Hero Rich International Ltd v. Benefun International Holdings Ltd and Others
Read the full judgment text of HCA 1433/2009 on BabelCite. This High Court CFI judgment was delivered on 9 December 2009.
1. This is an application by the plaintiff against the 1st defendant for summary judgment. The plaintiff seeks an order that the 1st defendant do forthwith register the transfer of 234,375,000 shares of the 1st defendant from the plaintiff to HKSCC Nominees Limited (“HKSCC”). The 1st defendant is a company listed in the main board of the Hong Kong Stock Exchange. The plaintiff is the holder of 234,375,000 shares (“the said shares”) of the 1st defendant.
Cites 1 case
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HCA 1433/2009 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1433 OF 2009 ____________ BETWEEN
____________ Before: Deputy High Court Judge L. Chan in Chambers Date of Hearing: 9 December 2009 Date of Judgment: 9 December 2009 ______________ J U D G M E N T ______________ 1.This is an application by the plaintiff against the 1st defendant for summary judgment. The plaintiff seeks an order that the 1st defendant do forthwith register the transfer of 234,375,000 shares of the 1st defendant from the plaintiff to HKSCC Nominees Limited (“HKSCC”). The 1st defendant is a company listed in the main board of the Hong Kong Stock Exchange. The plaintiff is the holder of 234,375,000 shares (“the said shares”) of the 1st defendant. 2.On about 1 June 2009, the plaintiff transferred the said shares to HKSCC for custodial and sale purposes. HKSCC then lodged the share certificate for the said shares and a duly executed form of transfer with the 1st defendant’s share registrar to register the said transfer. The share registrar, however, replied to the plaintiff on 9 June 2009 that the board of the 1st defendant would like to withhold the said transfer. The relevant paragraph of the letter reads:
3.The plaintiff then instituted this action. The 2nd to 6th defendants are the executive directors of the 1st defendant and the 7th to 9th defendants are its non-executive directors. This application is confined to the 1st defendant. 4.The plaintiff says that the 1st defendant’s shares should in compliance with the Listing Rules of the Hong Kong Stock Exchange be freely transferable. The Listing Rules require the articles of the 1st defendant to conform with certain provisions stipulated in the rules. The provision relevant to transfer and registration is paragraph 1(2) of appendix 3 of the rules. It provides:
Grounds of Defence 5.The 1st defendant relies on a number of grounds of defence. The first ground is that the action is premature. The 1st defendant relies on article 40 to say that it has two months to consider whether to register the transfer. The plaintiff received the notice from the 1st defendant’s share registrar on 12 June 2009 but started this action on 18 June 2009 which was well before the expiry of two months. 6.The second ground is that under article 41(a), the 1st defendant’s board may reasonably require evidence to show the right of a transferor to make the transfer. This is linked up with the third ground below. The third ground is a challenge by one Blackpool Stadium Limited (“Blackpool”) to the plaintiff’s beneficial ownership of the said shares. The 1st defendant says that in the light of the allegations of Blackpool, it was only prudent for it to ascertain the ownership before registering the transfer. It further says that it has asked the plaintiff since 26 August 2009 to prove payment for the shares, but the plaintiff only disclosed how it acquired the said shares in the seventh affirmation of one Yip Wing Lun filed on 16 November 2009. 7.The third ground is a claim of ownership of the said shares by Blackpool. Blackpool alleged in HCA1720/2009 that it had obtained certain convertible notes from the 1st defendant which could be converted into shares of the 1st defendant. It further said that the plaintiff herein had by the misrepresentation of one Sik obtained from it some of these notes and converted them into the said shares. Blackpool therefore claims that the said shares are null and void or, alternatively, they are owned by Blackpool. 8.The fourth ground is based on the plaintiff’s explanation on how it obtained the said shares. This is also its defence against the claim of Blackpool. In gist, the plaintiff says that the said shares were converted from certain convertible notes transferred to it by Blackpool. The notes were transferred by Blackpool as a consideration or past consideration for the introduction by one Chang Kin Man, the former sole owner and director of the plaintiff herein, and one Ho of a sale of a plantation project by Blackpool to the 1st defendant. 9.The 1st defendant then alleged that it had in around June 2008 retained Sik as its agent to introduce to it parties with good investment opportunities. The introduction was made orally by the 1st defendant’s chairman, one Tan, and the agency was a friendly (or gratuitous) one. Sik (but not Chang Kin Man and Ho as alleged by the plaintiff) then introduced the plantation project of Blackpool to the 1st defendant. The 1st defendant purchased the plantation project from Blackpool at HK$500 million and paid the same to Blackpool by HK$100 million cash plus HK$400 million in convertible notes which could be converted into shares of the 1st defendant. 10.The 1st defendant therefore said that if the convertible notes used by the plaintiff to convert into the said shares were originally given to it by Blackpool as commission for the introduction of the sale and purchase of the plantation, then they were secret commission received by Sik (but not by Chang Kin Man and Ho) who received the same without the knowledge or consent of the 1st defendant as the principal. The 1st defendant further says that notes were thus held by the plaintiff as Sik’s nominee. The 1st defendant was therefore entitled to require Sik or the plaintiff to hand over the notes. Now that the notes have been converted into the said shares, the 1st defendant therefore says that it is entitled to an equitable lien on the said shares to secure its claim for the secret commission (see Underhill and Hayton, Law Relating to Trusts and Trustees 17th ed., paragraphs 33.3). Hence, the 1st defendant says that it is entitled not to register the transfer of the said shares by the plaintiff to HKSCC. First Ground 11.For the first ground, it is necessary to set out articles 39 and 40:
The margin of article 39 bears a reference to paragraph 1(2) of appendix 3 of the Listing Rules indicating that it is in conformity with that paragraph. 12.The 1st defendant seeks to read article 40 in isolation of rather than in conjunction with article 39. It contends that it has two months to say whether it would refuse to register the transfer. It also produced a letter dated 5 June 2009 from its solicitors to its share registrar, informing the latter about article 40. The relevant paragraph of the letter reads:
13.However, this letter was not copied to the plaintiff. The letter from the registrar to the plaintiff, which has been referred to above, made no reference to article 40. That letter also did not say for how long the board would withhold the registration. It simply said that the registration of the transfer could not be processed at that moment. That letter was also copied to the directors of the 1st defendant. I do not think that letter was an exercise of any right under clause 40. That was just a refusal to register the transfer. I therefore do not think this action is premature as it was instituted after the request for registration had been refused by the share registrar on behalf of the 1st defendant. 14.Furthermore, the plaintiff also submitted that the 1st defendant could not have withheld registration by relying on article 40. It says that article 40 must be read in conjunction with article 39 so as to comply with paragraph 1(2) of appendix 3 of the Listing Rules. Therefore, the two-month period would only be applicable to any share which is not fully paid up or which the company has a lien in accordance with article 39. Since the share certificate for the said shares states that these shares were fully paid up and paragraph 1(2) of appendix 3 provides that fully paid-up shares shall also be free of lien, the two-month period was not available and the action not premature. 15.I read article 40 as a continuation of and should be read in conjunction with article 39. Article 39 is specific on what type of share the board may refuse to register without giving any reason. Article 40 provides the time within which the refusal should be communicated to the transferor. Article 40 is not to provide the board with broad and unspecified power to refuse registration and to communicate the refusal within two months. To read article 40 in isolation and independent of article 39 also creates the odd situation that the two-month period would only apply to refusals under article 40 but not under article 39. 16.I agree with the plaintiff that the two articles should be read together. I reject the 1st defendant’s submissions on this ground and I hold that the 1st defendant was not entitled to rely on articles 39 and 40 to decline registration of the transfer of the said shares. Second Ground 17.For this ground, it is necessary to peruse article 41(a) which provides:
18.Neither the letter from the 1st defendant’s solicitors to the 1st defendant’s share registrar nor the letter from the registrar to the plaintiff had asked the plaintiff to provide evidence to show that the said shares had been fully paid or evidence to show the right of the plaintiff to make the transfer. The requests made since 24 August 2009 were made in this action for the purpose of seeking further and better particulars of the statement of claim. I therefore hold that the 1st defendant has not exercised the power, if any, under article 41(a) to decline registration. It is too late for the 1st defendant to rely on it after the institution of this action. The 1st defendant also cannot use its request for further and better particulars of the statement of claim as its exercise of the power under article 41(a). 19.Furthermore, the 1st defendant cannot say that it did not know if the said shares are fully paid up or otherwise. The share certificate states that they are fully paid up. These shares are substantial in number and were issued in one certificate rather than in certificates for individual board lots. The 1st defendant should therefore know how and why they were issued. 20.It is also the plaintiff’s case that they were converted from convertible notes that the 1st defendant had originally issued to Blackpool, and the 1st defendant has never denied knowledge of the plaintiff’s case or that it was not aware of the conversion of the convertible notes into the said shares. If the 1st defendant now says that it wants to be sure of whether the plaintiff or Blackpool is the true beneficial owner of the said shares, then it is the third ground of defence. 21.I therefore hold that the 1st defendant cannot rely on article 41(a) to defend the plaintiff’s claim. Third Ground 22.Blackpool claims that it had been deceived by Sik into transferring a principal value of HK$15 million of convertible notes to the plaintiff herein on 28 November 2008 on the pretext given by Sik that the transfer was for the purchase of the notes by an investor. Blackpool further alleged that it had not been paid for these convertible notes and the notes had not been sold to any purchaser. On 1 December 2008, the plaintiff further wrongfully converted these notes into the said shares. 23.Blackpool also denies the agency as claimed by Chang and Ho and alleges that the so-called letter of agency agreement produced by the plaintiff as evidence of the agency is a fake document. Blackpool therefore claims that the plaintiff had obtained the convertible notes by misrepresentation and seeks in HCA1720/2009 a declaration that the said shares are null and void or, alternatively, it owns the said shares. 24.However, despite the very serious allegations of forgery and deception involving millions of dollars, Blackpool has not seen fit to report the matter to the police or apply for an injunction to enjoin the plaintiff from dealing with or disposing of the said shares. If Blackpool does not see fit to take the necessary action to protect itself, then there is no basis for the 1st defendant to stop the plaintiff’s disposal of such shares. A mere complaint by Blackpool to the 1st defendant is not sufficient to justify the 1st defendant to refuse to register the transfer of the said shares. 25.Counsel for the plaintiff also referred me to article 13 of the 1st defendant which provides that the 1st defendant shall not recognise any person as holding any of its shares upon trust or any equitable interest therein. I therefore hold that the 1st defendant also fails on the third ground. Fourth Ground 26.Sik has denied that he had anything to do with the 1st defendant’s acquisition of the plantation project from Blackpool. It is the plaintiff’s case that the introduction was by Chang Kin Man and Ho. The only evidence on the alleged introduction by Sik was been given by a director of the 1st defendant, Mr Leung, in an affirmation filed on 18 October 2009 which has been confirmed by the chairman of the 1st defendant, Tan. Mr Leung said:
27.Nothing more has been said about this appointment of agent or its circumstances or terms which resulted in the 1st defendant’s purchase of the plantation at HK$500 million. The 1st defendant now wants to make use of this appointment as a ground to resist summary judgment. In order to boost its case on agency, the 1st defendant also produced two emails from Sik to one Lawrence Lo, a director of the 1st defendant. The emails were dated 16 and 18 June 2008. Sik was then the head of the investment department of a local bank. Leung said on affirmation that the forestry project referred to by Sik in the 18 June email is the one purchased by the 1st defendant from Blackpool by an agreement dated 24 June 2008. The 16 June email reads:
28.The 18 June email reads:
29.It is difficult to tell what were the matters being discussed by Sik save that he was referring to different potential investment projects and some financial arrangements. One may say that it was his job to be involved in such matters. He was no doubt familiar with his addressee. He sent out these emails from his email address provided by his employer. 30.The question is whether the forestry project he mentioned in the first paragraph of the 18 June email was the project sold by Blackpool to the 1st defendant for HK$500 million. He referred to “a forestry project” which he thought “will take longer” than expected “to be ready for acquisition” by the company. That mail was sent out at 14:29 on 18 June. But the agreement between the 1st defendant and Blackpool for the acquisition of the plantation project was made on 24 June with trading of the 1st defendant’s shares on the Hong Kong Stock Exchange suspended at 14:47 on the same day. 31.If the forestry project, which Sik said would “take longer” “to be ready”, was the project that the 1st defendant bought from Blackpool, that means the whole deal, which had a worth of HK$500 million, was done from scratch to finish in six days. That would have included all the due diligence work that the 1st defendant had to do, all the financial arrangements for the purchase, all the meetings and negotiations for the terms and the price, and the drafting of the agreement(s). But on 18 June, Sik was still referring to “a forestry project” which he thought “will take longer” “to be ready for acquisition.” Why was there such a hurry? Even if the deal had to be done in such a hurry, could it have been done so soon? In any case, Sik was not communicating with the 1st defendant’s director in secret. He mentioned this in conjunction with many other matters, and he did it openly in an email. 32.If the forestry project Sik mentioned had become such an urgent matter that it was concluded in six days, I would expect a flurry of emails that would have involved Sik as the sender and the addressee or one of the addressees. But the 1st defendant has produced none. The 1st defendant has also produced no document to show that the negotiation of its purchase of the plantation project from Blackpool and all the due diligence and arrangements had all started on about 18 June from this email of Sik. If the 1st defendant’s case is truthful, there must be a lot of such documents. It is for the 1st defendant to condescend on particulars, which it has not (see paragraph 14/4/4 of Hong Kong Civil Procedure 2010). 33.I therefore hold that this allegation of appointment of Sik as a friendly or gratuitous agent of the 1st defendant unbelievable. I dismiss the 1st defendant’s defence that the said shares were derived from the convertible notes which were secret commissions. 34.There is some dispute on whether the lien referred to in article 39 would include an equitable lien arising out of tracing of the property obtained by a tortfeasor in breach of trust. Since I have decided against the allegation of agency and secret commission, I do not think it necessary for me to decide the question of lien. 35.In the premises, I order the 1st defendant to forthwith register the transfer of the said shares by the plaintiff to HKSCC. I further grant the plaintiff interlocutory judgment for damages to be assessed. I also make an order nisi that the 1st defendant do pay the plaintiff the costs of this action, with certificate for two counsel.
Mr Chan Chi-hung, SC and Mr Sean H J Fang, instructed by S W Tai & Co., for the Plaintiff Mr Kenneth C L Chan and Mr Raymond W N Tsui, instructed by Messrs Kwok, Ng & Chan, for the 1st Defendant |
Cases cited in this judgment
Further hearings and rulings under HCA 1433/2009