Lee Chai Cheong and Another v. The Prudential Enterprise Ltd.
Read the full judgment text of HCA 3850/1990 on BabelCite. This High Court CFI judgment was delivered on 23 July 1991.
1. The plaintiffs are executors of the will of a Chinese lady known as "Lee Tai Kuen" who died on the 29th April 1980. Probate was granted on the 26th January 1989. Prior to her death, the deceased was the shareholder of 108 shares in the defendant company. On various dates between the 16th December 1981 and the 2nd April 1990, the defendant company declared dividends on those 108 shares totalling HK$281,016. The plaintiffs claim that as the deceased's executors, they are entitled to be paid the
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HCA003850/1990 1990 No. A3850 IN THE SUPREME COURT OF HONG KONG HIGH COURT ------------------- BETWEEN
------------------ Coram: Hon. Hooper, J. in Court Date of hearing: 8 July 1991 Date of delivery of judgment: 23 July 1991 ------------------ JUDGMENT ----------------- 1. The plaintiffs are executors of the will of a Chinese lady known as "Lee Tai Kuen" who died on the 29th April 1980. Probate was granted on the 26th January 1989. Prior to her death, the deceased was the shareholder of 108 shares in the defendant company. On various dates between the 16th December 1981 and the 2nd April 1990, the defendant company declared dividends on those 108 shares totalling HK$281,016. The plaintiffs claim that as the deceased's executors, they are entitled to be paid the dividends. The Articles of Association of the defendant company include a particular article, namely Article 135, (the retention clause) entitling the directors of the defendant company "to retain dividends payable upon shares in respect of which any person is under the transmission clause (Article 43) entitled to become a member or which any person under that Article is entitled to transfer, until such person shall become a member in respect thereof, or shall duly transfer the same." 2. The plaintiffs maintain in their statement of claim that by a letter of the 13th May 1989, the defendant company informed the plaintiffs that the defendant's directors would not exercise any power under the retention clause to retain the dividends. It is on this basis that they claim to be entitled to be paid the dividends. 3. The defendant company, in its defence, admits the letter of the 13th May, but disputes that the plaintiffs are entitled to be paid the dividends. It is the defendant company's contention, as pleaded in paragraph 6 of the defence, that the directors of the defendant company "have, as they were entitled to do under Article 135 (the retention clause) by resolution of the board duly resolved to retain and have retained the dividends payable upon the deceased's said shares." The defendant company therefore denies that the plaintiffs are entitled to the relief claimed. 4. In their amended reply the plaintiffs allege that on a proper construction of the terms of the defendant's letter of the 13th May 1989 (the said terms) the defendant had, by the said terms, informed the plaintiffs that the defendant's directors would not exercise any power under Article 135 (the retention clause), to retain the dividends payable upon the deceased's 108 shares. The plaintiffs in paragraph 7 of their amended reply further allege that the defendant company had, by its letter dated the 13th May 1989, waived its right and/or power conferred by and/or arising out of the retention clause to retain dividends payable upon those shares and consequently the defendant is not entitled to rely on this Article. 5. In paragraph 8 of the amended reply, the plaintiffs do not admit that the board of directors of the defendant company had passed any valid resolution to enable or empower the defendant or its directors to retain any dividends payable upon the deceased's shares. There is an alternative pleading that if, the board of directors had passed any valid resolution in respect of the dividends, such resolution only enabled and empowered the defendant or its directors to retain the interim dividends payable in pursuance of the directors' meeting of the 28th July 1985. 6. In paragraph 9, there is yet a further alternative pleading that on a true construction of the retention clause, the defendant is not entitled to retain any such dividend in that the defendant's directors have given no consent under the transmission clause (Article 43) to enable any person to be entitled to become a member of the defendant company in respect of the said shares under that clause. 7. The pleadings give rise to a number of issues. It is convenient for me to consider first the question as to whether on a proper construction of the retention clause, the directors of the defendant company had the power under the retention clause to retain these dividends. If the answer to this question is negative, the plaintiffs must succeed. If, on the other hand, the answer is in the affirmative, then a second question arises as to whether the directors of the defendant company had, by resolution of the board, duly exercised that power. Again, if the answer is in the negative, the plaintiffs must succeed. If, on the other hand, the answer is in the affirmative, then a third question arises: whether the directors of the defendant company waived their right to exercise that power by reason of the letter of the 13th May. This question must be answered in the negative, if the plaintiffs are to succeed. On a proper construction of the retention clause, did the directors of the defendant company have the power under the retention clause to retain these dividends? 8. Mr Edward Chan, for the plaintiffs, maintains they did not. He has referred me to the following Articles:-
Transmission
9. The only other relevant articles come under the heading "dividends" and are Articles 134 and 135:-
10. It is common ground that the plaintiffs, as executors, have never sought to be registered holders of the said shares or to be recognised as the only persons having any title or interest to those shares under Article 42. 11. That being so, it is common ground that the deceased is still entered in the register as the holder of those shares. 12. Mr Edward Chan for the plaintiffs argues that a distinction is made between "any person becoming entitled to shares in consequence of the death ... of any member" in Article 43 (the transmission clause) and "any person ... entitled to become a member" or "entitled to transfer" in Article 135 (the retention clause). It is his contention that under the transmission clause, a person only becomes entitled to become a member if three conditions are satisfied:
13. If, therefore, no consent is obtained from the directors, such a person does not become entitled to be a member within the meaning of Article 135 (the retention clause). 14. Mr Robert Tang for the defendant company takes issue with that argument. He argues that the sole purpose of the retention clause is to enable the company to exert pressure on the personal representatives to transfer the shares. He relies for this contention on a commentary in Palmer's Company Precedents 17th Edition at page 461 in relation to a proviso in similar terms. The fact that the board of directors have a power of veto does not mean that a person is not entitled to become a member of the company. For this proposition he relies on In re Hackney Pavilion, Limited [1924] 1 Ch. 276. He submits that the retention clause would cease to have any real value if it only operated during the short time between consent having been given and a transfer being made. It is obviously unsatisfactory to the company to have a deceased person registered as a holder of its shares and a member of the company. 15. Mr Edward Chan has attempted to draw a distinction between the Articles of Association in the Hackney Pavilion case, and the present case. 16. In my judgment, Mr Tang is clearly right. The retention clause would have no real value, if the board of directors had to wait until an application for transfer or for registration as a member were made. I therefore answer the first question in the affirmative. Did the directors of the defendant company by resolution of the board duly exercise that power of retention? 17. The defendant company in pursuance of a hearsay notice, without opposition from the plaintiffs, have tendered in evidence the statements of two witnesses, a Mr Samuel Tak Lee and a Ms Irene Yu. The former is a permanent manager and director of the defendant company and has been since 16th November 1965 while the latter is an authorized signatory of N&L Investment Limited, a director of the defendant company. Both were unable to attend the trial of this action, because they were on a business trip in the United States at the time of the trial. 18. Mr Samuel Tak Lee, in his statement in paragraph 6 thereof says:-
19. Madam Irene Yu, in her statement, confirmed attending the board meeting of the defendant company on the 28th July 1986 on behalf of N&L Investment Limited. She confirms that the minute of resolution at page 32 of the agreed bundle in these proceedings records the resolutions made during that meeting. She also confirms having signed the minute on behalf of N&L Investment Limited. Similarly on the 3rd July 1987 she attended a board meeting of Prudential and the resolutions passed at that board meeting were minuted and she signed the minutes for and on behalf of N&L Investment Limited. 20. If those statements are accepted at their face value, clearly this issue must be decided in favour of the defendant company. 21. But Mr Edward Chan for the plaintiffs, despite the fact that no counter notice has been served, urges me to place no weight on those statements. He has sought to argue that they are inconsistent with the facts as revealed in the agreed bundle of documents. 22. Having considered his submissions and having considered the bundle of agreed documents, I am unable to say that they are inconsistent with those documents. That being the case, no counter notice having been served, I am entitled to place weight upon them. 23. In my judgment, this question must be answered in the affirmative. Did the directors of the defendant company waive their right to exercise the power of retention under the retention clause, by reason of the letter of the 13th May? 24. That letter addressed to the solicitors of the plaintiffs is in the following terms:-
25. It is the plaintiffs' contention that on a proper construction of this letter, the defendant company has waived its right to exercise the power of retention under the retention clause. 26. In order to understand this letter, it is necessary to look at the two letters to which it refers. The letter of the 13th April addressed by the plaintiffs' solicitors to the defendant company is in the following terms:- "Dear Sirs,
27. The letter of the 28th March was also addressed by the plaintiffs' solicitors to the defendant Company in these terms:- "Dear Sirs, Re: Lee Hui Leun Tai, deceased.
28. It will be noted that in their letter of the 13th May, the defendant company, in its third paragraph, was referring to the second paragraph of the letter from the plaintiffs' solicitors dated the 28th March 1989. In that letter the plaintiffs' solicitors were asking to have a cheque made payable to their clients as soon as possible. The defendant company replied that the directors of the defendant company had decided, upon advice, not to take any action pursuant to section 135 of their Articles. 29. As Mr Robert Tang has pointed out, this must mean that the directors of the defendant company have decided not to take any action in sending a cheque. The words "pursuant to section 135 of our Article" does not mean that the directors have decided to waive their right to retain. It means that because they have a power to retain they have decided not to take any action in relation to sending a cheque. 30. In my judgment, this is the only reasonable interpretation that can be put upon the contents of this letter. Certainly, the letter is not as clear as it could be, and it has obviously been taken the wrong way. However, in view of the construction which I have placed upon this letter, it is my judgment that the plaintiffs have not established waiver. 31. My Robert Tang also, in addition to arguing that there certainly had not been any clear and unequivocal representation, has argued that there is no pleading to the effect that the plaintiffs placed any reliance upon the representation or acted upon it. Mr Edward Chan replies that this can be inferred from the evidence. 32. It is unnecessary for me to deal with these points on the pleadings. 33. For the reasons mentioned above, I hold that the plaintiffs have failed to establish their right to the relief claimed. 34. The claim is, therefore, dismissed with costs.
Representation: Mr Edward Chan, Q.C. leading Mr K.L. Lui (inst'd by M/s S.H. Leung & Co.) for the Plaintiffs. Mr Robert Tang, Q.C. leading Mrs Margaret Clough (inst'd by M/s Herbert Smith & Co.) for the Defendant. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||