Thian's Plastics Industrial Co Ltd and Others v. Tins' Chemical Industrial Co Ltd and Another

HCA000773/1969

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 773 OF 1969

(Hearing of Notice of Motion dated 22nd July, 1970)

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Coram: Hon. Blair-Kerr, J. in Court.

Date of Judgment: 17 November 1970

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DECISION

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1. In this action the writ of summons was taken out on 24th June, 1969 by Messrs. Brutton & Stewart, acting on behalf of all the plaintiffs. On 30th August, 1969, a summons was taken out by Messrs. Ho and Wong who described themselves as solicitors for the 1st and 2nd plaintiff companies, (hereinafter referred to as 'Plastics' and 'Enterprises' respectively). By this summons an application was made to Pickering J. on 13th September, 1969 to strike out the names of the two companies as plaintiffs. After a number of hearings, on 8th November, 1969 the learned judge ordered that the summons be adjourned sine die.

"to enable the 3rd plaintiff or the 2nd defendant to have the opportunity to requisition meetings for the purpose of ascertaining whether or not the holders of the majority of the shares wish this action to be presented in the names of the plaintiff companies and that there be liberty to restore the said summons .........."

2. To understand the point of this order, it is necessary to go back many years. The Thian family ("Tin" in Cantonese) had incorporated a company in Indonesia called the Nan Yang Rubber Factory Ltd.; and it is said that this Indonesian company sent the 2nd defendant and the 3rd plaintiff to establish subsidiary companies here in Hong Kong. Plastics was incorporated on 5th December, 1958, the 2nd defendant being one of the subscribers. The 3rd plaintiff arrived in Hong Kong some years later; and, upon his arrival, Enterprises was incorporated on 11th May, 1962, the two subscribers being the 2nd defendant and the 3rd plaintiff.

3. At an Extraordinary General Meeting of Plastics held on 19th September, 1967, the nominal capital of Plastics was increased from $6 million to $7 million, that is to say 7,000 shares of $1,000 each. According to the Annual Returns of the company for the year 1968, the issued capital is $6 million; and the shares are held by the following persons:-

Shareholders Nos. (3) and (4) are said to be the 2nd defendant's wives, and Nos. (9) to (13) are his minor sons. Therefore, it would appear that he and his wives and sons hold 2,500 shares between them.

4. The nominal capital of Enterprises is $1,500,000, divided into 1,500 shares of $1,000 each. According to the Annual Return for 1968, the issued capital is $1,200,000, and the shareholding is as follows:-

Shareholders Nos. (3) to (7) are the minor sons of the 2nd defendant (the same sons as are on the share register of Plastics); and Nos. (9) to (12) are the minor sons of the 3rd plaintiff. Shareholders Nos. (1), (2), (5), (6), (9), (10), (11), (12), (13), (14), (15), and (17) on the Plastics share register appear to be respectively shareholders Nos. (1), (2), (8), (13), (3), (4), (5), (6), (7), (14), (15) and (17) on the Enterprises share register. Shareholders Nos. (7), (8), and (16) on Plastics register do not appear as shareholders of Enterprises; and shareholder No. (16) on the Enterprises register does not appear to be a shareholder of Plastics.

5. Under Articles 40 and 42 of Plastics' Articles of Association, the 2nd defendant is entitled to hold office as managing director for life, and he is not subject to retirement from the Board while he continues to hold that office. Articles 39 and 41 of Enterprises' Articles of Association declare that the 2nd defendant shall be managing director and that the 3rd plaintiff shall be assistant managing director, and they are not subject to retirement from the Board while they continue to hold office.

6. At all material times the Board of Directors of Plastics has consisted of 2nd defendant, 3rd plaintiff, Tin Yuen Sin, and Tin Pok Sin. Until the 1st November 1969, the Board of Directors of Enterprises consisted of the 2nd defendant, 3rd plaintiff, Tin Yuen Sin and Ho Tjaji Njong. But in 1969, Ho resigned; and Tin Pok Sin was appointed to the casual vacancy.

7. In September 1969 (i.e. after a dispute between him and the 3rd plaintiff arose and the writ in this action was issued) the 2nd defendant suggested that a member of the Hong Kong Bar (Mr. Arculli) might be asked to join the Board of Plastics. But the 3rd plaintiff objected. At the subsequent general meetings, the Boards of both companies were re-elected, and the 3rd plaintiff voiced no objection - at least there is no evidence of that in the minutes of those meetings.

8. In the affidavits before me, the 3rd plaintiff alleges that the two companies are virtually "partnerships under the guise of limited companies"; and a number of statements made by him in support of this allegation, might be relevant if this were an application to wind up the companies under the supervision of the court under the "just and equitable" rule. It is sufficient to say that this is not an application to wind up the two companies; and there is no evidence that either the 3rd plaintiff or the 2nd defendant intend to adopt this course, although they have obviously quarrelled. For the purpose of this application, it is sufficient to say that the companies are what are sometimes referred to as "family" companies, the 2nd defendant and the 3rd plaintiff being by far the largest individual shareholders, and the 2nd defendant exercising a predominant position on the Boards by virtue of his powers under the Articles of Association.

9. The 3rd plaintiff alleges that the share capital of Plastics and Enterprises was provided to a large extent by the Indonesian company; that it was "understood and agreed" that the shareholders of the Indonesian company should be the shareholders of Plastics and Enterprises holding their shares in like proportion to their shareholdings in the Indonesian company; that a certain Tin Kwok Cheung was a shareholder of the Indonesian company; that this gentleman, if he had lived, would have been a shareholder of Plastics and Enterprises (it is not known when he died); and that his sons and daughters (who all live in Indonesia) were and are entitled to his estate. The 3rd plaintiff has filed a Chinese document (described during the hearing of this motion as "a declaration of trust") apparently executed by the 2nd defendant just prior to his departure on a business trip round the world on 25th July, 1962. A translation of this document reads in part:-

10. In an affidavit filed on 12th September 1969, the 3rd plaintiff said that "the heirs of the late Tin Kwok Cheung are entitled to 1000 shares" of Plastics and 200 shares of Enterprises. It is not clear whether he is suggesting that the issued share capital should be increased to $7 million in the case of Plastics and to $1,400,000 in the case of Enterprises; or whether the existing shareholders are, somehow, trustees of the Indonesians in respect of a proportion of their present shareholdings. Of course, 1000 shares and 200 shares are 5/30ths of the present issued capital of the two companies.

11. In a counter-affidavit filed by the 2nd defendant on 10th October, 1969, he said:-

"The heirs of Tin Kwok Cheung ...... are not shareholders ........... The position as regards the heirs of Tin Kwok Cheung is that in the past when dividends have been declared and distributed, by agreement of all persons concerned the respective shares of dividend are proportionately abated so that the said Tin Kwok Cheung's heirs received some money from the distributed dividends."

What exactly is meant by the words "proportionately abated" is not clear. In a letter dated 22nd September, 1969 to the 3rd plaintiff, the 2nd defendant said:-

"As you know, I have all the time acknowledged that Mr. Tin Kwok Cheung's descendants and his family members are entitled to share in the rights and benefits in the shares issued by (Plastics) ...... on two previous occasions ...... the share of profits to which Mr. Tin Kwok Cheung's descendants and family members were entitled was appropriated, with the consent of all the shareholders, from the dividends derived by such shareholders. In fact, you are fully aware of the matter, since the said dividends paid to Mr. Tin Kwok Cheung's descendants ...... on the other occasions have been deposited with your esteemed company Tin's Industrial Co. Ltd. ............................ I will do everything possible so as to guarantee that under whatever circumstances, nothing detrimental will be done to the rights and benefits of Mr. Tin Kwok Cheung's descendants .............. ."

He then went on to make two proposals one of which was that "the problem of unissued shares" should be dealt with "after the various lawsuits now in process in which this company is involved have all been settled."

12. According to the minutes of the Annual General Meeting of Plastics held on 29th September, 1969, the 3rd plaintiff, Kwok Wai Fong, Chiu Fook Mui (probably the same person as Tjhauw Fock Moy) Tin Kai Sin, Tin Kai Cheung and Tin Sing Cheung, refused to accept cheques in respect of dividend for the years 1967/1969. The 3rd plaintiff said at the meeting that they would "not accept the said dividends before the settlement of the cases instituted by the company which are now in process." In the case of the 3rd plaintiff he (probably on legal advice - his solicitor was present at the meeting) refused to accept over half a million dollars; and the total dividend now held in trust for this group of shareholders who refused to accept payment on that occasion is $765,000.

13. That is how the matter stood when the application to strike out came before Pickering J.. The learned judge also had before him the statement of claim which the plaintiff proposed to file, but which was not in fact filed till after the hearing of this motion, that is to say a few days ago.

14. It is common ground that there had been no resolutions of the respective Boards of Directors authorising the institution of legal proceedings in the names of the two companies; and that Brutton and Stewart did so on the instructions of the 3rd plaintiff personally.

15. Neither the 2nd defendant nor the 3rd plaintiff have taken any steps to call a general meeting of shareholders for the purpose of ascertaining whether the majority of members now on the register wish the action to be prosecuted in the names of Plastics and Enterprises. What the 3rd plaintiff did was to write to the two companies on 28th March 1969 requesting them to issue share certificates totalling 1,000 shares and 200 shares respectively to 8 named individuals (allegedly the heirs of Tin Kwok Cheung) and calling upon the companies to register these 8 persons as shareholders. He also wrote two letters to the 2nd defendant saying that he (3rd plaintiff) held powers of attorney from these 8 persons, and that, pending their registration as shareholders, the 2nd defendant should "vote and arrange for the votes" of the 8 persons "to be recorded in such manner as you may hereafter be directed by myself". The letters continue thus:-

"You are specifically instructed to vote at the meeting called by order of the Court in favour of continuing the action................... with the company still as one of the plaintiffs."

The letter threatened legal proceedings if no satisfactory reply was received.

16. The 2nd defendant's solicitors replied to these letters on 8th December saying that their client regretted that

"in a matter as complicated as this you should persist in acting in person without consulting legal advice ................ our client would welcome such legal proceedings if only for the purpose of bringing you to a proper appreciation of the legal issues involved."

17. On 22nd December 1969, Brutton & Stewart replied thus:-

"Our client is glad to be able to oblige your client in this respect and accordingly it will be appreciated if you will kindly let us know whether you have instructions to accept service on behalf of the three defendants named below in proceedings which are being instituted against them by the plaintiffs."

On 31st December 1969, Brutton & Stewart, acting for the 8 Indonesians, took out a writ (O.J. Action 1640/69) in which the Indonesians are plaintiffs and Plastics, Enterprises and the 2nd defendant in this action (O.J. Action 773/69) are respectively 1st, 2nd and 3rd defendants. In that action, the Indonesians claim that share certificates be transferred and/or issued to them and

18. I asked Mr. Bernacchi, who appeared on behalf of the 3rd plaintiff, whether he wished to have O.J. Action 1640/69 tried before this action. He said that the trial of O.J. Action 1640/69 first would have certain advantages, but that he did not wish to delay the trial of this action; that, looking at the matter in retrospect, it might have been better if Pickering J. had struck out the names of Plastics and Enterprises as plaintiffs and ordered that they be added as 3rd and 4th defendants; but that, in his submission, this action could go to trial with the two companies as plaintiffs.

19. Mr. Litton, who appeared on behalf of the applicants in this motion, criticised the conduct of Brutton & Stewart in that having purported to act on behalf of Plastics and Enterprises as plaintiffs in this action, they did not regard it as unprofessional to act against these same two companies in O.J. Action 1640/69. I do not think that this concerns me on this motion, whatever may be said about the matter in other circumstances; and I am certainly not going to be drawn into the position of having to say whether I think Mr. Bernacchi or Mr. Litton represents the two plaintiff companies. On this application, Plastics and Enterprises are plaintiffs and I do not propose to say any more about that aspect of the case at this stage.

20. Although Mr. Bernacchi said that he saw no reason why this action should not go to trial before the trial of O.J. Action 1640/69, that statement does not appear to reflect the wishes of his client. In an affidavit of 20th October 1970, the 3rd plaintiff says:-

"I have taken all appropriate steps to obtain the registration of the real shareholders of (Plastics) and (Enterprises) as a preliminary to the requisitioning of a meeting at which I could ascertain that I had the support of the majority of the shareholders ..........."

21. The 3rd plaintiff's allegation appears to be that, with the Indonesians on the register, he would have a majority of votes in favour of continuing the action with Plastics and Enterprises as plaintiffs; that, without the Indonesians, it would be pointless to hold a general meeting; and that the 2nd defendant is in full control of the Boards of Directors because Tin Yuen Sin and Tin Pok Sin are what the 3rd plaintiff refers to as the 2nd defendant's "supporters or nominees".

22. There is no allegation that Tin Yuen Sin and Tin Pok Sin are members of the 2nd defendant's family (wife, child, etc.). They are sui juris; and Mr. Litton submitted that there was nothing before this Court to suggest that they are not business men capable of exercising their own judgment.

23. Plastics is the registered owner of a large area of land (Lot 1185 in D.D. 131) at Castle Peak (hereinafter referred to as "the Castle Peak property"). It is an area of 265,000 square feet. Of this, 165,000 square feet has been converted to industrial use and the requisite premium has been paid to Government. Of this 165,000 square feet, Plastics' factory occupies only 35,000 square feet. In 1969 there was, therefore, a large balance of about 130,000 square feet not being used by the company which was capable of immediate development. Plastics is also the registered owner of 35 Station Lane, 3rd floor, Kowloon (hereinafter referred to as "the Station Lane property").

24. Enterprises is the registered owner of:

25. The 1st defendant company (hereinafter referred to as "Chemical") was incorporated on 11th January 1968. The subscribers were the 2nd defendant, Tin Yuen Sin and Tin Pok Sin. The nominal capital is $1,500,000 divided into 1,500 shares of $1,000 each. It is said that the 2nd defendant and his wife are the only shareholders. At any rate, it appears to be common ground that he is in entire control of the activities of Chemical; and it is alleged by the 3rd plaintiff that the business of this company is similar to that of Plastics and Enterprises and that Chemical is now competing with Plastics and Enterprises and undercutting the price of Plastics' products.

26. The essence of the 3rd plaintiff's complaint in this action is that Chemical was established largely by money borrowed directly by the 2nd defendant from Plastics and Enterprises and from bank overdrafts secured by mortgages and further charges on the property of the two plaintiff companies.

27. As regards the borrowing of cash ($3,200,000 is the figure mentioned in paragraph 12 of the Statement of Claim), apparently this took place in 1967. The 2nd defendant does not appear to have reported this to the Board in 1967. At least the earliest reference to it on the papers before me is in the minutes of a Board meeting held on 10th July 1969, i.e. after the institution of this action. There is a note to the effect that he then reported to the Board that, on 18th November, 1967, he, accompanied by two others, obtained the consent of the other three directors to his borrowing from Plastics "for the establishment of" Chemical. The minutes read:-

"Tin Yuen Sin proposed that as consent was obtained from all directors prior to the case, it should therefore be ratified. Tin Pok Sin seconded."

And ratified it was. The 3rd plaintiff was not present at this meeting.

28. In an affidavit filed on 27th October 1970, the 2nd defendant says:-

"I have never denied that I had a directors' current account with Plastics and that at one time the said account was in debit to the extent of $3.2 million. This loan, however, was made to me with the prior consent of all the directors of Plastics, including the 3rd plaintiff;"

and he refers to the minutes of the Board meeting of 10th July 1969.

29. Paragraph 4 of this affidavit makes reference to the existence of another company called Tins Industrial Company Ltd. (hereinafter referred to as "Industrial") which appears to be engaged in the same line of business as Plastics. The 2nd defendant exhibited the Annual Return of Industrial for the year 1969 from which it appears that it is a company with a nominal share capital of $2 million divided into 2,000 shares of $1,000 each, that 1950 shares have been issued to the following persons:-

There are 4 directors viz. the 3rd plaintiff, Kwok Wai Fong, Tin Sau Cheung and Tin Kai Sin.

30. Paragraphs 13 and 14 of the statement of claim read:-

31. There is documentary evidence to support some of the allegations concerning the mortgaging of the property of Enterprises. In one document dated 10th February 1968, Enterprises is described as the mortgagor Chemical is described as "the requesting party", and the Liu Chong Hing Bank as the mortgagee. It was the Lai Chi Kok property which was thereby assigned to the Bank by way of security for overdraft facilities to Chemical.

32. There is no suggestion that Enterprises paid any interest due by Chemical to the bank; and Mr. Litton submitted that, only if Chemical had gone into liquidation, could Enterprises have been harmed in any way.

33. The 2nd defendant does not appear to deny that the property was mortgaged. It further appears that his indebtedness, and that of Chemical, to the two plaintiff companies has now been liquidated. Mr. Bernacchi's submission was that, on the accounts filed, it was evident that Industrial had "filched" a good deal of business which had been done by Plastics until 15 months ago, and that it is not surprising that Industrial was now in a position, in 1970, to repay its debts to Plastics and Enterprises.

34. Paragraph 17 of the statement of claim makes reference to the fact that the 2nd defendant has "sold" certain property of Plastics and Enterprises. Mr. Bernacchi's submission on that was:-

"By alienating the property by mortgage, the 2nd defendant is using his position to 'sell' the property."

The paragraph may possibly also have reference to the sale of certain exchange rights referred to in one of the affidavits. Assuming that this is so, the 2nd defendant has commented on that allegation thus:-

"The 3rd plaintiff ......... alleged that lot 226 Section A and 264 in DD 131 ......... were sold by me four days after this action was instituted in anticipation of the lis pendens being registered. This allegation is completely unfounded ......... The said lots were purchased in 1961 by Plastics in the hope that when it applied for conversion into industrial use of its Castle Peak property (i.e. lot No. 1185 in DD 131) the Government would instead of resuming a portion of the Castle Peak property accept a surrender of the said lots instead. The Government, however, insisted on resuming a portion of the Castle Peak property so that the said lots failed to serve the purpose for which they were originally purchased. Subsequently, on 20th February 1967, the said lots were surrendered to the Government for exchange rights. On being granted these exchange rights, Plastics began looking for purchasers but none was forthcoming. It was not until about the middle of June 1969, before the writ in this action was issued, that a prospective purchaser was found. At that time these exchange rights were included in a debenture executed by Plastics in favour of the Hongkong & Shanghai Banking Corporation and it became necessary to obtain their release. ................... . The proceeds of sale of the said exchange rights were all paid to the said Bank in reduction of Plastics loan secured by the said debenture."

35. There are a number of other allegations against the 2nd defendant in the statement of claim. For example, para. 15 alleges that he has

"...... wrongfully abused his position (as managing director) by securing advances, approval of payment of bonuses, dividends, and other benefits to himself in respect of (Plastics) and (Enterprises) without any proper justification for the same, and as regards dividends, at times in excess of the profits shown on the respective balance sheets."

Paragraph 19 of the statement of claim alleges fraud based upon the allegation that the 2nd defendant has borrowed money from Plastics and Enterprises to set up Chemical in competition with the plaintiff companies, and upon the allegations of mismanagement and misuse of his position as managing director. Paragraph 20 alleges that these acts are "ultra vires" (Plastics) and (Enterprises) and "are now void and of no effect".

36. Mr. Litton referred to Arts. 48 and 44 of Plastics' Articles of Association, which read:-

Mr. Bernacchi referred to Art. 21 which reads :-

And he submitted that borrowing money for the purposes of a third party (viz. Chemical) was ultra vires this article.

37. The plaintiff claims, inter alia, the following reliefs :-

38. On 26th June 1969, the 3rd plaintiff caused this action to be registered as a lis pendens against the Lai Chi Kok property (Enterprises' property) and the 2nd defendant's own private residence (16 Somerset Road, Kowloon) and other property privately owned by the 2nd defendant.

39. On 28th June 1969, he caused the action to be registered as a lis pendens against the Castle Peak property (owned by Plastics), and other property (DD 127 lot 363) registered in the name of Chemical, (which is not the subject matter of the present motion to vacate). On 8th August 1969, he caused the action to be registered as a lis pendens against the Apliu Street property (owned by Enterprises) and the Station Lane property (owned by Plastics). What was registered in each case was the writ of summons and a memorial giving the particulars prescribed by s.15 of the Land Registration Ordinance Cap. 128.

40. On 18th September 1969, the 2nd defendant's solicitors wrote to Brutton & Stewart requesting them to arrange for the lis pendens against 16 Somerset Road, and the other privately owned property to be vacated; and this was done.

41. Prior to 19th September 1969, there had been advertisements for the sale of portions of the Castle Peak property i.e. the 130,000 square feet of industrial land which was not being put to use by Plastics. At meetings of the Board of Directors on 19th September and 24th October 1969, (at which all four directors were present, the 3rd plaintiff being accompanied by his solicitor, Mr. Hindmarsh), it was decided to erect factory buildings and rent them out to other manufacturing firms. Building work commenced in February 1970 and the factories are now ready for occupation. The estimated construction costs were $1,100,000; and, according to the 2nd defendant, if all 16 factory units were let, the anticipated income from them would be in the region of $30,000 per month.

42. In February 1970, Plastics found a prospective tenant for several of these factory units, Hongkong Polyfoam Manufacturing Co. Ltd., a company engaged in the manufacture of plastic products (hereinafter referred to as "Polyfoam"). A tenancy agreement was drawn up; but when Polyfoam became aware of the existence of the registration of this action as a lis pendens against the Castle Peak property, they refused to sign the agreement unless Plastics and the 3rd plaintiff either gave their written consent or countersigned the agreement. The 3rd plaintiff, through his solicitors, said that he would only agree to the renting of the Castle Peak property to Polyfoam on certain conditions, one of which was that the rent was paid into court. This the 2nd defendant would not agree to; and Polyfoam refused to proceed further with the negotiations for a tenancy.

43. The proceeding now before me is a motion to vacate the registrations of the lis pendens so far as they affect the Castle Peak, Lai Chi Kok, Station Lane, and Apliu Street properties.

44. Turning to the law, the Common Law position is summarised in a note in Jowitt's Dictionary of English Law Vol. 2 at p. 1101, thus :-

"The old doctrine of lis pendens was that if property was in question in a suit or action, it could not be alienated during the pendency of the suit or action, even to a purchaser or mortgagee without notice."

In Wong Wai Him v. Kwok Tsz Kwan⁽¹⁾ Wood C.J. cites a passage from Story's Equity Jurisprudence 1st Edition, which is also indicative of the Common Law approach:-

"Every man is presumed to be attentive to what passes in the courts of justice of the state or sovereignty where he resides. And, therefore, a purchase made of property actually in litigation, pendente lite, for a valuable consideration, and without any express or implied notice in point of fact, affects the purchaser in the same manner as if the had such notice; and he will accordingly be bound by the judgment or decree in the suit .......... It is a rule founded upon a great public policy; for otherwise, alienations made during a suit might defeat its whole purpose, and there would be no end to litigation. And hence arises the maxim, pendente lite, nihil innovetur; the effect of which is not to annul the conveyance, but only to render it subservient to the rights of the parties in the litigation."

45. In Bellamy v. Sabinc⁽²⁾ the following passage from the judgment of Lord Chancellor Cranworth is to much the same effect:-

"Where a litigation is pending as to a right to a particular estate, the necessities of mankind require that the decision of the court in the suit shall be binding, not only on the litigant parties but also on those who derive title under them by alienations made pending the suit, whether such alienees had or had not notice of the pending proceedings. If this were not so, there could be no certainty that the litigation would ever come to an end."

46. The Common Law was altered by the Judgments Act 1839,⁽³⁾ the preamble of which reads :-

"An Act for the better Protection of Burchasers against Judgments, Crown Debts, Lis Pendens and Fiats in Bankruptcy."

Section 7 reads :-

"...... no lis pendens shall bind a purchaser or mortgagee without express notice thereof, unless and until a memorandum or minute, containing the name and the usual or last known place of abode and the title, trade, or profession, of the person whose estate is intended to be affected thereby and the court of equity and the title of the cause or information ............. shall be" (registered etc.)

The statutory position in England is now governed by s.2 of the Land Charges Act 1925, which, so far as relevant, read:-

47. Between 1839 and 1867, registration of a lis pendens could not be vacated without the consent of the person by whom it was registered. This was remedied by the Lis Pendens Act 1867,⁽⁴⁾ s.2 of which reads:-

"Whereas a registered lis pendens cannot be vacated without the consent of the person by whom it was registered, and such consent is sometimes withheld, although the suit or proceeding is at an end, or is not being bona fide prosecuted: For remedy whereof be it enacted, that the court before whom the property sought to be bound is in litigation may, upon the determination of the lis pendens, or during the pendency thereof, where the court shall be satisfied that the litigation is not prosecuted bona fide, make an order, if it shall see fit, for the vacating of the registration without the consent of the party who registered it ......"

48. This provision has now been replaced by s.2(6) of the Land Charges Act which enacts that:

"The court, if it thinks fit may, upon the determination of proceedings, or during the pendency thereof if satisfied that the proceedings are not prosecuted in good faith, make an order vacating the registration ......."

49. In Bull v. Hutchens,⁽⁵⁾ Romilly H.R. said that the registration of a lis pendens is:

"... merely notice of some claim made in respect of the property which is the subject of the suit .... it was notice of the existence of a suit ... and required all persons dealing with the property to look at the proceedings to see whether it will affect the property or not ...... A man might file a bill claiming property, alleging that 60 years ago his ancestor was seised in fee, and that although he had sold the property, yet he had no right to do so. The plaintiff might register this as a lis pendens; but could anybody say that this was an in cumbrance on the property, or a reason why a purchaser should not complete his purchase? All that the registration of a lis pendens does is to require persons to look into the claims of the plaintiff who registers it."

A note to the same effect appears in Halsbury's Statutes (2nd Edition) Vol. 20 at p. 1068:-

"Registration ..... merely operates as a notice to a purchaser that proceedings are pending against his vendor which may affect the land he is buying."

50. It is clear from Heywood v. B.D.C. Properties Ltd.⁽⁶⁾ and Taylor v. Taylor⁽⁷⁾ (authorities cited by Mr. Litton) that the jurisdiction of the High Court in England is not limited by the provisions of s.2(6) of the Land Charges Act, and that the court has an inherent jurisdiction to vacate the registration of a lis pendens if it considers such registration to be improper. In Heywood,⁽⁶⁾the plaintiffs negotiated with the defendants for the sale of certain land, the negotiations being conducted "subject to contract". Before the contracts were executed, the plaintiffs found a better offer and called off the deal. It appears that things were getting bitter between the parties; and, in order to put pressure on the plaintiffs the defendants registered estate contracts under s.6(4) of the Land Charges Act. The plaintiffs instituted an action for a declaration that there was no contract; and they moved the court by interlocutory motion for the vacation of the registration of the estate contracts. The court granted the application. But the defendants had, in the meantime, registered a lis pendens under s.2 of the Act and the plaintiff then took out a summons to vacate this registration. They were thus invoking the statutory jurisdiction of the court conferred by s.2(6) of the Act. The defendants had not counterclaimed, and the first question which the court asked itself was: Are these proceedings being prosecuted? Clearly, the defendants were not prosecuting any proceedings. They were merely defending the plaintiffs' action for a declaration.

51. The Court of Appeal held that, although the plaintiffs, by their summons, had merely invoked the court's statutory jurisdiction, this did not prevent the court itself exercising its inherent jurisdiction to vacate. Harman, L.J., said (p.975):-

"A person searching the register would not know that there was not a counterclaim and that a very serious question on the title of this land was not being raised. But, in my judgment, the lis pendens was wholly wrongly registered and ought never to have appeared in the register ...... a defendant who is merely, in a negative way, defending the action is not prosecuting it."

52. In Taylor v. Taylor,⁽⁷⁾ the wife, by summons under s.17 of the Married Women's Property Act 1882, asked, inter alia, for a declaration that she and her husband were beneficial owners in equal shares of the matrimonial home and that the premises should be sold and the proceeds divided equally between them. She registered a lis pendens under the Land Charges Act. The house was in the husband's name. The court held that the wife's interest was, at the most, a share in the proceeds of sale of the house and not an interest in land (which, for the purposes of the act, is defined as not including "an undivided share in land,") and vacated the registration in exercise of its inherent jurisdiction. Russell, L.J. said (p.384):-

"The lis (the dispute) is not about any land, but about what is the entitlement to the beneficial interest in the land, and therefore the proceeds of sale. The purpose of registration of a lis pendens is to prevent effective disposition of the land pendente lite. How can a suit which demands that the land be disposed of be properly registrable? .......... how could it be said ........ that a purchaser with notice of a lis, in which there was no reference to the land except a demand that it should be sold by the defendant, could get a defective title? ................... If the wife's claim ...... had been made in a writ and statement of claim, the lis could not possibly have been properly registrable."

53. Mr. Litton also referred to Wigram v. Buckley,⁽⁸⁾ where Chitty, J. is reported as having said:-

"..... the doctrine of lis pendens applies not to every suit, but to a suit the object of which is to recover or to assert title to specific property ................. the law does not allow litigant parties to give to others pending the litigation rights over the property in dispute so as to prejudice the opposite party."

54. In Hong Kong our statute law relating to the registration of a lis pendens appears to be modelled on pre-1925 English legislation, and forms part of the Land Registration Ordinance, Cap.128. Section 2 reads:-

Section 3, so far as relevant, reads:-

Section 4 reads:-

Sections 14, 15, 16, 19 and 20, so far as relevant, read:-

55. Mr. Bernacchi submitted that the word "instrument" in s.2 included a lis pendens; that the section contemplated the registration of "................ instruments ............... by which ................ instruments .................. any parcels of ground .................. may be affected"; that the words "may be affected" should be read in relation to the words "intended to be affected" in s. 15; and that, looking at these various provisions as a whole, the law applicable to Hongkong differed materially from the law in force in England.

56. I found this submission somewhat difficult to follow. The instruments contemplated by s.2 are instruments of the same kind as deeds and conveyances. The eiusdem generis rule obviously applies; and the registration of a notice to the effect that there is an action pending which may affect certain lands is not, in my view, an "instrument" within the meaning of s.2. The original Land Registration Ordinance (no. 3 of 1844) contained only provisions similar to ss 1-13 of the present Cap. 128. Provisions similar to ss 14-18 of Cap. 128 were introduced into our law by Ordinance no. 10 of 1856. But the effect of s.14 Cap. 128 appears to be that a lis pendens may be registered in the Land Office registers established under the authority of s. 2 in the same way as a judgment relating to land may be so registered, that is to say a lis pendens "within the meaning and intent of the Judgments Act 1839"; and the fact that the Judgments Act 1839 no longer forms part of the statute law of the Colony in view of its omission from the Schedule to the Application of English Law Ordinance Cap. 88, does not make any difference.

57. Under s. 7 of the Judgments Act 1839, the particulars required to be registered included the name etc of "the person whose estate is intended to be affected" and "the title of the cause or information". The title of an action includes the names of the parties to that action. Section 15 of Cap. 128 puts the matter somewhat differently. The memorial is "sufficient" if it is signed by the plaintiff and contains the names of the plaintiff and defendant or "person whose estate is intended to be affected thereby". It would be good ground for vacating the registration of a lis pendens if it were shown that it had been registered against a person not a party to the action; and Mr. Bernacchi submitted that the person whose estate is intended to be affected must mean either the plaintiff or a 3rd party who has been made a party to the action. From this, he appeared to argue that it mattered not whether "the person whose estate is intended to be affected" is a plaintiff, defendant or 3rd party who has been made a party to the action.

58. I agree. But normally it will be the plaintiff who will register the lis pendens because it is he, as plaintiff, who will be seeking to recover or to assert title to specific landed property.

59. Section 19 of Cap. 128 gives the court jurisdiction to vacate the registration if it is satisfied that the "litigation is not prosecuted" in good faith. It is good faith with reference to the mode of prosecution of the litigation to which the section refers, not merely good faith as regards the institution of the proceedings.

60. Apart from cases in which the litigation ("proceedings" is the word used in the 1925 Act) has been determined, the statutory jurisdiction of the English courts to vacate the registration of a lis pendens is limited to cases where the court is satisfied that the proceedings are not being prosecuted in good faith. This court also has statutory jurisdiction to do so "for other good cause shown". I have no reason to think that the intention of the Hongkong legislature in 1896 was to spell out in statutory form the inherent jurisdiction of this court by the insertion in s.19 of the words "other good cause". I have taken the liberty of looking at the Objects and Reasons attached to the Bill⁽⁹⁾ presented to the legislature by the then Attorney General (Henry Pollock) and counsel has also read it; but the Bill is silent on this point; and there is certainly nothing in the Ordinance itself to suggest that this was the intention.

61. I am satisfied that, as in England, this court has both statutory and inherent jurisdiction and that the inherent jurisdiction of this court is co-extensive with that of the High Court of Justice in England.

62. Mr. Litton's first submission was this:-

63. With that submission I am in full agreement. I am certainly not going to adjourn this summons to enable the parties either to call a general meeting or to enable them to have O.J. Action 1640/69 tried first. The motion before me will be decided on its merits here and now.

64. I agree entirely with Mr. Bernacchi that it cannot possibly be said, at least at this stage, that the claims in the action are frivolous. There appear to be genuine issues to be tried. Of course, I express no view on the 3rd plaintiff's prospects of success in the action. But, on the papers before me, no court could possibly say that the statement of claim is frivolous and an abuse of the process of the court; and Mr. Litton did not argue that it was. His submission was :-

In other words, Mr. Litton included the 3rd plaintiff's alleged dilatoriness in the manner of prosecuting this action in the various matters which, he submitted, indicated lack of good faith.

65. Mr. Bernacchi submitted that far from his client wanting to delay the action, he wanted it tried as soon as possible; that the 2nd defendant was virtually in complete control of the Boards and that the had no intention of ever calling a general meeting or bringing this action to trial, especially if he were to be successful on this motion; and that his attitude to rectification of the share register may be guaged from his suggestion that this should await the result of this action.

66. Dilatoriness in prosecuting an action may, in itself, amount to good cause within the meaning of s.19. But, I find it rather difficult to accept the submission that the one year's delay in the prosecution of this case has been due entirely to the conduct of the 3rd plaintiff. It might be said, of course, that he ought to have made up his mind to begin with whether to start a minority action, with the companies named as defendants, or to have the share register rectified to his liking before instituting this action. But, having instituted the action as he did, the 2nd defendant then applied to strike out the names of the companies as plaintiffs. Admittedly, that application was strenuously resisted by Mr. Bernacchi who now says that, in the light of subsequent events (that is to say the adjournment of the application by Pickering J. and now this motion to vacate) it would have been better if he had not opposed the 2nd defendant's application and that if he had applied to add the names of the companies as 3rd and 4th defendants. The application to strike out, of course, is not before me; and I express no view at all as to how that application should be decided. All I say is that the adjournment of the summons to enable the parties to call a general meeting had a certain effect on the subsequent course of events. Neither party has called a meeting. It may be, as Mr. Bernacchi suggests, that neither party has had the courage to do so. It would appear that that is certainly true in the case of the 3rd plaintiff. He is not prepared to call a meeting until he gets the Indonesian heirs on the share register. Of course, we only have his word for it that the Indonesians are all of his way of thinking. There also appears to be a divergence of view between him and his counsel. On the affidavits, the 3rd plaintiff says that a decision in O.J. Action 1640/69 is a 'preliminary' to the calling of a general meeting. But, as Mr. Litton says, the trial of O.J. Action 1640/69 may take place in 1971 or 1972; then there will be the general meeting (which may, or may not, go as the 3rd plaintiff expects it to go); then we would have the resuscitation of the summons to strike out; and upon that being disposed of, this action might be allowed to proceed after any necessary amendments to the pleadings etc.; and, in the meantime, the plaintiff companies' activities (so far as dealings with their landed property is concerned) are immobilised.

67. After the decision of Pickering J. to adjourn the summons to strike out, the plaintiffs sought the defendants consent to the filing of the statement of claim out of time; but Messrs. Ho and Wong would not consent to this. Their view was that the filing of the statement of claim should be postponed till after the disposal of the summons to strike out. Admittedly, the plaintiffs could have applied to court for leave to file out of time; and they did not do so. But, according to the affidavits, the matter has been further complicated by the fact that negotiations for a settlement have been going on between 2nd defendant and 3rd plaintiff. Apparently, there are three related actions: the first in point of time (O.J. Action 83/69) is one in which Industrial is plaintiff and the 2nd defendant in this action is defendant. Then, there is this action (O.J. Action 773/69); and finally there is O.J. Action 1640/69.

68. I now have Mr. Bernacchi's assurance that, so far as he is concerned, this action will proceed with all due dispatch and, taking everything into consideration, I am not prepared to say, at any rate at this stage, that there has been dilatoriness on the part of the 3rd plaintiff in the prosecution of the action. Of course, this does not mean that the 2nd defendant is precluded from alleging dilatoriness in a subsequent application, where the whole of the circumstances from the commencement of proceedings would come up for further review.

69. I shall deal further with Mr. Litton's submissions that the 3rd plaintiff has acted in had faith when I have dealt with counsel's main submission, which was this:-

70. In reply to this submission, Mr. Bernacchi's submission was

71. If this is the attitude of litigants, and their legal advisors, to the facilities afforded for the registration of a lis pendens, it seems to me that the sooner this court frowns upon it the better.

72. So far as registration under the provisions of the Land Registration Ordinance is concerned, a lis pendens is an action, information, or proceeding pending in court relating to land or any interest in or charge on land. As was stated by Romilly M.R. in Bull v. Hutchens⁽⁵⁾ the registration of such an action is

"...... merely notice of some claim made in respect of the property which is the subject of the suit ........... all that the registration of a lis pendens does is to require persons to look into the claims of the plaintiff who registers it."

And, as the Chief Justice said in Ho v. Wan Ying Him and others,⁽¹¹⁾:-

"The Ordinance is not concerned with the rights of the parties inter se but with the innocent third party, the purchaser or mortgagee."

73. Before a plaintiff registers an action as a lis pendens, it is his bounden duty to ensure that it is an action in which a claim to land or some interest in land is asserted; that there is a claim of right or a claim to charge some specific property. In other words that the landed property mentioned in the memorial is (in the words of s. 19) "in litigation".

74. This is particularly important because, although, in law, the object of registration is merely to put third parties on notice, in practice it usually has the effect of frightening off any prospective tenant, purchaser, or mortgagee whether or not the action involves a claim to land or some interest in land. A plaintiff does not have to satisfy the Land Officer that the action is properly registrable. Registration is purely an administrative act on the part of the Land Officer. One can readily imagine a situation in which an unscrupulous director of a large land investment company alleging mismanagment of some sort on the part of his colleagues on the Board, might institute a minority action against the company and his colleagues, register it so as to make it appear that all the properties of the company are affected by the action; and he thereby might succeed in bringing to a standstill the whole of the land investment company's business pending the decision in the action, or until the registrations were vacated.

75. In my view, when the propriety of a lis pendens registration is called in question (as it is in this motion before me), it behoves the court of scrutinize the circumstances in which the registration came to be made, and to satisfy itself that the plaintiff is not attempting to obtain by a back-door method what he may not be entitled to by, say, a preservation order or an interim injunction restraining dealings with the property.

76. The Ordinance does not prescribe any particular form of memorial to be registered; and the forms in actual use appear to vary slightly. But one phrase appears to be common to all the memorials registered in this case. It is:

"Lis pendens against the undermentioned properties in connection with" (action no.).

77. The word "against" thereby implies that a serious question affecting the title to the properties mentioned in the memorial is in issue in the action to be tried.

78. The object of this action is not to assert title to specific landed property belonging to Plastics and Enterprises. There is a claim to certain property registered in the name of Chemical (I shall assume that it is DD No. 127 lot no. 363 referred to in the lis pendens registered on 28th June 1969). But on this motion, the defendants do not seek to vacate that registration; and I am concerned with the properties of Plastics and Enterprises only. In the statement of claim the material averments are that Chemical, a company now in competition with Plastics and Enterprises, was established by means of loans from Plastics and loans from banks on the security of property belonging to Plastics and Enterprises; that this has been accomplished by acts of the 2nd defendant which are, according to the 3rd plaintiff, in breach of his duties as a director and of the Articles of the two plaintiff companies. But the object of the action is not to assert title to specific landed property belonging to Plastics and Enterprises. It is not an action in which there is a claim to land or some interest in land. The 3rd plaintiff's complaint is not one concerning the title to the properties. His complaint is as to the manner in which the 2nd defendant has performed his duties as managing director in relation to those properties.

79. As Mr. Bernacchi said, the object of these registrations was, to prevent the 2nd defendant alienating land belonging to the two plaintiff companies. In other words, the avowed object was to obtain what was tantamount to a temporary injunction or preservation order by means of a purely administrative act on the part of the Land Officer. In my view it was never the intention of the legislature that the Ordinance should be invoked for such a purpose. Whatever may be said as regards property registered in the name of Chemical, in my view the properties of the plaintiff company are not "in litigation" in this action. The action should never have been registered against these properties. The registrations were improper registrations in the first place, and their continuance constitutes a smear on the title to the properties which should be removed at once.

80. The statutory jurisdiction to vacate a lis pendens is possessed only by "a court or judge before whom any property sought to be bound is in litigation"; Wood C.J. said in Wong Wai Him⁽¹⁾ (pp 113/4):-

"If the estate against which this registration has been made is not here in litigation I have no jurisdiction to grant this application and the defendants must seek their remedy elsewhere."

The fact that this court has an inherent jurisdiction to remedy abuses of this nature does not appear to have been brought to the notice of the learned Chief Justice. I agree, of course, that, having come to the conclusion that the properties are not "in litigation" in this action, I have no jurisdiction under s. 19 to vacate the registrations. But, as I am clearly of the opinion that these registrations should never have been made, under the inherent jurisdiction of this court I order that they be vacated forthwith, that is to say, in so far as they affect the Castle Peak, Station Lane, Lai Chi Kok and Apliu Street properties.

81. I do not think that it is necessary for me to express any view at this stage as to whether the 3rd plaintiff acted in bad faith in causing the registrations to be made. It may be the case that the 3rd plaintiff and the 2nd defendant have quarrelled to such an extent that they will never be able to function again together on the boards of these two companies, and that, (as Mr. Litton says) the only purpose in registering the action was to embarass the 2nd defendant and to immobilise the activities of the companies, out of sheer spite. If that were so, and there was some evidence of dilatoriness in the prosecution of the action, there would be ample ground for vacating, even if the lands could be said to be "in litigation". But, the action has not been tried. I have not seen either party in the witness box. It may also be that, hitherto, litigants have been receiving advice from their legal advisers that they had nothing to fear from the registration of a lis pendens and that the status quo could be maintained by this very simple process in circumstances which would not have justified an application to court for an injunction or a preservation order. So far as I can see from the law reports this is the first occasion on which the question of registering a lis pendens has been fully considered since 1927.

since 1927. It is sufficient for the purpose of this motion to say that the registrations were utterly improper registrations because it cannot possibly be said that the lands in question are in litigation in this action; and it is for that reason that I am ordering the registrations to be vacated forthwith.

82. I would only add that I hope that litigants will not misinterpret anything I have said and labour under the misapprehension that they may shelter behind any advice they receive from their legal advisers. It is the litigant who causes the registration of a lis pendens. In this connection, I notice that, despite the fact that s. 15 states that the sufficiency of the memorial depends to some extent upon it being signed "by the plaintiff", the memorials in this case were not so signed. They were signed by Brutton & Stewart.

83. The legality of the registrations were not challenged on that ground, and Mr. Litton merely mentioned this in passing. At the moment I have no reason to think that the registrations were not effected on the 3rd plaintiff's instructions.

84. There is no question of the plaintiff companies paying the costs of this motion, and I order that the defendants' costs be paid by the 3rd plaintiff personally forthwith upon taxation.

Representation:

Mr. H. Litton, Q.C. and Mr. D. Cheng (Messrs. Ho and Wong) for the Applicants.

Mr. B. Bernacchi, Q.C. and Mr. M. Asome (Messrs. Brutton & Stewart) for the Respondent.

(1) (1927) 22 HKLR P.111 at pp. 112/3

(2) (1857) 1 De G and J 566; 44E.R. 847

(3) 2 and 3 Vict. C.11.

(4) 30 and 31 Vict C. 47

(5) (1863) 32 Beavan's Reports at p.618; 55 E.R. p.243

(6) (1964) 1 W.L.R. 971

(7) (1968) 1 W.L.R. 378

(8) (1894) 3 Ch. at p.486

(9) HK Government Gazette Vol. XLII p.99

(10) (1867) 2 Chancery Appeal Cases at p. 178.

(11) (1959) HKLR at p. 505.