefore achieving the same result as the Removal. In such circumstances, the Court would not act in vain in interfering with an irregularity which is capable of and will inevitably be confirmed by the majority – i.e. what is commonly known as the irregularity principle: Re Dalny Estates Ltd [2018] 1 HKLRD 409 at [22].

(4)  Once the Allotment is set aside, the Removal cannot stand on its own since the only remaining registered shareholder of the Company is P, who plainly does not consent to removing himself as director.

21.D2 mounts a counterclaim to requisition an EGM pursuant to section 570 of the Companies Ordinance (Cap 622) to ratify any irregularities associated with the removal and appointment of directors under the Removal Resolution. This also stands and falls with the Allotment. If the Allotment is set aside, D2 is not a member of the Company and has no standing to request to convene an EGM.

22.In my view, the validity of the submissions of both sides hinges on the background leading to the shareholding structure of the Company prior to the complained acts.

23.P was originally the 100% shareholder of the Company. By the Allotment, P not only lost control over the Company, his shareholding was also diluted to 10%. Whether there was any informed consent exhibited by P to the Allotment must necessarily depend on why the Allotment took place, and whether P is the beneficial owner of the Company’s 100% shareholding registered under his name.

24.Whilst D1 and D2 say that P held shares in the Company as nominee for D1, there are merits in Mr Khaw’s submissions on the surrounding circumstances set out in [18] above challenging the nominee arrangement and, in turn, supporting P’s lack of informed consent for the Allotment. It is clear that this is an issue that needs to be tested and resolved in a trial, with the parameters of the parties’ rival cases clearly defined in pleadings, with proper disclosure of all relevant documents, and with the benefit of live evidence and both parties’ account tested under cross-examination. It is not possible for the Court to resolve the disputes on the present state of materials.

25.In the premises, this is a clear case for the Court to invoke the power under Order 28, rule 8 of the Rules of the High Court to order the proceedings to continue as if the cause or matter had been begun by writ. I so order.

26.I will now hear parties on costs and consequential directions.

(Submissions on costs)

27.Both sides initially sought a final disposal of the proceedings at this hearing. Neither is successful. The fair order is that the costs of the application should be in the cause, with certificate for two counsel.

(Submissions on consequential directions)

28.I order as follows:

(1)  P to file his Statement of Claim by 2 January 2026;

(2)  D1 and D2 to file their Defence and Counterclaim (if any) by 30 January 2026;

(3)  P to file his Reply and Defence to Counterclaim (if any) by 13 February 2026;

(4)  D1 and D2 to file their Reply to Defence to Counterclaim (if any) by 27 February 2026;

(5)  There be a Case Management Conference before this Court on 3 March 2026 at 9:30 am (with 30 minutes reserved); and

(6)  Parties are to submit to the Court their proposed directions on the further conduct of the case by 1 pm on 2 March 2026.

29.I thank counsel for their assistance.

Mr Richard Khaw SC, leading Mr Sik Chee Ching and Mr William Wong, instructed by K C Ho & Fong, for the plaintiff

Mr Johnny Mok SC, leading Mr Terrence Tai and Ms Kitty Fan, instructed by Deacons, for the 1^st and 2^nd defendants

The 3^rd defendant was not represented and did not appear

The 4^th defendant was excused from attendance