Sze Ka Shuen v. Silkease Investments Ltd and Others
Read the full judgment text of HCMP 2201/2005 on BabelCite. This High Court CFI judgment was delivered on 18 December 2007.
1. On 14 October 2005, Madam Sze Ying Ngo (“Ying Ngo”) as the next friend of Sze Ka Shuen (“Mr. Sze”) brought two proceedings in the High Court, HCMP No. 2201 of 2005 and HCA No. 2016 of 2005. The miscellaneous proceeding is a petition under section 168A of the Companies Ordinance, Cap. 32 and the subject company is Silkease Investments Limited (“the Company”), in which Mr. Sze holds one share at all material times. The writ action is for declarations that the three shares in the Company initi
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HCMP 2201/2005 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO. 2201 OF 2005 ______________________
______________________ BETWEEN
______________________ AND HCA 2016/2005 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 2016 OF 2005 ______________________ BETWEEN
______________________ (Heard together) Before : Hon Kwan J in Court Date of Hearing : 11 to 14, 17 and 20 September 2007 Date of Handing Down of Judgment : 18 December 2007 ___________________ J U D G M E N T ___________________ 1.On 14 October 2005, Madam Sze Ying Ngo (“Ying Ngo”) as the next friend of Sze Ka Shuen (“Mr. Sze”) brought two proceedings in the High Court, HCMP No. 2201 of 2005 and HCA No. 2016 of 2005. The miscellaneous proceeding is a petition under section 168A of the Companies Ordinance, Cap. 32 and the subject company is Silkease Investments Limited (“the Company”), in which Mr. Sze holds one share at all material times. The writ action is for declarations that the three shares in the Company initially issued and allotted to three other shareholders were held by them on trust for Mr. Sze and for restorative orders to vest in Mr. Sze the three thousand shares which were alleged to be issued invalidly at subsequent periods, alternatively for an order that these invalid issues be cancelled and the share register rectified. The disputes arose out of the attempts to sell a property held by the Company at Unit 1707, Shun Tak Centre (Office Tower), Connaught Road Central, Hong Kong (“the Shun Tak Property”). The two proceedings were ordered to be heard together. 2.The Company is the 1st respondent in the petition. The individuals who are the other respondents and the defendants in the writ action are Madam Lee Mei Lin (“Madam Lee”), Sze Ming Kwok Allan (“Allan”), and Madam Sze Ming Shuen, also known as Mrs. Winnie Leung (“Winnie”). Madam Lee is married to Mr. Sze. 3.In the consent of Ying Ngo to act as the next friend dated 13 October 2005, it was stated that Mr. Sze, her father, is incapable of managing and administering his property and affairs by reason of being mentally incapacitated. The solicitor for the next friend certified that her belief Mr. Sze is so incapacitated was based on the opinion of the neurologist who attended Mr. Sze. 4.On 23 June 2006, a summons was filed on behalf of Madam Lee that Chan Dick Yuen be appointed her guardian ad litem in each of the proceedings, on the ground that she is incapable, by reason of mental incapacity, of managing and administering her property and affairs. Madam Lee was admitted to hospital on 5 April 2004 and has remained an in-patient. In a certificate dated 24 May 2006 issued by her treating doctor, it was stated that she had a stroke, renal failure and chest infection, that her physical and mental condition are so impaired she cannot undertake normal daily activities, and that her condition is unlikely to change for a year. An order was made on 26 July 2006 appointing a guardian ad litem for Madam Lee in both proceedings. 5.The guardian ad litem did not file any evidence. He only filed a defence in the writ action putting the plaintiff to proof of his case. He was excused from taking part in the trial. 6.Thus, neither Mr. Sze nor Madam Lee, who should be the main protagonists in the proceedings, is competent to give evidence, by reason of their mental incapacity. 7.The evidence adduced on behalf of Mr. Sze came from Ying Ngo and her younger brother Kimpang; they are Mr. Sze’s children from a former marriage. 8.The evidence in opposition came from Winnie. Allan, who is her younger brother, retained the same solicitors to act for him but did not make any affidavit in the proceedings. Winnie and Allan are Madam Lee’s children from a former marriage, and they took the surname of Sze when Madam Lee married Mr. Sze in 1961. 9.I will first set out the family background and other matters gleaned from the documents or should not be controversial before I analyse the issues in dispute in each of the proceedings. The family background 10.Mr. Sze is 83 years old. He is a native of the Fujian Province. He left the Mainland and went to Taiwan, where he married Madam Leung Ching Fong in April 1951. They were divorced in November 1957. Ying Ngo, Kimpang and two other daughters were born out of this union. Mr. Sze then left Taiwan and came to Hong Kong. 11.In April 1961, Mr. Sze married Madam Lee at the Victoria Marriage Registry. Madam Lee was a widow, with two children from her former marriage, Winnie and Allan. Only one child was born out of the union of Mr. Sze and Madam Lee and this was Chi Pang Kenneth (“Chi Pang”). He was born in 1963 and died of heart disease on 3 May 2000, aged 36, leaving his widow Madam Li Chun Fu and no issue. 12.Mr. Sze had worked as a seaman in his younger days and had little formal education. After he came to Hong Kong, he built up his businesses from humble origins. At one time, he was chairman of a small listed company in Hong Kong, Ming Ren Investment & Enterprises Limited (“Ming Ren”), which was engaged in the charter hire of vessels. In May 1990, he sold his interest in this company to Chyau Fwu Development Limited and the name of Ming Ren was later changed to Hong Kong Parkview Group Limited. According to Ying Ngo, he was an astute and experienced businessman. On Winnie’s evidence, he had studied accounting and English with a private tutor at home in Winnie’s teenage years. 13.Mr. Sze had suffered a setback in his financial affairs in the late 1970s, so much so that the then matrimonial home in Fontana Gardens, Causeway Hill, Hong Kong, was re-possessed by the mortgagee bank and sold in 1979. He managed to work his way out of the problems and started new businesses. I will come back to the companies set up in the 1980s. 14.Ying Ngo came to Hong Kong from Taiwan to continue her studies in 1968. She was introduced by her father to Madam Lee and told to address her as ‘aunt’. Notwithstanding that her father and Madam Lee have been living together as husband and wife for over 40 years, both she and Kimpang had thought all along that they were not legally married, until they read Winnie’s affirmation filed in these proceedings. Ying Ngo returned to live and work in Hong Kong after completing further studies in Japan. She speaks Putonghua and Japanese but is not fluent in English. 15.Kimpang came to Hong Kong from Taiwan in 1966. He studied in Hong Kong until 1972, when he went to the United States for his tertiary education. He graduated in 1976 with a degree in naval architecture. He then went to Nigeria to assist Mr. Sze in taking care of the shipping business of Ming Ren. In 1978, he returned to Hong Kong and shortly thereafter immigrated to the United States. He worked there as an engineer and later started a business in ticketing service. In 1987, he returned to Hong Kong to help Mr. Sze with the expanding business in mid stream barge operations. He has since remained in Hong Kong and also started various businesses on his own. 16.Madam Lee had assisted Mr. Sze in business until the late 1960s. Apart from looking after the family, she used her spare time to invest in stocks, foreign exchange and real property. In January 1984, she purchased a residential property in Elizabeth House, Gloucester Road, Hong Kong at HK$380,000.00. In September 1984, she purchased a property in Pokfulam Gardens, Pokfulam Road, Hong Kong at HK$750,000.00. Both properties were purchased without taking out any mortgage loan. The Elizabeth House property was let for rental income and was sold in 2002 at HK$2.1 million. The Pokfulam Gardens property was registered in the joint names of Madam Lee and Winnie and has been the matrimonial home of Mr. Sze and Madam Lee. 17.Winnie came to Hong Kong from China in 1963 and attended school in Hong Kong. She went to Canada for further studies. She is a qualified chartered accountant and had practised as such in Hong Kong in partnership with her husband Leung Wang Leung Anthony (“Anthony”), before they retired and immigrated to Canada in 1992. Their accountant firm, since dissolved, was known as Leung & Leung. 18.Allan also went to Canada for further studies in accountancy. He worked for Credit Suisse on his return to Hong Kong. He left that job to assist in the businesses of Mr. Sze. Like Winnie, he retired and immigrated to Canada in 1994. The shareholdings in Yee Lee 19.After resolving the financial difficulties of Mr. Sze in the late 1970s, Yee Lee Sea-Land Forwarding Company Limited (“Yee Lee”) was incorporated on 2 April 1980 to carry on a new forwarding and stevedoring business. Its authorised share capital was HK$100,000.00, divided into 1,000 shares of HK$100.00 each. 100 shares were held by Mr. Sze, the other 900 shares were held by Madam Lee’s sister, Lee Mei Lai. Both were appointed its first directors. 20.On 20 March 1982, Lee Mei Lai resigned as director and on 23 April 1982, she transferred her 900 shares to JCL Company Limited (“JCL”). The shareholders of JCL at the time were Anthony (holding 2,499 shares), Winnie (holding 2,500 shares) and Madam Lee (holding one share). Anthony and Winnie were then the directors of JCL. JCL provided company secretarial services apart from carrying out other work. Winnie had executed on behalf of JCL a declaration of trust dated 26 April 1982 declaring that the 900 shares standing in its name belonged to Mr. Sze and it held these shares as his nominee. She also executed on behalf of JCL an instrument of transfer in blank in respect of the transfer of the 900 shares for nil consideration. 21.As for the 100 shares registered in Mr. Sze’s name, on 11 March 1984, he transferred one share to his brother Sze Man Chiu, who served as a director from 8 March to 15 November 1983. On 1 January 1985, Chi Pang was appointed a director and served as such until 1996. It would appear from the annual return made up to 2 April 1996 that Sze Man Chiu ceased to be a shareholder some time before the date of the return and Mr. Sze had transferred two of the shares to his children, so that Chi Pang and Ying Ngo each held one share. 22.On 18 November 1999, the 900 shares held by JCL were transferred to Mr. Sze. The share held in Chi Pang’s name was transferred to Madam Lee after his death. 23.According to the annual return made up to 2 April 2004, there were three shareholders as at the date of the return – Mr. Sze holding 998 shares, Madam Lee holding one share and Kimpang holding one share, Mr. Sze having transferred one of his shares to Kimpang on 15 July 2003. All three were directors of Yee Lee. 24.Yee Lee was wound up on the petition of a creditor on 25 August 2004. The Company and the purchase of the Shun Tak Property 25.The Company was incorporated on 20 September 1985, with a nominal share capital of HK$10,000.00, divided into 10,000 shares of HK$1.00 each. It was purchased as a shelf company from Leung & Leung. On 19 December 1985, two shares were allotted, one each to Mr. Sze and Chi Pang, at a consideration of HK$1.00 for each share. On the same date, Mr. Sze and Allan were appointed its first directors and Allan its secretary. On 20 December 1985, the two subscriber shares were transferred, one each to Madam Lee and Allan. According to the bought and sold notes and instrument of transfer all dated 20 December 1985, the consideration of HK$1.00 was paid for each subscriber share. 26.At a board meeting of the Company held on 30 December 1985 attended by Mr. Sze and Allan, it was resolved that a mortgage loan of HK$2 million be borrowed from the Overseas Trust Bank Limited (“OTB”). At another board meeting held on 10 January 1986 and attended by Mr. Sze and Allan, it was resolved that the Company was to provide security for the said mortgage loan by executing a mortgage of the Shun Tak Property and either director was authorised to execute the mortgage. A bank account of the Company was opened with OTB on 28 December 1985 with a cash deposit of HK$100.00. 27.Yee Lee entered into an agreement dated 3 February 1986 with the vendor to purchase the Shun Tak Property at HK$3,071,000.00. The agreement was executed by Mr. Sze on Yee Lee’s behalf. Pursuant to the agreement, HK$921,300.00 had been paid to the vendor as deposit. 28.On 27 February 1986, HK$3,000.00 was transferred from an account of Yee Lee to the Company’s account at OTB. 29.Yee Lee entered into a cancellation agreement with the vendor dated 20 March 1986 to cancel the agreement for sale and purchase of the Shun Tak Property. This was executed by Allan on Yee Lee’s behalf. Pursuant to this agreement, the deposit of HK$921,300.00 was returned by the vendor to Yee Lee. Allan also acknowledged in the agreement, on behalf of the Company, that the deposit was transferred by Yee Lee to the credit of the Company. 30.On the same date of the cancellation agreement, the Company entered into an agreement for sale and purchase with the vendor to purchase the Shun Tak Property at the same price of HK$3,071,000.00. This agreement was also executed by Allan on behalf of the Company. 31.On 22 March 1986, HK$300,000.00 was transferred from another account at OTB to the Company’s account at the same bank. On 24 March 1986, a cheque of HK$290,174.00 was drawn on the Company’s account for payment in part of the balance of the purchase price of the Shun Tak Property (the remaining sum of HK$2 million was obtained in a mortgage loan), management fee, fitting out deposit and the costs and disbursements of the solicitors for the vendor. 32.On behalf of the Company, Allan executed a legal charge dated 17 April 1986 and charged the Shun Tak Property to OTB as security for banking facilities granted to the Company to the extent of HK$2 million. This legal charge was discharged on 28 April 1993. 33.At all times, the only substantial asset of the Company is the Shun Tak Property. 34.On 17 June 1986, the Company, Yee Lee and Willy Shipping Company Limited (“Willy”) all moved their registered office to the Shun Tak Property. Willy was incorporated on 8 June 1982, and the two subscriber shares were issued to Allan and JCL respectively. According to the annual return of Willy made up to December 1982, Mr. Sze was one of the four directors and 60 of the 200 issued shares were held by Allan. The Company rented the Shun Tak Property to Willy in 1986 at a monthly rental of HK$28,149.00. 35.Allan resigned as a director of the Company with effect from 30 December 1996. Madam Lee was appointed a director with effect from the same day. 36.On 29 January 1997, Mr. Sze and Madam Lee on behalf of the Company as the mortgagor, and Mr. Sze and Chi Pang on behalf of Yee Lee as the borrower, executed a mortgage of the Shun Tak Property in favour of the First Pacific Bank Limited to secure general banking facilities granted to Yee Lee. This mortgage was discharged on 6 December 2001. 37.In 1998, Chi Pang became the secretary of the Company in place of Allan. The events in 2000 38.In early 2000, Mr. Sze was diagnosed to have a serious heart disease and was advised by his doctor to undergo a heart by-pass operation. He did not go through with the operation as advised. Instead, in January 2004 he had a cardiac pacemaker put in. 39.According to the minutes of a board meeting of the Company dated 6 March 2000, at which Mr. Sze and Madam Lee were stated to be present, it was resolved to hold an extraordinary general meeting on 1 April 2000 for the allotment of 1,000 ordinary shares of HK$1.00 each in the Company to Madam Lee. It was further resolved that the said shares be allotted to Madam Lee for cash consideration of HK$1,000.00, subject to the approval of the shareholders at the extraordinary general meeting. The minutes were signed by Mr. Sze as the chairman of the meeting. 40.A notice dated 6 March 2000 to convene an extraordinary general meeting on 1 April 2000 for the purpose aforesaid was issued by the board of directors, again signed by Mr. Sze as the chairman. Allan signed a proxy dated 20 March 2000 authorising Mr. Sze to vote for him in favour of the resolution. 41.According to the minutes of an extraordinary general meeting of the Company held on 1 April 2000, at which Mr. Sze, Madam Lee, Chi Pang were stated to be present and Allan was present by proxy, it was resolved that 1,000 ordinary shares in the Company be allotted at par to Madam Lee for cash consideration of HK$1,000.00. The minutes were signed by Mr. Sze as the chairman of the meeting. 42.A return of allotments dated 28 April 2000 was filed at the Companies Registry stating that as at 1 April 2000, the Company had a total paid-up capital of HK$1,004.00 and that 1,000 shares were allotted for cash on that date to Madam Lee. The return of allotment, which was in English and Chinese, was signed and presented by Mr. Sze and received by the Companies Registry on 18 May 2000. 43.On 3 May 2000, Chi Pang passed away. A notification dated 23 May 2000, which was signed by Mr. Sze, was lodged with the Companies Registry on the same date, stating that Chi Pang ceased to be the secretary of the Company on 3 May 2000 and Madam Lee was appointed to replace him with effect from that date. 44.In 2001, Madam Lee was appointed by Chi Pang’s widow as her attorney for the purpose of obtaining letters of administration of Chi Pang’s estate. The letters of administration were granted to Madam Lee on 2 January 2003. The schedule of property of Chi Pang annexed to the letters of administration did not include his one share in Yee Lee or his one share in the Company. 45.In the details of members of the Company in its annual return made up to 20 September 2002, it was remarked that Chi Pang was deceased on 3 May 2000. In the annual return made up to 20 September 2003, it was stated that Madam Lee was the holder of 1,002 out of 1,004 issued shares, the other two shareholders being Mr. Sze and Allan, each holding one share, and Chi Pang ceased to be a shareholder. The events in 2004 46.Mr. Sze was examined by a neurologist, Dr. Edmund K. W. Woo, on 21 October 2003. Dr. Woo examined him again on 14 August 2004 and issued a report dated 16 August 2004. His diagnosis was that Mr. Sze had progressive cognitive dysfunction in the past year and was demented as at the date of his report. Dr. Woo stated that over a period of 12 months, Mr. Sze had progressive impairment of his memory and cognitive functions, he kept asking his family the same question over and over again, he had no idea who his regular attending physician was, he was not even aware he was receiving daily insulin injection for his diabetes mellitus, and he was on a host of oral medications for his ischemic heart disease. Dr. Woo gave the opinion that Mr. Sze does not have a sound mind and is incapable of managing or administering his properties and affairs. 47.The above is the only medical evidence on Mr. Sze’s mental capacity between October 2003 and August 2004. 48.On 15 February 2004, Madam Lee had a minor stroke. She was admitted to hospital and discharged on 27 February 2004. She was seen by Dr. Tse Sing Sang Bell in his clinic on 1 April 2004. Dr. Tse stated in his report dated 25 October 2005 that at the time of his examination, Madam Lee was able to walk briefly at home with assistance, engage in telephone conversation, and eat without choking. He noted that her appetite was said to be good. There was no dizziness. She appeared tired and was able to understand and obey command and her response was coherent. Dr. Lau Chu Pak, the cardiologist who attended Madam Lee regularly, certified on 20 October 2005 that she attended his clinic on 2 April 2004 and her cardiac condition was stable. 49.The Company entered into a preliminary sale and purchase agreement dated 18 March 2004 to sell the Shun Tak Property to Zappo Productions Limited (“Zappo”) or Zappo’s nominee at HK$10,300,000.00. Mr. Sze signed on behalf of the Company. It was recorded in the agreement that the Company had received HK$200,000.00 as deposit upon signing of the agreement, that the formal sale and purchase agreement was to be signed on or before 20 April 2004, that a commission of HK$103,000.00 was to be paid only by the Company to the estate agent Centaline Property Agency Limited (“Centaline”) no later than 20 April 2004, and completion was to taken place on or before 30 September 2004. Kimpang signed on this agreement as witness that HK$200,000.00 was received by the Company. 50.Mr. Sze had signed the minutes in English of a directors’ meeting of the Company, which were marked 2004 but otherwise undated, recording that these resolutions were unanimously passed: the Company was to sell the Shun Tak Property with vacant possession to Zappo, in consideration of HK$10,300,000.00; Kimpang was authorised to sign and execute all necessary documents including the agreement for sale and purchase; and Messrs. Raymond Chan, Kenneth Yuen & Co. be appointed as the Company’s solicitors in all respects of the sale of the Shun Tak Property. 51.There was another set of minutes in English of a directors’ meeting of the Company, also undated save for the year being 2004, recording that it was unanimously resolved that all proceeds of sale of the Shun Tak Property were to be paid to Mr. Sze. Mr. Sze had signed on the minutes. Madam Lee did not sign on the blank for her signature. 52.Zappo was a company owned as to one-third by Madam Chan Yuet Hing (“Madam Chan”), who has been cohabiting with Kimpang. Madam Chan was one of the three directors of Zappo. Kimpang and Madam Chan also owned a company known as Edgetech (International) Limited (“Edgetech”) and were its only directors. Edgetech’s registered office was in the Shun Tak Property; its name in Chinese is 明仁科技(國際)有限公司, which is similar to Ming Ren (明仁企業投資股份有限公司). According to Kimpang, he used Zappo’s name in the sale and purchase instead of Edgetech, so that Madam Lee would not know of his involvement and become irritated. 53.On 20 March 2004, Zappo, as the vendor, entered into a preliminary sale and purchase agreement to sell the Shun Tak Property. 54.Winnie returned to Hong Kong from Canada on 21 March 2004. She was shown the two undated minutes of directors’ meeting of the Company mentioned earlier regarding the sale of the Shun Tak Property. She arranged for a solicitor, Ho Ka Shi Henry (“Mr. Ho”), of Messrs. Edmund W. H. Chow & Co., to prepare these documents in English which were executed and dated 30 March 2004:
55.Kimpang, who was unaware of the execution of the minutes of the board meeting dated 30 March 2004, had arranged to be prepared in English two sets of board minutes of the Company and given them to Mr. Sze and Madam Lee to sign. He had written on the minutes in Chinese the gist of the resolutions to be passed. The resolutions, to be unanimously passed, were as follows: (i) the Company was to sell the Shun Tak Property with vacant possession to Advance Victory Development Limited (“Advance Victory”) in consideration of HK$13,562,700.00; (ii) Kimpang was to be authorised to sign and execute all necessary documents for sale and purchase of the property; (iii) Messrs. Yip, Tse & Tang were to be appointed as the Company’s solicitors in all respects of the sale of the property; and (iv) all proceeds of the sale of the property be paid to Mr. Sze and/or Madam Lee. These minutes were not signed by Mr. Sze or Madam Lee. 56.At around the time these draft minutes were given by Kimpang to Mr. Sze and Madam Lee, Kimpang wrote a note in English to Winnie. He stated that Mr. Sze had signed a sale contract for the Shun Tak Property earlier and “luckily the buyer can be persuaded to higher the price to $5,300/sq ft, a total of $13,562,700.00”, and that on 21 April 2004, a formal contract would be signed and 10% “will be in our hand”. He asked her to see to it that the transaction “can go through smoothly, without the buyer’s side’s irritation”. He also mentioned that “$5,300 is the highest recorded lately”. 57.On 4 April 2004, Madam Lee had an accident at home and was admitted to Queen Mary Hospital. She was transferred to the Hong Kong Sanatorium & Hospital on 5 April 2004 and has remained there to this day. She had an operation to insert a tube through her abdomen into her stomach. This triggered a problem in her kidney with the result that she had to undergo haemodialysis three times a week. A tube was planted through her throat for oxygen supply. 58.A notice dated 16 April 2004 was issued by Winnie as the attorney for Madam Lee, who was the secretary of the Company, to convene an extraordinary general meeting of the Company on 20 April 2004 to consider and pass resolutions to appoint Allan as a director of the Company and to agree to a short notice of one day for convening the meeting. 59.According to minutes of the extraordinary general meeting of the Company dated 20 April 2004 and signed by Winnie as the attorney of Madam Lee, the resolutions proposed in the notice were passed unanimously as special resolutions by Madam Lee, acting by her attorney Winnie, and by Allan, acting by his proxy Anthony. 60.By a resolution at a directors’ meeting of the Company held on 23 April 2004, Winnie was appointed as a director and the secretary of the Company. It was further resolved that the registered office of the Company be changed to the Pokfulam Gardens property. The minutes were signed by Winnie as the attorney for Madam Lee and by Anthony as the proxy for Allan. 61.On 26 April 2004, Centaline issued a debit note to Zappo for HK$271,254.00, being defaulting party commission compensation for procuring the sale of the Shun Tak Property. This was followed by 2 letters dated 29 and 30 April 2004 from Centaline to Zappo seeking payment of liquidated damages of HK$271,254.00 within seven days, for failure to complete the sale and purchase of the Shun Tak Property under the two preliminary sale and purchase agreements, failing which legal proceedings would be instituted against Zappo without further notice. 62.Kimpang wrote a note to Winnie on 19 May 2004 to inform her that Centaline “finally began their claim”. He stated that Zappo’s bottom line was to “fold” the company if it could not defend the claim. He asked Winnie what was the best advice from her lawyer. 63.At a meeting of the directors of the Company on 22 July 2004 attended by Winnie and Allan by his proxy Anthony, it was resolved that 1,000 ordinary shares be allotted at par to each of Winnie and Allan, that the allotment be paid fully in cash on or before 10 August 2004, and that an extraordinary general meeting of the Company be held on 23 July 2004 to approve the allotment. A notice of the extraordinary general meeting was issued by Winnie on 22 July 2004. According to the minutes of the said meeting on 23 July 2004, attended by Winnie as the attorney for Madam Lee and Anthony as the proxy of Allan, it was resolved to allot a total of 2,000 shares to Winnie and Allan on the terms aforesaid and that the meeting be convened with short notice of one day. The shares were allotted to Winnie and Allan on 5 August 2004. 64.No agreement was entered into by Winnie or Allan to sell the Shun Tak Property in 2004 and Kimpang continued to occupy part of the premises for his own businesses. The events in 2005 65.On 24 May 2005, Kimpang wrote a note to Winnie stating that he would move out of the Shun Tak Property no later than 31 July 2005 or even earlier. He referred to a letter to be written to Mr. Sze and mentioned that Winnie could write it herself in Chinese. He stated that Mr. Sze “wants his money in his account” and apologised for his “procrastination”. 66.After receiving Kimpang’s note, Winnie wrote and signed a declaration in Chinese dated 24 May 2005. It was addressed to Mr. Sze and Madam Lee and stated that she agreed to use the net proceeds of sale of the Shun Tak Property to pay for necessary medical expenses and the living expenses of Madam Lee and Mr. Sze. 67.On the instructions of Winnie, Messrs. Edmund W. H. Chow & Co. issued a letter to Kimpang on behalf of the Company on 31 May 2005, stating that he had not removed his possessions from the Shun Tak Property despite numerous verbal demands since the beginning of 2004. Accordingly, the solicitors gave him a written demand to remove all his possessions by 30 June 2005, failing which the Company would institute legal proceedings to evict him from the premises and hold him liable for all legal costs, losses and damages. 68.According to the minutes of an extraordinary general meeting of the Company held on 2 July 2005, which was attended by Winnie and Allan, it was unanimously resolved to remove Mr. Sze as a director of the Company and it was agreed to convene the said meeting on short notice of one day. 69.On 4 July 2005, the Company issued a writ against Kimpang in HCA No. 1270 of 2005, claiming vacant possession of the Shun Tak Property on the basis that he was a gratuitous licensee and his licence was terminated by reasonable notice. The Company also claimed damages of HK$18,680,500.00 on the ground that it was prevented to sell the property with vacant possession by reason of his wrongful occupation. 70.A note in Chinese dated 18 July 2005 was signed by Mr. Sze. It was stated in this note that he gave full authority to Kimpang to handle and deal with the recovery of his entitlement to all the shares in the Company, which were all beneficially owned by him, and the sale and purchase of the Shun Tak Property held in the name of the Company. It was further stated that Kimpang could continue to use the Shun Tak Property free of charge until the same was sold. 71.On 12 October 2005, Kimpang filed his defence in HCA No. 1270 of 2005, in which he averred that Mr. Sze was the beneficial owner of all the shares in the Company and of all the shares in Yee Lee; and that all the moneys for the purchase of the Shun Tak Property came from Mr. Sze, whether as paid-up capital of the Company or shareholder’s advance through his current account with the Company. It was pleaded that the property was not intended to be held for commercial purposes, but it belonged to Mr. Sze and was intended to be used as the office of companies operated by him and his family members without the need to pay rent. Further, Mr. Sze had made an agreement with Kimpang in 1987 when he requested Kimpang to return to Hong Kong to help in his businesses, and in consideration of Kimpang doing so and giving up his career in the United States, Mr. Sze agreed that Kimpang would have the use of the Shun Tak Property for his own businesses free of charge during the life of Mr. Sze. 72.14 October 2005, Mr. Sze acting by Ying Ngo as his next friend presented the petition under section 168A as regards the Company and issued the writ in HCA No. 2016 of 2005 against Madam Lee, Allan and Winnie. The petition in HCMP No. 2201 of 2005 73.It was pleaded in the petition that the Company was acquired and paid for by Mr. Sze as a shelf company and that he had caused one share each to be transferred or allotted to Madam Lee, Allan and Chi Pang to hold the same on his behalf. Various payments made into the account of the Company in 1986, for the purchase of the Shun Tak Property, came from the funds of Yee Lee and Mr. Sze was alleged to be the beneficial owner of all the shares of Yee Lee. The agreement allegedly made between Mr. Sze and Kimpang in 1987 for the free use of the property by Kimpang during the lifetime of Mr. Sze was also mentioned. 74.In summary, the complaint of unfairly prejudicial conduct was that the Company has been “hijacked” by Madam Lee, Allan and Winnie in their attempts to deprive Mr. Sze of his beneficial interest in all the shares of the Company. The unfairly prejudicial acts complained of in the petition were as follows:
75.These reliefs were sought in the petition: a declaration that the 3,000 shares held by Madam Lee, Winnie and Allan had been invalidly allotted and that the register of shares of the Company be rectified accordingly; a declaration that the resolutions dated 30 March 2004 were invalid; a declaration that the appointments of Allan and Winnie as directors and Winnie as the secretary were invalid and that the register of directors and secretary be rectified accordingly. 76.The court was informed in the opening submissions of Mr. William Wong, who appeared for Winnie and Allan, that they do not dispute the allegation in the petition that the allotments of the 2,000 shares to them in August 2004 were invalid and that they had made clear in Winnie’s 1st affirmation they never intended to take any beneficial interest in the shares allotted to them in 2004, or of any of the proceeds of sale of the Shun Tak Property, and that the allotments to them were for “estate planning purpose”. In view of this, it would not be necessary to examine the evidence on this particular complaint in the petition. The statement of claim in HCA No. 2016 of 2005 77.The amended statement of claim pleaded that the Company was acquired and paid for by Mr. Sze, for use as a vehicle to hold the Shun Tak Property to be acquired by him, which was to be used for his businesses including Yee Lee and for the use of his children’s businesses when the need arose, without the need to pay rent. It was asserted that Madam Lee, Allan and Chi Pang held their respective shares in the Company on behalf of Mr. Sze, that Mr. Sze had no intention to part with the shares held on his behalf or to make a gift of these shares. The acts of unfairly prejudicial conduct pleaded in the petition in HCMP No. 2201 of 2005 were repeated. It was alleged that the acts of Madam Lee, Allan and Winnie to hijack the shares held on behalf of Mr. Sze, to hijack the Company in the attempts to dilute Mr. Sze’s shareholding, to dispose of the Shun Tak Property on the resolutions purportedly passed on 30 March 2004, and to pass all the proceeds of the intended sale to Madam Lee are acts in breach of their fiduciary duties as directors or purported directors and in breach of trust. 78.These reliefs were claimed in the statement of claim: a declaration that the two shares held by Madam Lee (one of them transferred from Chi Pang) and the one share held by Allan are held on trust for Mr. Sze and an order directing such shares to be transferred to a person approved by the court to hold on Mr. Sze’s behalf; a restorative order to either vest the 1,000 shares invalidly issued to Madam Lee in 2000 in Mr. Sze, alternatively an order to cancel these shares and to rectify the share register accordingly; similar restorative orders and alternative orders against Allan and Winnie in respect of the 2,000 shares allotted to them in August 2004. The issues in the two proceedings 79.These are the main issues to be resolved in the two proceedings:
80.They will be considered in the order as set out above. The witnesses 81.In the special circumstances of these proceedings, I place the greatest weight on the contemporaneous documentary evidence. As mentioned earlier, the main protagonists are under incapacity and unable to give evidence. 82.As to what Mr. Sze had allegedly told Kimpang and Ying Ngo of the matters which formed the complaints in the petition and the amended statement of claim, I reject this hearsay evidence entirely, bearing in mind that Kimpang and Ying Ngo had only started investigation into the share transfers and transactions of the Company in May or July 2005. Kimpang had put words into the mouth of Mr. Sze as regards the latter’s lack of knowledge of the allotment of shares to Madam Lee in 2000, the transfer of Chi Pang’s share to Madam Lee in 2003, and the board resolution of 30 March 2004. By the time they started investigation into these matters, according to the opinion and diagnosis of Dr. Woo, who examined Mr. Sze again in August 2004, Mr. Sze was demented, of unsound mind and incapable of administering his properties and affairs. Kimpang’s evidence that despite increasing mental impairment, his father was somehow alert at times and still able to give instructions to him is not credible. I find that Mr. Sze had no understanding of the note dated 18 July 2005 prepared for him and which he signed. This note has no evidential value at all, it was merely to serve the interest of Kimpang. 83.Of the four witnesses called on both sides, Ying Ngo, Kimpang, Winnie and Mr. Ho, I regret to say I am unable to accept entirely the evidence of any of them, for a variety of reasons to be mentioned. I also caution myself the fact that I reject part of the evidence of a witness does not mean I should reject his or her evidence wholesale. 84.Insofar as serious allegations were made against Winnie and Mr. Ho of dishonesty, conspiracy, and breaches of trust, the burden of proof of which is on the petitioner and plaintiff, evidence to a very high standard of cogency is required before the court can make such findings. I bear in mind that when assessing the probabilities of an event, the more serious the allegation the less likely it is that the event occurred and hence the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability (Re H & Ors. (Minors)(Sexual Abuse: Standard of Proof) [1996] AC 563 at 586E to H). I must guard against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question (Nina Kung v. Wong Din Shin (2005) 8 HKCFAR 387 at 441I, para. 185). 85.Ying Ngo’s evidence was of little value. She was clearly partisan, even going so far as to allege that Mr. Sze had said he wanted to give the whole of the Shun Tak Property to Kimpang, a claim that was not made by the latter. She was acting at the behest of Kimpang in bringing these two proceedings as next friend, which were commenced not long after Winnie caused the Company to sue Kimpang for vacant possession of the Shun Tak Property. She had no knowledge of the state of Mr. Sze’s mental incapacity or even basic facts such as there were four shareholders in the Company initially, that the Shun Tak Property was held by the Company. She had no idea what relief was claimed by her as next friend in these proceedings. There were long pauses in her answers, she was unsure of a lot of things, and she refused to answer some of the questions. 86.Kimpang was not a credible witness either. He was manipulative and opportunistic, apart from putting words into Mr. Sze’s mouth, he had tailored his evidence to suit his own ends. He made allegations on the merest suspicion without evidence in support. Some of his answers were so far fetched that he admitted he was not serious about them. There were inconsistencies in his evidence which could not be satisfactorily explained, such as his evidence in relation to the sale procured by him with Zappo and his further attempt to sell the Shun Tak Property. 87.Winnie came across as a careful person, reluctant to commit herself to what she was unsure about, even though the question might seem to be innocuous, and was unnecessarily argumentative about certain matters concerning the accounts of the Company and Yee Lee. There were aspects of her evidence that appeared to me inherently improbable. Some other aspects of her evidence did not sit well with her careful personality and I have reservations if she had been entirely truthful. 88.Mr. Ho was shown to be mistaken in some matters. He unwisely made things worse for himself in standing his ground instead of owning up he was mistaken. The allotment of shares in 1985 89.It was alleged by the petitioner and plaintiff that the share allotted to Chi Pang on 19 December 1985 and the two subscriber shares transferred to Madam Lee and Allan on 20 December 1985 were held on resulting trust for Mr. Sze. To establish that, it would be necessary to prove that Mr. Sze provided the consideration for the purchase of the shelf company and injected HK$4.00 for the initial paid-up capital, and to rebut the presumption of advancement in favour of Madam Lee, Chi Pang and Allan. 90.The expenses incurred in the purchase of the shelf company were HK$2,432.00. As mentioned earlier, the Company opened an account at OTB on 28 December 1985 with a deposit of HK$100.00 cash. On 27 February 1986, a cheque of HK$3,000.00 drawn on the account of Yee Lee was paid into its account. On the same day, a cheque of HK$2,432.00 was drawn on the Company’s account to settle the expenses for the purchase of the company. 91.According to the audited accounts of the Company from incorporation to 31 December 1986, the paid-up capital was HK$4.00 and the amount due to shareholders under current liabilities was HK$1,440,210.00. Mr. Samuel Wong, counsel for the petitioner and plaintiff, compiled a table showing all the injections of money into the Company for the period ended 31 December 1986 as recorded in various vouchers. The total recorded as a debit in the Company’s accounts under the entry of “directors’ account”, less the set-off for the rent received by Yee Lee from Willy of HK$162,043.00, came up to HK$1,440,214.00, which matched exactly the sum of the paid-up capital and shareholders’ loan in the audited accounts. Of the amounts injected into the Company aforesaid, all of them were paid by cheques drawn on the bank account of Yee Lee except for the following: HK$100.00 cash deposited on 28 December 1985; HK$921,300.00 being the deposit paid by Yee Lee for the purchase of the Shun Tak Property and transferred to the Company; and HK$300,000.00 transferred to the Company from another account at OTB on 22 March 1986, used largely for payment related to the purchase price of the Shun Tak Property. 92.Winnie gave evidence the HK$100.00 cash deposited into the Company’s bank account came from Allan and he did not seek reimbursement from the Company. Even if he did pay the said sum as alleged, this was recorded as part of the shareholders’ loan in the audited accounts. 93.I find that the funds for the purchase of the Company (HK$2,432.00) and the paid-up capital (HK$4.00) had come from Yee Lee and were recorded as part of the shareholders’ loan in the accounts. 94.Winnie did not (and could not) dispute the fact that money was injected into the Company by cheques drawn on Yee Lee. She alleged however that Yee Lee, or 90% of the shares in it, was beneficially owned by Madam Lee. She gave evidence that at the inception of Yee Lee, Madam Lee had paid HK$150,000.00 for the entire share capital of HK$100,000.00 and the surplus of HK$50,000.00 as working capital, and that was the reason why Madam Lee’s sister Lee Mei Lai was nominated to hold 90% of the issued shares in the beginning. There was nothing unusual in a wife giving financial assistance to her husband, but even if Madam Lee had provided all the funds needed for the start up of Yee Lee, this is not material in view of the subsequent declaration of trust in Mr. Sze’s favour. 95.Winnie’s evidence regarding the declaration of trust dated 26 April 1982 she had executed on behalf of JCL in respect of 90% of the issued shares in Yee Lee is unsatisfactory. In her first affirmation, she deposed that JCL was asked to hold the shares to the order of Madam Lee. Kimpang then exhibited the declaration of trust in favour of Mr. Sze, an instrument of transfer in blank and a fax cover sheet dated 7 September 1991 from Winnie to Allan enclosing the said documents, calling into question her credibility. Notwithstanding these documents, Winnie still maintained that the shares in Yee Lee were held by JCL to the order of Madam Lee at all material times. She deposed that the instrument of transfer was in blank and the documents were kept in the custody of Madam Lee all along. These matters are again immaterial, the fact remains that the declaration of trust was in favour of Mr. Sze. I also have reservations about her evidence that she had forgotten in whose favour the declaration of trust was made, bearing in mind that Yee Lee was the main operating business of the family. 96.By the time the Company was purchased in 1985, Mr. Sze had operated the business of Yee Lee for three years. It was beneficially owned by him, as borne out by the documentary evidence. Mr. Sze (but not Madam Lee) had maintained a current account with Yee Lee, he withdrew money and made deposits into it from time to time, including for his personal use such as the payment of a monthly allowance to Madam Lee. When a director drew a cheque on Yee Lee as payable to the Company, it is reasonable to infer that this director must have been Mr. Sze. The money thus provided by Yee Lee to acquire the Company was not recorded in the audited accounts of the Company as Yee Lee’s loan to the Company, but as shareholders’ loan. 97.I reject Winnie’s evidence, mentioned for the first time in cross-examination, that when she performed the audit for the Company for the year ended December 1986, she purposely altered the entry of “directors’ account” in the vouchers to “due to shareholders” after checking with the four shareholders that each had advanced money to the Company and a directors’ meeting was held to confirm the alteration. I find it incredible that the alleged confirmation of the shareholders and directors was not recorded in any document, quite apart from the fact that it was vague in the extreme, as no particulars were given as to what each of the shareholders had allegedly advanced. I am satisfied that the shareholder referred to in the Company’s accounts (notwithstanding it was in the plural) was Mr. Sze, who had provided the funds by drawing on his account with Yee Lee. 98.Mr. William Wong submitted on behalf of the respondents and defendants that as the money for the purchase of the Company and its shares was booked in the Company’s vouchers and accounts as “directors’ account” or “due to shareholders” and was in the nature of loans, Mr. Sze did not provide the money as purchaser but merely as lender, so that the presumption of resulting trust could not arise (Lewin on Trusts, 17th ed., para. 9-47; Re Sharpe [1980] 1 WLR 219 at 223B). The idea that the Company purchased itself as a shelf company may seem odd at first blush, and it would mean that Mr. Sze had breached the law and caused the Company to give financial assistance for the acquisition of its own shares. However, I see nothing to differentiate such money from the bulk of the shareholders’ loan, which was injected into the Company to fund the purchase of the Shun Tak Property and the subsequent payment of mortgage instalments. There is nothing in the documentary evidence to indicate why the amount recorded as a loan in all the books and records of the Company should not be characterised as such. 99.I find that Mr. Sze did not provide the expenses for the purchase of the Company and the paid-up share capital as a purchaser. The evidence adduced about the loan of Mr. Sze to the Company directly went to negative the concept of a resulting trust. The presumption of resulting trust did not arise. 100.If I should be wrong about this and the presumption of resulting trust did arise, I go on to consider the counter-presumption of advancement. 101.The presumption of advancement would apply in respect of the shares allotted and transferred to Madam Lee, Chi Pang and Allan, by reason of their relationship with Mr. Sze. Even though Allan is Mr. Sze’s stepson, it is clear on the evidence that Mr. Sze had stood in loco parentis to him all along, Winnie and Allan lived with Madam Lee and Mr. Sze after their marriage as a family, and Mr. Sze had supported Madam Lee’s children to study in Canada. The contention of Mr. Samuel Wong to the contrary is untenable; the fact that Allan had addressed Mr. Sze as ‘uncle’ is irrelevant. I find that the kind of relationship between Mr. Sze and Allan was sufficient to give rise to the presumption (Shephard v Cartwright [1955] AC 431 at 445; Re Paradise Motor Co. Ltd. [1968] 1 WLR 1125 at 1139C to 1140B). 102.Mr. Samuel Wong submitted that under modern conditions, with the reduction of the wife’s economic dependence on her husband, the strength of the presumption has been much diminished, citing Lily Cheung v. Commissioner of Estate Duty [1988] 1 HKLR 517 at 522 and Falconer v. Falconer [1970] 1 WLR 1333 at 1336. In McGrath v. Wallis [1995] 2 FLR 114 at 122A to C, reference was made to Pettitt v. Pettitt [1970] AC 777 at 814H, in which Lord Upjohn accepted that the presumption was “easily rebutted by comparatively slight evidence”. However, even though it may be easier to rebut the presumption in view of changing social conditions, the presumption should not “give way to slight circumstances” (Shephard v Cartwright, supra. at 445). 103.The acts and declarations of the parties before or at the time of the purchase, or so immediately after it as to constitute a part of the transaction, are admissible in evidence either for or against the party who did the act or made the declaration, but subsequent declarations are admissible as evidence only against the party who made them, and not in his favour (Shephard v Cartwright, supra. at 445-6; Overseas Trust Bank Ltd. v. Lee See Ching John [1999] 3 HKC 197 at 201H to 202B, 205I to 206A, 206I). 104.The petitioner and plaintiff relied on “contemporaneous” conversations between Mr. Sze, Kimpang and Ying Ngo. It was alleged in the petition that Mr. Sze informed Kimpang and Ying Ngo at the time of the purchase of the Shun Tak Property that “the Premises is his and that the [sic] those holding the three shares are holding it on his behalf”. Ying Ngo made an affirmation to verify the contents of the petition. In his first affirmation, Kimpang deposed that at the time of purchase of the Shun Tak Property, Mr. Sze orally informed him the property was bought by him for the use of the businesses of family members and the Company was acquired to hold the property and since “we” [meaning Mr. Sze’s children in his first marriage] were “all out of Hong Kong, for convenience, Lee Mei Lin and her children each held one share on his behalf, but the Shun Tak Property is his.” 105.I do not accept the evidence of Ying Ngo and Kimpang on the alleged contemporaneous conversations with Mr. Sze. Ying Ngo effectively disavowed this allegation in the petition under cross-examination. Kimpang’s allegation that Mr. Sze’s children by his first marriage were all out of Hong Kong at the time was contradicted by Ying Ngo. 106.Kimpang gave evidence that Mr. Sze used the Company instead of Yee Lee to purchase the Shun Tak Property on his advice, to ‘firewall’ the property in the same way as a ‘one-ship’ company to protect the property from business risk which might befall Yee Lee. That being the purpose of the Company, Mr. Samuel Wong submitted it would go against common sense for Mr. Sze to give away the shares of the Company and in effect the Shun Tak Property. 107.Even if that were the purpose for which the Company was acquired, I see no conflict with the intention of gift. Mr. Sze did not give away all the shares in the Company, he held one of the four issued shares. Nor do I think it right to gauge Mr. Sze’s intention in 1985 or 1986 with hindsight as submitted by counsel, that by transferring three of the four shares in the Company, he would have dispossessed himself substantially of his assets, leaving nothing to his name in his old age some twenty years later. 108.Winnie’s assertion that Mr. Sze and Madam Lee had agreed to keep their financial affairs apart because each had children by a former marriage does not, in my view, supply a sufficient reason that militates against Mr. Sze giving away some of his assets to Madam Lee, Chi Pang and Allan. 109.Mr. Samuel Wong relied on Lo Leung Shi v. Lo Lim Yuek (1912) 7 HKLR 66 to support his argument that the presumption of advancement may be rebutted by evidence showing that Mr. Sze had retained control of the Shun Tak Property and did with the property as he pleased to negative the intention of gift. In my view, Lo Leung Shi is of limited assistance here. Unlike Lo Leung Shi, the subject matter of the transaction was not a property but the shares in a company. Mr. Sze did not give away all the shares, he retained one share in the Company and was a director throughout. 110.Besides, there could be no room for argument that the subsequent act of Mr. Sze in procuring the Company to mortgage the Shun Tak Property in January 1997 to secure the liabilities of Yee Lee was not part of the transaction of the transfer of shares in 1985, such evidence is not admissible in Mr. Sze’s favour to rebut the presumption of advancement. As for the subsequent acts of allowing the Shun Tak Property to be used without charge as the registered office and the office of various companies (save for Willy, which paid rent) owned by Mr. Sze or a member of his family, such as Kimpang, Ying Ngo, another daughter Ching Man and Chi Pang, even assuming it may be argued that such acts would form part of the transaction of the acquisition of the Company and the transfer of some of its shares to family members, they were insufficient to rebut the presumption. They were acts done by Mr. Sze as a director of the Company, they did not go to show he had absolute control over the Company or the property of the Company. 111.It must have been a deliberate decision of Mr. Sze to have three other shareholders. If the purpose of having another person to hold a share in the Company were merely to satisfy the then requirement of the Companies Ordinance to have at least two shareholders, as alleged in the petition, there would be no need to have as many as four shareholders. The choice of who was to receive a share would also seem to have been deliberate. Contrary to Kimpang’s contention, not all of Mr. Sze’s children were out of Hong Kong at the time. Ying Ngo was in Hong Kong at the time, but she did not receive a share. Not all of Madam’s Lee children were made shareholders, only Chi Pang and Allan received a share each and Winnie did not. Mr. Sze knew about the device of a declaration of trust, but unlike the case of Yee Lee, no declaration of trust was made by any of the three shareholders in his favour. 112.The presumption of advancement was not sufficiently rebutted in this instance. For the reasons aforesaid, the claim in the writ action that the three shares allotted or transferred in 1985 were held on trust for Mr. Sze must fail. 113.It was not alleged in the petition or the amended statement of claim that the Shun Tak Property was held on trust for Mr. Sze. The allegation was only made in Kimpang’s affirmation that this property belonged to Mr. Sze beneficially. This issue is strictly not relevant to the issues raised in the pleaded case. I propose to deal with this shortly. 114.For one thing, the property was and is held by the Company. Even if Mr. Sze were to own all the shares in the Company beneficially, which I have rejected, that did not mean he should also own the property held by the Company beneficially. Insofar as he had provided the purchase price of the property by drawing on his account with Yee Lee, I have found that he did not provide the money in the character of purchaser, so that the presumption of resulting trust did not arise. And even if the presumption were to arise, contrary to my finding, this would have been rebutted by Mr. Sze’s acknowledgment that the Company was the beneficial owner of the property in the mortgage dated 29 January 1997 that he and Madam Lee executed on behalf of the Company. The allotment of shares in 2000 115.It was alleged in the petition that Mr. Sze “is unaware” that 1,000 shares in the Company had been issued to Madam Lee in 2000 and that according to his recollection no general meeting was held for such allotment of shares to Madam Lee. No weight can be given to these allegations in view of the confirmed mental incapacity of Mr. Sze since August 2004. 116.Under regulation 48 of Table A which was adopted as the articles of association of the Company, it is provided that the directors shall not exercise any power conferred on them to allot shares in the company without the prior approval of the company in general meeting where such approval is required by section 57B of Cap. 32. Section 57B(1) provides that notwithstanding anything in a company’s memorandum or articles, the directors shall not without the prior approval of the company in general meeting exercise any power of the company to allot shares. 117.Article 11 of the articles of association stipulates that two directors shall constitute a quorum for a directors’ meeting. Article 23 provides that the quorum for all general meetings shall be two members personally present and holding in his own right or by proxy at least fifty-one per cent of the paid-up capital of the company. By regulation 51 of Table A, the directors may, whenever they think fit, convene an extraordinary general meeting. 14 days’ notice in writing is required for an extraordinary general meeting not for the passing of a special resolution, under section 114(2). 118.The petitioner and plaintiff challenged the authenticity and validity of the board resolution dated 6 March 2000, the notice dated 6 March 2000 to convene an extraordinary general meeting on 1 April 2000, and the resolution at the extraordinary general meeting on 1 April 2000. 119.Mr. Sze had signed on all these documents as the chairman. The board meeting and the extraordinary general meeting had the necessary quorum. The required length of notice was given for the general meeting. Kimpang alleged in his affirmation that all these documents were signed retrospectively. There is no evidence at all to back up this allegation. There is no requirement that any one who attended a meeting must sign on the minutes to signify his attendance. There is nothing, on the face of these documents, to impugn their authenticity or validity. 120.Mr. Sze signed the return of allotment dated 28 April 2000 in a form that was in English and Chinese. The allotment of 1,000 shares to Madam Lee was reflected in the annual returns for four consecutive years from 2000 to 2003, in English and Chinese, and all were signed by Mr. Sze. 121.On the documents, there is simply no room for argument that Mr. Sze had known about and consented to the allotment of the shares to Madam Lee in 2000 all along. Kimpang was constrained to accept under cross-examination that Mr. Sze could know about the allotment and that he had the mental capacity to sign the relevant documents. 122.Mr. Samuel Wong made much of the fact that the return of allotment dated 28 April 2000 was the only document lodged in the Companies Registry that was presented by Mr. Sze, not by a secretarial service company, an accountant firm or a solicitors firm, and that this document was lodged only on 18 May 2000 at a time when Winnie had returned from Canada. He submitted that these matters strongly suggested Winnie was behind the allotment of 1,000 shares to Madam Lee. Even if this surmise (it could be put no higher than that) were true, that would not provide a basis to declare the allotment to Madam Lee invalid. 123.The allotment of 1,000 shares to Madam Lee was made with the apparent consent of all the shareholders – Mr. Sze, Chi Pang and Allan. All had voted in favour of the allotment at the extraordinary general meeting. The court should not indulge in conjecture why they should have agreed to the allotment under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the inference in question. 124.The correct approach to adopt in this situation was aptly stated by Lord Parker in Vatcher v. Paull [1915] AC 372 at 382:
125.In the absence of cogent evidence, the court should not draw adverse inferences against Madam Lee and Mr. Sze when both are under incapacity and cannot defend themselves, where the allotment had stood unchallenged for some years. 126.The complaint in the petition that the allotment of 1,000 shares to Madam Lee was invalid is not established. The identical claim in the writ action must fail. The transfer of Chi Pang’s share in 2003 127.The question here is whether Madam Lee could take Chi Pang’s one share beneficially or as the administratrix of his estate. 128.It was suggested to Winnie in cross-examination the fact that Chi Pang’s one share in the Company and his one share in Yee Lee did not feature in the schedule of property annexed to the letters of administration of his estate showed that these shares did not belong to him beneficially. Winnie gave an explanation, which was not mentioned in her affirmations, for the omission in the schedule of property. Her answer was heavily criticised by Mr. Samuel Wong as being implausible. It is not necessary to go into this in any detail, as I have found earlier that Mr. Sze had made a gift of one share in the Company allotted to Chi Pang in 1985. 129.It is also not necessary to go into the question if Madam Lee could take a transfer of Chi Pang’s share beneficially, as she is the administratrix of his estate and in that capacity was clearly entitled to be registered as a holder of his share. Under the articles of association of the Company, she could elect to be registered herself as the holder of Chi Pang’s share or nominate any person to be registered as the transferee. Kimpang’s allegations of maladministration of Chi Pang’s estate are not relevant for present purpose. 130.Last but not least, the annual return of the Company as at 20 September 2003 showing Madam Lee as the registered holder of 1,002 shares was signed by Mr. Sze. This is cogent evidence of his knowledge and consent of the transfer of Chi Pang’s share to Madam Lee. 131.Kimpang admitted in cross-examination he had no basis to suggest that the transfer of Chi Pang’s share to Madam Lee was invalid. This complaint in the petition is not made out. The directors’ resolutions on 30 March 2004 132.Kimpang had made three inconsistent allegations regarding the directors’ resolutions on 30 March 2004 in his affirmation. In the petition, which was verified in his 1st affirmation, it was alleged that Mr. Sze “has no recollection” of having signed such resolutions or that there had been any such meeting of directors held at the end of March 2004. In a subsequent part of his 1st affirmation, Kimpang alleged that he had told Mr. Sze that the latter had signed the directors’ resolutions dated 30 March 2004 to authorise Winnie or Allan to sell the Shun Tak Property at any price and Mr. Sze said in reply he did not do so. In yet another part of the same affirmation, Kimpang alleged that Winnie and Madam Lee pressured and coerced Mr. Sze into signing the resolutions in English, which Mr. Sze could not read or fully comprehend. 133.In the cross-examination of Mr. Ho, the solicitor who prepared the resolutions on Winnie’s instructions and purportedly witnessed the execution of the minutes by Mr. Sze and Madam Lee, it was suggested to him that there was in fact no directors’ meeting held on 30 March 2004. 134.Mr. Ho did not keep any attendance note of the work he did in respect of the directors’ resolutions. It was demonstrated in cross-examination that he made two mistakes. He was asked about the weather on 30 March 2004. He replied in a moment of levity that the sun shone and it was a nice day. Unfortunately for him, counsel produced an extract of meteorological observations for Hong Kong in March 2004 showing that on 30 March the total rainfall was 89 mm, the sunshine hours were nil, and the prevailing wind direction was 360 degrees. Mr. Ho was caught off-guard. Instead of acknowledging he was mistaken, he maintained that it was not raining. 135.The other mistake he made was about the registered office of the Company in the minutes he prepared. It was stated in the minutes that the meeting of directors was held at the registered office. He claimed he had conducted a company search to ascertain the names of the directors and the registered office before he attended the home of Mr. Sze and Madam Lee at Pokfulam Gardens to explain to them the documents prepared and witness their execution. The registered office as at 30 March 2004 was at the Shun Tak Property, it was not changed to the address at Pokfulam Gardens until 23 April 2004. 136.Mr. Samuel Wong submitted that if Mr. Ho was right about the weather and the registered office on the day of execution of the directors’ resolutions, then this document could not have been executed on 30 March 2004 but was probably on a later day, after 23 April 2004. I do not accept that a person could have recalled what the weather was like on a particular day some three years ago if there was nothing special at all about it. I do not believe Mr. Ho’s evidence that it was not a rainy day when documents were signed. The details of the registered office of the Company were not given in the minutes. Mr. Ho could easily have made a mistake about this if he did not check the company search before hand. The date, however, was spelt out, and there could be no mistake about it unless it was deliberate. Mr. Ho did not appear to me to be careful in his work. With no attendance note and no record in his office file about the work undertaken, I doubt it very much if he could really remember about checking the company search before the minutes were prepared. Indeed, he was later constrained to accept that he might have overlooked the details of the address and got mixed up. I am inclined to think it more probable than not that he was mistaken about the registered office. I find that the allegation of a conspiracy between Winnie and Mr. Ho to falsify the date of the directors’ resolutions, when one or both of the persons who signed did not have the mental capacity to do so, is not established to the requisite standard of cogency for a serious allegation of this nature. I find that the directors’ resolutions were executed on 30 March 2004. 137.Neither Mr. Sze nor Madam Lee gave instructions to Mr. Ho directly about the documents prepared for them to sign. Winnie made all the arrangements with Mr. Ho. He had explained to Mr. Sze and Madam Lee in Cantonese the directors’ resolutions and was satisfied that both had understood the contents of the document written in English before they signed. Madam Lee’s mental capacity as at 30 March 2004 is not in doubt. There is no concrete evidence of Mr. Sze’s mental incapacity before August 2004. Mr. Ho said he was unaware when the document was executed whether Mr. Sze was suffering from impairment of memory and cognitive function. I see no sufficient reason to doubt this part of Mr. Ho’s evidence. 138.I hold that the directors’ resolutions on 30 March 2004 authorising the sale of the Shun Tak Property were valid. This complaint in the petition is not established. The appointments of directors and secretary on 20 and 23 April 2004 139.I would need to determine the validity of the notice dated 16 April 2004 to convene an extraordinary general meeting on 20 April 2004, the resolutions passed at the extraordinary general meeting on 20 April 2004, and the board resolutions on 23 April 2004. 140.It was alleged by the petitioner and plaintiff that all of the above acts were invalid for these reasons:
141.Under section 1A(1) of the Powers of Attorney Ordinance, Cap. 31, a person shall be regarded as being mentally incapable for any purpose relating to a power of attorney for which mental incapacity is relevant if he is suffering from mental disorder or mental handicap (as defined in the Mental Health Ordinance, Cap. 136) and is unable to understand the effect of the power of attorney. I have medical reports on Madam Lee’s condition on 1 and 2 April 2004, the gist of which has been related earlier. There is also evidence from Winnie of her condition, operation after her accident and treatment thereafter, which I have mentioned. According to Winnie, her mother became very weak after going through haemodialysis, otherwise her condition was stable and satisfactory. I prefer Winnie’s evidence in this respect to the evidence of Kimpang, who only saw Madam Lee on one occasion after her admission to hospital. I decline to find that Madam Lee was to be regarded as being mentally incapable within the meaning of section 1A(1) of Cap. 31 at the relevant times in April 2004. 142.The special resolutions at the extraordinary general meeting on 20 April 2004 resolved that Allan was appointed as a director and that the members of the Company agreed to a short notice of one day for the meeting. The resolutions were signed by Winnie as the attorney of Madam Lee holding 99.98% of the shares and Anthony as the proxy of Allan holding 0.09% of the shares. The provision for short notice in section 114(3)(b) of Cap. 32 was satisfied. 143.The contention that Mr. Sze did not receive notice of the general meeting and the board meeting in April 2004 was only based on what Kimpang had allegedly learned from Mr. Sze after Kimpang received the writ issued by the Company against him for vacant possession of the Shun Tak Property in July 2005. I reject this evidence, as Mr. Sze was clearly demented by then. 144.I find that the appointment of Allan was valid. I cannot say the same about Winnie’s appointment, as Anthony, who purported to vote as Allan’s proxy at the board meeting, was not the substitute nominated by Allan in accordance with article 6 of the articles of association. 145.Mr. William Wong relied on the principle in Re Duomatic Ltd. [1969] 2 Ch. 365 insofar as there was any irregularity in the appointment, in that all the shareholders could be shown to have assented to the appointment informally so their assent could be treated as tantamount to a resolution of a general meeting of the Company. In respect of Mr. Sze’s consent, Winnie had deposed that she told Mr. Sze a meeting would be held to appoint Allan and her as directors of the Company and Mr. Sze asked if he would be required to sign any documents and said he would leave the matter in the hands of her and Allan. Winnie was not cross-examined on this part of her evidence. I am inclined to accept it. As all the shareholders had consented to Winnie’s appointment as a director, the irregularity in her appointment as a director could be cured by the principle in Re Duomatic. 146.As for Winnie’s appointment as the secretary of the Company, reliance could be placed on regulation 112 of Table A, which was adopted by the Company, in that the directors were empowered to appoint the secretary on such conditions as they think fit. Whether Kimpang was unjustly removed from the Shun Tak Property 147.It was alleged that when Mr. Sze requested Kimpang to return to Hong Kong to help in the running of his businesses in 1987, Mr. Sze promised Kimpang he would have the use of the Shun Tak Property for Kimpang’s own businesses free of charge during Mr. Sze’s life. 148.The alleged agreement was not legally binding as the parties to it had no contractual intention. In any event, it is not binding on the Company. Even if there were such an agreement, it would have been terminated by mutual consent in that Kimpang, on his own case, had agreed to a sale of the Shun Tak Property and procured Mr. Sze to sign a provisional agreement to sell to Zappo in March 2004. After the sale to Zappo fell through and he was unable to procure a sale to Advance Victory, he knew that Winnie had taken over the task of finding a purchaser. Hence, his note to her dated 24 May 2005 stating that he would move out of the Shun Tak Property no later than 31 July 2005 or even earlier and apologising for his procrastination. 149.There is no substance in the complaint that Kimpang was unjustly removed from the Shun Tak Property. Conclusion and orders 150.With the exception of one matter, which relates to the 2,000 shares allotted to Winnie and Allan in August 2004, the complaints in the petition and the allegations in the writ action have not been established. At the outset of the hearing, it was acknowledged by Winnie and Allan that they do not dispute the allotments of the 2,000 shares to them were invalid. I will make a declaration in the petition and in the writ action that the allotments of 1,000 shares allotted to each of Winnie and Allan on 5 August 2004 were invalid and that the share register of the Company is to be rectified accordingly. Save as aforesaid, the claims for other reliefs in the petition and the writ action are dismissed. 151.I make an order nisi that the costs of the 2nd, 3rd and 4th respondents in the petition should be borne by the petitioner and that the costs of the 1st, 2nd and 3rd defendants in the writ action should be borne by the plaintiff.
Mr. Samuel Wong, instructed by Messrs. Sit, Fung, Kwong & Shum, for the Petitioner in HCMP No. 2201 of 2005 and the Plaintiff in HCA No. 2016 of 2005 Messrs. Herbert Tsoi & Partners, for the 2nd Respondent in HCMP No. 2201 of 2005 and the 1st Defendant in HCA No. 2016 of 2005, attendance excused Mr. William Wong and Mr. Harry Liu, instructed by Messrs. Deacons, for the 3rd and 4thRespondents in HCMP No. 2201 of 2005 and the 2nd and 3rd Defendants in HCA No. 2016 of 2005 |
Cases cited in this judgment
Further hearings and rulings under HCMP 2201/2005