Case Document

100%Judiciary

CACV 131/2007 AND CACV 144/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS. 131 AND 144 OF 2007

(ON APPEAL FROM HCA NO. 2036 OF 2005)

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BETWEEN
	WONG KAM SAN	1^st Plaintiff
	TRENGEI DEVELOPMENT LIMITED	2^nd Plaintiff
	and
	YEUNG WING KEUNG (a Bankrupt)	1^st Defendant
	YAU WAI FAN	2^nd Defendant
	KAN SUI WAN	3^rd Defendant
	ZHAO KAI INVESTMENT LIMITED	4^th Defendant
	SUNNY GROWTH ENTERPRISES GROUP LIMITED	5^th Defendant
	HAWKINS DEVELOPMENT LIMITED	6^th Defendant

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Before: Hon Rogers VP, Le Pichon JA and Barma J in Court

Date of Hearing: 6 May 2008

Date of Judgment: 6 May 2008

Date of Handing Down Reasons for Judgment: 9 May 2008

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.These were 2 appeals from a decision of Lam J given on 11 April 2007. The action concerned the allotment of 9,900 shares in the sixth defendant which were allotted to the third defendant and subsequently held under the name of the fifth defendant. The judge held that the allotment of shares was void and invalid and he held that the fifth defendant was not a bona fide purchaser for value of those shares without notice. The judge ordered that the share register of the sixth defendant be rectified by deleting the name of the fifth defendant as holder of 9,900 shares. There were separate appeals by the second to fourth defendants and by the fifth defendant. At the conclusion of the hearing of these appeals they were dismissed with costs with reasons to be given in writing.

Background

2.The sixth defendant had an 80% interest in a mining joint-venture in the Mainland. Those mining rights were valued in August 2000 at RMB 938 million. There were previous proceedings which were concluded by an appeal to this court in a judgment dated 31 January 2007. The outcome of those proceedings was that it was held that all the 100 issued shares in the sixth defendant that had been issued and allotted initially were beneficially owned by the plaintiff. The dispute had been between, on the one hand, the first plaintiff and his wholly owned company, the second plaintiff, which held 25 of those shares in the sixth defendant on his behalf, and, on the other hand, amongst others the first defendant and his wife, the second defendant in this action, and his sister who is the third defendant in this action.

3.Before the previous proceedings were concluded, the first, second and third defendants had, on 14 July 2005, arranged for resolutions to be passed at an Extraordinary General Meeting (“the EGM”) of the sixth defendant. Those resolutions provided for:

i) The extension of an invitation to the third defendant to subscribe for shares in the sixth defendant and to take over the operation of the company as its major shareholder;

ii) Authorising the Board of the sixth defendant to approve the allotment of 9,900 shares to the third defendant at $1 each;

iii) Authorising the Board to exercise the power of the company to deal with allotment and to issue additional shares.

4.That was followed by a board meeting of the sixth defendant which authorised the allotment of 9,900 shares to the third defendant at $1 each and invited the third defendant to take over the operation of the company as its major shareholder. That allotment was duly registered at the Companies Registry some four days later. A week thereafter, on 25 July 2005, those 9,900 shares were transferred to the fifth defendant for a sum of $9,900.

5.As the judge recorded, it was not surprising that as soon as the plaintiffs learnt of the allotment the present action was commenced on 17 October 2005 to set aside the allotment and rectify the register of the sixth defendant by the cancellation of the shares which had been transferred to the fifth defendant.

6.As regards the EGM and the Board Meeting the judge heard evidence from the first plaintiff and from the second defendant. Neither the first defendant nor the third defendant, who were seemingly far more involved in the matters relating to this action than the second defendant, gave evidence. The purport of the first plaintiff’s evidence was that neither of the plaintiffs had been served with notice of the EGM nor could that meeting have been valid because only one shareholder had attended that meeting. The provisions of section 57B of the Companies Ordinance Cap. 32 require the approval at a general meeting if an allotment is not to be offered pro-rata to existing shareholders. Hence the need for the EGM to approve such an allotment. After careful assessment of the first plaintiff’s evidence and taking into account the absence of any credible contrary evidence, the judge accepted that the EGM had not been validly called and that it had been inquorate.

7.The judge also went on to consider the point which was referred to as the substantial validity point. The judge considered that the fourth defendant had been acting in breach of trust in authorising the allotment at the purported EGM because the intention had been to reduce the first plaintiff’s 100% beneficial shareholding to a mere 1%. As such the judge held that the first plaintiff was entitled, as an aggrieved shareholder, to complain of the directors’ misuse of their powers in breach of their fiduciary duties.

8.One Chan Che Shing (“Chan”) described himself in his witness statement as being the shareholder and director of the fifth defendant. The judge commenced his assessment of Chan’s evidence by saying that he found him “even more unreliable than that of Yau (i.e. the second defendant)”. Later on the judge said “I do not find Chan to be a reliable witness.” Essentially, the judge considered that Chan had not been able to give credible answers to the questions put to him in the course of the trial. Those included the way in which he had come to purchase the 9,900 shares without, himself, undertaking any due diligence exercise and as to why he had reportedly made a loan of US$5 million to the sixth defendant in December 2005 after he had learnt in October 2005 of the institution of the present proceedings. The judge continued in paragraphs 88-110 to analyse various aspects of the fifth defendant’s case and Chan’s evidence. It is unnecessary to set out the details here. They were not challenged on this appeal. The judge’s analysis of the various factors appears cogent and amply justifies his conclusion that he could not accept Chan’s evidence about the shareholdings in the sixth defendant and it led to the inevitable conclusion that the fifth defendant was not a bona fide investor in the sixth defendant without notice. The judge was fully justified in coming to the conclusion which he did that the fifth defendant must have had notice of the dispute between the first plaintiff and the first defendant before the allotment and the transfer of the shares in July 2005. One further aspect which was, again, pertinent was that there was no evidence from SCC Mandarin Financial Services Ltd, the financial adviser that had apparently introduced Chan and the fifth defendant to the availability of the shares in the sixth defendant.

This appeal

9.The notice of appeal filed on behalf of the second, third and fourth defendants in itself demonstrates the lack of the merits. It contains the following first 5 grounds:

“ (1) The learned trial Judge erred in the burden of proof in the finding of facts.

(2) The learned trial Judge erred in drawing adverse inference against the Appellants in relation to the lack of evidence

(3) The learned trial Judge erred in drawing adverse inference against the Appellants in relation to the 1st Defendant, the 2nd Appellant and 3rd Appellant not giving evidence.

(4) The learned trial Judge erred in requiring more evidence from the Appellants. The learned trial Judge further erred in finding that the Appellants could have or should have obtained further evidence from…..).

(5) The learned trial Judge failed to appreciate the evidence of the Appellants and erred in requiring the 1st Defendant and the Appellants give an explanation regarding the discrepancy in evidence between the Appellant and the first defendant in HCA 1653 of 2004 in which the 5th Defendant was not a party.”

10.These supposed grounds in themselves hardly constitute grounds of appeal. When the matter came to be argued it was simply that the judge erred in giving weight to this factor or that factor and gave insufficient weight to other factors and that he failed to surmise in the defendants’ favour as to possible reasons, about which there had been no evidence, that might have explained the absence of evidence from the first and third defendants, in particular, and others as well.

11.It does not require the citation of authority to establish that such arguments come nowhere near to being grounds upon which this court could begin to consider overturning the clear findings of fact made and conclusions to which the judge came on the basis of them. To borrow the expression used by Megarry V-C, in Lady Anne Tennant v Associated Newspapers Group Ltd [1979] FSR 298 a case that is “all surmise and Micawberism” does not amount to grounds of appeal.

12.The appeal by the fifth defendant, was, if anything, and if possible, even less meritorious than that of the second to fourth defendants. It amounted to saying that the judge had approached the case in respect of the fifth defendant and as to whether it was a bona fide purchaser for value without notice in a prejudiced state of mind. The basis for saying that was that in 2 instances, in passages in the judgment which were clearly dealing with the case against the first to fourth defendants in relation to the allotment of shares, the judge simply referred to “the defendants” without spelling out in each instance that he was referring to one or more of the first to fourth defendants.

13.I would simply say that it was perfectly clear what the judge was referring to and that the basis of the argument that the judge approached the case against the fifth defendant in a prejudiced state of mind is simply groundless.

14.It was for these reasons that these appeals were dismissed.

15.I can only conclude this judgment by saying that these appeals were a disgrace and should never have been brought, still less pursued to a hearing. Whilst appeals to this court are as of right, that does not prevent the bringing of appeals such as these from being tantamount to an abuse of that right.

Hon Le Pichon JA:

16.I agree.

Hon Barma J:

17.I agree.