Confederated Assets Group Ltd (Incorporated in the British Virgin Islands) and Others v. Ng Kwok Ching and Others

HCA 188/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 188 OF 2010

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Before: Hon Au J in Chambers

Date of Hearing: 8 September 2010

Dates of Further Written Submissions: 15 and 22 September 2010

Date of Decision: 9 November 2010

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D E C I S I O N

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A. Introduction

1.Before me are the Defendants’ applications^[1] to stay the entire action pending the determination of another action, namely HCA 523/2008 (“the HCA 523 Action”).  The ground in support of these applications is that there is want of authority of the 1^st Plaintiff (“CAGL”) to bring this action.

2.CAGL is a BVI company formed by the late Mr Ng Po Sum (“the Father”) in 1997, and its shares have been held by the various members of the Ng family, including the Father himself.

3.After the Father passed away in March 2002, the various members of the Ng family, one camp (“the Mother’s Camp”) led by the mother, Madam To, and the other camp (the “Philip Ng’s Camp”) headed by the eldest son, Philip Ng, have respectively issued a number of actions in the High Court against each others and some of the family’s companies.  In gist, these various actions relate to mainly on the proper shareholding structure of CAGL and other companies, as well as the alleged misappropriation of the assets of the companies and of the Father’s estate.

4.The present action represents the latest one of these actions.

5.The main thrust of the Defendants’ contention in support of the present stay applications is that, since the question as to who holds the majority shareholding of CAGL is in dispute and to be determined under the HCA 532 Action, it is therefore doubtful as to whether those directors alleged to be in control of CAGL’s board now have proper authority to bring the present claims in the name of CAGL.  In the circumstances, the action should be stayed pending the determination of the HCA 532 action.

6.The Plaintiffs oppose the stay applications on principally two bases:

(1) Notwithstanding the dispute on the proper shareholding of CAGL under the HCA 532 Action, the present directorship of company is not subject to any existing challenge under any actions.  There cannot be any question of want of authority as alleged.

(2) Even if there is a question as to want for authority of CAGL to issue the present action, there cannot be any question of the authority of the 2^nd and 3^rd Plaintiffs to bring the present action, whose claim is almost identical with that of the 1^st Plaintiff. In the premises, as a matter of proper case management, there should not be a stay of the entire action as sought by the Defendants.

7.To better understand the competing contentions in the stay applications, it is necessary for me to set out briefly the relevant background first.

B.      Background

8.CAGL is a BVI company incorporated by the Father.   He was a wealthy man and CAGL was incorporated as a family company to hold various assets and subsidiary companies (which in turn hold various assets and businesses).

9.The Ng family consists of:

(1) The Father, who passed away in March 2002.

(2) Madam To Pui Kui (the Mother).

(3) 8 children, namely (ranked in the order seniority):

(a) Philip Ng;

(b) Eleanor Ng;

(c) Angela Ng;

(d) Olympia Ng;

(e) Tony Ng;

(f) Jeremy Ng;

(g) Stephanie Ng;

(h) Andrew Ng.

10.This action is latest of a number of actions^[2] (all proceeding in the High Court) issued by various members of the Ng family since the death of the Father.

11.In all of these litigations, it appears that the Mother’s Camp (consisting of the Mother, Eleanor Ng, Angela Ng, Jeremy Ng, and Andrew Ng) and the Philip Ng’s Camp (Philip Ng, Olympia Ng, Tony Ng and Stephanie Ng) are fighting against each other.

12.Insofar as the present action is concerned, for the present purpose, the Plaintiffs’ claims can be summarized as follows:

(1) The 6^th Defendant is a company that has been holding 4 landed properties since November 1991, and the purchases of these properties were effectively financed by the Father.

(2) In mid 1999, the 6^th Defendant had undergone a shareholding restructuring.  Since then:

(a) the 1^st Plaintiff (i.e, CAGL) has been holding 9 out of the 10 ordinary shares in the 6^th Defendant while the 2^nd  Plaintiff has been holding the remaining 1 share on trust for the 1^st Plaintiff.

(b) The 3^rd Plaintiff and the 4^th Defendant have been holding 5% non-voting deferred shares of the 6^th Defendant.

(c) The 2^nd and 3^rd Plaintiffs were appointed as directors of the 6^th Defendant.

(3) The Mother (as the 2^nd Defendant in this action):

(a) was a director of the 1^st Plaintiff since March 1997 until she was removed in May 2006.

(b) was a director of the 2^nd Plaintiff since April 1986 until she was not re-elected in March 2006.

(c) was a director of the 3^rd Plaintiff since March 1979 until she was not re-elected in March 2006.

(4) In about 2005 to 2006, all the shares of the 6^th Defendant held by the Plaintiffs and the 4^th Defendant had been caused to be transferred to Jeremy Ng (the 1^st Defendant) and the 3^rd Defendant (Victor Ng, the son of Jeremy Ng).  These transfers were all unlawful as they had not been lawfully approved by the Plaintiffs and the 4^th Defendant.  They were made either:

(a) by the 1^st Defendant, conspiring with the 3^rd, 4^th and/or 5^th Defendants, forging the Mother’s signature on the various instruments of transfers and bought and sold notes; or

(b) by the Mother (the 2^nd Defendant), if she had in fact signed these documents, in breach of her fiduciary duties owed to the Plaintiffs and by the 1^st, 3^rd, 4^th and 5^th Defendants dishonestly assisting her in the said breach of duties. 

(5) After these unlawful transfers of the 6^th Defendants’ shares away from the Plaintiffs, Professional Computer Services Ltd (a company controlled by Jeremy Ng) and the 5^th Defendant have been appointed as directors of the 6^th Defendant.

(6) The Plaintiffs therefore seek, inter alia:

(a) A declaration that all these transfers of the 6^th Defendants shares be null and void and of no legal effect.

(b) A declaration that any resolutions passed by the 6^th Defendant in relation to these transfers of shares be null and void and of no legal effect.

(c) The 4 properties held by the 6^th Defendant cannot be disposed of without a proper and valid resolution of the board of the 6^th Defendant.

(d) A declaration that the former directors of the 6^th Defendant were the only validly appointed directors and the 1^st and 2^nd Plaintiffs are the only ordinary members of the 6^th Defendant.

(e) Damages against the 1^st to 5^th Defendants for fraud, conspiracy to injure and breach of trust.

13.On the other hand, the HCA 532 Action was brought by the Mother in 2008 against all the sons and daughters.  It is alleged in that action that Philip Ng had used various forged documents to cause changes in the shareholding of CAGL and backdating them to 1997 (the time of incorporation), the effect of which is that the Philip Ng Camp has acquired control of the shareholding of CAGL.  She asks for a declaration to restore the original shareholding of CAGL as when it was set up by the Father and that the Mother has also become entitled to the Father’s shares (after he has passed away) in the company.  This, if successful, would result in the Mother’s Camp becoming the controlling shareholders of the CAGL.

14.Although the HCA 532 action is brought against all the sons and daughters, only those of the Philip Ng’s Camp have filed defences against the claims.

15.With these in mind, I now turn to deal with the contentions in the present applications.

C. The present applications

C1. The Defendants' contentions

16.The Defendants’ arguments^[3] are straightforward and as follows:

(1) After the wrongful change of the shareholding of CAGL perpetuated by Philip Ng’s fraudulent acts, the Philip Ng’s Camp purportedly as the majority shareholders of CAGL had caused the passing of the relevant resolutions in two shareholders’ meetings held respectively in January and May 2006 to remove Eleanor Ng, Angela Ng, Andrew Ng and the Mother as the directors. In the purported resolution passed in January 2006, Philip Ng and Stephanie Ng had also been authorized to represent CAGL to deal, inter alia, with all matters, and to sign on all documents.

(2) However, the Philip Ng’s Camp could not have formed the majority in these meetings if the Mother’s claim in the HCA 532 Action for the wrongful change of GAGL is correct.  This therefore casts doubt on the composition of the present board of CAGL

(3) Given that the composition of the present board of CAGL is in doubt, there is therefore a question on whether it has the proper authority to cause CAGL (as the 1^st Plaintiff) to give instructions to bring the present action by a board resolution solely passed by Philip Ng and Stephanie Ng (as purportedly then the only directors of the company).  

(4) Where there is want of authority, the proper course for the Court to do in the present case, where the issue could not be resolved summarily, is to exercise its discretion to stay this entire action pending the determination of the proper shareholding structure of CAGL under the HCA 523 Action. Cf: Kammy Town Ltd v Super Glory Corporation Ltd^[4], paras 13-15 per A Cheung J.

C2. Discussion

17.After considering the grounds of opposition, I agree with the Plaintiffs that the action should not be stayed.  My reasons are as follows.

18.First, as a matter of law, the acts done by a director would not be automatically invalidated even if it is subsequently discovered that there are defects in his appointment or qualification.  The acts of such directors are still valid unless there are other good reasons to set them aside.  This is what has been provided under s. 157 of the Companies Ordinance (Cap 32), which says:

“The acts of a director or manager shall be valid notwithstanding any defect that may afterwards be discovered in his appointment or qualification.”

See also:  Hong Kong Company Law Handbook (11^th ed), p. 679.

19.As such, it does not necessarily follow that CAGL’s authority to bring this action is “doubtful” as suggested by the Defendants simply by reason of the challenge on the shareholding structure of the company^[5]. Put it the other way round, even if the Mother turns out to be successful in the HCA523 Action sometimes later, and that may make the relevant shareholder resolutions to remove the Mother’s Camp as directors and to authorize Philip Ng or Stephanie Ng to deal with all matters of the company irregular or defective, it does not thereby automatically invalidate the acts of the Philip Ng and Stephanie Ng as directors so authorized, including the act of causing CAGL to bring the present action.  This is particularly so, as pointed out by Mr Wong (counsel for the Plaintiffs), the Defendants have not suggested in their evidence filed in these applications as to why it is not in the interest of CAGL to bring the claim.

20.On this basis alone, I am not satisfied that the Defendants have demonstrated to me there is at present a clear issue or question on authority of CAGL to bring the claims under the instant action to warrant a stay of the entire action (as asked for) or even simply the 1^st Plaintiff’s claim alone.  This is of course only my present view for the purpose of these interlocutory applications, and does not prevent the Defendants from contending the same at trial.

21.Second, as a matter of case management, even if there is a question of authority over CAGL to bring its claim in this action, there cannot be any valid challenges on the 2^nd and 3^rd Plaintiffs’ right to bring and continue their parts of the claims. It would therefore be wholly unsatisfactory to allow the 2^nd and 3^rd Plaintiffs’ claim to continue but to stay just the 1^st Plaintiff’s claim in the same action, where the claims are almost identical.   

22.The Defendants contend that as the 2^nd Plaintiff is only a mere trustee holding the shares in the 6^th Defendant for CAGL, its claim should also be stayed.  I do not agree.  The mere fact that the 2^nd Plaintiff is a trustee of the 1^st Plaintiff is not a good reason to also stay the 2^nd Plaintiff’s claim.  This itself does not make the 2^nd Plaintiff’s authority to sue also questionable.  Further, as a trustee, the 2^nd Plaintiff must on its own act in the best interest of its beneficiary (i.e., CAGL).  There is nothing at the moment to suggest that bringing the claim to recover the shareholding in the 6^th Defendant is not in the best interest of CAGL (as the beneficiary) to do so. 

23.Thus, even if I am satisfied that there is question of CAGL’s authority to bring the present action, I would not have exercised my discretion to stay the entire action as sought.

D. Conclusion

24.For these reasons, I would dismiss the Defendants’ applications for stay.  I also make an order nisi that costs of these applications be to the Plaintiffs to be taxed if not agreed.  Unless any of the parties applies to vary it, the order nisi shall become absolute 14 days from today.

25.Further, I have previously directed in the case management conference of the other actions^[6]involving the Mother’s Camp and Philip Ng’s Camp that they should be heard together.  I think there are also good reasons from the perspective of case management to have the present claim also heard together with these other actions.  I therefore further direct that the parties in this action should seek to agree on directions to have it heard together with the other actions for this Court to endorse, and that this action should also be listed in the next case management conference of the other actions to be held on 4^th March 2011.  There is however liberty to apply. 

Mr. William M.F. WONG & Ms. Connie H.Y. LEE instructed by Messrs S. Cheng & Yeung, for 1^st to 3^rd Plaintiffs

Mr. Jonathan T.Y. CHANG instructed by Messrs Quan & Co., for 1^st and 3^rd to 6^th Defendants

Ms. Teresa Pui Ching WU instructed by Paul K.C. Chan & Partners, for 2^nd Defendant