Jabrin Ltd v. Unlong Tung Yick Land Investment Co Ltd

HCA005074/1980

Coram: Mr. Commissioner Hooper in Chambers

Date of Judgment: 13th October, 1980

Mr. Charles Ching, Q.C. & Mr. W.Poon (Arthur Au & Co.) for Applicants

Mr. Miller, Q.C. & Mr. Peter Cheung (S.H. Leung & Co.) for 1st Respondent

Mr. Denis Chang & Mr. Patrick Chan (Yung, Yu, Yuen & Co.) for 3rd Respondent

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JUDGMENT

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HIGH COURT MISCELLANEOUS PROCEEDINGS NO. 589 OF 1980

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In the matter of Unlong Tung Yick Land Investment Co. Ltd. and in the matter of Section 114(2) of the Companies Ordinance Cap. 32 and in the matter of Order 102 Rule 2 of the Rules of Supreme Court between

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HIGH COURT MISCELLANEOUS PROCEEDINGS NO. 712 OF 1980

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In the matter of Unlong Tung Yick Land Investment Co. Ltd. and in the matter of the Companies Ordinance (Cap. 32) of the Laws of Hong Kong and in the matter of the Order granted by the Honourable Mr. Garcia on the 5th of July 1980 under High Court Miscellaneous Proceedings No. 589 of 1980 between

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HIGH COURT ACTION NO. 5074 OF 1980

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Coram: Mr. Commissioner Hooper in Chambers

Date of Judgment: 13th October, 1980

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JUDGMENT

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1. This was anunusual and troublesome matter. There were before me for determination no less than 8 different applications of one sort or another. In the first of the above mentioned actions, namely High Court Miscellaneous Proceedings 589 of 1980 an order was made by Mr. Justice Garcia on the 5th July 1980 under the provisions of Section 114(2) of the Companies Ordinance Cap. 32. He directed that an extraordinary general meeting of the Unlong Tung Yick Land Investment Co. Ltd. (hereinafter called "The Company") be held on the 31st July this year at 11 a.m. at the India Room, Hilton Hotel. He also gave directions as to the business which should be conducted at this meeting and inter alia he directed that the quorum for such meetings should be two members of The Company. The main purpose of this meeting was to regularise the management and running of The Company, by ensuring that there would be a competent Board of Directors. However, on the 30th July 1980 an ex-parte application was filed by the 19 Applicants whose names appear as the Applicants in High Court Miscellaneous Proceedings No. 712 of 1980. The Respondents to the application were named as the plaintiff Jabrin Limited (1st Respondent), The Company itself (2nd Respondent), and a gentleman called CHAN Wai-to, a permanent director of the company and three of his co-directors (3rd Respondent). This ex-parte application was for stay of the order of Mr. Justice Garcia "until the hearing of the other summons filed herein on the 30th July 1980 or until further order". The "other summons" referred to in the ex-parte application was also filed on the 30th July 1980 between the same parties and also asked for a stay of the order of Mr. Justice Garcia, but in this case the Applicants were requesting that it be stayed "pending the determination of an action to be instituted by the Applicants herein for;

2. In this "other summons" the Applicants also asked to be added as additional defendants to the proceedings (HCMP 589/80).

3. At 4.50 p.m. on the afternoon of 30th July 1980 the ex parte application came before Mr. Justice Liu, who adjourned the matter to the worning of the 31st July 1980 at 9 a.m. and who granted a stay in the meantime. On this occasion the solicitor for the Applicants Arthur Au under-took to use his best endeavours to notify all the parties concerned of the hearing on the 31st at 9 a.m. At the resumed hearing on the 31st July a stay was granted in terms of the summons that the order made by Mr. Justice Garcia be stayed until the hearing of the "other summons" or until further order, the Applicants having given the usual undertaking as to damages and the solicitors having undertaken to pay in to Court $20,000 within 7 days.

4. The extraordinary general meeting ordered by Mr. Justice Garcia was of course sheduled to take place at 11 a.m. that day. However, literally, at the 11th hour counsel for the Plaintiff (Jabrin Limited) were represented before the Court of Appeal by counsel in an urgent attempt to set aside the order which Mr. Justice Liu had made that same morning granting the stay. The Court of Appeal, which was at that time hearing another appeal, and with very little time to hear this appeal, were only prepared to modify the order of Mr. Justice Liu to the extent of allowing the extraordinary general meeting to be opened so that it could be adjourned to another date when there would be no court order restraining the holding of the meeting. This information was duly conveyed to Mr. Connolly at the India Room Hilton Hotel and as a result the meeting was adjourned indefinitely.

The Application To Stay

5. A fresh summons was filed on the 18th August 1980 in precisely the same terms as the "other summons" and this was the first of the 8 matters with which I had to deal at the hearing.

This application was for-

6. It was conceded before me that the Action which the Applicants contemplated instituting in para 1, is one of the three actions now before me, namely HCMP 712/80.

The 3 Notices Of Motion

7. In HCMP 712/80 the same 19 Applicants filed a Notice of Motion asking, inter alis, for the following relief-

8. As the summons of the 18th August and the Notices of Motion in HCMP 712 of 1980 were being heard at the same time the only practical purpose for a decision in the summons of the 18th August was on the issue of costs. I will come back to that. Since the 19 Applicants filed their Notice of Motion in 712/80 on the 31st July, two other Notices of Motion were filed on the 13th August 1980 and the 12th September 1980. The first of these was brought by two Applicants namely MAN Mui and WAN Kwai-ying (administratrix of LEE Ting-sang), and the other was brought by TANG Lin. They claimed the identical relief as claimed by the 19 other Applicants. Those then were four of the matters which came before me at the hearing.

Three Applications For A Receiver

9. There were also three Applications for a Receiver to be appointed. The first of these was brought by inter partes summons filed on the 9th September 1980 by Mr. CHAN Wai-to. The second was a summons dated the 10th September 1980 by Jabrin Limited. Both these applications were made in HCMP 589 of 1980. Mr. CHAN Wai-to joined in with Jabrin Limited in their application for a Receiver that a fit and proper person be appointed Receiver and Manager to collect, get in, receive the assets, property, and effects of the business of The Company and to manage its business. Both Mr. CHAN Wai-to and Jabrin Limited requested that the Receiver and manager be at liberty to act forthwith on the undertaking or undertakings referred to in para 2 of Jabrin Limited's application.

10. The 3rd application for a Receiver was that of Jabrin Ltd in HCA No. 5074 of 1980 in which they applied that a fit and proper person be appointed until judgment in this action or until further order as Receiver and Manager of the property 1256A6 RP and 1259ARP in DD. 120 (hereinafter referred to as "The Property") to manage The Property. Again they asked that the Receiver be at liberty to act as such Receiver and Manager forthwith on the same undertakings.

11. It will be appreciated that the Application in HCMP 589 of 1980 related to the day-to-day management of the affairs of The Company whereas the Application in High Court Civil Action 5074 of 1980 related to the management of The Property referred to above.

The Summons For A Meeting

12. The final Application was also a summons by Jabrin Limited dated the 10th September 1980 for an order that notwithstanding the orders made by Mr. Justice Liu and by the Court of Appeal on the 31st July 1980, an extra-ordinary general meeting should be held pursuant to Section 114(2) of the Companies Ordinance. The purpose of this meeting is precisely the same as before, namely that the affairs of the company should be put in order and regularised by ensuring that The Company should have a proper Board of Directors. In this summons in para 2 Jabrin Limited asked that the order of Mr. Justice Liu (on the ex-parte summons) be discharged. In para 3 they asked for an inquiry as to damages which Jabrin Limited suffered by reason of the order of Mr. Justice Liu and the Court of Appeal. In para 4 they asked that the 19 Applicants should pay them the amount of damages sustained together with all Jabrin Limited's cost of the said enquiry. In para 5 they also asked for the cost of the present application together with those reserved by Mr. Justice Liu.

The 8 Applications Heard Together

13. With the agreement of counsel all these eight matters were heard together in Chambers on the 15th and 16th September. At the conclusion of the submissions I immediately made the following orders. (1) that Mr. Roland K.C. CHOW be appointed a Receiver in the terms prayed in para 1 of the summons of CHAN Wai-to and that he should be at liberty to act as Receiver and Manager forthwith in the terms stated in para 2 of the application of Jabrin Limited in their respective applications in HCMP 589 of 1980, on the undertakings that he would give security within 14 days and on Jabrin Limited's undertaking to be answerable in the meantime.

14. The urgency and necessity of these orders will appear later in this judgment.

15. I also at this time ordered that the previous order of Mr. Justice Liu be discharged. This was prayed for in para 2 of the summons for a meeting of Jabrin Limited. The ground for making this order was that there had been a suppression of material facts in the ex-parte proceedings before Mr. Justice Liu. The authority for such an order is Boyce v. Gill⁽¹⁾. In that case there was a Motion to continue an interim order already obtained ex-party. The interim order was irregularly obtained by the suppression of material facts. The Court eventually on fresh evidence granted an injunction in terms of the interim order, but discharged the interim order, ordering the plaintiff, at whose instance the interim order had been made, to pay the costs in any event.

16. When therefore an order is obtained ex-parte on the suppression of material facts, it may be discharged with costs, without regard to the merits, even if the Court after the true facts have become disclosed is prepared to grant a further interim order. The Court does not have to go into the merits. This proposition is supported also in R. v. The General Commissioner for Income Tax⁽²⁾ by Lord Cozens-Hardy M.R. who said:⁽³⁾

"...... on an ex parte application uberrima fides is required, and unless that can be established if there is anything like deception practised on the Court, the Court ought not to go into the merits of the case, but simply say 'We will not listen to your application because of what you have done'".

The General History Of The Company And Background To these Matters

17. The Company was incorporated in July 1951 and became registered owner of The Property, known as the Tung Yick Market. This was not disputed. The reason for the company being incorporated was that there were a number of hawkers who were interested in buying waste land from a certain Tang Kuen Sung around the year 1950. Unfortunately for them, private persons were not allowed to develop land and so the limited company came into being. Originally all the shareholders were hawkers and they were not very concerned with the running of the affairs of the The Company. No annual general meeting has been held since 1964 and no annual general return has been filed since the 1st December 1970.

18. As far back as June 1978 Jabrin Limited had entered into an agreement with The Company to purchase from The Company a piece of building land for commercial and residential purposes which was to be the subject of an in-situ exchange by government for The Property owned then by The Company. The first agreement is exhibited to the affidavit ((37) on file) of Mr. S.H. LEUNG filed on the 10th September 1980 in HCMP 589 of 1980 as S.H.L. -3 and the translation as S.H.L. -4. The formal English version of the agreement is exhibited to the same affirmation as S.H.L. -5 dated the 28th June 1978. There was thus an agreement whereby Jabrin Limited agreed to purchase from The Company the new land to be exchanged for The property in consideration for a sum of $8,200,000. The agreement was signed by the representatives of The Company expressly appointed for the purpose at a general meeting at Yuen Long which was attended by well over 100 members of the company and at that meeting representatives of The Company were appointed to sign the contract with Jabrin Limited. Nine of the present Applicants who, at this hearing, wished to have Jabrin's name struck off the register were present at that meeting. The contract called for The Company to proceed with negotiations then in progress with the government to obtain for the surrender of The Property the grant of the in-situ exchange of land. In order to comply with the procedures which were necessary in order to obtain the grant, The Company had to go about getting vacant possession of The Property, which consisted of hawker stalls. Some of the stalls were in the occupation of individual persons who were also shareholders in the company. It would appear that these persons held stalls which had been allotted to them by The Company in which they were shareholders. Other stalls, as for example the stalls which had been allotted to Mr. KAM Ping-lo (the 1st Applicant), were in the occupation of licensees. The Company was therefore faced with the tack of obtaining vacant possession of a large number of stalls from shareholders and licensees. Numerous actions were filed in the Fanling District Court all of which were eventually settled on the basis that the occupant would give up vacant possession in exchange for a very substantial ex gratia payment. The position therefore was, that Jabrin Limited had paid a large amount of money for the shares of a large number of shareholders, whereas The Company in its efforts to obtain vacant possession of the stalls had agreed to pay and had in fact paid very substantial sums as ex gratia payments by way of compensation to the occupiers of the stalls. I was informed that by the hearing date of these present matters judgment had been obtained for The Company in every case and that in those cases where there had been an application for stay of execution, that application had been rejected.

19. Mr. KAM Ping-lo appeared to me to be one of the most aggrieved persons in this court and it may well be that it is because the compensation money that was paid out was not paid to him, but was paid to his two licensees. However he couldn't have much to complain about because it was he signed the consent summons in each case together with his licensees in relation to the land allotted to him.

20. With the exception of the following Applicants namely the 1st, 2nd, 3rd, 11th, 17th, 20th, 21st and 22nd, all the other Applicants sold their shares in The Company to Jabrin Limited. In performance of this contract of sale they received substantial sums of money from Jabrin Limited and they executed instruments of transfer of their shares to Messrs Jabrin Limited. At the beginning of this year there appears to have been a change of heart on the part of some of the above Applicants. Under article 92 of the Articles of Association of The Company there must be a quorum of six members for the Board of Directors to function. Due to differences of opinion there appears to have been a dead lock amongst the directors and two attempts at convening board meetings failed because of the absence of the necessary quorum. Four of the directors, who were clients of Arthur Au & Co., sent a letter to The Company through their solicitors indicating that they would not attend a particular board meeting. This board meeting was for the purpose of supplementing the deficiencies in the number of directors on the board. The letter from Arthur Au is dated 5th March 1980 and indicates that not only would his four clients not attend at the board meeting convened for the 5th March 1980 but it placed on record that these four gentlemen would not confirm or ratify any authority given to Messrs Yung Yu & Yuen & Co. and that they would appose any appointment of directors.

21. Faced with a refusal of these 4 directors to cooperate, Mr. CHAN Wai-to (a permanent director and manager of The Company since its incorporation) on the 27th May 1980 brought proceedings in HCMP 472 of 1980 seeking an order from the Court for the holding of the extraordinary general meeting similar to that which was sought in the present proceedings. That matter came before Mr. Justice Garcia and he made an order that such a meeting should take place on the 28th June this year. That meeting however was rendered abortive due to the efforts of Arthur Au and one of his clients a certain Mr. LOK Kam-fat.

22. At this stage then, two attempts to regularise the management of the company had failed.

23. This meeting having been rendered abortive by the actions of the Mr. LOK Kam-fat and Arthur Au, Messrs Jabrin Limited brought another application before this court on the 5th July 1980 and obtained another order from Mr. Justice Garcia ordering an extraordinary general meeting to take place on the 31st July this year. It was directed by Mr. Justice Garcia that not only should notice of the meeting be given in the newspapers in accordance with the Articles of Association of the company, but he also directed that notices should be sent individually by registered post to the shareholders of the company.

24. I have already recited how on the 30th July 1980 an ex-parte application was made to stop this meeting taking place on the 31st July. This time the 1st Applicant was in the thick of the fray assisted by his solicitor Arthur Au. The order obtained from Mr. Justice Liu was obtained by suppression of facts. This was conceded by Leading Counsel Charles CHING, Counsel for The Applicants.

25. Mr. CHING who now appeared for the 19 Applicants in HCMP 589/80 and the additional Applicants in the Notices of Motion in HCMP 712/80 argued however that the order made by Mr. Justice Garcia on the 5th July 1980, ordering this meeting to make place on the 31st July 1980 should not have been made, because Jabrin Limited had no locus standi to make the application in the first place. The basis of his argument was that any transfer had to be approved by the board of directors. As there had been no proper board of directors and there had never been any quorum since the instruments of transfer of shares were affected, thus Jabrin Limited should not be on the Register of shareholders.

26. Factually of course Jabrin Limited had been registered on the Register of shareholders and had been recorded as being a shareholder since 3rd January 1980 in that record. (see Register exhibited as (PAC-4 page 18) to the affidavit of Paul Andrew Cullington, partner in Messrs Peat Marwick, Mitchell & Co., certified public accountants (No. (46) on file)). Both Mr. S.H. LEUNG (No. (4) on file) and CHAN Wai-to (in his affirmation Exh. SHL-2 No. (4) on file) both testified to the fact that Jabrin Limited was a registered shareholder.

27. Mr. CHING relied on article 35 of the Articles of Association which is in the following terms:-

"The Directors may decline to register any transfer of shares to a person of whom they do not approve and may also decline to register any transfer of shares upon which the Company has a lien."

He argued, if I understood him correctly, that this means that the members of the board must properly consider the matter and exercise their discretion positively one way or the other. He argued that it would make nonsense of any restriction on the transfer or shares if it could be said that whenever there was no proper board, any purchaser of shares would be entitled to be registered as of right.

28. He referred to Section 114(2) of the Companies Ordinance, which is the section under which Mr. Justice Garcia made the order for the meeting to take place on the 31st July. This sub-section provides as follows:-

"If for any reason it is impracticable to call a meeting of the company in any matter in which meetings of that company may be called or to conduct the meeting of the company in manner described by the Articles or this Ordinance, the Court may, either of its own motion or on the application of any director of the company, or of any member of the company, who would be entitled to vote at the meeting, order a meeting of the company to be called ........".

29. He stressed the element of impracticability, and also the fact that the application must be made by a director or a member of the company or that the order can be made by the Court of its own motion. Since in his submission Jabrin Limited was not and should not be a member of The Company it had no locus upon which to make the application to Mr. Justice Garcia. Furthermore because they were not properly on the Register they should be taken off the Register which should be rectified.

30. Of course the locus argument could not be argued so far as CHAN Wai-to was concerned, and of course CHAN Wai-to joined in that application of Jabrin Limited. However Mr. CHING argued that the impracticability element was a bar to the success of CHAN Wai-to's application. (I should add here that Mr. CHAN Wai-to joined in the application of Jabrin Limited on the meeting summons and that this was done with the consent of Mr. CHING).

31. In support of this argument Mr. CHING referred to Section 113(1) of the Companies Ordinance Cap. 32 which provides:-

"The Directors of the company, notwithstanding anything in its articles shall, on the requisition of members of the company, holding at the date of deposit of the requisition not less than one-tenth of such paid up capital of the company as at the date of deposit carries the right of voting at general meeting of the company ....... forthwith proceed duly to convene an extraordinary general meeting of the company."

He argued that Jabrin Limited, if it was to be regarded as a member of the company, and also CHAN Wai-to, who undoubtedly was a member of a company, should have requisitioned a meeting under this section before it could be said to be impracticable to apply to the Court under Section 114. For this reason he argued the application to hold a meeting should fail.

32. Mr. Miller for Jabrin Limited argued that it was the first duty of the vendors of shares to Jabrin Limited to do everything they could to assist Jabrin Limited to perfect its title to the shares and in particular to assist them to obtain registration. He argued that the application for rectification of the Register was in breach of every vendor's contract with his client. He drew the attention of the Court to the reality of the situation pointing out that while Jabrin Limited was on the Register of shares, it must be entitled to exercise the voting rights in respect of the shares. If the application for rectification were successful, the vendors would have to vote exactly as directed by Jabrin Limited because Jabrin Limited had the beneficial interest in the shares since they were the transferees and since they had fully paid for those shares. No damage he argued would be suffered at all by Jabrin Limited remaining on the Register. Indeed on the contrary it would save a great deal of trouble and several actions and costs. He argued that there was no practical utility in the Motion at all to remove Jabrin Limited from the share register.

33. He also argued that the application for stay should be refused. In an application for interlocutory relief, an essential consideration is the balance of convenience and whether the relief can be granted by avoiding the possibility that any irreparable harm may be caused. Mr. Miller argued that there would be no loss whatsoever in the present case, by allowing the meeting to be held, and allowing Jabrin Limited to vote at that meeting, because Jabrin Limited in any event had the right to control the vote on the shares which they had purchased and which had been transferred to them.

34. He referred me to a number of authorities relating to the rights of shareholders with regard to registration and voting. The first of these was the case of Musselwhite and another v. C.H. Musselwhite & Son Ltd and others.⁽⁴⁾

35. The facts in that case are succinctly set out in the headnote as follows:-

36. Mr. Miller argued that the plaintiffs in that case succeeded because (1) they were on the register and (2) they were unpaid vendors. He drew the distinction that in the present case the vendors were paid, and if that had been the position in the Musselwhite case the plaintiffs in that case would not have succeeded. Similarly the vendors in the present case had no rights whatsoever because they had been fully paid. Once a vendor had been paid, he had no beneficial interest in the subject matter whatever and was a bare trustee, Mr. Miller therefore argued that as the vendor Applicants were bare trustees for the purchaser Jabrin Limited the subject matter of the sale was vested in Jabrin Limited, and the vendor Applicants had no concrete right to call for it back again. On the other hand, the equity was all the other way. Summarising then if Jabrin were not on the Register, they would be entitled to be put on it and if they were already on it then nobody had any right to take them off it.

37. The second case to which I was referred on this subject was that of Hooper v. Herts (1906) 1 Ch. 549. The headnote of this reads as follows:-

"Upon a transfer for value of shares in a limited company the transferor is under an implied obligation, arising from the relation of grantor and grantee constituted between the parties by the transfer, not to prevent or delay the registration of the transferee as owner of the shares."

38. A Fortiori, argued Mr. Miller, the transferee should not be taken off the register, when it is already on.

39. The third and most important case to which Mr. Miller referred is the case of Swaledale Cleaners Ltd⁽⁵⁾ the facts of this case are set out in the headnote as follows:-

40. Section 116 (1) and (2) of the Companies Act 1948 referred to in the headnote is in identical terms to Section 100 (1) and (2) of our Companies Ordinance, which is the section under which the Applicants applied for rectification of the Register. Section 78 sub-section (1) of the Companies Act of 1948 referred to in the first ground of the Court of Appeal for dismissing the appeal, is in identical terms to Section 69 of our Companies Ordinance.

41. Mr. Miller argued that if Jabrin were not on the Register, for precisely the reasons advanced in the Swaledale case, they would be entitled to be put on the Register. If Mr. CHING was right in saying that the board had been lacking the requisite power to act ever since Jabrin first took transfers of shares in the company, then the situation would be precisely what it was in the Swaledale case, namely that there was no quorum of directors. The articles in the present case were precisely the same as in the Swaledale case and gave directors power to decline registration and they did not make consent of the directors a pre-requisite of registration. Subject to any veto, the shareholders' right to transfer and the transferees' right to registration were absolute. The articles in the present case for practical purposes were in exactly the same legal basket as the articles in the Swaledale case. Since therefore The Company could not possibly resist a claim by Jabrin Limited for registration of each and every transfer which had been lodged by the Jabrin Limited for registration, Mr. Miller submitted that the Court ought not to accede to the application to remove Jabrin Limited from the Register. A court of equity does nothing in vain and it would be futile to have Jabrin Limited removed from the register when they were entitled to be on it. He argued that the present case of Jabrin Limited was even stronger than that of the transferees in the Swaledale case, because instead of declining to register, the/directors had in fact in the previous November decided to permit transfers in favour of Cheung Kong (Holdings) Limited and subsidiaries, and of course Jabrin Limited is in fact a subsidiary of that company and in addition to that had in fact been put on the Register of The Company by the auditors of the Company on the directions of one of the permanent directors. The decision in the Swaledale case was a unanimous decision of the Court of Appeal in England. The decision is obviously of the highest persuasive value in Hong Kong.

42. In view of that decision Mr. Miller urged that no new board of directors with which the company may equip itself in the future could possibly assert any right whatever to decline to register Jabrin Limited as the holder of all the shares in question.

43. Mr. Miller referred me to the case of Hackney Pavilion Ltd⁽⁶⁾ for the proposition that articles of this kind require a positive resolution of a board, before a board can refuse to register a transfer, but that they do not require a positive resolution that the transfer should be registered. The facts of the Hackney Pavilion Ltd case are set out in the headnote as follows:-

44. Articles of this kind therefore require a positive resolution of a board before a board can refuse to register a transfer, but they do not require a positive resolution that the transfer should be registered. The same principle was expressly approved in the House of Lords in Scotland in the case of The Trustees of Shepherd v. Shepherd⁽⁷⁾. When therefore on the 8th March this year Jabrin Limited were registered as holder of shares of The Company, Mr. Miller submitted that they were entitled to be on the register because the directors had not resolved to refuse their registration. The situation would not be any different if there had been only one director still alive. Mr. Miller therefore submitted that there was a total lack of merit in the application for rectification of the Register by the removal of the name of Messrs Jabrin Limited from it.

45. Mr. Miller took me with meticulous care through the various affirmations of the Applicants and it would appear that there were many of them whose names were originally entered on the register in the same way as that of Jabrin Limited. This applies in particular to the following Applicants the 2nd, 4th, 5th, 7th, 8th, 12th, 14th, 15th, 16th, 18th and 19th.

46. The only Applicants which were shown on the register in 1959 were the 1st, 3rd, 6th, 9th, 10th, 11th, 13th, and LAW Hon-tin through whom the 17th Applicant claimed. Of these last eight Applicants half of them had transferred their shares to Jabrin Limited and been paid by Jabrin Limited substantial amounts of money. The exceptions were the 11th Applicant who transferred his shares to one POONG Kwok-yan (it is not known whether he was ever paid), and the 1st and 3rd Applicant also and LAW Hon-tin through whom the 17th Applicant claimed.

47. I will now deal with the cases of the Applicants who did not transfer their shares. Mr. Miller again with meticulous care took me through each of their affirmations and the following points emerged:

1st Applicant LO Kam-pan

48. He was still on the Register and there was therefore no occasion to rectify the register in his favour.

2nd Applicant LOK Ying-tai

49. She was on the register, though if her argument against Jabrin being on the Register were to be accurate, she herself should not be, because the shares were only transferred to her on the 3rd July 1967.

3rd Applicant TANG Ming

50. He also was on the Register as evidenced by the affirmation of his son TANG Tak-shing. He had been on the Register since 1959 and still remained on it.

7th Applicant NG Kwan

51. Widow of LAW Hon-tin. She exhibited to her affirmation the Letters of Administration which disclosed the schedule of the property which had been disclosed on her husband's death. However no shares whatsoever in The Company were shown in the disclosure of the assets of the estate. Mr. LAW, her husband, was registered in the company's book since 1959 as a shareholder (see page 61 volume 1). There is no provision in the Articles of Association of The Company for the automatic transmission of shares from deceased persons to the personal representatives. Instead article 40 provides as follows:-

"Article 40 - any person becoming entitled to shares in consequence of the death ..... of any member, upon producing proper evidence of the grant of ..... Letters of Administration or such other evidence that he sustains the character in respect of which he proposed to act under this article of his title, as the directors think sufficient, may, with the consent of the directors (which they shall not be under any obligation to give) be registered as a member in respect of such shares, or may subject to the regulations as to transfers herein before contained, transfer such shares. This article is hereinafter referred to as the transmission clause."

52. Article 41 of the articles gives the directors the same right to refuse to register persons entitled by transmission to any shares or his nominee as if he was the transferee named in the ordinary transfer presented for registration.

53. The position therefore was the exact opposite situation from that in the present type of article because in this instance the positive consent of the directors to the registration of the successor of the deceased person was a pre-requisite to registration.

54. Madam NG said in para 4 of her affirmation that her name should be on the Register, but strictly speaking she should only be on the Register if and when she invokes the machinery in article 40 and if and when the directors positively consent to register her in place of her deceased husband. In the meantime the shares were still on the Register in her name (see page 61 first volume) and Madam NG is entitled to vote in respect of those shares at general meetings by virtue of article 66. She can also transfer then under article 40.

55. She could therefore have no complaint against Jabrin Limited because her name was on the Register, when in fact if her arguments were correct it should not be.

56. That concludes the applicants in HCMP 589 of 1980 and the 1st to 19th Applicants in HCMP 712/80. I will now deal with the additional applicants in HCMP 712 of 1980.

MAN Mui (20th Applicant)

57. This lady's case was set out in the affirmation of deponent YIP Kin-ming. He said that he was duly authorized by Madam MAN Miu to deal with this matter. He exhibited a power of attorney given to him by Madam MAN Miu under Section 7 of the Power of Attorney's Ordinance on the 29th July 1980. He went on to say that MAN Miu was the mother of CHEUNG Bing-fook, who was the registered owner of Stall No. 8, third Street, Tung Yick Market, Yuen Long in the New Territories, and who was now residing at Haagweg 438, Breda (The Netherlands). In para 3 of his affirmation he affirmed that by a power of attorney dated the 8th July 1980 CHEUNG Bing-fook duly authorised his lawful and natural mother (namely MAN Miu) to manage the said stall. He exhibited the power of attorney to his affirmation. If however one looks at that power of attorney which was sworn before a notary public, one finds that Mr. CHEUNG Bing-fook did no such thing. All he did was to give his mother MAN Miu authority to sell and transfer the property of his house at Hong Kong at 8, Tung Yick, third street, Tung Yick Market, Yuen Long, New Territories. In para 4 of his affirmation Mr. YIP said "I have been informed by my solicitors and verily believe the same to be true that ever since 1964 no annual general meeting of Unlong Tung Yick Land Investment Co. Ltd was held and there is no valid board to approve any transfer of shares. Then the name CHEUNG Bing-fook should be on the register."

58. This was a complete non-sequitor because Mr. CHEUNG Bing-fook's name was on the register of shares. In para 5 of his affirmation he affirmed "I am advised by my solicitors to join in the Kai Fong of Tang Yick Market in their application for the rectification of the Register of Unlong Tung Yick Land Investment Co. Ltd, (i.e. The Company) by striking out therefrom the name of Jabrin Limited under section 100 of the Companies Ordinance (Cap. 32) and for an order to set aside the order made by the Honourable Mr. Justice Garcia on the 5th day of July 1980 on the ground that Jabrin Limited, the third respondent, herein, has no locus standi in making the said application and an order to allow me to be added as an additional defendant to these proceedings."

59. As Mr. Miller pointed out everything was wrong with this particular application. First the only possible plaintiff would have to be Mr. CHEUNG himself, but he was not an Applicant. Instead his mother was, but his mother did not make any claim to any interest in the company. Nor had she been given any power to make any such claim by her son, who had not authorised her to make any such claim by the power of attorney. Secondly YIP put himself forward as the holder of a general power of attorney for MAN Miu, but that only authorised him to act as her attorney and not as Mr. CHEUNG's attorney. Thirdly it did not seem that either Mr. CHEUNG or MAN Miu had received any advice on this matter at all. Instead Mr. YIP, who had no authority, joined as an applicant to these proceedings a lady who had no power of her own and who had no power to make any claim on behalf of her son. For these reasons Mr. Miller asked that the application of Madam MAN Miu by notice of notion be dismissed.

WAN Kwai-ying

60. Madam WAN Kwai-ying joined in Madam MAN Miu's notice of motion and made her own affirmation. She said that she was the lawful kit-fat widow of LEE Tin-sang who was the shareholder of The Company and the registered owner of Stall No. 14 of second street and Stall 15 of third street in the Tung Yick Market and that she was the sole administratrix to the estate of the deceased in pursuance to Letters of Administration granted to her on the 16th October 1974. She exhibited the Letters of Administration to her affirmation. In para 2 of her affirmation she stated that her husband should be on the Register. (for the same reasons as the other Applicants).

61. In fact she herself was shown on the register at page 49 of the second volume. On page 2 of the Register of transfers in the second volume she was shown as having taken a transfer of her husband's shares a few days before his death. Furthermore when she applied for Letters of Administration her affidavit in support did not disclose the shares of the company as being part of her husband's estate. Her position may therefore be summarised as follows:-

62. She herself had taken a transfer of these shares before her husband died and then she had got herself registered as a transferee of these shares at page 49 on the second volume of the register, at the time when according to her, she had no right to be put on register at all because of the absence of a proper board of directors. She was now in the ridiculous position of having got herself onto the register, she was now seeking to go back on that transaction and say that her husband should be there.

63. Mr. Miller submitted that the story did not end there because of the two holdings of the shares which she had taken from her husband, she had since transferred both to Messrs Jabrin Limited by two separate transactions recorded on pages 9 and 13 of the Register of Transfer, and that Jabrin Limited was on the register in respect of these holdings. He very properly conceded that he did not at the time of hearing of this Notice of Motion have evidence of payment of these particular parcels of shares. However he did ask the court to infer that Madam WONG could not or rather would not have transferred her shares to Jabrin Limited without payment. The court was urged to excuse any absence of evidence on this matter in view of the extremely late date she appeared as an Applicant in these proceedings. He argued that since she herself had neither mentioned in her affirmation the circumstances of the transfer of her shares to Jabrin Limited not made any complaint about the transfer, it would be rather difficult to come to the conclusion in her favour that she could go back on her transfers. Her speculated that the only possible basis for such a claim by her would be on the general basis, of the absence of the competent board of directors, but he argued that he had already demonstrated that there is no ground for rectifying the register in her favour.

The 22nd Applicant TANG Lin alias TANG Lin-tai

64. She said that she was one of the shareholders and so she was. She was registered as such at volume 2 page 27 in respect of two 0 and two A shares. In para 2 of her affirmation she said for the same reason as the others that she should be on the register. However as Mr. Miller pointed out there was no suggestion that she had ever been taken off the register. For that reason he did not know what her complaint was about, unless she was saying that she was entitled to interfere with the applications of other Applicants and Jabrin Limited to support the case of the 4th or 5th or any of the other Applicants who sold their shares to Jabrin Limited, in which case her claim would be bad for the reasons already given.

65. Summarising then he submitted that it was a remarkable fact that all these applicants, everyone who had transferred his or her shares, had become duly replaced by the transferee in the usual way in the Registers of Members and the Registers of transfers with faithful and meticulous accuracy. In respect of those few applicants who had not transferred their shares, but who had a right to be on the register, each one of them was faithfully recorded as being still a shareholder of the company. The only exception was Madam NG, the 17th Applicant, who had, on her own case, no right to be on the register at all, but her husband who ought be on the register, was, though he was dead. Mr. Miller argued that there was no reason whatsoever to doubt the accuracy of these registers and no case for rectifying them.

66. Summarising then so far as the notices of motion in HCMP 712 of 80 were concerned Mr. Miller submitted that they should be dismissed because there was no ground for thinking that the Register ought to be rectified. His client Jabrin Limited were rightfully on the register and lawfully entitled to remain there. As such they had the right to apply to Mr. Justice Garcia for a meeting which Mr. Justice Garcia ordered for the 31st July. They had the locus standi.

67. So far as the interlocutory applications were concerned the order of Mr. Justice Garcia should not have been stayed, and would not have been stayed if there had been a full and frank disclosure of all the material facts. There was no call for any further stay because the determination of the action, which was the point in time to which the applicants were asking for a further stay, was taking place at the same time. Messrs Jabrin Limited had no objection to the Applicants being named as defendants in the proceedings, but as Mr. CHING said in his opening submission this is merely a technicality.

68. So far as the meeting summons was concerned in para 2 Mr. Miller asked for Mr. Justice Liu's order to be discharged because it was obtained by suppression of material facts. I made an order in the respect at the conclusion of the hearing based on the authority of the cases referred to earlier in this judgment. In para 3 he asked for an inquiry as to the damages which his client had suffered, which he argued must certainly exceed $20,000. And in para 4 he asked that the 19 Applicants do pay Jabrin Limited the amount of damages ascertained together with Jabrin's costs of the said inquiry. He also asked for a relief in terms of para 4 and 5 of that application.

69. There could be no doubt about the entitlement of Messrs Jabrin Limited to the relief sought in para 2, 3, 4 & 5 and I have said I made an order in terms of para 2 at the conclusion of the hearing. So far as para 1 was concerned it had already been thought necessary by Mr. Justice Garcia to order such a meeting. Unfortunately for technical reasons that meeting could not go ahead as the chairman in that meeting adjourned the matter sine die and not to a fixed date, so that under the Articles of Association it became necessary for a new notice to be given to all the shareholders. Mr. Miller submitted that it would be sufficient for that notice to be given in compliance with articles 117 and 116, and that there was no need for the notices to be sent by registered post, as was directed by Mr. Justice Garcia in the previous hearing.

70. Mr. Dennis CHANG who appeared for Messrs CHAN Wai-to, NING Siu-wah, LEE Tung-ting, and TANG Man-chung pointed out there was only one application on behalf of his client CHAN Wai-to in HCMP 589/80 in which he was seeking the appointment of a Receiver. He pointed out that Mr. CHING did not question the jurisdiction of the Court to make such an order and that it was highly expedient for such an order to be made and that it should be made forthwith. In this connexion he supported entirely the remarks of Mr. Miller.

71. There could be no doubt in this case that it was highly expedient that an order should be made, and in fact I did make the order at the conclusion of the submissions on the 16th September.

72. This was because of the facts averred to by Mr. S.K. Leung in para 5 of his affirmation ((37) on file) that a time limit had been put by government on the offer of the in-situ exchange of land.

73. So far as the summons for a meeting was concerned Mr. CHANG pointed out that his client CHAN Wai-to was not a party to the application but he formally applied for him to join in this application and for the Court to dispense with the necessary formalities. On Mr. CHING raising no objection this was allowed. That being so Mr. CHANG pointed out that there could be no possible argument about the locus standi of his client as a director and shareholder of the company to apply for a meeting. He argued that it was impracticable for his client to call a meeting in view of the previous history of this matter and in view of the number of shares which he held in the company. The true value of a meeting called by the Court would be that it would take effect even if the necessary quorum (required under the articles) was not present, whereas in the case of a meeting called by requisition under Section 113, it was necessary for such a quorum to be present, and if it was not, the meeting would stand dissolved and would not stand adjourned until the next week.

74. He pointed out that what Mr. CHAN Wai-to had done in the past was what the members at large had agreed. As manager of the company he had in his various actions, always faithfully carried out his duties as he saw them to be. As regards share transactions there was the board meeting on the 5th May 1979 exhibited to his affidavit (No. (45) in the file) exhibit CWT-5 where it could be seen on page 2 para 3a that there was evidence that in the past shares had always been freely transferable. All that Mr. CHAN Wai-to did afterwards was to follow what happened before. The next minute for the meeting on the 30th November indicated that there was permission for share-holders to sell their shares to Cheung Kong (Holdings) Ltd. He supported Mr. Miller's argument that it requires a positive decision of the board to refuse or decline to register a share and pointed out that Mr. CHAN Wai-to registered the shares in accordance with the previous practice as he was supposed to do. He submitted there was no justification for making his clients respondents in these proceedings and pointed out that the meeting that was called by Jabrin Limited for the 31st July by order of the Court was perfectly in order and that his client Mr. CHAN Wai-to would have supported such a meeting but for the fact that he was outside the Colony and was very ill. He himself had previously tried to call a meeting and failed. Furthermore he pointed out that if the Court was satisfied that in any event a meeting should have been called to put the company upon a proper basis, it should do so on its own motion, and the mere fact that the locus of the applicant was questioned should not prevent the Court making the order and calling the meeting.

75. So far as the application for rectification of the Register was concerned he adopted the arguments of Mr. Miller.

76. So far as the The Property was concerned he informed me from the bar that it was a matter of record (this was not challenged) that the last of the possession cases was finished on the 25th July of this year. By this date the authority of the solicitors of the company (Messrs Yung Yu & Yuen & Co.) had already been ratified and confirmed on the 24th July. There had thus been finalisation in respect of all actions for possession in respect of everyone in possession. The greater portion of the land had been recovered back and the huts had been properly and duly demolished. None of the Applicants (with the exception of the few which he mentioned was in possession of the land).

77. Those Applicants in possession were the 5th Applicant YIP Miu-lin represented by Arthur Au. He had consented to judgment in the District Court; judgment was duly entered and a stay had been refused. The position was the same in respect of the 7th, 8th, 12th, 15th and 16th Applicants.

78. Mr. CHING in his reply to these submissions emphasised that under Section 23(1) of the Companies Ordinance the memorandum and Articles of Association constituted a contract and like any terms of any contract they could be varied and they could be modified but they could only be modified by a resolution, and there had been none in the present case. There was there-fore a situation which said the directors will not act unless there be eleven of them and if the directors do so act they are in breach of contract.

79. So far as the defects in the affidavits of his own clients were concerned he claimed that this did not matter because the Court could act on the case of any one Applicant whose case was in an order. So far as the Notices of Motion were concerned he argued that the request for rectification of the register to remove the/name of one or other of the Applicants, was somewhat misleading. The request to replace the name of Jabrin Limited with the/name of one or other of the Applicants, was somewhat misleading. The request to replace the name of Jabrin Limited with the name of Applicant was merely a consequential order; the important thing was to get the Jabrin Limited off the register because they were performing or purporting to act as shareholders when they had no right to do so. He reiterated his contention that Hessrs Jabrin Limited had been in a position since March this year to cause a general meeting of the company to be held because it held beneficially more than 10% of the issued share capital. If for one reason they could not call a meeting, then it followed that no board meeting could be appointed. If they could call a meeting, then they should have done so. They could not escape from the possibility of the board of directors refusing, and refusing within a reasonable time, by simply not putting right what they had in their power to put right. He took issue with Mr. CHANG on the impracticability question and referred to Section 100(1)(a) of the Companies Ordinance Cap. 32 pointing out that the 2nd Applicant was still on the register and was still a registered member of the company. He argued that he was entitled to say "There is someone on the register who should not be there. Please take him off". He sought to distinguish the Swaledale case by reference to a remark of Mr. Justice Pennycuick in the hearing of the same case at first instance which is reported in the 1968 1 W.L.R. 432. He argued that what Mr. Justice Pennycuick was saying at page 436 "H" was that there were cases whereby having regard to the impossibility of appointing a board, the period which may be described as unreasonable could have been longer than two months.

80. Those then were the arguments put forward in this case. I have already made an order dismissing the applications of the Applicants and granting the applications of Messrs Jabrin Limited and Mr. CHAN Wai-to.

81. The main applications of the Applicants were of course contained in their Notices of Motion in HCMP 712/80 (1) seeking rectification of the register by striking out the name of Jabrin Limited from the Register and substituting those of the Applicants. And (2) seeking a declaration that Jabrin Limited had no locus standi in instituting the proceeding HCMP 589/80. Consequentially upon orders being given in their favour on these two points, they, as a result of (1), sought an enquiry into the damages they have suffered by reason of the Company having made fault in entering their's names on the register and as a result of (2) that the order of Mr. Justice Garcia be set aside.

82. Principally what they wanted therefore was to obtain rectification of the Register and a declaration that Jabrin Limited had no locus standi in instituting the proceedings HCMP 589/80.

Rectification Of The Register

83. It was proved on the evidence contained in the various affirmations and affidavits that the following Applicants had transferred their shares to Messrs Jabrin Limited and been paid for those shares.

84. It was further proved that the following Applicants had transferred their shares for value to Mr. CHAN Wai-to and others who on the same day transferred the same shares for value to Messrs Jabrin Limited.

85. Clearly Messrs Jabrin Limited had the right to be entered on the Register of shareholders in respect of these transfers. subject to the directors' right to decline to register any transfer under Article 35.

86. It has never been argued that there was anything defective in the way the instruments of transfer were presented for registration. The only argument pursued in this Court was that a transfer had to be approved by the directors who had to properly consider the matter and exercise their discretion positively one way or the other.

87. This, of course, cannot be right in the light of the decisions in the Hackney Pavilion Case and the case of Shepherd's Trustees v. Shepherd.

88. Furthermore if more than a reasonable time elapses between the time the transfers are lodged for registration and the time the directors exercise their veto and notify the transferee of this fact. the courts in England will in such cases order that the transfer be registered even though the delay was caused by the fact that there was no quorum of directors. The Swaledale Cleaners case.

89. The legislation which was considered by the Court of Appeal in the Swaledale Cleaners Case is precisely the same as the corresponding provisions of our own Companies Ordinance.

90. The directors were not and will not be in a position to exercise their power of veto until they have a quorum. And in all probability they will not have a quorum until an extraordinary general meeting is held to appoint new directors or to alter the articles to reduce the number of directors and the size of a quorum.

91. In this situation there has not been and there cannot be an exercise of the power to veto within a reasonable time.

92. That being the case the transferee was and is entitled to registration and Messrs Jabrin was and is therefore entitled to registration in respect of the shares transferred to them and the register should not therefore be rectified to remove them from the register.

93. So far as the 11th Applicant is concerned he transferred his shares to somebody else who was not made a party to these proceedings.

94. So far as the non-vendor Applicants were concerned, for the reasons advanced by Mr. Miller in his submission there was clearly no justification for rectifying the register.

95. I therefore reached the conclusion that there was no merit in the request for rectification of the register.

96. To Make Application Under Section 114(2)

97. The first of the transfers in favour of Messrs Jabrin Limited had been executed on 3/1/80, and presented for registration. Indeed there were a number of transfers executed in January 1980, and presented for registration. The time within which it could be said to be reasonable for the directors to notify Jabrin Limited of their refusal to register those transfers had long since passed when Jabrin Limited made the first application for a meeting on 5/7/80 and when they filed their summons for a meeting on 10/9/80. Any attempt therefore to either prevent them being registered by these dates or to have them removed from the register when they were rightfully entitled to be on it would have failed. For this reason the argument advanced on behalf of the Applicants that there had been no positive resolution one way or the other was bound to fail. On each of the dates in question Jabrin Limited was on the register and entitled to be there.

The Practicability Argument

98. Having regard to the previous history of this matter it would have been pointless to requisition a meeting under Section 113 of the Companies Ordinance. Even a meeting ordered by a High Court Judge had been aborted due to the efforts of Arthur Au and one of his clients. Delaying tactics had been adopted at every stage. The Applicants had even filed a writ in High Court Action No. 4275 in which they sought declarations that each and every one of them was and is a shareholder of The Company and for a declaration that Jabrin Limited was not. In that action they adopted a different method in their attempt to render an extraordinary general meeting held on 24/7/80 pursuant to an order by the same High Court Judge, to be null and void. This was the meeting at which the authorisation of Messrs Yung Yu & Yuen & Co. to act for The Company in obtaining vacant possession of The Property was expressly ratified and approved. There could be no question in this case that it was impracticable within the meaning of Section 114(2) of The Companies Ordinance to call a meeting otherwise than by order of this Court.

99. So far as the argument for the Applicants rested on the claim that any one of the Applicants who was properly on the register could legitimately ask that Jabrin Limited be taken off the register, that may well be so under Section 114(3) of the Companies Ordinance Cap. 32, but in order to succeed, there had to be some merit in the application. In this case there was absolutely no merit in the claim of any one of these Applicants as has been demonstrated above.

100. I dismissed the interlocutory summons for stay of the order of Mr. Justice Garcia ((33) in LRT File) with costs and I dismissed the Notices of Motion in HCMP 712/80 with costs.

101. So far as the summons for a meeting was concerned I was satisfied that Jabrin Limited had the locus to apply for such a meeting and I made an order in terms of para 1, 2, 3, 4 and 5 of that summons. I was satisfied that Mr. CHAN Wai-to also had the locus to apply for such meeting. In any event I considered on the facts that this Court should of its own motion order such a meeting.

102. So far as the appointment of a Receiver was concerned, the jurisdiction to grant such an order was not disputed and in fact I made an order in relation to the summonses of Jabrin Limited and Mr. CHAN Wai-to in HCMP 589/80 immediately at the conclusions of the submissions on the second day of the hearing.

103. Authority for this remedy is provided in Kerr on Receivers 15th edition page 55 as follows:-

"Section 7. Companies Incorporated Under the Companies Acts 

The appointment of a receiver over the undertaking and assets of a company incorporated under the Companies Act 1948, or the Acts which it replaces, is usually made upon the application of mortgagees or debenture holders. The appointment may, in cases of jeopardy, be made at the instance of contributories of the company: thus a receiver and manager was appointed for a limited time where disputes between directors had led to a dereliction in the management; similarly where there was no governing body a receiver was appointed pending a general meeting. The appointment will not be made where winding up is a more appropriate remedy."

104. Disputes between directors had clearly led to a dereliction in the management in the present case. There was no effective governing body.

105. I also considered it necessary that the application for appointment of a Receiver in respect of The Property should also be granted. The authority for this remedy is provided in the same legal work at page 62:

106. There could be no doubting the immediate danger to The Property in the present case. There had been a determined effort to prevent The Company from recovering its land so that it could honour its contract with Jabrin Limited and obtain the in-situ exchange with government. Claims had been made on affirmation that the Applicants were entitled to possession of this land when judgment had in fact been given against them. Even where, as in the case of the 1st Applicant, he consented to an order for possession.

107. As all these applications for the Appointment of a Receiver were originally opposed I ordered that the costs should follow the event and both Messrs CHAN Wai-to and Jabrin Limited would be entitled to costs on their applications.

108. At the request of Mr. Miller I ordered that Messrs Arthur Au & Co. should be required to show cause why they should not be ordered to pay all or some of the costs in these proceedings and that this matter should be adjourned to a date to be fixed by the Registrar.

Representation:

Mr. Charles Ching, Q.C. & Mr. W.Poon (Arthur Au & Co.) for Applicants

Mr. Miller, Q.C. & Mr. Peter Cheung (S.H. Leung & Co.) for 1st Respondent

Mr. Denis Chang & Mr. Patrick Chan (Yung, Yu, Yuen & Co.) for 3rd Respondent

(1) (1891) 64 L.T. 824

(2) (1917) 1 K.B. 486

(3) At page 505

(4) (1962) 1 Ch 964

(5) (1968) 1 W.R.L. 1710 C.A.

(6) (1924) 1 Ch. 276

(7) (1950) S.C. (H.L.) 60

HIGH COURT MISCELLANEOUS PROCEEDINGS NO. 589 OF 1980

(ERRATA)

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Representation: