All Overseas Ltd and Others v. Best Codes Nominees Ltd and Others

HCA4515/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4515 OF 2002

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BETWEEN

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Before : Hon Yam J in Chambers

Date of Hearing : 20 September 2005

Date of Judgment : 20 September 2005

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J U D G M E N T

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1.Under Order 14 and 14A, I will give the defendants unconditional leave to defend and I think the defendants have raised arguments sufficient to merit a trial of the action for the following reasons — and I emphasise on the word “merit”.

2.The main dispute between the parties concerned with a deed of share mortgage between the 2^nd and 3^rd plaintiffs on one side and the 4^th defendant on the other side.  The lender was the 4^th defendant and the shareholders were the 2^nd and 3^rd plaintiffs.  It was for a loan of $600,000 to be advanced by the lender to the shareholders and under the agreement, the shareholders had made instruments of transfer duly signed by the shareholders, together with the resignation of the then directors Mr Hau Wing-lam and one company called Great World Trading Limited.

3.Under clause 5, the shareholders undertook with the lender that they would execute the transfers and power of attorney, which they actually did.  They also irrevocably appointed the lender as his attorney.

4.Under clause 6, the shareholders also thereby agreed to irrevocably authorise the lender at any time, as and when the lender thinks fit, to act as a proxy in all general meetings of the Company and to raise requisitions in his name addressed to the directors of the Company for the purpose of convening general meetings pursuant to the Companies Ordinance, Cap.32 of the Laws of Hong Kong or, upon the failure on the part of the directors, the Company to convene such general meetings, pursuant to the said Ordinance in its name and to exercise all voting rights attaching to the shares or any of them.  All the necessary documents were signed in escrow and handed up to the 4^th defendant.

5.The main dispute in this case is whether the $600,000 borrowed by the shareholders had been repaid.  The shareholders said they have already repaid $600,000 and put in certain evidence to evidence the payments.  The lender, being the 4^th defendant, said they were not repaid and the evidence in support of $600,000 being paid to them was in respect of another loan.

6.The plaintiffs in the Order 14 did not push for summary judgment on the ground that the defence on this point is shadowy.  In fact, the plaintiffs accepted that whether the loan in question had been repaid is an issue to be tried.  But assuming it had not been repaid, they said that they are entitled to judgment.

The plaintiffs’ legal argument

7.It is common ground between the parties that Mr Hau had resigned as the director of a company called Bullion Top and, according to the defendants, in Mr Lau’s second affirmation, he said that Mr Hau resigned actually at the direction of the 4^th defendant as Mr Hau had been adjudicated bankrupt and therefore unfit to be a director of Bullion Top.  The main complaint of the 4^th defendant is how the 1^st plaintiff was appointed as a director of Bullion Top.  The 4^th defendant said it was done without the knowledge and consent of the 4^th defendant.

8.In respect of the other director Great Wealth, it is common ground that Great Wealth has already tendered its resignation by document dated 1 August 2002.  The main concern of these two summonses before me is — there are three before me but, in substance, it is Order 14 and Order 14A and the third one is another additional legal point under Order 14A —— On 5 August 2002, Chelton, that is, the 4^th defendant acting as proxy of Best Result, that is, the 2^nd plaintiff, and also the proxy of the 3^rd plaintiff being the two then-existing shareholders, gave a notice of an EGM.  One thing to note here is there were instruments of transfer from the 2^nd and 3^rd plaintiffs to Mr Li, the 3^rd defendant, and also a nominee of the 4^th defendant, Elbo Investment Limited.  That was dated 1 August 2002.

9.I was told by Miss Yanky Lam, counsel for the defendants, that this was done because, being laymen, the 4^th defendant thought the 2^nd and 3^rd plaintiffs were still shareholders of the 4^th defendant since the transfer had not been registered with the Companies Registry.  Be that as it may, that notice, I was told, was given to the 1^st plaintiff and Great Wealth.  In fact, in the affidavit, the defendants only said the notice of the EGM was given to the plaintiffs and Great Wealth but I was told that notice was given to the company as well, that is, Bullion Top.

10.Whether the 1^st plaintiff has received notice is under dispute, but Mr Rimsky Yuen, senior counsel for the plaintiffs, has fairly told me that for the purpose of the two applications of the plaintiffs before me today, they would take all the facts in favour of the defendants as put forward by the defendants.  Of course, that should be within limits.  According to the defendants, Great Wealth received the notice and therefore the 1^st plaintiff should have received the notice because, as the defendants said, Mr Gilman Chan was behind these two companies.

11.The notice was given to inform the recipient that it was intended to make, inter alia, the following resolutions : that is, to accept the resignation of the Great Wealth with effect on 1 August and remove the 1^st plaintiff as director and Great Wealth as a company secretary with effect from the date of passing the resolution.

12.It should be remembered that the defendants have all along been saying that the 1^st plaintiff should not be appointed as a director.  That is in breach of an implied term of the share mortgage since it is quite clear that the whole objective of the share mortgage is to give the 4^th defendant the liberty to become shareholders and directors of Bullion Top if the loan is not repaid.  And by appointing the 1^st plaintiff as the director, they would have no control over the company.  Of course, Mr Yuen said that is quite inconceivable because when Hau was removed, it should be known to the defendants that the 1^st plaintiff was appointed as a director in his place.  But,

(1) if it is an Order 14, and an Order 14A summonses, disputes could not resolved on affidavit; and

(2) that is not the defendants’ case.  Whether it is an implied term or not, it is still arguable although Mr Yuen has pointed out that in order to effect commercial efficacy, this is not necessarily an implied term.  That is an arguable point and the issue to be tried against the all the circumstances of the cases and should not be a point to be decided here.

13.Be that as it may, Great Wealth, according to the 4^th defendant’s notice and resolution eventually made on 31 August 2002, was still the director and they were only removed as a director with effect from the passing of the resolution and that is 31 August 2002.

14.Mr Yuen therefore submitted that there is at least one director, if not two and therefore the shareholders should not, on their own, give notice without making a requisition to the directors for an EGM to be convened.  Authorities were cited under Article 51 of table A in the Companies Law.

The defendants’ argument

15.Ms Lam, of course, said the 4^th defendant, being laymen — albeit Mr Yuen said it is a firm of accountants and Mr So is behind all this — did not know clearly of the Company Law’s position.  This was done and later on there was a without-prejudice meeting advised by solicitors for the 4^th defendant.  I would not go into the detail but suffice it for me to say that I accept Ms Lam’s submission that under section 100, the court has jurisdiction to rectify the Companies Register.  Section 100 could be pursued by originating summons under Order 102 or through Order 33, rule 3 within an action.  Miss Lam said there will be a counter-claim to that effect in the action here.

The decision

16.All this boils down to one thing and I think it is this:  was the $600,000 a loan repaid or not?  If it is not repaid, the 4^th defendant has every right to enforce the share mortgage, albeit certain rules or regulations or procedure was not properly followed.  For example, there is no proper requisition of an EGM from the director first when Great Wealth Trading Limited was still a director.  On 5 August 2002, the 4^th defendant could have done something better than what they have done.  But then, should the court rectify the position under section 100?  It all boils down to the original question whether the loan has been repaid.  If the loan has not been repaid, to my mind, that the plaintiffs should not gain their ground on a technical point only and the defendants should be given unconditional leave to defend.  If the loan has been repaid, there is no reason why the defendants should be allowed to remove the directors of the company even if they have followed the proper procedure.

17.Therefore, the order is unconditional leave granted to the defendants to defend the action.

[Discussion re amendment to Statement of Claim]

18.Plaintiffs to file and serve re-amended statement of claim within 14 days, and then 14 days thereafter for the defendants to amend the defence and counter-claim, and 14 days for the plaintiffs to reply a defence to counter-claim.

19.I do not think I need to give direction for discovery.  We will just follow the rules, unless there is anything arising directly.  Since I have given the defendants unconditional leave to defend, instead of dismissing the Order 14 summons, I think the usual costs order is defendants’ costs in the cause.

[Submission re costs]

20.Costs in the cause except the costs of the plaintiffs’ summons dated 28 June 2005 and the hearing on 5 July 2005 be to the defendants in any event.  And I explain that it is either by way of ex abundanti cautela or by way of an explanation of the order of costs I made on 5 July 2005 in order to assist the taxing master.  It may well be that the order has already included the hearing on 5 July 2005 but that is not very clear and I consider that the defendants are entitled to have costs in respect of the hearing on that day occasioned by the adjournment which was, in turn, occasioned by the new Order 14A amendment sought from me and that is in respect of adding question No.4.

Mr Rimsky Yuen, SC, leading Mr Victor Dawns, instructed by Messrs So, Lung & Associates, for the Plaintiffs

Ms Yanky Lam, instructed by Messrs Chung, Fong & Co., for the Defendants